EX-10 2 exhibit1.txt REINSURANCE AGREEMENT Between MEMORIAL INSURANCE COMPANY OF AMERICA and SECURITY NATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS ARTICLES I. GENERAL PROVISIONS................................................ 1 II. DURATION OF RISK.................................................. 3 III. PREMIUMS AND CONSIDERATIONS....................................... 4 IV. BENEFIT PAYMENTS.................................................. 4 V. ACCOUNTING AND SETTLEMENTS........................................ 5 VI. ARBITRATION....................................................... 6 VII. INSOLVENCY........................................................ 6 VIII. DAC TAX PROVISION................................................. 7 IX. MISCELLANEOUS PROVISIONS.......................................... 8 X. EXECUTION AND EFFECTIVE DATE...................................... 9 SCHEDULES A. POLICIES AND RISKS REINSURED B. REINSURANCE PREMIUMS C. COMMISSION AND EXPENSE ALLOWANCE D. MONTHLY REPORT OF ACTIVITY AND SETTLEMENTS EXHIBITS 1. TRUST AGREEMENT
REINSURANCE AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into, effective this 29th day of December, 2005, by and between MEMORIAL INSURANCE COMPANY OF AMERICA, an Arkansas domiciled insurance company (hereinafter referred to as the "Company") and SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled insurance company (hereinafter referred to as the "Reinsurer"). The Company and the Reinsurer mutually agree to reinsure on the terms and conditions stated herein. This Agreement is an indemnity reinsurance agreement solely between the Company and the Reinsurer, and performance of the obligations of each party under this Agreement shall be rendered solely to the other party. ARTICLE I GENERAL PROVISIONS 1. Contracts and Risks Reinsured. The Reinsurer agrees to indemnify and the Company agrees to transfer risk to the Reinsurer, according to the terms and conditions hereof, the risks described in Schedule A hereto, which are in force on the effective date (the "Effective Date") of this Agreement; subject, however, to the same rights, offsets, counterclaims, cross claims and defenses as are available to the Company. The Reinsurer agrees to assume all of the risk relating to the policies transferred hereunder on the Effective Date and any new business written after the Effective Date, except for certain policies to be retained by the Company. No such offsets, counterclaims, cross claims or defenses are waived but the same are expressly preserved, and Reinsurer is and shall be fully subrogated thereto, either in its own name or in the name of the Company, and whether the name be now known to exist or may hereafter be discovered. 2. Coverages and Exclusions. Only risks under the life insurance policies referred to in Schedule A are reinsured under this Agreement. 3. Plan of Reinsurance. This indemnity reinsurance shall be on the coinsurance plan. The Company and the Reinsurer shall establish, maintain, and place all assets held in relation to the reserves in trust in accordance with the terms of a certain Trust Agreement, a copy of which is attached hereto as Exhibit _1_ and by this reference is made a part hereof. The assets are to be accounted for using statutory accounting principles of the state of Arkansas. On the Effective Date of this Agreement, the assets to be transferred into the trust pursuant to the Trust Agreement shall be equal to the amount of reserves transferred thereunto. 4. Reserves. The word reserves, whenever used, shall mean the statutory reserves held by the Company, or as should be held by the Company, on its NAIC Convention Blank, with respect to the policies reinsured hereunder. The Company certifies, to the best of its knowledge and belief, the actuarial accuracy of the reserves based upon the appropriate mortality table, interest assumptions, and method of calculation relating to each of the policies reinsured hereunder, and the accuracy of the outstanding balances of the policy loans, dividend deposits and coupon deposits, if any, applicable to each of the policies reinsured hereunder; provided, however, that in the event of a breach of these policies or the discovery by the Company or the Reinsurer of an error in calculation or actuarial inaccuracies, any such breach or error may be cured by the Company or the Reinsurer making a cash payment to the other, as the case may be, of the amount of any such error in calculation or actuarial inaccuracy. 