AUTOMATIC REINSURANCE AGREEMENT
Between
SECURITY BENEFIT LIFE INSURANCE COMPANY
Topeka, Kansas
And
SWISS RE LIFE & HEALTH AMERICA INC.
New York, New York
This Agreement will be referred to as AGREEMENT NO. SA722-98.
AUTOMATIC REINSURANCE AGREEMENT
CONTENTS
ARTICLE I Scope of Agreement
ARTICLE II Commencement & Termination of Liability
ARTICLE III Oversights - Clerical Errors
ARTICLE IV Mortality Net Amount At Risk
ARTICLE V Reinsurance Premiums
ARTICLE VI Reinsurance Administration
ARTICLE VII Settlement of Claims
ARTICLE VIII Tax Credits
ARTICLE IX Regulatory Compliance
ARTICLE X Inspection of Records
ARTICLE XI Insolvency
ARTICLE XII Arbitration
ARTICLE XIII Rights of Offsetting Balances Due
ARTICLE XIV Contract and Program Changes
ARTICLE XV Federal Taxes
ARTICLE XVI Parties to Agreement
ARTICLE XVII Confidentiality
ARTICLE XVIII Entire Agreement
ARTICLE XIX Duration of Agreement
ARTICLE XX Severability
Signature Page
EXHIBIT A - Variable Annuities Covered Under This Agreement
EXHIBIT B - Risk Classification Guidelines for Investment Offerings
EXHIBIT C - Loss Carryforward Definitions and Formulae
EXHIBIT D - YRT Reinsurance Premium Rates
AUTOMATIC REINSURANCE AGREEMENT
THIS AGREEMENT between the SECURITY BENEFIT LIFE INSURANCE COMPANY, a
corporation organized under the laws of the State of Kansas, hereinafter
referred to as the "Company", and SWISS RE LIFE & HEALTH AMERICA INC., a
corporation organized under the laws of the State of New York, hereinafter
referred to as "Swiss Re Life & Health", WITNESSETH AS FOLLOWS:
DEFINITIONS
1. Aggregate Account Value is the sum of the Contract Values of all annuity
contracts reinsured hereunder that have not annuitized.
2. Contract Value shall have the meaning set forth in the policy form(s) of
the Company as specified in Exhibit A.
3. Guaranteed Death Benefit shall have the meaning set forth in the policy
form(s) of the Company as specified In Exhibit A.
4. Mortality Net Amount at Risk shall have the meaning set forth in Article
IV of this Agreement.
5. Contract Calculation Value will be determined at the end of each calendar
month. It will be either the Contract Value or Guaranteed Death Benefit of the
Annuity Contract (as defined below). The Contract Calculation Value will be each
Annuity Contract's Contract Value if the Aggregate Account Value for all Annuity
Contracts reinsured hereunder is greater than or equal to the Aggregate
Guaranteed Death Benefit for the same Annuity Contracts. The Contract
Calculation Value will be the Annuity Contract's Guaranteed Death Benefit if the
Aggregate Account Value for all Annuity Contracts reinsured hereunder is less
than the Aggregate Guaranteed Death Benefit for the same Annuity Contracts.
ARTICLE I
SCOPE OF AGREEMENT
1. On and after the later of the 1st day of September, 1998, and the first
date of issue of a variable annuity contract reinsured hereunder ("effective
date"), the Company shall automatically reinsure with Swiss Re Life & Health,
and Swiss Re Life & Health shall automatically accept, a 50% quota share of the
Mortality Net Amount at Risk, as defined in Article IV, generated prior to
annuitization or complete surrender by the contract owner, by the Guaranteed
Death Benefit.
2. Swiss Re Life & Health's maximum aggregate liability in any one calendar
year shall not exceed 2% (200 basis points) of Swiss Re Life & Health's quota
share percentage of the average Aggregate Account Value over each respective
calendar year of coverage. This average shall be calculated by totaling the
Aggregate Account Value as of the end of each calendar month and dividing the
result by the number of months that reinsurance has been inforce in that
respective calendar year.
3. Swiss Re Life & Health's maximum liability on any one life reinsured
hereunder shall be Ten Million Dollars ($10,000,000), multiplied by the quota
share percentage reinsured by Swiss Re Life & Health specified in paragraph 1 of
this Article, and calculated as specified in Article IV of this Agreement.
4. This Agreement covers only the Company's liability for claims paid under
variable annuity contracts written on the contract forms specified in Exhibit A
and supported by funds that conform to the Risk Classification Guidelines set
forth in Exhibit B. The automatic provisions of this Agreement shall not extend
to variable annuity contracts covered under this Agreement that are supported by
funds outside the established Risk Classification Guidelines. New funds may be
established by a Registered Investment Advisor (RIA) and may be added as covered
funds under this Agreement according to the procedures set forth in ▇▇▇▇▇▇▇▇▇ ▇,
▇▇▇▇▇▇▇▇▇ 6 and Paragraph 7 of this Article.
