COINSURANCE AGREEMENT

 

COINSURANCE AGREEMENT

 

between

 

GE LIFE AND ANNUITY ASSURANCE COMPANY

 

and

 

UNION FIDELITY LIFE INSURANCE COMPANY

 

Dated as of April 15, 2004

 

 

TABLE OF CONTENTS

 

 

SCHEDULES

 

 

i

COINSURANCE AGREEMENT

 

This Coinsurance Agreement, dated as of April 15, 2004 (this “Agreement”), is made and entered into by and between GE Life and Annuity Assurance Company, an insurance company organized under the laws of the Commonwealth of Virginia (the “Company”), and Union Fidelity Life Insurance Company, an insurance company organized under the laws of the State of Illinois (the “Reinsurer”). Defined terms used herein are defined below.

 

The Company and the Reinsurer mutually agree to reinsure the risks described in this Agreement under the terms and conditions stated herein. This Agreement is an indemnity coinsurance agreement solely between the Company and the Reinsurer, and the performance of the obligations of each party under this Agreement shall be rendered solely to the other party. In no instance shall anyone other than the Company or the Reinsurer have any rights under this Agreement. The Company shall be and shall remain the only party hereunder that is liable to any insured, contract holder, policyholder, claimant or beneficiary under any insurance policy or contract reinsured hereunder.

 

This Agreement is entered into in connection with an intercompany reorganization among the Company, the Reinsurer and certain of their Affiliates.

 

ARTICLE I

 

DEFINITIONS

 

1.1. Definitions . As used in this Agreement, the following terms shall have the following meanings (definitions are applicable to both the singular and the plural forms of each term defined in this Article):

 

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

 

“ Affiliate ” means any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person. “ Control ” (including the terms, “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise.

 

“ Agreement ” shall have the meaning specified in the first paragraph of this Agreement.

 

“ Annual Report ” shall have the meaning specified in Section 7.4.

 

“ Applicable Law ” means any federal, state, local or foreign law (including common law), statute, ordinance, rule, regulation, order, writ, injunction, judgment, permit, governmental agreement or decree applicable to a Person or any of such Person’s subsidiaries,

 

properties, assets, or to such Person’s officers, directors, managing directors, employees or agents in their capacity as such.

 

“ Assets ” shall have the meaning specified in Section 5.3(a).

 

“ Assignment Letter Agreement ” means the letter agreement dated the date hereof among General Electric Capital Corporation, a Delaware corporation, the Reinsurer, the Company and certain affiliates of the Company relating to the assignment by General Electric Capital Corporation of the Capital Maintenance Agreement.

 

“ Benefits ” shall have the meaning specified in Section 2.3(a).

 

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks in the States of Illinois or Virginia are required or authorized by law to be closed.

 

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

 

“ Ceding Commission ” shall have the meaning specified in Section 5.2.

 

“ Claims Settlement Account ” shall have the meaning specified in Section 4.1(a).

 

“ Closing Date ” means April 15, 2004.

 

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

 

“ Company Account ” shall have the meaning specified in Section 11.1(e).

 

“ CPR ” shall have the meaning specified in Section 13.3.

 

“ CPR Arbitration Rules ” shall have the meaning specified in Section 13.4(a).

 

“ Dispute ” shall have the meaning specified in Section 13.1(a).

 

“ Eligible Securities ” shall have the meaning specified in Section 11.1(c).

 

“ Expense Allowance ” shall have the meaning specified in Section 6.1.

 

“ Extra Contractual Liabilities ” means all liabilities for damages (including compensatory, consequential, exemplary, punitive, bad faith or similar or other damages) which relate to the marketing, sale, underwriting, issuance, delivery, cancellation or administration of the Reinsured Contracts, including liability arising out of or relating to any alleged or actual acts, errors or omissions by the Company or its agents, whether intentional or otherwise, with respect to any of the Reinsured Contracts, including (A) any alleged or actual reckless conduct or bad faith in connection with the handling of any claim arising out of or under Reinsured Contracts, or (B) the marketing, sale, underwriting, issuance, delivery, cancellation or administration of any of the Reinsured Contracts.

 

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“ Force Majeure ” shall have the meaning specified in Section 3.7(b)(iii).

 

“ Funding Requirement ” shall have the meaning specified in Section 11.1(e).

 

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

 

“ Governmental Authority ” means any foreign or national government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

 

“ Inception Date ” shall have the meaning specified in Section 2.1.

 

“ Initial Notice ” shall have the meaning specified in Section 13.2.

 

“ Initial Reinsurance Premium ” shall have the meaning specified in Section 5.1.

 

“ Initial Report ” shall have the meaning specified in Section 7.1.

 

“ Insolvency Fund ” means any guarantee fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer or reinsurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

 

“ Minimum Claims Settlement Amount ” shall have the meaning specified in Section 4.1(b).

 

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

 

“ Quarterly Report ” shall have the meaning specified in Section 7.2.

 

“ Quarterly Settlement ” shall have the meaning specified in Section 5.3(a).