5. Extracontractual Damages. In no event shall the Reinsurer indemnify nor be liable for any extracontractual damages or liability of any kind whatsoever resulting from, but not limited to, the Company's negligent, reckless or intentional wrongs, fraud, oppression, bad faith or strict liability. The Reinsurer shall indemnify the Company for any extracontractual damages or liability of any kind whatsoever resulting from but not limited to, the Reinsurer's or its agents' neglect, reckless or intentional wrong, fraud, oppression, bad faith or strict liability. The following liabilities are examples of liabilities that would be considered extracontractual: compensatory damages, damages for emotional distress, and punitive or exemplary damages. 6. Contract Administration. The Reinsurer shall administer the contracts reinsured hereunder and shall perform all accounting and other administrative functions. The Company shall make the use of its name available in such administration and shall otherwise make available all records and other material needed in such administration. 7. Inspection. At any reasonable time, the Reinsurer may inspect, during normal business hours at the principal office of the Company, the papers and any other books or documents of the Company relating to reinsurance under this Agreement. At any reasonable time, the Company may inspect, during normal business hours at the principal office of the Reinsurer, the papers and any and all other books or documents of the Reinsurer relating to reinsurance under this Agreement. Neither the Company nor the Reinsurer will use any information obtained through any inspection pursuant to this section for purposes not relating to reinsurance under this Agreement. 8. Taxes. The allowance, if any, for any premium taxes paid in connection with the contracts reinsured hereunder shall be granted as part of the commission and expense allowance as defined in Article V below. 9. Condition. The reinsurance hereunder is subject to the same limitations and conditions as the contracts written by the Company that are reinsured hereunder, except as otherwise provided in this Agreement. 10. Misunderstandings and Oversights. If any failure to pay amounts due or to perform any other act required by this Agreement is unintentional and caused by misunderstanding and oversight, the Company and the Reinsurer will adjust the situation to what it would have been had the misunderstanding or oversight not occurred. 11. Age Adjustment. If the Company's liability under any of the contracts reinsured under this Agreement is changed because of a misstatement of age, the Reinsurer will share in the change proportionately to the amount reinsured hereunder, and the Company and the Reinsurer will make any and all proportional adjustments thereunto. 12. Reinstatements. If a contract reinsured hereunder that was reduced, terminated, or lapsed, and is subsequently reinstated, the reinsurance for such contract under this Agreement will be reinstated automatically to the amount that would be in force if the contract had not been reduced, terminated, or lapsed. The Company will pay to the Reinsurer the Reinsurer's proportionate share of all amounts collected from, or charged to, the insured. 13. Amendments. This Agreement shall be amended only by written agreement of the parties. 14. Policies, Contracts. The words policy or policies, and contract or contracts as used herein shall have the same meaning. 15. Policyholder Information. The Company shall not sell, distribute or in any way use the policyholder information on contracts reinsured hereunder without the prior approval of the Reinsurer, except for purposes of executing its duties under this Agreement. 16. Reinsurance With Other Companies. Existing reinsurance with other insurance companies on the policies specified in Schedule A shall be retained by the Company, except as agreed upon in writing by the Reinsurer and the Company. Any amounts paid to other reinsurance companies shall be fully reimbursed by the Reinsurer. Any amounts received by the Company from other insurance companies will be paid to the Reinsurer. ARTICLE II DURATION OF RISK 1. Duration. Except as otherwise provided herein, this Agreement shall be unlimited in duration, and the Company and the Reinsurer shall have no right to terminate it. 2. Reinsurer's Liability. The liability of the Reinsurer with respect to any contract reinsured hereunder will begin simultaneously with that of the Company, but not prior to the Effective Date of this Agreement. The Reinsurer's liability with respect to any contract reinsured hereunder will terminate with that of the Company on the date the Company's liability on such contract is terminated. 3. Recapture. Contracts reinsured under this Agreement are not eligible for recapture, unless the Reinsurer becomes insolvent or is placed in receivership or ceases to exist as a life insurance company. 