EX-99.24(B)(7)(F) 20 b75114a1exv99w24xbyx7yxfy.txt MANULIFE REINSURANCE (BERMUDA) LIMITED AMENDED AND RESTATED REINSURANCE THE REGISTRANT HAS APPLIED FOR CONFIDENTIAL TREATMENT OF CERTAIN TERMS IN THIS EXHIBIT WITH THE SECURITIES AND EXCHANGE COMMISSION. THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT ARE MARKED WITH AN ASTERISK [*] AND HAVE BEEN OMITTED. THE OMITTED PORTIONS OF THIS EXHIBIT WILL BE FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. AMENDED AND RESTATED REINSURANCE AGREEMENT HENCEFORTH TO BE CALLED INDEMNITY VARIABLE ANNUITY REINSURANCE AGREEMENT (THE "AGREEMENT") between JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) A MICHIGAN CORPORATION (HEREINAFTER REFERRED TO AS THE "CEDING COMPANY") and MANULIFE REINSURANCE (BERMUDA) LIMITED A BERMUDA CORPORATION (HEREINAFTER REFERRED TO AS THE "REINSURER") DATED AS OF OCTOBER 1, 2008 (HEREINAFTER REFERRED TO AS THE "EFFECTIVE DATE") Treaty #8003 TABLE OF CONTENTS INDEMNITY VARIABLE ANNUITY REINSURANCE AGREEMENT ....................... 3 ARTICLE I - SCOPE OF REINSURANCE ....................................... 4 ARTICLE II - GENERAL PROVISIONS ........................................ 5 ARTICLE III -INITIAL CONSIDERATION AND REINSURANCE PREMIUMS ............ 12 ARTICLE IV - CLAIMS AND OTHER BENEFITS ................................. 12 ARTICLE V - CEDING COMMISSION AND EXPENSE ALLOWANCE .................... 14 ARTICLE VI - RESERVES AND FUNDS WITHHELD ............................... 15 ARTICLE VII - ACCOUNTING AND QUARTERLY SETTLEMENT ...................... 18 ARTICLE VIII - DURATION AND RECAPTURE .................................. 19 ARTICLE IX - TERMINAL ACCOUNTING AND SETTLEMENT ........................ 20 ARTICLE X - ARBITRATION ................................................ 21 ARTICLE XI - INSOLVENCY ................................................ 23 ARTICLE XII - EXECUTION ................................................ 24 SCHEDULE A - POLICIES REINSURED ......................................... 25 SCHEDULE B - MODCO RESERVE INVESTMENT CREDIT ........................... 28 SCHEDULE C - FUNDS WITHHELD INVESTMENT INCOME .......................... 30 SCHEDULE D - FIXED ACCOUNT INVESTMENT CREDIT ........................... 32 SCHEDULE E - GUARANTEED BENEFITS INVESTMENT CREDIT ..................... 34 SCHEDULE F - QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS .............. 36 SCHEDULE G - ASSET LISTING ............................................. 40 SCHEDULE H - OPENING AMOUNTS AND SETTLEMENTS ........................... 41 SCHEDULE I - INFORMATION REQUIRED FOR FINANCIAL REPORTING .............. 42 SCHEDULE J - FUND LISTING .............................................. 44 SCHEDULE K - BASE DEATH BENEFIT FEES ................................... 54 SCHEDULE L - EXPENSE ALLOWANCE ......................................... 55
2 INDEMNITY VARIABLE ANNUITY REINSURANCE AGREEMENT This amended and restated Reinsurance Agreement dated as of October 1, 2008 (this "Agreement") is made by and between John Hancock Life Insurance Company (U.S.A.), a Michigan corporation (hereinafter referred to as the "Ceding Company"), and Manulife Reinsurance (Bermuda) Limited, a Bermuda corporation (hereinafter referred to as the "Reinsurer"). Whereas the Ceding Company and Manulife Reinsurance Limited entered into a reinsurance agreement, number 5092, effective January 1, 2002 (the "Reinsurance Agreement"), which Reinsurance Agreement has been amended from time to time and was transferred and assigned to the Reinsurer as of October 1, 2004 and renumbered 8003. Under the terms of the Reinsurance Agreement, the Reinsurer reinsures the Ceding Company's variable annuity policies, excluding riders, primarily to provide acquisition cost strain relief to the Ceding Company in respect of those variable annuity policies; Whereas the Ceding Company and the Reinsurer acknowledge and affirm that, pursuant to the Reinsurance Agreement, the base policies relating to the Separate Account and Fixed Account have been reinsured, and will continue to be reinsured, on a modified coinsurance basis; and Whereas the Ceding Company and the Reinsurer now desire to amend and restate the Reinsurance Agreement as set forth in this Agreement, so that the Reinsurer will now reinsure all substantial risks relating to the Ceding Company's variable annuity policies, including all applicable riders; Now therefore, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Ceding Company and the Reinsurer hereby amend and restate the Reinsurance Agreement in its entirety as follows: 3 ARTICLE I - SCOPE OF REINSURANCE The Ceding 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 Ceding Company and the Reinsurer, and performance of the obligations of each party under this Agreement will be rendered solely to the other party. In no instance will anyone other than the Ceding Company or the Reinsurer have any rights under this Agreement, and the Ceding Company will be and remain the only party hereunder that is liable to any insured, policyowner or beneficiary under any policy reinsured hereunder. For purposes of this Agreement, the following definitions shall apply: "Agreement" means this amended and restated Reinsurance Agreement, henceforth to be called "Indemnity Variable Annuity Reinsurance Agreement"; "Deferred Gains" means the outstanding net deferred gains measured on a tax basis on hedging instruments used to hedge the Guaranteed Benefits and associated fees held in the asset portfolio backing the Guaranteed Benefits; "Guaranteed Benefits" means any riders and guaranteed benefits, including the Guaranteed Earnings Multiplier (GEM), Guaranteed Minimum Death Benefits (GMDB), Guaranteed Minimum Income Benefits (GMIB) and Guaranteed Minimum Withdrawal Benefits (GMWB); "NAIC Statutory Reserves" means the total statutory Policy reserves including any rider reserves, as calculated in accordance with the assumptions and methods used by the Ceding Company, which are acceptable in its state of domicile in preparing its NAIC statutory financial statements; and "Settlement Date" means 11:59PM Eastern Standard Time on November 18, 2008, the date on which equity market experience was reflected in the determination of the Initial Consideration. 4 ARTICLE II - GENERAL PROVISIONS 1. POLICIES AND RISKS REINSURED The Ceding Company agrees to cede and the Reinsurer agrees to accept the Quota Share Percentage of the risks under the Policies, as such terms are defined in Schedule A - Policies Reinsured, according to the terms and conditions set out herein. 2. COVERAGE AND EXCLUSIONS This Agreement reinsures Policies as defined in Schedule A - Policies Reinsured. New business issued after December 31, 2008 shall not be reinsured under this Agreement. Only the policies and riders described in Schedule A - Policies Reinsured, which are underwritten and issued in accordance with the Ceding Company's policies and guidelines outlined in the prospectus, at time of issue and subsequent updates, are automatically reinsured under this Agreement (hereinafter referred to as the "Policies"). 3. PLAN OF REINSURANCE This indemnity reinsurance arrangement is on an automatic quota share basis using a combination of modified coinsurance and coinsurance funds withheld reinsurance basis whereby the Ceding Company agrees to cede and the Reinsurer agrees to accept risks originating from the Policies. For the avoidance of doubt, the Ceding Company will retain, own, and control all assets held in relation to the Modco Reserve and Funds Withheld Account. 4. THIRD PARTY REINSURANCE AGREEMENTS The Ceding Company has entered into certain reinsurance treaties with third parties with respect to the Policies (the "Third Party Reinsurance Agreements"). All amounts determined under this Agreement shall be computed net of those Third Party Reinsurance Agreements, including but not limited to premiums, claims, expense allowances and reserves, based upon the reinsurance coverage in effect as of the Effective Date of this Agreement. Notwithstanding the statement above, the Ceding Company shall not reinsure the amount it has retained on the business covered under this Agreement, on any basis, without the prior written consent of the Reinsurer. 5. EXPENSES As compensation for Policy expenses incurred by the Ceding Company, the Reinsurer shall pay an expense allowance, calculated in accordance with Article V - Ceding Commission and Expense Allowance. Such amounts shall be an allowance for expenses and commissions and as such the Reinsurer will in no other way bear part of the expenses incurred in connection with the Policies, except as is otherwise provided herein. 6. POLICY CHANGES AND INVESTMENT FUNDS The Ceding Company shall provide thirty (30) days written notification to the Reinsurer of any organized program which will materially change the original terms or conditions of the Policies, or the benefits provided thereunder. The Reinsurer will provide written notification to the Ceding Company as to the Reinsurer's acceptance or rejection of the change within fifteen (15) days after receipt of such notice. If the Reinsurer accepts any such change, the Reinsurer will (a) assume that portion of any increase in the Ceding Company's liability, resulting from the change, which corresponds to the Quota Share Percentage of the Policies, and (b) receive credit for that portion of any decrease in the Ceding Company's liability, resulting from the change, which corresponds to the Quota Share Percentage of the Policies. If the Reinsurer rejects any such change, the Reinsurer's liability under this Agreement will be determined as if no such change had occurred. Investment funds available to policyholders on the Effective Date are listed in Schedule J - Fund Listing. The Ceding Company shall provide the Reinsurer thirty (30) days written notice before it amends, substitutes or deletes investment fund options and makes such changes effective, and agrees to maintain a satisfactory 5 selection of core investment options with overall risk profile characteristics similar to those listed in Schedule J - Fund Listing after such change. 7. NO EXTRA-CONTRACTUAL DAMAGES In no event shall the Reinsurer participate in or be required to pay any Bad Faith Damages, Compensatory Damages, Exemplary Damages or Punitive Damages which are awarded against the Ceding Company, or which the Ceding Company may pay voluntarily as a result of a direct or indirect act, omission or course of conduct committed by the Ceding Company, its agents or representatives, in connection with any aspect of the Policies. The Reinsurer shall, however, pay its Quota Share Percentage of Statutory Penalties assessed against the Ceding Company strictly in connection with the denial of a claim on any Policy if the Reinsurer elected to join in the contest of such claim. Notwithstanding the foregoing, where the Reinsurer directed, or consented to the act or course of conduct of the Ceding Company which directly results in the assessment of Bad Faith Damages, Punitive Damages and/or Compensatory Damages, the damages so assessed shall be shared by the Ceding Company and the Reinsurer in the same proportions as the Quota Share Percentage of the Policies or, if applicable, the respective net liability accepted by each. The Ceding Company shall seek the Reinsurer's opinion and consent in writing before including the Reinsurer in the participation of these damages. For the purposes of this provision, the following definitions shall apply: - "Bad Faith Damages" are those damages, which are compensated by punitive damages and are awarded as a result of bad faith dealings on the part of the Ceding Company; - "Compensatory Damages" are those amounts awarded to compensate for actual damages sustained, and are not awarded as a penalty, nor fixed in amount by statute; - "Exemplary Damages" or "Punitive Damages" are those damages which are awarded as a penalty, the amount of which is not governed, nor fixed, by statute; and - "Statutory Penalties" are amounts awarded as a penalty and determined by applicable law. 8. POLICY ADMINISTRATION The Ceding Company will administer the Policies and will perform all accounting for such Policies, provided, however, that the Reinsurer reserves the right to participate in claims administration as set forth herein. 9. INSPECTION At any reasonable time, the Reinsurer may inspect, during normal business hours, at the principal office of the Ceding Company, the original papers and any and all other records, books, accounting working papers, or documents relating to or affecting reinsurance under this Agreement. The Reinsurer will not use any information obtained through any inspection pursuant to this Section for any purpose not relating to reinsurance hereunder. The Ceding Company also agrees to provide copies of documentation relating to any Policies at the request of the Reinsurer. 10. ELECTION TO DETERMINE SPECIFIED POLICY ACQUISITION EXPENSES The Ceding Company and the Reinsurer agree to the DAC Tax Election pursuant to Regulation Section 1.848-2(g)(8) of the Treasury Regulation (the "Regulation") Section 848 of the Internal Revenue Code of 1986, as amended (the "Code"), whereby: (a) 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 Code Section 848(c)(1); and 6 (b) both parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency; and (c) each party agrees to attach to its tax return filed for the first taxable year ending after this election becomes effective a schedule that identifies this Agreement as the subject of this election. The term "net consideration" will refer to either net consideration as defined in Regulation Section 1.848-2(f) (or gross amount of premiums and other consideration as defined in Regulation Section 1.848-3(b), as appropriate). The Ceding Company will submit a schedule to the Reinsurer by April 1 of each year and present its calculation of the net consideration for the preceding taxable year. The Reinsurer may contest the calculation by providing an alternative schedule in writing within thirty (30) days of receipt of the Ceding Company's schedule. Any differences will be resolved between the parties in good faith within 30 days of the date the Reinsurer submits its alternative schedule and the agreed amount of net consideration will be reported on the parties' respective tax returns for the preceding taxable year. This DAC Tax Election shall be effective for all taxable years for which this Agreement remains in effect. 11. PROXY TAX REIMBURSEMENT Under Code Section 848, insurance companies are required to capitalize and amortize specified policy acquisition expenses. The amount capitalized is determined by proxy based on a percentage of "net premiums," as defined in the Regulation Section 1.848-2(a). At the Reinsurer's request, the Ceding Company will reimburse the Reinsurer for any positive timing cost to the Reinsurer results from the application of Code Section 848 to the Policies and the Reinsurer considers material. At the Ceding Company's request, the Reinsurer will reimburse the Ceding Company for any positive timing cost to the Ceding Company results from the application of Code Section 848 to the Policies and that the Ceding Company considers material. 