 

“ RBC Reporting Letter Agreement ” means the letter agreement dated the date hereof among the Company, the Reinsurer and certain affiliates of the Company relating to the Reinsurer’s requirement to provide periodic certifications and reports regarding the Reinsurer’s risk based capital ratio.

 

“ Reinsured Contracts ” means the structured settlements immediate annuity contracts issued by the Company and recorded in the Company’s valuation system on or prior to December 3, 2003 or reinsured by the Company under reinsurance agreements in effect prior to January 1, 2004, and, in each case, written on the policy forms described in Schedule A.

 

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

 

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“ Response ” shall have the meaning specified in Section 13.2.

 

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

 

“ Tax DAC ” means specified policy acquisition expenses capitalized and amortized under section 848 of the Code.

 

“ Termination Date ” means the effective date of any termination of this Agreement as provided in Article VIII.

 

“ Termination Letter Agreement ” means the letter agreement dated the date hereof among the Company, the Reinsurer and certain affiliates of the Company relating to the rescission of this Agreement upon the failure of certain events to occur after the date hereof.

 

“ Total SAP Ceded Reserves ” means, as of any given date, the gross policy reserves of the Company calculated in accordance with SAP with respect to the Reinsured Risks.

 

“ Total GAAP Ceded Reserves ” means, as of any given date, the gross policy reserves of the Company calculated in accordance with GAAP with respect to the Reinsured Risks.

 

“ Trust Account ” shall have the meaning set forth in Section 11.1(a).

 

“ Trust Agreement ” shall have the meaning set forth in Section 11.1(a).

 

“ Trustee ” shall have the meaning set forth in Section 11.1(a).

 

ARTICLE II

 

COVERAGE

 

2.1. Coverage . Upon the terms and subject to the conditions and other provisions of this Agreement, as of 12:01 a.m. Eastern Time on January 1, 2004 (the “Inception Date”), the Company hereby cedes to the Reinsurer, and the Reinsurer hereby agrees to indemnify the Company for, one hundred percent (100%) of the liability incurred by the Company for Benefits on or after the Inception Date (the “Reinsured Risks”).

 

2.2. Conditions . (a) If the Company’s liability under any of the Reinsured Contracts is changed because of changes made on or after the Inception Date in the terms and conditions of the Reinsured Contracts (including to any contract riders or endorsements thereto) that are required due to changes in Applicable Law, the Reinsurer will share in the change proportionately to the coinsurance share hereunder and the Company and the Reinsurer will make all appropriate adjustments to amounts due each other under this Agreement.

 

(b) Except as otherwise set forth in paragraph (a) above, no changes, amendments or modifications made on or after the Inception Date in the terms and conditions of the

 

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Reinsured Contracts which adversely affect the liability of the Reinsurer hereunder shall be covered hereunder without the prior written approval of such changes, amendments or modifications by the Reinsurer, which approval shall not be unreasonably withheld or delayed. In the event that any such changes, amendments or modifications are made in any Reinsured Contract without the prior written approval of the Reinsurer, this Agreement will cover liability incurred by the Company for Benefits as if the non-approved changes, amendments or modifications had not been made.

 

2.3. Benefits . (a) Subject to the provisions of Sections 2.2, 2.3(b) and (c) and the terms and conditions of this Agreement, “Benefits” shall mean the actual benefits payable by the Company under the Reinsured Contracts.

 

(b) Any Extra Contractual Liabilities resulting from actions of the Company or its agents or reinsured by the Company under the Reinsured Contracts shall be treated as a Benefit payable for the purposes of this Agreement to the extent permitted by state law, except to the extent that any such Extra Contractual Liabilities are attributable to the conduct of the Company in the administration of the Reinsured Contracts on or after the Inception Date, other than actions taken by the Company at the written request or direction of the Reinsurer.

 

(c) This Agreement excludes all liability arising by contract, operation of law, or otherwise from the Company’s participation or membership, whether voluntary or involuntary, in any Insolvency Fund.

 

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

 

2.5. Ceded Reinsurance . Subsequent to the Inception Date, the Company will not enter into any reinsurance arrangements with respect to the Reinsured Contracts without the prior written consent of the Reinsurer, in its sole discretion.

 

ARTICLE III

 

ADMINISTRATION; GENERAL PROVISIONS

 

3.1. Contract Administration . (a) Subject to Section 3.7, the Company shall provide policyholder and claims servicing with respect to the Reinsured Contracts in accordance with the terms hereof. All Benefits paid by the Company shall be binding upon the Reinsurer; provided , however , that such Benefits are within the terms, conditions and limitations of the Reinsured Contracts. The Company shall provide policyholder and claims servicing with respect to the Reinsured Contracts (including the administration of claims for Benefits thereunder) in good faith and with the care, skill, prudence and diligence of a person experienced in administering structured settlement business. The Company shall provide policyholder and claims servicing with respect to the Reinsured Contracts, (i) in accordance with the terms of the Reinsured Contracts, (ii) in accordance with the applicable terms of this Agreement, (iii) in compliance with Applicable Law and, subject to the foregoing, (iv) in the same manner as it conducts its own business not subject to this Agreement and (v) in accordance with the Company’s administrative performance standards in effect on the date hereof, with such revisions

 

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to such standards as are no less favorable to the Reinsurer than such standards. Notwithstanding the foregoing, the parties may, from time to time, mutually develop specific and/or different standards for providing such services with respect to the Reinsured Contracts.

