<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______ TO ________
COMMISSION FILE NUMBER 33-94226-A
THE WMA CORPORATION
(Name of small business issuer in its charter)
DELAWARE 58-2179041
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11315 JOHNS CREEK PARKWAY, DULUTH, GEORGIA 30097
(Address of principal executive offices)
Issuer's telephone number: (770) 248-3311
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
As of June 30, 1998, there were 2,495,010 shares of common stock (.001
par value) outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE> 2
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
ITEM 1 Financial Statements 3-5
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II
ITEM 1 Legal Proceedings
ITEM 2 Changes in Securities
ITEM 3 Defaults Upon Senior Securities
ITEM 4 Submission of Matters to a Vote of Security Holders
ITEM 5 Other Information
ITEM 6 Exhibits and Reports on Form 8-K
</TABLE>
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<PAGE> 3
THE WMA CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Fixed maturity securities - available for sale (amortized cost
of $16,058,099 and $17,686,390 for 1998 and 1997 respectively) $ 16,347,786 $ 17,782,055
Equity securities - available for sale (cost of $487,733 for 1998 and
1997) 736,515 630,929
------------ ------------
Total investments 17,084,301 18,412,984
Cash and cash equivalents 1,165,377 1,469,663
Investment income due and accrued 245,090 257,629
Reinsurance balances receivable 78,428 183,524
Prepaid expenses 754,618 113,243
Deferred acquisition costs 13,398,025 4,503,338
Deferred organization costs (net of accumulated amortization of $80,347
and $62,128 at 1998 and 1997, respectively) 106,522 124,741
Other assets -- 783
------------ ------------
Total assets $ 32,832,361 $ 25,065,905
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 1,929,709 $ 1,293,917
Reinsurance balances payable 5,926,368 434,443
Accrued expenses 131,746 173,735
Accounts payable 421,200 107,024
Deferred tax liability 1,455,587 980,411
------------ ------------
Total liabilities 9,864,610 2,989,530
Stockholders' equity:
Common stock, par value $.001, 10,000,000 authorized: 2,500,000
and 2,411,742, shares issued in 1998 and 1997, respectively 2,500 2,500
Additional paid-in capital 20,228,973 20,228,973
Accumulated other comprehensive income 354,750 157,670
Retained earnings 2,431,429 1,709,232
Treasury stock, at cost (4,990 and 2,200 for 1998 and 1997,
respectively) (49,900) (22,000)
------------ ------------
Total stockholders' equity 22,967,751 22,076,375
------------ ------------
Total liabilities and stockholders' equity $ 32,832,361 $ 25,065,905
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Premiums $ 1,801,425 $ 1,196,325 $ 3,530,262 $ 2,264,227
Reinsured policy revenues 731,034 -- 889,991 --
Net investment income 262,017 271,958 512,218 528,672
----------- ----------- ----------- -----------
Total revenue 2,794,476 1,468,283 4,932,471 2,792,899
Benefits and expenses:
Benefits, claims and settlement expenses 961,002 601,301 1,836,419 994,889
Reinsurance premium allowances, net 536,094 345,417 1,008,599 648,859
Amortization of deferred acquisition costs 503,442 (5,540) 628,015 (7,197)
Professional, management, and other expenses 173,998 101,530 363,593 202,789
----------- ----------- ----------- -----------
Total benefits and expenses 2,174,536 1,042,708 3,836,626 1,839,340
----------- ----------- ----------- -----------
Income (loss) before income taxes 619,940 425,575 1,095,845 953,559
Income tax expense (211,311) (194,921) (373,650) (400,073)
----------- ----------- ----------- -----------
Net income (loss) after income taxes $ 408,629 $ 230,654 $ 722,195 $ 553,486
=========== =========== =========== ===========
Basic and diluted income per share $ 0.16 $ 0.10 $ 0.29 $ 0.23
=========== =========== =========== ===========
Weighted-average common shares
outstanding 2,495,593 2,411,742 2,496,523 2,398,468
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE WMA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 722,195 $ 553,486
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Amortization 646,233 11,021
Deferred tax expense 373,650 400,073
Change in:
Investment income due and accrued 12,538 (37,298)
Reinsurance balances receivable 105,096 30,396
Deferred acquisition costs (9,522,702) (627,999)
Prepaid expenses (641,375) (41,657)
Other assets 783 --
Future policy benefits 635,792 (31,243)
Reinsurance balances payable 5,491,925 19,011
Accrued expenses (43,905) 113,556
Accounts payable 316,092 (143,296)
----------- -----------
Net cash provided by (used in) operating activities (1,903,676) 246,050
----------- -----------
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities 1,627,290 827,000
Purchase of available-for-sale securities -- (2,266,605)
----------- -----------
Net cash provided by (used in) investing activities 1,627,290 (1,439,605)
----------- -----------
Cash flows from financing activities:
Issuance of common stock -- 1,061,920
Purchase of treasury stock (27,900) --
Increase in due to stockholders -- 51,977
----------- -----------
Net cash provided by (used in) financing activities (27,900) 1,113,897
----------- -----------
Net decrease in cash and cash equivalents (304,286) (79,658)
Cash and cash equivalents at beginning of period 1,469,663 1,980,201
----------- -----------
Cash and cash equivalents at end of period $ 1,165,377 $ 1,900,543
=========== ===========
Supplemental disclosure of cash flow information - interest paid -- --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE WMA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
(2) STOCK SUBSCRIPTIONS
As of June 30, 1998, there were 2,495,010 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates computed on the basis of the price at which the stock was sold
was $19,950,100. All warrants previously issued in 1995 have been exercised.
There is no established market for the shares of common stock.
(3) DEFERRED TAX
Deferred income tax liabilities and related expenses are determined in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS No.
109) using an effective federal tax rate of 34%. SFAS No. 109 specifically
excludes recognition of the "small life insurance company deduction" available
under Section 806 of the Internal Revenue Code for qualifying life insurance
companies. This special deduction, for which management believes the Company
will qualify for a number of years, can reduce the effective federal income tax
rate from 34% to less than 20% depending upon the amount of taxable income.
Consequently, the effective tax rate on the Company's earnings may ultimately
prove to be less than the deferred income tax liabilities and related expenses
determined under SFAS No. 109, at June 30, 1998.
(4) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130). Statement 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company adopted Statement 130
effective January 1, 1998. The primary component of the differences between net
income and comprehensive income for the Company is unrealized gains on
securities. Total comprehensive income for the three months ended June 30, 1998
was $525,167 compared to $433,792 for the three months ended June 30, 1997.
Total comprehensive income for the six months ended June 30, 1998 was $919,275
compared to $486,492 for the six months ended June 30, 1997. In June 1997, the
FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (Statement 131).
Statement 131 is effective for financial statements for years ending after
December 15, 1997. The Company does not have any separate segments that are
considered material.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The WMA Corporation ("the Company") is a holding company, owning all of
the outstanding capital stock of WMA Life Insurance Company Limited ("WMA
Life"), a Bermuda life insurance corporation. WMA Life commenced reinsurance
operations at the end of the second quarter of 1996. WMA Life is presently
engaged in providing reinsurance to certain insurance companies ("Ceding Life
Companies") with respect to variable universal life ("VUL") and variable annuity
policies sold through World Marketing Alliance, Inc. ("WMA Agency"). WMA Agency
is separate from The Company.
All of the Company's reinsurance business is generated by the marketing
efforts of WMA Agency which places business with the Ceding Life Companies. As a
consequence, the Company is dependent upon WMA Agency to market those products
which the Company reinsures. As reported to WMA Agency by life insurance
companies, whose products are sold by WMA Agency, and that WMA Agency monitors
on a regular basis, the following table indicates the ratio of applications for
life insurance and annuity policies submitted by WMA Agency which WMA Life
reinsures to total applications submitted by WMA Agency:
<TABLE>
<CAPTION>
Life Insurance Applications Submitted
June 30, 1998 1997 1996
------------- ---- ----
<S> <C> <C> <C>
Western Reserve Life Assurance Company
Of Ohio ("Western Reserve") 78% 82% 85%
American Skandia Life Assurance Corporation
("American Skandia") 0% 0% 0%
Kemper Investors Life Insurance Company
("Kemper") 7% 5% 0%
---- ---- ----
85% 87% 85%
</TABLE>
<TABLE>
<CAPTION>
Annuity Applications Submitted
June 30, 1998 1997 1996
------------- ---- ----
<S> <C> <C> <C>
Western Reserve 41% 0% 0%
American Skandia 15% 13% 5%
Kemper 0% 0% 0%
---- ---- ----
56% 13% 5%
</TABLE>
Due to the terms of the various reinsurance agreements, WMA Life's revenues do
not and are not expected to, bear any relationship to the distribution of
business placed by the companies with whom WMA Agency does business as
illustrated by the above table.
Under a reinsurance agreement, the economic consequences of certain
insurance risks are transferred from the ceding company to the reinsurer.
Depending upon the type of reinsurance agreement, these risks may include
mortality, persistency, expense and investment. Key considerations in evaluating
the risks include industry experience, the ceding company's pricing and
assumptions, the type of product, the ceding company's underwriting practices
and procedures, the type of distribution system, the ceding company's recent
experience and the market for the product.
The Ceding Life Companies retain responsibility for the payment of all
surrender values, commissions and expenses involved in issuing and maintaining
the policies. In addition, the Ceding Life Companies administers the reinsurance
contracts and, on a monthly basis, provide WMA Life with information regarding
premiums, reserves, benefits, claims and settlement expenses for policies
reinsured. Financial activity between the Ceding Life Companies and WMA Life is
settled on either a monthly or quarterly basis in accordance with the terms of
the reinsurance agreements.
<PAGE> 8
MRT Reinsurance
Through the second quarter of 1998, WMA Life's reinsurance indemnity
agreements included two Monthly Renewable Term ("MRT") agreements relating to
VUL policies. MRT reinsurance is a variation of Yearly Renewable Term Insurance.
The reinsurance of the VUL policies includes business previously and currently
being sold through WMA Agency and issued by Western Reserve and Kemper. The
Kemper reinsurance agreement provides for the reinsurance of a portion of all
individual VUL policies sold by WMA Agency. Through the first quarter of 1998,
WMA Life reinsured a portion of all individual VUL policies sold by WMA Agency.
However, commencing April 1, 1998, WMA Life began reinsuring on a coinsurance
and modified coinsurance basis with Western Reserve all Financial Freedom
Builder VUL policies sold through WMA Agency. WMA Life ceased reinsuring
Financial Freedom Builder VUL policies sold after March 31, 1998 on a MRT basis.
(See discussion under "Coinsurance and Modified Coinsurance" below.) Freedom
Financial Builder VUL policies previously reinsurance on a MRT basis will
continue to remain in force. Under the MRT reinsurance agreements with Western
Reserve and Kemper, WMA Life assumes a portion of the mortality risk related to
the VUL policies written by the ceding companies. Settlements made under these
agreements are made on a monthly basis.
Coinsurance and Modified Coinsurance
Under a coinsurance arrangement, WMA Life assumes a proportionate share
of the insurance risks and expenses and receives a proportionate share of the
premiums or revenues associated with the underlying policies. The insurance
risks include mortality, lapses, cash surrenders and investment risks.
Additionally, under coinsurance, WMA Life must establish a proportionate share
of the policy reserves. Modified coinsurance is a variation of coinsurance.
Modified coinsurance is similar to coinsurance except that reserves and assets
related to the reserves that would otherwise be recorded and held by the Company
are retained by the ceding company. Modified coinsurance is used primarily for
products that develop cash values which allows the ceding company to retain the
associated assets for investment purposes. Under coinsurance and modified
coinsurance the mortality and investment risks are reinsured on the same plan as
that of the original policy. The ceding companies and the reinsurer share in
these risks in the same manner.
A decline in investment yields is expected to cause a decrease in the
Company's investment income and revenues under its coinsurance and modified
coinsurance agreements. Accordingly, the Company's income (loss) before income
taxes will be smaller. Conversely, an increase in investment yields is expected
to have the opposite effect. If mortality experience is worse than assumed
(i.e., higher claims), it is expected to cause an increase in Benefits, Claims
and Settlements, and a decrease in current and future revenues that would have
otherwise resulted from the policies reinsured. Conversely, if mortality
experience is better than assumed (i.e., lower claims), it is expected to cause
a decrease in Benefits, Claims and Settlements, and an increase in current and
future revenues that would have otherwise resulted from the policies reinsured.
In July of 1997, WMA Life executed a reinsurance agreement with
American Skandia on a modified coinsurance basis, a variation of coinsurance.
This agreement provides for the reinsurance of a portion of all Imperium
variable annuity policies sold by WMA Agency commencing as of January 1, 1997.
Settlement is made under this agreement on a monthly basis. The Imperium
policies are products exclusively distributed and sold by WMA Agency.
Effective January 1, 1998, WMA Life commenced reinsurance on a
coinsurance and modified coinsurance basis with Western Reserve of all Freedom
Wealth Creator variable annuity policies sold through WMA Agency. This agreement
will enable the Company to participate in revenues arising principally from
mortality and expense charges, sales charges associated with surrenders,
credited interest rate spreads, administrative charges and asset based
allowances. Settlement under this agreement is made on a quarterly basis.
Beginning as of April 1, 1998, WMA Life began reinsuring on a
coinsurance and modified coinsurance basis with Western Reserve all Financial
Freedom Builder VUL policies sold through WMA Agency. This new agreement enables
the Company to participate in revenues arising principally from mortality and
expense charges, cost of insurance charges, sales charges associated with
surrenders, credited interest rate spreads, administrative charges and asset
based allowances. Coincidental with this new agreement, WMA Life ceased
reinsuring Financial Freedom Builder VUL policies sold after March 31, 1998 on a
MRT reinsurance basis. Settlement under this agreement is made on a quarterly
basis.
At June 30, 1998, WMA Life's reinsurance inforce constituted 179,369
life insurance policies with an aggregate face amount of $5.23 billion. This is
an increase of 12,165 life insurance policies and $573 million of inforce face
amount from March 31, 1998. As of June 30, 1998, WMA Life had reinsurance
inforce for 5,812 variable annuity policies with reinsured annuity contract
benefits of $90.43 million. This is an increase of 2,460 annuity policies and
$34.95 million of annuity contract benefits from March 31, 1998.
<PAGE> 9
The following table indicates the percentage of WMA Life's reinsurance
revenues derived from the Ceding Life Companies:
<TABLE>
<CAPTION>
JUNE 30, 1998 1997 1996
------------- ---- ----
<S> <C> <C> <C>
Western Reserve 89.7% 95.5% 100%
American Skandia 8.5 3.6 --
Kemper 1.8 0.9 --
---- ---- ---
Total 100% 100% 100%
</TABLE>
Accounting
WMA Life recognizes premiums as earned on MRT reinsurance for the
mortality risk reinsured. Revenues that are reported in the period reflects
policy mortality and expense charges, policy administration charges, asset-based
allowances and deferred sales charges that have been assessed against the
reinsured policy account balances under the coinsurance and modified coinsurance
agreements, as they relate to universal life-type contracts.
Net investment income is the gross income earned from the invested
assets less the investment management expenses and custodial fees.
Life insurance claims settled and the change in the liability for
future policy benefits relating to MRT reinsured VUL policies are recorded as
Benefits, claims and settlement expenses on the Consolidated Financial
Statements. The liability for future policy benefits was recorded on the balance
sheet at $1.93 million at June 30, 1998 as compared to $1.29 million at December
31, 1997. The liability for future policy benefits includes the liability for
the fixed account portion of the Western Reserve variable annuity and VUL
policies.
WMA Life also recognizes costs that vary with an are directly
associated with the acquisition of the reinsured policies. These costs include
actuarial, legal and accounting fees, and salaries and expenses incurred
directly by WMA Life, and reinsurance allowances paid to the Ceding Life
Companies in accordance with the reinsurance agreements. These expenses are
deferred to the extent that such costs are deemed recoverable from future policy
revenues in accordance with Generally Accepted Accounting Principles ("GAAP")
and are recorded as deferred acquisition costs on the balance sheet. Deferred
acquisition costs are amortized over the lives of the underlying policies (with
regard to the terms of the reinsurance agreement), in proportion to the ratio of
revenues collected during the then current period to total anticipated revenues.
Deferred acquisition costs increased $8.89 million in 1998 to $13.40 million at
June 30, 1998. Amortization of deferred acquisition costs is recorded on the
Consolidated Financial Statements.
Professional fees, management fees and other expenses include expenses
incurred for salaries paid, actuarial, legal, and accounting services received.
Amortization of deferred organization costs, interest expense and miscellaneous
operating expenses are also included.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.
Revenues. The Company's revenues increased by $2.14 million, or 77%, to
$4.93 million in 1998 from $2.79 million in 1997. The increase was attributable
primarily to the growth in premiums associated with the Western Reserve MRT
agreement. Further, revenue increase of $469,000 was attributable to the
variable annuity coinsurance and modified coinsurance agreements WMA Life
entered into with American Skandia during 1997 and with Western Reserve in 1998,
and $421,000 was attributable to the VUL coinsurance and modified coinsurance
agreement WMA Life entered into with Western Reserve beginning April 1, 1998.
The revenue increase of $731,000 over first quarter revenues of $159,000 is
largely attributable to the new VUL coinsurance and modified coinsurance
agreement.
Premiums. Premiums increased by $1.27 million, or 56%, to $3.53 million
in 1998 from $2.26 million in 1997. The increase was attributable primarily to
the growth in premiums associated with a MRT reinsurance agreement WMA Life
entered into with Western Reserve during the second quarter of 1996, and to a
much lesser extent to a MRT agreement executed during the fourth quarter of 1996
with Kemper. The increase in premiums was due to an increase in the number and
reinsured amount of VUL policies sold by WMA Agency. Policies reinsured on a MRT
basis increased by 41,632, or 35%, from 120,048 in 1997 to 161,680 in 1998.
However, policies inforce on a MRT basis increased in the second quarter from
165,775 to 161,680 due to the discontinuation of Freedom Financial Builder VUL
policies reinsurance on a MRT basis. Consequently, management expects inforce
business to decline as policyholders terminate their policies either as a result
of surrender or premium lapse. Nonetheless, premium revenue is anticipated to
continue increasing on the MRT business for the next several years.
Net Investment Income. Net investment income decreased by $16,000 to
$512,000 in 1998 from $528,000 in 1997. Investment income is earned from the
investment in securities (fixed income and equity) and cash equivalents.
Investment expenses of $30,000 and $34,000 for 1998 and 1997, respectively,
related to investment advisor fees and custodial fees which were netted with
gross investment income. Controlling interest in Falcon Asset Management, Inc.
("Falcon"), the Company's outside investment advisor and manager recently
changed. Falcon advised the Company that it was terminating their engagement as
of the end of May, 1998. In June, the Company retained the services of Conning
Asset Management Company to act as its outside investment advisor and manager.
The Company is unaware of any affiliation of the former manager nor the new
manager with the Company, WMA Agency or the Ceding Life Companies.
<PAGE> 10
Benefits, Claims and Settlement Expenses. Benefits, claims and
settlement expenses increased by $842,000, or 85%, to $1.84 million in 1998 from
$995,000 in 1997. This increase primarily resulted from an increase in volume of
in force business. The amount of business inforce at June 30, 1998, was $5.23
billion as compared to $3.37 billion at June 30, 1997, which represented a $1.86
billion, or 55% increase.
The Company's profitability, in part, depends on the volume and amount
of death claims incurred. While death claims are reasonably predictable over a
period of many years, claims become less predictable over shorter periods and
are subject to fluctuation from quarter to quarter and year to year. A
retrocession agreement has been entered coincidental with the reinsurance of the
Western Reserve VUL business on a coinsurance and modified coinsurance basis
which has resulted in an increase in the mortality rises assumed by WMA Life.
The retrocession agreement under which WMA Life will retrocede standard
mortality risks in excess of $100,000 per life. The retrocession agreement will
serve to reduce the impact of fluctuations in death claims from quarter to
quarter and year to year.
Reinsurance Premium Allowances, Net. Net reinsurance premium allowances
increased by $360,000, or 56%, to $1.01 million in 1998 from $649,000 in 1997.
Gross reinsurance premium allowances represent a portion of reinsurance premiums
paid or allowed by WMA Life to the ceding companies for each policy reinsured. A
certain portion of the gross reinsurance allowances related to the production of
new business was primarily related to the Company's share of commissions,
certain development costs and other expenses related to the production of new
business incurred by the Ceding Companies on the business reinsured. These
amounts have been deferred to the extent that such costs are deemed recoverable
from future policy revenue in accordance with GAAP. The balance of those amounts
not deferred are reflected as net reinsurance premium allowances and are often a
level percentage of individual policy revenues (e.g., renewal reinsurance
allowances). Similar to the increase in benefits, claims and settlement
expenses, the increase in net reinsurance premium allowances was due to an
increase in the volume of business in force and placement of the reinsured
variable annuity and the coinsured VUL business.
Professional Fees, Management Fees and Other Expenses. Professional
fees, management fees and other expenses increased by $161,000, or 79%, to
$364,000 in 1998 from $203,000 in 1997. The increase in expenses was primarily
associated with an increase in the amount of reinsurance business activities and
expenses relating to the administration of the Company. During 1998, the Company
hired four employees, thus incurring additional expenses relating to salaries
and benefits.
Amortization of Deferred Acquisition Costs. Amortization of deferred
acquisition costs increased to $628,000 in 1998. The increase in amortization of
deferred acquisition costs was attributable primarily to increased revenues
associated with business reinsured and with the placement of new business.
The deferred acquisition cost balance is equal to the prior period
deferred acquisition cost balance, plus interest, and acquisition costs
capitalized, less amortization as a function of premium revenue. Amortization of
deferred acquisition costs is equal to amortization as a function of premium
revenue, less interest capitalized. During the second quarter of 1997, interest
capitalized exceeded amortization as a function of premium revenue, creating a
negative balance. As each block of reinsured policies ages under the MRT
reinsurance agreements, amortization as a function of premium revenue will
exceed interest capitalized. An increase of $503,000 from first quarter is
largely attributable to the new VUL coinsurance and modified coinsurance
agreement. The increase policy acquisition costs, consisting primarily of
allowances, under the coinsurance and modified coinsurance agreement as compared
to that under the MRT agreements is largely attributable to the gross premiums
paid under each agreement, respectively. First year gross premiums paid were
$2,581,685 under the VUL coinsurance agreement for the second quarter as
compared to $504,335 first year MRT reinsurance premiums paid. There is no prior
comparable period.
Income Taxes. Income taxes decreased by $26,000 to $374,000 in 1998
from $400,000 in 1997. The Company's effective tax rate was 34% in 1998 and 42%
in 1997. The higher effective tax rate in 1997 was due to the reversal of a
valuation allowance for deferred tax assets.
Net Income. As a result of the foregoing, net income for the six-month
period ended June 30, 1998, was $722,000 compared to $553,000 for the six-month
period endedJune 30, 1997.
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Historically, the principal sources of the Company's cash flow have
been premiums received from Ceding Companies, investment income, maturing
investments and proceeds from sales of invested assets and the Company's Common
Stock. Premiums are generally received in advance of related claims payments. In
addition to the need for cash flow to meet operating expenses, the liquidity
requirements of the Company relate primarily to the payment of gross reinsurance
allowances, operating expenses, investment purchases, and reinsurance claims.
The Company's cash requirements for operating expenses will consist of
salary and benefits; management service fees; investment management and
custodial account fees; accounting and consulting services fees; expenses
related to regulatory issues and compliance with corporate and tax matters; and
other incidental administrative expenses. Prior to 1998, the Company incurred no
expense for salary and benefits because it had no employees. The Company has
hired several employees during the second quarter of 1998. The Company incurred
no capital expenditures in 1997 or through the second quarter of 1998.
<PAGE> 12
For the period ended June 30, 1998, net cash flows used in operating
activities were $1.90 million, compared to net cash provided by operating
activities of $246,000 for the period ended June 30, 1997. This change is due
primarily to additional cash required to reimburse the Ceding Life Companies for
reinsurance allowances as a result of the new coinsurance and modified
coinsurance agreements with Western Reserve in 1998. For the first half of 1997,
the Company only had two MRT agreements in place which provided a small amount
of revenue. To reimburse the Ceding Life Companies for such allowances for the
first six months of 1998, the Company has used its invested assets. The net cash
provided by investing activities for the period ended June 30, 1998 was $1.63
million compared to net cash used in investing activities of $1.44 million for
the period ended June 30, 1997. The Company received cash from the issuance of
common stock in the first half of 1997 which allowed the Company to purchase
additional investments. The net cash used in financing activities was $28,000
for the period ended June 30, 1998 compared to net cash provided by financing
activities of $1.11 million for the period ended June 30, 1997. The Company
purchased a small amount of stock from its shareholders which represented the
cash from financing activities for 1998.
The Company has no assets other than the stock of WMA Life and invested
assets. The Company will rely on income from its invested assets and dividends
from WMA Life to meet holding company cash requirements.
The minimum solvency margin for WMA Life as a long-term insurer under
Bermuda regulations is $250,000. As of December 31, 1997, WMA Life had total
statutory capital and surplus of $6,407,578. The amount available for
distribution of dividends is $6,157,578. Additionally, the amount available for
dividend distribution must be supplied through liquid assets. WMA Life meets
this requirement as the amount of invested assets and quoted investments and
cash was greater than $6,157,578.
The Company's primary source of liquidity was $1.16 million in cash and
cash equivalents at June 30, 1998, a decrease of $735,000 from the prior
comparable period. The Company's fixed income portfolio represents over 96% of
the total invested assets, and has an average quality rating of Aa3 by Moody's.
The Company's sources of earnings will expand from gains from mortality
under the MRT reinsurance agreements, and will now include expense charges, cost
of insurance charges, sales charges associated with surrenders, credited
interest rate spreads, administrative charges and asset based allowances.
As a result of the new reinsurance agreements with Western Reserve, the
Company will require substantially greater amounts of cash to make payments to
Western Reserve than it has been required to make under its MRT agreement.
During the first year in which a policy is reinsured on a coinsurance basis, the
Company is required to reimburse Western Reserve for acquisition costs,
including first year commissions and issuance expenses. Under the MRT
reinsurance agreements, premiums vary in proportion to expected mortality claims
reinsured. The first year a policy is reinsured under the MRT agreements the
Company's cash outlay is approximately equal to death benefit claims;
thereafter, in renewal policy years, it is anticipated no further cash outlays
will occur.
