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The CRC wishes to thank the following persons who served on the 1997 Guidelines Committee:
Minnie Colangelo, The Canada Life Assurance Company
Connie Dewar, Sun Life Assurance Company of Canada
Shaun Downey, The Manufacturers Life Insurance Company
Bill Hazlewood, Swiss Re Life & Health Canada (Chairman)
Manon Larivière, RGA Life Reinsurance Company of Canada
Jacques Ross, Optimum Reassurance Inc.
Lee Shirk, Munich Reinsurance Company
Cheryl Whitten, The National Life Assurance Company of Canada
Sandra Young, Swiss Re Life Canada
Audrey De Freitas, Swiss Re Life & Health Canada, served in a full supportive and consultative role to the committee and her assistance in final compilation of the Guidelines was invaluable.
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TABLE OF CONTENTS
Historical Background (ii)
2 Basis of Agreement
3 Merger and Acquisition
4 Application for Reinsurance
5 Acceptance and Commencement of Reinsurance
6 Underwriting Procedures and Evidence Rules
7 Policy Rescission
9 Reinsurance Amount At Risk
11 Reinsurance Rate Guarantees
12 Joint Life Policies
13 Total Disability & Accidental Death Benefits
16 Reduced Paid-Up Insurance
17 Extended Term Insurance
18 Term Conversions
19 Policy Changes
20 Recapture of Reinsurance
21 Termination of Reinsurance
23 Settlement of Claims
26 Access to Information
28 General Errors and Omissions0
29 Determination of Disputes
Appendix A Premium Reporting, Policy Summary and Detailed Movement Report
Appendix B Cession Form and Reinsurance Application Form
Appendix C Methods for Determining Amount at Risk
These Reinsurance Guidelines are intended to form the basis for the exchange of reinsurance on business written both automatically and facultatively, under Canadian law. The guidelines are not intended to cover business which is not written under Canadian law irrespective of whether any of the parties involved is a Canadian company. They represent both a modernization of previously accepted reinsurance provisions and an expansion of those same provisions to encompass current reinsurance practices. They are not intended to supersede any other formal treaty arrangement, but do form the basis for reinsurance transactions when mutually accepted by all parties. In the event of dispute where other agreements are inadequate, these Guidelines provide a reference for generally accepted industry practice.
The Canadian Reinsurance Conference is a forum that has met continuously once a year since 1956, and is made up of reinsurance administrators, actuaries, underwriters, and others who have an interest in reinsurance. Conference representatives have been drawn from many Canadian, U.S. and other foreign companies that have interests within the Canadian marketplace. The companies that send representatives to the conference are companies that are involved in all facets of reinsurance - professional reinsurers, retrocessionaires, direct writers, and any company that operates in a combination of these areas of commerce.
The reinsurance of excess life insurance has existed in the Canadian life industry since the 1880s. Since that time there have been many changes in reinsurance patterns within the industry, which have evolved to a far more complex form of commerce.
In 1901 the Canadian Life Insurance Offices Association designed and distributed what was known as the "Model Reinsurance Agreement". This was followed in later years by modifications, and we had in turn the 1938 Coinsurance Provisions and the 1951, 1956, 1959 and 1965 YRT Provisions. The foundation for reinsurance in Canada has been, and continues to be, that reinsurance is very much a "gentleman's agreement", and, no matter what is written in any agreements, there is the underlying belief in the good faith that is implied by the exchange of reinsurance and in the adage that "the reinsurer shall follow the fortunes of the ceding company".
At the 1982 Canadian Reinsurance Conference, the attendees requested the Council to form a committee to establish current guidelines for life reinsurance transactions on life insurance business written under Canadian law. A committee was formed representing all segments of the life insurance and reinsurance industry. The 1984 Guidelines were formulated and put forth as a commonly accepted basis for the transaction of life reinsurance.
In 1988, the Canadian Reinsurance Conference requested an independent task force to review and update the Guidelines. This committee also represented all segments of the life insurance and reinsurance industry. Changes to the Guidelines were made in 1989. An updated version was published in 1993 - and on diskette for the first time.
The 1997 Canadian Reinsurance Guidelines revisions were extensive, containing numerous updates to most Sections.
The Guidelines are not intended to be binding on any life insurance company, but are a basis upon which disputes can be settled where existing treaties between two particular parties are not definitive. These guidelines remove some of the ambiguities in interpretation of the historical model agreements and, through more up-to-date terminology, any possible disputes can meet with simpler arbitration.
It must be stressed that the new Reinsurance Guidelines are in no way intended to alter the underlying belief that reinsurance transactions are still very much a form of business that rests on good faith between all parties concerned.
(a) The Ceding Company shall mean the company which applies for and/or places reinsurance with another company;
(b) The Reinsurer shall mean the company that is offered and/or assumes all or part of the insurance written by another company;
(c) The Policy shall mean the contract(s) of insurance issued by the Ceding Company in respect of which reinsurance is applied for and/or placed in whole or in part;
(d) The Reinsurance Cession shall mean the insurance transferred to the Reinsurer by the Ceding Company;
(e) The Reinsurance Cession Form shall mean the document outlining the particulars of the Reinsurance Cession such as name, date of birth, date of policy, plan, amount of policy, amount of reinsurance premium;
(f) Automatic Reinsurance shall mean reinsurance which must be ceded by the Ceding Company in accordance with contract terms (treaty), and must be accepted by the Reinsurer;
(g) Facultative Reinsurance shall mean reinsurance on which the Ceding Company has the option to accept an offer made by the Reinsurer;
(h) Facultative Obligatory Reinsurance shall mean reinsurance which the Ceding Company has the option to cede in accordance with contract terms (treaty) and if so ceded is accepted by the Reinsurer subject only to confirmation of capacity by the Reinsurer;
(i) Insolvency shall mean the legal incapacity of a company to operate as a licensed insurance entity in Canada.
(j) Retrocession shall mean reinsurance ceded by the Reinsurer to another company.
(k) The Reinsurance Contract shall be comprised of the following items where they are applicable to an individual case:
(i) an application for reinsurance,
(ii) Reinsurance Cession Form, New Business Report, or other form of notification of placement of reinsurance,
(iii) any underwriting information provided by the Ceding Company to the Reinsurer,
(iv) the reinsurance treaty, including these Guidelines where explicitly referred to in the treaty.
2. BASIS OF AGREEMENT
The reinsurance facilities set forth in these guidelines apply to life insurance business which has been disclosed by the Ceding Company and accepted by the Reinsurer. Any material change in plan features, such as contractual provisions or options, premium rates, underwriting standards and practices, or distribution arrangements, shall be deemed to create a new class of business to which the agreement shall not apply, unless the Reinsurer has approved such change and confirmed the premium basis applicable. Similarly, introduction of or revision to another plan(s) which may affect the original plan, shall be deemed a material change to the original plan reinsured herein.
