Amendment No. 6 to Automatic Flexible Premium Variable Life Reinsurance Agreement No. 2 between Western Reserve Life Assurance Co. of Ohio and Global Preferred Re Limited

Summary

This amendment updates the reinsurance agreement between Western Reserve Life Assurance Co. of Ohio and Global Preferred Re Limited, effective July 1, 2001. It revises terms regarding covered policies, reinsurance reserves, expense liability, cancellation procedures, and the parties authorized to sell the policies. The amendment also adjusts quota share percentages and provides options for the reinsurer to convert or effect reinsurance on certain policies, subject to specific financial conditions and timeframes. The agreement ensures both parties' obligations and rights are clearly defined for the reinsurance of variable life insurance products.

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EX-10.35 5 g74145a3ex10-35.txt AMENDMENT TO AUTOMATIC FLEXIBLE LIFE REINSUREANCE EXHIBIT 10.35 CONFIDENTIAL TREATMENT* *CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS AND "+" HAVE BEEN USED TO IDENTIFY INFORMATION WHICH IS SUBJECT TO A CONFIDENTIAL REQUEST. AMENDMENT NUMBER 6 TO THE AUTOMATIC FLEXIBLE PREMIUM VARIABLE LIFE REINSURANCE AGREEMENT NUMBER 2 (REFERRED TO AS THE AGREEMENT) BETWEEN WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO ST. PETERSBURG, FLORIDA (REFERRED TO AS THE REINSURED) and GLOBAL PREFERRED RE LIMITED (F/K/A WMA LIFE INSURANCE COMPANY LIMITED) HAMILTON, BERMUDA (REFERRED TO AS THE REINSURER) Effective July 1, 2001 I. Article I, Basis of Reinsurance, Paragraph 3, is replaced by the following: 3. Coverages. The individual Reinsured Plans reinsured as shown in Schedule A, are the Financial Freedom Builder and Freedom Elite Builder contracts and any riders, supplemental benefits or endorsements attached thereto, with an issue date after March 31, 1998. Reinsurance will be limited in percentage as provided in Schedule B1, as amended. Only plans sold by a Producer registered with an affiliated broker-dealer identified in Exhibit A shall be reinsured under this Agreement II. Article XI, Reinsurance Reserves, Paragraph 6, is replaced by the following: 6. The Letter(s) of Credit in favor of the Reinsured will be an amount which at all times must equal or exceed the reinsurance credits, net of policy loans, taken or reasonably estimated to be taken by the Reinsured in connection with this Agreement under Exhibit 8, and under Exhibit 11, Part 1, Column 3, Line 4c, and any other liabilities held for the Reinsured Policies and reported on the Reinsured's statutory financial statements. Subject to the approval of the State of Ohio Department of Insurance, the amount of the Letter of Credit may be reduced by the quota share percentage of the excess of the Separate Account Value over the Separate Account Statutory Reserve. Should the reinsurance credit not be allowed, as a result of this reduction in any applicable jurisdiction, the Letter of Credit will be restored to the value that it would have been without this reduction. III. Article XIII, General Provisions, Paragraph 3, is replaced by the following: 3. Expenses. The Reinsurer will have liability equal to the quota share percentage of any extra-contractual damages which are rendered against the Reinsured as a result of acts, commission or course of conduct committed by a Producer of World Marketing Alliance, Inc. or its affiliates, in connection with the Reinsured Plans. The Reinsurer will receive the quota share percentage of any reimbursement that the Reinsured collects from World Marketing Alliance, Inc. or its affiliates. In no event whatsoever will the Reinsured have any liability for extra-contractual damages assessed against the Reinsurer as a result of acts, omissions, or course of conduct committed by the Reinsurer in connection with the reinsurance of the Reinsured Plans under this Agreement. IV. Article XX, DURATION OF AGREEMENT, Paragraph 3, is replaced by the following: 3. After the initial term of this Agreement, this Agreement may also be canceled by either party, as it pertains to the reinsurance of new: (i) Financial Freedom Builder policies and riders thereafter, by giving three hundred sixty-five (365) days advance notice of cancellation in writing. In such case, the Reinsured shall continue to cede, and the Reinsurer shall continue to accept reinsurance, under this Agreement on new Financial Freedom Builder policies and riders issued during the three hundred sixty-five (365) day period, and the interest of the Reinsurer in new Financial Freedom Builder policies and rider business shall cease at the end of the three hundred sixty-five (365) day period. (ii) Freedom Elite Builder policies and riders thereafter, by giving one hundred eighty (180) days advance notice of cancellation in writing