12. ERRORS AND OMISSIONS Any inadvertent delay, omission or error shall not relieve either party hereto from any liability which would attach to it if such delay, omission or error had not been made, provided such delay, omission or error is rectified promptly upon discovery. The Ceding Company and the Reinsurer will, promptly upon discovery, adjust the situation to what it would have been had the error not occurred. 13. ADJUSTMENTS If the Ceding Company's liability under any of the Policies is changed because of a misstatement of age, sex or any other material fact, the Reinsurer will: (a) Assume that portion of any increase in the Ceding Company's liability, resulting from the change, which corresponds to the Quota Share Percentage; and (b) Receive credit for that portion of any decrease in the Ceding Company's liability, resulting from the change, which corresponds to the Quota Share Percentage. 14. REINSTATEMENTS If a Policy is surrendered or annuitized, and is subsequently reinstated while this Agreement is in force, the reinsurance for such Policy will be reinstated automatically. The Ceding Company will pay the Reinsurer the Quota Share Percentage of all amounts received by the Ceding Company in connection with the reinstatement of the Policy, plus any amounts previously refunded to the Ceding Company by the Reinsurer in connection with the lapse of the Policy. 15. ASSIGNMENT All the terms of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, whether so expressed or not; however, neither the 7 Ceding Company nor the Reinsurer may assign any of its rights, duties or obligations under this Agreement without the prior written consent of the other party. 16. AMENDMENTS This Agreement may be amended only by written agreement of the parties. Any change or modification to this Agreement shall be null and void unless made in writing and signed by both parties. 17. CURRENT PRACTICES The Reinsurer's liability under this Agreement shall follow that of the Ceding Company and be subject in all respects to the general stipulations, terms, clauses, conditions, waivers and modifications of the Policies. The Ceding Company will not carry out a material change, alteration or other compromise of its claims paying or administrative practices with respect to the Policies without the prior written consent of the Reinsurer, which consent shall not be unreasonably withheld. 18. ENTIRE AGREEMENT The terms expressed herein and all Exhibits, Schedules and Amendments attached to and forming a part hereof constitute the entire agreement between the parties with respect to the Policies. There are no understandings or agreements between the parties with respect to the Policies other than as expressed in this Agreement. 19. COLLATERALIZATION OF COINSURANCE RESERVES The Reinsurer agrees to collateralize the portion of the Coinsurance Reserves applicable to the Reinsurer by funds withheld, a letter of credit, and assets in trust or any combination of the three, which in total will comply with statutory and regulatory requirements for obtaining the Ceding Company's credit for reinsurance in the state of domicile. The Reinsurer shall have the option of establishing the method of collateralization provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Ceding Company's reserves. The Ceding Company and the Reinsurer shall reasonably cooperate in any amendment of this Agreement to the extent required to permit the Ceding Company to obtain such credit in the state of domicile. When collateralizing by a letter of credit, the Reinsurer agrees to arrange for the timely delivery of a clean, unconditional and irrevocable letter of credit for the exclusive benefit of the Ceding Company, issued in a form acceptable to the insurance regulatory authorities having jurisdiction over the Ceding Company's reserves (the "Letter of Credit"). The Letter of Credit will be issued by a bank that is neither the parent, subsidiary or affiliate of either the Reinsurer or the Ceding Company and is (1) organized or licensed in the United States and NAIC accredited, (2) regulated, supervised and examined by U.S. federal or state authorities, and (3) and is acceptable to Ceding Company. As of the date of this Agreement, a Letter of Credit provided under this Section shall be in an amount equal to the Coinsurance Reserves less the Funds Withheld Account Balance as reported in Schedule H - Opening Amounts and Settlements and the fair market value of any assets held in trust for the benefit of the Ceding Company. A Letter of Credit in such amount will be provided to the Ceding Company within seven (7) days following the date the Agreement is executed by the parties. Thereafter, for every Accounting Period, the amount of the Letter of Credit will equal or exceed, at all times, the net of (i) minus (ii) minus (iii), where: (i) Equals the Coinsurance Reserves; and (ii) Equals the Closing Funds Withheld Account Balance, as defined in Article VI - Funds Withheld; and (iii) Equals the fair market value of any assets held in trust for the benefit of the Ceding Company. Not less than ten (10) days prior to the end of each Accounting Period, the Ceding Company shall estimate such Coinsurance Reserves, Closing Funds Withheld Account Balance and the amount of any Letter of Credit required in accordance with this Section and notify the Reinsurer in writing of the amount of the 8 Letter of Credit required in accordance with this Section and prior to the close of the Accounting Period in which such notice is received, the Reinsurer shall obtain and deliver to the Ceding Company a Letter of Credit, or an amendment to a Letter of Credit, in an amount not less than the aforementioned estimated amount. The Reinsurer further agrees that upon completion of any Accounting Period reporting, if the Letter of Credit amount as based upon the aforementioned estimate is less than the actual amount of the Letter of Credit provided under this Section, the Reinsurer shall obtain and provide to the Ceding Company such other Letter of Credit, or amendment to Letter of Credit, in such amount as needed to meet the requirements of this Section. The Ceding Company agrees that upon completion of any Accounting Period reporting, if the actual amount of the Letter of Credit provided by the Reinsurer under this Section is in excess of the Letter of Credit amount as based upon the aforementioned estimate, the Ceding Company shall promptly, upon receipt of the Reinsurer's written request, agree to an amendment reducing the amount of the Letter of Credit by an amount equal to such excess. Notwithstanding anything to the contrary in this Agreement, the Reinsurer and the Ceding Company agree that the Letter of Credit may be drawn on by the Ceding Company at any time and will be utilized and applied by the Ceding Company, including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Ceding Company, without diminution because of the insolvency on the part of the Ceding Company or the Reinsurer, only for the following purposes: (a) To reimburse the Ceding Company for the Reinsurer's share of premiums returned to the owners of the policies reinsured under this Agreement on account of cancellations of such policies, the payment of which is due under the terms of this Agreement and which has not otherwise been paid; (b) To reimburse the Ceding Company for the Reinsurer's share of benefit payments or losses paid by the Ceding Company pursuant to the provisions of policies reinsured under this Agreement, the payment of which is due under the terms of this Agreement and which has not otherwise been paid; (c) In the event the Ceding Company receives notice that the Letter of Credit will not be renewed and on the thirtieth (30th) day following the date of such notice the Reinsurer has not established a replacement Letter of Credit or alternative security device suitable to qualify the Ceding Company for reserve credit for the reinsurance hereunder, then the Ceding Company or its statutory successor may draw upon the Letter of Credit to fund an amount with the Ceding Company for the Reinsurer's obligations which are properly attributable to the Policies reinsured under this Agreement. Such amount will include, but not be limited to, amounts for policy reserves, reserves for claims and losses incurred, loss adjustment expenses and unearned premiums. The amount drawn on the Letter of Credit shall be held in trust in an interest bearing account separate from the Ceding Company's other assets and interest thereon shall accrue to the benefit of the Reinsurer, and; (d) To pay any other obligations of the Ceding Company that are in fact due from the Reinsurer under this Agreement, the payment of which is due under the terms of this Agreement and which has not otherwise been paid. In the event that the amount drawn by the Ceding Company on the Letter of Credit exceeds the actual amount required for items (a), (b) and/or (d) above, or in the case of a draw pursuant to (c) above, the Ceding Company shall promptly return to the Reinsurer the excess amounts so drawn, together with interest thereon (determined using the Funds Withheld Rate from Schedule C - Funds Withheld Investment Income). All the foregoing shall be applied without diminution because of insolvency on the part of the Ceding Company or the Reinsurer. 9 20. AGENT FOR SERVICE OF PROCESS The Reinsurer agrees to designate an attorney who is located in the United States as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Ceding Company. In the event that the Reinsurer decides to change its designation of attorney, the Reinsurer will provide written notice to the Ceding Company. 21. GOVERNING LAW AND JURISDICTION This Agreement shall be governed by, construed and enforced in accordance with the laws of the state of Michigan. 22. SEVERABILITY In the event that any provision or term of this Agreement shall be held by any court to be invalid, illegal or unenforceable, such holding will not affect the validity or application of any other provision of this Agreement which can be given effect without the invalid provision or application, and to this end, all of the other terms and provisions of this Agreement are declared severable and shall remain in full force and effect. To the extent that their continuance is practicable and consistent with original intent of the parties, the parties will attempt in good faith to renegotiate this Agreement to carry out its original intent. All of the provisions of this Agreement shall, to the extent necessary to carry out the purposes of this Agreement or to ascertain and enforce the parties' rights thereunder survive its termination. 23. NON-WAIVER OF RIGHTS No waiver by any party of any default by any other party in the performance of any promise, term or condition of this Agreement shall be construed to be a waiver by such party of any other or subsequent default in performance of the same or any other promise term or condition of this Agreement. No prior transactions or dealings between any of the parties shall be deemed to establish any custom or usage waving or modifying any provisions hereof. The failure of any party to enforce any part of this Agreement, or exercise any right under this Agreement, shall not constitute a waiver by such party of its right to do so, nor shall it be deemed to be an act of ratification or consent. 24. NOTICE PROVISION All notices, letters or other communications to the respective parties shall be in writing and faxed, couriered or mailed, addressed as follows: If to the Ceding Company: John Hancock Life Insurance Company (U.S.A.) 601 Congress Street Boston MA, 02210 Attn: Vice President and Chief Financial Officer - Variable Annuities If to the Reinsurer: Manulife Reinsurance (Bermuda) Limited 73 Front Street, 3rd Floor Hamilton, HM 11, Bermuda Attn: Resident Representative Any change in address shall be communicated in writing to the other party. 25. CURRENCY CLAUSE All amounts stated in this Agreement are in United States dollars. 26. REPRESENTATIONS AND WARRANTIES The parties represent and warrant to each other that this Agreement is entered into in reliance on the utmost good faith of the parties. The parties pledge continued utmost good faith, on their own parts and on the part of their representatives, successors and assigns, in their performance of duties and obligations under this Agreement. 10 The Ceding Company represents and warrants to the Reinsurer as follows, and acknowledges that the Reinsurer is relying thereon without any independent inquiry in entering into this Agreement: (i) All factual information provided to the Reinsurer by the Ceding Company is complete and accurate as of the date the document containing such information was prepared and any assumptions made in preparing the information were based upon informed judgment and are consistent with sound actuarial principles. The Ceding Company is not aware of any omissions, errors, changes or discrepancies which would materially affect the above information; and (ii) Should the Ceding Company subsequently wish to obtain additional reinsurance for the Policies it shall obtain permission from the Reinsurer before entering into any additional reinsurance treaties. All obligations, representations and warranties made in this Agreement shall survive the termination of this Agreement and shall continue in full force and effect until all obligations of the parties hereunder have been discharged in full. 27. HEADINGS Section headings in this Agreement are included in this Agreement for convenience of reference only and shall not affect the construction or interpretation hereof. 28. ANTI-MONEY LAUNDERING It is the intention of the Ceding Company and the Reinsurer to comply with all applicable laws, statutes, regulations and rules. The parties are responsible for compliance with all such laws, statutes, regulations and rules applicable to the business reinsured under this Agreement including but not limited to, the requirements for the USA Patriot Act and the United States Department of the Treasury's Office of Foreign Asset Control ("OFAC"). Should either party receive information that an underlying policy which is part of the business reinsured under this Agreement may be insured or owned, or in any way or right be controlled by a Specialty Designed National and Blocked Person, as such term is defined by OFAC (a "Prohibited Person") or a department, agency, branch, instrumentality, government-owned entity or representative of the government of a sanctioned or an embargoed country as names by OFAC (collectively, a "Sanctioned Country") that party shall promptly provide such information to the other party. In no event shall the Reinsurer be liable for any reinsurance or any reinsurance claim with respect to any such underlying policy or coverage involving a Prohibited Person or Sanctioned Country unless the issuance of such underlying policy or coverage by the underlying issuing company satisfies all applicable OFAC regulatory requirements. 29. NAIC STATEMENT BLANK If the NAIC Statement Blank is changed or modified after the date of this Agreement, such that the items do not appear on the pages, exhibits, columns and lines referred to in this Agreement, the parties shall use the corresponding line in the then current blank in performing any operation or providing any information required by this Agreement. If any line on the NAIC Statement Blank referred to in this Agreement should be eliminated or combined with other amounts or if the basis set out in the NAIC Statement Blank should be modified so that any calculation required by this Agreement cannot be performed, then such calculation will be determined in accordance with a method satisfactory to both parties to this Agreement. 