3. MERGER AND ACQUISITION
It is intended that the reinsurance transaction and the rights and obligations that go with it will carry on if one or both parties to the agreement sell some or all of the business to a third party. It is obligatory that the third party be made aware of the reinsurance arrangement. Also, each party to the arrangement should be made aware of the sale so that any appropriate changes to the agreement can be made either before or after the sale. This is not meant to preclude the normal retrocession of business where the Reinsurer still maintains the obligation as far as the direct company is concerned.
Consideration should be given to the book of business already ceded to the Reinsurer to prevent total and immediate recapture of the portfolio by the purchaser or the post-merger company. A minimum period of five (5) years after the purchase or merger of the insurer should be considered to spread the recapture of such business up to the retention of the purchaser or the post-merger company. Such period is subsequent to the standard minimum duration of the policy since issue before recapture can be exercised as per Section 20.
4. APPLICATION FOR REINSURANCE
(a) An application for automatic reinsurance shall define the risk(s) to the satisfaction of the Reinsurer, and be in a form agreed upon by the Ceding Company and the Reinsurer.
(b) An application for facultative reinsurance shall be in a form mutually agreeable to the Reinsurer and Ceding Company, so as to clearly indicate the particulars of the risk to be so considered, including any additional benefits, riders or special clauses. Accompanying this application shall be copies of all underwriting evidence that are available for risk assessment. Any subsequent information received by the Ceding Company that is pertinent to the risk assessment should be transmitted to the Reinsurer immediately. The Reinsurer shall not be bound until it has conveyed its final unqualified decision to the Ceding Company, except in those instances where the final decision regarding particular evidence has been extended to the Ceding Company by the Reinsurer.
If new information material to the risk comes to the Ceding Company after a final unqualified Facultative Reinsurance offer has been received but before the Policy has been placed in force, this information should be immediately forwarded to the Reinsurer. Whenever possible the Ceding Company should permit the Reinsurer to amend its offer. If for some reason the Ceding Company's commitments do not permit such an amendment to the offer, the parties should agree on the future disposition of the Policy as set out in Section 7, Policy Rescission, before further action is taken to put the Policy in force.
5. ACCEPTANCE AND COMMENCEMENT OF REINSURANCE
(a) Automatic Reinsurance
The Ceding Company shall advise the Reinsurer without delay, except as otherwise provided for in the treaty, of each case on which the Reinsurer has been committed automatically. For all cessions ceded automatically the liability of the Reinsurer shall commence simultaneously with that of the Ceding Company. The Ceding Company shall, in no case, automatically commit the Reinsurer to such liability under an automatic arrangement if it has previously submitted that case to any reinsurer on a facultative basis.
Prior to placement of the Policy with the insured, the maximum liability of the Reinsurer is:
(i) the Ceding Company's limited liability as specifically stated, under the Policy, Temporary Insurance Agreement or Conditional Insurance Agreement, whichever applies, less
(ii) the Ceding Company's full treaty retention at the life insured age minus the total of all amounts currently retained (including any existing joint life policies) by the Ceding Company on (either) life insured(s) under other policies (for retention including joint life see Section 12c).
In no case shall the Reinsurer's liability on that life exceed the automatic binding limit.
(b) Facultative Reinsurance
(i) If, before submitting a case facultatively, the Ceding Company returns to the applicant any premiums paid with the application, then:
(A) the liability of the Automatic Reinsurer is as defined in (a) above. Normally the Automatic Reinsurer will not be at risk, except for a valid claim wherein death occurred prior to the return of money collected. In any case, the liability of the Automatic Reinsurer will cease in the same manner as is described in (ii) below.
(B) The Facultative Reinsurer will commence coverage when notified that its offer has been accepted.
(ii) If, before submitting a case facultatively, the Ceding Company does not return to the applicant any premium paid with the application, then:
(A) If the case is submitted to the Automatic Reinsurer for that plan, this Automatic Reinsurer will be on risk for the amount outlined in (a) above until a Facultative Reinsurer has been notified, by the most efficient and timely electronic means available to the Ceding Company, that it is on risk. Any death occurring on or before the date of the notice to the Facultative Reinsurer will be the responsibility of the Ceding Company and the Automatic Reinsurer.
Although the Ceding Company will be allowed the 90 days in which to place the policy with the applicant, the Automatic Reinsurer may wish to limit the time interval, after its own final, unconditional offer, during which other Reinsurers' offers may be considered. A reasonable period for the Automatic Reinsurer to allow the Ceding Company to review other Reinsurers' offers, before terminating coverage under the automatic agreement, would be 7 working days. At that point, the Ceding Company would be expected to have refunded any premium paid, or to have notified a Facultative Reinsurer that its offer was accepted. If the Automatic Reinsurer prefers to decline the underwriting risk, it may require the Ceding Company to refund any premium accepted or to pursue further consideration at the Ceding Company's own risk.
Generally, the Facultative Reinsurer will not be at risk until notified that its offer has been accepted. If, however, the Facultative Reinsurer makes the first standard offer, its coverage and liability will commence immediately unless the Automatic Reinsurer has not yet responded. In such case the Facultative Reinsurer's coverage and liability will commence when the Automatic Reinsurer's substandard offer is made.
Claims occurring on a date prior to the date of the commencement of the Facultative Reinsurer's liability will be the responsibility of the Ceding Company and the Automatic Reinsurer as noted above. Claims occurring after the date of commencement of the Facultative Reinsurer's liability will be the responsibility of the Facultative Reinsurer and the Ceding Company to the extent that the latter has indicated its intention to retain part of the policy. Should no retention be specifically indicated, it will be assumed that the Ceding Company will retain its normal retention for the life insured's age and the mortality rating quoted by the Facultative Reinsurer.
(B) If the case is not submitted to the Automatic Reinsurer for the plan, or if there is no Automatic Reinsurer for the plan, then the conditions set above in (ii) (A) will apply, except that the Automatic Reinsurer will have no liability and the Ceding Company will assume all risks assigned to the Automatic Reinsurer. This may mean that the Ceding Company is assuming liability over and above its own retention.
(c) Facultative Obligatory Reinsurance
The Ceding Company shall advise the Reinsurer without delay of each case on which the Reinsurer has been committed under the Facultative Obligatory Agreement. For all cessions under the Facultative Obligatory Agreement, the liability of the Reinsurer shall commence when the Ceding Company is able to reach a decision to approve the case according to the Ceding Company's generally accepted underwriting rules, regulations and standards, if the Reinsurer has verified availability of capacity within its retention limits. This latter step will be necessary only if a decision had not been previously made to submit the case on a facultative basis. Liability of the Reinsurer will be limited to:
(i) the Ceding Company's liability under the Policy, less
(ii) the Ceding Company's full normal retention for the risk classification category at the life insured's age minus the total of all amounts currently retained by the Ceding Company on the life insured under other policies.
In no case shall the Reinsurer's liability on that life exceed the automatic binding limit.
(a) During the period that a Temporary Insurance Agreement or Conditional Insurance Agreement is in place the Reinsurer may wish to reduce its normal binding limit. In this event, it should so specify.