 

(b) The Company may subcontract for the performance of any policyholder or claims servicing service or services with respect to the Reinsured Contracts to (i) an Affiliate or (ii) any other Person with the prior written consent of the Reinsurer, such consent not to be unreasonably withheld; provided , that the Company also subcontracts for such service or services for its own structured settlement annuities business not subject to this Agreement to such subcontractor; and provided , further, that no such subcontracting shall relieve the Company from any of its obligations or liabilities hereunder, and the Company shall remain responsible for all obligations or liabilities of such subcontractor with regards to the providing of such service or services as if provided by the Company.

 

3.2. Claims Settlements . The Company agrees that it will provide prompt notice to the Reinsurer of its intention to contest, compromise or litigate a claim with respect to a Reinsured Contract, along with copies of all pleadings and reports of investigation with respect thereto. The Reinsurer shall have the right, at its own expense, to participate jointly with the Company in the investigation, adjustment or defense of such claims. In addition, in the event that litigation arises against the Company in connection with a claim which seeks damages in excess of $1 million or other remedies deemed material to the Reinsurer, the Reinsurer may, upon written notice to the Company, assume the defense thereof with counsel selected by the Reinsurer and reasonably satisfactory to the Company. If the Reinsurer assumes such defense, the Company shall have the right, at its own expense, to participate jointly with the Reinsurer in the defense thereof. If the Reinsurer assumes the defense of litigation, the Reinsurer shall not settle such litigation without the Company’s prior written consent (which consent shall not be unreasonably withheld or delayed) unless (i) there is no finding or admission of any violation of law or any violation of the rights of any Person, (ii) such settlement would not reasonably be expected to have material adverse precedential consequences to the Company and (iii) the sole relief provided is monetary damages that are paid in full by the Reinsurer.

 

3.3. Inspection . The Company shall keep accurate and complete records, files and accounts of all transactions and matters with respect to the Reinsured Contracts and the administration hereof in accordance with Applicable Law and its record management practices in effect from time to time for the Company’s insurance business not covered by this Agreement. The Reinsurer and its designated representatives may upon reasonable notice inspect, at the offices of the Company where such records are located, the papers and any and all other books or documents of the Company reasonably relating to this Agreement, including the Reinsured Contracts and the administration thereof by the Company (including compliance with the provisions of Section 3.1), and shall have access to appropriate employees and representatives of the Company, in each case during normal business hours for such period as this Agreement is in effect or for as long thereafter as the Company seeks performance by the Reinsurer pursuant to the terms of this Agreement or the Reinsurer reasonably needs access to such records for regulatory, tax or similar purposes. The information obtained shall be used only for purposes relating to the transactions contemplated under this Agreement.

 

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3.4. Errors and Omissions . If any delay, omission, error or failure to pay amounts due or to perform any other act required by this Agreement is unintentional and caused by misunderstanding or oversight, the Company and the Reinsurer will adjust the situation to what it would have been had the misunderstanding or oversight not occurred. The party first discovering such misunderstanding or oversight, or an act resulting from such misunderstanding or oversight, will notify the other party in writing promptly upon discovery thereof, and the parties shall act to correct such misunderstanding or oversight within twenty (20) Business Days of such other party’s receipt of such notice. However, this Section shall not be construed as a waiver by either party of its right to enforce strictly the terms of this Agreement.

 

3.5. Age, Sex and Other Adjustments . If the Company’s liability under any of the Reinsured Contracts is changed because of a misstatement of age or sex or any other material fact, the Reinsurer will share in the change proportionately to the coinsurance share hereunder and the Company and the Reinsurer will make all appropriate adjustments to amounts due each other under this Agreement.

 

3.6. Setoff . Any debts or credits, matured or unmatured, in favor of or against either the Company or the Reinsurer with respect to this Agreement or any other reinsurance agreement between the Company and the Reinsurer, are deemed mutual debts or credits, as the case may be, and shall be setoff from any amounts due to the Company or the Reinsurer hereunder, as the case may be, and only the net balance shall be allowed or paid.

 

3.7. Administration by Reinsurer . (a) At any time from and after the fifteenth (15th) anniversary of the Inception Date, the Reinsurer shall have the right to assume from the Company the administration of the Reinsured Contracts, provided that the Reinsurer provides twelve (12) months prior written notice of such assumption, which notice may be given as early as the fourteenth (14th) anniversary of the Inception Date to take effect as of the fifteenth (15th) anniversary of the Inception Date. The Reinsurer shall bear all transition costs associated with an assumption of the administration of the Reinsured Contracts pursuant to this paragraph (a) of this Section 3.7.