5. From time to time a RIA may establish a new mutual fund to support the
variable annuity contracts theretofore reinsured under this Agreement. The
Company agrees to assess the Risk Classification of the new fund according to
the guidelines set forth in Exhibit B. Any and all funds so established shall be
submitted to Swiss Re Life & Health prior to issue, with the Risk Classification
category determined by the Company. Swiss Re Life & Health shall have the right,
within 10 business days of receipt of the submission, to disagree with the risk
Class assessed by the Company. Should the Company and Swiss Re Life & Health be
unable to reach a consensus of opinion concerning the appropriate Risk
Classification, then the facultative provisions of this Agreement, set forth in
paragraph 6 of this Article, shall be invoked. Should the company receive no
response from Swiss Re Life & Health to its fund submission, then the Company
may assume that Swiss Re Life & Health is in agreement with the assigned Risk
Classification.
6. The Company may submit for facultative consideration a class of variable
annuity contracts covered under this Agreement, that are supported by funds
outside the established Risk Classification Guidelines. The Company shall
promptly notify Swiss Re Life & Health of its desire to secure reinsurance
coverage under one of the existing Risk Classifications or under a new Risk
Classification Category. The Company shall supply Swiss Re Life & Health with
documentation it may require to make its determination, such as, but not limited
to, a fund or company prospectus. Swiss Re Life & Health shall promptly render a
facultative decision, generally within ten (10) business days of receipt of any
documentation that it may require to make its decision. Swiss Re Life & Health
may either accept, on the same or revised terms, or decline the reinsurance. If
Swiss Re Life & Health makes an offer of terms to reinsure the funds under an
existing or a new Risk Classification Category, or with new reinsurance terms,
the Company must formally accept the offer in writing in order to effect the
reinsurance. Acceptance by the Company of a facultative offer made by Swiss Re
Life & Health shall become a formal Amendment to this Agreement. Should Swiss Re
Life & Health decline the risk then no reinsurance shall be in effect on the
variable annuity contracts supported by the fund(s) declined for reinsurance.
Further, when Swiss Re Life & Health declines the fund of a RIA for reinsurance,
and when the Company nevertheless decides to issue the fund that has been
declined, then the Company shall recapture, under the terms set forth in Article
XIX, all reinsurance inforce supported by other funds from the same RIA.
7. After approval and classification made by the company and Swiss Re Life &
Health, the classification of a Fund will remain unchanged as long as the then
current Fund prospectus remains unchanged and effective with the Securities and
Exchange Commission (SEC). Classifications will be reviewed if there is a change
in the investment objective or securities made available to the Fund as the same
are approved by the Fund's board of directors and reflected in the fund's
current prospectus.
ARTICLE II
COMMENCEMENT & TERMINATION OF LIABILITY
1. On reinsurance ceded under the terms of this Agreement, the liability of
Swiss Re Life & Health shall commence simultaneously with that of the Company,
and shall terminate upon the earliest of annuitization of a contract, complete
surrender of a contract or termination of this Agreement in accordance with the
applicable provisions of Article XIX of this Agreement.
2. Swiss Re Life & Health shall be liable to reimburse claims on only those
deaths where the date of death is on or after the effective date of this
Agreement, in accordance with Article VII.
ARTICLE III
OVERSIGHTS - CLERICAL ERRORS
1. Should either the Company or Swiss Re Life & Health fail to comply with
any of the terms of this Agreement, and if this is shown to be unintentional and
the result of a misunderstanding, oversight or clerical error on the part of
either the Company or Swiss Re Life & Health, then this Agreement shall not be
deemed abrogated thereby, but both companies shall be restored to the position
they would have occupied had no such oversight, misunderstanding, or clerical
error occurred. Such conditions are to be reported and corrected promptly after
discovery.
2. If the Company or Swiss Re Life & Health discovers that the Company did
not cede reinsurance on a contract it should have reinsured under this
Agreement, the Company will take reasonable and necessary steps to ensure that
similar oversights do not recur. If Swiss Re Life & Health receives no evidence
that the Company has taken action to remedy such a situation, Swiss Re Life &
Health reserves the right to limit its liability to reported contracts only.
3. Swiss Re Life & Health is not liable for Extra Contractual Obligations
that may arise from willful and/or negligent acts or omissions by the Company.
Extra Contractual Obligations are obligations outside of the contractual
obligations and include but are not limited to punitive damages, bad faith
damages, compensatory damages, and other damages or statutory penalties.
ARTICLE IV
MORTALITY NET AMOUNT AT RISK
1. The Mortality Net Amount at Risk for each variable annuity contract
reinsured hereunder shall be equal to the difference between the Guaranteed
Death Benefit and the Contract Value of the annuity. The reinsured Mortality Net
Amount at Risk shall not be less than zero and shall not be greater than the
product of Ten Million Dollars ($10,000,000) per life and the quota share
percentage set forth in Article I.