(b) Automatic Binding Limit
This is the amount agreed to between the Ceding Company and the Reinsurer. In the event that a Ceding Company has different reinsurance treaties for specific plans, then it is important to confirm with each Reinsurer whether a rider on a policy is reinsured with the Reinsurer for that specific plan or the Reinsurer that reinsures the basic plan. Unless arrangements are made to the contrary, the Reinsurer for the basic plan will be the Reinsurer for the entire policy. This would mean that if specific treaty terms had not been negotiated for the rider, the Reinsurer's normal YRT rates would be used.
If arrangements were made to reinsure the rider with the Reinsurer for that specific plan, any risk under the Temporary Insurance Agreement would be distributed accordingly, i.e. the Ceding Company keeps its retention under the basic plan first; the Reinsurer for the basic plan would reinsure any excess up to the amount of insurance for the basic plan or the TIA limit; the Reinsurer for the rider would reinsure all amounts for the rider in excess of the Ceding Company's limit.
e.g. Ceding Company retention $250,000
Basic plan 350,000
Rider plan 400,000
TIA Limit 500,000
Amount of Risk: TIA POLICY
Basic plan - Ceding Company $ 250,000 $250,000
Basic plan - Treaty Reinsurer 100,000 100,000
Rider plan - Treaty Reinsurer 150,000 400,000
(c) Facultative Reinsurance
The arrangement proposed for acceptance and commencement of facultative reinsurance in this section presumes that all cases submitted to an Automatic Reinsurer are awarded to that company in the event of a tied decision. It also presumes that the Ceding Company's practice will always be to accept the first standard offer from a Facultative Reinsurer when the Automatic Reinsurer offers other than the standard terms. If the Ceding Company wishes to adopt other rules then the application of this section must be modified accordingly.
(d) Reservation of Facilities
Reservation of facilities in no way connotes any acceptance of risk by the Reinsurer.
There is a tremendous amount of work generated because of large amount inquiries to Reinsurers (and their Retrocessionaires) by different Ceding Companies, in a competitive environment, requesting reservation of facilities on the same life. The following etiquette is appropriate:
(i) A Reinsurer may reserve facilities for a Ceding Company, provided that the Ceding Company has its own signed application, and the Reinsurer is given the name and date of birth of the life insured, amount of current application(s) and in force, and any replacement activity.
(ii) A reservation of facilities, assuming the Reinsurer has received the signed application at its offices, will remain open for a period of 90 days from the date of reservation.
6. UNDERWRITING PROCEDURES AND EVIDENCE RULES
Ceding Companies and Reinsurers should agree on the underwriting procedures and evidence rules that will be applied to the business transacted between them.
If the Ceding Company implements material changes to its underwriting procedures and evidence rules without having these agreed to by the Reinsurer, then the Reinsurer will not be liable for business underwritten using these new procedures.
Material changes in underwriting procedures and evidence rules might include, but are not limited to, changes in:
· policy application form and part II
· conditional and/or temporary receipt wording
· policy delivery and reinstatement rules
· non-medical and medical requirements
· underwriting approval limits and corresponding experience
· underwriting guidelines i.e. medical and financial.
7. POLICY RESCISSION
If, after a Policy involving reinsurance has been placed in force, new information received by the Ceding Company indicates that grounds for rescission may exist, the Ceding Company shall report this information promptly to the Reinsurer.
When the amount assumed by the Reinsurer under any such policy exceeds the Ceding Company's retention, the Ceding Company shall consult with the Reinsurer and shall make a reasonable effort to secure mutual agreement on whether or not to proceed with the rescission.
Should the Ceding Company and the Reinsurer disagree on whether to rescind a Policy, either party may offer to assume the entire liability. If this offer is accepted, the party assuming liability will determine the action to be taken in respect of such rescission.
Rescission expenses shall be apportioned in the same manner shown for claim expenses in Section 23 (e) of these guidelines. If a reinsurance cession is cancelled as the result of a rescission, the liability of the Reinsurer shall be limited to a refund of the reinsurance premiums paid in addition to the rescission expenses.
The Ceding Company shall promptly notify the Reinsurer of the placement of the Policy. The mode of this notification depends on whether the business is to be transacted on a self-administered or individual record basis.
The Ceding Company shall periodically provide written notification of all changes to the cessions in force, including description of and reason for change and the effective date.
The format and frequency of transmission of this information are subject to the Ceding Company's discretion, provided the Reinsurer is notified of all policy changes within 60 days of the change being recorded by the Ceding Company.
Similarly, the Reinsurer shall on request confirm summary totals, or detail listings of cessions received and still in force, and of reinsurance premiums billed and paid or billed and outstanding.
(a) Self Administration
The Ceding Company has the responsibility for maintaining adequate records for the administration of the reinsurance account and will send periodic reports to the Reinsurer. These reports may be sent on a monthly or quarterly basis as agreed between the Ceding Company and the Reinsurer.
The reports should be substantially in accord with the examples in Appendix A, or of a mutually agreed upon format. The regular reports should include a New Business listing, a Termination listing, and other Transactions (such as Increases, Decreases, Conversions) for the reporting period. A summary policy exhibit should also be provided, indicating beginning inforce, new business, changes, terminations and ending inforce. The following details should be available for each risk ceded:
1. policy number
2. full name of insured(s)
3. date(s) of birth
4. sex of insured(s)
5. issue age(s)
6. policy date
8. underwriting classification(s)
9. automatic or facultative indicator
10. name of plan and any supplementary benefits
11. amount issued
12. amount(s) reinsured
A detailed inforce listing should be provided at least annually by the Ceding Company to the Reinsurer.
These reports may be provided on paper or electronically. If provided electronically through diskette, tape or line transmission, the format should be pre-arranged and the Reinsurer provided with report layout details and a data dictionary. Any changes to the electronic reporting format or content should be communicated to the Reinsurer prior to or with submission of the next regular electronic reporting.
(b) Individual Records
The Ceding Company shall complete and send to the Reinsurer a Reinsurance Cession Form, substantially in accord with the example set out in Appendix B. Alternatively, the Ceding Company may, either by written documentation or by electronic transfer, provide sufficient information to enable the Reinsurer to either produce and send a Reinsurance Cession Form to the Ceding Company, or set up a record of the reinsurance particulars to allow the Reinsurer to effectively administer the business.
The Reinsurance Cession Form shall contain the reinsurance schedule or data from which the reinsurance schedule for the first 10 years, or lesser period if agreed, can be determined. The Cession Form shall also indicate:
(i) the plan and amount of insurance issued under the Policy;
(ii) the schedule of rates applicable to the premiums to be paid for reinsurance coverage;
(iii) the reinsurance commissions (if applicable);
(iv) the names of additional lives, if the policy is of a joint or contingent nature;
(v) the insurance benefits reinsured and applicable premiums and commissions for riders and supplementary benefits.
The Ceding Company shall promptly notify the Reinsurer of changes to a reinsurance record by providing an amended Reinsurance Cession, or adequate information to enable the Reinsurer to update its records and produce an amended Reinsurance Cession.