 

(b) In addition to the provisions of Section 3.7(a), the Reinsurer shall have the right, upon written notice to the Company to assume from the Company the administration of the Reinsured Contracts upon the occurrence of any of the following events:

 

(i)

A voluntary or involuntary proceeding is commenced in any jurisdiction by or against the Company for the purpose of conserving, rehabilitating or liquidating the Company;

 

(ii)

There is a material breach by the Company of any material term or condition of this Article III that is not cured by the Company within thirty (30) days after receipt of written notice from the Reinsurer of such breach or act (provided that the Reinsurer shall not have the right to assume such administration (A) for so long as the Company is making a good faith effort to cure such a breach, not to exceed an additional one hundred eighty (180) days or (B) during the pendency of any dispute resolution

 

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proceedings as set forth in Article XIII regarding an alleged material breach); or

 

(iii)

The Company is unable to perform the services required under this Article III for a period of thirty (30) consecutive days for any reason, other than as a result of a Force Majeure, it being understood that nothing in this Section 3.7(b)(iii) shall relieve the Company from its administrative responsibilities under this Agreement. For purposes of this Agreement “Force Majeure” means any acts or omissions of any civil or military authority, acts of God, acts or omissions of the Reinsurer, fires, strikes or other labor disturbances, equipment failures, fluctuations or non-availability of electrical power, heat, light, air conditioning or telecommunications equipment, or any other act, omission or occurrence beyond the Company’s reasonable control, irrespective of whether similar to the foregoing enumerated acts, omissions or occurrences.

 

(c) The Company shall bear all transition costs associated with an assumption of the administration of the Reinsured Contracts pursuant to Section 3.7(b).

 

(d) In the event of the Reinsurer’s assumption of the administration of the Reinsured Contracts, the Reinsurer and the Company shall enter into an administrative services agreement in the form attached hereto as Schedule B and the provisions of Article VI and Article VII shall become inoperative.

 

ARTICLE IV

 

CLAIMS SETTLEMENT ACCOUNT; CLAIMS

 

4.1. Claims Settlement Account . (a) On the Closing Date, the Reinsurer shall establish a separate bank account (the “Claims Settlement Account”) in its own name for the payment of Benefits and shall authorize two signatories who shall be representatives of the Company and approved by the Reinsurer in writing to issue drafts in the name of the Reinsurer and showing the identity of the Company. The Reinsurer shall fund such account for payment of Benefits in accordance with the provisions of Section 4.1(b). Any interest earned on the Claims Settlement Account shall belong to the Reinsurer. The Claims Settlement Account shall be administered by the Company in a fiduciary capacity and shall be used solely by the Company to make payments of Benefits in accordance with the terms of this Agreement.

 

(b) The Reinsurer shall deposit $3 million in the Claims Settlement Account on the Closing Date and shall thereafter fund the Claims Settlement Account on or before the fifth (5th) day of each month in amounts agreed by the Company and the Reinsurer from time to time in amounts sufficient to provide funds to the Company for the payment of Benefits during the next thirty (30) days, or such other amount as may be mutually agreed by the parties (such initial deposit amount and each minimum funding amount as agreed from time to time shall be referred to as a “Minimum Claims Settlement Amount”). In addition, the Reinsurer shall deposit to the Claims Settlement Account such additional amounts as may be required to keep

 

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the balance of such account above zero at all times. In consideration of the Reinsurer providing the Claims Settlement Account arrangement, the Company agrees that it shall apply funds in the Claims Settlement Account against the Reinsurer’s liability under this Agreement until such funds are exhausted.

 

(c) The Company shall keep true and complete records, in accordance with Applicable Law and its record management practices in effect from time to time for the Company’s insurance business not covered by this Agreement, clearly recording the deposits in and withdrawals from the Claims Settlement Account, including records relating to the payment of Benefits from the Claim Settlement Account. The Company will make available to the Reinsurer or its designated representative, or shall furnish to the Reinsurer or its designated representative, upon request of the Reinsurer or its designated representative, copies of all such records. All copies furnished in the ordinary course of business shall be furnished by the Company at the Company’s cost, which shall be included in the Expense Allowance. Any extraordinary costs reasonably incurred by the Company in response to requests from the Reinsurer shall be reimbursed by the Reinsurer.

 

(d) Within thirty (30) days after each calendar month (or more frequently as mutually agreed by the parties), the Company shall render a complete accounting to the Reinsurer detailing all transactions with respect to the Claims Settlement Account, in such form as agreed by the parties.

 

(e) The parties agree to deliver to the depository bank such depository resolutions, signature cards, and other documents as may be requested of them in order to use such accounts at the depository bank in accordance with the provisions of this Article IV.

 

(f) Upon a termination of this Agreement pursuant to Article VIII, the Reinsurer shall close the Claims Settlement Account and any closing balance therein shall be the property of the Reinsurer. The Company’s claims payment authority under this Agreement with respect to the Claims Settlement Account shall terminate immediately upon termination of this Agreement pursuant to Article VIII or the assumption by the Reinsurer of the administration of the Reinsured Contracts pursuant to Section 3.7. Upon termination of its authority to pay claims, the Company shall promptly return to the Reinsurer all unused check stock held by it in connection with this Agreement.

