<PAGE>
EXHIBIT 10.97
EXECUTION COPY
ASSUMPTION REINSURANCE AND MARKETING AGREEMENT
This
Assumption Reinsurance and Marketing Agreement (this
"Agreement"),
dated October 8, 2004, is among The
Chesapeake Life Insurance Company
("CHESAPEAKE"), an Oklahoma domiciled
health and life insurance corporation and
an indirect wholly owned subsidiary of
UICI; HealthMarket Inc., a Delaware
corporation ("HMI"); and American Travelers
Assurance Company ("ATAC"), a
District of Columbia domiciled health and
life insurance company and a wholly
owned subsidiary of HMI. This Agreement
shall be effective as of the Effective
Date (as such term is hereinafter
defined).
WHEREAS,
The MEGA Life and Health Insurance Company ("MEGA") (a wholly
owned subsidiary of UICI and the direct
parent of CHESAPEAKE), HMI and a wholly
owned subsidiary of HMI have entered into
an Asset Purchase Agreement, dated as
of September 3, 2004 (the "Asset Purchase
Agreement"), pursuant to which MEGA
has agreed, subject to the terms and
conditions thereof, to purchase certain of
the operating assets of HMI, subject to
certain liabilities, all as more
particularly described therein;
WHEREAS,
the Asset Purchase Agreement does not contemplate the purchase
by
MEGA of any interest in the capital stock
of ATAC;
WHEREAS,
pursuant to the terms of a Services Agreement (the "Services
Agreement"), dated as of April 30, 2002, as
amended as of December 31, 2003, HMI
currently provides administrative and other
services to ATAC;
WHEREAS,
pursuant to the terms of the Asset Purchase Agreement, HMI will
assign all of its right, title and interest
in and to, and MEGA will agree to
assume HMI's obligations under, such
Services Agreement;
WHEREAS,
subject to the terms and conditions hereof, ATAC desires to
cede,
and CHESAPEAKE desires to reinsure on an
assumption basis, 100% of the liability
associated with the ATAC Assumed Policies
(as such term is hereinafter set
forth);
WHEREAS,
UICI, MEGA, CHESAPEAKE and HMI believe that, following the
assumption reinsurance of the ATAC Assumed
Policies as herein contemplated, it
would be in the best interests of ATAC
policyholders to enroll in a policy
underwritten by CHESAPEAKE after the close
of the transaction contemplated by
the Asset Purchase Agreement, because
CHESAPEAKE's A.M Best rating of "A-" and
its strong capital position can provide
increased security to current customers
of ATAC; and
WHEREAS,
UICI, MEGA, CHESAPEAKE and HMI further believe that enabling
existing ATAC customers to receive
substantially similar benefits and coverage
as provided by their existing in-force
policies, including accumulated benefits
in their Health Reimbursement Accounts,
will be in the best interest of ATAC
policyholders.
NOW
THEREFORE, for and in consideration of the mutual agreements
and
covenants herein contained, the receipt and
sufficiency of which is hereby
acknowledged, the parties hereto agree as
follows:
1.
Definitions. As used in this Agreement, the following
capitalized
terms shall have the respective meanings
hereafter set forth:
<PAGE>
"Affiliate" of any Person shall mean and include any Person who
controls,
is controlled by or is under common control
with such Person.
"ATAC
Assumed Policies" shall mean all the policies and certificates
of
group health insurance with respect to
groups of 75 or fewer subscribers
directly issued by ATAC as a result of
applications written by or on behalf of
ATAC, as more particularly set forth in
Exhibit A attached hereto and made a
part hereof.
"CHESAPEAKE Issued Policy" shall mean a policy or certificate of
group
health insurance with respect to groups of
75 or fewer subscribers directly
issued by CHESAPEAKE in replacement or upon
conversion of ATAC Assumed Policies
in accordance with Section 8 hereof.
"Computation Period" shall have the meaning assigned to it in
Section 8.3
hereof.
"Effective
Date" shall mean the later of (a) November 1, 2004, or (b) such
date as the parties shall have received
applicable regulatory approvals for the
transactions contemplated hereby (including
without limitation written
confirmation from the Texas Department of
Insurance that, following the
transaction contemplated hereby, neither
CHESAPEAKE nor the ATAC Assumed
Policies will be subject to the Texas
reinsurance pool).