Under the Western Reserve VUL Coinsurance and Modified Coinsurance
agreement, since the Company is reinsuring risk on the same plan as that of the
original policy, reinsurance premiums are materially greater than premiums paid
on the MRT reinsurance--perhaps as much as fifteen times or more. Accordingly,
because of the type of reinsurance and the plan reinsured, the cash outlays
could be as much as, or more than, the first year premium paid. The Company's
net cash outflows in the first year not only consist of death claims, as found
on the MRT reinsurance, but also reinsurance expense allowances that reimburse
the ceding company for the Company's share of expenses associated with its
acquisition costs, such as commissions and issuance expenses. In addition,
maintenance expense allowances are paid that reimburse the ceding company for
the Company's share of maintenance expenses on business reinsured.
The Company believes that the sources of cash from the 1995 offering
will be sufficient to meet the Company's cash needs until October 1998 with
respect to the administration of WMA Life's current MRT agreements with Western
Reserve and Kemper, its variable annuity coinsurance agreements with American
Skandia and Western Reserve, and its new VUL reinsurance agreement with Western
Reserve.
In recognition of these liquidity requirements, during the first
quarter of 1998, the Company contributed additional capital to WMA Life through
a transfer of assets, and corresponding due and accrued investment income, with
an amortized cost of approximately $10.16 million.
The Company intends to offer shares of common stock sometime during the
balance of 1998 to provide sufficient capital to fund payments of reinsurance
allowances to Western Reserve in relation to the new VUL agreement. If an
offering is not consummated, or if the Company's cash requirements are greater
than anticipated, the Company may have to resort to other methods of raising the
necessary capital to finance its growth, such as borrowing from financial
institutions or the sales of additional securities in other private or public
offerings. There can be no assurance that such alternatives would be available
to the Company at an acceptable cost, if at all. If the offering is not
consummated and alternative sources of financing cannot be obtained at an
acceptable cost, the Company may seek to terminate or amend the new reinsurance
agreements in light of available capital. The termination or amendment of the
new reinsurance agreements would result in a material disruption in the
Company's growth and business plans.
The Company's reinsurance agreements provide security to the Ceding
Life Companies through a Letter of Credit ("LOC") for the benefit of the Ceding
Life Companies. The Company is in the process of increasing existing, and
obtaining additional, LOC's with WRL as beneficiary, from $2.0 million to $7.0
million in support of anticipated reserve credits, under each of the reinsurance
agreements in place with WRL, through June, 1999. WMA Life also has previously
secured a LOC of $30,000 in favor of Kemper. The LOCs were issued by IBJ
Schroder, the Company's custodian, and collateralized by the Company's assets
held with the custodian. If determined to be necessary, WMA Life will develop
facilities for future LOCs and trust arrangements in support of additional
reinsurance agreements.
<PAGE> 13
YEAR 2000 COMPLIANCE
The Company has reviewed its internal business systems and believes its systems,
primarily its computer systems, will process date information accurately and
without interruption when required to process dates in the year 1999 and beyond.
The Company has discussed the year 2000 issue with the Ceding Life Companies and
the steps they have taken to address the situation. The Company believes its
operations will not be affected. The Company has not been required to expend
significant resources to address the year 2000 issue and does not anticipate any
significant expenditures.
The Company has performed an initial assessment of its internal
business systems with regards to their ability to accurately process date
information in the year 1999 and beyond. This assessment has focused primarily
on the Company's computer systems as the Company's business centers around the
processing of financial data and is not significantly impacted by embedded
technology such as micro controllers. As part of this assessment, the Company
has also discussed the year 2000 issue with the Ceding Life Companies and the
steps they have taken to address the situation.
The Company is dependent on the data processing systems of the Ceding
Life Companies for the year 2000 and beyond. Due to this dependence, the failure
of the systems of the Ceding Life Companies to be year 2000 complaint could have
a material adverse effect upon the Company, as a result of business interruption
or loss of revenue sources.
Currently, the Company is monitoring this risk via continued
communications with the Ceding Life Companies regarding the status of their year
2000 readiness.
Due to the nature of its internal computer systems, the Company does
not incur significant recurring technology costs and has not been required to
expend significant resource to address the year 2000 issue. In addition, as the
Company will not be required to incur significant costs related to system
replacement, but rather is primarily monitoring third party suppliers, the
estimated future costs of remediation will primarily consist of personnel costs.
In the event that the Ceding Life Companies are not year 2000
complaint, the Company's operations could be significantly impacted dependent
upon the ability of the Company to enter into reinsurance agreements with other
companies at the same or similar terms.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report are "forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, and
are subject to the safe harbor provisions of that Act. These statements include,
but are not limited to relating to increases in reinsurance revenues and net
income in future period resulting from, among other things, the Company
expanding the types of reinsurance written, expanded reinsurance capacity and
investment results. Because such forward-looking statements involve risks, both
known and unknown, and uncertainties, these are important factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements, including, but not limited to, changes in the
Company's relationship with World Marketing Alliance, Inc. ("WMA Agency"),
changes in the public's acceptance of variable insurance and annuity products,
adverse reinsurance experience, possible loss of key management personnel,
increased competition from within the insurance industry, the extent to which
the Company is able to develop new reinsurance programs and markets for its
reinsurance, new regulatory initiatives aimed at the Company or WMA Agency,
changes in the control of the Company, and the availability capital on
acceptable terms and other factors discussed in this report.
<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
At the June 30, 1998, neither the Company nor its subsidiaries were
involved in any legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
Stock Options.
On June 8, 1998, the Company's Board of Directors, subject to
ratification of the stockholders of the Company at its 1998 annual meeting,
authorized a 1998 stock option plan for the directors, officers and employees of
the Company (the "Plan") that contemplates the issuance of up to 900,000 shares
of the Company's authorized, but unissued, Common Stock upon the exercise of
options granted under the Plan.
Options issued under the Plan are non-transferable (except by will or
the laws of descent and distribution in the event of death), shall have a term
of five (5) years, and become exercisable on the third anniversary of an
optionee's date of hire, appointment or election, provided the optionee at that
time has been a director, officer or employee of the Company for at least one
year after the date of grant. Upon termination of an optionee's service as
director, officer, or employee of the Company for reasons other than retirement,
death or permanent and total disability, the option and the optionee's rights
thereunder shall terminate. No option may be granted after June 1, 2008, the
expiration date of the Plan, although the exercise period of previously granted
options may extend beyond that date. Options become immediately exercisable upon
a change in control of the Company, as defined in the Plan. The per share
exercise price of options granted under the Plan is generally the fair market
value of a share of Common Stock on the date of grant and is payable in cash at
the time of exercise. With respect to options granted in 1998, the exercise
price is the price per share of shares to be offered in its proposed
subscription offering ("Subscription Offering"), for which the Company recently
filed a registration statement with the Securities and Exchange Commission. The
Plan will be administered by the Audit and Compensation Committee created by the
Board of Directors on the above date. The Board of Directors may amend or
terminate the Plan at any time except that stockholder approval of any amendment
must be obtained whenever necessary to comply with applicable legal
requirements.
On the above date, the Board of Directors also authorized the grant of
options under the Plan to purchase up to 450,000 shares of Common Stock to
several directors, officers and employees of the Company, including 300,000
shares to Mr. Humphrey, a director and President of the Company. Notwithstanding
Mr. Humphrey's present stock ownership, the Board of Directors granted these
options to Mr. Humphrey as further recognition of his contributions to the
growth of the Company. The exercise price of these options is the price of
shares to be offered by the Company in its proposed Subscription Offering. The
Company will receive no monetary consideration for granting these options. The
shares owned by the option holders upon exercise of their options will not be
registered in the subscription offering or otherwise and shall be considered
restricted shares which may only be resold pursuant to an effective registration
statement, an exemption from registration, or Rule 144.
If the stockholders do not approve the Plan, all outstanding options will be
rescinded.
Warrants.
On June 8, 1998, the Company's Board of Directors, subject to
ratification of the stockholders of the Company at its 1998 annual meeting,
authorized the issuance of warrants to purchase up to 600,000 shares of the
Company's Common Stock ("Warrants") to key management employees of WMA Agency
and its affiliated corporations. The Board of Directors then authorized the
issuance of Warrants with respect to 250,000 of these shares to certain key
management employees of WMA Agency as consideration for the agreement of WMA
Agency to use
<PAGE> 15
its "best efforts" to encourage life insurance companies whose policies it sells
to reinsure such policies with the Company. On July 2, 1998, the Board of
Directors expanded the persons to whom Warrants could be issued to include
independent sales agents contractually associated with WMA Agency and increased
to 400,000 the number of Warrants to be issued to WMA Agency as consideration
for the agreement referred to in the preceding sentence. There will be no
monetary consideration given to the Company for the issuance of Warrants. No
Warrants will be issued to officers or directors of the Company.
The Warrants will have a six-year term and will be non-transferable
except by will and by the applicable laws of descent and distribution. The
exercise price per share of the Warrants issued in 1998 will be the price per
share as provided in the Company's proposed Subscription Offering. Thereafter,
the price will be the fair market per share value of the Company's Common Stock
on the date of issue. Twenty percent (20%) of a Warrant may be exercised for
each year after the date in which the Warrant holder has been continuously
employed by, or contractually associated with, WMA Agency. Warrants may only be
exercised during the period commencing on the first anniversary date of issuance
and ending on the sixth anniversary date of issuance. A Warrant may not be
exercised in any year of the exercise period unless the following conditions are
satisfied: (1) The Warrant holder is an employee of, or independent sales agent
contractually associated with, WMA Agency on the date of each exercise, and (2)
the Company has achieved the new reinsurance premium target established by the
Board of Directors for such year, based upon actual new premium production for
the immediately preceding year. If the target premium production level is not
attained by the Company in a given year, the portion of the shares exercisable
under the Warrant with respect to such year would be forfeited and no longer
exercisable. The Board of Directors believes that the above limitations upon the
exercise of the Warrants will encourage the management of WMA Agency to assist
the Company in achieving targeted growth in its reinsurance business. Neither
the Warrants nor the Common Stock to be issued upon exercise of the Warrants
will be registered. The Common Stock shall be considered restricted shares,
which may only be resold pursuant to an effective registration statement, an
exemption from registration, or Rule 144. There are no registration rights
contained in the terms of the Warrant.
If the stockholders do not approve the issuance of Warrants, all
outstanding Warrants will be rescinded.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults in the payment of principal or interest of any
indebtedness of the issuer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders during the period covered
by this point. The Company's Annual Meeting of stockholders originally scheduled
for August 10, 1998 has been postponed. The Company has rescheduled the Annual
Meeting to September 8, 1998.
ITEM 5. OTHER INFORMATION.
As reported in the Company's quarterly report for the period ended
March 31, 1998, the Company reinsures VUL and variable annuity products marketed
by an affiliated company, World Marketing Alliance, Inc. ("WMA Agency"). These
products are treated as securities under federal and state securities laws. In
order to sell these products, the sales associates of WMA Agency must be
individually licensed by the National Association of Securities Dealers ("NASD")
and must become affiliated with a registered securities broker-dealer. WMA
Securities, Inc. ("WMAS") is a registered broker-dealer having common ownership
with WMA Agency. All of the sales associates of WMA Agency who are licensed to
sell VUL and variable annuity products are registered representatives of WMAS.
<PAGE> 16
As a registered broker-dealer, WMAS's operations are subject to
periodic examinations and review by both the NASD and the Securities and
Exchange Commission ("SEC"), a federal agency. In September, 1997, the Atlanta
District Office of the SEC examined the operations of WMAS. On February 3, 1998,
WMAS received a letter from the SEC setting forth certain alleged deficiencies
and violations of the Securities Exchange Act of 1934 pertaining to net capital
requirements, record keeping and other compliance matters. In response to this
letter, WMAS subsequently engaged a consultant to make recommendations to WMAS
on how to improve its compliance practice and has notified the SEC I it's
response that it plans to implement the consultant's recommendations.
Implementation of these recommendations will involve significant capital
expenditures by WMAS and could lead to a disruption of WMAS' business.
The Company understands that it is not the current policy of the SEC to
issue any written advice as to whether the steps taken by a recipient of a
deficiency letter to address alleged deficiencies are adequate or satisfactory,
therefore, it is unlikely that WMAS will receive any indication from the SEC
regarding the adequacy of the corrective action that it has taken or intends to
take, until the SEC conducts a subsequent examination of the operations of WMAS
and the alleged deficiencies contained in the current deficiency letter are no
longer found to exist. WMAS cannot determine when and if the SEC will conduct a
subsequent examination of its operations nor can it predict the outcome of such
examination should it occur.
WMAS has advised the Company that the SEC, through its Enforcement
Division, has initiated a formal investigation to determine whether any federal
securities laws have been violated. If this investigation reveals one or more
violations of the federal securities laws, the Enforcement Division may
recommend the imposition of sanctions against WMAS. These sanctions, should they
be imposed, could take various forms, including but not limited to, the
imposition of monetary penalties which can be quite substantial depending upon
the nature and severity of the violation, heightened regulatory scrutiny by the
SEC and NASD, and the temporary suspension or permanent revocation of WMAS's
registration or of the licenses of WMA Sales Associates resulting in the
broker-dealer inability to continue operations.
There can be no assurance that the SEC, through its Enforcement Division, after
completing its investigation will not seek to impose sanctions against WMAS,
which if substantial could impair the financial and operation condition of WMAS.
If the WMA Sales Associates are no longer able to maintain their licenses with
WMAS, a disruption of the sales of new VUL and variable annuity products would
result until the WMA Sales Associates could become registered with another
broker-dealer. There can be no assurance, however, that WMAS Sales Associates
could register with another broker-dealer. Consequently, such disruption could
cause a significant interruption in the production of new business reinsured by
the Company due to the Company's dependence upon WMA Agency and WMA Sales
Associates for the marketing of new VUL and variable annuity policies which the
Company may then reinsure.
WMA Agency recently has been engaged in discussions with AEGON relating
to a possible restructuring of WMA Agency in a manner which would ore fully
utilize the resources of AEGON. The administrative functions of WMA Agency would
be turned over to a new administrative services corporation of which AEGON would
become a majority owner. Also discussed as the possibility of AEGON taking a
minority position in WMA Agency (which would then be a marketing entity only)
and the creation of a WMA Agency stock incentive program for key WMA Sales
Associates and employees of WMA Agency. WMA Agency's management feels that such
a restructuring would greatly enhance its ability to recruit and retain quality
sales associates and employees, provide WMA Sales Associates with additional
incentive to produce a greater volume of profitable business and make available
AEGON resources to WMA Agency.
Management intends to continue negotiations with representatives of
AEGON toward achieving a definitive agreement in the near future. There can be
no assurance that these negotiations will lead to a definitive agreement
encompassing the restructuring of WMA Agency, nor can it be determined at this
time, how such an agreement, if achieved, will affect the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
No reports were required to be filed on Form 8-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Amendment to Articles of Incorporation changing name of Company to "The WMA Corporation". (2)
3.3 By-laws(1)
3.4 Amendment to By-Laws re Related Party Transactions(3)
4.1 Specimen Stock Certificate(4)
4.2 1998 Stock Option Plan(5)
4.3 Form of Warrant(5)
4.5 Loan Agreement between WMA Agency and Offering Subscribers(6)
10.1 Loan Agreement with Money Services, Inc. and WMA Agency(6)
10.2 Modification of Loan & Security agreement between Money Services, Inc. and WMA Agency(7)
10.3 Corporate Services Agreement with World Marketing Alliance,
Inc. Attached
10.4 Reinsurance Agreement between WMA Life Insurance Company Limited and Western Reserve Life Assurance
Company of Ohio dated July 9, 1996. (7)
10.5 Automatic Variable Annuity Reinsurance Agreement between Western Reserve Life Assurance Company of
Ohio and WMA Life Insurance Company Limited effective January 1, 1998 Attached*
10.6 Automatic Flexible Premium Variable Life Reinsurance Agreement Number 2 between Western Reserve Life Assurance
Company of Ohio and WMA Life Insurance Company Limited effective April 1, 1998 Attached*
27.1 Financial Data Schedule (for SEC use only) +
</TABLE>
[FOOTNOTES ON NEXT PAGE]
* Certain portions of these exhibits have been omitted pursuant to a request
for confidential treatment. A complete version of each has been filed
separately with the Secretary of the Commission.
+ Previously filed.
<PAGE> 18
FOOTNOTES TO PRECEDING PAGE:
(1) Filed on June 28, 1995 as part of the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-23
(2) Filed on May 15, 1998 as an Exhibit to Quarterly Report on Form 10-QSB
and incorporated by reference pursuant to Rule 12b-32.
(3) Filed on June 9, 1998 as an Exhibit to the Registration Statement and
incorporated herein by reference pursuant to Rule 12b-32.
(4) Filed on September 22, 1995 as an Exhibit to the Registration
Statement and incorporated herein by reference pursuant to Rule
12b-32.
(5) Filed on July 2, 1998 as an Exhibit to the Preliminary Proxy Statement
and incorporated herein by reference pursuant to Rule 12bh-32.
(6) Filed on November 17, 1995 as an Exhibit to the Registration Statement
and incorporated herein by reference pursuant to Rule 12b-32.
(7) Filed on May 15, 1998 as an Exhibit to Quarterly Report on Form 10-QSB
and incorporated herein by reference pursuant to Rule 12b-32.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) The WMA Corporation
<TABLE>
<S> <C> <C>
By (Signature/Title) /s/ Edward F. McKernan (SEAL) Date: August 20, 1998
Edward F. McKernan, Senior Vice
President, Chief Financial Officer,
Actuary, and Director
</TABLE>
<PAGE> 1
EXHIBIT 10.3
CORPORATE SERVICES AGREEMENT
THIS AGREEMENT is entered into this 1st day of April, 1998, between
The WMA Corporation, a Delaware corporation ("Company"), and World Marketing
Alliance, Inc., a Georgia corporation ("WMA").
GENERAL PURPOSE OF AGREEMENT
WHEREAS, the Company is presently a subtenant of WMA in its corporate
headquarters at 11315 Johns Creek Parkway, Duluth, Georgia 30097 and is in need
of certain corporate services.
WHEREAS, WMA is desirous of providing these corporate services to the
Company;
WHEREAS, the purpose of this Agreement is to set forth the terms and
conditions under which WMA shall provide such services to the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
hereinafter contained, the parties agree as follows:
1. WMA's Obligations
During the term of this Agreement, WMA hereby agrees to furnish to the
Company at its subleased location those corporate services required by the
Company and its employees from time to time during normal business hours
including, but not limited to, all electricity, heating, air-conditioning,
telephone and answering service, security service, duplicating equipment,
postage, dues and subscriptions, computer supplies, travel expense, office
supplies, use of the common areas of WMA's facility in Duluth, Georgia and such
other corporate services as the Company may reasonably request.
2. Company's Obligations
The Company shall pay WMA a monthly fee in the amount of $2,250 on the
first day of each calendar month for the furnishing of services to be rendered
to the Company during the first twelve month term of this Agreement.
On the first anniversary of this Agreement and each anniversary thereafter
until termination, WMA and the Company shall mutually agree on an appropriate
monthly fee for the succeeding year. If the parties are unable to mutually
agree upon an appropriate monthly fee as required, this Agreement may be
terminated, in accordance with the provisions of Section 11 hereof.
In addition to the above monthly fee, the Company shall pay WMA a monthly
payroll allocation based upon the amount of time during which WMA employees
provided services to the Company in a given month together with such additional
amounts as the parties may mutually agree.
The WMA Corporation/World Marketing
Alliance, Inc. Corporate Services Agreement Page 1
<PAGE> 2
3. WMA Not Agent or Legal Representative of the Company
This Agreement does not constitute WMA as the agent or legal
representative of the Company for any purpose whatsoever. WMA is not granted
any express or implied right or authority to assume or to create any obligation
on behalf of or in the name of the Company or to bind the Company in any manner
whatsoever.
4. WMA's Limited Liability
WMA will not be liable to the Company, or to anyone who may claim any
right due to a relationship with the Company for any acts or omissions in the
furnishing of services under this Agreement or on part of the employees or
agents of WMA unless the acts or omissions are due to willful misconduct. The
Company will indemnify and hold WMA free and harmless from any obligations,
costs, claims, judgments, and attorneys fees arising from, growing out of, or
in any way connected with the furnishing of services rendered to the Company
under this Agreement, unless WMA is judged by a court of competent jurisdiction
to be guilty of willful misconduct. In no event shall WMA be responsible for
consequential damages suffered by the Company.
5. Notices
Any notice required to be given by either party to the other in connection
with this Agreement shall be made in writing and shall be sent by prepaid
registered mail. Notices pertaining to matters other than termination or
modification of this Agreement may instead by transmitted by means of cable or
telex. Any such notice to the Company shall be directed as appropriate and
addressed as follows:
The WMA Corporation
11315 Johns Creek Parkway
Duluth, Georgia 30097
Attention: Edward F. McKernan
Any such notice to WMA shall be directed to and addressed as follows:
World Marketing Alliance, Inc.
11315 Johns Creek Parkway
Duluth, Georgia 30097
Attention: S. Hubert Humphrey, Jr.
6. No Implied Waivers
Failure of either party at any time to require performance by the other
party of any provision hereof shall in no way affect the full right to require
such performance at any time thereafter. Waiver
The WMA Corporation/World Marketing
Alliance, Inc. Corporate Services Agreement Page 2
<PAGE> 3
by either party of a breach of any obligation hereunder shall not constitute a
waiver of any succeeding breach of the same obligation itself. Failure of either
party to exercise any of its rights provided under this Agreement shall not
constitute a waiver of such right.
7. Assignment
Neither this Agreement nor any rights or obligations hereunder shall be
assigned or otherwise transferred by the Company or WMA, either voluntarily or
involuntarily, without the prior written consent of the other.
8. Amendment or Modification
Any amendment or modification of this Agreement will be effective only if
it is in a writing signed by the party to be charged.
9. Applicable Law
This Agreement shall be governed by and construed according to the laws of
the State of Georgia.
10. Contract Construction
Invalidity of any provision of this Agreement shall not affect any other
provision and, in the event of a judicial finding of such invalidity, this
Agreement shall remain in full force in all other respects.
11. Termination of Agreement
a. Expiration
Unless terminated pursuant to Subsection (b) of this Section, this
Agreement shall continue in force for one (1) year period beginning on the
effective date shown herein and shall be automatically renewed for successive
one year periods.
b. Termination
(1) Either party may terminate this Agreement for any reason or no
reason whatsoever upon sixty (60) days prior written notice
delivered to the other party.
(2) Either party may terminate this Agreement upon sixty (60) days
prior written notice to the other party, if the parties are
unable to mutually agree on an appropriate monthly fee as
provided in Section 2 of this Agreement.
The WMA Corporation/World Marketing
Alliance, Inc. Corporate Services Agreement Page 3
<PAGE> 4
(3) Upon the insolvency of either party, the voluntary filing by or,
if not dismissed within sixty (60) days, the filing against
either party of a petition in bankruptcy or a petition for
reorganization; any assignment by either party for the benefit
of creditors; the appointment of a receiver or a trustee for
either party; or the placement of either party's assets in the
hands of a trustee or receiver, the unaffected party may
terminate this Agreement upon written notice to the affected
party effective as of the date of the occurrence of any of
the aforesaid events.
c. Effect of Expiration or Termination
Expiration or termination of this Agreement shall not release either party
from any obligation to pay any sum that is due or that may become due to the
other party prior to expiration or termination.
12. Binding Effect
This Agreement shall bind and inure to the benefit of the parties, their
respective successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their duly authorized representatives on the date first written
above.
THE WMA CORPORATION WORLD MARKETING ALLIANCE, INC.
By: /s/ Edward F. McKernan By: /s/ T. Wood Montgomery
--------------------------- ---------------------------
Title: Vice President & CFO Title: Executive Vice President
------------------------ ------------------------
The WMA Corporation/World Marketing
Alliance, Inc. Corporate Services Agreement Page 4
<PAGE> 1
EXHIBIT 10.5
Automatic Variable Annuity Reinsurance Agreement
(Referred to as the Agreement)
Between
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
of Largo, Florida
(referred to as the Reinsured)
and
WMA LIFE INSURANCE COMPANY LIMITED
of Hamilton, Bermuda
(referred to as the Reinsurer)
Effective January l, 1998
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
ARTICLE DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
I Automatic Reinsurance 3
II Definitions 3
III Liability 5
IV Reductions and Terminations 5
V Premiums 5
VI Payments by Reinsurer 6
VII Reporting 6
VIII Policy Changes 7
IX Annuitization 7
X Deposits of the Modified Coinsurance Reserve 7
XI Interest Credit on Modified Coinsurance Reserve and
Modified Coinsurance Reserve Adjustment 7
XII Reinsurance Reserves 8
XIII General Provisions 9
XIV Recapture 14
XV Arbitration 14
XVI Improper Solicitation of Annuity Contract Owners 15
XVII DAC Tax - Section 1.848-2(g)(8)Election 15
XVIII Duration of Agreement 16
XIX Written Notice 17
XX Execution 18
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C>
A Form of Letter of Credit 19
B Investment Policy and Crediting Rate Strategy 20
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
A Business Reinsured
Bl Amount of Reinsurance
B2 Commission And Expense Allowances
C1 Quarterly Settlement Report
C2 Quarterly Reserve And Settlement Report
Dl Monthly Reports
D2 Quarterly Reports Commission and Expense Allowances
E1 Monthly Reports-Monthly Production and Policy Loans Report
E2 Quarterly Reports-Quarterly Production and Policy Loans Report
E3 Quarterly Reports-Quarterly Reserve Report
F Annual Report
G Quarterly Reports-Quarterly Interest Credit (Debit)
on Modified
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Coinsurance Reserve
H Quarterly Reports-Quarterly Modified Coinsurance Reserve
Adjustment
I Quarterly Reports-Quarterly Target Surplus Adjustment
J Monthly Report-Monthly M&E Asset Based Allowance
Calculations
</TABLE>
2
<PAGE> 4
This Agreement is entered into by the Reinsured and the Reinsurer on the
execution date. The Reinsured and the Reinsurer mutually agree to reinsure on
the terms and conditions set out below.
I. AUTOMATIC REINSURANCE
1. Insurance. The Reinsured will cede on an automatic basis and
the Reinsurer will accept as reinsurance the annuity contracts
(policies) written by the Reinsured as shown in Schedule A.
2. Coverages. The annuity contracts Reinsured as shown in
Schedule A, are the Flexible Payment Variable Accumulation
Deferred Annuity contracts and any riders or endorsements
attached thereto, with an issue date after December 31, 1997.