 

ARTICLE V

 

REINSURANCE ASSET TRANSFER; CEDING COMMISSION

 

5.1. Initial Reinsurance Premium . As consideration for the reinsurance by the Reinsurer of the Reinsured Risks under this Agreement, on the Closing Date the Reinsurer shall be entitled to an amount equal to one hundred percent (100%) of the Total SAP Ceded Reserves as of the close of business on the day immediately preceding the Inception Date (the “Initial Reinsurance Premium”).

 

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5.2. Ceding Commission . On the Closing Date, the Company shall be entitled to a ceding commission (the “Ceding Commission”) in an amount determined in accordance with Schedule C.

 

5.3. Amounts Due the Parties . (a) Except as otherwise specifically provided herein, all amounts due to be paid to the Company under this Agreement shall be determined on a net basis, giving full effect to Section 3.6. The net amount due the Reinsurer from the Company on the Closing Date under Section 5.1 and Section 5.2 shall consist of (i) the investment assets (the “Assets”) set forth on Schedule D, which assets have a statutory book value as of the close of business on the day immediately preceding the Inception Date equal to (A) the Initial Reinsurance Premium, less (B) the Ceding Commission, less (C) an amount equal to accrued but unpaid interest on the Assets as of the close of business on the day immediately preceding the Inception Date, plus (ii) an amount equal to the investment cash flows received on the Assets between the Inception Date and the Closing Date. The Company shall pay such net amount concurrent with its delivery of the Initial Report. Each net amount subsequently due with respect to each Accounting Period ending after the Inception Date (the “Quarterly Settlement”) shall be paid in cash by the Reinsurer to the Company no later than thirty (30) days after delivery of the Quarterly Report, as applicable. Each net amount subsequently due with respect to each calendar year ending after the Inception Date as reflected on an Annual Report shall be paid in cash by the Reinsurer to the Company no later than thirty (30) days after delivery of the Annual Report.

 

(b) The Company shall deliver to the Reinsurer possession of the Assets and such bills of sale, endorsements, assignments and other good and sufficient instruments of conveyance and transfer in form and substance reasonably acceptable to the parties as shall be effective to vest in the Reinsurer all of the right, title and interest of the Company in and to the Assets. Delivery of the Assets shall be a condition precedent of reinsurance coverage hereunder.

 

ARTICLE VI

 

EXPENSE ALLOWANCES

 

6.1. Expense Allowance . As reimbursement for expenses incurred by the Company in the providing of policyholder and Benefit payment services with respect to the Reinsured Contracts, the Reinsurer shall pay to the Company with respect to each calendar month ending after the Inception Date, an expense allowance (each an “Expense Allowance”) in an amount calculated in accordance with Schedule E, as subsequently adjusted in accordance with the methodology and procedures set forth on Schedule E.

 

ARTICLE VII

 

ACCOUNTING AND SETTLEMENT

 

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

 

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7.2. Quarterly Settlement Reports . As soon as practicable but not more than forty (40) days following each Accounting Period ending after the Closing Date (or more frequently as mutually agreed by the parties), the Company shall supply the Reinsurer with a report that shall provide the financial data for such Accounting Period required in Schedule F - Part II (the “Quarterly Report”). For the avoidance of doubt, the first Quarterly Report will include all transactions with respect to the Reinsured Contracts occurring from the Inception Date through June 30, 2004.

 

7.3. Quarterly Financial Reports . As soon as practicable but not more than forty (40) days following the end of each Accounting Period ending after the Closing Date (or more frequently as mutually agreed by the parties), the Company shall supply the Reinsurer with reports related to the Reinsured Contracts as may be reasonably requested for use in connection with the preparation of the Reinsurer’s SAP financial statements or other reports prepared by the Reinsurer in compliance with its internal reporting requirements. The parties shall cooperate in good faith to establish the form for the providing of such reports.

 

7.4. Annual Reports . Within forty-five (45) days after the end of each calendar year during the term of this Agreement (or more frequently as mutually agreed by the parties), the Company shall supply the Reinsurer with a report that shall provide the financial data for such year required in Schedule F - Part III (the “Annual Report”).

 

7.5. Additional Reports and Updates . For so long as this Agreement remains in effect, each of the parties shall periodically furnish to the other such other reports and information as may be reasonably requested by such other party for regulatory, tax or similar purposes and reasonably available to it.

 

7.6. Delayed Payments . In the event that all or any portion of any payment due either party pursuant to this Agreement becomes overdue, the portion of the amount overdue shall bear interest at an annual rate equal to the then current thirty (30) day U.S. Treasury Bill discount rate on the date that the payment becomes overdue plus 200 basis points, for the period that the amount is overdue.

 

ARTICLE VIII

 

DURATION AND TERMINATION

 

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

 

8.2. Reinsurer’s Liability . The Reinsurer’s liability with respect to the Reinsured Risks will terminate on the earliest of: (i) the date the Company’s liability with respect to the Reinsured Risks is terminated and all amounts due the Company from the Reinsurer with respect to such Reinsured Risks are paid to the Company by or on behalf of the Reinsurer; and (ii) the date this Agreement is terminated upon the written agreement of the parties.