4. Contract Changes. The Company will not make any contract changes in any policies reinsured hereunder except as required by law or as mutually agreed to by the Company and the Reinsurer. See Schedule C in reference to increases in coverage amounts. ARTICLE III PREMIUM AND CONSIDERATIONS 1. Net Reserves. On the Effective Date of this Agreement, the Company agrees to transfer into the trust pursuant to the Trust Agreement as a reserve transfer an amount equal to the net reserves on the Effective Date of this Agreement with respect to the liabilities reinsured as of such date and described in Schedule A, less the ceding allowance. Net reserves are calculated as statutory reserves minus net due and deferred premiums minus policy loans, plus advance premiums. 2. Ceding Allowance. On the Effective Date of this Agreement, the Reinsurer agrees to pay the Company a ceding allowance equal to ten dollars ($10.00). 3. Reinsurance Premiums. The Company agrees to pay the Reinsurer reinsurance premiums in accordance with Schedule B. For each contract, the amount of reinsurance premium will be the amount which corresponds to the portion of the contract reinsured. The Company makes no representations or warranties with respect to future lapses and surrenders of the contracts reinsured. ARTICLE IV BENEFIT PAYMENTS 1. Notice. The Reinsurer will notify the Company promptly after receipt of any information as to a claim on a policy to the extent reinsured hereunder. The reinsurance claim form and any copies of notifications, claim papers and proofs will be furnished to the Company as soon as possible. 2. Liability and Payment. The Company will accept the decision of the Reinsurer on payment of a claim or surrender on a policy reinsured hereunder. The Reinsurer agrees to utilize to the extent possible the claims practices of the Company. The Reinsurer will pay such claim based upon the form of claim settlement determined. In no instance shall anyone other than the Company or the Reinsurer have any rights under this Agreement, and the Company shall be and remain solely liable to any insured, policyowner, or beneficiary under any policy reinsured hereunder. 3. Contract Claims. The Company will not contest, compromise or litigate a claim involving a policy reinsured hereunder without the prior approval of the Reinsurer. The Reinsurer will pay to the Company any litigation or investigative expenses incurred on contested claims. ARTICLE V ACCOUNTING AND SETTLEMENT 1. Agreement Accounting Period. This Agreement shall be on a monthly accounting period for all accounting settlements. 2. Monthly Accounting Reports. Accounting reports shall be submitted to the Reinsurer by the Company and by the Reinsurer to the Company, not later than 15 business days after the end of each calendar month. Such reports shall include information on the amount of reinsurance premiums, policy loans and policy loan interest, the commission and expense allowance, claims, and reserves on the contract reinsured for the preceding calendar month. 3. Monthly Accounting Period. The monthly accounting shall be on a calendar-month basis, except that the initial monthly accounting period shall run from the Effective Date of this Agreement, after the initial accounting has occurred, through the last day of the calendar month in which the Effective Date of this Agreement falls. The final monthly accounting period shall run from the end of the preceding calendar month until the termination of this Agreement but prior to actual termination of this Agreement. 4. Monthly Settlements. (a) Within 15 business days after the end of each calendar month, the Company will pay the Reinsurer the sum of: (i) the reinsurance premiums for the preceding month, determined in accordance with Article III, plus (ii) the policy loan repayments and policy loan interest paid in the preceding month, plus (iii) any amounts received from other reinsurance companies. (b) Simultaneously, the Reinsurer will pay the Company the sum of: (i) the amount of benefits paid during the preceding month on the policies reinsured hereunder, plus (ii) the commission and expense allowance determined in accordance with Schedule C, plus (iii) new policy loans paid to policyholders in the preceding calendar month, plus (iv) any amounts paid to other reinsurance companies. 