Reinsurance will be limited in percentage as provided in
Schedule B1. Only plans sold by a Producer registered with an
affiliated broker-dealer identified in Exhibit A shall be
reinsured under this Agreement.
3. The Separate Account Annuity Value will be reinsured on a
modified coinsurance basis.
4. The Fixed Account will be reinsured on a coinsurance basis.
5. In no event shall reinsurance under this Agreement be in force
with respect to an annuity contract unless the issuance and
delivery of the annuity contract is in compliance with the
laws of all applicable jurisdictions and the Reinsured's
corporate charter.
6. The Reinsured declares and agrees that all annuity contracts
and benefits covered under this Agreement shall be issued in
accordance with its normal practices in effect when the
annuity contract is issued. These practices will be provided
to the Reinsurer on request. The Reinsured will also notify
the Reinsurer of any material changes made to these practices
before applying them to annuity contracts and benefits covered
by this Agreement.
II. DEFINITIONS
"ANNUITY VALUE" has the same meaning as set forth in the
Reinsured Plan.
"ARTICLE" OR "PARAGRAPH" refers to an Article or Paragraph of
this Agreement.
"EFFECTIVE DATE", with respect to Reinsured Plans, means the
date shown in Schedule A on which reinsurance under this
Agreement becomes effective. The Reinsured is liable for
Reinsurance Premiums, less applicable Reinsurance Allowances,
due on or after the Effective Date of a Reinsured Plan; and
the Reinsurer is liable for any reinsured benefits occurring
on or after the Effective Date.
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<PAGE> 5
"EXECUTION DATE" means the date as of which this Agreement has
been executed, as shown in ARTICLE XX, EXECUTION.
"EXHIBIT" and "SCHEDULE" mean, respectively, an exhibit or
schedule attached to this Agreement and shall be considered
part of this Agreement.
"FIXED ACCOUNT" means allocation option(s) other than the
Separate Account.
"FIXED ACCOUNT VALUE" means the value of the Fixed Account on
any valuation date.
"GENERAL ACCOUNT STATUTORY RESERVES AND LIABILITIES" OR "GA
STATUTORY RESERVES AND LIABILITIES" refers to statutory
reserves and liabilities associated with the Fixed Account as
held by the Reinsured for the reinsured contracts.
"PARTY" or "PARTY" refers to either the Reinsured or the
Reinsurer as appropriate, and PARTIES refer to both,
collectively.
"PAYMENT" means initial premium payment and all subsequent
purchase payments as defined in the contract.
"PRODUCER" means a licensed representative registered with a
broker-dealer identified in Exhibit A.
"REINSURED PLAN" means any annuity contract or rider form
reinsured under this Agreement, as set forth in Schedule A.
"SERIES FUND" means a designated mutual fund from which each
sub-account of the Separate Account will buy shares.
"SEPARATE ACCOUNT" means a separate investment account shown
on the policy schedule page, which is composed of several
sub-accounts established to receive and invest net premiums
under the policy.
"SETTLEMENT INTEREST RATE" means the interest rate for ninety
(90) day dealer commercial paper as published in The Wall
Street Journal or a successor or substitute publication, as
agreed upon by both parties if The Wall Street Journal should
cease to exist. The Settlement Interest Rate for a given month
will be the Settlement Interest Rate published on the
fifteenth (15th) of the month or the next following business
day if the fifteenth (15th) of the month is not a publication
date of The Wall Street Journal.
"SUB-ACCOUNT" means a subdivision of the Separate Account.
Each Sub-account invests exclusively in the shares of a
specified Series Fund portfolio.
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<PAGE> 6
III. LIABILITY
1. The liability of the Reinsurer on any reinsurance under this
Agreement begins upon the effective date of this Agreement as
set forth in Article XX, Execution, and ends after all annuity
contracts reinsured have been terminated, annuitized or
recaptured, as set forth in Article XIV, Recapture.
2. The liability of the Reinsurer to the Reinsured under this
Agreement will be coexisting with the liability of the
Reinsured under the annuity contracts reinsured and may exceed
the Reinsured's contractual liability under the terms of the
annuity contracts as described in Paragraph 3, Article XIII,
General Provisions.
3. On an ongoing basis the liability of the Reinsurer,
reinsurance premiums, benefits and other items due to or from
each party shall be accounted for and settled and paid
quarterly on the basis of the quarterly reports prepared by
the Reinsured in the form of Schedules C1 and C2 and sent to
Reinsurer via facsimile transmission or such other medium
mutually acceptable to both parties. Also included will be any
adjustments made necessary by changes in reinsurance effective
during the previous quarter, or changes due to any agreed upon
errors on a previous report. Payment of any amount due to be
paid by the Reinsurer or the Reinsured shall be determined on
a net basis and shall be paid, in United States currency,
within two (2) weeks after receipt by Reinsurer of the
quarterly report.
4. The settlement, as shown in Schedule Cl and C2 will include
interest on payments received, net transfers, mortality and
expense charges, and asset based allowances as shown in
Schedule E1, and interest on commission and expense
allowances, and interest on benefits from the Fixed Account,
as shown in Schedule D1 accruing from the fifteenth (15th) of
every month to the settlement date. The interest rate will be
the Settlement Interest Rate of the month named on the
Schedules D1 and El. Interest will be earned from the
fifteenth (15th) of the month named on Schedules D1 and E1 to
the next following settlement date.
IV. REDUCTIONS AND TERMINATIONS
1. If any of the annuity contracts reinsured under this Agreement
are reduced or terminated by payment of a death benefit,
withdrawal, surrender or annuitization, the reinsurance will
be reduced proportionately.
V. PREMIUMS
1. The premium to be paid to the Reinsurer by the Reinsured with
respect to each annuity contract reinsured, as specified in
Schedule A, will be the quota share percentage, as specified
in Schedule B1 of:
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<PAGE> 7
(i) The total amount "Due WMA", as shown in Schedule C1,
and
(ii) The total amount "Due WMA" as shown in Schedule C2.
VI. PAYMENTS BY REINSURER
1. The Reinsurer shall pay to the Reinsured the Reinsurer's quota
share percentage of:
(i) The total amount "Due WRL", as shown in Schedule C1,
and
(ii) The total amount "Due WRL", as shown in Schedule C2.
VII. REPORTING
1. The Reinsured shall assume responsibility for the
administration of all reinsurance under this Agreement and
will provide the Reinsurer with information as set forth in
Schedule C1 through Schedule J of this Agreement. The
Reinsurer may request, at its option, to review, at the
administrative office of the Reinsured, any papers associated
with the issuance of any annuity contract subject to Automatic
Reinsurance under this Agreement. In addition, the Reinsured
will provide the Reinsurer with information necessary to
properly account for the business reinsured and exercise its
obligation as a member of the Investment Management Committee.
2. Not later than twenty (20) days after the end of each quarter,
the Reinsured will submit a report substantially in accordance
with Schedules C1 and C2 accompanied by Schedules D2, E2, E3,
G, H, and I. The Reinsured agrees to provide or make available
to the Reinsurer such documentation as may be necessary to
support the items reported.
3. Not later than twenty (20) days after the end of each month,
the Reinsured will submit a report substantially in accordance
with Schedules D1, E1 and J.
4. Not later than thirty (30) days after the end of each calendar
year, the Reinsured will submit a report substantially in
accordance with Schedule F.
5. Not later than ninety (90) days after the end of each calendar
year, the Reinsured will provide a copy of its statutory
statement as filed with the State of Ohio.
6. Not later than one hundred twenty (120) days after the end of
each calendar year, the Reinsurer will provide a copy of The
WMA Corporation Form 10-K.
7. Not later than sixty (60) days after the end of each quarter,
the Reinsurer will provide a copy of The WMA Corporation Form
10-Q.
6
<PAGE> 8
VIII. POLICY CHANGES
1. Changes to the terms and conditions of annuity contracts
reinsured under this Agreement shall be made in accordance
with the provisions contained in this Article of the
Agreement.
2. If the change affects the plan, the amount of reinsurance,
premiums, commissions or policy changes under cession, the
Reinsured shall inform the Reinsurer in the subsequent
Reinsurance Report.
3. The Reinsured agrees to notify the Reinsurer in writing of any
anticipated material changes in the terms and conditions of
the annuity contracts.
IX. ANNUITIZATION
1. Any annuity contract annuitizing (going into payout status)
shall be deemed to be recaptured by the Reinsured.
2. On any annuity contract reinsured with the Reinsurer which
annuitizes, the Reinsurer will pay the Reinsured an amount
equal to the annuity contract's Annuity Value reduced by the
Contingent Deferred Sales Charge specified in the annuity
contract and premium tax, if any, previously paid by Reinsurer
with respect to the annuitized Annuity Contract.
X. DEPOSITS OF THE MODIFIED COINSURANCE RESERVE
1. The Reinsurer shall deposit with the Reinsured the modified
coinsurance reserves identified in Schedule H, for the
business reinsured under this Agreement.
2. For the purpose of this Article, modified coinsurance reserves
are defined to be the quota share percentage of the total
Separate Account Annuity Value of the annuity contracts
reinsured.
XI. INTEREST CREDIT (DEBIT) ON MODIFIED COINSURANCE RESERVE AND MODIFIED
COINSURANCE RESERVE ADJUSTMENT
1. The Reinsurer shall receive an interest credit (debit) on the
modified coinsurance reserve. The amount of the credit (debit)
will be determined as set forth in Schedule G.
7
<PAGE> 9
2. The Reinsured shall receive a modified coinsurance reserve
adjustment. The amount of the adjustment will be determined as
set forth in Schedule H.
3. Both the interest credit (debit) and the modified coinsurance
reserve adjustment will be made at the end of each calendar
quarter.
XII. REINSURANCE RESERVES
1. The Reinsured shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of
the excess, if any, of the total Separate Account Annuity
Value of the reinsured annuity contracts over the total
Separate Account Statutory Reserve of the annuity contracts.
The Reinsurer shall set up an Account Receivable asset equal
to the Account Payable liability set up by the Reinsured.
2. The Reinsurer shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of
the excess, if any, of the total Separate Account Statutory
Reserve of the reinsured annuity contracts over the total
Separate Account Annuity Value of the annuity contracts. The
Reinsured shall set up an Account Receivable asset equal to
the Account Payable liability set up by the Reinsurer.
3. The Reinsured will reduce its General Account Statutory
Reserves and Liabilities by the quota share percentage of the
total General Account Statutory Reserves and Liabilities
attributable to the reinsured policies, as shown in Schedule
C2. The Reinsurer will increase its General Account Statutory
Reserves and Liabilities by an amount equal to the reduction
taken by the Reinsured.
4. For purposes of Sections 1, 2 and 3 of this Article, the
Statutory Reserve shall be calculated by the Reinsured
according to the "Commissioner's Annuity Reserve Valuation
Method" as prescribed in the NAIC Standard Valuation Law and
approved by the State of Ohio Department of Insurance. The
General Account Statutory Reserves and Liabilities will be the
reserves associated with the Fixed Account and will include
the reserves for the guaranteed minimum death benefit.
5. In the event the Reinsurer is not licensed or otherwise
accredited or authorized as a reinsurer in the State of Ohio
and in any other jurisdiction where the Reinsured is licensed
to do business, the Reinsurer agrees to provide Letters of
Credit or other forms of security acceptable to the State of
Ohio Department of Insurance, in favor of the Reinsured for
the purpose of offsetting ceded Statutory Reserves and
liabilities and any outstanding losses if reinsurance credits
are not otherwise available. Such Letters of Credit shall be
issued in compliance with the statutes and regulations of the
State of Ohio and shall be issued by a financial institution
located in the United States chosen by the Reinsurer, which
has applied for and has met the standards of financial
conditions set forth by the NAIC's Securities Valuation
Office.
8
<PAGE> 10
6. The Letter(s) of Credit in favor of the Reinsured will be an
amount which at all times should equal or exceed the
reinsurance credits taken or reasonably estimated to be taken
by the Reinsured in connection with this Agreement under
Exhibit 8, under Exhibit 11, Part 1, Column 4, Line 4c, and
any other Liabilities held for the Reinsured Policies and
reported on the Reinsured's statutory financial statements.
Subject to the approval of the State of Ohio Department of
Insurance, the amount of the Letter of Credit may be reduced
by the quota share percentage of the excess of the Separate
Account Annuity Value over the Separate Account Statutory
Reserve. Should the reinsurance credit not be allowed, as a
result of this reduction in any applicable jurisdiction, the
Letter of Credit will be restored to the value that it would
have been without this reduction.
7. The Letter of Credit shall be substantially in the form set
forth in Exhibit B or in such other form as the Ohio Insurance
Department or other applicable state Insurance Department may
require or permit. The terms of the Letter of Credit shall
provide that: it is not conditioned on the delivery of any
other documents or materials; it is irrevocable without the
consent of the Reinsured; it is automatically renewable as
provided in Exhibit B; and its initial term is for a period of
not less than one (1) year. Such Letter of Credit may be drawn
upon at any time, notwithstanding any other provisions in this
Agreement, but shall be utilized by the Reinsured or its
successors only for one or more of the following reasons:
(i) to fund an account on behalf of the Reinsured in an
amount at least equal to the deduction, for
reinsurance ceded, from the Reinsured's reserves and
liabilities for Reinsured Plans, as specified in
Paragraph 6 of this Article and/or
(ii) to pay any other amounts the Reinsured claims are due
under this Agreement.
8. Such Letter(s) of Credit shall be promptly issued and
delivered to the Reinsured; but in no event shall the
Letter(s) of Credit be issued or confirmed later than December
31 in respect of the year for which the Reinsured is taking
credits for such reinsurance in its statutory financial
statements, and in no event shall the Letter(s) of Credit be
delivered to the Reinsured later than thirty (30) days after
such December 31.
XIII. GENERAL PROVISIONS
1. Parties to Agreement. This Agreement is a contract solely
between the Reinsurer and the Reinsured. The acceptance of
reinsurance hereunder shall not create any right or legal
relation between the Reinsurer and the insured, beneficiary,
or any other party to any annuity contract of the Reinsured,
which may be reinsured hereunder.
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<PAGE> 11
2. Reinsurance Conditions. The reinsurance is subject to the same
limitations and conditions as the insurance under the annuity
contracts written by the Reinsured on which the reinsurance is
based.
3. Expenses. The Reinsurer will have liability equal to the quota
share percentage of any extra-contractual damages which are
rendered against the Reinsured as a result of acts, commission
or course of conduct committed by a Producer of an affiliated
broker-dealer identified in Exhibit A, in connection with the
annuity contracts reinsured under this Agreement. The
Reinsurer will receive the quota share percentage of any
reimbursement that the Reinsured collects from World Marketing
Alliance, Inc. or its affiliates. In no event whatsoever will
the Reinsured have any liability for extra-contractual damages
assessed against the Reinsurer as a result of acts, omissions,
or course of conduct committed by the Reinsurer in connection
with the reinsurance of the annuity contracts under this
Agreement.
4. Oversights. If failure to pay any premium due or to perform
any other act required by this Agreement is unintentional and
is caused by misunderstanding, oversight or clerical error,
the Reinsured and the Reinsurer shall be restored to the
position they would have occupied had the misunderstanding,
oversight or clerical error not occurred.
5. Inspection. The Reinsured and the Reinsurer, their auditors
and any regulators having authority over the Reinsured and/or
the Reinsurer, shall have the right, at all reasonable times,
and at their expense, to inspect at the office of the other
party all books, records, procedures, and documents of the
other party relating to this Agreement. A party or its auditor
conducting such inspection shall give the other party one (1)
week advance written notice. The Reinsured, its auditors and
regulators shall have the same right to inspect, verify and
value any assets held in a trust account or otherwise held for
the benefit of the Reinsured. The party being audited or
inspected agrees to cooperate in the audit, including
providing any information requested by the other party or its
auditor in advance of the audit or inspection. Upon request,
the Reinsured agrees to furnish the Reinsurer with copies of
any underwriting information in the Reinsured's files
pertaining to a reinsured policy or reinsured rider.
It is mutually agreed by the Reinsured and the Reinsurer that
any information that is made available for inspection under
this section of the Agreement shall, to the extent legally
possible, be kept confidential and under no circumstances may
this information be disclosed to, or made available for
inspection by, any third party without the prior consent of
the other contracting party.
6. Assignment or transfer. In no event shall either the Reinsured
or the Reinsurer assign any of its rights, duties or
obligations under this Agreement without the prior written
approval of the other party. Such approval shall not
unreasonably be withheld.
In no event shall either the Reinsured or the Reinsurer
transfer either the Annuity Contracts Reinsured under this
Agreement or the reinsurance without the prior
10
<PAGE> 12
written approval of the other party. Such approval shall not
unreasonably be withheld.
7. Entire Agreement. This Agreement represents the entire
agreement between the Reinsurer and the Reinsured and
supersedes any prior oral or written agreements between the
parties regarding its subject matter.
8. Alterations to Agreement. Any alteration, which may from time
to time become necessary in this Agreement, shall be made by
amendment attached to the Agreement embodying such alterations
as may be agreed upon and taken as part of this Agreement and
equally binding. No modification or waiver of any provision of
this Agreement shall be effective unless set forth in written
amendment to this Agreement, which is executed by both
parties. A waiver shall constitute a waiver only with respect
to the particular circumstance for which it is given and not a
waiver of any future circumstance.
9. If any provision of this Agreement shall be held or made
invalid by an order of a court of competent jurisdiction,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be
construed in accordance with the applicable federal law and
the laws of the State of Ohio and the rights and obligations
of this Agreement shall, at all times, be regulated under the
laws of the State of Ohio.
10. Taxes. The Reinsurer shall reimburse the Reinsured for any
U.S. Excise Tax the Reinsured is required to pay under the
U.S. Internal Revenue Code for the reason that the Reinsurer
fails to make an election or terminates its election to file
U.S. federal income tax returns or otherwise ceases or fails
to file such return. The Reinsurer shall reimburse the
Reinsured for the quota share percentage of any other federal
or state taxes or state guaranty fund assessments the
Reinsured may be required to pay with respect to the Reinsured
Plans, but not including federal income tax paid with respect
to the Reinsured Plans. This Paragraph does not diminish in
any way the provisions of Article XVII, DAC Tax.
11. Insolvency of the Reinsured.
(a) The Reinsured shall immediately give Reinsurer
written notice of an event constituting insolvency of
the Reinsured. However, whether such notice is timely
given or not, in the event of the insolvency of the
Reinsured, all amounts relating to reinsurance made,
ceded, renewed or otherwise becoming effective under
this Agreement shall be payable by the Reinsurer
directly to the Reinsured or to its liquidator,
receiver or statutory successor on the basis of the
liability of the Reinsured without diminution because
of the insolvency of the Reinsured or because the
Reinsured or Reinsured's legal representative has
failed to pay all or a portion of amounts owed to
Reinsurer under this Agreement. It is understood,
however, that in the event of the insolvency of the
Reinsured, the liquidator or receiver or statutory
successor of the insolvent Reinsured shall give
written notice to the Reinsurer of the pendency of a
claim against the
11
<PAGE> 13
insolvent Reinsured 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 that the Reinsurer may investigate such
claim and interpose in the name of the Reinsured (or
its liquidator, receiver or statutory successor), at
the Reinsurer's own expense, in the proceeding where
such claim is to be adjudicated any defense or
defenses which it may deem available to the Reinsured
or its liquidator or receiver or statutory successor.
(b) It is further understood that the expenses thus
incurred by the Reinsurer shall be chargeable,
subject to court approval, against the insolvent
Reinsured as part of the expense of liquidation to
the extent of a proportionate share of the benefit
which may accrue to the Reinsured solely as a result
of the defense undertaken by the Reinsurer. When two
or more reinsurer's are participating in the same
claim and a majority in interest elects to interpose
a defense or defenses to such claim, the expense
shall be apportioned in accordance with the terms of
this Agreement as though such expense had been
incurred by the Reinsured.
12. Insolvency of the Reinsurer. The Reinsurer shall immediately
give the Reinsured written notice of an event constituting
insolvency of the Reinsurer. Upon the insolvency of the
Reinsurer, whether notice thereof was given by the Reinsurer
or not, the Reinsured has the right to immediately, by written
notice, terminate this Agreement and recapture all reinsurance
under this Agreement. Notwithstanding such termination or
recapture, Reinsurer or its legal representative shall
continue to be liable to the Reinsured for any obligations of
the Reinsurer under this Agreement still outstanding after
giving effect to such recapture.
13. For the purpose of this Agreement, either the Reinsurer or the
Reinsured shall be deemed "insolvent" under the following
circumstances:
(a) when a cease and desist order or injunction has been
issued by the commissioner or a court of competent
jurisdiction in its state or jurisdiction of domicile
ordering either party to cease and desist from
transacting, soliciting or writing any new business
of any kind and is reasonably expected to result in
conservatorship, rehabilitation, receivership, or
liquidation; or
(b) when a court of competent jurisdiction order is
issued voluntarily or involuntarily placing either
party into conservatorship, rehabilitation,
receivership, or liquidation, or appointing a
conservator, rehabilitator, receiver or liquidator to
take over the business of either party; or
(c) when it files or consents to the filing of a petition
in bankruptcy, seeks reorganization or an arrangement
with creditors or takes
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<PAGE> 14
advantage of any bankruptcy, dissolution, liquidation
or similar law or statute.
14. Offset. The Reinsurer and the Reinsured shall consider any
balance due and unpaid, matured or unmatured, liquidated or
unliquidated, regardless of when they arose or were incurred,
whether on account of premiums, allowances, policy charges,
losses, claims expenses, or any other amount in accordance
with the terms of this Agreement, or any other reinsurance
agreement, due from one party to another to be mutual debits
or credits under this Agreement and shall be offset and only
the balance allowed or paid. If either the Reinsured or
Reinsurer is then under any formal insolvency proceedings,
this right of offset shall be subject to the laws of the
domiciliary jurisdiction of the then insolvent party.
15. Non-Guaranteed Charges, Benefits and Interest Rates. The
Reinsured agrees to manage the non-guaranteed charges,
benefits, and interest rates in a way that balances the
interests of the owners, agents, stockholders, contract
owners, and the Reinsurer, while exercising sound actuarial
professional judgment. Any changes in the non-guaranteed
contract charges, benefits, and interest rates will be
accompanied by an actuarial report prepared in accordance with
the standards described in the Actuarial Standards of Practice
No. 1, as Reformatted and Readopted in 1990 by the Actuarial
Standards Board. The actuarial report should disclose a
description of the framework within which the actuary's advice
has been developed, a description of the facts, methods,
procedures and assumptions upon which the advice was based,
and the other information called for by the Actuarial Standard
of Practice No. 1. Should the Reinsurer determine that the
Reinsured has not balanced the interests of the Reinsured with
the interests of the Reinsurer and agreement cannot be
reached, any claims may be settled by arbitration in
accordance with Article XV, Arbitration.
16. Investment Management Committee. The parties shall form an
Investment Management Committee consisting of one (1) member
each from the Reinsured and the Reinsurer. The Reinsured shall
provide the Reinsurer copies of its investment policies and
crediting rate strategies. The Reinsurer shall provide the
Reinsured its investment policies. If either party changes its
investment policies or crediting rate strategies, it shall
promptly provide the other party a copy of such changes. The
purpose and function of the Investment Management Committee
shall be to recommend crediting rates to the Reinsured for
approval in accordance with the provision set forth in Exhibit
C, Guidelines for Crediting Rates.
17. Forms and Manuals. The Reinsured agrees to make available to
the Reinsurer copies of all appropriate policy forms,
prospectuses, application forms, and other related material.
If new material is published, or changes are made in the
material already filed, the Reinsured agrees to promptly
provide the Reinsurer with copies of such material.
18. Definitions. Any term not defined in this Agreement which is
in general usage in the life insurance and annuity industry
shall be given the same meaning as
13
<PAGE> 15
such general usage ascribes to that term, giving due
consideration to the context in which the term is used in this
Agreement.
19. Headings. The headings of the Articles, Paragraphs and any
subparagraphs and Schedules of this Agreement are inserted for
convenience of reference only and shall not constitute a part
of this Agreement.
XIV. RECAPTURE
1. With the exception of the provisions in Article IX,
Annuitization, business reinsured under this Agreement will
not be eligible for recapture, except the Reinsured reserves
the right to recapture any business that has been enforce
thirty-five (35) years after the policy issue date.
Furthermore, should a state regulatory body rule that this
Agreement is not valid for any reason, and there is no
remedial action available to correct the situation, the
Reinsured reserves the right to recapture that portion of the
business that was reinsured. Any adjustment in values as a
result of recapture will be agreed upon at the time of the
recapture. If agreement cannot be reached, any claims will be
settled in accordance with the provision of Article XV,
Arbitration.
XV. ARBITRATION
1. Any controversy or claim between the Reinsured and the
Reinsurer, arising out of or relating to this Agreement or the
breach thereof or the coverage of this arbitration provision,
shall be settled by arbitration.
2. There shall be three (3) arbitrators who shall be current or
former officers of life insurance companies or life
reinsurer's. However, unless otherwise consented to in writing
by the parties, such person shall not be a current or former
employee of, or current or former consultant to, the parties
or any affiliate or reinsurer of the parties; nor shall he or
she have any current employment or affiliation with,
consulting or contractual engagement with, or financial
interest in: a party to this Agreement or persons or companies
affiliated or associated with a party to this Agreement. The
Reinsured shall appoint one of the arbitrators and the
Reinsurer shall appoint a second arbitrator and these two
arbitrators shall select the third. If either party shall fail
to appoint an arbitrator within thirty (30) days after the
other party has given notice of its appointment of an
arbitrator, the appointment of the arbitrator for the party
which has so failed to appoint an arbitrator shall be left to
the other party. Should the two arbitrators appointed by or
for the parties fail to agree on the choice of the third,
within sixty (60) days of their appointment then each of them
shall name three (3) individuals, of whom the other shall
decline two (2), and the decision shall be made by drawing
lots.
14
<PAGE> 16
3. Arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association which shall be in effect on the date of delivery
of demand for arbitration; except, however, that arbitrators
shall be appointed in accordance with the provisions of
Paragraph 2 of this Article and that, to the extent any other
terms or provisions of this Article are inconsistent with or
in conflict with the Commercial Arbitration Rules, this
Article shall control.
4. The arbitration shall be conducted in a location to be
determined by a majority of the Arbitrators.
5. The Reinsured and the Reinsurer shall each pay that part of
the expense of arbitration, which shall be apportioned to it
by the arbitrators.