"Incurred
Claims" shall mean with respect to the ATAC Assumed Policies
claims paid for services rendered on or
after the Effective Date plus any and
all outstanding claim liabilities
(reserves) associated with such claims.
"Membership Med-Loss Ratio" shall mean, with respect to ATAC
Assumed
Policies and calculated with respect to the
Computation Period, the ratio of (a)
medical benefits incurred during the
Computation Period (including medical
claims, prescription drug claims and care
management fees paid) to (b) earned
premium for the Computation Period.
"Person"
shall mean an individual, a corporation, partnership, limited
liability company, trust, unincorporated
association or any other legal entity.
2.
Cession
and Transfer by ATAC. As of the Effective Date:
2.1. ATAC agrees to transfer, assign, cede, deliver and convey
to
CHESAPEAKE
all of the rights, privileges and prerogatives of ATAC in and
to the
ATAC Assumed Policies.
2.2. ATAC agrees to cooperate with CHESAPEAKE with respect to
the
transfer
of any records relating to or pertinent to the ATAC Assumed
Policies
that may be in the possession of ATAC.
2.3. ATAC further agrees to use it best efforts to ensure that
any
reinsurance (other than the Texas voluntary reinsurance pool) that
is in
force with
respect to the ATAC Assumed Policies on the Effective Date
shall
continue in force in accordance with its terms and be assigned
to
CHESAPEAKE.
2.4. ATAC agrees to and does hereby assign and transfer to
CHESAPEAKE
all liability owing to agents for commissions that become due
on or
after the Effective Date as to the ATAC Assumed Policies.
2
<PAGE>
3.
Assumption
of Obligations by CHESAPEAKE. As of the Effective Date,
CHESAPEAKE agrees to fully reinsure and
assume all of the rights and liabilities
of ATAC (including but not limited to the
liability for agents' commissions)
under and or relating to the ATAC Assumed
Policies and reinsurance agreements or
treaties related thereto, incurred on or
after the Effective Date, subject in
each and every case to any and all defenses
or offsets against claims and
actions under such ATAC Assumed Policies
that would have been available to ATAC
had the parties not entered into this
Agreement.
4.
Premium
Payment and Transfer of Funds.
4.1. On and after the Effective Date, CHESAPEAKE shall be
entitled
to
collect, retain and invest an amount equal to 100% of the
premiums
collected on the ATAC Assumed
Policies less premiums refunded and
commissions paid; provided, however, that CHESAPEAKE shall
reimburse
and/or
hold ATAC harmless from and with respect to premium taxes or
other
taxes or
assessments levied against or with respect to such premiums.
4.2. CHESAPEAKE shall fund and maintain proper reserves against
the
liabilities relating to the ATAC Assumed Policies for obligations
incurred
on or
after the Effective Date in accordance with applicable
statutory
requirements. CHESAPEAKE's assets constituting statutory reserves
may be
invested
as permitted by applicable statutes and regulations. CHESAPEAKE
shall be
entitled to all income from any and all sources derived from
premiums
paid with respect to the ATAC Assumed Policies.
4.3. ATAC shall fund and maintain proper reserves against the
liabilities relating to the ATAC Assumed Policies for obligations
incurred
before the
Effective Date in accordance with applicable statutory
requirements. ATAC's assets constituting statutory reserves may
be
invested
as permitted by applicable statutes and regulations.
5. Notice
to Policyholders and Administration. CHESAPEAKE agrees that it
will issue and mail a Certificate of
Assumption or a Notice of Transfer (each
substantially in the forms attached hereto
as Exhibit B and Exhibit C,
respectively) as soon as is practicable
after the Effective Date to each owner
of an ATAC Assumed Policy at the owner's
address last shown on the books and
records of ATAC. As provided in the
Services Agreement, MEGA (as assignee of
HMI's rights and obligations under the
Services Agreement) shall continue to
collect premiums due and otherwise continue
to administer the business with
respect to coverage afforded under such
ATAC Assumed Policies.
6.