Another reporting method may be used, where Reinsurance Cession Forms are not produced. Instead, the monthly (or quarterly) accounting statements prepared by either the Ceding Company or the Reinsurer will contain additional fields with information on each reinsured policy. These fields include, but are not limited to, those listed on a reinsurance cession form. There should be separate reports for new business, renewals, policy changes and terminations. Only the current year's amount at risk will be shown on the report. The Ceding Company or the Reinsurer shall provide the other party with a detailed explanation of any codes used for the reports.
9. REINSURANCE AMOUNT AT RISK
(a) Yearly Renewable Term (YRT)
The amount of reinsurance coverage shall be generally based upon the amount at risk on the portion of the life insurance being reinsured. Some generally acceptable methods for determining the amount at risk on various types of insurance plans are described in Appendix C. The reinsured portions of the insurance provided by both the basic plan and any riders of the policy shall be taken into account in determining the amount at risk when the basic plans and riders are all reinsured under the same treaty. The overriding principle involved is that the Reinsurer and the Ceding Company will each continue to insure their original proportionate share of the amount of risk. If however the basic plan and the rider or riders are not reinsured under the same treaty then the proportional principle of risk sharing between the Ceding Company and Reinsurer shall be altered as if the basic plan and the rider were in fact separate contracts. If a change or conversion occurs after the date of placement of the original contract then the principle of separation of the basic and rider will be maintained with respect to retaining proportional reinsurance coverage.
The amount of reinsurance coverage shall be based upon the face amount of the insurance. The basic policy and riders are included in determining the initial face amount. The overriding principle involved is that the Reinsurer and the Ceding Company will each continue to insure their original proportionate share of the initial face amount.
(c) Increasing Death Benefit Plans and Riders
Under a YRT or coinsurance Agreement, a per-policy reinsured maximum or cap amount (as a percentage of the initial amount or as an absolute dollar amount) may apply due to the uncertainty as to when and how much additional increases in death benefit may arise at some future date(s) from:
(i) plans or riders which allow for optional increases within predetermined limits at specific dates, or at the occurrence of a specific event, i.e. guaranteed insurability riders;
(ii) plans which provide for predetermined increases, i.e. increasing term riders or return of premium riders; and/or,
(iii) plans with increases that are determined by such factors as a dividend scale or cost of living index, i.e. inflation riders or dividend option increases.
If new evidence of insurability is required, the normal requirements and limits for new automatic or facultative reinsurance shall apply and the new policy or increased amount shall be considered a new issue.
If the increase is not subject to new evidence of insurability, the Reinsurer shall accept the increase automatically, but not to exceed its automatic binding limit or facultative reserve amount. Reinsurance premiums on scheduled non-underwritten increases shall be payable based on original age and duration (point in scale).
Unless otherwise arranged, if the new reinsured amount arises from the exercise of a guaranteed purchase option, a single premium charge per $1,000 or a reservation of facilities fee may be payable in addition to the regular reinsurance premiums.
To bind the Reinsurer on policies initially falling within the Ceding Company's maximum retention and to accommodate the proportionate sharing of future increases on risk, a reduced retention based on a predetermined formula mutually agreed upon between the Ceding Company and the Reinsurer may be applied to such policies and riders at issue.
(a) Increasing Risk Patterns
It should be noted that there are a number of products (plans, riders, dividend options) today which can result in significant increasing risk patterns. These include regular paid-up additions on par policies, paid-up addition riders and various forms of cost of living/inflation riders or option features. The actual risk pattern may not be known as it may vary by dividend guarantees, mortality rate guarantees, and inflation/consumer index factors. It is important that both the Ceding Company and the Reinsurer know how it will determine if reinsurance is required, what plans/riders will be reinsured, and what amounts will be used in considering automatic and capacity limits.
A procedure/rule should be developed for determining the ultimate risk and this amount should be used for determining if the Ceding Company requires reinsurance and whether the amount required is within the automatic terms of the treaty and maximum amounts available under the treaty. The Ceding Company must ensure that its Reinsurers know their potential maximum exposure so the Reinsurers don't risk being over their own retention. It is the Reinsurer's responsibility to indicate any limitation of ultimate amount it requires to impose. If no explicit agreement is made the presumption is likely to be that the proportion of the initial risk retained and reinsured will be the proportion of ultimate risk that is expected subject to the limits defined in the treaty. For example, if the initial risk is 2 Million, the ultimate risk 5 Million and the Ceding Company's retention 3 Million then 60% of the initial risk should be retained and 40% reinsured. If there is more than one Reinsurer they should have a proportionate share of the initial risk reinsured.
The methods for determining amount at risk will in general be that described in Appendix C for Variable Face Amount or Cash Values. The actual projected amounts will depend on individual company calculations. It should be noted that if the increasing risk pattern provided by paid-up addition dividend options (particularly for younger ages) is to be actually reflected then the variable face amount method will apply and schedules will have to be developed. This will often give a different result as compared to ignoring the paid-up addition feature (increasing risk assumed by Ceding Company) and using the scheduled face amount approach.
(b) Variable Face Amounts
For Variable Face Amounts, the 10% variance mentioned in Appendix C may not be appropriate for all companies. For example, a $1,000,000 risk would generate a divergence of $100,000, which may be inappropriately large for a company with a small retention. Each company should consider whether this figure meets its particular circumstances.
(a) Annual Payment
Reinsurance premiums are usually paid annually on a policy year basis, irrespective of the method of payment of premium on the Principal Policy, and shall be determined in accordance with whatever tables of rates may be agreed upon between the Ceding Company and the Reinsurer.
Unless otherwise agreed between the parties, there shall be no refund of premium (whether YRT, coinsurance, Extra or Benefit premium) for the unexpired portion of the policy year in which death occurs.
Policy fees, if included in the table of reinsurance premium rates agreed upon by the Ceding Company and the Reinsurer, shall be payable on the same basis as the premiums. A separate policy fee will be payable for each reinsurance cession.
Where premiums are pro-rated for periods of less than one year, either for payment by the Ceding Company or as a refund by the Reinsurer, the policy fees shall also be pro-rated.
(b) Extra Premiums
If an extra premium is charged under the Policy, the Reinsurer shall be paid one of the following on its share of the risk:
· a multiple of the YRT table;
· a scheduled Table YRT extra;
· the extra premium charged to the insured;
· a flat extra equivalent (previously agreed by the Reinsurer).
In absence of specific agreement to the contrary, flat extras will be coinsured and other extras will be based on a multiple of the YRT rates.
When the extras are coinsured, the commission will be as follows:
Permanent extras and temporary extras payable for over 5 years:
First year 75%;
Renewal years 10%;
Temporary extras payable for 5 years or less:
Each year 10%.
If the extra premium rate per 100% of extra mortality is identical to the basic premium rate, the commission will be the same as the commission for the basic rate. If the extra premium rate per 100% of extra mortality differs from the basic premium rate, the rate of commission will be 75% for the first year and 10% thereafter, except for flat extra premiums payable for 5 years or less, where the rate of commission will be 10% for all years.