6. The award rendered by the arbitrators shall be final, and
judgment may be entered upon it in any court having
jurisdiction thereof.
7. The Arbitrators shall base their decision on the terms and
conditions of this Agreement and, as necessary, on the customs
and practices of the life reinsurance and life insurance
industries rather than on a strict interpretation of
applicable law.
XVI. IMPROPER SOLICITATION OF ANNUITY CONTRACT OWNERS
1. Neither party, nor any affiliate thereof, shall contact or
authorize any other person to contact owners of the annuity
contracts for the purpose of soliciting surrender of the
annuity contracts, conversion of the annuity contracts to
another form of insurance, making policy loans or withdrawals
without prior written approval of the other party.
XVII. DAC TAX - SECTION 1.842(g)(8) ELECTION
1. The Reinsurer and the Reinsured each acknowledge that it is
subject to taxation under Subchapter "L" of the Internal
Revenue Code of 1986 (The "Code").
2. The Reinsured and the Reinsurer hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations issued December 1992, under Section 848 of the
Internal Revenue Code of 1986, as amended. This election shall
be effective for 1998 and for all subsequent taxable years for
which this Agreement remains in effect.
3. The terms used in this Article are defined by reference to
Regulation Section 1.848-2 in effect December 1992.
4. Each party agrees to attach a schedule to its federal income
tax return, which identifies this Agreement for which the
joint election under the Regulation has been made.
15
<PAGE> 17
5. The party with the net positive consideration for this
Agreement for each taxable year will capitalize specified
policy acquisition expenses with respect to this Agreement
without regard to the general deductions limitation of Section
848(c)(1)
6. Both Parties agree to exchange information pertaining to the
amount of net consideration under this Agreement each year to
ensure consistency or as otherwise required by the Internal
Revenue Service.
7. The Reinsured will submit a schedule to the Reinsurer by May
1, of each year, of its calculation of the net consideration
for the preceding calendar year. This schedule of calculations
will be accompanied by a statement signed by an officer of the
Reinsured stating that the Reinsured will report such net
consideration on its tax return for the preceding calendar
year.
8. The Reinsurer may contest such calculation by providing an
alternative calculation to the Reinsured in writing within
thirty (30) days of the Reinsurer's receipt of the Reinsured's
calculation. If the Reinsurer does not so notify the
Reinsured, the Reinsurer will report the net consideration as
determined by the Reinsured in the Reinsurer's tax return for
the previous calendar year.
If the Reinsurer contests the Reinsured's calculation of the
net consideration, the parties will act in good faith to reach
an agreement as to the correct amount within thirty (30) days
of the date the Reinsurer submits its alternative calculation.
If the Reinsured and the Reinsurer reach agreement on an
amount of net consideration, each party shall report such
amount in their respective tax returns for the previous
calendar year.
XVIII. DURATION OF AGREEMENT
1. Except as provided in Article XIV, Recapture, in force
reinsurance which has been ceded under this Agreement shall be
unlimited as to its duration and shall be maintained in force
for so long as such policies shall remain in force and the
reinsurance premiums and payments referenced in Article V,
Premiums and VI Payments By Reinsurer, are paid when due.
2. Term of Agreement. The initial term of this Agreement shall be
five (5) years. During and after the initial term, this
Agreement may be canceled as it pertains to the reinsurance of
new business thereafter:
(a) immediately upon written notice by a party if the
other party becomes insolvent, dissolves, ceases to
legally exist, or otherwise ceases to be legally
authorized to act as a reinsurer or insurer,
respectively, in its domiciliary jurisdiction;
(b) upon thirty (30) days written notice by a party if
the other party has materially breached this
Agreement and has failed to cure such breach within
such thirty (30) days;
16
<PAGE> 18
(c) when and as agreed upon by the parties in writing.
4. After the initial term of this Agreement, this Agreement may
also be canceled by either party, as it pertains to the
reinsurance of new business thereafter, by giving three
hundred sixty-five (365) days advance notice of cancellation
in writing. In such case, the Reinsurer shall continue to
cede, and the Reinsurer shall continue to accept reinsurance,
under this Agreement on policies and riders issued during the
three hundred sixty-five (365) day period, and the interest of
the Reinsurer in new business shall cease at the end of the
three hundred sixty-five (365) day period.
XIX. WRITTEN NOTICE
1. Any notice given in connection with this Agreement shall be
deemed to be provided when it is sent by facsimile to the
numbers shown below, or by first class mail or by courier to
the addresses set forth below, or to the last address or
facsimile number of record such party designates in writing:
<TABLE>
<S> <C>
If to the Reinsured: With a Copy to:
Western Reserve Life Assurance Co. of Ohio Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue 201 Highland Avenue
Largo, Florida 33770 Largo, Florida 33770
Attn: Chief Actuary, Attn: Managing Actuary,
Alan Yaeger Larry Kirkland
Facsimile: (727) 587-1834 Facsimile: (727) 587-1834
If to the Reinsurer: With a Copy to:
WMA Life Insurance Company Limited The WMA Corporation
Third Floor, 44 Church Street 11315 Johns Creek Parkway
Hamilton HM 12, Bermuda Duluth, GA 30097-1517
Attn: Manager Attn: Chief Financial Officer
Facsimile: (441) 296-1058 Facsimile: (770) 453-9333
James F. Tenney, Esq.
Merritt & Tenney
200 Galleria Parkway, Suite 500
Atlanta, GA 30067
Facsimile: (770) 952-0028
</TABLE>
17
<PAGE> 19
XX. EXECUTION
In witness of the above, the Reinsured and the Reinsurer, by their
respective officers have executed this Agreement in duplicate at the
dates and places indicated and shall be effective as of January 1,
1998.
WESTERN RESERVE LIFE WMA LIFE INSURANCE
ASSURANCE CO. OF OHIO COMPANY LIMITED
at Largo, FL at Ventura, CA/Duluth, GA
---------------------------- ---------------------------------
on July 28 , 1998. on July 29 , 1998.
--------------------- --------------------------
By: /s/ Alan Yaeger By: /s/ Edward F. McKernan
--------------------------- --------------------------------
Title: Exec. V.P. Title: V.P. & Actuary
By: /s/ Larry Kirkland By: Wood Montgomery
--------------------------- --------------------------------
Title: V.P. & Managing Actuary Title: Executive Vice President
18
<PAGE> 20
XX. EXECUTION
In witness of the above, the Reinsured and the Reinsurer, by their
respective officers have executed this Agreement in duplicate at the
dates and places indicated and shall be effective as of January 1,
1998.
WESTERN RESERVE LIFE WMA LIFE INSURANCE
ASSURANCE CO. OF OHIO COMPANY LIMITED
at at Duluth, GA
---------------------------- ---------------------------------
on , 1998. on July 29 , 1998.
--------------------- --------------------------
By: By: /s/ Thomas W. Montgomery
--------------------------- --------------------------------
Title: Title: Executive Vice President
By: By: /s/ Wood Montgomery
--------------------------- --------------------------------
Title: Title: Exec. V.P.
18
<PAGE> 21
Exhibit A
PRODUCER
Annuity contracts and applicable riders must be sold by and distributed through:
WMA Securities, Inc. (and/or its successors) and its affiliates.
18
<PAGE> 22
Exhibit B
FORM OF LETTER CREDIT
Effective Date
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Clearwater, FL 33770
Gentlemen:
We have established this clean, irrevocable and unconditional Letter of Credit
in your favor as beneficiary for drawings up to ________________________________
effective immediately. This Letter of Credit is issued, and payable at our
office at ________________________ and expires with our close of business on
___________________. Except when the amount of this Letter of Credit is
increased, this Letter of Credit cannot be modified or revoked without your
consent.
The term "Beneficiary" includes any successor by operation of law of the named
Beneficiary. If a court of law appoints a successor in interest to the named
Beneficiary, then the named Beneficiary includes and is limited to the court
appointed domiciliary receiver (including conservator, rehabillitator or
liquidator).
We hereby undertake to promptly honor your sight draft(s) drawn on us,
indicating our Letter of Credit No. __________, for all or any part of this
Letter of Credit upon presentation of your draft drawn on us at our office
specified in paragraph one on or before the expiration date hereof or any
automatically extended expiry date.
Except as expressly stated herein, this undertaking is not subject to any
agreement, requirement or qualification. Our obligation under this Letter of
Credit is our individual obligation and is in no way contingent upon
reimbursement with respect thereto, or upon our ability to perfect any lien,
security interest or any other reimbursement.
This Letter of Credit is deemed to be automatically extended, without amendment,
for one year from the expiration date hereof, or any future expiration date,
unless at least thirty days prior to
19
<PAGE> 23
such expiration date we notify you by Registered Mail or Certified Mail that
this Letter of Credit will not be renewed for any such additional period.
This Letter of Credit is subject to and governed by the Laws of the State of
Ohio and the 1993 Revision of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce (Publication 500) and, in the
event of any conflict, the Laws of the State of Ohio will control. If this
Letter of Credit expires during an interruption of business as described in
Article 17 of said Publication 500, we hereby specifically agree to effect
payment if this Letter of Credit is drawn against within thirty days after the
resumption of business.
Very truly yours,
20
<PAGE> 24
Exhibit C
GUIDELINES FOR CREDITING RATES
The Investment Management Committee adopts the following guidelines for
recommending crediting rates:
1. In each quarter, the Investment Management Committee will
present its recommended crediting rates for the following
quarter to the Reinsured for approval. In recommending such
rates, the Investment Management Committee shall consider the
expected earned rate for the quarter (the reinsured portion of
which will be provided by the Reinsurer), the assumed pricing
spread, and any potential adverse impact which rate changes
may have on the persistency of the block of business.
2. It is expected the Investment Management Committee and the
reinsured will be able to reach agreement. However, if the
Investment Management Committee and the reinsured are unable
to reach agreement, the Reinsured may establish the renewal
crediting rates.
3. Should the ownership of the Reinsured change from that which
existed at the inception of this Agreement, or should the
total amount of the Fixed Account payments ceded to any one
reinsurer exceed the Fixed Account payments retained for the
Reinsured Plans for any quarter, the Reinsured may not set a
crediting rate greater than the rate determined by the formula
specified below. The formula takes into account the level of
remaining surrender charges for the plan/contract year cell
and the extent to which first year rates on competing
annuities exceed the previous year's rate for the cell.
Failure to abide by this condition will result in the
Reinsurer being liable only for Fixed Account benefits
calculated in accordance with an interest rate that would have
resulted had the formula below been used from the time that
the rate exceeded the maximum to the date that the benefit was
paid.
a. If the "average competitor rate" is *:
i. *
ii. equals the * rate.
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
21
<PAGE> 25
The "average competitor rate" will be the average of the first
year crediting rates provided by a group of competing annuity
issues. The Reinsured will be responsible for selecting these
competing annuity issuers, subject to the Reinsurer's
approval, and monitoring the first year crediting rates for
these issuers on an ongoing basis.
For example, if the average competitor rate for a quarter is
8.5%, then the maximum rate which the Reinsured may credit
under this circumstance for a plan cell with a * credited rate
of 7% and * would be 7.5% (i.e., *).
b. If the average competitor rate is less than or equal
to the previous year's rate for the cell, the renewal
rate shall not exceed *, where
i. equals the * rate,
ii. equals the average competitor rate and
*.
* It reflects the fact that the greater the surrender charge
is, the less likely the policy will surrender and the less
amount by which the previous year's rate will need to be
reduced. *, the credited rate will be lowered towards the
current market level.
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
22
<PAGE> 26
Schedule A
BUSINESS REINSURED
1. Contract
Name: WRL Freedom Wealth Creator
Type: Flexible Payment Variable Accumulation Deferred Annuity
Form Number: VA16 and any state variations
2. Rider
a) Name: Nursing Care Facility Endorsement
Type: Benefit Endorsement
Form Number: END.88.07.90 and any state variations
23
<PAGE> 27
Schedule B1
AMOUNT OF REINSURANCE
The amount of reinsurance under this Agreement shall be the Reinsurer's quota
share percentage shown below of the liability of the Reinsured on all annuity
contracts in the forms listed in Schedule A, Business Reinsured.
Ouota Share Percentages for Issue Dates in 1998: For issue dates in 1998, the
quota share percentage will be 40%.
Ouota Share Percentages for Issue Dates in 1999 and later: The Reinsurer and the
Reinsured will jointly determine the quota share percentages no later than
December 1st applicable to new issues in the following calendar year. The
determining factors for the quota share percentage are the expected WMA Total
Variable Annuity First Year Payments Collected by the Reinsured and the expected
WMA Total Variable Annuity First Year Payments written with all insurance
companies for the calendar year that the quota share percentage will be
applicable. This determination of the quota share percentage will be on a
mutually acceptable basis, recognizing the good faith nature of this Agreement,
and with references to the estimates made by both parties, based on the prior
periods' variable annuity payments.
The Scheduled Quota Share Percentages for each threshold of expected WMA Total
Variable Annuity First Year Payments Collected by the Reinsured are shown in the
following table:
<TABLE>
<CAPTION>
WMA TOTAL VARIABLE SCHEDULED
ANNUITY FIRST YEAR QUOTA SHARE
PAYMENTS COLLECTED PERCENTAGE
BY THE REINSURED (IN
MILLIONS)
----------------------------------
<S> <C>
$100-249 40%
----------------------------------
$250+ 50%
----------------------------------
</TABLE>
For each threshold of expected WMA Total Variable Annuity First Year Payments
Collected by the Reinsured, a certain percentage of WMA Total Variable Annuity
First Year Payments is expected to be collected by the Reinsured. The thresholds
are as follows:
<TABLE>
<CAPTION>
WMA TOTAL VARIABLE SCHEDULED % OF WMA TOTAL
ANNUITY FIRST YEAR VARIABLE ANNUITY FIRST YEAR
PAYMENTS COLLECTED PAYMENTS TO BE COLLECTED BY
BY THE REINSURED (IN MILLIONS) THE REINSURED
-------------------------------------------------------------
<S> <C>
$100-249 45%
-------------------------------------------------------------
$250+ 30%
-------------------------------------------------------------
</TABLE>
24
<PAGE> 28
The scheduled quota share percentages may be reduced if:
1. The percentage of expected WMA Total Variable Annuity First Year
Payment Collected by the Reinsured is less than the Scheduled
Percentage of expected WMA Total Variable Annuity First Year Payment
to be Collected by the Reinsured, and/or
2. The growth rate in expected WMA Total Variable Annuity First Year
Payment Collected by the Reinsured declines, as measured by the
financial reports of the Reinsured.
If the percentage of expected WMA Total Variable Annuity First Year Payment
Collected by the Reinsured to expected WMA Total Variable Annuity First Year
Payment Collected from all sources is less than the Scheduled Percentage of
expected WMA Total Variable Annuity First Year Payment Collected by the
Reinsured:
The quota share percentage may be reduced 5% for each full 5% reduction in the
Reinsured's Scheduled Percentage of expected WMA Total Variable Annuity First
Year Payment Collected by the Reinsured, as estimated by WMA's financial
statements. As an example, if the expected WMA Total Variable Annuity First Year
Payment Collected by the Reinsured is $225 Million, but the $225 Million is only
35% of expected WMA Total Variable Annuity First Year Payment, the quota share
percentage may be reduced from 40% to 30%.
<TABLE>
<CAPTION>
VOLUME QUOTA SHARE % OF PRODUCTION TO
REINSURED
------------------------------------------------
<S> <C> <C>
$100-249 30% 35%
------------------------------------------------
</TABLE>
If the Reinsured's growth rate in expected WMA Variable Annuity Total First Year
Payment Collected by the Reinsured declines:
The quota share percentage may be reduced 5% if the growth rate is 0%, or less.
In both of the two situations that could cause a reduction in the quota share
percentage, any reduction in the quota share percentage will be mutually
acceptable to both parties.
25
<PAGE> 29
Schedule B2
Commission and Expense Allowances*
1. Issue and Maintenance Expense Allowance
2. Sales and Marketing Expense Allowance
3. Commission Allowance
4. Claim Expense Allowance
5. Target Surplus Allowance
6. DAC Tax Allowance
*all multiplied by the quota share percentage.
<TABLE>
<S> <C>
1. Issue and Maintenance Expense Allowances
- -----------------------------------------------------------------------------------------------------------
a. Issue Expense Allowance $* per contract issued
- -----------------------------------------------------------------------------------------------------------
b. Maintenance Expense Allowance - $* per contract in force at end of each calendar
(all years) month
- *% of Fixed and Separate Account Value in
force at the end of each calendar quarter.
- -----------------------------------------------------------------------------------------------------------
c. Exhibit 6 Expense Allowance (Intended to reflect Exhibit 6 type expenses.)
- Exhibit 6 Taxes paid Per the Reinsured Ledger
- Exhibit 6 Tax offsets Per the Reinsured Ledger
- Other, including guaranteed fund Per the Reinsured Ledger
assessments
d. Investment Operations Tax Accrued amount of reserve for any taxes that may result
from investment operations of sub-accounts
e. Gains (Losses) Per the Reinsured Ledger
2. Sales and Marketing Expense Allowance
a. Marketing Expense *% of first year collected payments.
</TABLE>
3. Commission Allowances
Actual Commissions paid per the Reinsured ledger. Commission schedules, for
information purposes only, are as follows:
<TABLE>
<CAPTION>
Percent of Collected Payments by Attained Age Percent of Annuity Value by Contract Anniversary**
CONTRACT
ATTAINED AGE HIGH MEDIUM LOW ANNIVERSARY HIGH MEDIUM LOW
<S> <C> <C> <C> <C> <C> <C> <C>
0-74 * * * 1-7 * * *
75-85 * * * B+ * * *
86-89 * * *
*Plus a 2.00% bonus, depending on production. **Paid on contracts w/ annuity value of $5,000 or more
</TABLE>
4. Claim Expense Allowance
<TABLE>
<S> <C>
a. Death Claim Expense $* per death claim termination
b. Other Termination Expense $* per all other terminations, excluding
annuitizations
5. Target Surplus Adjustment *% of Separate Account Annuity Value less prior
Target Surplus balance accrued at an effective annual
interest rate of *% (if positive); if amount is negative,
balance is paid to Reinsurer.
6. DAC Tax Allowance *% of the Nonqualified Payments.
</TABLE>
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934.
<PAGE> 30
Schedule C1 -- Quarterly Reports
Quarterly Settlement Report
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance Settlement
31-Dec-1997
<TABLE>
<CAPTION>
WMA
TOTAL QUOTA SHARE SOURCE
----- ----------- --------
<S> <C> <C> <C>
A. Due WMA
1. Payments Ceded 0 0 G(qr)
2. Transfers-in from the Fixed Account 0 0 G(qr)
3. Mortality and Expense Risk Charges 0 0 E2(qpr)
4. Asset-Based Allowance 0 0 E2(qpr)
5a. Annual Administrative Charges 0 0 E2(qpr)
5b. less: Annual Administrative Charges from Fixed
Account 0 0 E2(qpr)
5c. equals: Annual Administrative Charges from
Separate Account 0 0 E2(qpr)
6. Contractholder Investment Gain on SA Annuity Value 0 0 E2(qpr)
7. Gain/(Loss) Adjustment on Transaction Processing 0 0 G(qr)
8. Investment Income on SA Target Surplus 0 0 Stat
9. Commission Allowance Chargebacks 0 0 I(qr)
----- -----------
10. Total Amount Due WMA = (1)+(2)+(3)+(4)+(5c)+(6)+(7)+(8)+(9) 0 0 Ext
B. Due WRL
1. Commission and Expense Allowances
a. Issue Expense Allowance 0 0 D2(qr)
b. Maintenance Expense Allowance 0 0 D2(qr)
c. Sales and Marketing Expense Allowance 0 0 D2(qr)
d. Commission Allowance 0 0 D2(qr)
e. Claim Expense 0 0 D2(qr)
----- -----------
f. Total Commission and Expense Allowances = sum (a) to (e) 0 0 D2(qr)
2. Benefits Ceded
a1. Surrenders 0 0 E2(qpr)
a2. less: Surrender Charges 0 0 E2(qpr)
b. Not-Taken Refunds 0 0 E2(qpr)
c. Maturities 0 0 E2(qpr)
d. Annuitizations 0 0 E2(qpr)
e1. Partial Withdrawals 0 0 E2(qpr)
e2. less: Surrender Charges 0 0 E2(qpr)
f. Death Claims (includes enhanced DB, interest) 0 0 E2(qpr)
g. Transfers-out-to the Fixed Account 0 0 G(qr)
----- -----------
h. Total Benefits Ceded = sum (a) to (g) 0 0
3. Modified Coinsurance Annuity Value Adjustment 0 0 H(qr)
4. SA Target Surplus Adjustment 0 0 I(qr)
5. DAC Tax Allowance 0 0 E2(qpr)
6. Total Amount Due WRL = (1f)+(2h)+(3)+(4)+(5) 0 0
C. Balance During the Period = A(10)-B(6) 0 0
1. If positive, the quota share balance is
due to be paid by WRL
2. If negative, the quota share balance is
due to be paid by WMA
</TABLE>
The column headed "WMA Quota Share" shows the adjustment
by the Quota Share Percentage.
Sources:
D2(qr) Schedule D2 -- Quarterly Commission and Expense Report
E2(qpr) Schedule E2 -- Quarterly Production Report
G(qr) Schedule G -- Quarterly Interest Credit on Reserve Report
H(qr) Schedule H -- Quarterly ModCo Reserve Adjustment Report
I(qr) Schedule I -- Quarterly Target Surplus Adjustment Report
Ext WMA VA Mod-Co Seriatim File
Stat WRL Status file (Accounting general ledger)
<PAGE> 31
Schedule C2 -- Quarterly Reports
Quarterly Reserve and Settlement Report
WRL Freedom Wealth Creator Variable Annuity
Coinsurance Settlement
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- --------
<S> <C> <C> <C>
CARVM Reserves without GMDB 0 0 E3(qrr)
GMDB Reserves 0 0 E3(qrr)
----- -----------
Total Statutory Reserves 0 0
CARVM Reserves without GMDB Split between SA and GA:
SA CARVM Reserves 0 E3(qrr)
Total SA Statutory Reserves 0 0
GA CARVM Reserves 0 0 E3(qrr)
GMDB Reserves 0 0 E3(qrr)
Total GA Statutory Reserves 0 0
Exhibit II, Part I, Column 4, Line 4a Liability 0 0 Acct
Other GA Liabilities 0 0 Acct
----- -----------
Total GA Reserves and Liabilities 0 0
Annuity Values
Separate Account Values 0 0 E3(qrr)
Fixed Account Values
Fund 11 0 E3(qrr)
Loan Balances 0 E3(qrr)
Total Fixed Account Values 0 0
----- -----------
Total Annuity Values 0 0
Cash Values 0 0 E3(qrr)
</TABLE>
Quarterly Settlement
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- --------
<S> <C> <C> <C>
A. Coinsurance Amounts Due WMA
1. Transfers-in to the Fixed Account 0 0 C1(qr)
2. Loan Principal Repaid during quarter 0 0 Stat
3. Loan Interest Paid during quarter 0 0 Stat
4. Interest on Payments and Net Transfers to Fixed
Account 0 0 E2(qpr)
5. Interest on M&E Risk Charges and A-B Allowances 0 0 E2(qpr)
----- -----------
6. Total Due WMA 0 0
B. Coinsurance Amounts Due WRL
1. Transfers-out from the Fixed Account 0 0 C1(qr)
2. New Loans taken during quarter 0 0 E2(qpr)
3. Interest on Commission and Expense Allowances 0 0 E2(qpr)
4. Interest on Benefits from Fixed Account 0 0 E2(qpr)
----- -----------
6. Total Due WRL 0 0
C. Balance During the Period = A(6) - B(5)
D. Total Reinsurance Premiums (Schedule C1 and Schedule C2) 0 C1 & C2
E. Total Payments by the Reinsurer (Schedule C1 and
Schedule C2) 0 C1 & C2
F. Total Reinsurance Settlement for the Period: (D - E) 0
1. If positive, the quota share balance is
due to be paid by WRL
2. If negative, the quota share balance is
due to be paid by WMA
</TABLE>
SOURCES:
Stat WRL Status file (Accounting general ledger)
C1(qr) Schedule C1 -- Quarterly Settlement Report
C2(qr) Schedule C2 -- Quarterly Reserve and Settlement Report
E2(qpr) Schedule E2 -- Quarterly Production Report
E3(qrr) Schedule E3 -- Quarterly Reserve Report
Acct Financial Reporting Accounting and Death Claim Report
<PAGE> 32
Schedule D1 -- Monthly Reports
Detail of Commission and Expense Allowances
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C>
1. Expense Allowances
a. Issue Expense Allowance 0 0 E1(mpr)
($* per issue, -$* for not-takens)
b. Maintenance Expense Allowance 0 0
($* per inforce end of month) 0 E1(mpr)
Premium Tax equals: 0
Premium taxes paid 0 WRL
-Premium tax offsets 0 WRL
Other, including guaranteed fund
assessments 0
Guar. Fund Costs 0
2. Sales and Marketing Expense Allowance 0 0
a. (*% of first year Payments) 0 E1(mpr)
3. Commission Allowances 0 0
a. High Option 0
Attained Age 0 - 74 0 DSS
Attained Age 75 - 85 0 DSS
Attained Age 86 - 90 0 DSS
Trails 0 DSS
b. Mid Option 0
Attained Age 0 - 74 0 DSS
Attained Age 75 - 85 0 DSS
Attained Age 86 - 90 0 DSS
Trails 0 DSS
c. Level Option 0
Attained Age 0 - 90 0 DSS
Trails 0 DSS
4. Renewal Marketing Expense Allowance 0 0 E3(qrr)
(*% of Total Annuity Value)
5. Claim Expense 0 0
a. Death Claim Expense ($* per death) 0 E1(mpr)
b. Other Termination Expense ($* per other, 0 E1(mpr)
excluding not-takens, annuitizations)
6. DAC Tax Allowance 0 0 E1(mpr)
(*% of Total Nonqualified Net
Transfers to Separate Account)
----- -----------
Total Commission and Expense Allowance 0 0
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E1(mpr) Schedule E1 - Monthly Production Report
E3(qrr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL expenses and methods of reporting
DSS Commission Accounting Extract
* Material omitted pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.