2. For periodic reporting purposes described in Article VI, the Mortality Net
Amount at Risk shall be calculated as of the last day of each calendar month.
ARTICLE V
REINSURANCE PREMIUMS
1. (a) Reinsurance premiums shall be calculated monthly and shall be equal to
the sum of the YRT monthly premiums for each Annuity Contract . The YRT
monthly premium for a specific Annuity Contract shall be equal to one
twelfth (1/12) of 80% of the 1988 U.S. Life Mortality Table, as filed
under Exhibit D of this Agreement, multiplied by the product of the
contract's Mortality Net Amount at Risk for the period and Swiss Re Life &
Health's quota share percentage, subject to the minimum and maximum
monthly premiums stated in 1(b) and 1(c), below.
(b) The minimum monthly premium shall be equal to the sum of the minimum
monthly premiums for each Annuity Contract. The minimum monthly premium
for a specific Annuity Contract shall be equal to the product of the
minimum monthly premium rate and Swiss Re Life & Health's quota share
percentage of the Contract Calculation Value. The minimum monthly premium
rate, by Risk Classification and Issue Age (for joint owners, use oldest
age), expressed in basis points, shall be equal to:
RISK CLASSIFICATION ISSUE AGE *MINIMUM MONTHLY PREMIUM RATE
Conservative 0-49 0.1042
50-59 0.1667
60-69 0.3333
70-75 0.5000
Moderate 0-49 0.1250
50-59 0.2500
60-69 0.5000
70-75 0.7500
Aggressive 0-49 0.1667
50-59 0.3333
60-69 0.5833
70-75 1.0000
*Weighted average may apply. See Paragraph 1(d) of this Article.
The total reinsurance premium in any month shall at least equal Five
Hundred Dollars ($500) in year one and year two of this Agreement and One
Thousand Dollars ($1,000) in year three of this Agreement.
(c) The maximum monthly premium shall be equal to the sum of the maximum
monthly premiums for each Annuity Contract. The maximum monthly premium
for a specific Annuity Contract shall be equal to the product of the
maximum monthly premium rate and Swiss Re Life & Health's quota share
percentage of the Contract Calculation Value.
The maximum monthly premium rate, by Risk Classification and Issue Age
(for joint owners, use oldest age), expressed in basis points, shall be
equal to:
RISK CLASSIFICATION ISSUE AGE *MAXIMUM MONTHLY PREMIUM RATE
Conservative 0-49 0.1875
50-59 0.3333
60-69 0.5833
70-75 0.9167
Moderate 0-49 0.2083
50-59 0.4167
60-69 0.9167
70-75 1.3333
Aggressive 0-49 0.2500
50-59 0.5000
60-69 1.0833
70-75 1.7500
*Weighted average may apply. See Paragraph 1(d) of this Article.
(d) Should a policy's fund allocation be distributed under more than one
Risk Classification, then the reinsurance premium rate shall be determined
by a weighted average. A ratio for each policy shall be calculated of the
Current Contract Value by risk class to the total Current Contract Value
for the policy. Each resulting ratio shall be applied to each appropriate
monthly premium rate by issue age and then totaled to achieve the weighted
monthly premium rate for a policy.
2. The monthly reinsurance premium shall be due and payable as described in
Article VI. Swiss Re Life & Health reserves the right to charge interest on
premiums not remitted in accordance with the schedule set forth in Article VI.
The interest rate payable by the Company to Swiss Re Life & Health for overdue
premiums shall be the 90 Day Federal Government Treasury ▇▇▇▇ rate as first
published in the Wall Street Journal in the month following the end of the
billing period plus 50 basis points. The method of calculation shall be simple
interest "Bankers' Rule" (or 360 day year).
3. The reinsurance premium structure described above shall remain in effect
as long as the Guaranteed Death Benefit design, the contract fees, the mortality
and expense charges, the administration fees, and the surrender charges, for
contracts specified in Exhibit A, in effect at the inception of this Agreement
remain unchanged.