5. Amounts Due Monthly. Except as otherwise specifically provided in this Agreement, all amounts due to be paid to either the Company or the Reinsurer under this Agreement on a monthly basis shall be determined on a net basis as of the last day of each calendar month and shall be due and payable as of such date. 6. Estimations. If the amounts, as defined in Paragraph 4 above, cannot be determined at such dates, as defined in Paragraph 5 above, on an exact basis, such payments will be paid in accordance with a mutually agreeable formula that will approximate the actual payments. 7. Offset of Payments. All monies due to either the Company or the Reinsurer under this Agreement may be offset against each other, dollar for dollar, regardless of the insolvency of either party. 8. Accounting Reports. Annual reports shall be submitted to the Company by the Reinsurer not later than 20 business days after the end of each calendar year. Such reports shall include information for the analysis of increase in reserves and the exhibit of life insurance of the NAIC Convention Blank based on the contracts reinsured hereunder. Quarterly accounting reports shall be submitted to the Reinsurer by the Company not later than 20 business days after the end of each calendar quarter and shall include information for pages 2, 3, 4, and 5 of the NAIC Quarterly Blank. ARTICLE VI ARBITRATION 1. General. All disputes and differences between the Company and the Reinsurer on which an agreement cannot be reached will be decided by arbitration. The arbitrators will regard this Agreement from the standpoint of practical business and equitable principles rather than that of strict law. 2. Method. Three arbitrators will decide any differences. They must be officers of life insurance companies other than the two parties to this Agreement or any Company owned by, or affiliated with, either party. One of the arbitrators is to be appointed by the Reinsurer, another by the Company, and they shall select a third before arbitration begins. Should one of the two parties decline to appoint an arbitrator or should the two arbitrators not be able to agree upon the choice of a third arbitrator, the appointment(s) shall be left to the President of the American Council of Life Insurance or its successors. The arbitrators are not bound by any rules of evidence. They shall decide by a majority of votes and their decision will be final and binding. The cost of arbitration, including the fees of the arbitrators, shall be shared equally by the parties unless the arbitrators decide otherwise. ARTICLE VII INSOLVENCY 1. General. In the event of the Company's insolvency, liquidation, entry into rehabilitation, change of control, bankruptcy, or other significant adverse financial event, this Agreement will be deemed to convert, pending approval by the Arkansas Insurance Department but without any action on the part of any party, to an assumption reinsurance agreement as of the day prior to such insolvency, change of control, or other adverse event. Following such conversion, the Reinsurer is hereby empowered without any need of action on the part of the Company, to take all other steps necessary for such conversion including the issuance of assumption certificates. Notwithstanding the forgoing, the Reinsurer may elect not to have such automatic conversion occur. In the event the Reinsurer elects not to have such automatic conversion to assumption reinsurance, then the Reinsurer's contractual liability on contracts reinsured hereunder shall continue to be determined by all the terms, conditions and limitations under this Agreement, but the Reinsurer will make settlement (i) directly to the Company's liquidator, receiver or statutory successor, and (ii) without increase or diminution because of the Company's insolvency. The liquidator, receiver or statutory successor of the Company shall give the Reinsurer written notice of the pendency of a claim against the Company on any contract reinsured within reasonable time after such claim is filed in the insolvency proceeding. During the pendency of any such claim, the Reinsurer shall investigate such claim and interpose in the Company's name (or in the name of the Company's liquidator, receiver or statutory successor) in the proceeding where such claim is to be adjudicated, any defense or defenses that the Reinsurer may deem available to the Company or its liquidator, receiver or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to court approval, against the Company as a part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. In the event of the Reinsurer's insolvency, liquidation, entry into rehabilitation, change of control, bankruptcy, or other significant adverse financial event, the assets and liabilities held by the trustee pursuant to the Trust Agreement shall be held for purposes of administration of such assets and liabilities with respect to such insolvency. ARTICLE VIII DAC TAX PROVISION 1. The Company and Reinsurer hereby agree to abide by Section 1.848-2(g)(8) of the Income Tax Regulations under Section 848 of the Internal Revenue Code of 1986, as amended. The terms used in this Article are defined by reference to Regulation 1.848-2. The term "net consideration" will refer to either net consideration as defined in Regulation Section 1.848-2(f) or amount of premiums collected and other considerations as defined in Regulation Section 1.848-3(b), as appropriate. 