 

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8.3. Notice of Termination . Upon the termination of the Reinsurer’s liability with respect to the Reinsured Risks referred to in Section 8.2 above, the parties shall mutually give the Trustee written notice of their intention to terminate the Trust Account.

 

ARTICLE IX

 

INSOLVENCY

 

9.1. Payments . In the event of the insolvency of the Company, the reinsurance payable by the Reinsurer hereunder shall be payable directly to the Company or to its domiciliary liquidator or receiver on the basis of the liability of the Reinsurer under the contract or contracts reinsured, without diminution because of the insolvency of the Company. It is agreed and understood, however, that (i) in the event of the insolvency of the Company, the Reinsurer shall be given written notice of the pendency of a claim against the insolvent Company on a Reinsured Contract within a reasonable time after such claim is filed in the insolvency proceeding and (ii) during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defenses which it may deem available to the Company or its domiciliary liquidator, receiver or statutory successor.

 

9.2. Expenses . It is further understood that any expense thus incurred by the Reinsurer pursuant to Section 9.1 shall be chargeable, subject to court approval, against the insolvent Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. Where two or more assuming reinsurers are involved in the same claim and a majority in interest elect to interpose defenses to such claim, the expense shall be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Company.

 

ARTICLE X

 

CREDIT FOR REINSURANCE

 

10.1. Reinsurance Credit . Notwithstanding any other provision of this Agreement to the contrary, if the Reinsurer becomes unauthorized or otherwise unaccredited as an insurer or reinsurer in any U.S. jurisdiction to which the Company must provide statutory statements of financial condition such that the Company will not obtain full statutory financial statement credit for reinsurance in such state for the reinsurance provided under this Agreement, the Reinsurer, upon the request of the Company, will establish, at the Reinsurer’s sole cost and option, trust accounts for the benefit of the Company, letters of credit, or other acceptable alternatives necessary to permit the Company to obtain such full statutory financial statement credit for such reinsurance in all applicable jurisdictions. The Company shall cooperate with the Reinsurer to take such steps. In addition, in such event, the Reinsurer agrees to amend this Agreement and the Trust Agreement to the extent required under Applicable Law in order to provide the Company with such full statutory financial statement credit.

 

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ARTICLE XI

 

REINSURANCE SECURITY

 

11.1. Trust . (a) On the Closing Date, the Reinsurer shall enter into a trust agreement in the form attached as Schedule G (the “Trust Agreement”) and establish a trust account (the “Trust Account”) for the benefit of the Company with respect to the Reinsured Risks with a bank (the “Trustee”) designated as a Qualified United States Financial Institution by the Securities Valuation Office of the National Association of Insurance Commissioners or any successor organization or regulatory agency having similar duties.

 

(b) The Reinsurer agrees to deposit, and maintain in the Trust Account with respect to this Agreement, assets to be held in trust by the Trustee for the benefit of the Company as security for the payment of the Reinsurer’s obligations to the Company under this Agreement.

 

(c) The parties agree that the assets so deposited with respect to this Agreement shall be valued according to their current statutory book value on the books of the Reinsurer and shall consist only of cash (United States legal tender), certificates of deposit (issued by a United States bank and payable in United States legal tender), and other assets of the type specified on Schedule H attached hereto (“Eligible Securities”).

 

(d) The Reinsurer, prior to depositing assets with the Trustee, shall execute all assignments and endorsements in blank, or transfer legal title to the Trustee of all shares, obligations or any other assets requiring assignments, in order that, to the extent practicable, the Company, or the Trustee upon direction of the Company, may whenever necessary negotiate any such assets without consent or signature from the Reinsurer or any other entity. The Company recognizes that certain assets in the Trust Account will not be readily negotiable and that certain notices, opinions of counsel, representations and/or consents will be required for the Company to obtain good and marketable title to such assets.

 

(e) The Reinsurer and the Company agree that the assets in the Trust Account with respect to this Agreement may be withdrawn for the following purposes only:

 

(i)

to pay or reimburse the Company for any amount due the Company pursuant to this Agreement to the extent not so paid or reimbursed by the Reinsurer;

 

(ii)

to pay to the Reinsurer, in accordance with paragraph (h) below, any amounts held in the Trust Account that exceed an amount (the “Funding Requirement”) equal to the sum of Total SAP Ceded Reserves and any additional reserves attributable to the Reinsured Risks that arise as a result of regulatory asset adequacy analysis requirements of the Reinsurer, less, prior to the date on which the Claims Settlement Account is closed, the Minimum Claims Settlement Amount then in effect; and

 

(iii)

in the event that General Electric Capital Corporation breaches its obligations under the Capital Maintenance Agreement, to fund an account

 

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with the Company (the “Company Account”) in an amount at least equal to the deduction, for reinsurance ceded, from the Company’s liabilities ceded under this Agreement. Such amount shall include, but not be limited to, amounts for policy reserves, reserves for claims and losses incurred (including losses incurred but not reported), loss and loss adjustment expenses, and unearned premiums.