Regulatory Approvals. It is understood and agreed that any
required
submission and approval of this Agreement
or the transactions contemplated
hereby to any applicable regulatory agency
shall be the joint responsibility of
CHESAPEAKE and HMI. CHESAPEAKE and HMI will
cooperate in this process and be
available for consultations, as necessary,
with the applicable regulatory
agencies. Without limiting the generality
of the foregoing, ATAC shall undertake
and be responsible for any and all
regulatory compliance actions that may be
required in connection with such
approval.
7. Other
Rights and Duties.
7.1. On and after the Effective Date, CHESAPEAKE through its
duly
authorized
representatives shall have the right to obtain and retain all
records,
books and data of ATAC relating to the ATAC Assumed Policies
(including
such records, books and data that may be essential to the
proper
administration of the business covered by this Agreement), to
administer
the business assumed hereunder, and to take any and all such
other
action as it shall deem necessary to effect the proper transfer
of
the
administration of the ATAC Assumed Policies to
3
<PAGE>
CHESAPEAKE in accordance with the terms of
this Agreement and the Services
Agreement. CHESAPEAKE shall, whenever
reasonably requested by ATAC, permit ATAC
to have access to such records, books and
data turned over to CHESAPEAKE
pursuant to this Agreement as may be
required by ATAC in connection with any
audit or investigation by any governmental
authority, or any matter relating to
insurance coverage or third party claims.
CHESAPEAKE shall preserve and maintain
such records, books and data for at least
three (3) years after the Effective
Date or such longer period as shall be
required under applicable law and
regulations.
7.2. On
and after the Effective Date, ATAC agrees to cooperate with
CHESAPEAKE in the transfer of the
administration of such business to CHESAPEAKE.
8. Conversion of ATAC
Assumed Policies.
8.1. On
and after the Effective Date and otherwise in accordance with
and
subject to the terms of this Section 8,
CHESAPEAKE shall market to and solicit,
at an appropriate premium rate, insureds
under each and every ATAC Assumed
Policy in an effort to convert such ATAC
Assumed Policy to a CHESAPEAKE Issued
Policy on such date as and when such ATAC
Assumed Policy is, in accordance with
its terms, subject to renewal.
8.2.
Subject to adjustment as hereinafter set forth, CHESAPEAKE agrees
to
pay to HMI a fee (the "Replacement Fee") in
an amount equal to 15% of annualized
premium associated with each CHESAPEAKE
Issued Policy, such fee to be paid in
cash on the last day of the calendar month
immediately following the month
during which CHESAPEAKE first receives
premium with respect to such CHESAPEAKE
Issued Policy.
8.3. As
hereinafter provided, the Replacement Fee payable by CHESAPEAKE
with respect to a CHESAPEAKE Issued Policy
will be adjusted upward or downward
based on the cumulative performance of the
corresponding ATAC Assumed Policy
during the period commencing on the
Effective Date and ending on the date of
issue of such CHESAPEAKE Issued Policy (the
"Computation Period").
8.3.1. The Replacement Fee payable with respect to a CHESAPEAKE
Issued
Policy shall be adjusted on a dollar-for-dollar basis downward
in
an amount
equal to the positive difference (if any) between (a) the
actual
Incurred
Claims with respect to the corresponding ATAC Assumed Policy
during the
Computation Period and (b) the Incurred Claims that would have
been paid
with respect to such ATAC Assumed Policy during the Computation
Period
assuming the Membership Med-Loss Ratio during the Computation
Period was
78.0%; or
8.3.2. The Replacement Fee payable with respect to a CHESAPEAKE
Issued
Policy shall be adjusted on a dollar-for-dollar basis upward in
an
amount
equal to the positive difference (if any) between (a) the
Incurred
Claims
that would have been paid with respect to the corresponding
ATAC
Assumed
Policy assuming the Membership Med-Loss Ratio during the
Computation Period was 77.0% and (b) the actual Incurred Claims
with
respect to
such ATAC Assumed Policy during the Computation Period; or
8.3.3. There shall be no adjustment to the Replacement Fee if
the
terms of
neither Sections 8.3.1 nor 8.3.2 shall be applicable.