(iii) Rated Age
If this method is used under either a YRT or a Coinsurance Agreement, the rated age shall be used to determine the reinsurance schedule and premiums. The method should not allow a rated age lower than the actual age of the life insured.
(c) Preliminary or Interim Insurance Premiums
If any reinsurance is arranged to be effective on a date other than the anniversary of the Policy, premiums, other than the first, shall nevertheless be payable on such anniversaries. The first premium covering the initial partial policy year shall be based on the Reinsurer's current ultimate YRT rates and the age of the life insured at the commencement of that period.
The next premium, payable on the anniversary and covering the first full policy year, shall be at the first policy year rate, while subsequent premiums shall be payable at the appropriate policy year.
If under a Coinsurance Agreement the policy values commence on the policy anniversary following the initial payment date, the Reinsurer will be paid the same rate as the Ceding Company for the interim period, and will remit the ultimate rate of commission.
For self-administered business, as defined in section 8 (a), it is the Ceding Company's responsibility to produce and send an invoice to the Reinsurer as per the agreed upon frequency (monthly, quarterly, annually). The following information shall be included in the report:
· The policy number
· Gross premiums per benefit (including any extra premium due)
· Allowances per benefit (including any extra allowances due)
· Policy fee, if any (may be included in the gross premiums)
· Taxes (if deducted from the payment)
· Period covered by the report
For individual record business, as defined in section 8 (b), it is the Reinsurer's responsibility to produce and send an invoice to the ceding company, as per the agreed upon frequency. The same information as described above shall be included in the report.
The reinsurance premiums are normally due on the policy commencement date in the first year, and on the anniversary date thereafter.
The Ceding Company shall pay the Reinsurer these premiums within 60 days of the due date. In the event that a premium is not paid by the Ceding Company to the Reinsurer within the 60-day period, the reinsurance shall continue in force, and the Ceding Company shall pay to the Reinsurer the overdue premium, together with interest at the same rate as paid by the Ceding Company on delayed payment of claims, compounded annually, from the due date to the date of payment.
Any outstanding balances due from the Reinsurer to the Ceding Company should be treated similarly.
It is the responsibility of both the Ceding Company and the Reinsurer to act promptly on any outstanding differences in premiums.
(e) Non-Payment of Premium
When the reinsurance premiums are unpaid 90 days after the due date, the Reinsurer has the option of giving to the Ceding Company notice that the reinsurance coverage will terminate if the overdue premiums with interest are not paid within 60 days from the date of the notice.
If such notice has been given, the reinsurance coverage may be terminated 150 days after the reinsurance premiums are due and still unpaid. All cessions on which reinsurance premiums subsequently fall due shall be automatically terminated, without notice, if reinsurance premiums are not paid when due.
Notwithstanding such termination, the Ceding Company is still obligated to pay the outstanding reinsurance premiums, plus interest to the date of payment.
11. REINSURANCE RATE GUARANTEES
The Reinsurer should notify the Ceding Company of the guarantees applying to each particular set of reinsurance rates, and those guarantees must be agreed to by the Ceding Company prior to their use for any reinsurance cessions.
If the Ceding Company is notified of rate guarantees and does not respond within 30 days, then the Reinsurer may presume that the guarantees are acceptable.
If no notification of rate guarantees is received by the Ceding Company, then it may assume that the reinsurance rates contain at least the same guarantees as do the rates which are charged on the reinsured plan.
The Reinsurer must provide the Ceding Company with at least 90 days written notice prior to the implementation of any reinsurance rate increase on non-guaranteed premiums.
If a guaranteed product which is reinsured on non-guaranteed terms becomes unprofitable because of an increase in reinsurance rates, then the Ceding Company has the right to recapture the reinsurance.
If a non-guaranteed product which is reinsured on non-guaranteed terms becomes unprofitable because of an increase in reinsurance rates then the Ceding Company should investigate the possibility of increasing its direct premiums to restore the product to profitability. If the Ceding Company cannot reasonably implement such a premium increase then it has the right to recapture the reinsurance.
If a product has maximum premium, minimum benefit or other similar limited guarantees then the product should be considered as non-guaranteed unless the guarantees are actually being applied at the time of a reinsurance rate increase.
Written notice of any intention to recapture must be provided to the Reinsurer by the Ceding Company within 90 days of the effective date of a reinsurance rate change. Terms for the recapture must be mutually agreed at that time, and should fairly reflect the Reinsurer's past experience on the business to be recaptured.
12. JOINT LIFE POLICIES
(i) Joint First-to-Die
Reinsurance may be arranged on either or both lives, and the amounts of reinsurance need not be the same. If reinsurance is arranged on both lives, separate Reinsurance Cessions shall be issued. If the amount of reinsurance is the same a single cession based on the joint equivalent age (as defined by the Ceding Company) or some other agreed upon method, may be used. Note that if a single cession based on a joint equivalent age is used, then consideration should be given to the impact of simultaneous death of both lives. If the risk is to be reinsured then an additional premium shall be payable to the Reinsurer.
(ii) Joint Second-to-Die
Reinsurance shall be arranged on both lives, for the same amount. Although policy identification data must be supplied on both lives, a single Reinsurance Cession shall be issued using either an equivalent single age, joint equal age or exact age calculated in accordance with the Ceding Company's normal methods. Single life rates shall be used with equivalent single ages and joint life rates shall be used with equivalent joint equal ages or exact ages. If the Ceding Company has no normal method, the equivalent single age shall be equal to the age of an individual purchasing an equivalent amount of insurance (of a similar type), for the same premium as that charged on the Joint Life Policy. The equivalent single age or joint equal age progression established at the commencement of the reinsurance shall remain unaltered after the first death. Unless otherwise arranged, premiums shall be payable until the second death on Second-to-Die policies.
Both Joint First and Second-to-Die Policies shall be coinsured at the rates of premium charged under the Ceding Company's Policy and the rates of commission shall be the same as those for Individual Life Policies issued by the Ceding Company on the same plan. Unless otherwise arranged, premiums shall be payable until the second death on Second-to-Die policies.
In the absence of an agreement to the contrary and when retention on Joint Life Policies is not specifically defined in its schedule of retention limits, the Ceding Company shall retain:
(i) The normal retention amount for each life if the lives are reinsured separately or
(ii) if the risk is reinsured as one:
1) an amount equal to the lesser of the amounts that would be retained on either life on an individual basis on a Joint First-to-Die plan;
2) an amount equal to the greater of the amounts that would be retained on either life on an individual basis on a Joint Second-to-Die plan.
(d) Notification of Death
If proof of the first death is received on a Joint Second-to-Die plan, the Ceding Company shall submit this promptly to the Reinsurer. Should this death take place within the contestable period then the Reinsurer and the Ceding Company should consult to determine whether they wish to investigate the deceased, the survivor or both insureds.