before the initial term of the agreement or subsequent termination date. If neither party provides notice of cancellation, the Reinsured shall continue to cede, and the Reinsurer shall continue to accept reinsurance, under this Agreement on new Freedom Elite Builder policies and riders, on a year-to-year basis after the expiration of the initial term of this agreement. V. Exhibit A, PRODUCER, is replaced by the following: Flexible Premium Variable Life policies, applicable riders, and endorsements must be sold by and distributed through: - WMA Securities, Inc. (and/or its successors) and its affiliates - World Financial Group, Inc. (and/or its successors) - World Group Securities, Inc. (and/or its successors) VI. Schedule A, BUSINESS REINSURED, is amended to include the attached "Schedule A1, BUSINESS REINSURED - Freedom Elite Builder Policies & Riders". VII. Schedule B1, AMOUNT OF REINSURANCE, is replaced by the following: 1. The Quota Share Percentage for Policy Issue Dates from: - March 1, 1998 through December 31, 1998, shall be 20%, and - January 1, 1999 through July 1, 2001, shall be 0%. 2. At any time, on or after July 1, 2001 and before April 1, 2003, the Reinsurer shall have the option (provided the Reinsurer demonstrates sufficient capacity) to convert the reinsurance on all policies and riders reinsured under the Automatic Flexible Premium Variable Life Reinsurance Agreement Number 3 ("FFB MRT Agreement"), issued from January 1, 1999 to the date the Reinsurer elects to convert the reinsurance on the policies and riders, to the Agreement. The Reinsurer shall demonstrate its capacity by showing the Reinsured that its unassigned invested securities, together with anticipated cash flows (including retrocession facilities), will be sufficient to meet expected reinsurance settlements, with regard to the converted reinsurance on the policies and riders, for a period of not less than twenty-four months following the date the Reinsurer elects to convert the reinsurance of the policies and riders from the FFB MRT Agreement to the Agreement. Upon election to convert the reinsurance on the policies and riders, the initial ceding allowance payable to the Reinsured shall equal (a) less (b), where: (a) equals settlements that would have otherwise occurred under the Agreement, had the policies and riders been reinsured under the Agreement from the policy issue date to the date the Reinsurer elects to convert the reinsurance on the policies and riders from the FFB MRT Agreement, [+++++++++] and (b) equals all settlements due or paid under the FFB MRT Agreement from the policy issue date to the date the Reinsurer elects to convert the reinsurance on the policies and riders to the Agreement from the FFB MRT Agreement, [+++++++++]. The initial ceding allowance shall be payable within 14 days after the Reinsurer's election to convert the reinsurance of the policies and riders. 3. At any time, on or after July 1, 2001 and before April 1, 2003, the Reinsurer shall have the option (provided the Reinsurer demonstrates sufficient capacity) to effect reinsurance up to a 20% Quota Share on all Freedom Elite Builder policies, as shown in Schedule A and sold by a Producer registered with an affiliated broker-dealer identified in Exhibit A, issued from July 1, 2001 to the date the Reinsurer elects to effect the reinsurance on the policies and riders, to the Agreement, if the previous calendar year's sales produced annual first year collected target premium volume of VUL, issued by the Reinsured and AUSA Life Insurance Company, Inc. and written by Producers registered with an affiliated broker-dealer identified in Exhibit A, in the aggregate, of at least $50 million in 2001 and increasing by 10% each year thereafter. The Reinsurer shall demonstrate its capacity by showing the Reinsured that its unassigned invested securities, together with anticipated cash flows (including retrocession facilities), will be sufficient to meet expected reinsurance settlements, with regard to the effected reinsurance on the policies and riders, for a period of not less than twenty-four months following the date the Reinsurer elects to effect the reinsurance of the policies and riders to the Agreement. The Reinsurer's Quota Share of the Freedom Elite Builder policies shall be net of the Reinsured's quota share cession of mortality risk, if any, to a reinsurer, or reinsurers, other than the Reinsurer. The initial ceding allowance shall include the Reinsured's quota share reinsurance premiums paid to its reinsurer(s), less applicable claims reinsured by such reinsurer(s), multiplied by the Quota Share percentage. Thereafter, expense allowances shall include the Reinsurer's Quota Share percentage of reinsurance premiums paid by the Reinsured to its reinsurer(s) and death claim amounts shall be reduced by the Quota Share percentage of amounts ceded to such reinsurer(s). Upon election to effect the reinsurance on the policies and riders, the initial ceding allowance payable to the Reinsured shall equal settlements that would have otherwise occurred under the Agreement, had the policies and riders been reinsured under the Agreement from the policy issue date to the date the Reinsurer elects to effect the reinsurance on the policies and riders, [+++++++++]. The initial ceding allowance shall be payable within 14 days after the Reinsurer's election to effect the reinsurance of the policies and riders. 