ARTICLE VI
REINSURANCE ADMINISTRATION
1. Within thirty (30) days of the end of each calendar month, the Company
will furnish Swiss Re Life & Health a separate electronic report for each
annuity contract design specified in Exhibit A, valued as of the last day of
that month. Each report will indicate for all inforce annuities reinsured
hereunder:
a) Annuitant's name, sex, date of birth, issue age and
social security number
b) Owner's name, sex, date of birth, issue age and social security number
c) Contract number
d) Contract issue date
e) Contract form number
f) Tax status
g) Current contract value in total and by funding vehicle, if any
h) Current cash surrender value
i) Cumulative net considerations
j) Current Guaranteed Death Benefit
k) Current contract death benefit
l) Current contract Mortality Net Amount at Risk
2. Additionally, within thirty (30) days of the end of each calendar month,
the Company will furnish Swiss Re Life & Health with a separate seriatim
termination report, indicating the following:
a) Termination by death
b) Termination by lapse
c) Termination by annuitization
3. Additionally, within thirty (30) days of the end of each calendar month,
the Company will furnish Swiss Re Life & Health a report summarizing the
following data:
a) Reinsurance premiums due Swiss Re Life & Health
b) Death claim reimbursements due the Company
c) Total number of contracts reinsured
d) Total current contract value
e) Total cumulative net considerations
f) Total current Guaranteed Death Benefit
g) Total current death benefit
h) Total current mortality risk amount
4. If the net balance is due Swiss Re Life & Health, the amount due shall be
remitted with the report statement. If the net balance is due the Company, Swiss
Re Life & Health shall remit the amount to the Company within ten (10) days of
the receipt of the report. If the net balance due the Company is not remitted
within ten (10) days of the receipt of the report, the Company reserves the
right to charge interest on such net balance, and Swiss Re Life & Health agrees
to pay the interest so accrued. Interest on the net balance due the Company
shall be calculated in the same manner set forth in Article V, Paragraph 2.
ARTICLE VII
SETTLEMENT OF CLAIMS
1. The claims that are eligible for reimbursement are only those that the
Company is required to pay on deaths that occur on or after the effective date
of this Agreement.
2. In the event the Company provides satisfactory proof of claim to Swiss Re
Life & Health, claim settlements made by the Company shall be unconditionally
binding on Swiss Re Life & Health. Satisfactory proof of death shall be defined
as either a certified copy of the death certificate, a certified decree of a
court of competent jurisdiction as to the finding of death, or a written
statement by a medical doctor who attended the deceased Owner.
3. The death claim reimbursed by Swiss Re Life & Health shall be determined
as of the date due proof of death is received at the Company's Annuity Service
office.
4. Within thirty (30) days of the end of each month, the Company shall notify
Swiss Re Life & Health of the reinsured death benefits paid in that month and
Swiss Re Life & Health shall reimburse the Company, as provided in Article VI,
for the reinsured benefits.
5. Settlements by Swiss Re Life & Health shall be in a lump sum regardless of
the mode of payment made by the Company to the beneficiary.
ARTICLE VIII
TAX CREDITS
1. Swiss Re Life & Health shall not reimburse the Company for state premium
taxes.
ARTICLE IX
REGULATORY COMPLIANCE
1. Swiss Re Life & Health agrees to comply with all regulatory directives
required to permit the Company to receive statutory reserve credit for the
reinsurance ceded under this Agreement.
2. The Company warrants that it has secured all necessary federal and state
licenses and approvals, and that it is operating in all material respects in
compliance with federal investment laws and state investment and insurance laws
and regulations.
ARTICLE X
INSPECTION OF RECORDS
1. Swiss Re Life & Health, or its duly appointed representatives, shall have
the right at its own expense and for any reasonable purpose to inspect at the
office of the Company all records referring to reinsurance ceded to Swiss Re
Life & Health. Such inspections shall take place only during the Company's
normal business hours.
ARTICLE XI
INSOLVENCY
1. A party to this Agreement will be deemed "insolvent" when it:
(a) Applies for or consents to the appointment of a receiver,
rehabilitator, conservator, liquidator or statutory successor
(hereinafter referred to as the Authorized Representative) of its
properties or assets; or
(b) Is adjudicated as bankrupt or insolvent; or
(c) 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;
or
(d) Becomes the subject of an order to rehabilitate or an order to
liquidate as defined by the insurance code of the jurisdiction of the
party's domicile.
2. In the event of the insolvency of the Company, all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall be
payable by Swiss Re Life & Health directly to the Company or to its Authorized
Representative on the basis of the liability of the Company under the contract
or contracts reinsured without diminution because of the insolvency of the
Company. It is understood, however, that in the event of the insolvency of the
Company, the Authorized Representative of the insolvent Company shall give
written notice of the pendency of a claim against the insolvent Company 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, Swiss Re Life
& Health may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense or defenses which
it may deem available to the Company or to its Authorized Representative.
3. It is further understood that the expense thus incurred by Swiss Re Life &
Health 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 Swiss Re Life & Health. Where two or more assuming
insurers are involved in the same claim and a majority in interest elect to
interpose defense to such claim, the expense shall be apportioned in accordance
with the terms of this Reinsurance Agreement as though such expense had been
incurred by the Company.
4. In the event of the insolvency of Swiss Re Life & Health and the
appointment of receivers therefor, the liability of Swiss Re Life & Health shall
not terminate but shall continue with respect to the reinsurance ceded to Swiss
Re Life & Health by the Company prior to the date of such insolvency or
appointment.
ARTICLE XII
ARBITRATION
1. In the event of any difference arising hereafter between the contracting
parties with reference to any transaction under this Agreement, the same shall
be referred to three arbitrators who must be current or former executive
officers of life insurance or life reinsurance companies other than the two
parties to this Agreement or their affiliates, each of the contracting companies
to appoint one of the arbitrators and such two arbitrators to select the third.