(e) Policy Splits
(i) If a Joint First-to Die or Joint Second-to-Die Policy contains a provision that permits the insureds to split the Policy and purchase a separate Policy on their individual lives, the Ceding Company shall pay a reservation of facilities fee to the Reinsurer while the option to purchase remains unexercised.
(ii) The amount of reinsurance on the opted Policy should be no greater than 60% of the amount of reinsurance under the Joint Life policy immediately prior to the policy split except that no reinsurance shall be ceded on any lives that were uninsurable at the time of issue of the Joint Life Policy. The total amount of insurance available for all policies shall not exceed 100% of the original face amount.
(iii) Premium rates on the opted Policy shall be computed based on the original issue age, underwriting classification, and mortality rating of the insured under the Joint Life Policy.
The method described in Section 12 (a) (ii) of the Guidelines applies to a Joint Second-to-Die product which does not provide for an increase in cash value on first death. An alternative method which is sometimes used when the product provides for an increase in cash value on first death is to arrange reinsurance as described in the Guidelines, and in addition to reinsure the following components:
· Increase in the cash value or reserve if Life A dies first;
· Increase in the cash value or reserve if Life B dies first.
Single life rates shall be applied to the reinsured portions. Following the first death, reinsurance on the survivor is based on the adjusted amount at risk at point-in-scale equivalent age rates.
13. TOTAL DISABILITY & ACCIDENTAL DEATH BENEFITS
Total Disability and Accidental Death benefits shall be coinsured at the rates of premium charged under the Ceding Company Policy. In the absence of an agreement to the contrary, the commissions are normally 75% in the first year and 10% in renewal years.
When an Accidental Death benefit is reinsured, the Reinsurance Cession shall state the amount of the benefit. When a Total Disability amount is reinsured, the Reinsurance Cession shall state the amount of the monthly income benefit. When a Waiver of Premium benefit is reinsured, the Reinsurance Cession shall state the amount of premium to be waived.
When a reinsured Waiver of Premium benefit is claimed, the Ceding Company shall continue to pay to the Reinsurer the total reinsurance premium as shown in the Reinsurance Cession. The Reinsurer shall pay to the Ceding Company its share of the gross annual premium, including any rider or supplementary benefit being waived, taking into account any fractions of a year for which premiums have been waived.
Dividends taken in non-insurance forms (cash, reduction of premiums, left on deposit) will not affect the reinsurance amounts or premiums.
Dividends taken in the form of paid-up additions will not be reinsured unless specific provision to the contrary is made in the Application and the Reinsurance Cession, or is agreed in the treaty.
Dividends involving purchases of one-year term amounts as the primary dividend option (for cash value, return of premiums, or level enhancements in combination with paid-up additions) should be reinsured.
Dividends taken in non-insurance forms (cash, reduction of premiums, left on deposit) will not be reinsured.
Proportionate shares of dividends will be returned to the Ceding Company at the time of each dividend application.
Dividends taken in the form of paid-up additions will not be reinsured unless specific provision to the contrary is made in the Reinsurance Application and the Reinsurance Cession.
Where amounts are ignored, the proportionate share of the equivalent cash dividend will be returned to the Ceding Company.
Dividends involving the purchase of one-year term amounts as the primary dividend option (for cash value, return of premiums, or level enhancements in combination with paid-up additions) should be reinsured, and the proportionate share of any dividends relating to them should not be returned to the Ceding Company.
Dividends will be disregarded where coinsurance is effected on a non-participating basis.
The Reinsurer shall not advance to the Ceding Company funds relating to a loan under the Policy, nor shall any interest on that loan be payable to the Reinsurer.
16. REDUCED PAID-UP INSURANCE
If the Policy is changed to Reduced Paid-up, the reinsurance shall continue on a YRT basis. A new schedule of amounts shall be calculated, so that the reduced reinsurance amount shall be in the same proportion to the Reduced Paid-up amount, as is the reinsurance amount immediately prior to the commencement of the Paid-up insurance period to the amount at risk under the Policy at the same time. YRT premiums shall continue to be paid to the Reinsurer at the point in scale, but any coinsured extra premiums under Section 10 (b)(i) shall cease to be payable.
If the Policy is changed to Reduced Paid-up, premiums are no longer paid to the Reinsurer, and allowances are no longer due the Ceding Company. The amount of reinsurance would be reduced in proportion to the reduction in face amount of the Policy.
17. EXTENDED TERM INSURANCE
If the Policy is changed to Extended Term Insurance, the reinsurance shall continue on a YRT basis. A new schedule of amounts shall be calculated, so that the reinsurance amount shall be in the same proportion to the Extended Term amount, as is the reinsurance amount immediately prior to the commencement of the Extended Term to the amount at risk under the policy at that same time. The amount so calculated shall, however, be reduced by that proportion of any cash value provided under the Extended Term benefit which relates to the reinsured portion of the Policy. Basic YRT
premiums at point in scale, using a rate of 25% higher than standard, shall be paid to the Reinsurer. This is in addition to any non-coinsured extra premiums payable under the initial Policy, which shall continue.
If the Policy is changed to Extended Term Insurance, premiums are no longer paid to the Reinsurer, and allowances are no longer due to the Ceding Company. The amount of reinsurance will be adjusted as in (a) above.
When no cash value is provided under Extended Term, then from the point at which the Extended Term benefit commences, reinsurance for YRT cessions will remain level at the same proportion of the Face Amount at that time, as the original reinsurance was of the Face Amount at Policy commencement. In other words, for cases where the Face Amount has not changed, reinsurance will revert to and remain at the amount originally ceded.
When a cash value is provided under Extended Term, then this value is taken into account in determining the amount at risk. As this cash value progressively reduces, so the reinsurance amount will increase and will, when the cash value reaches zero, revert to the amount originally ceded.
Companies which prefer a different method of handling the reinsurance amount during the Extended Term period, for example in cases with significant reserves but no cash values, should make appropriate provisions in their agreements.
For coinsurance cessions, the Reinsurer will in all cases, continue to cover the same proportion of the Extended Term Benefit as it did of the Face Amount immediately prior to the commencement of Extended Term.
18. TERM CONVERSIONS
The initial Policy may be converted from original age, attained age, or some intermediate age. When a Policy is converted there is an obligation for the Ceding Company to maintain reinsurance up to the existing amount with the original Reinsurer.
If the Policy was reinsured on a YRT basis, reinsurance shall continue on a YRT basis. YRT premiums, including any extra premiums for the new Policy shall be at the appropriate policy year rate (point in scale), based on the duration in completed years of the initial Policy at the date of conversion.
If the Policy was coinsured, reinsurance for the new Policy shall nevertheless be on a YRT basis. YRT premiums and extra premiums shall be the same as if the Policy was originally ceded on a YRT basis.
The YRT rates which apply to the converted Policy will be those which were in force for the Ceding Company's business at the issue date of the initial Policy.
19. POLICY CHANGES
(a) Increase in Amount at Risk
Except as provided in Subsection (c), and always subject to its existing reinsurance agreements, the Ceding Company may deal as it wishes with any non-contractual increase in amount at risk under the Policy.