2. Each party shall attach a schedule to its federal income tax return that identifies the relevant reinsurance agreements for which the joint election under the Regulation has been made. 3. The party with net positive consideration, as defined in the Regulation promulgated under Code Section 848, for such Agreement for each taxable year, shall capitalize specified policy acquisition expenses with respect to such Agreement without regard to the general deductions limitation of Section 848 (c)(1). 4. Each party agrees to exchange information pertaining to the amount of net consideration under such Agreement each year to ensure consistency. 5. This election shall be effective for the year that the Agreement was entered into and for all subsequent years that such Agreement remains in effect. 6. The Company will submit to the Reinsurer by May 1 of each year its calculation of the net consideration for the preceding calendar year. This schedule of calculations will be accompanied by a statement signed by an officer of the Company stating that the Company will report such net consideration in its tax return for the preceding calendar year. 7. The Reinsurer may contest such calculation by providing an alternative calculation to the Company in writing within 30 days of the Reinsurer's receipt of the Company's calculation. If the Reinsurer does not so notify the Company in the Reinsurer's tax return for the previous calendar year. 8. If the Reinsurer 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 within 30 days of the date the Reinsurer submits its alternative calculation. If the Company and the Reinsurer reach agreement on the net amount of consideration, each party shall report such amount in their respective tax returns for the previous calendar year. ARTICLE IX MISCELLANEOUS PROVISIONS 1. All Schedules referred to in this Agreement are attached hereto and incorporated herein by reference. 2. Neither this Agreement nor any reinsurance under this Agreement shall be sold, assigned or transferred by the Company without prior written consent of the Reinsurer. Such approval shall not unreasonably be withheld. The provisions of this section are not intended to preclude the Reinsurer from retroceding the reinsurance on an indemnity basis. 3. This Agreement, including any of the schedules and amendments thereto, constitutes the entire agreement between the parties with respect to the business being reinsured hereunder, and there are no understandings between the parties other than as expressed in this Agreement. Any changes in this Agreement shall be null and void unless such changes are made by written amendment to this Agreement, signed by both parties. 4. Any notice or notification required under this Agreement requires written notice or notification mailed or delivered to the Company at its home office in Blytheville, Arkansas, or to the Reinsurer at its administrative office in Salt Lake City, Utah. 5. If any provision of this Agreement is determined to be invalid or unenforceable, such determination will not impair or affect the validity or the enforceability of the remaining provisions of the Agreement. 6. The Company agrees to assist the Reinsurer in maintaining, where applicable, any existing policies reinsured under this Agreement and to avoid replacing any of such policies with policies of the Company, or its subsidiaries, or any other insurance companies. In addition, the Company agrees to use its best reasonable efforts to keep the policies reinsured in force and to support the business and operations of the Reinsurer, including, where applicable, in maintaining a satisfactory business relationship with the Reinsurer. ARTICLE X EXECUTION AND EFFECTIVE DATE This Agreement shall be effective on and after December 29, 2005. In the event of a death or other occurrence giving rise to a claim under one of the policies, which death or occurrence occurred prior to the Effective Date, regardless of whether the death claim or occurrence is reported prior to or subsequent to the effective date, the Company shall be solely liable for the payment of any claim made on account of any such