INDEMNITY REINSURANCE
AGREEMENT
This INDEMNITY REINSURANCE AGREEMENT (this
“Agreement”), dated as of January 1, 1998, is made
by and between Connecticut General Life Insurance Company, a
Connecticut domiciled stock life insurance company
(“Cedent”), and Lincoln Life & Annuity Company of
New York, a New York domiciled stock life insurance company
(“Reinsurer”) and a wholly owned subsidiary of The
Lincoln National Life Insurance Company, an Indiana domiciled stock
life insurance company.
WHEREAS, Cedent has agreed to cede and transfer
to Reinsurer the Coinsured Contracts (as defined below) for the
consideration specified herein and Reinsurer has agreed to reinsure
the General Account Liabilities (as defined below) of Cedent under
the Coinsured Contracts on the terms and conditions set forth
herein.
NOW THEREFORE, in consideration of the mutual
covenants and promises contained herein and upon the terms and
conditions set forth herein, the parties hereto agree as
follows:
The following terms shall have the respective
meanings set forth below throughout the Agreement:
“Acquisition Agreement” means the
Second Amended and Restated Asset Transfer and Acquisition
Agreement entered into by and among CIGNA, Connecticut General
Corporation, Cedent, CIGNA Life Insurance Company, Lincoln National
Corporation, The Lincoln National Life Insurance Company and
Reinsurer dated as of July 27, 1997.
“Affiliate” means, with respect to
any Person, at the time in question, any other Person controlling,
controlled by or under common control with such Person.
“Agreement” means this Indemnity
Reinsurance Agreement.
“Annual Rate” means the value of r
in the expression (l + r)n/365 -1, where “n” is equal
to the number of days for which interest is to be computed and the
result of the expression is the interest factor for computing the
applicable interest amounts.
“Cash Equivalents” means, as of any
particular date, money market funds, marketable obligations issued
or guaranteed by the United States Government, certificates of
deposit, bankers’ acceptances and other similar liquid
investments, in each case, with a maturity date of not more than
90 days from the date on which any such instrument is
transferred pursuant to the terms of this Agreement, the market
value of which on the date of transfer will be counted as
equivalent to cash for purposes of satisfying the aggregate amount
of cash and Cash Equivalents required to be transferred as
described in Article III hereof.
“Cedent” shall have the meaning set
forth in the introductory paragraph hereof.
“Cedent Separate Account
Liabilities” means those insurance liabilities that are
reflected in the Cedent Separate Accounts and that relate to the
Coinsured Contracts.
“Cedent Separate Accounts” means the
separate accounts of Cedent described on Schedule 1.03
hereto.
“Ceding Commission” means $
.
“CIGNA” means CIGNA Corporation, a
Delaware corporation.
“Code” means the Internal Revenue
Code of 1986, as amended. Any citation to a section of the Code
includes a citation to any successor statutory
provision.
“Coinsured Contracts” means
(i) the In-Force Contracts, and (ii) the Post-Closing
Contracts.
“COLI Business” shall have the
meaning as set forth in the Acquisition Agreement.
“Connecticut SAP” means the
statutory accounting principles and practices prescribed or
permitted by the Insurance Department of the State of Connecticut
as applied on a basis consistent with those utilized in the
preparation of 1996 Annual Statements of Cedent submitted to the
Insurance Department of the State of Connecticut.
“Contractholder” shall mean the
holder of any Coinsured Contract.
“DAC Adjustment” shall have the
meaning set forth in Section 12.02(a) hereof.
“Effective Date” shall have the
meaning set forth in Article II hereof.
“Extra Contractual Obligations”
means all liabilities for compensatory, consequential, exemplary,
punitive or similar damages which relate to or arise in connection
with any alleged or actual act, error or omission by Cedent or any
of its Affiliates prior to the Effective Date hereof, whether
intentional or otherwise, or from any reckless conduct or bad faith
by Cedent or any of its Affiliates prior to the Effective Date
hereof, or in connection with any such alleged or actual act, error
or omission on and after the Effective Date hereof by the Reinsurer
or any of its Affiliates acting on behalf of Cedent or any of its
Affiliates pursuant to this Agreement or otherwise, in each case
whether in connection with the handling of any claim under any of
the Coinsured Contracts or in connection with the issuance,
delivery, cancellation or administration of any of the Coinsured
Contracts; provided, that no Section 10.04 Seller Obligation,
as such term is defined in the Acquisition Agreement, shall be
deemed to be an Extra Contractual Obligation.
“Final Recapture Statement” shall
have the meaning set forth in Section 3.02(d)
hereof.