<PAGE> 33
Schedule D2 -- Quarterly Reports
Detail Of Commission And Expense Allowances
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C>
1. Expense Allowances
a. Issue Expense Allowance 0 0 E2(qpr)
($* per issue, -$* for not-takens)
b. Maintenance Expense Allowance 0 0
($* per inforce per month, end
of month) 0 E2(qpr)
Premium Tax equals: 0
Premium taxes paid 0 WRL
-Premium tax offsets 0 WRL
Other, including guaranteed fund
assessments 0
Guar. Fund Costs 0 WRL
2. Sales and Marketing Expense Allowance 0 0
a. (*% of first year Payments) 0 E2(qpr)
3. Commission Allowances 0 0
a. High Option 0
Attained Age 0 - 74 0 DSS
Attained Age 75 - 85 0 DSS
Attained Age 86 - 90 0 DSS
Trails 0 DSS
b. Mid Option 0
Attained Age 0 - 74 0 DSS
Attained Age 75 - 85 0 DSS
Attained Age 86 - 90 0 DSS
Trails 0 DSS
c. Level Option 0
Attained Age 0 - 90 0 DSS
Trails 0 DSS
4. Renewal Marketing Expense Allowance 0 0 E3(qrr)
(*% of Total Annuity Value)
5. Claim Expense 0 0
a. Death Claim Expense ($* per death) 0 E2(qpr)
b. Other Termination Expense ($* per 0 E2(qpr)
other, excluding not-takens,
annuitizations)
6. DAC Tax Allowance 0 0 E2(qpr)
(*% of Total Nonqualified Net
Transfers to Separate Account)
----- -----------
Total Commission and Expense Allowance 0 0
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E2(qpr) Schedule E2 - Quarterly Production Report
E3(qrr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL expenses and methods of reporting
DSS Commission Accounting Extract
___________
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
<PAGE> 34
Schedule E1 - Monthly Reports
Monthly Production and Policy Loads Report
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
- -------- ----- ----------- ------
<S> <C> <C> <C>
In Force 30-Nov-1997 0 40% E1(mr)
Issues 0 AEx
Reinstatements 0 AEx
-----
Total Increases 0
Surrenders 0 AEx
Not-Takens 0 AEx
Maturities 0 AEx
Annuitizations 0 AEx
Deaths 0 AEx
-----
Total Terminations 0
Net Change 31-Dec-1997 0
-----
In Force 31-Dec-1997 0
Initial and Purchase Payments
Qualified 0 0 Stat
Nonqualified 0 0 Stat
- ---------------------------------------------------------------------------------------------------------
1st Year 0
- ---------------------------------------------------------------------------------------------------------
Qualified 0 0 Stat
Nonqualified 0 0 Stat
- ---------------------------------------------------------------------------------------------------------
Renewal 0
- ---------------------------------------------------------------------------------------------------------
Total 0 0
Payments Allocated to Fixed Account 0 0 Stat
Payments Allocated to Separate Account 0 0 Stat
Mortality and Expense Risk Charges 0 0 J(mr)
Asset-Based Allowances 0 0 J(mr)
Annual Administrative Charges 0 0
Charges from Fixed Account 0 Ext
Charges from Separate Account 0 Ext
</TABLE>
Benefits Paid During Month:
<TABLE>
<CAPTION>
Separate Account Fixed Account
---------------------------- ---------------------------- Nonqualified
Gross With's Surr Charges Gross With's Surr Charges SA Gross With's
<S> <C> <C> <C> <C> <C> <C>
1. Surrenders Stat
2. Not-Taken Refunds Stat
3. Maturities Stat
4. Annuitizations Stat
5. Partial Withdrawals Stat
6. Death Claims Stat
7. New Loans 0 Stat
Transfers - Fixed to Separate 0 Stat
Transfers - Separate to Fixed 0 Stat
Nonqualified Payments Allocated to Fixed
Total Nonqualified Net Transfers to Separate 0
Settlement Interest Rate on 15-Dec-1997 0.00% WSJ
Interest to End of Month on Payments and Net Transfers to Fixed Account 0 0 E1(mr)
Interest to EOM on Mortality and Expense Risk Charges and A-B Allowances 0 0 E1(mr)
Interest to End of Month on Commission and Expense Allowances 0 0 D1(mr)
Interest to End of Month on Benefits from Fixed Account 0 0 E1(mr)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E1(mpr) Schedule E1 - Monthly Production Report from current and prior
months
AEx Annuity Exhibit Access Database Report
Ext WMA VA Mod-Co Seriatim File
Stat WRL Status file (Accounting general ledger)
WSJ Wall Street Journal published on the date shown for the Settlement
Interest Rate
<PAGE> 35
Schedule E2 - Quarterly Reports
Quarterly Production and Policy Loads Report
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- -------
<S> <C> <C> <C>
In Force 30-Sep-1997 0 40% E2(qpr)
Issues 0 AEx
Reinstatements 0 AEx
-----
Total Increases 0 N/A
Surrenders 0 AEx
Not-Takens 0 AEx
Maturities 0 AEx
Annuitizations 0 AEx
Deaths 0 AEx
-----
Total Terminations 0 N/A
Net Change 31-Dec-1997 0 N/A
-----
In Force 31-Dec-1997 0 N/A
Initial and Purchase Payments
Qualified 0 0 Stat
Nonqualified 0 0 Stat
-------------------------------------------------------------------------------------------------------
1st Year 0
-------------------------------------------------------------------------------------------------------
Qualified 0 0 Stat
Nonqualified 0 0 Stat
-------------------------------------------------------------------------------------------------------
Renewal 0
-------------------------------------------------------------------------------------------------------
Total 0 0
Payments Allocated to Fixed Account 0 4,721,685 Stat
Payments Allocated to Separate Account 0 4,617,310 Stat
Mortality and Expense Risk Charges 0 0 E1(mpr)
Asset-Based Allowances 0 0 E1(mpr)
Annual Administrative Charges 0 0
Charges from Fixed Account 0 Ext
Charges from Separate Account 0 Ext
</TABLE>
Benefits Paid During Month:
<TABLE>
<CAPTION>
Separate Account Fixed Account
---------------------------- ---------------------------- Nonqualified
Gross With's Surr Charges Gross With's Surr Charges SA Gross With's
<S> <C> <C> <C> <C> <C> <C>
1. Surrenders 0 0 0 0 0 E1(mpr)
2. Not-Taken Refunds 0 0 0 0 0 E1(mpr)
3. Maturities 0 0 0 0 0 E1(mpr)
4. Annuitizations 0 0 0 0 0 E1(mpr)
5. Partial Withdrawals 0 0 0 0 0 E1(mpr)
6. Death Claims 0 0 0 0 0 E1(mpr)
7. New Loans 0 0 0 0 0 E1(mpr)
Transfers - Fixed to Separate 0 0 0 E1(mpr)
Transfers - Separate to Fixed 0 0 0 E1(mpr)
Nonqualified Payments to Allocated to Fixed 0 E1(mpr)
Total Nonqualified Net Transfers to Separate 0 E1(mpr)
Interest to End of Quarter on Payments and Net Transfers to Fixed Account 0 0 E1(mr)
Interest to EOQ on Mortality and Expense Risk Charges and A-B Allowances 0 0 E1(mr)
Interest to End of Quarter on Commission and Expense Allowances 0 0 D1(mr)
Interest to End of Quarter on Benefits from Fixed Account 0 0 E1(mr)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
- --------
E1(mpr) Schedule E1 - Monthly Production Report from current and prior
months
AEx Annuity Exhibit Access Database Report
Ext WMA VA Mod-Co Seriatim File
Stat WRL Status file (Accounting general ledger)
WSJ Wall Street Journal published on the date shown for the
Settlement Interest Rate
<PAGE> 36
Schedule E3 -- Quarterly Reports
Quarterly Reserve Report
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WWW
TOTAL QUOTA SHARE SOURCE
----- ----------- ------
<S> <C> <C> <C>
CARVM Reserves without GMDB 0 0 Ext
GMDB Reserves 0 0 Ext
----- -----------
Total Statutory Reserves 0 0
CARVM Reserves without GMDB Split
between SA and GA:
SA CARVM Reserves 0 Ext
Total SA Statutory Reserves 0 0
GA CARVM Reserves 0 Ext
GMDB Reserves 0 Ext
Total GA Statutory Reserves 0 0
Exhibit II, Part I, Column 4, Line 4a
Liability 0 0 Acct
Other GA Liabilities 0 0 Acct
----- -----------
Total GA Reserves and Liabilities 0 0
Annuity Values
Separate Account Values 0 0 Ext
Fixed Account Values
Fund 11 0 Ext
Loan Balances 0 Ext
Total Fixed Account Values 0 0
----- -----------
Total Annuity Values 0 0
Cash Values 0 0 Ext
</TABLE>
Sources:
Ext WMA VA Mod-Co Seriatim File
Acct Financial Reporting Accounting and Death Claim Report
<PAGE> 37
Schedule F -- Annual Reports
Exhibit Of Annuity Contracts And Withdrawal And Surrender Activity
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
Exhibit of Number of Annuity Contracts
<TABLE>
<CAPTION>
Ordinary
(Year-to-Date Figures Shown:) Deferred Source
- ----------------------------- -------- -------
<S> <C> <C>
1. In Force end of Previous Year: 0 F(ar)
2. Issued during year: 0 E2(qpr)
3. Reinsurance Assumed: 0
4. Increased during year (net): 0 E2(qpr)
5. Total (Lines 1 to 4) 0
6. Decreased (net): 0 E2(qpr)
7. Reinsurance Ceded: 0
--
8. Totals (Lines 6 and 7) 0
--
9. In Force end of year: 0
</TABLE>
Annual Partial Withdrawal and Surrender Report
<TABLE>
<CAPTION>
WMA
Total Quota Share
----- -----------
<S> <C> <C> <C>
Partial Withdrawals
Systematic 0 0 Ext
Required Distributions 0 0 Ext
Other 0 0 Ext
Total 0 0
Surrenders
Internal Replacement 0 0 Ext
Not Taken Refunds 0 0 Ext
Other 0 0 Ext
Total 0 0
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the Quota Share
Percentage.
Sources:
Ext WMA VA Mod-Co Seriatim File
E2(qpr) Schedule E2 -- Quarterly Production Report
F(ar) Schedule F -- Annual Report from Prior Year
<PAGE> 38
Schedule G -- Quarterly Reports
Quarterly Interest Credit (Debit) On Modified Coinsurance Reserve
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
Change in
Benefits WMA S/A WMA
Paid Quota Share Ann Value Quota Share Source
-------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
A. Separate Account Annuity Value as of 30-Sep-1997 0 0 G(qr)
B. Increases in Separate Account Annuity Value
during the quarter
1. Payments Ceded 0 0 E2(qpr)
2. Transfers-in from the Fixed Account 0 0
Interfund Transfers 0 E2(qpr)
Fixed Account Annuity Value of Surrenders 0 E2(qpr)
Fixed Account Annuity Value of Not-Taken Refunds 0 E2(qpr)
Fixed Account Annuity Value of Maturities 0 E2(qpr)
Fixed Account Annuity Value of Annuitizations 0 E2(qpr)
Fixed Account Annuity Value of Partial Withdrawals 0 E2(qpr)
Fixed Account Annuity Value of Death Claims 0 E2(qpr)
-- -- --
3. Total Increases 0 0
</TABLE>
<TABLE>
<CAPTION>
Benefits Paid WMA Chg. In Ann Value WMA
S/A + Fixed Quota Share S/A + Fixed Quota Share
------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
C. Decreases in Separate Account
Annuity Value during the quarter
1. Surrenders 0 0 0 0 E2(qpr)
2. Not-Taken Refunds 0 0 0 0 E2(qpr)
3. Maturities 0 0 0 0 E2(qpr)
4. Annuitizations 0 0 0 0 E2(qpr)
5. Partial withdrawals 0 0 0 0 E2(qpr)
6. Death Claims 0 0 0 0 E2(qpr)
7. Transfers-out to the Fixed Account 0 0 0 0
Payments Allocated to Fixed Account 0 E2(qpr)
Transfers for New Loans Taken 0 E2(qpr)
Transfers-out to Fixed Account 0 E2(qpr)
-- -- -- --
8. Total Decreases 0 0 0 0
D. Separate Account Annuity Value as of 31-Dec-1997 0 0 H(qr)
E. Contractholder Investment Gain on Separate Account Annuity Value
as of the end of the quarter = D-[A+B(3)-C(8)] 0 0
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the Quota Share
Percentage.
Sources:
G(qr) Schedule G -- Quarterly Report for prior quarter
H(qr) Schedule H -- Quarterly Mod-Co Reserve Adjustment
E2(qpr Schedule E2 -- Quarterly Production Report
Ext WMA VA Mod-Co Seriatim File
<PAGE> 39
Schedule H -- Quarterly Reports
Quarterly Modified Coinsurance Reserve Adjustment
WRL Freedom Wealth Creator Variable Annuity
Modified Coinsurance
31-Dec-1997
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- -------
<S> <C> <C> <C>
Increase in Modified Coinsurance Reserve Payable by WMA to WRL
A. Total Modified Coinsurance Reserve as of 30-Sep-1997 0 0 E3(qrr)
B. Total Modified Coinsurance Reserve as of 31-Dec-1977 0 0 E3(qrr)
C. Increase in Modified Coinsurance Reserve = B - A
(= Increase in Separate Account Annuity Values) 0 0
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
</TABLE>
Sources:
E3(qrr) Schedule E3 - Quarterly Reserve Report
<PAGE> 40
SCHEDULE I -- QUARTERLY REPORTS
QUARTERLY TARGET SURPLUS ADJUSTMENT
WRL FREEDOM WEALTH CREATOR VARIABLE ANNUITY
MODIFIED COINSURANCE
31-DEC-1997
<TABLE>
<CAPTION>
WWW
TOTAL QUOTA SHARE SOURCE
----- ----------- ------
<S> <C> <C> <C>
A. Total SA Annuity Value as of the end
of the previous quarter 0 0 E3(qrr)
B. Target Surplus on SA Value (* x A) 0 0 WRL
C. Total SA Annuity Value as of the end
of the current quarter 0 0 E3(qrr)
D. Target Surplus on SA Value (* x C) 0 0 WRL
E. Increase in SA Target Surplus (D - B) 0 0 WRL
(= SA Target Surplus Adjustment)
F. Interest Credit on Target Surplus 0 0
(B x (* exp. (#days in quarter/365)-1)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E3(qrr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL method, based on factors determined by WRL.
* Material omitted pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.
<PAGE> 41
SCHEDULE J -- MONTHLY REPORT
MONTHLY M&E AND ASSET BASED ALLOWANCE CALCULATIONS
WRL FREEDOM WEALTH CREATOR VARIABLE ANNUITY
31-DEC-1997
<TABLE>
<S> <C>
M&E ANNUAL RATE: 1.40%
NUMBER OF DAYS IN REPORTING PERIOD 0
NUMBER OF BUSINESS DAYS IN PERIOD 19
</TABLE>
SUB-ACCOUNT VALUES
<TABLE>
<CAPTION>
MONEY STRATEGIC EMERGING AGGRESSIVE GROWTH
TOTAL MARKET BOND GROWTH GLOBAL TOTAL RETURN GROWTH GROWTH BALANCED & INCOME
----- ------ ---- ------ ------ ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. Average TNA for
the current month 0 0 0 0 0 0 0 0 0 0
B. Average Daily Cash
Change (sum of daily
cash changes/# days
in current month) 0 0 0 0 0 0 0 0 0 0
C. Average Daily M&E
fee (A x M&E)/365 0 0 0 0 0 0 0 0 0 0
D. Average Daily
Dividend Receivable
Balance (Money
Market Only) for the
current month) 0 0 0 0 0 0 0 0 0 0
E. Adjusted Monthly
Average TNA (A - B +
C - D) 0 0 0 0 0 0 0 0 0 0
F. Annual Asset Based
Allowance Factor(WRL
only) 0.25% 0.25% 0 .40% 0.40% 0.40% 0.40% 0.40% 0.40% 0.35%
G. Asset Based
Allowance for Month
(Entire Fund) (F x E
x #days in
month)/365 0 0 0 0 0 0 0 0 0 0
H. M&E fees for Month
(Entire Fund) (A x
M&E X #days in
month)/365 0 0 0 0 0 0 0 0 0 0
I. S/A Annuity Value
by Fund for all
Creator annuities 0 0 0 0 0 0 0 0 0 0
J. S/A AV by Fund for
Reinsured Contracts
by Issue Year
1998 0 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0 0
K. Asset Based
allowance by Issue
Year (G x J)/I
1998 0 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0 0
L. M&E fees for Month
by Issue Year (H x
J)/I
1998 0 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
TACTICAL
ASSET
--------
<S> <C>
A. Average TNA for
the current month 0
B. Average Daily Cash
Change (sum of daily
cash changes/# days
in current month) 0
C. Average Daily M&E
fee (A x M&E)/365 0
D. Average Daily
Dividend Receivable
Balance (Money
Market Only) for the
current month) 0
E. Adjusted Monthly
Average TNA (A - B +
C - D) 0
F. Annual Asset Based
Allowance Factor(WRL
only) 0.40%
G. Asset Based
Allowance for Month
(Entire Fund) (F x E
x #days in
month)/365 0
H. M&E fees for Month
(Entire Fund) (A x
M&E X #days in
month)/365 0
I. S/A Annuity Value
by Fund for all
Creator annuities 0
J. S/A AV by Fund for
Reinsured Contracts
by Issue
0
0
0
K. Asset Based
allowance by Issue
Year (G x J)/I
0
0
0
L. M&E fees for Month
by Issue Year (H x
J)/I
0
0
0
</TABLE>
<PAGE> 42
<TABLE>
<Capti0n>
C.A.S.E. Global Value International U.S. 3rd Ave.
Growth Sector Equity Equity Equity Value
<S> <C> <C> <C> <C> <C>
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0.40% 0.40% 0.40% 0.50% 0.40% 0.40%
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
0 0 0 0 0 0
</TABLE>
<PAGE> 1
EXHIBIT 10.6
Automatic Flexible Premium Variable Life Reinsurance Agreement Number 2
(Referred to as the Agreement)
Between
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO
of Largo, Florida
(referred to as the Reinsured)
and
WMA LIFE INSURANCE COMPANY LIMITED
of Hamilton, Bermuda
(referred to as the Reinsurer)
Effective April 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- ------- ----- ----
<S> <C> <C>
I. BASIS OF REINSURANCE 3
II. DEFINITIONS 4
III. LIABILITY 5
IV. THE AMOUNT REINSURED 6
V. REDUCTION AND TERMINATIONS 6
VI. PREMIUMS 7
VII. PAYMENTS BY REINSURER 7
VIII. REPORTING 7
IX. DEPOSITS OF THE MODIFIED COINSURANCE RESERVE 8
X. INTEREST CREDIT (DEBIT) ON MODIFIED COINSURANCE
RESERVE AND MODIFIED COINSURANCE RESERVE
ADJUSTMENT 8
XI. REINSURANCE RESERVES 8
XII. SETTLEMENT OF CLAIMS 10
XIII. GENERAL PROVISIONS 12
XIV. REINSTATEMENTS 17
XV. POLICY CHANGES 17
XVI. RECAPTURE 17
XVII. ARBITRATION 17
XVIII. IMPROPER SOLICITATION OF REINSURED PLAN OWNERS 18
XIX. DAC TAX (Section 1.848-2(g)(8) Election) 19
XX. DURATION OF AGREEMENT 20
XXI. WRITTEN NOTICE 21
XXII. EXECUTION 22
</TABLE>
2
<PAGE> 3
This Agreement is entered into by the Reinsured and the Reinsurer on
the Execution Date. The Reinsured and the Reinsurer mutually agree to reinsure
on the terms and conditions set out below.
I. BASIS OF REINSURANCE
1. Insurance. The reinsured will cede on an automatic basis and the
Reinsurer will accept as reinsurance the individual Reinsured Plans
(policies) written by the Reinsured as shown in Schedule A.
2. Risks are reinsured on the same plan as the original policy (e.g.
mortality, morbidity, lapse, surrender, expense, investment
performance).
3. Coverages. The individual Reinsured Plans reinsured as shown in
Schedule A, are the Financial Freedom Builder contracts and any
riders, supplemental benefits or endorsements attached thereto,
with an issue date after March 31, 1998. Reinsurance will be
limited in percentage as provided in Schedule Bl. Only plans sold
by a Producer registered with an affiliated broker-dealer
identified in Exhibit A shall be reinsured under this Agreement.
4. The Separate Account Value will be reinsured on a modified
coinsurance basis.
5. The Fixed Account Value will be reinsured on a coinsurance basis.
6. In no event shall reinsurance under this Agreement be in force with
respect to a Reinsured Plan unless the issuance and delivery of the
Reinsured Plan is in compliance with the laws of all applicable
jurisdictions and the Reinsured's corporate charter.
7. The Reinsured declares and agrees that all Reinsured Plans and
benefits covered under this Agreement shall be issued in accordance
with its normal practices in effect when the Reinsured Plan is
issued. These practices will be provided to the Reinsurer on
request. The Reinsured will also notify the Reinsurer of any
material changes made to these practices before applying them to
Reinsured Plans and benefits covered by this Agreement.
8. Reinsurance Outside This Agreement. The Reinsured retains the right
to reinsure, with any reinsurer, any or all of its plans or
coverages automatically in excess of the Reinsured's normal
retention and facultatively, where appropriate. The Reinsured
agrees to notify the Reinsurer in writing of any change in its
normal retention schedule that may affect the Reinsured Plans.
3
<PAGE> 4
II. DEFINITIONS
"AMOUNT REINSURED" OR "AMOUNT OF REINSURANCE" means the amount of
reinsurance ceded by the Reinsured to the Reinsurer under this Agreement on the
life of an insured person(s). It is the amount of life insurance ceded for which
the Reinsurer is at risk under this Agreement on the life of the insured
person(s). The Amount Reinsured per insured life is calculated as set forth in
Paragraph 1 of Article IV.
"ARTICLE" OR "PARAGRAPH" refers to an Article or Paragraph of this
Agreement.
"EFFECTIVE DATE", with respect to Reinsured Plans, means the date shown
in Article XXII, Execution. The Reinsured is liable for Reinsurance Premiums,
less applicable Reinsurance Allowances, due on or after the Effective Date of a
Reinsured Plan; and the Reinsurer is liable for any reinsured benefits occurring
on or after the Effective Date.
"EXECUTION DATE" means the date as of which this Agreement has been
executed, as shown in Article XXII, Execution.
"EXHIBIT" AND "SCHEDULE" mean, respectively, an exhibit or schedule
attached to this Agreement and shall be considered part of this Agreement.
"FIXED ACCOUNT" means allocation option(s) other than the Separate
Account.
"FIXED ACCOUNT VALUE" means the value of the Fixed Account on any
valuation date.
"GENERAL ACCOUNT STATUTORY RESERVES AND LIABILITIES" OR "GA STATUTORY
RESERVES AND LIABILITIES" refers to statutory reserves and liabilities
associated with the Fixed Account as held by the Reinsured for the reinsured
contracts.
"MONTHIVERSARY" has the same meaning ascribed to it in a reinsured
policy. It is the day of each calendar month coinciding with a policy's Policy
Date.
"PARTY" or "PARTY" refers to either the Reinsured or the Reinsurer as
appropriate, and PARTIES refers to both collectively.
"POLICY DATE" means the policy date as set forth in the Policy Schedule
of a reinsured policy. It is the date coverage is effective under the Policy and
the date monthly deductions commence under the Policy. Policy months, years,
Monthiversaries and anniversaries are measured from the Policy Date.
"PREMIUMS" means initial premium and additional premiums as set forth
in the Policy Value Provisions.
"PRODUCER" means a licensed representative with a broker-dealer
identified in Exhibit A.
"REINSURED PLAN" means any life insurance policy form or rider form
reinsured under this Agreement, as set forth in Schedule A.
4
<PAGE> 5
"SERIES FUND" means a designated mutual fund from which each
sub-account of the Separate Account will buy shares.
"SETTLEMENT INTEREST RATE" means the interest rate for ninety (90) day
dealer commercial paper as published in The Wall Street Journal or a successor
or substitute publication, as agreed upon by both parties if The Wall Street
Journal should cease to exist. The Settlement Interest Rate for a given month
will be the Settlement Interest Rate published on the fifteenth (15th) of the
month or the next following business day if the fifteenth (15th) of the month is
not a publication date of The Wall Street Journal.
"SPECIFIED AMOUNT" means the Specified Amount as set forth in the
Policy Schedule of a reinsured policy.
"SEPARATE ACCOUNT" means a separate investment account shown on the
Policy Schedule page which is composed of several sub-accounts established to
receive and invest net premiums under the policy.
"SUB-ACCOUNT" means a subdivision of the Separate Account. Each
Sub-account invests exclusively in the shares of a specified Series Fund
portfolio.
III. LIABILITY
1. The liability of the Reinsurer on any reinsurance under this
Agreement begins upon the effective date of this Agreement as set
forth in Article XXII, Execution and ends after all Reinsured Plans
reinsured have been terminated or recaptured, as set forth in
Article XVI, Recapture.
2. The liability of the Reinsurer to the Reinsured under this
Agreement will be coexisting with the liability of the Reinsured
under the Reinsured Plans reinsured and may exceed the Reinsured's
contractual liability under the terms of the Reinsured Plans as
described in Paragraph 3, Article XIII, General Provisions.
3. For a Reinsured Plan or rider reinsured under this Agreement: (i)
the liability of the Reinsurer under this Agreement shall commence
simultaneously with the beginning of the Reinsured's liability
under each corresponding Reinsured Plan or any application or
conditional receipt therefor; and (ii) the liability of the
Reinsured for Reinsurance Premiums under this Agreement shall begin
as of the Policy Date of the reinsured policy or as of the
effective date of reinsured rider, if different. The Reinsured
represents that its normal underwriting practice is to promptly
return any premium payment taken with an application which the
Reinsured has declined without a counteroffer; however, failure of
the Reinsured to do so shall not relieve the Reinsurer for its
liability under this Paragraph.
4. In no event shall the Reinsurer's liability for reinsurance
continue after termination of the Reinsured's liability for any
claims relating to its corresponding reinsured policy or rider.
5
<PAGE> 6
5. On an ongoing basis the liability of the Reinsurer, reinsurance
premiums, benefits and other items due to or from each party shall
be accounted for and settled and paid quarterly on the basis of the
quarterly reports prepared by the Reinsured in the form of
Schedules C1 and C2 and sent to Reinsurer via facsimile
transmission or such other medium mutually acceptable to both
parties. Also included will be any adjustments made necessary by
changes in reinsurance effective during the previous quarter, or
changes due to any agreed upon errors on a previous report. Payment
of any amount due to be paid by the Reinsurer or the Reinsured
shall be determined on a net basis and shall be paid, in United
States currency, within two (2) weeks after receipt by Reinsurer of
the quarterly report.