30. CONFIDENTIALITY Both the Ceding Company and the Reinsurer will 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 is required by applicable law, regulatory authorities having jurisdiction over the parties to this Agreement or by the parties' external auditors. 11 ARTICLE III - INITIAL CONSIDERATION AND REINSURANCE PREMIUMS 1. INITIAL CONSIDERATION The Ceding Company will pay the Reinsurer an Initial Consideration of $2,431,000,000 within five (5) business days of the date this Agreement is fully executed by the parties (the "Execution Date"). This amount is a best efforts estimate of the amount to be paid as of the Settlement Date, and will be adjusted accordingly to the actual amount in the initial Accounting Period. 2. REINSURANCE PREMIUMS For each Accounting Period the Ceding Company will pay the Reinsurer the Quota Share Percentage of all premiums earned under the Policies, including base policy premiums, any rider premiums, payment enhancements or charges plus base policy guaranteed death benefit fees, as defined in Schedule K - Base Death Benefit Fees (the "Reinsurance Premiums"), net of premiums payable under Third Party Reinsurance Agreements. 3. REINSURANCE FEES For each Accounting Period the Ceding Company will pay the Reinsurer the Quota Share Percentage of all fees charged by the Ceding Company on the Policies, including the net investment management fees, 12(b)(1) fees and insurance fees (the "Reinsurance Fees"). For the purposes of this Agreement, the amount payable for Reinsurance Fees for each Accounting Period will be [*], or such other rate as may be agreed between the parties from time to time, times the average of the beginning fund value of the separate account of the base policies reinsured and the ending fund value of the separate account of the base policies reinsured. For the avoidance of doubt, the Reinsurance Fees calculated by this method can never be in excess of the net investment management fees, 12(b)(1) fees and insurance fees actually earned by the Ceding Company on the Policies. ARTICLE IV - CLAIMS AND OTHER BENEFITS 1. REINSURANCE CLAIMS The Reinsurer will reimburse the Ceding Company for the Quota Share Percentage of Policy benefits paid or accrued by the Ceding Company to policyholders during the Accounting Period in accordance with this Article IV (the "Reinsurance Claims"), including but not limited to Death Claims, Surrenders, Annuitization Claims, Income Benefit Claims and Withdrawal Benefit Claims. Reinsurance Claims paid and payable under this Agreement shall be computed net of amounts recovered and recoverable under the Third Party Reinsurance Agreements in effect as of the date of this Agreement. Such reimbursement shall be paid in accordance with Article VI - Reserves and Funds Withheld. 2. DEATH CLAIMS The Reinsurer will reimburse the Ceding Company for the cash surrender value and, if applicable, any Guaranteed Minimum Death Benefits (GMDB) and any Guaranteed Earnings Multiplier (GEM) paid or accrued by the Ceding Company under the Policies at death, including death benefits (collectively the "Death Claims"). 3. SURRENDERS The Reinsurer will reimburse the Ceding Company for amounts paid or accrued to a policyholder in the event of a full or partial surrender of a Policy net of any applicable Surrender Charges (the "Surrenders"). Surrender charges shall be defined as the amount that the Ceding Company deducts before paying the cash surrender value upon a full or partial surrender of a Policy (the "Surrender Charges"). 4. ANNUITIZATION CLAIMS The Reinsurer will reimburse the Ceding Company annuitization claims paid or accrued by the Ceding Company under the fixed and/or variable settlement options of a Policy, provided such payments are made by the Ceding Company at terms guaranteed in the Policy at its time of issue (the "Annuitization Claims"). In 12 the event that annuities are issued as part of the fixed settlement options of the Policy, the Reinsurer will reimburse the Ceding Company for the Quota Share Percentage of the greater of (i) and (ii), where: (i) Equals the annuity account value (the "Account Value"); and (ii) Equals the Account Value multiplied by the monthly income determined at terms guaranteed in the Policies at time of their issue divided by the monthly income determined with the Annuity 2000 mortality table (no age setback and age nearest birthday on annuitization date) with Scale G (1995 TSA) mortality improvements and the yield on the most recently auctioned 7-year Treasury Security, as posted in the Wall Street Journal, at the beginning of the month in which the fixed annuitization occurs, plus 50 basis points. The Reinsurer will not be liable for the reinsurance of any Policy annuitizing at terms more favorable than those guaranteed in the Policy at its time of issue. In the event that the Ceding Company allows annuitization at terms more favorable than those guaranteed in the Policy at the time of issue, such Policy will be considered surrendered and the Reinsurer will pay the Ceding Company the Quota Share Percentage of the Account Value applied to the annuitization. No further obligation or liability will exist for the Reinsurer for such annuitized Policy. 5. INCOME BENEFITS CLAIMS The Reinsurer will reimburse the Ceding Company for claims on the guaranteed minimum income benefit (GMIB) riders included in Schedule A - Policies Reinsured (the "Income Benefit Claims"). The Income Benefit Claims will be equal to the greater of zero or the result of the GMIB income base times the GAPR / CAPR less the Account Value, where: a. the Guaranteed Annuity Purchase Rates (GAPR) is specified in the applicable GMIB benefit rider form; and b. the Current Annuity Purchase Rates (CAPR) is calculated using the Annuity 2000 mortality table (no age setback and age nearest birthday on exercise date) with scale G (1995 TSA) mortality improvements and the yield on the most recently auctioned 7-year Treasury Security, as posted in the Wall Street Journal, at the beginning of the month in which the exercise of the income benefit rider occurs, plus 50 basis points. 6. WITHDRAWAL BENEFITS CLAIMS The Reinsurer will reimburse the Ceding Company for claims on the guaranteed minimum withdrawal benefit (GMWB) riders included in Schedule A - Policies Reinsured (the "Withdrawal Benefits Claims"). The Withdrawal Benefit Claims are the payments made on the Policy once the Account Value reduces to zero and/or as part of the settlement phase of the Policy. 7. NOTICE Upon request of the Reinsurer the Ceding Company will notify the Reinsurer promptly after receipt of any information regarding Reinsurance Claims. The Reinsurance Claims documentation, including but not limited to copies of notification, claim papers, and proofs, will be furnished by the Ceding Company to the Reinsurer upon request. 8. LIABILITY AND PAYMENT Reinsurer will accept the decision of the Ceding Company with respect to payment of Policy benefit claims reinsured under this Agreement and such decision will be binding on the Reinsurer. In no event will the Reinsurer reimburse the Ceding Company for ex gratia payments with respect to the Policies reinsured under this Agreement or any other payments not made in accordance with the terms of the Policies reinsured hereunder unless made in accordance with Section 9 below. 13 9. CONTESTED CLAIMS The Ceding Company will advise the Reinsurer of its intention to contest, compromise or litigate any Policy benefit claims. The Reinsurer will pay the Quota Share Percentage of such contests, in addition to Reinsurance Claims, or it may choose not to participate. If the Reinsurer chooses not to participate, it will discharge its liability by payment to the Ceding Company of its full Quota Share Percentage of its liability on the Policy reinsured. ARTICLE V - CEDING COMMISSION AND EXPENSE ALLOWANCE 1. INITIAL CEDING COMMISSION An Initial Ceding Commission will be paid by the Reinsurer to the Ceding Company, simultaneously with the payment of the Initial Consideration, in an amount equal to $170,000,000. This amount is a best efforts estimate of the amount to be paid as of the Settlement Date, and will be adjusted accordingly to the actual amount in the initial Accounting Period. 2. EXPENSE ALLOWANCE The Reinsurer will pay the Ceding Company an Allowance for Commissions and Expenses for each Accounting Period equal to the Quota Share Percentage times the sum of (i) through (v), where: (i) Equals acquisition expense allowances equal to base policy premiums and premium enhancements, for each of the following products, times the percentages as described in Schedule L - Expense Allowance; and (ii) Equals the CARVM expense allowance attributable to the base policy premiums, determined in accordance with Article III, Section 2, paid during the Accounting Period; and (iii) Equals [*] multiplied by the number of base Policies inforce at the end of the Accounting Period, as referred to in Schedule A - Policies Reinsured; and (iv) Equals [*] percent of the total fund value of the separate account and fixed account with respect to the base policies reinsured (the "Fund Value of the Policies") as of the end of the Accounting Period; and (v) Equals the total for all policy years of (a) times (b), where: (a) Equals the total Account Value of the Policies for each policy year as of the end of the Accounting Period; and (b) Equals the Trailer Commission Rate, as defined below:
Trailer For Policy Years Commission Rate ---------------- --------------- 1 [*] 2 [*] 3 [*] 4 [*] 5 [*] 6 [*] 7 [*] 8 [*] 9 [*] 10 and later [*]
The Ceding Company will provide the Reinsurer with the detailed calculation of the Expense Allowance for each Accounting Period as set out in Schedule F - Quarterly Report of Activity and Settlements. 14 ARTICLE VI - RESERVES AND FUNDS WITHHELD 1. MODCO RESERVE The modified coinsurance reserve (the "Modco Reserve") will equal the Quota Share Percentage multiplied by the result of (i) plus (ii) plus (iii), where: (i) Equals the NAIC Statutory Reserve held by the Ceding Company with respect to the base policy of the Policies, including reserves for both the Separate Account and Fixed Account, excluding any reserves associated with any Guaranteed Benefits, at the end of the Accounting Period; and (ii) Equals the Tax Reserves held at the end of the Accounting Period for Guaranteed Benefits; and (iii) Equals the excess, if any, of the Deferred Gains at the end of the Accounting Period over the amount of Deferred Gains existing on the Settlement Date. For greater clarity, the parties intend that the Ceding Company hold the tax reserves for Guaranteed Benefits, where tax reserves means reserves computed according to the methods described in Code Section 807 and Regulations related thereto (the "Tax Reserves"). 2. MODCO RESERVE ADJUSTMENT The Modco Reserve Adjustment shall be (i) minus (ii) minus (iii), where, (i) Equals the Modco Reserve, determined in accordance with Section 1 above, at the end of the Accounting Period; and (ii) Equals the Modco Reserve, determined in accordance with Section 1 above, at the end of the previous Accounting Period, except that for the initial Accounting Period, for which the Modco Reserve will equal the Modco Reserve determined as of the Effective Date, in accordance with Schedule H - Opening Amounts and Settlements; and (iii) Equals the Modco Reserve Investment Credit determined in accordance with Schedule B - Modco Reserve Investment Credit. 3. COINSURANCE RESERVE The coinsurance reserve (the "Coinsurance Reserve") shall be the Quota Share Percentage multiplied by the result of (i) minus (ii) minus (iii), where: (i) Equals the NAIC Statutory Reserve held by the Ceding Company with respect to any Guaranteed Benefits; and (ii) Equals the Tax Reserves held at the end of the Accounting Period for Guaranteed Benefits; and (iii) Equals the excess, if any, of the Deferred Gains at the end of the Accounting Period less the Deferred Gains existing on the Settlement Date. 4. FUNDS WITHHELD ACCOUNT The Ceding Company will withhold funds from the Reinsurer and establish a funds withheld account pursuant to this Article (the "Funds Withheld Account"). The Ceding Company will retain, control and own all assets held in relation to the Funds Withheld Account while maintaining a liability to the Reinsurer equal to this amount. The Ceding Company will invest and manage the assets backing the Funds Withheld Account in accordance with an investment policy which will be created, and approved by the Reinsurer, before December 31, 2008 (the "Investment Policy"). The Ceding 15 Company will not materially change the Investment Policy without the prior written consent of the Reinsurer, which consent will not be unreasonably withheld. For the period of October 1, 2008 to December 31, 2008 it is recognized by both the Ceding Company and the Reinsurer that an Investment Policy does not yet exist for the asset segment backing the Guaranteed Benefits. As a result, for the specified period, the Funds Withheld Account will attract an earned interest rate of LIBOR plus 50 basis points, plus the Quota Share Percentage of any gains or losses on hedging instruments used to hedge and back the Guaranteed Benefits and the associated fees in the Policies times the ratio of the Opening Funds Withheld Account Balance over the sum of the Opening Funds Withheld Account Balance plus the Guaranteed Benefits component of the Modco Reserve, as defined in Section 1 (ii) and (iii) of this Article. 5. OPENING FUNDS WITHHELD ACCOUNT BALANCE The Funds Withheld Account as of the Effective Date of this Agreement shall have a balance equal to the amount stated as the Funds Withheld Account Balance in Schedule H - Opening Amounts and Balances. Thereafter and for the duration of the Agreement, the Ceding Company shall adjust the Funds Withheld Account Balance at the end of each Accounting Period as set out in this Article. The Funds Withheld Account Balance as of the first day of each Accounting Period (the "Opening Funds Withheld Account Balance") subsequent to the Accounting Period in which the date of this Agreement falls shall be an amount equal to the Funds Withheld Account Balance on the last day of the immediately preceding Accounting Period (the "Closing Funds Withheld Account Balance"). The Closing Funds Withheld Account Balance shall never be less than zero. 6. REINSURANCE GAIN For each Accounting Period, the reinsurance gain (the "Reinsurance Gain") will be equal to (a) minus (b), where: (a) Equals the sum of items (i) through (iv), where; (i) Equals the Reinsurance Premiums as defined in Article III - Reinsurance Premiums, Section 2; and (ii) Equals the Reinsurance Fees as defined in Article III - Reinsurance Premiums, Section 3; and (iii) Equals the Investment Income gains and losses, whether realized or unrealized, from assets backing the Funds Withheld Account, in accordance with Section 9 below; and (iv) The absolute value of the lesser of zero and the Modco Reserve Adjustment, determined in accordance with Section 2 above; and (b) Equals the sum of items (i) through (iii), where; (i) Equals the Reinsurance Claims as defined in Article IV - Claims and Other Benefits, Sections 1 through 6; and (ii) Equals the greater of zero and the Modco Reserve Adjustment, determined in accordance with Section 2 above; and (iii) Equals the Expense Allowance as defined in Article V - Expense Allowance, Section 2. For the avoidance of doubt, the Reinsurance Gain may be a positive or a negative number. 