The Reinsurer may treat any non-contractual increase as if it were a new Reinsurance Cession, and shall not be obliged to accept any such increase, unless bound to do so by existing reinsurance agreements.
Any contractual increase in amount at risk shall be treated in accordance with Section 9 (c).
(b) Decrease in Amount at Risk
Except as provided in Subsection (d), and always subject to its existing reinsurance agreements, on any non-contractual decrease in amount at risk the amount of reinsurance shall decrease from the same date and in the same proportion as the original amounts issued and reinsured.
Any contractual decrease in amount at risk shall be treated in accordance with Section 9.
(c) Reduction in Mortality Rating
On facultative business, if, following the consideration of new underwriting evidence, the Ceding Company can accept or place the Policy at a lower mortality rating than the decision of its original Reinsurer, then the Ceding Company shall have the right to terminate the reinsurance.
The Ceding Company shall, before such termination, afford the original Reinsurer the opportunity to quote a new rating and shall always attempt to maintain the existing reinsurance unless this would result in an undue loss.
(d) Plan Changes
When a plan change (including a replacement or conversion of the Policy) does not involve the submission of full new underwriting information to the Ceding Company, there is an obligation for the Ceding Company to maintain reinsurance up to the existing amount with the original Reinsurer.
When a plan change (including a replacement of the Policy) does involve the submission of full new underwriting information, the Ceding Company shall always attempt to maintain reinsurance up to the existing amount with the original Reinsurer.
On any plan change, the original Reinsurer has an obligation to attempt to provide reasonable reinsurance terms for the new plan, which take into account any new evidence received, new commissions paid and expenses incurred by the Ceding Company.
For those plan changes where the Ceding Company is not treating the change as if it were a new contract, with regard to commission, expenses, or any other factor, then the original Reinsurer should not be expected to provide the same allowances or reinsurance terms that it would offer on a new contract in order to retain the reinsurance.
(e) Smoker/Non-Smoker Rate Changes
If the Ceding Company is willing to alter the rate basis from smoker to non-smoker rates, the evidence obtained should be submitted to the Reinsurer for approval on all facultative cases, unless the basis for such changes has previously been agreed upon by the Reinsurer. If the change is in accordance with the Ceding Company's normal underwriting practices and the Reinsurer does not concur, then the Ceding Company shall have the right to recapture the reinsurance.
(f) Policy Re-issue
In some instances it may be desirable to restructure a Policy. The Policy should be restructured from the date of issue of the initial Policy on a new rate basis and an adjustment for the difference in reinsurance premium without interest should be made. The reinsurance charges from date of issue should be recalculated and a settlement made of any difference between the recalculated premiums and the original charges.
Re-entry is defined as being the availability of select rates at the insured's then attained age, dependent on the life insured providing the Ceding Company with new satisfactory evidence of insurability.
The Ceding Company must provide the Reinsurer with details of the evidence which will be required on the re-entry dates. If the Reinsurer is not provided with such information then it will expect that the re-entry underwriting requirements will be identical to those applying at that date for a new Policy for the same Face Amount issued at the re-entry age.
If, subsequent to issue of the Policy, the Ceding Company changes its re-entry underwriting requirements, then details of any such change must be communicated to the Reinsurer. The Reinsurer has the right to amend the reinsurance terms on the Policy if it feels the change to be material.
The rates and allowances quoted by the Reinsurer at a re-entry date should take into account the evidence received, the commission paid and the expenses incurred by the Ceding Company.
(i) Automatic Reinsurance
Except as provided in the treaty, or unless advised otherwise by the Ceding Company, the Reinsurer will assume that the rates which apply on re-entry are the maximum guaranteed rates.
(ii) Facultative Reinsurance
Except as may be otherwise specifically provided, the Ceding Company shall promptly provide the Reinsurer with all underwriting information obtained for decision on the re-entry terms for the reinsured portion of the Policy.
The Reinsurer will not be bound by any re-entry terms on its share of the risk, whether or not communicated to the policyholder, until it has conveyed its final, unqualified decision to the Ceding Company.
The philosophy behind the Policy Changes section is that there is a mutual obligation between Reinsurer and Ceding Company always to attempt to maintain reinsurance in force on terms fair to both parties.
If a change of Reinsurer occurs in connection with a policy replacement then the new Reinsurer would expect full suicide and contestable periods starting from the new policy commencement date unless specific agreement is made to the contrary.
It is intended that no unilateral changes to an agreement be made. However, there may be unforeseen circumstances where a party outside the agreement can have an effect if it is in the public's interest. For example, where benefits payable under policies issued by the Ceding Company are reduced due to governmental measures, the liabilities of the Reinsurer may be reduced in the same proportion. Also, where there are allowances or benefits from whatever source granted to the Ceding Company towards the payment of benefits under these policies as a result of government directives, then the Reinsurer may receive a proportional participation of such allowances or benefits. In order to allow for the correct course of action to be taken, the Ceding Company should contact the Reinsurer and inform it of the prospective changes. The parties would then agree on an appropriate course of action.
20. RECAPTURE OF REINSURANCE
Except as provided in Sections 3, 11, 19 and 27 of these Guidelines (Merger and Acquisition, Reinsurance Rate Guarantees, Policy Changes and Insolvency), recapture will be permitted as specified below.
The Reinsurer shall permit the Ceding Company to recapture all or part of an existing Reinsurance Cession provided:
1. the Ceding Company must have kept its maximum retention for the plan, age and mortality rating on the Policy under its rules at the Policy commencement date;
2. the Ceding Company must have increased its retention for new business since the Policy commencement date;
3. the amount to be recaptured shall not exceed an amount equal to the increase in retention under the Policy between its commencement date and the date of recapture;
4. any class of fully reinsured business or any classes or risks for which the Ceding Company established special retention limits less than the Ceding Company's maximum retention limits at the time the Policy was issued are not eligible for recapture;
5. all eligible reinsurance will be recaptured in full from the Reinsurer, including any supplementary benefits, up to the Ceding Company's retention limit at the time of recapture;
6. if there is reinsurance with other companies on risks eligible for recapture, the necessary reduction is to be applied pro-rata to the total outstanding reinsurance;
7. written notice of recapture has been given to the Reinsurer by the Ceding Company, at least 90 days prior to the commencement of such recapture;
8. no Policy reinsured on a YRT basis may be recaptured prior to its 10th anniversary without the mutual agreement of the Reinsurer and the Ceding Company;
9. a coinsured policy 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;
10. if a cession eligible for recapture has been overlooked by the Ceding Company, any premiums accepted after the date of recapture by the Reinsurer shall not cause the Reinsurer to be liable for an amount over and above the premiums less allowances without interest;
11. each eligible Policy shall be recaptured on its first Policy anniversary following the commencement of the recapture procedure;
12. in the case where advanced payment of death benefits (such as terminal illness benefits) have already been paid by the Reinsurer and the insured is still alive, the Ceding Company must refund to the Reinsurer any sum paid by the Reinsurer before any recapture program is permitted.