4. The Reinsurer agrees to exercise, in unison, its option to: - Convert business reinsured under the FFB MRT Agreement to the Agreement, - Effect reinsurance on the Freedom Elite Builder policies and riders, as shown in Schedule A and sold by a Producer registered with an affiliated broker-dealer identified in Exhibit A, to the Agreement, and - Prospectively increase its quota share on business reinsured under the Automatic Variable Annuity Reinsurance Agreement, subject to the limitations set forth in that Agreement. The Reinsurer shall exercise its options in a manner such that the ratio of (i) to (ii) shall equal the ratio of (iii) to (iv), where: (i) Equals the initial ceding allowance due the Reinsured on business: (a) Converted under the FFB MRT Agreement, and (b) Effected on the Freedom Elite Builder policies and riders to the Agreement (ii) Equals the initial ceding allowance otherwise due the Reinsured if: (a) All eligible in force business were converted under the FFB MRT Agreement, and (b) Reinsurance under the Agreement were effected for all eligible Freedom Elite Builder policies and riders in force. (iii) Equals the initial ceding allowance due the Reinsured on business subject to the quota share increase under the Automatic Variable Annuity Reinsurance Agreement, and (iv) Equals the initial ceding allowance otherwise due the Reinsured if the quota share were increased to the maximum allowable under the Automatic Variable Annuity Reinsurance Agreement on all in force business issued on or after January 1, 1999. For example, assume if on March 31, 2001: - The Reinsurer were to convert all policies reinsured under the FFB MRT Agreement to the Agreement and reinsurance under the Agreement were effected for all Freedom Elite Builder policies and riders in force, the initial ceding allowance would equal $40,000,000, and - The Reinsurer were to increase the quota share on all policies reinsured under the Automatic Variable Annuity Reinsurance Agreement to the maximum otherwise permitted, the initial ceding allowance would equal $20,000,000, and - The total combined initial ceding allowance to paid by the Reinsurer is $30,000,000, then - The Reinsurer would only be permitted to (a) convert policies reinsured under the FFB MRT Agreement to the Agreement and (b) effect reinsurance under the Agreement for all Freedom Elite Builder policies and riders in force, on a last in first out reinsured basis, until the initial ceding allowance equals $20,000,000 (2/3 of the total), and - The Reinsurer would only be permitted to increase the quota-share on policies reinsured under the Automatic Variable Annuity Reinsurance Agreement to the maximum otherwise permitted, on a last in first out reinsured basis, until the initial ceding allowance equals $10,000,000 (1/3 of the total). 5. The Reinsurer and the Reinsured will jointly determine the quota share percentages for the balance of the calendar year in which the Reinsured converts the reinsurance on the policies and riders reinsured under the FFB MRT Agreement to the Agreement. Thereafter, the Reinsurer and the Reinsured will jointly determine the quota share percentages no later than December 1st applicable to new Financial Freedom Builder policy issues in the following calendar year. The determining factors for the quota share percentage are the expected Total Flexible Premium Variable Life First Year Target Premiums Collected by the Reinsured for the calendar year that the quota share percentage will be applicable. This determination of the quota share percentage will be on a mutually acceptable basis, recognizing the good faith nature of this Agreement, and with references to the estimates made by both parties, based on results from prior periods. The Scheduled Quota Share Percentages, on Financial Freedom Builder policies, for each threshold of expected Total Flexible Premium Variable Life First Year Target Premiums Collected by the Reinsured are shown in the following table:
-------------------------------------------------------- TOTAL FLEXIBLE PREMIUM VARIABLE LIFE SCHEDULED FIRST YEAR TARGET QUOTA SHARE PREMIUMS COLLECTED PERCENTAGE BY THE REINSURED (IN MILLIONS) -------------------------------------------------------- $ 50-149 20% -------------------------------------------------------- $150-199 25% -------------------------------------------------------- $200-249 30% -------------------------------------------------------- $250-599 35% -------------------------------------------------------- $ 600+ 40% --------------------------------------------------------
VIII. Schedule B2, COMMISSION AND EXPENSE ALLOWANCES, is amended to include the attached "Schedule B2 - Addendum, COMMISSION AND EXPENSE ALLOWANCES, Freedom Elite Builder Policies & Riders" * * * * * Except as expressed herein, all terms, covenants and provisions of the Agreement, as amended, that are not in conflict with the provisions of this amendment shall remain unaltered and in full force and effect. In witness of the above, the Reinsured and the Reinsurer, by their respective officers have executed this amendment in duplicate at the dates and places indicated and shall be effective as of July 1, 2001. WESTERN RESERVE LIFE ASSURANCE GLOBAL PREFERRED RE LIMITED CO. OF OHIO at St. Petersburg, FL at Duluth, Georgia ------------------------------------ ----------------------------------- on December 31, 2001 on December 31, 2001 ------------------------------------ ----------------------------------- By: /s/ Larry Kirkland By: /s/ Edward F. McKernan ------------------------------------ ---------------------------------- Title: VP and Managing Actuary Title: President and Actuary By: /s/ ILLEGIBLE By: /s/ Daniel W. McLeroy ----------------------------------- ---------------------------------- Attest: Attest: Director, Financial Projects Schedule A1 BUSINESS REINSURED Freedom Elite Builder Policies & Riders
FORM NUMBER DESCRIPTION - ----------- ----------- FORM VL95 WRL FREEDOM ELITE BUILDER ULB2.01.05.84 Accidental Death Benefit Rider Form #ULB2.01.05.84 ULR3.01.05.84 Children's Insurance Rider (Form #ULR3.01.05.84) ULB4.01.03.86 Disability Waiver & Income Rider (Form #ULB4.01.03.86) ULB1.01.05.84 Disability Waiver Rider (Form #ULB1.01.05.84) LB02 Living Benefit Rider (LB02) PIR12 Primary Insured Rider (Form #PIR12) PIR13 Primary Insured Rider Plus (Form #PIR13) WOIR Other Insured Rider (Form #WOIR) VL95AL Alabama State Variation VL95AR Arkansas State Variation VL95CO Colorado State Variation VL95CT Connecticut State Variation VL95FL Florida State Variation VL95GA Georgia State Variation VL95HI Hawaii State Variation VL95ID Idaho State Variation VL95IL Illinois State Variation VL95IN Indiana State Variation VL95ME Maine State Variation VL95MN Minnesota State Variation VL95MO Missouri State Variation VL95NE Nebraska State Variation VL95NV Nevada State Variation VL95NH New Hampshire State Variation VL95NC North Carolina State Variation VL95ND North Dakota State Variation VL95OK Oklahoma State Variation VL95OR Oregon State Variation VL95SC South Carolina State Variation VL95TN Tennessee State Variation VL95TX Texas State Variation VL95UT Utah State Variation VL95VT Vermont State Variation VL95VA Virginia State Variation VL95WA Washington State Variation VL95WV West Virginia State Variation
SCHEDULE B2 - ADDENDUM COMMISSION AND EXPENSE ALLOWANCES FREEDOM ELITE BUILDER POLICIES & RIDERS Due Reinsured Commission and Expense Allowances(*) 1. Issue and Maintenance Expense Allowance 2. Sales and Marketing Premium Expense Allowance 3. Commission Allowance 4. Claim Expense Allowance 5. Target Surplus Allowance 6. DAC Proxy Tax Allowance 7. Mortality risk premiums on quota share cessions (*) All multiplied by the quota share percentage. - --------------------------------------------------------------------------------------------------------------------- 1. Issue and Maintenance Expense Allowances - --------------------------------------------------------------------------------------------------------------------- a. Issue Expense Allowance - $[+++++] base per policy - $[+++++] per rider - $[+++++] per unit, base & rider (unit=$1,000 of specified amount / face amount) - --------------------------------------------------------------------------------------------------------------------- b. Maintenance Expense Allowance - $[+++++] per policy in force at end of each calendar month (all years) - $[+++++] per rider in force at end of each calendar - [+++++] of collected premium. - $[+++++] per premium collection, estimated as $[+++++] per policy in force at end of each calendar month - [+++++] of Separate Account Value in force at the end of each calendar quarter. - --------------------------------------------------------------------------------------------------------------------- c. Exhibit 6 Expense Allowance (Intended to reflect Exhibit 6 type expenses.) - --------------------------------------------------------------------------------------------------------------------- - Exhibit 6 Taxes Paid - [+++++] for 2001, to be reviewed