16 7. FUNDS WITHHELD ADJUSTMENT For each Accounting Period the adjustment to the Funds Withheld Account Balance (the "Funds Withheld Adjustment") will equal the greater of (a) plus (b) minus (c) and zero, where: (a) Equals the Opening Funds Withheld Account Balance as defined in Section 5 above; (b) Equals the Reinsurance Gain at the end of the Accounting Period as calculated in accordance with Section 6 above; (c) Equals the Coinsurance Reserve. 8. CALCULATION OF THE CLOSING FUNDS WITHHELD ACCOUNT BALANCE The Closing Funds Withheld Account Balance for each Accounting Period will be equal to the greater of (a) plus (b) minus (c) and zero, where: (a) Equals the Opening Funds Withheld Account Balance as defined in Section 5 above; (b) Equals the Reinsurance Gain at the end of that Accounting Period as calculated in accordance with Section 6 above; (c) Equals the Funds Withheld Adjustment as calculated in accordance with Section 7. 9. CALCULATION OF INVESTMENT INCOME The Ceding Company shall calculate, for each Accounting Period, the investment income earned on the portion of the Ceding Company's assets backing the Opening Funds Withheld Balance, in accordance with Schedule C - Funds Withheld Investment Income (the "Investment Income"). For the avoidance of doubt, Investment Income may be a negative number. 10. CREDITING RATE During the duration of this Agreement, it is the parties' expectation that the Ceding Company will credit a rate on the fixed account portion of the Policies which maintains the Company's current crediting rate practice. The Ceding Company's current practice is to credit a rate that is either supportable from the return on the duration matched new money rates, subject to contractual minimum interest rates, or is enhanced by a limited "promotional budget" not to exceed 0.5% of base policy premiums received during the Accounting Period, which allows the Ceding Company to remain competitive in the Variable Annuity market. The Ceding Company will inform the Reinsurer in the event the Ceding Company determines the need to deviate from its current crediting practice. The Ceding Company will provide the Reinsurer with the description of the Ceding Company's proposed strategy and the Ceding Company's justification for crediting interest rates outside the guidelines described above. The description, justification and supporting documentation shall be subscribed to by a Member of the American Academy of Actuaries stating that the new crediting rate strategy is sound, adequate in light of cash flow testing, adequate considering all reserve requirements established in the Standard Valuation Law and is determined to be sound under the Actuarial Standards of Practice. 11. INITIAL RESERVE ADJUSTMENT The Initial Reserve Adjustment on the Effective Date is equal to $480,000,000. 17 ARTICLE VII - ACCOUNTING AND QUARTERLY SETTLEMENT 1. QUARTERLY ACCOUNTING PERIOD Each Accounting Period under this Agreement will be a calendar quarter ending March 31, June 30, September 30 or December 31, except that: (a) the initial Accounting Period runs from the Effective Date of this Agreement through the last day of the calendar quarter during which the Execution Date of this Agreement falls, and (b) the final Accounting Period runs from the first day after the end of the preceding Accounting Period until the Terminal Accounting Date of this Agreement as defined in Article IX - Terminal Accounting and Settlement, Section 2. 2. QUARTERLY ACCOUNTING REPORTS The Ceding Company shall submit to the Reinsurer quarterly accounting reports, substantially in the form of Schedule F - Quarterly Report of Activity and Settlements, for each Accounting Period not later than forty-five (45) days after the end of each Accounting Period. Such reports will include, but is not limited to, information on the amount of Reinsurance Premiums, Expense Allowance, Reinsurance Claims, Funds Withheld Balances, Funds Withheld Adjustment, Coinsurance Reserves, Modco Reserves and Modco Investment Credit. Upon request, the Ceding Company shall submit a quarterly asset listing in the form of Schedule G -Asset Listing, not later than forty-five (45) days after the end of each Accounting Period. In addition, upon request, the Ceding Company shall submit a quarterly listing of policies inforce as described in the form of Schedule I - Information Required for Financial Reporting. 3. QUARTERLY SETTLEMENTS Within forty-five (45) days after the end of each Accounting Period, an amount equal to the Reinsurance Gain, as defined in Article VI - Reserves and Funds Withheld, Section 7, will be settled between the Ceding Company and Reinsurer. Payment shall first be made by way of an increase or decrease to the Funds Withheld Account as applicable, where: (i) if the Reinsurance Gain is greater than or equal to zero, the Ceding Company shall increase the Funds Withheld Account Balance by such amount, and (ii) if the Reinsurance Gain is less than zero, the Ceding Company shall decrease the Funds Withheld Account Balance by the absolute value of such amount. For the avoidance of doubt, no cash payment will be made to the reinsurer unless, after such payment, the Coinsurance Reserve is equal to the Closing Funds Withheld Account Balance. In the event a positive amount is calculated for the Funds Withheld Adjustment, such amount will be paid in cash to the Reinsurer. In the event the Funds Withheld Adjustment is calculated to be zero, and the Coinsurance Reserve exceeds the sum of the Closing Funds Withheld Account Balance plus any existing Letter of Credit amount, the Reinsurer has the option to: (a) Pay an amount to the Ceding Company in cash or cash equivalents equal to the Coinsurance Reserve less the Closing Funds Withheld Account Balance less the existing Letter of Credit amount less the market value of any assets held in trust for the benefit of the Ceding Company, such amount to be deposited in the Funds Withheld Account; or (b) Provide a Letter of Credit to the Ceding Company equal to the Coinsurance Reserve less the Closing Funds Withheld Account Balance less any existing Letter of Credit amount, less the market value of any assets held in trust for the benefit of the Ceding Company; or (c) Transfer an amount or assets to a trust for the benefit of the Ceding Company with a fair value equal to the Coinsurance Reserve less the Closing Funds Withheld Account Balance less the existing Letter of Credit amount less the market value of any existing assets held in trust for the benefit of the Ceding Company. 18 4. AMOUNTS DUE QUARTERLY Within forty-five (45) days after the end of each Accounting Period, the Ceding Company will pay to the Reinsurer any positive Funds Withheld Adjustment for the Accounting Period as per Article VI - Funds Withheld, Section 7. The payment of a Funds Withheld Adjustment to the Reinsurer shall only be made by the Ceding Company in cash or cash equivalent as may be agreed by the Reinsurer. In the event the Funds Withheld Account falls to zero, any payments to be made by the Reinsurer to the Ceding Company will be made in cash or funded through a Letter of Credit. 5. ANNUAL ACCOUNTING REPORTS The Ceding Company will provide the Reinsurer with annual accounting reports within sixty (60) days after the end of the calendar year for which such reports are prepared. These reports will contain sufficient information about the Policies to enable the Reinsurer to prepare its annual financial reports and to verify information reported in Schedule E - Quarterly Report of Activity and Settlements, and will include Exhibit 5 by reserve basis, Page 7 and Schedule S of the NAIC Convention Blank. Furthermore, upon request, the Ceding Company will provide to the Reinsurer a copy of its annual NAIC Statement and the Reinsurer will provide to the Ceding Company a copy of its audited financial statements. 6. ESTIMATIONS If the amounts, as described in Sections 3 and 4 above, cannot be determined by the dates described in those sections, on an exact basis, such payments will be paid in accordance with a mutually agreed upon formula which will approximate the actual payments. Adjustments will then be made to reflect actual amounts when they become available. 7. DELAYED PAYMENTS For purposes of Section 4 above, if there is a delayed settlement of a payment due, the party owed shall have the right to charge an interest penalty on the net amount owed for the period that the amount is overdue. Any interest penalty charged shall be calculated from the date due as set forth in Section 4 above, to the date of payment based on the three month LIBOR on a per annum basis (containing 360 days) as published on the last day of the Accounting Period plus 50 basis points. The three month LIBOR rate for this calculation will reset at the last business day of each subsequent Accounting Period until outstanding amounts due have been paid. Accrued balances of less than $200,000 can be paid in the next subsequent Accounting Period settlement without interest penalty. 8. OFFSET OF PAYMENTS The Company and the Reinsurer will have the right to offset any balance or balances due and payable between the parties, including but not limited to premiums, allowances, and claims due from one party to the other under this Agreement. This right of offset shall not be affected or diminished because of the insolvency of either party to this Agreement. ARTICLE VIII - DURATION AND RECAPTURE 1. DURATION Except as otherwise provided herein, this Agreement will be unlimited in duration. 2. REINSURER'S LIABILITY The liability of the Reinsurer with respect to any Policy will begin simultaneously with that of the Ceding Company, but in no event prior to the Effective Date of the Agreement. The Reinsurer's liability with respect to any Policy reinsured hereunder will terminate on the earliest of: (i) the date such Policy is recaptured; (ii) the date the Ceding Company's liability with respect to such Policy is terminated; or (iii) the date this Agreement is terminated in its entirety. 19 Termination of the Reinsurer's liability is subject to payments in respect of such liability in accordance with the provisions of Article IX - Terminal Accounting and Settlement of this Agreement. In no event should the interpretation of this Section imply a unilateral right of the Reinsurer to terminate this Agreement. 3. TERMINATION FOR NONPAYMENT OF REINSURANCE PREMIUMS OR OTHER AMOUNTS DUE If the Ceding Company fails to pay the Reinsurance Premiums or any other amounts due to the Reinsurer pursuant to this Agreement, within seventy-five (75) days after the end of any Accounting Period, the Reinsurer may terminate this Agreement, subject to thirty-five (35) days prior written notice to the Ceding Company. If during the thirty-five (35) day period, the Ceding Company makes full payment of the Reinsurance Premiums due, this Agreement shall continue in force. 4. RECAPTURE The Ceding Company does not have the right to recapture the business reinsured hereunder on or before December 31, 2018. If the Ceding Company opts to recapture after December 31, 2018, then the Ceding Company must recapture all Policies reinsured hereunder. In no event may the Ceding Company recapture anything other than 100 percent of all Policies reinsured hereunder without the prior written consent of the Reinsurer. Policies reinsured hereunder may be recaptured only after specific mutual agreement on all recapture terms and provisions, including any recapture charges or credits, between the Reinsurer and the Ceding Company. Recapture shall be subject to a terminal accounting and settlement pursuant to Article IX - Terminal Accounting and Settlement. 5. INTERNAL REPLACEMENTS Should the Ceding Company, its affiliates, successors or assigns, initiate a program of internal replacement that would include any of the Policies, the Ceding Company will promptly notify the Reinsurer. At the option of the Reinsurer, such Policies may be treated as recaptured rather than surrendered, and the Ceding Company may be required to recapture all such Policies as of the end of the Accounting Period wherein notice is provided. For purposes of this Agreement, the term "Internal Replacement" means any instance in which a Policy or any portion of the Policy is exchanged for another policy or annuity, not covered under this Agreement, which is written by the Ceding Company, its affiliates, successors or assigns. This Section applies to programs of internal replacement and not singular internal replacements not completed as part of a program. The Ceding Company will not initiate a program of internal replacement for the purpose of forcing recapture hereunder without the written approval of the Reinsurer, which approval shall not be unreasonably withheld, delayed or conditioned. Any recapture in accordance with this Section is subject to a terminal accounting and settlement pursuant to Article IX - Terminal Accounting and Settlement. Notwithstanding the above, the Reinsurer is aware and is comfortable with, the upgrade program used by the Ceding Company regarding guaranteed benefits. ARTICLE IX - TERMINAL ACCOUNTING AND SETTLEMENT 1. TERMINAL ACCOUNTING AND SETTLEMENT In the event that the reinsurance under this Agreement is recaptured or terminated, as provided for herein under Article VIII - Duration and Recapture, or if by other mutual agreement of the parties, or if by other means than due to the natural expiration of this Agreement due to settlement of the last remaining policyholder's benefit, a special accounting and settlement shall take place. Upon the natural expiration of this Agreement due to the last policyholder whose Policy is reinsured hereunder terminating his Policy in accordance with its terms, no special accounting shall take place and no inference or construction should be given to this Agreement that would somehow allow the Reinsurer to recover previous losses due to such natural expiration of this Agreement. 20 2. TERMINAL ACCOUNTING DATE The terminal accounting date (the "Terminal Accounting Date") shall be the effective date of recapture or termination pursuant to any notice of recapture or termination given under this Agreement or such other date as shall be mutually agreed to in writing. 3. TERMINAL ACCOUNTING REPORT The Ceding Company shall provide the Reinsurer a Terminal Accounting Report providing all of the information contained in the Quarterly Accounting Report as defined in Article VII - Accounting and Quarterly Settlement, Section 2 and the Annual Accounting Report as defined in Article VII - Accounting and Quarterly Settlement, Section 5, except that for all reports the close of such Accounting Period shall be the Terminal Accounting Date as defined in Section 2 above. 