If either party refuses or neglects to appoint an arbitrator within 60 days
after receipt of the written request for arbitration, the other party may
appoint a second arbitrator.
2. If the two arbitrators fail to agree on the selection of a third
arbitrator within 60 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
3. The arbitrators shall consider this Reinsurance Agreement not merely as a
legal document but also as a gentlemen's agreement. In resolving the dispute,
the arbitrators will give full consideration to the customs and practices of the
life insurance and life reinsurance industry, insofar as they are not in
conflict with the specific terms of this Agreement. The arbitrators shall decide
by a majority vote. There shall be no appeal from their written decision.
4. Unless the arbitrators decide otherwise, each party shall bear the expense
of its own arbitration, including its arbitrator and outside attorney fees, and
shall jointly and equally bear with the other party the expense of the third
arbitrator. Any remaining costs of the arbitration proceedings shall be
apportioned by the Board of Arbitrators.
ARTICLE XIII
RIGHT OF OFFSETTING BALANCES DUE
1. The Company and Swiss Re Life & Health shall have, and may exercise at any
time, the right to offset any balance or balances due one party to the other,
its successors or assigns, against balances due the other party under this
Agreement or under any other Agreements or Contracts previously or subsequently
entered into between the Company and Swiss Re Life & Health. This right of
offset shall not be affected or diminished because of insolvency of either party
to this Agreement.
ARTICLE XIV
CONTRACT AND PROGRAM CHANGES
1. The Company may amend, substitute, add or delete variable investment funds
to the investment funds supporting the annuity contract as described in the
contract general provisions. No such change will be made by the Company without
prior notification to Swiss Re Life & Health and without the prior approval of
the Securities and Exchange Commission, if necessary.
2. The Company shall also give Swiss Re Life & Health advance notice of any
material change to the contract form.
3. Should any such change result in a material increase in the reinsured Net
Amount at Risk and/or material decrease in the reinsurance premiums due, Swiss
Re Life & Health shall have the right to modify the premium required hereunder.
ARTICLE XV
FEDERAL TAXES
1. The Company and Swiss Re Life & Health hereby agree to the following
pursuant to Section 1.848-2(g)(8) of the Income Tax Regulation issued December
1992, under Section 848 of the Internal Revenue Code of 1986, as amended. This
election shall be effective as of the Effective Date of this Agreement and for
all subsequent taxable years for which this Agreement remains in effect.
(a) The term "party" will refer to either the Company or Swiss Re Life &
Health, as appropriate.
(b) The terms used in this Article are defined by reference to Regulation
1.848-2 in effect December 1992.
(c) 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).
(d) 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.
(e) The Company will submit a schedule to Swiss Re Life & Health 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 stating that the Company will report such
net consideration in its tax return for the preceding calendar year.
(f) Swiss Re Life & Health may contest such calculation by providing an
alternative calculation to the Company by June 1. If Swiss Re Life &
Health does not so notify the Company, the Company will report the net
consideration as determined by the Company in the Company's tax return
for the previous calendar year.
(g) If Swiss Re Life & Health contests the Company's calculation of the
net consideration, the parties will act in good faith to reach an
agreement as to the correct amount by July 1. If the Company and Swiss
Re Life & Health reach agreement on an amount of the net
consideration, each party shall report such amount in their respective
tax returns for the previous calendar year.
2. Swiss Re Life & Health and the Company represent and warrant that they are
subject to U.S. taxation under Subchapter L of Chapter 1 of the Internal Revenue
Code.
ARTICLE XVI
PARTIES TO AGREEMENT
1. This Agreement is an indemnity reinsurance agreement solely between the
Company and Swiss Re Life & Health. The acceptance of reinsurance hereunder
shall not create any right or legal relation whatever between Swiss Re Life &
Health and the annuitant, owner, beneficiary or any other party under any
contracts of the Company which may be reinsured hereunder, and the Company shall
be and remain solely liable to such parties under such contracts reinsured
hereunder.
2. This Agreement shall be binding upon the parties hereto and their
respective successors and assigns.
ARTICLE XVII
CONFIDENTIALITY
1. All matters with respect to this Agreement require the utmost good faith
of both parties. Both the Company and Swiss Re Life & Health shall hold
confidential and not disclose or make competitive use of any shared proprietary
information unless otherwise agreed to in writing, or unless the information
otherwise becomes publicly available or the disclosure of which is required for
retrocession purposes or has been mandated by law or is duly required by
external auditors.
ARTICLE XVIII
ENTIRE AGREEMENT
1. This Agreement shall constitute the entire agreement between the parties
with respect to business reinsured hereunder. There are no understandings
between the parties other than as expressed in this Agreement and any change or
modification of this Agreement shall be null and void unless made by amendment
to the Agreement and signed by both parties.
ARTICLE XIX
DURATION OF AGREEMENT
1. This Agreement shall be unlimited as to its duration but may be reduced or
terminated as provided in this Article, below.