death or occurrence and Reinsurer shall pay to the Company the amount of the reserve of the policy with respect to which the claim is paid, to the extent that such reserve is reduced as a result of such payment. IN WITNESS of the above, this Agreement is executed effective as of this 29th day of December, 2005. SECURITY NATIONAL LIFE INSURANCE COMPANY By: /s/ Scott M. Quist ------------------ Title: President --------- MEMORIAL INSURANCE COMPANY OF AMERICA By: /s/ Larry N. Perrin ------------------- Title: Treasurer --------- SCHEDULE A POLICIES AND RISKS REINSURED Under this Agreement, the Reinsurer reinsures all policies in force as of the Effective Date of this Agreement and any new business written after the Effective Date, except for certain policies to be retained by the Company. Following the transfer of reserves and related assets pursuant to this Agreement, the Company's capital and surplus shall not be less than $1,000,000. SCHEDULE B REINSURANCE PREMIUMS 1. Reinsurance Premiums. The Company shall pay the Reinsurer a reinsurance premium on all policies in effect from time to time under this Agreement in an amount equal to the premium collected by the Company corresponding to the amount and policies reinsured hereunder. 2. Mode of Payment. The Premium paid to the Reinsurer by the Company will be paid as collected by the Company. SCHEDULE C COMMISSIONS AND EXPENSE ALLOWANCE 1. Ceding Commission Fee on Individual Life Insurance Plan Description Ceding Commission Fee ---------------- ---------------------- All plans reinsured hereunder An amount equal to the actual sales commissions paid on policies reinsured hereunder 2. Expense Allowance for Premium Taxes, Including All Other Licenses and Fees. An expense allowance equal to the actual premium taxes paid on collected premiums plus other licenses and fees will be paid by reinsurer in addition to all other allowances. 3. Any Other Administrative Expenses Will Be Paid by the Reinsurer. All administrative expenses to include, but not be limited to, policy administration, accounting, financial statement preparation, and policyholder services. SCHEDULE D MONTHLY SETTLEMENT FROM MEMORIAL INSURANCE COMPANY OF AMERICA TO SECURITY NATIONAL LIFE INSURANCE COMPANY AND FROM SECURITY NATIONAL LIFE INSURANCE COMPANY TO MEMORIAL INSURANCE COMPANY OF AMERICA Reporting Month: ________________/ ____________/ ___________ Date Report Completed: ________________/ ____________/ ___________ 1) Direct Premiums ____________ Less Other Reinsurance Premiums Paid ____________ Total Premiums ____________ Total ____________ 2) Policy Loans ____________ Policy Loans Repaid ____________ Policy Loan Interest Paid in Cash ____________ Total ____________ 3) Benefits Surrenders ____________ Deaths ____________ Other ____________ Less Other Reinsurance Recoveries ____________ Total ____________ 4) Commissions and Expense Allowance (Schedule C) ____________ Less Other Reinsurance Allowances ____________ Net Commission and Expense Allowance ____________ Total ____________ 5) New Policy Loans Paid Out in Cash ____________ 6) Net Due Equals (1) + (2) - (3) - (4) - (5) = ____________ SCHEDULE D CONTINUED Supplemental Information Direct Policy # of Policies Reserves Face Amount Beg. of Period ___________ ____________ _____________ +Additions ___________ ____________ _____________ -Terminations ___________ ____________ _____________ End of Period ___________ ____________ _____________ Reinsurance Ceded Policy # of Policies Reserves Face Amount Beg. of Period ____________ ____________ _____________ +Additions ____________ ____________ _____________ -Terminations ____________ ____________ _____________ End of Period ____________ ____________ _____________ Direct Gross Net ------ ----- --- Deferred Premiums: _____________ ____________ Due Premiums: _____________ ____________ Advance Premiums: _____________ Reinsurance Ceded Deferred premiums: _____________ ____________ Due Premiums: _____________ ____________ Advance Premiums: _____________ Coinsurance Allowances on Reinsurance Ceded Deferred Premium ____________ Due Premium ____________ Advance Premium ____________ Policy Loan Interest Due: ____________ Policy Loan Interest Accrued: ____________ Policy Loan Interest Unearned: ____________ Policy Loan Beginning of Period: ____________ + New Loans Paid in Cash: ____________ + New Loans to Cover Interest: ____________ + New Loans to Pay Premiums: ____________ - Loans Paid Off: ____________ Policy Loans End of Period: ____________ Policy Loans Interest Paid in Cash: ____________ Policy Loans Interest Added to Loan: ____________ Total Policy Loan Interest: ____________ EXHIBIT 1 TRUST AGREEMENT