4. TERMINAL CASH FLOW SETTLEMENT The Terminal Cash Flow Settlement shall consist of the final cash flow settlement, and the following payments, determined as of an instant in time immediately after the final cash flow settlement and immediately before this Agreement expires. (a) payment by the Ceding Company to the Reinsurer of an amount equal to the Closing Funds Withheld Account Balance as of the instant in time immediately before the expiration of this Agreement; and (b) payment by the Reinsurer to the Ceding Company of the Reinsurer's net liability on the Policies immediately before expiration of this Agreement only if the Reinsurer has received full payment for the amount called for in (a) above. The final cash flow settlement is the cash flow settlement as provided for in Article VII - Accounting and Quarterly Settlement, Section 4 and Schedule E - Quarterly Report of Activity and Settlements, except that all amounts will be calculated as of the instant in time immediately before this Agreement expires. The net liability referred to in (b) refers to the economic value of the Reinsurer's obligations under this Agreement, and shall be calculated using a method agreed upon by both parties at the time of recapture. For clarity, upon completion of the steps described in (a) and (b) above it is the parties' intent that the Reinsurer retain an appropriate portion of the present value of the future economic profits of the business reinsured, which shall be the difference between the Funds Withheld Account Balance and the economic reserve for the Policies on the Termination Date, as determined using a method mutually agreeable to the parties, but in no event less than zero. Should the above calculation result in a positive cash flow, such net amount is due and payable to the Reinsurer. Should the above calculation result in a negative cash flow, such net amount is due and payable to the Ceding Company. All payments shall be considered timely if such payment is received within 30 days after the date as defined in Section 2 above. Any assets held in a trust for the benefit of the Ceding Company will be released to the Reinsurer upon termination of the Agreement, which assets may be used by the Reinsure to settle any termination payment payable to the Ceding Company. 5. SUPPLEMENTARY ACCOUNTING AND SETTLEMENT In the event that, subsequent to the Terminal Accounting and Settlement as provided above, a change is made with respect to any amounts due, a supplementary accounting will take place pursuant to Section 4 above. Any amount owed to the Ceding Company or to the Reinsurer by reason of such supplementary accounting will be paid promptly upon the completion thereof. ARTICLE X - ARBITRATION 21 1. BASIS FOR ARBITRATION The Ceding Company and Reinsurer mutually understand and agree that the wording and interpretation of this Agreement is based on the usual customs and practices of the insurance and reinsurance industry. While both Parties agree to act in good faith in its dealings with each other, it is understood and recognized that situations may arise in which they cannot reach an agreement. In the event that any dispute cannot be resolved to the Ceding Company and the Reinsurer's mutual satisfaction, the dispute will first be subject to good-faith negotiation as described below in an attempt to resolve the dispute without the need to institute formal arbitration proceedings. 2. NEGOTIATION Within ten days after one of the Parties has given the other the first written notification of the specific dispute, each of the Parties will appoint a designated officer to attempt to resolve the dispute. The officers will meet at a mutually agreeable location as early as possible and as often as necessary, in order to gather and furnish the other with all appropriate and relevant information concerning the dispute. The officers will discuss the problem and will negotiate in good faith without the necessity of any formal arbitration proceedings. During the negotiation process, all reasonable requests made by one officer to the other for information will be honored. The designated officers will decide the specific format for such discussions. If the officers cannot resolve the dispute within thirty days of their first meeting, both Parties agree that they will submit the dispute to formal arbitration. However, the Ceding Company and the Reinsurer may agree in writing to extend the negotiation period for an additional thirty days. 3. ARBITRATION PROCEEDINGS No later than fifteen (15) calendar days after the final negotiation meeting, the officers taking part in the negotiation will give both the Ceding Company and the Reinsurer written confirmation that they are unable to resolve the dispute and that they recommend establishment of formal arbitration. An arbitration panel consisting of three active or retired officers of life insurance or reinsurance companies not affiliated with either the Ceding Company or the Reinsurer in any way will settle the dispute. Each Party will appoint one arbitrator and those two will select a third. In the event that the arbitrators are unable to agree on a third arbitrator within sixty (60) calendar days from the date one of the arbitrators sends written notice to the arbitrator requesting that the arbitrators select a third arbitrator, then either party may petition the American Arbitration Association to select the third arbitrator. Once the arbitration panel has been constituted, the third arbitrator shall contact the parties or their counsel in writing and request a telephone conference. The purpose of the telephone conference is to set a date when the parties, their counsel and the arbitration panel will meet to address organizational matters relating to the arbitration. The arbitration proceedings will be conducted according to the Commercial Arbitration Rules of the American Arbitration Association in effect at the time the arbitration begins. The arbitration will take place in the state of Michigan or such other jurisdiction as agreed to by the parties. Within sixty (60) calendar days after the beginning of the arbitration proceedings the arbitrators will issue a written decision on the dispute and a statement of any award to be paid as a result. In resolving the merits of the parties' difference of opinion the arbitration panel is relieved from all judicial formalities and may abstain from following the strict rule of law, but shall interpret this Agreement as an honorable engagement and not merely a legal obligation. The arbitration panel shall make any interim and final award to effectuate the general purpose of this Agreement in a reasonable manner rather than in accordance with a literal or strictly legal interpretation of its language. The decision will be final and binding on both the Ceding Company and the Reinsurer and there will be no further appeal. 22 The Ceding Company and the Reinsurer may mutually agree to extend any of the negotiation or arbitration periods shown in this Article. The Ceding Company and the Reinsurer will bear the cost of their appointed arbitrator. Unless otherwise decided by the arbitrators, the Ceding Company and the Reinsurer will share equally all other expenses resulting from the arbitration, including the fees and expenses for the third arbitrator, except that each Party will be responsible for its own attorneys' fees. ARTICLE XI - INSOLVENCY 1. INSOLVENCY OF THE CEDING COMPANY If the Ceding Company is judged insolvent, the Reinsurer will pay all reinsurance under this Agreement directly to the Ceding Company, its liquidator, receiver or statutory successor on the basis of the Reinsurer's liability under the Policy or Policies reinsured without decrease because of the Ceding Company's insolvency. It is understood, however, that in the event of the Ceding Company's insolvency the liquidator, receiver or statutory successor will give the Reinsurer written notice of a pending claim on a Policy within a reasonable time after the claim is filed in the insolvency proceedings. While the claim is pending, the Reinsurer may investigate and interpose at its own expense in the proceedings where the claim is to be adjudicated, any defense which the Reinsurer may deem available to the Ceding Company, its liquidator, receiver or statutory successor. It is further understood that the expense the Reinsurer incurs will be chargeable, subject to court approval, against the Ceding Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Ceding Company solely as a result of the defense the Reinsurer has undertaken. Where two or more reinsurers are involved in the same claim and a majority in interest elects to interpose defense to the claim, the expenses will be apportioned in accordance with the terms of the retrocession agreement as though the Ceding Company had incurred the expense. Should the Ceding Company go into liquidation or should a receiver be appointed, all amounts due to the Ceding Company or the Reinsurer under this Agreement shall be subject to the right of offset at any time and from time to time, and upon the exercise of same, only the net balance will be due. The application of the offset in the event of insolvency shall not be deemed to constitute diminution. 2. INSOLVENCY OF THE REINSURER Notwithstanding the prohibition on recapture until on or after December 31, 2018 set forth in Article VIII, Section 4 of this Agreement, in the event of the insolvency of the Reinsurer, the Ceding Company may, at its option recapture all business ceded under this Agreement subject to all other terms and conditions of this Agreement. Termination of the Ceding Company's liability is subject to payments in respect of such liability in accordance with the provisions of Article IX - Terminal Accounting and Settlement of this Agreement. 23 ARTICLE XII - EXECUTION This Agreement may be executed in any number of separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier, telex or electronic mail shall be effective as delivery of a manually executed counterpart of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the dates indicated below in duplicate by their authorized officers, with an Effective Date of October 1, 2008. JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) By: /s/ Marc Costantini --------------------------------- Name: MARC COSTANTINI Title: EXECUTIVE VICE PRESIDENT Date: 12/29/08 By: /s/ Emanuel Alves --------------------------------- Name: EMANUEL ALVES Title: VICE PRESIDENT, COUNSEL & CORPORATE SECRETARY Date: December 29, 2008 MANULIFE REINSURANCE (BERMUDA) LIMITED (SIGNED IN HAMILTON, BERMUDA) By: /s/ P. Willitts --------------------------------- Name: P. Willitts Title: President Date: 29/Dec/08 By: /s/ Michael Hughes --------------------------------- Name: Michael Hughes Title: Vice President & Pricing Officer Date: Dec 29/2008 Signed In: illegible 24 SCHEDULE A - POLICIES REINSURED 1. POLICIES REINSURED This Agreement covers the variable annuity policies and applicable riders issued on the policy forms as described in Section 2 below (the "Policies"). 2. POLICY FORMS SCHEDULE A - POLICIES REINSURED BASE CONTRACTS Under this agreement, the Reinsurer reinsures the Quota Share Percentage of both the fixed account and the separate account, on those variable annuities issued on the following policy forms by the Company after January 1, 2002.
VARIABLE ANNUITY POLICY FORM VARIABLE ANNUITY POLICY NAME ---------------------------- ---------------------------- Venture.001 Venture Venture.003 Venture Venture.004 Venture Venture.005 Venture Venture.100 w/spec page Venture SP.VEN001.06 Venture.100 Venture III Venture.100 w/spec page Venture III SP.VEN100.06 Vision.001 Venture Vision Vision.002 Venture Vision Venture.100 w/spec page Venture Vision SP.VEN100.C.07 Venture.025 Venture Strategy Venture.026 Venture Strategy Venture-VA.AW.07 w/spec page Venture Opportunity - A Share SP.VENVA.AW.07 Venture-VA.B.07 w/spec page Venture Opportunity - B Share SP.VENVA.B.07
Under this agreement, the Reinsurer reinsures the Quota Share Percentage of the fixed account on those variable annuities issued on the following policy forms by the Company after January 1, 2002.
VARIABLE ANNUITY POLICY FORM VARIABLE ANNUITY POLICY NAME ---------------------------- ---------------------------- Venture.015 Vantage Venture.016 Vantage Venture.017 Vantage Venture.100 with SP.VEN015.06 Vantage
Under this agreement, the Reinsurer reinsures the Quota Share Percentage of the following percentage of the separate separate account on those variable annuities issued on the following policy forms by the Company on the dates below
AFTER 1/1/2002 AFTER AND 12/31/2002 BEFORE AND BEFORE AFTER VARIABLE ANNUITY POLICY FORM VARIABLE ANNUITY POLICY NAME 1/1/2003 7/1/2007 6/30/2007 ---------------------------- ---------------------------- -------- ---------- --------- Venture.015 Vantage [*] [*] [*] Venture.016 Vantage [*] [*] [*] Venture.017 Vantage [*] [*] [*] Venture.100 with SP.VEN015.06 Vantage [*] [*] [*]
RIDERS Under this agreement, the Reinsurer reinsures the Quota Share Percentage of the benefit riders listed below if elected on the policy forms listed below: 25
BENEFIT RIDER FORMS BENEFIT RIDER NAME ------------------- ------------------ GMDB BR009.00 GEM Rider BR009.00G GEM Rider BR002.99 Annual Step BR010.00 Annual Step BR010.00G Annual Step GMIB BR.003.00 GRIP II BR003.00G GRIP II BR003.02 GRIP II with 10yr J&S BR010.03 GRIP III GMWB BR017.03 GMWB Principal Plus BR001.05 GMWB Principal Plus for Life (PPFL) BR002.05 GMWB Principal Plus for Life (PPFL) BR001.06 GMWB PPFL Classic and GMWB PPFL Annual Step BR002.06 GMWB PPFL Classic and GMWB PPFL Annual Step BR001.06-AS GMWB PPFL Annual Step BR002.06-AS GMWB PPFL Annual Step BR003NQ.06 GMWB PPFL Spousal BR003Q.06 GMWB PPFL Spousal BR004NQ.06 GMWB PPFL Spousal BR004Q.06 GMWB PPFL Spousal BR001NQ.07 GMWB - Income Plus for Life (IPFL) BR001Q.07 GMWB - Income Plus for Life (IPFL) BR002NQ.07 GMWB - Joint IPFL BR002Q.07 GMWB - Joint IPFL BR001NQ.08 GMWB - IPFL Quarterly Step-up BR001Q.08 GMWB - IPFL Quarterly Step-up BR002NQ.08 GMWB - Joint IPFL Quarterly Step-up BR002Q.08 GMWB - Joint IPFL Quarterly Step-up BR004NQ.07 GMWB - IPFL BR004Q.07 GMWB - IPFL BR005NQ.07 GMWB - Joint IPFL BR005Q.07 GMWB - Joint IPFL BR003NQ.07 GMWB Principal Returns BR003Q.07 GMWB Principal Returns
VARIABLE ANNUITY POLICY FORM VARIABLE ANNUITY POLICY NAME ---------------------------- ---------------------------- Venture.001 Venture Venture.003 Venture Venture.004 Venture Venture.005 Venture Venture.100 w/spec page Venture SP.VEN001.06 Venture.100 Venture III Venture.100 w/spec page Venture III SP.VEN100.06 Vision.001 Venture Vision Vision.002 Venture Vision Venture.100 w/spec page Venture Vision SP.VEN100.C.07 Venture.025 Venture Strategy Venture.026 Venture Strategy Venture.027 Venture Strategy Venture-VA.AW.07 w/spec page Venture Opportunity - A Share SP.VENVA.AW.07 Venture-VA.B.07 w/spec page Venture Opportunity - B Share
26 SP.VENVA.B.07 Venture.015 Venture Vantage Venture.016 Venture Vantage Venture.017 Venture Vantage Venture. 100 w/spec page Venture Vantage SP.VEN015.06
BASE CONTRACTS - DEATH BENEFIT Under this agreement, the Reinsurer reinsures the Quota Share Percentage of the base contract return of premium death benefit for the Policy Forms and Issue Dates listed below.