6. The settlement, as shown in Schedule C1 and C2 will include
interest on premiums received, net transfers, mortality and expense
charges, and asset based allowances as shown in Schedule E1, and
interest on commission and expense allowances, and interest on
benefits from the Fixed Account, as shown in Schedule D1 accruing
from the fifteenth (15th) of every month to the settlement date.
The interest rate will be the Settlement Interest Rate of the month
named on the Schedules D1 and E1. Interest will be earned from the
fifteenth (15th) of the month named on Schedules D1 and E1 to the
next following settlement date.
IV. THE AMOUNT REINSURED
1. The Amount Reinsured will be the quota share percentage, as
specified in Schedule B1, of the death benefit and all other
benefits provided by the Reinsured Plan, including any riders,
supplementary benefits or endorsements attached thereto, as
specified in Schedule A.
V. REDUCTIONS AND TERMINATIONS
1. If any of the Reinsured Plans reinsured under this Agreement are
reduced or terminated by payment of a death benefit, withdrawal,
surrender or termination due to lapsation, maturation or expiration
of the Reinsured Plan, the reinsurance will be reduced
proportionately. Any policy change which affects the Death Benefit
Proceeds, such as a change in Option Type, a change in the policy's
Specified Amount, a change in the Face Amount of a rider, or an
addition or deletion of a rider, will result in a proportional
change in the Amount Reinsured. If the change affects the plan, the
amount of reinsurance, premiums, commissions or policy changes
under cession, the Reinsured shall inform the Reinsurer in
subsequent Reinsurance Reports.
2. With regard to liability of the Reinsured under the terms of an
application for a policy or rider to be reinsured under this
Agreement or under the terms of a conditional receipt issued in
connection with such application, the liability of the Reinsurer
under this Agreement shall be equal to the quota share percentage
of the Reinsured's liability, plus any amounts for which the
Reinsurer is responsible under Article III.
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3. For purposes of Paragraph I of this Article, changes in a policy's
death benefit which are due to normal cash value fluctuation shall
be calculated and reported quarterly as described in Article VIII.
Other changes in the Amount Reinsured due to a policy change shall
be recalculated and reported under this Agreement in or for the
quarter in which the policy change occurs. For this purpose, such
policy changes may include, for example, a change in Option Type, a
change in the policy's Specified Amount, a change in the Face
Amount of a rider, and an addition or deletion of a rider.
VI. PREMIUMS
1. The premium to be paid to the Reinsurer by the Reinsured with
respect to each reinsured policy, as specified in Schedule A, will
be the quota share percentage, as specified in Schedule B1 of:
(i) The total amount "Due WMA", as shown in Schedule C1, and
(ii) The total amount "Due WMA" as shown in Schedule C2.
VII. PAYMENTS BY REINSURER
1. The Reinsurer shall pay to the Reinsured the Reinsurer's quota
share percentage of:
(i) The total amount "Due WRL", as shown in Schedule C1, and
(ii) The total amount "Due WRL", as shown in Schedule C2.
VIII. REPORTING
1. The Reinsured shall assume responsibility for the administration of
all reinsurance under this Agreement and will provide the Reinsurer
with information as set forth in Schedule C1 through Schedule K of
this Agreement. The Reinsurer may request, at its option, to
review, at the administrative office of the Reinsured, any papers
associated with the issuance of any Reinsured Plan subject to
Automatic Reinsurance under this Agreement. In addition, the
Reinsured will provide the Reinsurer with information necessary to
properly account for the business reinsured and exercise its
obligation as a member of the Investment Management Committee.
2. Not later than twenty (20) days after the end of each quarter, the
Reinsured will submit a report substantially in accordance with
Schedules C1 and C2 accompanied by Schedules D2, E2, E3, G5, H5,
and I. The Reinsured agrees to provide or make available to the
Reinsurer such documentation as may be necessary to support the
items reported.
3. Not later than twenty (20) days after the end of each month, the
Reinsured will submit a report substantially in accordance with
Schedules D1, E1, J, and K.
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4. Not later than thirty (30) days after the end of each calendar
year, the Reinsured will submit a report substantially in
accordance with Schedule F.
5. Not later than ninety (90) days after the end of each calendar
year, the Reinsured will provide a copy of its statutory statement
as filed with the State of Ohio.
6. Not later than one hundred twenty (120) days after the end of each
calendar year, the Reinsurer will provide a copy of The WMA
Corporation Form 10-K.
7. Not later than sixty (60) days after the end of each quarter, the
Reinsurer will provide a copy of The WMA Corporation Form 10-Q.
IX. DEPOSITS OF THE MODIFIED COINSURANCE RESERVE
1. The Reinsurer shall deposit with the Reinsured the modified
coinsurance reserves identified in Schedule H, for the business
reinsured under this Agreement.
2. For the purpose of this Article, modified coinsurance reserves are
defined to be the quota share percentage of the total Separate
Account Value of the Reinsured Plan.
X. INTEREST CREDIT (DEBIT) ON MODIFIED COINSURANCE RESERVE AND MODIFIED
COINSURANCE RESERVE ADJUSTMENT
1. The Reinsurer shall receive an interest credit (debit) on the
modified coinsurance reserve. The amount of the credit (debit) will
be determined as set forth in Schedule G.
2. The Reinsured shall receive a modified coinsurance reserve
adjustment. The amount of the adjustment will be determined as set
forth in Schedule H.
3. Both the interest credit (debit) and the modified coinsurance
reserve adjustment will be made at the end of each calendar
quarter.
XI. REINSURANCE RESERVES
1. The Reinsured shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of the
excess, if any, of the total Separate Account Value of the
Reinsured Plan over the total Separate Account Statutory Reserve of
the Reinsured Plan. The Reinsurer shall set up an Account
Receivable asset equal to the Account Payable liability set up by
the Reinsured.
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<PAGE> 9
2. The Reinsurer shall set up an Account Payable liability in its
financial statements equal to the quota share percentage of the
excess, if any, of the total Separate Account Statutory Reserve of
the Reinsured Plan over the total Separate Account Value of the
Reinsured Plan. The Reinsured shall set up an Account Receivable
asset equal to the Account Payable liability set up by the
Reinsurer.
3. The Reinsured will reduce its General Account Statutory Reserves
and Liabilities by the quota share percentage of the total General
Account Statutory Reserves and Liabilities attributable to the
Reinsured Plan, as shown in Schedule C2. The Reinsurer will set up
General Account Statutory Reserves and Liabilities equal to the
reduction taken by the Reinsured.
4. For purposes of Paragraphs 1, 2 and 3 of this Article, the
Statutory Reserves shall be calculated by the Reinsured according
to the "Commissioners Reserve Valuation Method For Universal Life
Policies" as prescribed in the NAIC Standard Valuation Law and
approved by the State of Ohio Department of Insurance. The General
Account Statutory Reserves and Liabilities will be the reserves
associated win the Fixed Account and will include the reserves for
the Terminal Illness Accelerated Death Benefit Rider.
5. In the event the Reinsurer is not licensed or otherwise accredited
or authorized as a reinsurer in the State of Ohio, and in any other
jurisdiction where the Reinsured is licensed to do business, the
Reinsurer agrees to provide Letter(s) of Credit or other forms of
security acceptable to the State of Ohio otherwise available. Such
Letter(s) of Credit or other method(s) shall be issued in
compliance with the statutes and regulations of the State of Ohio
and shall be issued by a financial institution located in the
United States chosen by the Reinsurer, which has applied for and
has met the standards of financial conditions set forth by the
NAIC's Securities Valuation Office.
6. The Letter(s) of Credit in favor of the Reinsured will be an amount
which at all times must equal or exceed the reinsurance credits
taken or reasonably estimated to be taken by the Reinsured in
connection with this Agreement under Exhibit 8, and under Exhibit
11, Part 1, Column 3, Line 4c, and any other liabilities held for
the Reinsured Policies and reported on the Reinsured's statutory
financial statements. Subject to the approval of the State of Ohio
Department of Insurance, the amount of the Letter of Credit may be
reduced by the quota share percentage of the excess of the Separate
Account Value over the Separate Account Statutory Reserve. Should
the reinsurance credit not be allowed, as a result of this
reduction in any applicable jurisdiction, the Letter of Credit will
be restored to the value that it would have been without this
reduction.
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<PAGE> 10
7. The Letter(s) of Credit shall be substantially in the form set
forth in Exhibit B or in such other form as the Ohio Insurance
Department or other applicable state Insurance Department may
require or permit. The terms of the Letter(s) of Credit shall
provide that: it is not conditioned on the delivery of any other
documents or materials; it is irrevocable without the consent of
the Reinsured; it is automatically renewable as provided in
Exhibit B; and its initial term is for a period of not less than
one (1) year. Such Letter(s) of Credit may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, but
shall be utilized by the Reinsured or its successors only for one
or more of the following reasons:
(i) to fund an account on behalf of the Reinsured in an amount at
least equal to the deduction, for reinsurance ceded, from the
Reinsured's reserves and liabilities for Reinsured Plans, as
specified in this Article; and
(ii) to pay any other amounts the Reinsured claims are due under
this Agreement.
8. Such Letter(s) of Credit shall be promptly issued and delivered to
the Reinsured; but in no event shall the Letter(s) of Credit be
issued or confirmed later than December 31 in respect of the year
for which the Reinsured is taking credits for such reinsurance in
its statutory financial statements, and in no event shall the
Letter(s) of Credit be delivered to the Reinsured later than thirty
(30) days after such December 31.
XII. SETTLEMENT OF CLAIMS
1. Notice. On a monthly basis, the Reinsured shall provide notice to
the Reinsurer of any death claims reported, paid, or outstanding in
a report in the form of Schedule K. On a quarterly basis, the
Reinsured shall account to the Reinsurer for any death claims due,
as provided in Paragraph I of Article IV. Reinsured agrees to
furnish Reinsurer with copies of the proof of loss or other written
materials relating to a specific claim upon request of Reinsurer or
as provided in Paragraph 5 of this Article.
2. Standard Claim Practices. Reinsured agrees to act in accord with
its standard practices applicable to all claims in enforcing the
terms and conditions of the reinsured policies or reinsured riders
and with respect to the administration, negotiation, payment,
denial, or settlement of any claim or legal proceeding.
3. Payment and Settlement of Claim. Reinsurer agrees to accept the
good faith decision of the Reinsured in payment or settlement of
any claim for which Reinsurer has received the required notice.
Reinsurer agrees to pay Reinsured the Amount Reinsured on which
Reinsurance Premiums have been computed upon receiving proper
evidence the Reinsured has paid a policy claim.
4. The Reinsurer agrees to pay an expense allowance as set forth in
Schedules D1 and D2 for all claims as specified.
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<PAGE> 11
5. Reinsurer's Liability for Covered Claim Expenses. Except as
provided in Paragraph 6 of this Article, Reinsurer's liability
shall include indemnification of the quota share percentage of any
covered claim expenses incurred by Reinsured in defending or
investigating a policy claim. Covered claim expenses are in
addition to the claim expense allowance and shall include, but not
be limited to, cost of investigation, legal fees, court costs and
interest charges and cost of interpleader proceedings. Covered
claim expenses shall not include:
a) Compensation of salaried officers and employees;
b) routine investigative expenses of incontestable claims;
6. Contested, Litigated or Compromised Claims. The Reinsured shall
promptly notify Reinsurer of its intention to contest, compromise
or litigate any claim on a Reinsured Plan or its intention to
investigate or defend any litigation initiated against the
Reinsured in response to the Reinsured's denial of a claim on a
Reinsured Plan. With or immediately following such notice, the
Reinsured shall furnish Reinsurer with copies of written materials
relating to such claim. Reinsurer shall promptly notify Reinsured
of its decision whether or not to accept any such action. If
Reinsurer declines to accept any such action, it will pay the full
Amount Reinsured, as if there had been no such contest, compromise
or litigation, and will be fully discharged as of the date of such
payment from any further liability on that claim under Paragraph 5
of this Article. If the Reinsurer accepts such action, then: (i)
Reinsurer shall continue to share in the covered claim expenses as
described in Paragraph 5; (ii) the Reinsured shall keep the
Reinsurer informed of the status of any legal proceeding or
settlement negotiations in connection with such claim; and (iii) if
the contest or compromise reduces the amount of the Reinsured's
liability, the Reinsurer's liability shall be reduced to its quota
share percentage of the reduced amount.
7. Recovery from Third Party. The Reinsured shall promptly notify
Reinsurer if the Reinsured should assert or bring a claim or action
against a third party for contribution, indemnification or similar
grounds to recover from the third party any monies paid or expenses
incurred by the Reinsured in connection with a policy claim
reinsured under this Agreement. Upon request, the Reinsured shall
furnish Reinsurer with copies of written materials relating to such
third party claim or action. Reinsurer shall promptly notify
Reinsured of its decision whether or not to share in the expenses
and potential recovery of any such proceeding. If Reinsurer
declines to so accept any such proceeding, Reinsurer shall not
participate in any costs of such proceeding and shall not share in
any monies so recovered by the Reinsured. If the Reinsurer accepts
such action, then the Reinsurer shall continue to share in the
expenses of that proceeding and the Reinsurer shall share in any
monies recovered by the Reinsured. The Reinsured shall keep the
Reinsurer informed of the status of such proceeding or settlement
negotiations in connection with such proceeding.
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8. Adjustments for Misstatements. If the amount claimed as death
benefit under a reinsured policy or reinsured rider is increased or
reduced because of a misstatement of age, sex or smoker status, the
Reinsured Amount will be calculated based on the adjusted amount of
death benefit and the Amount Reinsured will, if applicable, be
increased or decreased proportionately.
9. Interest. If the Reinsured pays interest on a claim, Reinsurer
agrees to pay the interest on the Amount Reinsured computed at the
same rate and for the same period as that paid by the Reinsured,
but in no event later than the date the claim is finally
adjudicated by the Reinsured.
10. Statutory Penalties. If the Reinsured is required to pay penalties
or interest imposed automatically by statute, other than penalties
or interest arising from Reinsured's negligent or intentional
violation of such a statute, Reinsurer shall indemnify the
Reinsured for the quota share percentage of such penalties and
interest.
11. Terminal Illness Accelerated Death Benefit Rider. The Reinsurer
shall participate in any claim under any Terminal Illness
Accelerated Death Benefit Rider in connection with the Reinsured
Plans. A claim for accelerated death benefits shall be treated
under this Agreement as though it were a death claim and as though
the death occurred on the date the claim was made. If the claimant
elects to take less than 100% of the benefit under the Terminal
Illness Accelerated Death Benefit Rider and the reinsured policy
thereby remains in force, then the Reinsurer shall pay the
Reinsured for the Terminal Illness Accelerated Death Benefit Rider
an amount equal to the accelerated percentage elected by the
claimant multiplied by the present value, calculated in accordance
with the rider form, of the Amount Reinsured; and the reduced
Amount Reinsured for the policy shall be equal to the original
Amount Reinsured reduced by the same percentage used to calculate
the benefits paid under the Terminal Illness Accelerated Death
Benefit Rider.
XIII. GENERAL PROVISIONS
1. Parties to Agreement. This Agreement is a contract solely between
the Reinsurer and the Reinsured. The acceptance of reinsurance
hereunder shall not create any right or legal relation between the
Reinsurer and the insured, beneficiary, or any other party to any
Reinsured Plan hereunder.
2. Reinsurance Conditions. The reinsurance is subject to the same
limitations and conditions as the insurance under the Reinsured
Plan written by the Reinsured on which the coinsurance is based.
3. Expenses. The Reinsurer will have liability equal to the quota
share percentage of any extra-contractual damages which are
rendered against the Reinsured as a result of acts, commission or
course of conduct committed by a Producer of an affiliated
broker-dealer identified in Exhibit A, in connection with the
Reinsured Plans. The Reinsurer will receive the quota share
percentage of any reimbursement that the Reinsured collects from
World Marketing Alliance, Inc.
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<PAGE> 13
or its affiliates. In no event whatsoever will the Reinsured have
any liability for extra-contractual damages assessed against the
Reinsurer as a result of acts, omissions, or course of conduct
committed by the Reinsurer in connection with the reinsurance of
the Reinsured Plans under this Agreement.
4. Oversights. If failure to pay any premium due or to perform any
other act required by this Agreement is unintentional and is caused
by misunderstanding oversight or clerical error, the Reinsured and
the Reinsurer shall be restored to the position they would have
occupied had the misunderstanding, oversight or clerical error not
occurred.
5. Inspection. The Reinsured and the Reinsurer, their auditors and any
regulators having authority over the Reinsured and/or the
Reinsurer, shall have the right, at all reasonable times, and at
their expense, to inspect at the office of the other party all
books, records, procedures, and documents of the other party
relating to this Agreement. A party or its auditor conducting such
inspection shall give the other party one (1) week advance written
notice. The Reinsured, its auditors and regulators shall have the
same right to inspect, verify and value any assets held in a trust
account or otherwise held for the benefit of the Reinsured. The
party being audited or inspected agrees to cooperate in the audit,
including providing any information requested by the other party or
its auditor in advance of the audit or inspection. Upon request,
the Reinsured agrees to permit the Reinsurer, at all reasonable
times and at Reinsurer's expense, to inspect at the office of the
Reinsured, any underwriting information in the Reinsured's files
pertaining to a reinsured policy or reinsured rider.
It is mutually agreed by the Reinsured and the Reinsurer that any
information that is made available for inspection under this
section of the Agreement shall, to the extent legally possible, be
kept confidential and under no circumstances may this information
be disclosed to, or made available for inspection by, any third
party without the prior consent of the other contracting party.
6. Assignment or transfer. In no event shall either the Reinsured or
the Reinsurer assign any of its rights, duties or obligations under
this Agreement without the prior written approval of the other
party. Such approval shall not unreasonably be withheld.
In no event shall either the Reinsured or the Reinsurer transfer
either the Reinsured Plans reinsured under this Agreement or the
reinsurance without the prior written approval of the other party.
Such approval shall not unreasonably be withheld.
7. Entire Agreement. This Agreement represents the entire agreement
between the Reinsurer and the Reinsured and supersedes any prior
oral or written agreements between the parties regarding its
subject matter.
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8. Alterations to Agreement. Any alteration which may from time to
time become necessary in this Agreement shall be made by amendment
attached to the Agreement embodying such alterations as may be
agreed upon and taken as part of this Agreement and equally
binding. No modification or waiver of any provision of this
Agreement shall be effective unless set forth in written amendment
to this Agreement, which is executed by both parties. A waiver
shall constitute a waiver only with respect to the particular
circumstance for which it is given and not a waiver of any future
circumstance.
9. If any provision of this Agreement shall be held or made invalid by
an order of a court of competent jurisdiction, statute, rule or
otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be construed in accordance with the
applicable federal law and the laws of the State of Ohio and the
rights and obligations of this Agreement shall, at all times, be
regulated under the laws of the State of Ohio.
10. Taxes. The Reinsurer shall reimburse the Reinsured for any U.S.
Excise Tax the Reinsured is required to pay under the U.S. Internal
Revenue Code for the reason that the Reinsurer fails to make an
election or terminates its election to file U.S. federal income tax
returns or otherwise ceases or fails to file such return. The
Reinsurer shall reimburse the Reinsured for the quota share
percentage of any other federal or state taxes or state guaranty
fund assessments the Reinsured may be required to pay with respect
to the Reinsured Plans, but not including federal income tax paid
with respect to the Reinsured Plans. This Paragraph does not
diminish in any way the provisions of Article XIX, DAC Tax.
11. Insolvency of the Reinsured.
(a) The Reinsured shall immediately give Reinsurer written notice
of an event constituting insolvency of the Reinsured. However,
whether such notice is timely given or not, in the event of the
insolvency of the Reinsured, all amounts relating to reinsurance
made, ceded, renewed or otherwise becoming effective under this
Agreement shall be payable by the Reinsurer directly to the
Reinsured or to its liquidator, receiver or statutory successor on
the basis of the liability of the Reinsured without diminution
because of the insolvency of the Reinsured or because the Reinsured
or Reinsured's legal representative has failed to pay all or a
portion of amounts owed to Reinsurer under this Agreement. It is
understood, however, that in the event of the insolvency of the
Reinsured, the liquidator or receiver or statutory successor of the
insolvent Reinsured shall give written notice to the Reinsurer of
the pendency of a claim against the insolvent Reinsured 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 that the Reinsurer may investigate such claim and interpose
in the name of the Reinsured (or its liquidator, receiver or
statutory successor), at the Reinsurer's own expense, in the
proceeding where such claim is to be adjudicated any defense or
defenses which it may deem available to the Reinsured or its
liquidator or receiver or statutory successor.
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<PAGE> 15
(b) It is further understood that the expenses thus incurred by the
Reinsurer shall be chargeable, subject to court approval, against
the insolvent Reinsured as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue
to the Reinsured solely as a result of the defense undertaken by
the Reinsurer. When two or more reinsurers are participating in the
same claim and a majority in interest elect to interpose a defense
or defenses to such claim, the expense shall be apportioned in
accordance with the terms of this Agreement as though such expense
had been incurred by the Reinsured.
12. Insolvency of the Reinsurer. The Reinsurer shall immediately give
the Reinsured written notice of an event constituting insolvence of
the Reinsurer. Upon the insolvency of the Reinsurer, whether notice
thereof was given by the Reinsurer or not, the Reinsured has the
right to immediately, by written notice, terminate this Agreement
and recapture all reinsurance under this Agreement. Notwithstanding
such termination or recapture, Reinsurer or its legal
representative shall continue to be liable to the Reinsured for any
obligations of the Reinsurer under this Agreement still outstanding
after giving effect to such recapture.
13. For the purpose of this Agreement, either the Reinsurer or the
Reinsured shall be deemed "insolvent" under the following
circumstances:
(a) when a cease and desist order or injunction has been issued by
the commissioner or a court of competent jurisdiction in its
state or jurisdiction of domicile ordering either party to
cease and desist from transacting, soliciting or writing any
new business of any kind and is reasonably expected to result
in conservatorship, rehabilitation, receivership, or
liquidation; or
(b) when a court of competent jurisdiction order is issued
voluntarily or involuntarily placing either party into
conservatorship, rehabilitation, receivership, or liquidation,
or appointing a conservator, rehabilitator, receiver or
liquidator to take over the business of either party; or
(c) when it files or consents to the filing of a petition in
bankruptcy, seeks reorganization or an arrangement with
creditors or takes advantage of any bankruptcy, dissolution,
liquidation or similar law or statute.
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<PAGE> 16
14. Offset. The Reinsurer and the Reinsured shall consider any balance
due and unpaid, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, whether on account
of premiums, allowances, policy charges, losses, claims expenses,
or any other amount in accordance with the terms of this Agreement,
or any other reinsurance agreement, due from one party to another
to be mutual debits or credits under this Agreement and shall be
offset and only the balance allowed or paid. If either the
Reinsured or Reinsurer is then under any formal insolvency
proceedings, this right of offset shall be subject to the laws of
the domiciliary jurisdiction of the then insolvent party.
15. Non-Guaranteed Charges, Benefits and Interest Rates. The Reinsured
agrees to manage the non-guaranteed charges, benefits, and interest
rates in a way that balances the interests of the owners, agents,
stockholders, contract owners, and the Reinsurer, while exercising
sound actuarial professional judgment. Any changes in the
non-guaranteed contract charges, benefits, and interest rates will
be accompanied by an actuarial report prepared in accordance with
the standards described in the Actuarial Standards of Practice No.
1, as Reformatted and Readopted in 1990 by the Actuarial Standards
Board. The actuarial report should disclose a description of the
framework within which the actuary's advice has been developed, a
description of the facts, methods, procedures and assumptions upon
which the advice was based, and the other information called for by
the Actuarial Standard of Practice No. 1. Should the Reinsurer
determine that the Reinsured has not balanced the interests of the
Reinsured with the interests of the Reinsurer and agreement cannot
be reached, any claims may be settled by arbitration in accordance
with Article XVII, Arbitration.
16. Investment Management Committee. The parties shall form an
Investment Management Committee consisting of one (1) member each
from the Reinsured and the Reinsurer. The Reinsured shall provide
the Reinsurer copies of its investment policies and crediting rate
strategies. The Reinsurer shall provide the Reinsured its
investment policies. If either party changes its investment
policies or crediting rate strategies, it shall promptly provide
the other party a copy of such changes. The purpose and function of
the Investment Management Committee shall be to recommend crediting
rates to the Reinsured for approval in accordance with the
provision set forth in Exhibit C, Guidelines for Crediting Rates.
17. Forms and Manuals. The Reinsured agrees to make available to the
Reinsurer copies of all appropriate policy forms, prospectuses,
application forms, and other related material. If new material is
published, or changes are made in the material already filed, the
Reinsured agrees to promptly provide the Reinsurer with copies of
such material.
18. Headings. The headings of the Articles, Paragraphs and any
subparagraphs and Schedules of this Agreement are inserted for
convenience of reference only and shall not constitute a part of
this Agreement.
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<PAGE> 17
19. Definitions. Any defined term used in this Agreement shall have the
meaning ascribed to it in this Article. Any term not defined in
this Agreement which is in general usage in the life reinsurance
industry shall be given the same meaning as such general usage
ascribes to that term, giving due consideration to the context in
which the term is used in this Agreement.
XIV. REINSTALLMENTS
1. Should a Reinsured Plan lapse and subsequently be reinstated in
accordance with its terms and the normal rules of the Reinsured,
the reinsurance shall be reinstated automatically.
XV. POLICY CHANGES
1. Should the Reinsured make any material changes (including but not
limited to a change in Face Amount, Specified Amount or Rating
Classification) in the provisions and conditions of a Reinsured
Plan issued to an insured and upon which reinsurance shall have
been granted hereunder, the Reinsured shall reflect such policy
changes, as appropriate, in the monthly reports called for in
Article VIII, Reporting.
2. The Reinsured agrees to notify the Reinsurer in writing of any
anticipated material changes in the terms and conditions of the
Reinsured Plans.
XVI. RECAPTURE
1. Business reinsured under this Agreement will not be eligible for
recapture, except the Reinsured reserves the right to recapture any
business that has been enforce thirty-five (35) years after the
policy issue date. Furthermore, should a state regulatory body rule
that this Agreement is not valid for any reason, and there is no
remedial action available to correct the situation, the Reinsured
reserves the right to recapture that portion of the business that
was reinsured. Any adjustment in values as a result of recapture
will be agreed upon at the time of the recapture. If agreement
cannot be reached, any claims will be settled in accordance with
the provision of Article XVII, Arbitration.