 

(f) In the event that the Company withdraws assets from the Trust Account for the purposes set forth in Section 11.1(e)(i) above in excess of actual amounts required to meet the Reinsurer’s obligations to the Company, the Company will promptly return such excess to the Reinsurer, plus interest at an annual rate equal to the then current thirty (30) day U.S. Treasury Bill discount rate on the date of withdrawal plus 200 basis points for the period during which the amounts were held pursuant to Section 11.1(e)(i). In the event that the Company withdraws assets from the Trust Account for the purposes set forth in Section 11.1(e)(iii) above, (i) the Reinsurer shall be relieved of its obligation to maintain assets in the Trust Account pursuant to this Section 11.1 to the extent of the amount of funds held in the Company Account and (ii) the Company shall first apply the funds in the Company Account in satisfaction of the Reinsurer’s liability under this Agreement until the funds in the Company Account are exhausted. In the event that the Company withdraws assets from the Trust Account for the purposes set forth in Section 11.1(e)(iii) above, promptly following the date the Reinsurer’s liability with respect to the Reinsured Risks is terminated, the Company shall return to the Reinsurer any assets so withdrawn that, together with any and all interest, dividends and other earnings thereon from the date of withdrawal to the date of return, are in excess of actual amounts required to meet the Reinsurer’s obligations to the Company under this Agreement.

 

(g) The initial deposit to the Trust Account with respect to this Agreement shall be made on the Closing Date and shall consist of assets with a statutory book value equal to the Total SAP Ceded Reserves as of the close of business on the day immediately preceding the Inception Date, less an amount of assets with a statutory book value equal to the initial Minimum Claims Settlement Amount.

 

(h) The aggregate statutory book value of the assets held in the Trust Account with respect to this Agreement, shall at all times be at least equal to the Funding Requirement, and shall be adjusted on a quarterly basis so as to equal the Funding Requirement. On a quarterly basis, the Company shall promptly prepare and deliver to the Reinsurer a specific statement of the Funding Requirement and the Reinsurer shall promptly prepare and deliver to the Company a specific statement of the statutory book value of the assets in the Trust Account, in each case as of the end of the quarter. If the statement shows that the Funding Requirement exceeds 100% of the balance of the Trust Account with respect to this Agreement as of the statement date, the Reinsurer shall, within ten (10) Business Days after receipt of such notice of excess, secure delivery to the Trustee of additional cash or Eligible Securities having a current statutory book value equal to such difference. If the statement shows that the Funding Requirement is less than 100% of the balance of the Trust Account with respect to this Agreement as of the statement date, the Company shall, within ten (10) Business Days after delivery of such statement to the Reinsurer, deliver a notice of withdrawal to the Trustee directing the Trustee to withdraw from the Trust Account and deliver to the Reinsurer assets from the Trust Account having a current statutory book value equal to such excess amount. In

 

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addition to the foregoing, the Reinsurer shall prepare and deliver to the Company on a quarterly basis a specific statement of the market value of the assets in the Trust Account as of the end of the quarter.

 

ARTICLE XII

 

DEFERRED ACQUISITION COSTS

 

12.1. Tax DAC Information Sharing . To ensure consistency in their respective Tax DAC calculations for tax purposes, the Company and the Reinsurer will exchange information pertaining to the amount of net consideration under this Agreement each year. The Company will submit a schedule to the Reinsurer by February 28 of each year presenting its calculation of the net consideration for the preceding taxable year. The Reinsurer may contest the calculation by providing to the Company an alternative calculation in writing within thirty (30) days of receipt of the Company’s schedule. The Company and the Reinsurer will act in good faith to resolve any differences in the schedule of calculations within thirty (30) days of receipt of the alternative calculation to ensure consistent amounts are reported on the respective tax returns for the preceding tax year.

 

ARTICLE XIII

 

DISPUTE RESOLUTION

 

13.1. General Provisions . (a) Any dispute, controversy or claim arising out of or relating to this Agreement or the validity, interpretation, breach or termination thereof (a “Dispute”), shall be resolved in accordance with the procedures set forth in this Article XIII, which shall be the sole and exclusive procedures for the resolution of any such Dispute unless otherwise specified below.

 

(b) Commencing with the request contemplated by Section 13.2, all communications between the parties or their representatives in connection with the attempted resolution of any Dispute, including any mediator’s evaluation referred to in Section 13.3, shall be deemed to have been delivered in furtherance of a Dispute settlement and shall be exempt from discovery and production, and shall not be admissible in evidence for any reason (whether as an admission or otherwise), in any arbitral or other proceeding for the resolution of the Dispute.

 

(c) In connection with any Dispute, the parties expressly waive and forego any right to (i) punitive, exemplary, statutorily-enhanced or similar damages in excess of compensatory damages, and (ii) trial by jury.

 

(d) The specific procedures set forth below, including but not limited to the time limits referenced therein, may be modified by agreement of the parties in writing.

 

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(e) All applicable statutes of limitations and defenses based upon the passage of time shall be tolled while the procedures specified in this Article XIII are pending. The parties will take such action, if any, required to effectuate such tolling.