“General Account Liabilities” means
all general account insurance liabilities and obligations arising
under the Coinsured Contracts, including, without limitation
(i) the General Account Reserves, (ii) the amounts
included in lines 12, 12a, 19, and 25 of the Liabilities, Surplus
and Other Funds page of the NAIC Annual Statement Blank (1996
format), (iii) any Extra Contractual Obligations,
(iv) liabilities and obligations associated with
Cedent’s separate account SA-8T, (v) premium taxes due
in respect
of premiums, deposits and other consideration paid on or after the
Effective Date with respect to the Coinsured Contracts and
(vi) guaranty fund or other premium based assessments due
based on such premiums, deposits and other consideration, net of
any premium tax credits of Cedent arising out of any such
assessments, but excluding (x) the Cedent Separate Account
Liabilities, and (y) any general account liabilities which
relate to (A) amounts transferred from the Cedent Separate
Accounts to the general account of Cedent pending distribution to
holders of the Coinsured Contracts and (B) amounts held in the
general account of Cedent pending transfer to the Cedent Separate
Accounts.
“General Account Other Insurance
Assets” means all general account other admitted insurance
assets of Cedent arising under the Coinsured Contracts determined
pursuant to Connecticut SAP as such amounts would have been
included in lines 12.1, 12.2, 12.3, 15, 16 and 17 of the Assets
page of the NAIC Annual Statement Blank (1996 format).
“General Account Reserves” means the
general account statutory reserves of Cedent (without regard to
this Agreement) with respect to the Coinsured Contracts determined
pursuant to Connecticut SAP, as such reserves would have been
included in lines 1, 2, 3, 4.1, 4.2, 5, 6, 7.1, 7.2, 7.3, 8, 9,
10.1, 10.2, 10.3, 11.1, 11.2, 11.3 and 11.4 of the Liabilities,
Surplus and Other Funds page of the NAIC Annual Statement Blank
(1996 format), excluding however, any general account statutory
reserve adjustments in relation to Cedent Separate Account
Liabilities.
“In-Force Contracts” means all
individual life insurance (other than contracts included in the
COLI Business), health insurance and annuity contracts owned by
residents of the State of New York and issued through CIGNA’s
Individual Insurance Division by Cedent on the forms described on
Schedule 1.01 hereto and in effect on the Effective Date
(including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
“Income Tax Regulations” means the
temporary and final regulations issued under the Code. Any citation
to a section of the Income Tax Regulations includes a citation to
any successor regulatory provision.
“NAIC” means the National
Association of Insurance Commissioners.
“90-Day Treasury Rate” means the
annual yield rate, on the date to which 90-Day Treasury Rate
relates, of actively traded U.S. Treasury securities having a
remaining duration to maturity of three months, as such rate is
published under “Treasury Constant Maturities” in
Federal Reserve Statistical Release H.15(519).
“Outward Reinsurance” shall have the
meaning set forth in Article II hereof.
“Person” means any individual,
corporation, partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division
or other entity.
“Post-Closing Contracts” means all
individual life insurance (other than contracts included within the
COLI Business), health insurance and annuity contracts of the types
which are described on Schedule 1.02 hereto (including all
supplements, endorsement, riders and ancillary agreements in
connection therewith) that are delivered or issued for delivery to
a resident of the State of New York through CIGNA’s
Individual
Insurance
Division by Cedent prior to the second anniversary of the Effective
Date at the written request of Reinsurer in accordance with
Section 5.34 of the Acquisition Agreement.
“Post-Recapture Extra Contractual
Obligations” means Extra Contractual Obligations which relate
to or arise in connection with any alleged or actual act, error or
omission by Reinsurer or any of its Affiliates (including by
Reinsurer or its Affiliates acting on behalf of Cedent or any of
its Affiliates pursuant to this Agreement or otherwise) on or
before the Recapture Date, whether intentional or otherwise, or
from any
reckless
conduct or bad faith by Reinsurer or any of its Affiliates
(including by Reinsurer or its Affiliates acting on behalf of
Cedent or any of its Affiliates pursuant to this Agreement or
otherwise), in connection with the handling of any claim under any
of the Coinsured Contracts or in connection with the issuance,
delivery, cancellation or administration of any of the Coinsured
Contracts.
“Preliminary Recapture Statement”
shall have the meaning set forth in Section 3.02(b)
hereof.
“Proposed Recapture Statement” shall
have the meaning set forth in Section 3.02(d)
hereof.
“Recapture Date” shall have the
meaning set forth in Section 3.02(a) hereof.
“Reinsurer” shall have the meaning
set forth in the introductory paragraph hereof.
“Third Party Actuary” shall have the
meaning set forth in Section 3.02(d) hereof.
“Trigger Date” means the last day of
the time period specified in Section 5.20(c) of the
Acquisition Agreement in the event that the Reinsurer is required
to take any of the actions specified in Sections 5.20(a)(i),
(ii) and (iii) thereof during such time period and fails
to take any such actions.
“Umpire” shall have the meaning set
forth in Article XIII.
ARTICLE III
BUSINESS REINSURED
Upon the terms and subject to the conditions and
other provisions of this Agreement, effective as of
12:01 a.m., Eastern Time, on
, 1997 (the “Effective Date”), Cedent hereby cedes to
Reinsurer and Reinsurer hereby accepts and indemnity reinsures, on
a coinsurance basis, 100% of the General Account Liabilities
outstanding as of the Effective Date or arising thereafter, net of
reinsurance recoveries received by Cedent under reinsurance
cessions with respect to the Coinsured Contracts other than
pursuant to this Agreement (“Outward
Reinsurance”).