VARIABLE ANNUITY POLICY FORM VARIABLE ANNUITY POLICY NAME ISSUE DATE ON OR AFTER ---------------------------- ----------------------------- ---------------------- Venture.001 Venture 7/1/2001 Venture.003 Venture 7/1/2001 Venture.004 Venture 7/1/2001 Venture.005 Venture 7/1/2001 Venture.100 w/spec page Venture 5/1/2006 SP.VEN001.06 Venture.100 Venture III 7/1/2001 Venture.100 w/spec page Venture III 5/1/2006 SP.VEN100.06 Vision.001 Venture Vision 7/1/2001 Vision.002 Venture Vision 7/1/2001 Venture.100 w/spec page Venture Vision 2/12/2007 SP.VEN100.C.07 Venture.025 Venture Strategy 5/1/2000 Venture.026 Venture Strategy 5/1/2000 Venture.027 Venture Strategy 5/2/2000 Venture-VA.AW.07 w/spec page Venture Opportunity - A Share 2/11/2008 SP.VENVA.AW.07 Venture-VA.B.07 w/spec page Venture Opportunity - B Share 2/11/2008 SP.VENVA.B.07 Venture.015 Vantage 5/1/2000 Venture.016 Vantage 5/1/2000 Venture.017 Vantage 5/1/2000 Venture.100 with SP.VEN015.06 Vantage 5/1/2006
3. QUOTA SHARE PERCENTAGE Under this Agreement, the Reinsurer reinsures [*] (the "Quota Share Percentage") of both the fixed account and the separate account liabilities and Guaranteed Benefits of the Ceding Company arising under the Policies, net of [*] in effect as of the Effective Date of this Agreement. 27 SCHEDULE B - MODCO RESERVE INVESTMENT CREDIT 1. MODCO RESERVE INVESTMENT CREDIT The Modco Reserve Investment Credit is equal to the portion of the sum of (i) plus (ii) plus (iii), where: (i) Equals the Separate Account Investment Credit, as described in Section 2 below; and (ii) Equals the Fixed Account Investment Credit, as described in Section 3 below; and (iii) Equals the Guaranteed Benefits Investment Credit, as described in Section 4 below. For the initial Accounting Period after the Effective Date, investment income on this component will only accrue from the Settlement Date to the end of the Accounting Period. For the period of October 1, 2008 to December 31, 2008 it is recognized by both the Ceding Company and the Reinsurer that an Investment Policy does not yet exist for the asset segment backing the Guaranteed Benefits. As a result, for the specified period, the Modco Reserve associated with the Guaranteed Benefits will attract an earned interest rate of three month LIBOR, as of the Settlement Date, plus 50 basis points times the Quota Share Percentage, plus the Quota Share Percentage of any gains or losses from the Settlement Date to the end of the Accounting Period on hedging instruments used to back the Guaranteed Benefits component of the Modco Reserve. For the avoidance of doubt, the Modco Reserve Investment Credit may be a positive or negative number. 2. SEPARATE ACCOUNT INVESTMENT CREDIT The Separate Account Investment Credit is equal to the sum of all accrued investment income and capital gains and losses, realized and unrealized, on the Ceding Company's separate account with respect to the base policies reinsured for the Accounting Period, which has been credited to the Policies, net of all fees deducted from the Fund Value of the Policies, multiplied by the Quota Share Percentage. 3. FIXED ACCOUNT INVESTMENT CREDIT The fixed account investment credit shall be calculated as the investment income determined in accordance with Schedule D - Fixed Account Investment Credit (the "Fixed Account Investment Credit"). 4. GUARANTEED BENEFITS INVESTMENT CREDIT The guaranteed benefits investment credit shall be calculated as the investment income determined in accordance with Schedule E - Investment Income (the "Guaranteed Benefits Investment Credit"). 5. FIXED ACCOUNT ASSETS The fixed account assets, as used in this Agreement, means the appropriate proportion of the pooled segment containing assets supporting the liabilities in the fixed account, with respect to the Quote Share Percentage of the base policies reinsured (the "Fixed Account Assets"). 6. FIXED ACCOUNT RATE OF RETURN The term "Fixed Account Rate of Return" is equal to the rate calculated in Schedule D, used in the calculation of the Fixed Account Investment Credit 7. FIXED ACCOUNT CREDITING RATE The term "Fixed Account Crediting Rate", as used in this Agreement, means the result of [2 * (i) / ((ii) + (iii) -(i))], where: (i) Equals the total interest credited on all liabilities backed by the Fixed Account Assets; and (ii) Equals the account value with respect to all liabilities backed by the Fixed Account Assets, as defined in Section 5 above, at the end of the current Accounting Period; and 28 (iii) Equals the account value with respect to all liabilities backed by the Fixed Account Assets, as defined in Section 5 above, at the end of the preceding Accounting Period. 29 SCHEDULE C - FUNDS WITHHELD INVESTMENT INCOME For each Accounting Period the Ceding Company will credit the Reinsurer with Investment Income as detailed in Article VI - Reserves and Funds Withheld, Section 9, including amounts for realized and unrealized capital gains and losses. Such Investment Income for any Accounting Period shall: 1. Be computed in accordance with statutory accounting principles applicable to the Ceding Company. 2. Be based upon the performance of assets in the Ceding Company's applicable sub funds and include amounts as required for, and calculated in accordance with, the Exhibits of Net Investment Income, Exhibit of Capital Gains (Losses) of the Ceding Company's NAIC Annual Statement, adjusted to reflect NAIC Interest Maintenance Reserve instructions, for the Accounting Period, as detailed in Paragraph 3 below. For the purposes of calculating the investment income associated with the Funds Withheld Account, the assets in subfund SF241 should be used. 3. Be equal to (A) times [(B) plus (C)] + (D), where: (A) For purposes of this Agreement, the Funds Withheld Rate for any Accounting Period will be equal to: 2 x [(i) + (ii)] ---------------------------, where: (iii) + (iv) - [(i) + (ii)] (i) Equals the Net Investment Income for the Accounting Period, determined in accordance with Page 8, Exhibit of Net Investment Income, Column 2, Line 17, of the NAIC Annual Statement, plus the pre-tax amortization of the Interest Maintenance Reserve in accordance with Page 4, Line 4 of the NAIC Annual Statement; (ii) Equals the Total Capital Gains (Losses) for the Accounting Period, determined in accordance with Page 8, Exhibit of Capital Gains (Losses), Columns 3 and 4, Line 10, of the NAIC Annual Statement; adjusted to reflect NAIC Interest Maintenance Reserve instructions; (iii) Assets, including the unamortized Interest Maintenance Reserve, as defined below, at the end the preceding Accounting Period; (iv) Assets, including the unamortized Interest Maintenance Reserve, as defined below, at the end the Accounting Period. The term "Assets", as used in this Schedule C, means (a) plus (b) minus (c) minus (d), where amounts (a), (b), (c) and (d) are determined solely with respect to the assets identified as forming the assets backing the Guaranteed Benefits of the Ceding Company: (a) Equals Subtotals, Cash and Invested Assets, determined in accordance with Page 2, Column 3, Line 10, of the NAIC Annual Statement; (b) Equals Investment Income Due and Accrued, determined in accordance with Page 2, Column 3, Line 12, of the NAIC Annual Statement; and (c) Equals the pre-tax Interest Maintenance Reserve, determined in accordance with Page 3, Column 1, Line 9.4, of the NAIC Annual Statement; and (d) Equals Borrowed Money, determined in accordance with Page 3, Column 1, Line 22, of the NAIC Annual Statement. 30 (B) Equals the Opening Funds Withheld Account Balance for the Accounting Period; and (C) Equals 0.5 times (a) multiplied by the sum of (b) minus (c), where: (a) Equals the Opening Funds Withheld Account Balance over the sum of the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii), at the end of the preceding Accounting Period plus the Opening Funds Withheld Account Balance; and (b) Equals reinsurance premiums paid and accrued by the Ceding Company to the Reinsurer for the Accounting Period, as defined Article III - Reinsurance Premiums, Section 2, relating to the Guaranteed Benefits; and (c) Equals the sum of (i) and (ii), where; (i) Equals the reinsurance claims indemnified by the Reinsurer to the Ceding Company for the Accounting Period, as defined in Article IV - Claims and Other Benefits, relating to the Guaranteed Benefits; and; (ii) Equals the Expense Allowance payable by the Reinsurer to the Ceding Company for the Accounting Period, as defined in Article V - Expense Allowance. (D) Equals the investment income earned on the assets in subfund SF080 containing the derivative instruments backing the Guaranteed Benefits and their associated fees times the ratio of the Opening Funds Withheld Account Balance over the sum of the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii), at the end of the preceding Accounting Period plus the Opening Funds Withheld Account Balance. Notwithstanding the above, in the event the Terminal Accounting Period is not a full calendar quarter, the Funds Withheld Rate will be multiplied by a factor equal to the number of days in the Terminal Accounting Period divided by the number of days in the calendar quarter in which the Terminal Accounting Period lies. For Accounting Periods in any calendar year in which the Exhibits as identified above are not prepared, the Funds Withheld Rate shall be based upon the calculations that would be used to prepare the Exhibits as though they had been prepared for those Accounting Periods. If the NAIC Annual Statement blank is changed or modified, such that the items described above do not appear on the pages, exhibits, columns and lines referred to above, or if they should be eliminated or combined with other amounts or if the basis set out in the Annual Statement blank for calculation of the Ceding Company's Adjusted Exhibit 2 Rate should be modified so that the calculation is not consistent with the calculation of the Investment Income Rate described above, then they will be determined in accordance with a method mutually satisfactory to the Reinsurer and the Ceding Company. 31 SCHEDULE D - FIXED ACCOUNT INVESTMENT CREDIT For each Accounting Period the Ceding Company will credit the Reinsurer with the Fixed Account Investment Credit as detailed in Schedule B - Modco Reserve Investment Credit, Section 3, including amounts for realized and unrealized capital gains and losses. Such Investment Income for any Accounting Period shall: 1. Be computed in accordance with statutory accounting principles applicable to the Ceding Company. 2. Be based upon the performance of assets in the Ceding Company's applicable sub funds and include amounts as required for, and calculated in accordance with, the Exhibits of Net Investment Income, Exhibit of Capital Gains (Losses) of the Ceding Company's NAIC Annual Statement, adjusted to reflect NAIC Interest Maintenance Reserve instructions, for the Accounting Period, as detailed in Paragraph 3 below. For the purposes of calculating the Fixed Account Investment Credit associated with the Fixed Account, the assets in subfunds SF033, SF034 and SF078 and policy loans should be used. 3. Be equal to (A) times (B), where: (A) For purposes of this Agreement, the Fixed Account Investment Income Rate for any Accounting Period will be equal to: 2 x [(i) + (ii)] ---------------------------, where: (iii) + (iv) - [(i) + (ii)] (i) Equals the Net Investment Income for the Accounting Period, determined in accordance with Page 8, Exhibit of Net Investment Income, Column 2, Line 17, of the NAIC Annual Statement, plus the pre-tax amortization of the Interest Maintenance Reserve in accordance with Page 4, Line 4 of the NAIC Annual Statement; (ii) Equals the Total Capital Gains (Losses) for the Accounting Period, determined in accordance with Page 8, Exhibit of Capital Gains (Losses), Columns 3 and 4, Line 10, of the NAIC Annual Statement; adjusted to reflect NAIC Interest Maintenance Reserve instructions; (iii) Assets, including the unamortized Interest Maintenance Reserve, as defined below, at the end the preceding Accounting Period; (iv) Assets, including the unamortized Interest Maintenance Reserve, as defined below, at the end the Accounting Period. The term "Assets", as used in this Schedule D, means (a) plus (b) minus (c) minus (d), where amounts (a), (b), (c) and (d) are determined solely with respect to the assets identified as forming the assets backing the fixed account liabilities of the Ceding Company: (a) Equals Subtotals, Cash and Invested Assets, determined in accordance with Page 2, Column 3, Line 10, of the NAIC Annual Statement; (b) Equals Investment Income Due and Accrued, determined in accordance with Page 2, Column 3, Line 12, of the NAIC Annual Statement; and (c) Equals the pre-tax Interest Maintenance Reserve, determined in accordance with Page 3, Column 1, Line 9.4, of the NAIC Annual Statement; and 32 (d) Equals Borrowed Money, determined in accordance with Page 3, Column 1, Line 22, of the NAIC Annual Statement; and (B) Equals the average of the fixed account modco reserve on the Policies at the end of the preceding Accounting Period and the fixed account modco reserve on the Policies at the end of the Accounting Period. Notwithstanding the above, in the event the Terminal Accounting Period is not a full calendar quarter, the Fixed Account Investment Income Rate will be multiplied by a factor equal to the number of days in the Terminal Accounting Period divided by the number of days in the calendar quarter in which the Terminal Accounting Period lies. For Accounting Periods in any calendar year in which the Exhibits as identified above are not prepared, the Fixed Account Investment Incomed Rate shall be based upon the calculations that would be used to prepare the Exhibits as though they had been prepared for those Accounting Periods. If the NAIC Annual Statement blank is changed or modified, such that the items described above do not appear on the pages, exhibits, columns and lines referred to above, or if they should be eliminated or combined with other amounts or if the basis set out in the Annual Statement blank for calculation of the Ceding Company's Adjusted Exhibit 2 Rate should be modified so that the calculation is not consistent with the calculation of the Investment Income Rate described above, then they will be determined in accordance with a method mutually satisfactory to the Reinsurer and the Ceding Company. 