2. This Agreement shall be open for new business for a minimum of three (3)
years as measured from the effective date of this agreement. Any time on or
after the third anniversary of this Agreement and upon 180 days written notice,
either the Company or Swiss Re Life & Health may either cancel this Agreement
for new business unilaterally or amend the terms of reinsurance for new business
by mutual agreement.
3. Any time on or after the fifteenth anniversary of this Agreement, the
Company may, upon 90 days written notice, irrevocably elect to cancel the
reinsurance in force under this Agreement, provided the loss carryforward,
calculated as described in Exhibit C of this Agreement, is non-negative. Upon
election, the reinsurance shall be recaptured at a constant rate by reducing the
quota share percentage set forth in Article I, paragraph 1, by 1.39% per month.
The reduction shall begin in the month of election and continue for 36
consecutive months. The quota share percentage will then be equal to 0% and the
reinsurance ceded hereunder will be fully recaptured and this Agreement will
then be terminated.
4. Under the provisions set forth in Article I, Paragraph 6, any recapture
that is occasioned by Swiss Re Life & Health's declination of reinsurance of a
specific RIA's fund(s), shall occur within 90 days of Swiss Re Life & Health's
notice of decline made to the Company. Upon receipt of said notification, the
Company shall promptly notify Swiss Re Life & Health of the effective date,
occurring within the 90 day time period, that recapture will effected. Such
recapture shall be in full and permanent as of the effective date.
5. Should the Company fail to pay reinsurance premiums when due, Swiss Re
Life & Health may act to suspend the reinsurance coverage hereunder. Such
suspension shall not occur before reinsurance premiums are 90 days or more in
arrears, and shall only take effect upon the expiration of a 30-day notice
period that Swiss Re Life & Health must give the Company. The reinsurance
coverage will be reinstated at the option of Swiss Re Life & Health upon receipt
of all the overdue premiums. However, Swiss Re Life & Health shall have no
liability for claims that occur during a period of suspension. Also, suspension
of reinsurance coverage shall not relieve the Company of liability for premiums
due Swiss Re Life & Health during the period of non-payment prior to suspension
and shall not relieve Swiss Re Life & Health of liability for claims during the
same period.
6. The Company may cancel this Agreement for new business and cancel the
inforce reinsurance previously ceded under this Agreement upon the occurrence of
either of the following events:
(a) The statutory capital and surplus of Swiss Re Life & Health falls
below the NAIC Authorized Control Level Risk Based Capital; or
(b) The Company loses reserve credit in a jurisdiction in which it was
licensed on the effective date of this Agreement and the Company and
Swiss Re Life & Health have not been able to correct the loss of
reserve credit within 90 days after receiving notice of the loss.
ARTICLE XX
SEVERABILITY
1. If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not affect or impair the validity or the
enforceability of the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the Company and Swiss Re Life & Health have caused their
names to be subscribed and duly attested hereunder by their respective
Authorized Officers.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: ▇▇▇▇▇▇ ▇▇▇▇▇ Attest: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------- ----------------------------
Title: VP Product & Market Development Title: Asst. VP and Assoc. Actuary
-------------------------------- ----------------------------
Date: 11-30-98 Date: 11-30-98
-------------------------------- ----------------------------
SWISS RE LIFE & HEALTH AMERICA INC.
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Attest: ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------- ----------------------------
Title: Actuary Title: Reinsurance Services Officer
-------------------------------- ----------------------------
Date: 12/2/98 Date: 12/2/98
-------------------------------- ----------------------------
EXHIBIT A
Variable Annuities Covered Under This Agreement
I. Contract Data
Product Name Registered Investment Advisors Product
Policy Form Number V6026
Endorsement Number 6842A (Individual Retirement Annuity Endorsement
II. Issue Dates Covered
Issue Dates on or after the later of the 1st day of September, 1998, and
the first date of issue of a variable annuity contract reinsured
hereunder.
III. Guaranteed Death Benefit Design
Return of Premium reduced proportionately for partial withdrawals.
Applies to issue ages 75 or less (Joint policies, issue age determined
by age of oldest contract owner or annuitant).
EXHIBIT B
Risk Classification Guidelines for Investment Offerings
Each underlying mutual fund of a Sub-account (each "Fund") will be categorized
according to one of the following risk classifications:
Conservative
Moderate
Aggressive
Conservative risk Funds are those that exhibit minimal volatility under normal
market conditions. The Fund is often seeking current income consistent with
capital preservation. Capital appreciation is of a secondary concern. The Fund
may seek current income by investing in income producing equities, debt
instruments, or mutual funds. Moderate risk Funds are those that exhibit
moderate volatility under normal market conditions. The primary focus of the
Fund is often to provide capital appreciation rather than current income. The
capital appreciation focus is often accomplished through the investment in
equity securities or equity mutual funds. However, other securities or mutual
funds may be used to provide stability and diversification. Aggressive risk
Funds are those that have the potential for high volatility even under normal
market conditions. The objective of the Fund will often be to seek rapid growth
in capital. This may be achieved by investing in securities (equities and debt
securities) of, or mutual funds invested in, emerging markets. This may include
investment techniques such as heavy sector concentrations, leveraging and
short-selling.