ARTICLE IV
TERMINATION AND RECAPTURE
Section 3.01. Termination. The reinsurance
provided under this Agreement shall terminate as to each Coinsured
Contract on any date as of which such Coinsured Contract is
recaptured as provided below in this Article III, but shall
otherwise continue indefinitely as to all Coinsured
Contracts.
Section 3.02. Recapture. (a) If
Reinsurer fails to take one of the actions specified in clauses
(i), (ii) and (iii) of Section 5.20(a) of the
Acquisition Agreement under the circumstances described therein on
or prior to the Trigger Date, then Cedent shall have the right,
upon 10 days’ written notice to Reinsurer, to recapture
the Coinsured Contracts that have not expired, effective as of the
first day of the month following the Trigger Date (the
“Recapture Date”). In the event that the Coinsured
Contracts that have not expired are recaptured pursuant to this
Article III, a net accounting and settlement with respect to
the General Account Liabilities relating to Coinsured Contracts
that have not expired shall be undertaken by the parties hereto
pursuant to the provisions set forth below in this
Section 3.02.
(b) On the Recapture Date, Reinsurer will
deliver to Cedent a statement of the General Account Other
Insurance Assets, General Account Liabilities, the amount of the
participating surplus with respect to the Coinsured Contracts and
the amount of any contract loans under the Coinsured Contracts that
have not expired, each as of the end of the second month preceding
the month in which the Recapture Date falls (the “Preliminary
Recapture Statement”), together with a certification of the
chief financial officer of Reinsurer that (i) the Preliminary
Recapture Statement was prepared in accordance with Connecticut
SAP, and (ii) the General Account Reserves set forth therein
(A) were determined in accordance with generally accepted
actuarial standards consistently applied, (B) were fairly
stated in accordance with sound actuarial principles, (C) were
based on actuarial assumptions that were appropriate for
Cedent’s obligations under the related Coinsured Contracts,
and (D) met the requirements of Connecticut SAP.
(c) On the Recapture Date, Reinsurer shall
transfer to Cedent (i) invested assets, cash and Cash
Equivalents having an aggregate value sufficient to satisfy the
obligations represented by the General Account Liabilities plus the
amount of the participating surplus with respect to the Coinsured
Contracts less the amount of any contract loans under the Coinsured
Contracts that have not expired and less the amount of General
Account Other Insurance Assets and (ii) the General Account
Other Insurance Assets, each as determined by Reinsurer and set
forth on the Preliminary Recapture Statement. Cash shall be
transferred by Reinsurer to Cedent by wire transfer of immediately
available funds in U.S. Dollars. Invested assets and Cash
Equivalents shall be transferred by such instruments of transfer as
are reasonably acceptable to Cedent. Invested assets transferred
pursuant to this Section 3.02(c) shall be valued at their market
value as of the Recapture Date. As specified in Section 6.02
hereof, Cedent shall, from and after the Recapture Date, be
entitled to receive and retain all contract loan repayments under
the Coinsured Contracts that have not expired. Recapture shall be
deemed to occur upon the receipt by Cedent of such invested assets,
cash and Cash Equivalents and such General Account Other Insurance
Assets, free of all liens or other encumbrances.
(d) Reinsurer shall, on or before the date
that is 30 days after the Recapture Date, prepare a statement
of the General Account Other Insurance Assets, General Account
Liabilities, the amount of the participating surplus with respect
to the Coinsured Contracts and the amount of any contract loans
under the Coinsured Contracts that have not expired, each as of the
close of business on the last day of the month preceding the month
in which the Recapture Date falls (the “Proposed Recapture
Statement”), together with a certification of the chief
financial officer of Reinsurer to the same effect with respect to
the Proposed Recapture Statement as of the date thereof as the
certification provided by such officer with respect to the
Preliminary Recapture Statement as of the date thereof pursuant to
Section 3.02(b). Promptly after its preparation, Reinsurer
shall deliver copies of the Proposed Recapture Statement to Cedent.
Cedent shall have the right to review the Proposed Recapture
Statement and comment thereon for a period of 45 days after
receipt thereof. Reinsurer agrees that Cedent and its accountants
and other agents may have access to the accounting records of
Reinsurer relating to its preparation of the Proposed Recapture
Statement for the purpose of conducting its review. Any changes in
the Proposed Recapture Statement that are agreed to by Reinsurer
and Cedent within 45 days of the aforementioned delivery of
such statement by Reinsurer shall be incorporated into a final
recapture statement as of the close of business on the last day of
the month preceding the month in which the Recapture Date falls
(the “Final Recapture Statement”). In the event that
Reinsurer and Cedent are unable to agree within such 45-day period
on the manner in which any item or items should be treated in the
prepa ration of the Final Recapture Statement, or upon (i) the
amount of invested assets, cash and Cash Equivalents that is
sufficient to satisfy the obligations represented by the General
Account Liabilities plus the amount of participating surplus with
respect to the Coinsured Contracts less the amount of any contract
loans under the Coinsured Contracts that have not expired and less
the amount of General Acco
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