XVII. ARBITRATION
1. Any controversy or claim between the Reinsured and the Reinsurer,
arising out of or relating to this Agreement or the breach thereof
or the coverage of this arbitration provision, shall be settled by
arbitration.
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<PAGE> 18
2. There shall be three (3) arbitrators who shall be current or former
officers of life insurance companies or life reinsurers. However,
unless otherwise consented to in writing by the parties, such
person shall not be a current or former employee of, or current or
former consultant to, the parties or any affiliate or reinsurer of
the parties; nor shall he or she have any current employment or
affiliation with, consulting or contractual engagement with, or
financial interest in: a party to this Agreement or persons or
companies affiliated or associated with a party to this Agreement.
The Reinsured shall appoint one of the arbitrators and the
Reinsurer shall appoint a second arbitrator and these two
arbitrators shall select the third. If either party shall fail to
appoint an arbitrator within thirty (30) days after the other party
has given notice of its appointment of an arbitrator, the
appointment of the arbitrator for the party which has so failed to
appoint an arbitrator shall be left to the other party. Should the
two arbitrators appointed by or for the parties fail to agree on
the choice of the third, within sixty (60) days of their
appointment then each of them shall name three (3) individuals, of
whom the other shall decline two (2), and the decision shall be
made by drawing lots.
3. Arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association which
shall be in effect on the date of delivery of demand for
arbitration; except, however, that arbitrators shall be appointed
in accordance with the provisions of Paragraph 2 of this Article
and that, to the extent any other terms or provisions of this
Article are inconsistent with or in conflict with the Commercial
Arbitration Rules, this Article shall control.
4. The arbitration shall be conducted in a location to be determined
by a majority of the Arbitrators.
5. The Reinsured and the Reinsurer shall each pay that part of the
expense of arbitration which shall be apportioned to it by the
arbitrators.
6. The award rendered by the arbitrators shall be final, and judgment
may be entered upon it in any court having jurisdiction thereof.
7. The Arbitrators shall base their decision on the terms and
conditions of this Agreement and, as necessary, on the customs and
practices of the life reinsurance and life insurance industries
rather than on a strict interpretation of applicable law.
XVIII. IMPROPER SOLICITATION OF REINSURED PLAN OWNERS
1. Neither party, nor any affiliate thereof, shall contact or
authorize any other person to contact owners of the Reinsured Plans
for the purpose of soliciting surrender of the Reinsured Plans,
conversion of the Reinsured Plans to another form of insurance,
making policy loans or withdrawals without prior written approval
of the other party.
18
<PAGE> 19
XIX. DAC TAX - SECTION 1.848 2(g)(8) ELECTION
1. The Reinsurer and the Reinsured each acknowledge that it is subject
to taxation under Subchapter "L" of the Internal Revenue Code of
1986 (The "Code").
2. The Reinsured and the Reinsurer hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulations
issued December 1992, under Section 848 of the Internal Revenue
Code of 1986, as amended. This election shall be effective for 1998
and for all subsequent taxable years for which this Agreement
remains in effect.
3. The terms used in this Article are defined by reference to
Regulation Section 1.848-2 in effect December 1992.
4. Each party agrees to attach a schedule to its federal income tax
return which identifies this Agreement for which the joint election
under the Regulation has been made.
5. The party with the net positive consideration for this Agreement
for each taxable year will capitalize specified policy acquisition
expenses with respect to this Agreement without regard to the
general deductions limitation of Section 848(C)(1).
6. Both Parties agree to exchange information pertaining to the amount
of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the Internal Revenue
Service.
7. The Reinsured will submit a schedule to the Reinsurer by May 1, of
each year, of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement signed by an officer of the Reinsured
stating that the Reinsured will report such net consideration on
its tax return for the preceding calendar year.
8. The Reinsurer may contest such calculation by providing an
alternative calculation to the Reinsured in writing within thirty
(30) days of the Reinsurer's receipt of the Reinsured's
calculation. If the Reinsurer does not so notify the Reinsured, the
Reinsurer will report the net consideration as determined by the
Reinsured in the Reinsurer's tax return for the previous calendar
year.
If the Reinsurer contests the Reinsured's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount within thirty (30) days of the
date the Reinsurer submits its alternative calculation. If the
Reinsured and the Reinsurer reach agreement on an amount of net
consideration, each party shall report such amount in their
respective tax returns for the previous calendar year.
19
<PAGE> 20
XX. DURATION OF AGREEMENT
1. Except as provided in Article XVI, Recapture, inforce reinsurance
which has been ceded under this Agreement shall be unlimited as to
its duration and shall be maintained in force for so long as such
policies shall remain in force and the reinsurance premiums and
payments referenced in Articles VI and VII, Premiums and Payments
By Reinsurer are paid when due.
2. Term of Agreement. The initial term of this Agreement shall be five
(5) years. During and after the initial term, this Agreement may be
canceled as it pertains to the reinsurance of new business
thereafter:
(a) immediately upon written notice by a party if the other party
becomes insolvent, dissolves, ceases to legally exist, or
otherwise ceases to be legally authorized to act as a
reinsurer or insurer, respectively, in its domiciliary
jurisdiction;
(b) upon thirty (30) days written notice by a party if the other
party has materially breached this Agreement and has failed to
cure such breach within such thirty (30) days;
(c) when and as agreed upon by the parties in writing.
3. After the initial term of this Agreement, this Agreement may also
be canceled by either party, as it pertains to the reinsurance of
new business thereafter, by giving three hundred sixty-five (365)
days advance notice of cancellation in writing. In such case, the
Reinsured shall continue to cede, and the Reinsurer shall continue
to accept reinsurance, under this Agreement on policies and riders
issued during the three hundred sixty-five (365) day period, and
the interest of the Reinsurer in new business shall cease at the
end of the three hundred sixty-five (365) day period.
20
<PAGE> 21
XXI. WRITTEN NOTICE
1. Any notice given in connection with this Agreement shall be deemed
to be provided when it is sent by facsimile to the numbers shown
below, or by first class mail or by courier to the addresses set
forth below, or to the last address or facsimile number of record
such party designates in writing:
<TABLE>
<S> <C>
If to the Reinsured: With a Copy to:
------------------- --------------
Western Reserve Life Assurance Co. of Western Reserve Life Assurance Co. of
Ohio Ohio
201 Highland Avenue 201 Highland Avenue
Largo, Florida 33770 Largo, Florida 33770
Attn: Alan Yaeger, Chief Actuary Attn: Larry Kirkland, Managing Actuary
Facsimile (727) 587-1834 Facsimile: (727) 587-1834
If to the Reinsurer: With a Copy to:
------------------- --------------
WMA Life Insurance Company Limited The WMA Corporation
Third Floor, 44 Church Street 11315 Johns Creek Parkway
Hamilton HM 12, Bermuda Duluth, GA 30097-1517
Attn: Manager Attn: Chief Financial Officer
Facsimile: (441) 296-1058 Facsimile: (770) 248-3331
James F. Tenney, Esq.
Merritt & Tenney
200 Galleria Parkway, Suite 500
Atlanta, GA 30067
Facsimile: (770) 952-0028
</TABLE>
21
<PAGE> 22
XXII. EXECUTION
In witness of the above, the Reinsured and the Reinsurer, by their
respective officers have executed this Agreement in duplicate at the
dates and places indicated and shall be effective as of April 1, 1998.
WESTERN RESERVE LIFE WMA LIFE INSURANCE
ASSURANCE CO. OF OHIO LIMITED COMPANY
at Largo, FL at Atlanta, GA
--------------------------- ---------------------------------
on August 12, 1998. on August 13, 1998.
------------------ -----------------
By: Larry Kirkland By: Thomas Wood Montgomery
-------------------------- --------------------------------
Title: VP & Managing Actuary Title: Exec. VP
By: Charles Boswell By: Edward F. McKernan
-------------------------- --------------------------------
Title: VP Title: VP & Actuary
22
<PAGE> 23
EXHIBIT A
PRODUCER
Flexible Premium Variable Life policies, applicable riders, and endorsements
must be sold by and distributed through: WMA Securities, Inc. (and/or its
successors) and its affiliates.
23
<PAGE> 24
EXHIBIT B
FORM OF LETTER OF CREDIT
Effective Date
Western Reserve Life Assurance Co. of Ohio
201 Highland Avenue
Clearwater, FL 33770
Gentlemen:
We have established this clean, irrevocable and unconditional Letter of Credit
in your favor as beneficiary for drawings up to ______________________________
effective immediately. This Letter of Credit is issued, and payable at our
office at ___________________________________________ and expires with our close
of business on _______________________. Except when the amount of this Letter of
Credit is increased, this Letter of Credit cannot be modified or revoked without
your consent.
The term "Beneficiary" includes any successor by operation of law of the named
Beneficiary. If a court of law appoints a successor in interest to the named
Beneficiary, then the named Beneficiary includes and is limited to the court
appointed domiciliary receiver (including conservator, rehabilitator or
liquidator).
We hereby undertake to promptly honor your sight draft(s) drawn on us,
indicating our Letter of Credit No. ______, for all or any part of this Letter
of Credit upon presentation of your draft drawn on us at our office specified in
paragraph one on or before the expiration date hereof or any automatically
extended expiry date.
Except as expressly stated herein, this undertaking is not subject to any
agreement, requirement or qualification. Our obligation under this Letter of
Credit is our individual obligation and is in no way contingent upon
reimbursement with respect thereto, or upon our ability to perfect any lien,
security interest or any other reimbursement.
24
<PAGE> 25
This Letter of Credit is deemed to be automatically extended, without amendment,
for one year from the expiration date hereof, or any future expiration date,
unless at least thirty days prior to such expiration date we notify you by
Registered Mail or Certified Mail that this Letter of Credit will not be renewed
for any such additional period.
This Letter of Credit is subject to and governed by the Laws of the State of
Ohio and the 1993 Revision of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce (Publication 500) and, in the
event of any conflict, the Laws of the State of Ohio will control. If this
Letter of Credit expires during an interruption of business as described in
Article 17 of said Publication 500, we hereby specifically agree to effect
payment if this Letter of Credit is drawn against within thirty days after the
resumption of business.
Very truly yours,
25
<PAGE> 26
EXHIBIT C
GUIDELINES FOR CREDITING RATES
The Investment Management Committee adopts the following guidelines for
recommending crediting rates:
1. In each quarter, the Investment Management Committee will present
its recommended crediting rates for the following quarter to the
Reinsured for approval. In recommending such rates, the Investment
Management Committee shall consider the expected earned rate for the
quarter (the reinsured portion of which will be provided by the
Reinsurer), the assumed pricing spread, and any potential adverse
impact which rate changes may have on the persistency of the block of
business.
2. It is expected the Investment Management Committee and the reinsured
will be able to reach agreement. However, if the Investment Management
Committee and the reinsured are unable to reach agreement, the
Reinsured may establish the renewal crediting rates.
3. Should the ownership of the Reinsured change from that which existed
at the inception of this Agreement, or should the total amount of the
Fixed Account premiums ceded to any one reinsurer exceed the Fixed
Account premiums retained for the Reinsured Plans for any quarter, the
Reinsured may not set a crediting rate that exceeds the rate in effect
at the time of the change in ownership or retention for three years
from that change.
26
<PAGE> 27
Schedule A
BUSINESS REINSURED
<TABLE>
<CAPTION>
FORM NUMBER DESCRIPTION
- ----------- -----------
<S> <C>
VL.03 Flexible Premium Variable Life Insurance
ACCDB-10/94 Standard Accelerated DB Rider
ACCDB CT-10/94 Accelerated DB Rider -- CT
ACCDB IN-10/94 Accelerated DB Rider -- IN
ACCDB MN-10/94 Accelerated DB Rider -- MN
ACCDB MS-01/95 Accelerated DB Rider -- MS
ACCDB SC-02/95 Accelerated DB Rider -- SC
ACCDBTX Accelerated DB Rider -- TX
AG.41.07.80-SD All SD Replacements
END.05.04.79 All IL policies
EVL123MT-1997 MT FFBs
Form IGAIL All IL policies
IGAKS All KS policies
IGAMD All MD policies
IGAMT All MT policies
IGANC All NC policies
IGANH-V All variable NH policies
IGATX All TX policies
IGA.NP.TX2 All TX FFBs
IGA00012 All CA policies
IGA00013 All NV policies
IGA00015 All HI Variable policies
IGA00016 All AR policies
IGA00017 All CO policies
IGA00019-09/92R All LA policies
IGA00020 - 11/92 All NJ policies
IGA00021 - 11/92 All UT policies
IGA00022 - 06/93 All DC policies
IGA.01.03.89-MO-R3 All MO policies
IGA.02.06.89-OK-R All OK policies
IGA.03.02.90-SD All SD policies
IGA.05.04.90-TN All variable TN policies
IGA.08.07.90-ND All ND policies
IGA.09.12.90 All OH policies
IGA.10.05.91 All WY policies
IGA24194-WV All WV policies
ITPCA30L All CA policies - Owner 60 and over
ITP.01.09.88 VA policies - Agent info filled in by Assembly area
ITP0007 All TX policies
ITP.02.09.88 AR policies - Agent info filled in by Assembly area
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C>
ITP.03.09.88 All TN & UT policies
ITP.06.12.90-R3 All CA policies
ITP9L All Replacement policies - CA, CO, DE, ID, IN, IA, KS, LA, MD, MA,
MN, MO, NE, NM, NC, OH, OK, OR, PA, SC, TN, UT, VT. WA, WI, WY
LD00084-12/96 Welcome letter
PIR10 Standard PIR
PIR11 Standard PIR+
PIR10-AA PIR - PA, WV
PIR11-AA PIR+ - PA, WV
PIR10MO PIR - MO
PIR1lMO PIR+ - MO
PIR10NC PIR-NC
PIR11NC PIR+ - NC
PIR10ND PIR+ ND
RE.END.02.05.89 All VT WRL (internal) Replacements
RE.END.03.06.90 All KS (life) Replacements
SUIC.01.06.84 All CO FFBs
ULB1.01.05.84 Standard Disability Waiver Rider
ULB1.02.08.84 Disability Waiver Rider - NJ, PA (although FFB not available)
ULB1.03.08.84 Disability Waiver Rider - SC, WV
ULB1.04.08.84 Disability Waiver Rider - VT
ULB1.05.11.84 Disability Waiver Rider - CA
ULB2.01.05.84 Standard Accidental Death Benefit Rider
ULB2.02.06.84 Accidental Death Benefit Rider - TN
ULB2.03.07.84 Accidental Death Benefit Rider - IN, MN
ULB2.04.07.84 Accidental Death Benefit Rider - AR, GA, MO, NH, SC, WA
ULB2.05.08.84 Accidental Death Benefit Rider - PA (although FFB not available)
ULB2.06.11.84 Accidental Death Benefit Rider - CA, WV
ULB2.07.11.84 Accidental Death Benefit Rider - CT
ULB2.08.11.84 Accidental Death Benefit Rider - NJ (although FFB not available)
ULB4.01.03.86 Standard Disability Waiver and Income Rider
ULB4.03.04.86 Disability Waiver and Income Rider - SC, WV
ULB4.04.04.86 Disability Waiver and Income Rider - VT
ULB4.05.04.86 Disability Waiver and Income Rider - MO, SD
ULB4.06.05.86 Disability Waiver and Income Rider - TN
ULB4.07.12.86 Disability Waiver and Income Rider - CT
ULR2.01.05.84 Standard Other Insured Rider
ULR2.02.08.84 Other Insured Rider - WV, PA (although FFB not available in PA)
ULR2.03.10.84 Other Insured Rider - TX (although FFB not available in TX)
ULR3.01.05.84 Standard Children's Insurance Rider
ULR3.02.08.84 Children's Insurance Rider - WV, PA (although FFB not available in PA)
ULR3.03.10.86 Children's Insurance Rider - NJ (although FFB not available in NJ)
</TABLE>
28
<PAGE> 29
Schedule B1
AMOUNT OF REINSURANCE
The amount of reinsurance under this Agreement shall be the Reinsurer's quota
share percentage shown below of the liability of the Reinsured on all Reinsured
Plans in the forms listed in Schedule A, Business Reinsured.
Quota Share Percentages for Issue Dates in 1998: For issue dates in 1998, the
quota share percentage will be 20%.
Quota Share Percentages for Issue Dates in 1999 and later: The Reinsurer and the
Reinsured will jointly determine the quota share percentages no later than
December 1st applicable to new issues in the following calendar year. The
determining factors for the quota share percentage are the expected WMA Total
Flexible Premium Variable Life First Year Target Premiums Collected by the
Reinsured and the expected WMA Total Flexible Premium Variable Life First Year
Target Premiums written with all insurance companies for the calendar year that
the quota share percentage will be applicable. This determination of the quota
share percentage will be on a mutually acceptable basis, recognizing the good
faith nature of this Agreement, and with references to the estimates made by
both parties, based on the prior periods' target premiums.
The Scheduled Quota Share Percentages for each threshold of expected WMA Total
Flexible Premium Variable Life First Year Target Premiums Collected by the
Reinsured are shown in the following table:
<TABLE>
<CAPTION>
WMA TOTAL FLEXIBLE PREMIUM
VARIABLE LIFE FIRST YEAR TARGET SCHEDULED
PREMIUMS COLLECTED QUOTA SHARE
BY THE REINSURED (IN MILLIONS) PERCENTAGE
<S> <C>
$ 50-149 20%
$150-199 25%
$200-249 30%
$250-599 35%
$600+ 40%
</TABLE>
For each threshold of expected WMA Total Flexible Premium Variable Life First
Year Target Premiums Collected by the Reinsured, a certain percentage of WMA
Total Flexible Premium Variable Life First Year Target Premiums is expected to
be collected by the Reinsured. The thresholds are as follows:
29
<PAGE> 30
<TABLE>
<CAPTION>
WMA TOTAL FLEXIBLE PREMIUM WRL'S SHARE OF MAXIMUM "OTHER
VARIABLE LIFE FIRST YEAR TARGET WMA'S INDIVIDUAL CARRIER'S" SHARE OF
PREMIUMS COLLECTED PRODUCTION WMA'S INDIVIDUAL
BY THE REINSURED (IN MILLIONS) PRODUCTION
<S> <C> <C>
$ 50-149 90% 10%
$150-199 85% 10%
$200-249 80% 10%
$250-349 75% 10%
$350-599 70% 10%
$600+ 70% 10%
</TABLE>
The scheduled quota share percentages may be reduced if:
1. The percentage of expected WMA Total Flexible Premium Variable Life
First Year Target Premiums Collected by the Reinsured is less than the
Scheduled Percentage of expected WMA Total Flexible Premium Variable
Life First Year Target Premiums to be Collected by the Reinsured, and/or
2. The growth rate in expected WMA Total Flexible Premium Variable Life
First Year Target Premiums Collected by the Reinsured declines, as
measured by the financial reports of the Reinsured.
If the percentage of expected WMA Total Flexible Premium Variable Life First
Year Target Premiums Collected by the Reinsured to expected WMA Total Flexible
Premium Variable Life First Year Target Premiums Collected from all sources is
less than the Scheduled Percentage of expected WMA Total Flexible Premium
Variable Life First Year Target Premiums Collected by the Reinsured:
The quota share percentage may be reduced 5% for each full 10% reduction in the
Reinsured's Scheduled Percentage of expected WMA Total Flexible Premium Variable
Life First Year Target Premium Collected by the Reinsured, as estimated by WMA's
financial statements. As an example, if the expected WMA Total Flexible Premium
Variable Life First Year Target Premiums Collected by the Reinsured is $175
Million, but the $175 Million is only 75% of expected WMA Total Flexible Premium
Variable Life First Year Target Premiums, the quota share percentage may be
reduced from 25% to 20%.
<TABLE>
<CAPTION>
VOLUME QUOTA SHARE % OF PRODUCTION
TO REINSURED
<S> <C> <C>
$150-199 20% 75%
</TABLE>
30
<PAGE> 31
Schedule B2
DUE REINSURED
Commission and Expense Allowances*
1. Issue and Maintenance Expense Allowance
2. Sales and Marketing Premium Expense Allowance
3. Commission Allowance
4. Claim Expense Allowance
5. Target Surplus allowance
* all multiplied by the quota share percentage.
<TABLE>
<S> <C>
1. Issue and Maintenance Expense Allowances
a. Issue Expense Allowance - * base per policy
- * per rider
- * per unit, base & rider (unit=$1,000 of specified
amount / face amount)
b. Maintenance Expense Allowance - * per policy in force at end of each calendar
(all years) month
- * per rider in force at end of each calendar month
- * of collected premium.
- * per premium collection.
- * of Separate Account Value in force at the end
of each calendar quarter.
c. Exhibit 6 Expense Allowance (intended to reflect Exhibit 6 type expenses.)
- Exhibit 6 Taxes Paid * for 1998 (to be reviewed annually thereafter.
- Other, including guaranteed fund Per the Reinsured Ledger
assessments
d. Investment Operations Tax Accrued amount of reserve for any taxes that may result
from investment operations of sub-accounts
e. Gains/Losses All gains/losses incurred by Reinsured.
2. Sales and Marketing Premium Expense Allowance
a. Marketing Expense * of collected target premium
</TABLE>
3. Commission Allowances
Actual commissions paid per the Reinsured Ledger. Commission schedules, for
information purposes only, are as follows:
<TABLE>
<CAPTION>
POLICY TARGET EXCESS ASSET
YEAR PREMIUM PREMIUM TRAIL*
<S> <C> <C> <C>
1 * * *
2 * * *
3 * * *
4 * * *
5-10 * * *
11+ * * *
</TABLE>
* Paid beginning of first anniversary on cash value of policies with a cash
value, net of policy loans, of $5,000 or more.
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
<PAGE> 32
Schedule B2
<TABLE>
<S> <C>
4. Claim Expense Allowance
a. Death Claim Expense $* per death claim on base policy, OIR and CPR
($0 on PIR)
b. Lapse Termination Expense (CSV=0) $* per lapse
c. Surrender Termination Expense (CSV>0) $* per surrender
5. Target Surplus Allowance Currently, * of Separate Account Value less prior
Target Surplus balance accrued at an effective annual
interest rate of * (if positive); if amount is
negative, balance is paid to Reinsurer. If the
Reinsured's method or percent used in calculating Target
Surplus on the Reinsured Plans changes, which results in
an immediate change in the Target Surplus balance, the
Reinsurer may request a grade in period of no more than
five (5) years.
6. DAC Proxy Tax * on Premiums and net transfers into Separate Account
from Fixed Account.
</TABLE>
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
<PAGE> 33
Schedule C1 - Quarterly Reports
Quarterly Settlement Report
WRL Financial Freedom Builder
Modified Coinsurance Settlement
30-Jun-1998
<TABLE>
<CAPTION>
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C>
A. Due WMA
1. Premiums Ceded 0 0 G(qr)
2. Transfers-in form from the Fixed Allocation Account 0 0 G(qr)
3. Mortality and Expense Risk Charges 0 0 E2(qpr)
4. Asset-Based Allowances 0 0 E2(qpr)
5.a. Administrative Charges 0 0 E2(qpr)
5.b. less: Administrative Charges from Fixed Account 0 0 E2(qpr)
5.c. equals: Administrative Charges from Separate Account 0 0 E2(qpr)
6. Policyholder Investment Gains on Separtate Account Values 0 0 G(qr)
7. Gain/(Loss) Adjustment on Transaction Processing 0 0 Stat
8. Investment Income on SA Target Surplus 0 0 l(qr)
9. Commission Allowance Chargebacks 0 0 Ext
----- -----------
10. Total Amount Due WMA = (1)+(2)+(3)+(4)+(5c)+(6)+(7)+(8)+(9) 0 0
B. Due WRL
1. Commission and Expense Allowances 0 0
a. Issue Expense Allowance 0 0 D2(qr)
b. Maintenance Expense Allowance 0 0 D2(qr)
c. Sales and Marketing Premijm Expense Allowance 0 0 D2(qr)
d. Commission Allowance (including end of quarter accruals) 0 0 D2(qr)
e. Premium Collection Expense Allowance 0 0 D2(qr)
f. Termination Expense Allowance 0 0 D2(qr)
----- -----------
g. Total Commission and Expense Allowances = sum (a) to (f) 0 0
2. Benefits Ceded
a1. Surrenders 0 0
a2. less: Surrender Charges 0 0 E2(qpr)
b. Not-Taken Refunds 0 0 G(qr)
c. Maturities 0 0 G(qr)
d. Terminations due to Disabilities 0 0 G(qr)
e1. Partial Withdrawals 0 0 E2(qpr)
e2. less: Surrender Charges 0 0 E2(qpr)
f. Death Claims Paid (includes riders, interest) 0 0 G(qr)
g. Transfers-out to the Fixed Allocation Account 0 0 G(qr)
----- -----------
h. Total Benefits Ceded = sum (a) to (g) 0 0
3. Modified Coinsurance SA Value Adjustment 0 0 H(qr)
4. SA Target Surplus Adjustment 0 0 l(qr)
5. DAC Tax Allowance 0 0 E2(qpr)
6. Total Amount Due WRL = (1g)+(2h)+(3)+(4)+(5) 0 0
C. Balance During the Period = A(10)-B(6) 0 0
1. If positive, the quota share balance is due to be paid by WRL
2. If negative, the quota share balance is due to be paid by WMA
The column headed "WWMA Quota Share" shows the adjustment by the
Quota Share Percentage.