 

13.2. Consideration by Senior Executives . If a Dispute is not resolved in the normal course of business at the operational level, the parties shall attempt in good faith to resolve such Dispute by negotiation between executives who hold, at a minimum, the office of President and CEO of the respective business entities involved in such Dispute. Either party may initiate the executive negotiation process by providing a written notice to the other (the “Initial Notice”). Fifteen (15) days after delivery of the Initial Notice, the receiving party shall submit to the other a written response (the “Response”). The Initial Notice and the Response shall include (i) a statement of the Dispute and of each party’s position, and (ii) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Such executives will meet in person or by telephone within thirty (30) days of the date of the Initial Notice to seek a resolution of the Dispute.

 

13.3. Mediation . If a Dispute is not resolved by negotiation as provided in Section 13.2 within forty-five (45) days from the delivery of the Initial Notice, then either party may submit the Dispute for resolution by mediation pursuant to the CPR Institute for Dispute Resolution (the “CPR”) Model Mediation Procedure as then in effect. The parties will select a mediator from the CPR Panels of Distinguished Neutrals, but such mediator must have prior U.S. reinsurance experience either as a lawyer or as a present or former officer or management employee of a reinsurance company, but not of the Company, or the Reinsurer, or any of their respective affiliates. Either party at commencement of the mediation may ask the mediator to provide an evaluation of the Dispute and the parties’ relative positions.

 

13.4. Arbitration . (a) If a Dispute is not resolved by mediation as provided in Section 13.3 within thirty (30) days of the selection of a mediator (unless the mediator chooses to withdraw sooner), either party may submit the Dispute to be finally resolved by arbitration pursuant to the CPR Rules for Non-Administered Arbitration as then in effect (the “CPR Arbitration Rules”). The parties consent to a single, consolidated arbitration for all known Disputes existing at the time of the arbitration and for which arbitration is permitted.

 

(b) The neutral organization for purposes of the CPR Arbitration Rules will be the CPR. The arbitral tribunal shall be composed of three arbitrators who are each experienced in the U.S. reinsurance business, of whom each party shall appoint one in accordance with the “screened” appointment procedure provided in Rule 5.4 of the CPR Arbitration Rules. The non-party appointed arbitrator must have prior U.S. reinsurance experience as a present or former officer or management employee of a reinsurance company, but not of the Company, or the Reinsurer, or any of their respective affiliates. The arbitration shall be conducted in New York City. Each party shall be permitted to present its case, witnesses and evidence, if any, in the presence of the other party. A written transcript of the proceedings shall be made and furnished to the parties. The arbitrators shall determine the Dispute in accordance with the law of Virginia, without giving effect to any conflict of law rules or other rules that might render such law inapplicable or unavailable, and shall apply this Agreement according to its terms, provided that the provisions relating to arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. The arbitral tribunal shall endeavor to render its award or order resulting

 

16

from any arbitration within forty-five (45) days following the termination of the arbitration proceedings.

 

(c) The parties agree to be bound by any award or order resulting from any arbitration conducted hereunder and further agree that judgment on any award or order resulting from an arbitration conducted under this Section may be entered and enforced in any court having jurisdiction thereof.

 

(d) Except as expressly permitted by this Agreement, no party will commence or voluntarily participate in any court action or proceeding concerning a Dispute, except (i) for enforcement as contemplated by Section 13.4(c) above, (ii) to restrict or vacate an arbitral decision based on the grounds specified under applicable law, or (iii) for interim relief as provided in paragraph (e) below. For purposes of the foregoing the parties hereto submit to the non-exclusive jurisdiction of the courts of the State of New York.

 

(e) In addition to the authority otherwise conferred on the arbitral tribunal, the tribunal shall have the authority to make such orders for interim relief, including injunctive relief, as it may deem just and equitable. Notwithstanding paragraph (d) above, each party acknowledges that in the event of any actual or threatened breach of certain of the provisions of this Agreement, the remedy at law would not be adequate, and therefore injunctive or other interim relief may be sought immediately to restrain such breach. If the tribunal shall not have been appointed, either party may seek interim relief from a court having jurisdiction if the award to which the applicant may be entitled may be rendered ineffectual without such interim relief. Upon appointment of the tribunal following any grant of interim relief by a court, the tribunal may affirm or disaffirm such relief, and the parties will seek modification or rescission of the court action as necessary to accord with the tribunal’s decision.

 

(f) Each party will bear its own attorneys’ fees and costs incurred in connection with the resolution of any Dispute in accordance with this Article XIII.

 

ARTICLE XIV

 

MISCELLANEOUS PROVISIONS

 

14.1. Headings and Schedules . Headings used herein are not a part of this Agreement and shall not affect the terms hereof. The attached Schedules are a part of this Agreement.

 

14.2. Notices . All notices, requests, demands and other communications under this Agreement must be in writing and will be deemed to have been duly given or made as follows: (a) if sent by registered or certified mail in the United States return receipt requested, upon receipt; (b) if sent by reputable overnight air courier, two business days after mailing; (c) if sent by facsimile transmission, with a copy mailed on the same day in the manner provided in (a) or (b) above, when transmitted and receipt is confirmed by telephone; or (d) if otherwise a