Guidelines for maximum percentages of investments in equity securities traded on
an exchange, equity mutual funds, bonds and bond mutual funds, and cash
instruments or money market mutual funds for each risk category are outlined
below:
Conservative Moderate Aggressive
MAX MAX MAX
Equity 60% 80% 100%
Bond 60% 40% 20%
Cash 40% 30% 20%
Guidelines for maximum percentages of investments in large-cap securities or
large-cap mutual funds, small and mid-cap securities or small and mid-cap mutual
funds, and international securities, bonds or equities or international funds,
are outlined below as a percent of total investments in equity funds (Mutual
Funds will be categorized using the Morningstar Style Box Classification):
Conservative Moderate Aggressive
MAX MAX MAX
Large-Cap 60% 70% 100%
Small and Mid-Cap 60% 70% 75%
International 30% 40% 50%
The above percentages are only guidelines to be used in the classification of
Funds. Other securities than those listed in the above guidelines may be held by
the Fund. These other holdings will be evaluated based on their description as
provided in the fund prospectus as made effective by the SEC. Final
classifications of the Funds will be made based on the risk characteristics of
the investment objective and potential holdings of the Fund as described in its
current prospectus. Classifications will be reviewed if there is a change in the
investment objective or securities made available to the Fund as the same are
approved by the Fund's board of directors and reflected in the Fund's current
prospectus. After approval and classification made by the Company and Swiss Re
Life & Health, the classification of a given Fund will remain unchanged as long
as the then current Fund prospectus remains unchanged and effective with the
SEC.
EXHIBIT C
Loss Carryforward
Definitions and Formulae
t = current month
q = current quarter
(SIGMA)AVt = Sum total of Swiss Re Life & Health's quota share
percentage of account values at end of month t
Avg. AVt = 50% of ((SIGMA)AV t-1 + (SIGMA)AVt)
(SIGMA)GMDBt = Sum total of Swiss Re Life & Health's quota share
percentage of guaranteed minimum death benefits at
end of month t
Avg. GMDBt = 50% of ((SIGMA)GMDBt-1 + (SIGMA)GMDBt)
APR = annualized premium rate for each product combination
MPR = Monthly premium rate for each product combination
= (APR / 12)
RPt = Reinsurance premiums due at end of month t
DBRt = Death benefit recoveries in month t
= Sum of individual reinsured variable net risk amounts
reimbursed upon death
DBRo = 0
MECt = Monthly expense charge for month t, applied to average
aggregate account value over the month
= (2.0 basis points / 12) x Avg. AVt
MECo = 0
CFWDt = Carryforward from month (t-1), adjusted for interest
= [AdjPt-1 x (1+CIRt)]
CFWD1 = 0
CIRt = Carryforward interest rate for month t
= (Avg. 90-Day U.S. Treasury ▇▇▇▇ rate for month
t + 2.0%) / 12
AdjPt = Adjusted profit for all products reinsured hereunder for
month t
= RPt-DBRt-MECt+CFWDt
AdjPo = 0
AdjPy = Adjusted profit for calendar year y
Note: This Loss Carryforward methodology will be applied to all
classes of risks reinsured under this agreement as though they
were one class.
EXHIBIT D
YRT RATES PER $1.OO OF RISK
1988 US LIFE TABLE
---------------------------- ------------------------------
Age Male Female Age Male Female
---------------------------- ------------------------------
Qx qx qx qx
---------------------------- ------------------------------
0 0.00955 0.00747 49 0.00532 0.00294
---------------------------- ------------------------------
1 0.00074 0.00055 50 0.00574 0.00326
---------------------------- ------------------------------
2 0.00054 0.00042 51 0.00633 0.00360
---------------------------- ------------------------------
3 0.00040 0.00034 52 0.00700 0.00399
---------------------------- ------------------------------
4 0.00033 0.00027 53 0.00777 0.00440
---------------------------- ------------------------------
5 0.00029 0.00023 54 0.00864 0.00487
---------------------------- ------------------------------
6 0.00028 0.00021 55 0.00957 0.00536
---------------------------- ------------------------------
7 0.00026 0.00018 56 0.01057 0.00591
---------------------------- ------------------------------
8 0.00023 0.00016 57 0.01168 0.00650
---------------------------- ------------------------------
9 0.00020 0.00014 58 0.01289 0.00715
---------------------------- ------------------------------
10 0.00017 0.00013 59 0.01421 0.00786
---------------------------- ------------------------------
11 0.00018 0.00013 60 0.01565 0.00864
---------------------------- ------------------------------
12 0.00024 0.00015 61 0.01717 0.00946
---------------------------- ------------------------------
13 0.00041 0.00021 62 0.01872 0.01032
---------------------------- ------------------------------
14 0.00061 0.00029 63 0.02030 0.01122
---------------------------- ------------------------------
15 0.00085 0.00037 64 0.02191 0.01216