33 SCHEDULE E - GUARANTEED BENEFITS INVESTMENT CREDIT For each Accounting Period the Ceding Company will credit the Reinsurer with the Guaranteed Benefits Investment Credit as detailed in Schedule B - Guaranteed Benefits Investment Credit, Section 4, including amounts for realized and unrealized capital gains and losses. Such Investment Income for any Accounting Period shall: 1. Be computed in accordance with statutory accounting principles applicable to the Ceding Company. 2. Be based upon the performance of assets in the Ceding Company's applicable sub funds and include amounts as required for, and calculated in accordance with, the Exhibits of Net Investment Income, Exhibit of Capital Gains (Losses) of the Ceding Company's NAIC Annual Statement, adjusted to reflect NAIC Interest Maintenance Reserve instructions, for the Accounting Period, as detailed in Paragraph 3 below. For the purposes of calculating the investment income associated with the Modco Reserve as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii), the assets in subfund SF241 should be used. 3. Be equal to (A) times [(B) plus (C)] + (D), where: (A) The Guaranteed Benefits Investment Crediting Rate will equal the Funds Withheld Rate for any Accounting Period; and (B) Equals the Modco Reserve at the beginning of the Accounting Period, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii); and (C) Equals 0.5 times (a) multiplied by the sum of (b) minus (c), where: (a) Equals the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii) over the sum of the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii), at the end of the preceding Accounting Period plus the Opening Funds Withheld Account Balance; and (b) Equals reinsurance premiums paid and accrued by the Ceding Company to the Reinsurer for the Accounting Period, as defined Article III - Reinsurance Premiums, Section 2, relating to the Guaranteed Benefits; and (c) Equals the sum of (i) and (ii), where; (i) Equals the reinsurance claims indemnified by the Reinsurer to the Ceding Company for the Accounting Period, as defined in Article IV - Claims and Other Benefits, relating to the Guaranteed Benefits; and; (ii) Equals the Expense Allowance payable by the Reinsurer to the Ceding Company for the Accounting Period, as defined in Article V - Expense Allowance. (D) Equals the investment income earned on the assets in subfund SF080 containing the derivative instruments hedging the Guaranteed Benefits and their associated fees times the ratio of the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii) over the sum of the Modco Reserve, as defined in Article VI - Reserves and Funds Withheld, Section 1 (ii) and (iii), at the end of the preceding Accounting Period plus the Opening Funds Withheld Account Balance. Notwithstanding the above, in the event the Terminal Accounting Period is not a full calendar quarter, the Guaranteed Benefit Investment Crediting Rate will be multiplied by a factor equal to the number of days in the 34 Terminal Accounting Period divided by the number of days in the calendar quarter in which the Terminal Accounting Period lies. For Accounting Periods in any calendar year in which the Exhibits as identified above are not prepared, the Guaranteed Benefit Investment Income Rate shall be based upon the calculations that would be used to prepare the Exhibits as though they had been prepared for those Accounting Periods. If the NAIC Annual Statement blank is changed or modified, such that the items described above do not appear on the pages, exhibits, columns and lines referred to above, or if they should be eliminated or combined with other amounts or if the basis set out in the Annual Statement blank for calculation of the Ceding Company's Adjusted Exhibit 2 Rate should be modified so that the calculation is not consistent with the calculation of the Investment Income Rate described above, then they will be determined in accordance with a method mutually satisfactory to the Reinsurer and the Ceding Company. 35 SCHEDULE F - QUARTERLY REPORT OF ACTIVITY AND SETTLEMENTS (From the Ceding Company to the Reinsurer) Reporting Quarter: ___________________ Calendar Year: ___________________ Date Report Completed: ___________________ 1. CONSIDERATION (only relevant in the initial Accounting Period) [1a - 1b] a. Initial Consideration (Article III, Section 1) b. Amounts settled on the Settlement Date 2. REINSURANCE PREMIUMS (Article III, Section 2) [2a + 2b - 2c] a. Gross Policy Premiums and Payment Enhancements b. Rider Premiums c. Premiums Payable under Third Party Reinsurance Agreements 3. REINSURANCE FEES (Article III, Section 3) 4. MODCO RESERVE INVESTMENT CREDIT (Schedule B) [4a + 4b + 4c] a. Separate Account Investment Credit b. Fixed Account Investment Credit c. Guaranteed Benefits Investment Credit 5. FUNDS WITHHELD INVESTMENT INCOME (Article VI, Section 9) 6. MODCO RESERVE ADJUSTMENT (Article VI, Section 2) [6a - 6b] a. Modco Reserve at the end of the Accounting Period b. Modco Reserve at the end of the preceding Accounting Period 7. REINSURANCE CLAIMS (Article IV) [7a + 7b + 7c + 7d + 7e - 7f] a. Death Claims b. Surrenders c. Annuitization Benefits d. Income Benefit Claims e. Withdrawal Benefit Claims f. Ceded claims (under Third Party Reinsurance Agreements) 8. INITIAL RESERVE ADJUSTMENT (only relevant in the initial Accounting Period) (Article VI, Section 11) 9. INITIAL CEDING COMMISSION (only relevant in the initial Accounting Period) (Article V, Section 1) 10. EXPENSE ALLOWANCE (Article V, Section 2) 11. REINSURANCE GAIN (Article VI, Section 6) [1 + 2 + 3 + 4 + 5- 6 - 7 - 8 - 9 - 10] 12. FUNDS WITHHELD ADJUSTMENT (ARTICLE VI, SECTION 7) Max[0,14a+11-15b] 13. QUARTERLY SETTLEMENT [= 11 - 14c] a. Amount due the Reinsurer [if >0] b. Amount due the Ceding Company [if <0] c. Amount due the Ceding Company in cash or Letter of Credit [max (0 , 15b - 14b - 17a - 18a] d. Amounts settled on the Settlement Date [= 1b]
36 14. FUNDS WITHHELD ACCOUNT a. Opening Balance (Article VI, Section 5) b. Closing Balance (Article VI, Section 8) [14a + 11 -12] c. Change in Funds Withheld [14b - 14a] 15. COINSURANCE RESERVES (Article VI, Section 3) a. At the end of the preceding Accounting Period b. At the end of the Accounting Period 16. TAX RESERVES a. At the end of the preceding Accounting Period b. At the end of the Accounting Period 17. LETTERS OF CREDIT a. Letters of Credit at the end of the preceding Accounting Period b. Letters of Credit at the end of the Accounting Period 18. ASSETS IN TRUST a. Market value of any assets held in trust at the end of the preceding Accounting Period b. Market value of any assets held in trust at the end of the Accounting Period 19. DEFERRED GAINS a. Deferred Gains at the end of the preceding Accounting Period b. Deferred Gains at the end of the Accounting Period c. Deferred Gains on the Settlement Date
MOVEMENT OF POLICIES REINSURED (POLICY COUNTS) Policies Riders ---------------------------------------------- -------- ------ ACTIVE LIVES In Force, Beginning of Period Additions Terminations In Force, End of Period
SEPARATE FIXED ADDITIONAL TOTAL ACCOUNT ACCOUNT LOSS SEPARATE FIXED INFORMATION NUMBER OF FUND FUND TOTAL FUND CARRYFOR ACCOUNT ACCOUNT BASE POLICIES POLICIES VALUE VALUE VALUE WARD RESERVE RESERVE ------------- --------- -------- ------- ---------- -------- -------- ------- Beginning of Period + Additions - Terminations End of Period
ADDITIONAL INFORMATION SEPARATE FIXED FOR EACH TOTAL ACCOUNT ACCOUNT GUARANTEED NUMBER OF FUND FUND TOTAL FUND GAURANTEED GUARANTEED BENEFIT TYPE POLICIES VALUE VALUE VALUE VALUES RESERVE ------------ --------- -------- ------- ---------- ---------- ---------- Beginning of Period + Additions - Terminations End of Period
37
Ceding Commission Acquisition Expense Allowance Rate Volume Total ----------------------------- ---------- ------ ----- Subpays on Policies issued Prior to 2005, premiums and payment enhancements [*] Subpays on Policies Issued 2005 thru 2007: Premium General Account [*] Premium Separate Account Vantage prior 7/1/07 [*] Premium Separate Account Non-Vantage [*] Premium Separate Account Vantage 7/1/07+ [*] Payment Enhancements General Account [*] Payment Enhancements Separate Account Vantage prior 7/1/07 [*] Payment Enhancements Separate Account Non-Vantage [*] Payment Enhancements Separate Account Vantage 7/1/07+ [*] Vision Issued in 2007 only [*] New Policies and Subpays on Policies Issued on and After 1/1/2008 Venture [*] Venture III [*] Vision [*] Vantage [*] Opportunity [*]
(A) (B) (A) * (B) FACTOR VOLUME TOTAL ------------------ --------------------- -------------------- Acquisition Expense Premiums CARVM Allowance N/A N/A Per Policy [*] # of Inforce Policies Fund Value [*] Total Fund Value Trail Commission Expense Table In Article V Total Fund Value Administrative Expense Allowances (c) = total of above Quota Share Percentage 90% Expense Allowance (c) x 90%
FIXED ACCOUNT ASSET RATE OF RETURN (SCHEDULE B, SECTION 2) i) Fixed Account Investment Income Rate FIXED ACCOUNT ASSET CREDITING RATE (SCHEDULE B, SECTION 3) i) Interest credited on all liabilities backed by Fixed Account Assets for the current Accounting Period ii) Account Value with respect to all liabilities backed by Fixed Account Assets at the end of the current Accounting Period iii) Account Value with respect to all liabilities backed by Fixed Account Assets at the end of the preceding Accounting Period iii) Fixed Account Asset Crediting Rate [(2 * i)) / (ii) + iii) - i))] 38 FOR EACH FUND FOR EACH PRODUCT/LINE OF BUSINESS
Total # of # of Units Fund Unit Price Fund A Total Account Policies A (etc) Value -------- --------------- ----------------- ------------- Beginning of Period + Addition - Termination End of Period
PREMIUMS IN PERIOD FOR EACH PRODUCT
Deposits by Fund Total Number of ---------------------- Total Account Policies Fund A Fund B (etc.) Value --------------- ------ ------------- ------------- Deposits
PREMIUMS IN PERIOD FOR EACH PRODUCT
Total Number of Policies Total Account Value ------------------------ ------------------- (a) Beginning of period (b) Added During Period (c) Lapsed During Period End of Period
39 SCHEDULE G - ASSET LISTING The Asset Listing shall contain a seriatim listing of all assets held by the Ceding Company in subfunds SF034, SF078, SF241 and SF080 and be provided to the Reinsurer upon request. This listing shall include the following information: - Asset Class (e.g. mortgage, bond, equity) - Identifier (e.g. CUSIP) - Issuer Name - Par - Coupon - Book Value - Market Value - Accrued Interest - Maturity Date - S&P Rating - NAIC Rating - Book Yield - Market Yield In the event the information above is not applicable to specific assets held by the Ceding Company, relevant information should be provided to allow the Reinsurer to identify the value of the asset. 40 SCHEDULE H - OPENING AMOUNTS AND SETTLEMENTS (AS OF THE DATE SPECIFIED) 1. MODCO RESERVE - OCTOBER 1, 2008 SEPARATE ACCOUNT RESERVE [*] FIXED ACCOUNT RESERVE [*] GUARANTEED BENEFITS RESERVE [*] 2. FUNDS WITHHELD ACCOUNT BALANCE - OCTOBER 1, 2008 [*] 3. COINSURANCE RESERVES - OCTOBER 1, 2008 [*] 4. TAX RESERVES - OCTOBER 1, 2008 SEPARATE ACCOUNT RESERVE [*] FIXED ACCOUNT RESERVE [*] GUARANTEED BENEFITS RESERVE [*] 5. MODCO RESERVE - NOVEMBER 18, 2008 GUARANTEED BENEFITS RESERVE [*] 6. FUNDS WITHHELD ACCOUNT BALANCE - NOVEMBER 18, 2008 [*] 7. INITIAL RESERVE FOR GUARANTEED BENEFITS - NOVEMBER 18, 2008 [*] 8. COINSURANCE RESERVES - NOVEMBER 18, 2008 [*] 9. TAX RESERVES FOR GUARANTEED BENEFITS - NOVEMBER 18, 2008 [*] 10. INITIAL CONSIDERATION - NOVEMBER 18, 2008 [*] 11. INITIAL CEDING COMMISSION - NOVEMBER 18, 2008 [*] 12. INITIAL RESERVE ADJUSTMENT - OCTOBER 1, 2008 [*] 13. SETTLEMENT - NOVEMBER 18, 2008 [ = 10 - 11 - 5 - 6] [*] 14. DEFERRED GAINS EXISTING ON THE SETTLEMENT DATE - NOVEMBER 18, 2008 [*]