</TABLE>
Sources:
D2(qr) Schedule D2 - Quarterly Commission and Expense Report
E2(qpr) Schedule E2 - Quarterly Production Report
G(qr) Schedule G - Quartelry Interest Credit on Reserve Report
H(qr) Schedule H - Quarterly ModCo Reserve Adjustment Report
I(qr) Schedule I - Quarterly Target Surplus Adjustment Report
Ext WMA VUL Mod-Co Seriatim File
Stat WRL Stat file (Accounting general ledger)
<PAGE> 34
Schedule C2 - Quarterly Reports
Quarterly Reserve and Settlement Report
WRL Financial Freedom Builder
Coinsurance Settlement
30-Jun-1998
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C>
Reinsured FFB CRVM Statutory Reserves - GA only 0 0 E3(qrr)
Reinsured Mortality Charge Reserves - GA Only 0 0 E3(qrr)
Reinsured IPC Reserves - GA only 0 0 E3(qrr)
Total Other GA Reserves and Liabilities 0 0 E3(qrr)
----- -----------
Total GA Reserves and Liabilities 0 0
Reinsured FFB SA Values 0 0 Ext
Reinsured FFB GA Values
a. Fixed Fund 0 0
b. Loan Collateral Fund 0 0
c. Total Reinsured FFB GA Values 0 0 Ext
----- -----------
Total Reinsured FFB Cash Values 0 0
Quarterly Settlement
WMA
A. Coinsurance Amounts Due WMA Total Quota Share Source
1. Transfers-in to the Fixed Account 0 0 C1(qr)
2. Loan Principal Repaid during quarter 0 0 Stat
3. Loan Interest Paid during quarter 0 0 Stat
4. Interest on Premiums and Net Transfers to Fixed Account 0 0 E2(qpr)
5. Interest on M & E Risk Charges and A-B Allowances 0 0 E2(qpr)
----- -----------
6. Total Due WMA 0 0
B. Coinsurance Amounts Due WRL
1. Transfers-out from the Fixed Account 0 0 C1(qr)
2. New Loans taken during quarter 0 0 E2(qpr)
3. Interest on Commission and Expense Allowances 0 0 E2(qpr)
4. Interest on Benefits from Fixed Account 0 0 E2(qpr)
----- -----------
5. Total Due WRL 0 0
C. Balance During the Period = A(6) - B(5) 0 0
D. Total Reinsurance Premiums (Schedule C1 and Schedule C2) 0 C1 & C2
E. Total Payments by the Reinsurer (Schedule C1 and Schedule C2) 0 C1 & C2
F. Total Reinsurance Settlement for the Period: (D - E) 0
1. If positive, the quota share balance is due to be paid by WRL
2. If negative, the quota share balance is due to be paid by WMA
</TABLE>
Sources:
Stat WRL Status file (Accounting general ledger)
C1(qr) Schedule C1 - Quarterly Settlement Report
C2(qr) Schedule C2 - Quarterly Reserve and Settlement Report
E2(qpr) Schedule E2 - Quarterly Production Report
E3(qrr) Schedule E3 - Quarterly Reserve Report
Acct Financial Reporting Accounting and Death Claim Report
<PAGE> 35
Schedule D1 - Monthly Reports
Detail of Commission and Expense Allowances
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
<S> <C> <C> <C> <C>
1. Expense Allowances
a. Issue Expense Allowance 0 0
($* per base policy issued, -* for NTO) 0 E1(mpr)
($* per rider issued, -$* for NTO) 0 E1(mpr)
($* per unit, base & rider, -$* for NTO) 0 E1(mpr)
b. Maintenance Expense Allowance 0 0
* per inforce base policy end of month 0 E1(mpr)
* per inforce rider end of month 0 E1(mpr)
* of all premiums collected 0 E1(mpr)
* of .*% of SA Values 0 E3(qrr)
Premium Tax equals: 0
Premium taxes paid 0 WRL
-Premium tax offsets 0 WRL
Other, including guaranteed fund assessments 0
Guar. Fund Costs 0 WRL
2. Sales and Marketing Premium Expense Allowance 0 0
a. * of collected first year target premium 0 E1(mpr)
3. Commission Allowances 0 0
a. First Year Commissions 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trails 0 DSS
b. Renewal Years 2-10 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trail 0 DSS
c. Renewal Years 11+ 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trails 0 DSS
4. Premium Collection Expense Allowance ($1 per collection) 0 0 E1(mpr)
5. Termination Expense Allowance 0 0
a. Death Claim Expense ($* per death, base) 0 E1(mpr)
b. Death Claim Expense ($* per death, OIR or CIR) 0 E1(mpr)
c. Lapse Expense ($* per lapse with net SV = 0) 0 E1(mpr)
d. Surrender Expense ($* per surrender with net SV > 0) 0 E1(mpr)
6. DAC Tax Allowance 0 0 E1(mpr)
(*% of total net transfers, including
premium paid, to Separate Account)
Total Commission and Expense Allowance ----- -----
0 0
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
- --------
E1(mpr) Schedule E1 - Monthly Production Report
E3(qrr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL expenses and methods of reporting
DSS Commission Accounting Extract
</TABLE>
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange
Securities Exchange Act of 1934.
<PAGE> 36
Schedule D2-Quarterly Reports
Detail of Commission and Expense Allowances
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C> <C> <C>
1. Expense Allowances
a. Issue Expense Allowance 0 0
($* per base policy issued, -$* for NTO) 0 E2(qpr)
($* per rider issued, -$* for NTO) 0 E2(qpr)
($* per unit, base & rider, -$* for NTO) 0 E2(qpr)
b. Maintenance Expense Allowance 0 0
$* per inforce base pollicy end of month 0 E2(qpr)
$* per inforce rider end of month 0 E2(qpr)
*% of all premiums collected 0 E2(qpr)
*% of SA Values 0 E2(qpr)
Premium Tax equals: 0
Premium taxes paid 0 WRL
-Premium tax offsets 0 WRL
Other, including guaranteed fund assessments 0
Guar. Fund Costs 0 WRL
2. Sales and Marketing Premium Expenses Allowance 0 0
a. *% of collected first year target premium 0 E2(qpr)
3. Commission Allowances 0 0
a. First Year Commissions 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trails 0 DSS
b. Renewal Years 2-10 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trails 0 DSS
c. Renewal Years 11+ 0
Target Premiums 0 DSS
Excess Premiums 0 DSS
Asset Trails 0 DSS
4. Premium Collection Expense Allowance ($1 per collection) 0 0 E2(qpr)
5. Termination Expense Allowance 0 0
a. Death Claim Expense ($* per death, base) 0 E2(qpr)
b. Death Claim Expense ($* per death, OIR or CIR) 0 E2(qpr)
c. Lapse Expense ($* per lapse with net SV = 0) 0 E2(qpr)
d. Surrender Expense ($* per surrender with net SV > 0) 0 E2(qpr)
6. DAC Tax Allowance
( *% of total net transfers, including premiums paid, to Separate Account) 0 0 Ew(qpr)
--- ---
Total Commission and Expense Allowance 0 0
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the Quota
Share Percentage.
Sources:
- --------
E2(qpr) Schedule E2 - Quarterly Production Report
E3(qpr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL expenses and methods of reporting
DSS Commission Accounting Extract
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
<PAGE> 37
Schedule E1 -- Monthly Reports
Monthly Production and Policy Loads Report
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
Riders
Base --------------------- Base Rider 1998 WMA
Policies PIR, PIR+ Others Units Units Quota Share Source
-------- --------- ------ ---------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
In Force 31-May-1998 0 0 0 0 0 20% E1(mr)
Issues 0 0 0 0 0 LEx
Coverage Increases (decreases) 0 0 0 0 0 LEx
Reinstatements 0 0 0 0 0 LEx
---------------------------------------------------------
Total Increases 0 0 0 0 0
Disabilities 0 0 0 0 0 LEx
Surrenders 0 0 0 0 0 LEx
Not-Takens 0 0 0 0 0 LEx
Maturities 0 0 0 0 0 LEx
Lapses 0 0 0 0 0 LEx
Expiry 0 0 0 0 0 LEx
Deaths 0 0 0 0 0 LEx
---------------------------------------------------------
Total Terminations 0 0 0 0 0
Net Change 30-Jun-1998 0 0 0 0 0
---------------------------------------------------------
In Force 30-Jun-1998 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
Allocated to Quota Share of Premiums
-------------------------- --------------------------
Fixed Acct Separate Acct Fixed Acct Separate Acct
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Gross Premiums
Target premiums -- Year 1 0 0 0 0 Ext
Excess premiums -- Year 1 0 0 0 0 Ext
--------------------------------------------------------------------- -----------------------------
1st Year -------------------------------------- 0 0 0 0
--------------------------------------------------------------------- -----------------------------
Target Premiums -- Years 2 - 10 0 0 0 0 Ext
Excess Premiums -- Years 2 - 10 0 0 0 0 Ext
--------------------------------------------------------------------- -----------------------------
Renewal Years 2 - 10 -------------------------- 0 0 0 0
--------------------------------------------------------------------- -----------------------------
Target Premiums -- Years 11+ 0 0 0 0 Ext
Excess Premiums -- Years 11+ 0 0 0 0 Ext
--------------------------------------------------------------------- -----------------------------
Renewal Years 11+ ----------------------------- 0 0 0 0
--------------------------------------------------------------------- -----------------------------
--------------------------------------------------------------------- -----------------------------
Total Premiums for all years: ----------------- 0 0 0 0
--------------------------------------------------------------------- -----------------------------
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C> <C>
Administrative Charges
Base COI Monthly Deductions 0 0 0 0 Ext
Rider Monthly Deductions 0 0 0 0 Ext
Monthly Policy Fee Deductions 0 0 0 0 Ext
Premium Collection Charges 0 0 0 0 Ext
Percent of Premium Charges 0 0 0 0 Ext
- ------------------------------------------------------------------ ---------------------
Total Policy Administrative Charges:----- 0 0 0 0
- ------------------------------------------------------------------ ---------------------
Mortality and Expense Risk Charges 0 0 J(mr)
Asset-Based Allowances 0 0 J(mr)
</TABLE>
Benefits Paid During Month:
<TABLE>
<CAPTION>
------Fixed Account-------- ------Separate Account-----
Gross With's Surr Charges Gross With's Surr Charges
<S> <C> <C> <C> <C> <C>
1. Surrenders 0 0 0 0 Stat
2. Not-Taken Refunds 0 0 Stat
3. Maturities 0 0 Stat
4. Disabilities 0 0 Stat
5. Partial Withdrawals 0 0 0 0 Stat
6. Death Claims 0 0 Stat
7. New Loans 0 Stat
Transfers - Fixed to Separate 0 Stat
Transfers - Separate to Fixed 0 Stat
Gross Premiums Allocated to Fixed Accounts 0
Total Net Transfers to Separate Account 0
Settlement Interest Rate on 15-Jun-1998 5.50% WSJ
Interest to End of Month on Premiums and Net Transfers to Fixed Account 0 0 E1(mr)
Interest to EOM on Mortality and Expense Risk Charges and A-B Allowances 0 0 E1(mr)
Interest to End of Month on Commission and Expense Allowances 0 0 D1(mr)
Interest to End of Month on Benefits from Fixed Account 0 0 E1(mr)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E1(mpr) Schedule E1 - Monthly Production Report from prior month
J(mr) Schedule J - Monthly M&E and Asset-Based Allowances
LEx Life Exhibit Access Database Report
Ext WMA VUL Mod-Co Seriatim File
WSJ Wall Street Journal published on the date shown for the Settlement
Interest Rate
<PAGE> 39
Schedule E2 -- Quarterly Report
Quarterly Production and Policy Loads Report
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
Riders
--------------------
Base Base Rider 1998 WMA
Policies PIR, PIR+ Other Units Units Quota Share Source
-------- --------- ----- ----- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
In Force 31-Mar-1998 0 0 0 0 0 20% E1(mr)
Issue 0 0 0 0 0 LEx
Coverage Increase (decreases) 0 0 0 0 0 LEx
Reinstatements 0 0 0 0 0 LEx
--- --- --- --- ---
Total Increases 0 0 0 0 0
Disabilities 0 0 0 0 0 LEx
Surrenders 0 0 0 0 0 LEx
Not-Takens 0 0 0 0 0 LEx
Maturities 0 0 0 0 0 LEx
Lapses 0 0 0 0 0 LEx
Expiry 0 0 0 0 0 LEx
Deaths 0 0 0 0 0 LEx
--- --- --- --- ---
Total Terminations 0 0 0 0 0
Net Change 30-Jun-1998 0 0 0 0 0
--- --- --- --- ---
In Force 30-Jun-1998 0 0 0 0 0
Allocated to Quota Share of Premiums
Fixed Acct Separate Acct Fixed Acct Separate Acct
Gross Premiums
Target Premiums - Year 1 0 0 0 0 Ext
Excess Premiums - Year 1 0 0 0 0 Ext
--- --- --- ---
1st Year................................. 0 0 0 0
--- --- --- ---
Target Premiums - Years 2 - 10 0 0 0 0 Ext
Excess Premiums - Years 2 - 10 0 0 0 0 Ext
--- --- --- ---
Renewal Years 2 - 10..................... 0 0 0 0
--- --- --- ---
Target Premiums - Years 11+ 0 0 0 0 Ext
Excess Premiums - Years 11+ 0 0 0 0 Ext
--- --- --- ---
Renewal Years 11+........................ 0 0 0 0
--- --- --- ---
Total Premiums for all years:............. 0 0 0 0
--- --- --- ---
</TABLE>
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Administrative Charges
Base COI Monthly Deductions 0 0 0 0 Ext
Rider Monthly Deductions 0 0 0 0 Ext
Monthly Policy Fee Deductions 0 0 0 0 Ext
Premium Collection Charges 0 0 0 0 Ext
Percent of Premium Charges 0 0 0 0 Ext
- ------------------------------------------------------------------ -------------------------
Total Policy Administrative Charges: ------ 0 0 0 0
- ------------------------------------------------------------------ -------------------------
Mortality and Expense Risk Charges 0 0 J(mr)
Asset-Based Allowances 0 0 J(mr)
Benefits Paid During Month:
_____Fixed Account_____ _______Separate Account_______
Gross With's Surr Charges Gross With's Surr Charges
1. Surrenders 0 0 0 0 Stat
2. Not-Taken Refunds 0 0 0 0 Stat
3. Maturities 0 0 0 0 Stat
4. Disabilities 0 0 0 0 Stat
5. Partial Withdrawals 0 0 0 0 Stat
6. Death Claims 0 0 0 0 Stat
7. New Loans 0 0 0 0 Stat
Transfers - Fixed to Separate 0 0 0 0 Stat
Transfers - Separate to Fixed 0 0 0 0 Stat
Gross Premiums Allocated to Fixed Account 0
Total Net Transfers to Separate Account 0
Settlement Interest Rate on 35,961 0 WSJ
Interest to End of Month on Premiums and Net Transfers to Fixed Account 0 0 E1(mr)
Interest to EOM on Mortality and Expense Risk Charges and A-B Allowances 0 0 E1(mr)
Interest to End of Month on Commission and Expense Allowances 0 0 D1(mr)
Interest to End of Month on Benefits from Fixed Account 0 0 E1(mr)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the Quota Share
Percentage.
Sources:
- --------
E1(mpr) Schedule E1 - Monthly Production Report from prior month
J(mr) Schedule J - Monthly M&E and Asset-Based Allowances
LEx Life Exhibit Access Database Report
Ext WMA VUL Mod-Co Seriatim File
WSJ Wall Street Journal published on the date shown for the Settlement
Interest Rate
<PAGE> 41
Schedule E3 - Quarterly Reports
Quarterly Reserve Report
WRL Financial Freedom Builder
Modified Coinsurance
30-June-1998
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- ------
<S> <C> <C> <C>
A. Sources of Reserve Splits:
1. Total FFB Cash Values 0 N/A Ext
2. Reinsured FFB SA Values 0 0 Ext
3. Reinsured FFB GA Values
a. Fixed Account Values 0
b. Loan Collateral Fund 0
c. Total Reinsured FFB GA Values 0 0 Ext
----- ---------
4. Total Reinsured FFB Cash Values 0 0
B. CRVM Statutory Reserves Split between SA and GA:
1. Total FFB CRVM Statutory Reserves 0 N/A Ext
2. Reinsured FFB CRVM Statutory Reserves - Total 0 0 Ext
3. Reinsured FFB CRVM Statutory Reserves - SA only 0 0
4. Reinsured FFB CRVM Statutory Reserves - GA only 0 0
C. Additional Reserves Split between SA and GA:
1. Reinsured Mortality Charge Reserves - GA only 0 0 Ext
2. Reinsured IPC Reserves - Total (.02 x B(2)) 0 0
3. Reinsured IPC Reserves - SA only 0 0
4. Reinsured IPC Reserves - GA only 0 0
D. Other GA Reserves and Liabilities
1. Exhibit II, Part I, Column 3, Line 4a Liability 0 0 Acct
2. Disabled Lives Reserves 0 0 Acct
3. Other Reserves and Liabilities 0 0 Acct
----- ---------
4. Total Other GA Reserves and Liabilities 0 0
E. Total Reinsured FFB SA Reserves and Liabilities 0 0
F. Total Reinsured FFB GA Reserves and Liabilities 0 0
</TABLE>
Sources:
Ext WMA VUL Mod-Co Seriatim File
Acct Financial Reporting Accounting and Death Claim Report
<PAGE> 42
Schedule F - Annual Reports
Exhibit of Life Insurance (NAIC format)
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
Ordinary
---------------------------
3 4
Number of Amount of
(Year-to-Date Figures Shown:) Policies Insurance(a) Source
------------- -------------
<S> <C> <C> <C> <C>
1. In Force end of Previous Year: 0 0 F(ar)
- --------------------------------------------------------------------------------------
2. Issued during year: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
3. Reinsurance Assumed: 0 0
- --------------------------------------------------------------------------------------
4. Revived during year: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
5. Increased during year (net): 0 0
- --------------------------------------------------------------------------------------
5A. Subtotals, (Lines 2 to 5) 0 0
- --------------------------------------------------------------------------------------
6. Additions by dividends: 0 0
- --------------------------------------------------------------------------------------
7. Aggregate write-ins for increases: 0 0
- --------------------------------------------------------------------------------------
8. Totals (Lines 1 and 5A to 7) 0 0
- --------------------------------------------------------------------------------------
Deductions during year:
- --------------------------------------------------------------------------------------
9. Death: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
10. Maturity 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
11. Disability: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
12. Expiry: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
13. Surrender: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
14. Lapse: 0 0 E2(qpr)
- --------------------------------------------------------------------------------------
15. Conversion: 0 0
- --------------------------------------------------------------------------------------
16. Decreased (net): 0 0
- --------------------------------------------------------------------------------------
17. Reinsurance: 0 0
- --------------------------------------------------------------------------------------
18. Aggregate write-ins for decreases: 0 0
- --------------------------------------------------------------------------------------
19. Totals (Lines 9 to 18): 0 0
- --------------------------------------------------------------------------------------
20. In force end of year (Line 8 minus Line 19): 0 0
- --------------------------------------------------------------------------------------
21. Reinsurance ceded end of year: XXX 0
- --------------------------------------------------------------------------------------
22. Line 20 minus Line 21 XXX 0
- --------------------------------------------------------------------------------------
(a) Amounts of life insurance in this exhibit shall be shown in thousands (omit 000).
</TABLE>
Sources:
E2(qpr) Schedule E2 - Quarterly Production Report
F(ar) Schedule F - Annual Report from Prior Year
<PAGE> 43
Schedule G -- Quarterly Reports
Quarterly Interest Credit (Debit) on Modified Coinsurance Reserve
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
Change in
Detail of Separate WMA
Transfers-in Account Value Quota Share Source
------------ ------------- ----------- ------
<S> <C> <C> <C> <C>
A. S/A Value as of 31-Mar-1998 0 0 G(qr)
B. Increases in Separate Account Value during the quarter
1. Gross premiums (SA + FA) Ceded 0 0 E2(qpr)
2. Transfers-in from the Fixed Account 0 0
Interfund Transfers to Separate Account 0 E2(qpr)
Fixed Account Value of Surrenders 0 E2(qpr)
Fixed Account Value of Not-Taken Refunds 0 E2(qpr)
Fixed Account Value of Maturities 0 E2(qpr)
Fixed Account Value of Disabilities 0 E2(qpr)
Fixed Account Value of Partial Withdrawals 0 E2(qpr)
Fixed Account Value of Death Claims 0 E2(qpr)
------------------------------ -----------
3. Total increases 0 0
</TABLE>
<TABLE>
<CAPTION>
Benefits Paid WMA Chg. in Cash Value WMA
S/A + Fixed Quota Share S/A + Fixed Quota Share
------------ ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
C. Decreases in Separate Account Value
during the quarter
1. Surrenders 0 0 0 0 E2(qpr)
2. Not-Taken Refunds 0 0 0 0 E2(qpr)
3. Maturities 0 0 0 0 E2(qpr)
4. Disabilities 0 0 0 0 E2(qpr)
5. Partial Withdrawals 0 0 0 0 E2(qpr)
6. Death Claims 0 0 0 0 E2(qpr)
7. Transfers-out to the Fixed Account
Gross Premiums to Fixed Account 0 E2(qpr)
Transfers for New Loans Taken 0 E2(qpr)
Transfers-out to Fixed Account 0 E2(qpr)
--------------------------------------------------- -----------
8. Total Decreases 0 0 0 0
D. Separate Account Value as of 30-Jun-1998 0 0 H(qr)
E. Policyholder Investment Gain on Separate Account
Value as of the end of the quarter = D-[A+B(3)-C(8)] 0 0
</TABLE>
The Column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
G(qr) Schedule G -- Quarterly Report for prior quarter
H(qr) Schedule H -- Quarterly Mod-Co Reserve Adjustment
E2(qpr) Schedule E2 -- Quarterly Production Report
Ext WMA VA Mod-Co Seriatim File
<PAGE> 44
Schedule H - Quarterly Reports
Quarterly Modified Coinsurance Reserve Adjustment
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WMA
Total Quota Share Source
Increase in Modified Coinsurance Reserve Payable to WMA to WRL
A. Total Modified Coinsurance Reserve as of 31-Mar-1998 0 0 E3(qrr)
B. Total Modified Coinsurance Reserve as of 30-Jun-1998 0 0 E3(qrr)
C. Increase in Modified Coinsurance Reserve = B - A 0 0
(=Increase in Separaate Account Value)
</TABLE>
The column headed "WMA Quota Share" shows the adjustment by the
Quota Share Percentage.
Sources:
E3(qrr) Schedule E3 - Quarterly Reserve Report
<PAGE> 45
Schedule I - Quarterly Reports
Quarterly Target Surplus Adjustment
WRL Financial Freedom Builder
Modified Coinsurance
30-Jun-1998
<TABLE>
<CAPTION>
WMA
Total Quota Share Source
----- ----------- --------
<S> <C> <C> <C>
A. Total SA Value as of the end of the previous quarter 0 0 E3(qrr)
B. Target Surplus on SA Value (* x A) 0 0 WRL
C. Total SA Value as of the end of the current quarter 0 0 E3(qrr)
D. Target Surplus on SA Value (* x C) 0 0 WRL
E. Increase in SA Target Surplus (D - B) 0 0
(= SA Target Surplus Adjustment)
F. Interest Credit on Target Surplus 0 0 WRL
(B x (* Exp. (#days in quarter/365)-1
</TABLE>
The column headed "WMA Quota Share" shows the adjustment
by the Quota Share Percentage.
Sources:
- --------
E3(qrr) Schedule E3 - Quarterly Reserve Report
WRL Actual WRL method, based on factors determined by WRL.
* Material omitted pursuant to Rule 24b-2 under the Securities Exchange Act
of 1934.
<PAGE> 46
Schedule J - Monthly Report
Monthly M&M and Asset Based Allowance Calculations
WRL Financial Freedom Builder
30-Jun-1998
M&E ANNUAL RATE: 0.90%
NUMBER OF DAYS IN REPORTING PERIOD: 30
NUMBER OF BUSINESS DAYS IN PERIOD: 19
<TABLE>
MONEY STRATEGIC EMERGING AGGRESSIVE
TOTAL MARKET BOND GROWTH GLOBAL TOTAL RETURN GROWTH GROWTH BALANCED
----- ------ ---- ------ ------ ------------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. Average TNA for the current month 0 0 0 0 0 0 0 0 0
B. Average Daily Cash Change (sum of
daily cash changes/# days in
current month) 0 0 0 0 0 0 0 0 0
C. Average Daily M&E fee
(A x M&E)/365 0 0 0 0 0 0 0 0 0
D. Average Daily Dividend Receivable
Balance (Money Market Only) for
the current month 0 0 0 0 0 0 0 0 0
E. Adjusted Monthly Average TNA
(A - B + C - D) 0 0 0 0 0 0 0 0 0
F. Annual Asset Based Allowance
Factor (WRL only) 0.25% 0.25% 0.40% 0.40% 0.40% 0.40% 0.40% 0.40%
G. Asset Based Allowance for
Month (Entire Fund)
(F x E x #days in month)/365 0 0 0 0 0 0 0 0 0
H. M&E fees for Month (Entire Fund)
(A x M&E x #days in month)/365 0 0 0 0 0 0 0 0 0
I. S/A Value by Fund for all FFBs 0 0 0 0 0 0 0 0 0
J. S/A Value by Fund for Reinsured
Contracts by Issue Year
1998 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0
K. Asset Based Allowance by
Issue Year (G x J)/I
1998 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0
L. M&E fees for Month by
Issue Year (H x J)/I
1998 0 0 0 0 0 0 0 0 0
1999 0 0 0 0 0 0 0 0 0
2000 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Growth Tactical C.A.S.E. Real Value International U.S. 3rd Ave.
& Income Asset Growth Estate Equity Equity Equity Value
- -------- -------- -------- ------ ------ ------------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0.35% 0.40% 0.40% 0.40% 0.40% 0.50% 0.40% 0.40%
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
</TABLE>
<PAGE> 48
Schedule K
<TABLE>
WMA Life Insurance Co., Inc.
Reinsured Death Claims Reported
Claims Reported From: 06/01/1998 To: 06/30/1998
Report Run Date: July 02, 1998
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Claim State Name Sex Issue Policy Risk Option Plan
Age Number Class Code Code
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Issue Death Date Face Reinsurance Cash Interest Expense Date Remark
Date Date Reported Amount Amount Value Amount Paid Code Code
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WMA Life Insurance Co., Inc.
Reinsured Death Claims Paid
Claims Paid From: 06/01/1998 To: 06/30/1998
Report Run Date: July 02, 1998
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Claim State Name Sex Issue Policy Risk Option Plan
Age Number Class Code Code
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Issue Death Date Face Reinsurance Cash Interest Expense Date Remark
Date Date Reported Amount Amount Value Amount Paid Code Code
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WMA Life Insurance Co., Inc.
Reinsured Death Claims Outstanding
Claims Outstanding On: 06/01/1998 To: 06/30/1998
Report Run Date: July 02, 1998
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Claim State Name Sex Issue Policy Risk Option Plan
Age Number Class Code Code
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Issue Death Date Face Reinsurance Cash Interest Expense Date Remark
Date Date Reported Amount Amount Value Amount Paid Code Code
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