annually. Amount due the Reinsured is the quota share of the amount paid by the Reinsured. - --------------------------------------------------------------------------------------------------------------------- - Other, including guaranteed fund Per the Reinsured Ledger assessments - --------------------------------------------------------------------------------------------------------------------- d. Investment Operations Tax Accrued amount of reserve for any taxes that may result from investment operations of sub-accounts - --------------------------------------------------------------------------------------------------------------------- e. Gains (Losses) All gains/(losses) incurred by Reinsured. - ---------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- 2. Sales and Marketing Premium Expense Allowance - ------------------------------------------------------------------------------------------------------------------------- a. Marketing Expense - X% of collected target premium, where X% is the weighted average of the Total Percent from the following table using the target premium weighted over the Bands 1 through 4: Band Basic Advancing Total Percent 1 [+++] [+++] [+++] 2 [+++] [+++] [+++] 3 [+++] [+++] [+++] 4 [+++] [+++] [+++] - [+++] of collected excess premium - -------------------------------------------------------------------------------------------------------------------------
3. Commission Allowances Actual commissions paid per the Reinsured Ledger. Commission schedules, for information purposes only, are as follows:
---------------------------------------------------------------------------------------------------- TARGET PREMIUM EXCESS PREMIUM ---------------------------------------------------------------------------------------------------- POLICY BANDS BAND BAND BANDS BANDS ASSET YEAR 1 & 2 3 4 1 & 2 3 & 4 TRAIL* ---------------------------------------------------------------------------------------------------- 1 [+++] [+++] [+++] [+++] [+++] [+++] ---------------------------------------------------------------------------------------------------- 2 [+++] [+++] [+++] [+++] [+++] [+++] ---------------------------------------------------------------------------------------------------- 3 [+++] [+++] [+++] [+++] [+++] [+++] ---------------------------------------------------------------------------------------------------- 4 [+++] [+++] [+++] [+++] [+++] [+++] ---------------------------------------------------------------------------------------------------- 5-10 [+++] [+++] [+++] [+++] [+++] [+++] ---------------------------------------------------------------------------------------------------- 11+ [+++] [+++] [+++] [+++] [+++] [+++] ----------------------------------------------------------------------------------------------------
(*) Paid beginning of first anniversary on cash value of policies with a cash value, net of policy loans, of $5,000 or more. - ----------------------------------------------------------------------------------------------------------------- 4. Claim Expense Allowance - ----------------------------------------------------------------------------------------------------------------- a. Death Claim Expense - [++++] per death claim on base policy, OIR and CIR ($0 on PIR) - ----------------------------------------------------------------------------------------------------------------- b. Lapse Termination Expense (CSV=0) - [++++] per lapse - ----------------------------------------------------------------------------------------------------------------- c. Surrender Termination Expense (CSV>0) - [++++] per surrender on base policy - [++++] per surrender on rider - -----------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------- 5. Target Surplus Allowance Currently, [+ + + + +] of Separate Account Value less prior Target Surplus balance accrued at an effective annual interest rate of [+ + + + +] (if positive); if amount is negative, balance is paid to Reinsurer. If the Reinsured's method or percent used in calculating Target Surplus on the Reinsured Plans changes, which results in an immediate change in the Target Surplus balance, the Reinsurer may request a grade in period of no more than five (5) years. - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- 6. DAC Proxy Tax - [+ + + + +] on Premiums and net transfers into Separate Account from Fixed Account. - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- 7. Mortality Risk Premiums Paid to - If applicable, actual mortality risk premiums paid on quota Reinsurer(s) share cessions to reinsurer(s), other than the Reinsurer, per the Reinsured ledger. Mortality risk premium schedules, for information purposes only, are as follows: - ---------------------------------------------------------------------------------------------------------------------