41 SCHEDULE I - INFORMATION REQUIRED FOR FINANCIAL REPORTING For each Accounting Period the Ceding Company shall submit the information listed below: IN FORCE DATA GMDB INFORCE FIELDS Company Policy number Plan code Effective date Policy issue state Driver DB type Annuitant name Annuitant sex Annuitant date of birth Annuitant issue age Annuitant attained age Owner name Owner sex Owner date of birth Owner issue age Owner attained age Tax status indicator Current variable account value Current fixed account value Current loan account value Prior account value Current account value Current cash surrender value Current GMDB Current GEM amount Current death benefit Policy continued date New policy continued choice Old policy number Treaty number Valuation date GMIB INFORCE FIELDS Company Policy number Plan code Effective date Driver Annuitant name Annuitant sex Annuitant date of birth Annuitant issue age Annuitant attained age Owner name Owner sex Owner date of birth Owner issue age Owner attained age Tax status indicator Current account value Current income base Grip indicator Waiting period end date Cumulative premium Cumulative withdrawals GIR anniversary date Stepup date Total monthly payments Policy continued date New policy continued choice Old policy number Treaty number Valuation date WB INFORCE FIELDS Company Policy number Plan code Effective date Driver Annuitant name Annuitant sex Annuitant date of birth Annuitant issue age Annuitant attained age Owner name Owner sex Owner date of birth Owner issue age Owner attained age Tax stat indicator Current account value Current withdrawal base GMWB indicator Cumulative premium Cumulative withdrawals Guaranteed Withdrawal Amount (GWA) Lifetime Income Amount (LIA) Policy continued date New policy continued choice Old policy number Treaty number Valuation date 42 CLAIMS GMDB CLAIM FIELDS Policy Number Product code Enhanced indicator Plan type (Tax stat indicator) Attained age Variable amount Fixed amount Loan amount Account value GMDB amount Surrender charge amount Net Amount paid to contractholder Owner date of birth Annuitant date of birth Who died (A or O code) Effective date Date of death Issue age Date processed Date paid Product Type GEM amount GMIB CLAIM FIELDS Policy Number Vantage-One Plan Code Plan Type Annuitant Name Annuitant Date of Birth Annuitant Sex Co-Annuitant Name Co-Annuitant Date of Birth Co-Annuitant Sex Original Contract Issue Date Annuitization Effective Date Account Value Annuitized Income Base Premium Tax ($ Amt) Unisex Indicator Reinsurance Claim Interest Rate GRIP Purchase Rate Treaty Purchase Rate GRIP Reinsurance Claim Amount GRIP Claim Amount (for reserving) GMWB CLAIM FIELDS Policy Number Vantage-One Plan Code Plan Type Annuitant Name Annuitant Date of Birth Annuitant Sex Co-Annuitant Name Co-Annuitant Date of Birth Co-Annuitant Sex Original Contract Issue Date Guaranteed Withdrawal Balance (GWB) Guaranteed Withdrawal Amount (GWA) Lifetime Income Amount (LIA) Premium Tax ($ Amt) 43 SCHEDULE J - FUND LISTING DB & IB PRE-2006 VENTURE, VENTURE III, VANTAGE AND VISION CONTRACTS ISSUED PRIOR TO MAY 1, 2006 PORTFOLIO AIM CAPITAL MANAGEMENT, INC. All Cap Growth Trust AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. Small Company Trust BLACKROCK INVESTMENT MANAGEMENT, LLC Large Cap Value Trust CAPITAL GUARDIAN TRUST COMPANY Income & Value Trust Overseas Equity Trust U.S. Large Cap Trust CAPITAL RESEARCH MANAGEMENT COMPANY American Asset Allocation American Blue Chip Income and Growth Trust American Bond Trust American Global Growth American Global Small Capitalization American Growth-Income Trust American Growth Trust American High-Income American International Trust American New World DAVIS ADVISORS Financial Services Trust Fundamental Value Trust DECLARATION MANAGEMENT & RESEARCH Total Bond Market Trust A Total Bond Market Trust B Short-Term Bond Trust Active Bond Trust DEIM DWS Equity 500 Index DEUTSCHE ASSET MANAGEMENT INC. All Cap Core Trust Real Estate Securities Trust DIMENSIONAL FINANCIAL ADVISORS Disciplined Diversification Trust GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC 44 International Core Trust JENNISON ASSOCIATES LLC Capital Appreciation Trust LEGG MASON FUNDS MANAGEMENT, INC. Core Equity Trust LORD, ABBETT & CO All Cap Value Mid Cap Value MARISCO CAPITAL MANAGEMENT, LLC International Opportunities Trust MASSACHUSETTS FINANCIAL SERVICES COMPANY Utilities Trust MFC GLOBAL INVESTMENT MANAGEMENT American Fundamental Holdings American Global Diversification Franklin Templeton Founding Allocation MFC GLOBAL INVESTMENT MANAGEMENT (U.S.) LLC Strategic Income Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.A.) LIMITED 500 Index Trust 500 Index Trust B Index Allocation Trust Mid Cap Index Trust Money Market Trust Money Market Trust B Optimized All Cap Trust Optimized Value Trust Pacific Rim Trust Small Cap Index Trust Total Stock Market Index Trust Lifestyle Aggressive Trust Lifestyle Balanced Trust Lifestyle Conservative Trust Lifestyle Growth Trust Lifestyle Moderate Trust MFC GLOBAL U.S., LLC High Income MUNDER CAPITAL MANAGEMENT Small Cap Opportunities Trust PACIFIC INVESTMENT MANAGEMENT COMPANY Global Bond Trust PIMCO VIT All Asset Portfolio Real Return Bond Trust Total Return Trust PZENA INVESTMENT MANAGEMENT, LLC Classic Value Trust RCM CAPITAL MANAGEMENT LLC 45 Emerging Small Company Trust SSGA FUNDS MANAGEMENT, INC. International Equity Index Trust A International Equity Index Trust B T. ROWE PRICE ASSOCIATES, INC. Blue Chip Growth Trust Capital Appreciation Value Trust Equity-Income Trust Health Sciences Trust Mid Value Trust Small Company Value Science & Technology Trust TEMPLETON GLOBAL ADVISORS LIMITED Global Trust TEMPLETON INVESTMENT COUNSEL, INC. International Small Cap Trust International Value Trust UBS GLOBAL ASSET MANAGEMENT Global Allocation Trust Large Cap Trust VAN KAMPEN Value WELLINGTON MANAGEMENT COMPANY, LLP Core Allocation Plus Trust Investment Quality Bond Trust Mid Cap Intersection Mid Cap Stock Trust Natural Resources Trust Small Cap Growth Trust Small Cap Value Trust WELLS FARGO FUND MANAGEMENT, LLC Core Bond Trust U.S. High Yield Bond Trust WESTERN ASSET MANAGEMENT CO. (WAMCO) U.S. Government Securities Trust High Yield Trust Strategic Bond Trust DB ONLY 2006+ VENTURE, VENTURE III, VANTAGE AND VISION CONTRACTS ISSUED MAY 1, 2006 AND LATER CAPITAL GUARDIAN TRUST COMPANY Income & Value Trust U.S. Large Cap Trust 46 CAPITAL RESEARCH AND MANAGEMENT COMPANY (Adviser to the American Fund Insurance Series) American Asset Allocation Trust American Bond Trust American Global Growth Trust American Global Small Cap Trust American Growth Trust American Growth-Income Trust American High-Income Bond Trust American International Trust American New World Trust DAVIS SELECTED ADVISERS, L.P. Financial Services Trust Fundamental Value Trust DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC. Real Estate Securities Trust FRANKLIN TEMPLETON INVESTMENT CORP International Small Cap Trust GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC International Core Trust JENNISON ASSOCIATES LLC Capital Appreciation Trust LEGG MASON CAPITAL MANAGEMENT, INC. Core Equity Trust MARSICO CAPITAL MANAGEMENT, LLC International Opportunities Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.), LLC High Income Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.A.) LIMITED (Adviser to the Franklin Templeton Founding Allocation Trust) American Fundamental Holdings Trust American Global Diversification Trust Franklin Templeton Founding Allocation Trust Index Allocation Trust Lifestyle Aggressive Trust Lifestyle Balanced Trust Lifestyle Conservative Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.A.) LIMITED Lifestyle Growth Trust Lifestyle Moderate Trust Mid Cap Index Trust Money Market Trust Pacific Rim Trust MUNDER CAPITAL MANAGEMENT Small Cap Opportunities Trust PACIFIC INVESTMENT MANAGEMENT COMPANY LLC Global Bond Trust Total Return Trust PZENA INVESTMENT MANAGEMENT, LLC 47 Classic Value Trust RCM CAPITAL MANAGEMENT LLC T. ROWE PRICE ASSOCIATES, INC. Science & Technology Trust T. ROWE PRICE ASSOCIATES, INC. Blue Chip Growth Trust Equity-Income Trust Health Sciences Trust Small Company Value Trust TEMPLETON GLOBAL ADVISORS LIMITED International Value Trust UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. Global Allocation Trust VAN KAMPEN Value Trust WELLINGTON MANAGEMENT COMPANY, LLP Investment Quality Bond Trust Mid Cap Intersection Trust Mid Cap Stock Trust Natural Resources Trust Small Cap Growth Trust Small Cap Value Trust WESTERN ASSET MANAGEMENT COMPANY High Yield Trust Strategic Bond Trust U.S. Government Securities Trust VENTURE OPPORTUNITY CONTRACTS CAPITAL RESEARCH AND MANAGEMENT COMPANY (Adviser to the American Fund Insurance Series) American Asset Allocation Trust American Blue Chip Income and Growth Trust American Bond Trust American Global Growth Trust American Global Small Capitalization Trust American Growth Trust American Growth-Income Trust American High-Income Bond Trust American International Trust American New World Trust DAVIS SELECTED ADVISERS, L.P. Fundamental Value Trust FRANKLIN MUTUAL ADVISORS LLC Mutual Shares Trust GRANTHAM, MAYO, VAN OTTERLOO & CO. LLC International Core Trust LEGG MASON CAPITAL MANAGEMENT, INC. Core Equity Trust 48 LORD, ABBETT & CO., LLC All Cap Value Trust Mid Cap Value Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.), LLC Small Cap Intrinsic Value Trust MFC GLOBAL INVESTMENT MANAGEMENT (U.S.A.) LIMITED American Fundamental Holdings Trust Franklin Templeton Founding Allocation Trust Lifestyle Balanced Trust Lifestyle Conservative Trust Lifestyle Growth Trust Lifestyle Moderate Trust Money Market Trust PACIFIC INVESTMENT MANAGEMENT COMPANY LLC Global Bond Trust Total Return Trust TEMPLETON GLOBAL ADVISORS LIMITED Global Trust International Value Trust TEMPLETON INVESTMENT COUNSEL, LLC International Small Cap Trust VAN KAMPEN Value Trust WELLINGTON MANAGEMENT COMPANY, LLP Core Allocation Plus Trust Investment Quality Bond Trust Mid Cap Intersection Trust Mid Cap Stock Trust Small Cap Growth Trust Small Cap Value Trust FUNDS AVAILABLE WITH WITHDRAWAL BENEFITS VENTURE, VENTURE III, VANTAGE AND VISION MFC GLOBAL INVESTMENT MANAGEMENT (U.S.A.) LIMITED Money Market American Fundamental Holdings American Global Diversification Franklin Templeton Founding Allocation Index Allocation Lifestyle Balanced Lifestyle Conservative Lifestyle Growth Lifestyle Moderate 49 CAPITAL RESEARCH MANAGEMENT COMPANY American Asset Allocation T. ROWE PRICE ASSOCIATES, INC. Capital Appreciation Value DIMENSIONAL FINANCIAL ADVISORS Disciplined Diversification AVAILABLE MODEL ALLOCATIONS (PAPER PORTFOLIOS):
PERCENTAGE ALLOCATION OF INVESTMENT OPTION MODEL NAME WITHIN MODEL ---------- ------------------------ AMERICAN GLOBAL DIVERSIFICATION American Global Growth Trust 50% American Bond Trust 20% American Global Small Capitalization Trust 15% American High-Income Bond Trust 10% American New World Trust 5% FUNDAMENTAL HOLDINGS OF AMERICA American Bond Trust 35% American Growth-Income Trust 25% American Growth Trust 25% American International Trust 15% GLOBAL BALANCED (NOT AVAILABLE AFTER APRIL 30, 2007) American International Trust 25% Global Allocation Trust 25% Fundamental Value Trust 30% Global Bond Trust 20% BLUE CHIP BALANCED (NOT AVAILABLE AFTER APRIL 30, 2007) American Growth Trust 30% American Growth-Income Trust 30% Investment Quality Bond Trust 40% VALUE STRATEGY (NOT AVAILABLE AFTER FEBRUARY 10, 2006) Core Equity Trust 30% Equity-Income Trust 30% Active Bond Trust 20% Strategic Bond Trust 20% GROWTH BLEND (NOT AVAILABLE AFTER FEBRUARY 10, 2006) Blue Chip Growth Trust 40% American Growth-Income Trust 20% Active Bond Trust 20% Strategic Bond Trust 20% CORE HOLDINGS OF AMERICA (NOT AVAILABLE AFTER AUGUST 1, 2005) American International Trust 15% American Growth Trust 25% American Growth-Income Trust 25% Active Bond Trust 35%
50 CORESOLUTION (NOT AVAILABLE AFTER APRIL 30, 2005) U.S. Global Leaders Growth Trust 33% Classic Value Trust 33% Strategic Income Trust 34% VALUE BLEND (NOT AVAILABLE AFTER APRIL 30, 2005) American Growth Trust 20% Equity-Income Trust 40% Active Bond Trust 20% Strategic Bond Trust 20% GLOBAL (NOT AVAILABLE AFTER APRIL 30, 2005) International Value Trust 30% U.S. Large Cap Trust 20% Blue Chip Growth Trust 20% Global Bond Trust 30% VENTURE OPPORTUNITY WITH GMWB PORTFOLIO WELLINGTON MANAGEMENT COMPANY, LLP Core Allocation Plus MFC GLOBAL INVESTMENT MANAGEMENT American Fundamental Holdings Franklin Templeton Founding Allocation Lifestyle Balanced Lifestyle Conservative Lifestyle Growth Lifestyle Moderate CAPITAL RESEARCH MANAGEMENT COMPANY American Asset Allocation
AVAILABLE MODEL ALLOCATIONS: 8/25/08 AND LATER
PERCENTAGE ALLOCATION OF INVESTMENT OPTION MODEL NAME WITHIN MODEL ---------- ------------------------ BALANCED: GROWTH & INCOME American Global Small Cap 5% American Growth 5% Global 5% Value 5% Mutual Shares 15% American Blue Chip Income & Growth 15% American Growth-Income 10% American Bond 25% Investment Quality Bond 15% BALANCED TOWARD GROWTH American Global Small Cap 5% American Growth 10%
51 Global 10% Value 5% Mutual Shares 20% American Blue Chip Income & Growth 15% American Growth-Income 10% American Bond 15% Investment Quality Bond 10% GROWTH American Global Small Cap 5% Mid Cap Stock 5% American Growth 15% Global 10% Value 5% Mutual Shares 20% American Blue Chip Income & Growth 15% American Growth-Income 15% American Bond 10%
AVAILABLE MODEL ALLOCATIONS: NOT AVAILABLE FOR CONTRACTS ISSUED ON OR AFTER 8/25/08
PERCENTAGE ALLOCATION OF INVESTMENT OPTION MODEL NAME WITHIN MODEL ---------- ------------------------ BALANCED: GROWTH & INCOME American Global Small Cap 5% American Growth 5% Global 5% Mid Cap Value 5% Mutual Shares 15% American Blue Chip Income & Growth 15% American Growth-Income 10% American Bond 25% Investment Quality Bond 15% BALANCED TOWARD GROWTH American Global Small Cap 5% American Growth 10% Global 10% Mid Cap Value 5% Mutual Shares 20% American Blue Chip Income & Growth 15% American Growth-Income 10% American Bond 15% Investment Quality Bond 10% GROWTH American Global Small Cap 5% Mid Cap Stock 5%
52 American Growth 15% Global 10% Mid Cap Value 5% Mutual Shares 20% American Blue Chip Income & Growth 15% American Growth-Income 15% American Bond 10%
53 SCHEDULE K - BASE DEATH BENEFIT FEES MFO - JH USA BUSINESS
ISSUE DATE ---------------------------------------------------------- 1/1/2001- 1/1/2004 BASE PRODUCT DEATH BENEFIT BEFORE 1/1/2001 12/31/2003 12/31/2004 AFTER 1/1/2005 ------------ ----------------- --------------- ---------- ---------- -------------- VENTURE 2006 Return of Premium [*] [*] Annual Step [*] [*] VENTURE Annual Step [*] [*] [*] [*] VANTAGE 9 YR Ratchet [*] [*] [*] [*] Annual Step [*] [*] [*] [*] VENTURE III Return of Premium [*] [*] [*] [*] Annual Step [*] [*] [*] [*] STRATEGY Return of Premium [*] [*] [*] [*] VISION 5% Indexing [*] [*] [*] [*] VISION 2007 Return of Premium [*] [*] Annual Step [*] [*]
GEM MFO [*] all years Notes: 1. MFO is Margin for Offset 2. All rates are defined as annualized basis points (bps) 54 SCHEDULE L - EXPENSE ALLOWANCE
Ceding Commission Rate ---------------------- Subpays on Policies issued Prior to 2005, premiums and payment enhancements [*] Subpays on Policies Issued 2005 thru 2007: Premium General Account [*] Premium Separate Account Vantage prior 7/1/07 [*] Premium Separate Account Non-Vantage [*] Premium Separate Account Vantage 7/1/07+ [*] Payment Enhancements General Account [*] Payment Enhancements Separate Account Vantage prior 7/1/07 [*] Payment Enhancements Separate Account Non-Vantage [*] Payment Enhancements Separate Account Vantage 7/1/07+ [*] Vision Issued in 2007 only [*] New Policies and Subpays on Policies Issued on and After 1/1/2008 Venture [*] Venture III [*] Vision [*] Vantage [*] Opportunity [*]
55