8.4. The
calculation of the aggregate adjustments to the Replacement Fee
with respect to all CHESAPEAKE Issued
Policies shall occur on a quarterly basis,
with a final "true up" to
4
<PAGE>
occur six months after the date of
replacement of the last block of ATAC Assumed
Policies that result in the issue of the
CHESAPEAKE Issued Policies. In
addition, CHESAPEAKE shall have the right
to offset against any amounts due HMI
hereunder (whether or not such amounts are
liquidated or reduced to judgment)
the amount of any moneys due it pursuant to
the terms of the Asset Purchase
Agreement (including without limitation any
amounts due MEGA upon the making of
any claim for indemnification under Section
12 thereof).
8.5.
CHESAPEAKE agrees to utilize actuarially acceptable reserving
standards for determining claim liability
under each ATAC Assumed Policy. Each
of CHESAPEAKE and ATAC shall have the right
to appoint an independent actuarial
firm to review and assess CHESAPEAKE's
reserving methodology and determination
of claim liability with respect to the ATAC
Assumed Policies during the
Computation Period.
9. Representations and
Warranties.
9.1.
Representations and Warranties of ATAC. ATAC represents and
warrants
to CHESAPEAKE as follows:
9.1.1. ATAC is a corporation duly organized, validly existing and
in
good
standing under the laws of the District of Columbia, and has
full
power and
authority to own, lease and operate its properties and assets
and to
conduct its business as presently conducted (except that ATAC
is
subject to
a number of regulatory orders affecting its certificate of
authority
in certain states or ability to issue new and/or renewal
policies,
including without limitation, a Corrective Action Order issued
by the
District of Columbia Department of Insurance restricting ATAC
from
issuing
new policies until ATAC receives additional capital), and to
enter
into this
Agreement and to carry out the transactions contemplated by
this
Agreement.
9.1.2. The execution, delivery and performance by ATAC of this
Agreement
have been duly authorized by all necessary corporate action,
and
this
Agreement has been duly executed and delivered by ATAC. This
Agreement
constitutes the valid and binding obligation of ATAC, legally
enforceable against ATAC in accordance with its terms, except as
such
enforcement may be limited by bankruptcy, receivership, insolvency
or
other
similar laws affecting the enforcement of creditors' rights
generally
and except that the availability of equitable remedies is
subject to
the discretion of the court before which any proceeding
therefor
may be brought.
9.1.3. The execution of and performance by ATAC of its
obligations
under this
Agreement will not violate any provision of law or governmental
rule or
regulation, and will not conflict with or result in any breach
of
any of the
terms, conditions or provisions of, or constitute a default
under (i)
ATAC's Certificate of Incorporation, (ii) ATAC's by laws as
currently
in effect, (iii) any judgment, decree or order to which ATAC is
bound or
(iv) any agreement, contract, lease, indenture or other
instrument
to which ATAC is bound.
9.2.
Representations and Warranties of CHESAPEAKE. CHESAPEAKE
represents
and warrant to ATAC as follows:
9.2.1. CHESAPEAKE is a corporation duly organized, validly
existing
and in
good standing under the laws of the State of Oklahoma and has
full
power and
authority to own, lease and operate its properties and assets
and to
conduct its business as presently
5
<PAGE>
conducted,
and to enter into this Agreement and to carry out the
transactions contemplated by this Agreement.
9.2.2. The execution, delivery and performance by CHESAPEAKE of
this
Agreement
have been duly authorized by all necessary corporate action,
and
this
Agreement has been duly executed and delivered by CHESAPEAKE.
This
Agreement
constitutes the valid and binding obligation of CHESAPEAKE,
legally
enforceable against CHESAPEAKE in accordance with its terms,
except as
such enforcement may be limited by bankruptcy, receivership,
insolvency
or other similar laws affecting the enforcement of creditors'
rights
generally and except that the availability of equitable remedies
is
subject to
the discretion of the court before which any proceeding
therefor
may be brought.
9.2.3. The execution of and performance by CHESAPEAKE of its
obligations under this Agreement will not violate any provision of
law or
governmental rule or regulation, and will not conflict with or
result in
any breach
of any of the terms, conditions or provisions of, or consti