---------------------------- ------------------------------
16 0.00107 0.00047 65 0.02359 0.01317
---------------------------- ------------------------------
17 0.00125 0.00052 66 0.02546 0.01428
---------------------------- ------------------------------
18 0.00136 0.00054 67 0.02761 0.01556
---------------------------- ------------------------------
19 0.00144 0.00053 68 0.03018 0.01703
---------------------------- ------------------------------
20 0.00150 0.00051 69 0.03311 0.01870
---------------------------- ------------------------------
21 0.00157 0.00050 70 0.03633 0.02054
---------------------------- ------------------------------
22 0.00162 0.00049 71 0.03973 0.02253
---------------------------- ------------------------------
23 0.00162 0.00050 72 0.04335 0.02468
---------------------------- ------------------------------
24 0.00160 0.00051 73 0.04722 0.02698
---------------------------- ------------------------------
25 0.00156 0.00052 74 0.05134 0.02947
---------------------------- ------------------------------
26 0.00154 0.00054 75 0.05601 0.03223
---------------------------- ------------------------------
27 0.00154 0.00055 76 0.06048 0.03534
---------------------------- ------------------------------
28 0.00156 0.00057 77 0.06604 0.03886
---------------------------- ------------------------------
29 0.00163 0.00059 78 0.07197 0.04289
---------------------------- ------------------------------
30 0.00169 0.00061 79 0.07855 0.04754
---------------------------- ------------------------------
31 0.00176 0.00064 80 0.08587 0.05288
---------------------------- ------------------------------
32 0.00182 0.00067 81 0.09399 0.05908
---------------------------- ------------------------------
33 0.00190 0.00071 82 0.10306 0.06635
---------------------------- ------------------------------
34 0.00196 0.00077 83 0.11316 0.07495
---------------------------- ------------------------------
35 0.00205 0.00082 84 0.12444 0.08531
---------------------------- ------------------------------
36 0.00215 0.00089 85 0.13685 0.09710
---------------------------- ------------------------------
37 0.00226 0.00095 86 0.15050 0.11053
---------------------------- ------------------------------
38 0.00236 0.00104 87 0.16551 0.12581
---------------------------- ------------------------------
39 0.00247 0.00112 88 0.18201 0.14320
---------------------------- ------------------------------
40 0.00260 0.00121 89 0.20016 0.16299
---------------------------- ------------------------------
41 0.00276 0.00132 90 0.22012 0.18553
---------------------------- ------------------------------
42 0.00294 0.00145 91 0.24207 0.21117
---------------------------- ------------------------------
43 0.00315 0.00160 92 0.26621 0.24036
---------------------------- ------------------------------
44 0.00338 0.00176 93 0.29276 0.27359
---------------------------- ------------------------------
45 0.00365 0.00195 94 0.32196 0.31141
---------------------------- ------------------------------
46 0.00397 0.00216 95 0.35406 0.35446
---------------------------- ------------------------------
47 0.00432 0.00239 96 0.38938 0.40346
---------------------------- ------------------------------
48 0.00463 0.00266 97 0.42820 0.45923
---------------------------- ------------------------------
AMENDMENT NO. 1
To the Automatic Reinsurance Agreement
Between the
SECURITY BENEFIT LIFE INSURANCE COMPANY
And
SWISS RE LIFE & HEALTH AMERICA INC.
Except as hereinafter specified, all terms and conditions of the Automatic
Reinsurance Agreement effective on and after the later of the 1st day of
September, 1998, and the first date of issue of a variable annuity contract
reinsured thereunder, amendments and addenda attached thereto, shall apply, and
this Amendment is to be attached to and made a part of the aforesaid Agreement.
It is mutually agreed that effective the 1st day of September, 1998, Exhibit B-1
is hereby added to this Agreement to document the risk classifications of the
Advisor's Fund Series, as attached.
IN WITNESS WHEREOF, the Company and Swiss Re Life & Health have caused their
names to be subscribed and duly attested hereunder by their respective
Authorized Officers.
SECURITY BENEFIT LIFE INSURANCE COMPANY
By: Attest:
---------------------------- --------------------------------
Title: Title:
------------------------- ---------------------------------
Date: Date:
-------------------------- ----------------------------------
SWISS RE LIFE & HEALTH AMERICA INC.
By: Attest:
---------------------------- --------------------------------
Title: Title:
------------------------- ---------------------------------
Date: Date:
-------------------------- ---------------------------------
EXHIBIT B-1
Risk Classification of the Advisor's Fund Series
FUND CLASSIFICATION
PCG Growth Series Aggressive
PCG Aggressive Growth Series Aggressive
SIM Growth Series Aggressive
SIM Conservative Growth Series Conservative