Cessions Under Waiver of Premium Claim
The Ceding Company must include in any recapture those eligible cessions in a state of Waiver of Premium Claim, including those later discovered to have been in a qualifying period at the date of recapture. The Reinsurer shall pay to the Ceding Company a mutually agreed waiver of premium claim reserve or, if no agreement is reached, shall continue to pay the appropriate waiver of premium benefit.
Notwithstanding Subsection (a), the Ceding Company shall recapture all automatic YRT Reinsurance cessions on the first Policy anniversary following the reduction of the amount at risk to less than $10,000.
No automatic recapture of trivial amounts is permitted on coinsured cessions unless agreed between the Reinsurer and the Ceding Company.
Recapture is now assumed to form part of any YRT reinsurance agreement, but not to form part of a coinsurance agreement. Certain Automatic YRT agreements may be structured to provide terms which do not reflect the underlying mortality, (e.g. zero first year premiums). In these cases, treaties may specifically exclude automatic recapture on or after the 10th policy anniversary.
Under YRT arrangements, amounts at risk of less than $10,000 are assumed to be recaptured automatically. This figure may not be appropriate for all companies, or certain substandard cessions, and each company should consider whether an exception to this practice is necessary to meet its individual circumstances.
All recapture requirements for coinsurance agreements, including recapture of small amounts, must be separately negotiated.
Note that all Supplementary Benefits are to be recaptured with the underlying Policy. If for some reason coverage under a Supplementary Benefit does not fall within the Ceding Company's new retention, no portion of that entire Cession should be recaptured.
21. TERMINATION OF REINSURANCE
If the Policy is terminated, the reinsurance shall terminate on the same date. If premiums have been paid on the reinsurance for a period beyond the date of termination, there shall be a refund for that period unless the termination occurs as a result of death.
If the Policy continues in force without payment of premium during any days of grace, whether such continuance be as a result of a Policy provision or of a practice of the Ceding Company, disclosed to and approved by the Reinsurer, the reinsurance shall continue with payment of the reinsurance premium. However, the reinsurance shall terminate on the same date as the Ceding Company's risk terminates.
If the Policy continues in force because of the operation of an Automatic Premium Loan provision, or other such provision by which the Ceding Company receives compensation for its risk, then the reinsurance shall also continue, and the Ceding Company shall pay the Reinsurer the reinsurance premium for the period to the date of termination.
The Ceding Company shall not be required to forward any documents to the Reinsurer and the cession shall be reinstated automatically if the Policy was originally reinsured automatically and if the amount reinstated does not exceed the amount originally reinsured.
Whenever an application is made by the policyholder for reinstatement in accordance with the terms of the Policy, copies of such application for reinstatement, any personal declaration or medical examination, and any other underwriting document shall be forwarded by the Ceding Company to the Reinsurer together with an application for reinstatement of the reinsurance. Such application shall be made in all cases of reinstatement, notwithstanding any change in the Ceding Company's capacity to absorb the risk.
The Reinsurer shall notify the Ceding Company promptly of its acceptance or declination of the application for reinstatement.
If the Reinsurer declines the reinstatement then the Ceding Company can retain the risk for its own account, offer it to another reinsurer or take such other action that it deems appropriate.
When a Policy is reinstated by the Ceding Company, the reinsurance coverage shall be reconstructed in a like manner with respect to dating, coverage and back premiums, provided the treatment of these falls within the Ceding Company's normal rules.
Premiums will be paid to the Reinsurer for whatever time period is covered by the premiums received by the Ceding Company. The Reinsurer shall receive interest on these reinsurance premiums for the same period and at the same rate as premiums collected by the Ceding Company on the Policy.
In the event that the Policy is re-dated, the reinsurance premiums payable shall be at the appropriate Policy year rate (i.e. duration measured from new issue age).
Whenever an application is made for reinstatement by the policyholder, in accordance with the terms for the Policy, the Ceding Company shall promptly notify the Reinsurer of each such reinstatement, in accordance with the agreed upon reporting format.
23. SETTLEMENT OF CLAIMS
The Ceding Company shall report promptly to the Reinsurer any information respecting a claim under the Policy. Such claim made upon the Ceding Company shall be accepted by the Reinsurer as a claim upon it for the amount of reinsurance in force on the date the claim is incurred.
When the amount assumed by the Reinsurer under any Policy of the Ceding Company equals or exceeds 50% of the Policy or when the Policy is within the contestable period at the time of claim, the Ceding Company shall submit all papers in connection with the claim to the Reinsurer for consideration. The Ceding Company shall make a reasonable effort to secure mutual agreement from the Reinsurer before making settlement of any claim on the Policy.
Except as may be otherwise provided in the reinsurance treaty, proofs of claim generally accepted within the insurance industry for similar claims shall be taken as sufficient by the Reinsurer. The Reinsurer shall settle claims promptly upon receipt of copies of proofs of claim together with a statement showing the amount paid on such claim by the Ceding Company, the date of payment and the amount due from the Reinsurer.
If either by the terms of the contract or by the exercise of an option, payment under the Policy is deferred or made in instalments, the Reinsurer shall nevertheless make payment immediately in one lump sum and the date the amount is due from the Reinsurer shall be the date of payment of the first such instalment or, if payment is deferred, the date from which interest is to accrue.
Notwithstanding the preceding, for waiver of premium claims, the Reinsurer shall pay its proportion of direct premiums waived by the Ceding Company as such premiums are waived. The Ceding Company shall continue to pay reinsurance premiums during the pendency of the waiver of premium claim. For disability income claims, the Reinsurer shall pay its proportionate share of claims as incurred. 
If payment under the Policy is delayed and interest is allowed on the proceeds by the Ceding Company, the Reinsurer shall pay interest at the same rate as the Ceding Company's current claims practice, on the amount of reinsurance. The rate should not exceed that currently paid by the Ceding Company on all claims. Where payment on the reinsurance is delayed more than 30 days beyond that date on which settlement under the Policy has been made, the Reinsurer shall pay interest at the above rate compounded annually from the settlement date.
(c) Contests and Compromised Settlements
Any suit or claim on a Policy may be contested or compromised by the Ceding Company.
The Ceding Company shall promptly notify the Reinsurer of any suit or proceeding in court respecting any claims arising under the Policy. The Ceding Company shall also furnish details of such action on request, and shall furnish an itemized and certified statement of expenses incurred thereby.
The Reinsurer shall promptly notify the Ceding Company of its disagreement with a proposed attempt to contest or compromise any claim, and pay the full amount of reinsurance under the Reinsurance Cession to the Ceding Company. In such case, the Reinsurer shall not share in any expense involved by such contest or compromise, nor in any reduction or increase in claim resulting therefrom.
If the Reinsurer participates in the attempt to contest or compromise a claim, the Reinsurer shall participate in any reduction or increase. The amount payable by the Reinsurer in the event of a reduced settlement of a claim shall be as follows:
(i) Reinsurance on YRT Basis
The full reinsurance amount payable for the benefit less that proportion of the reduction in settlement which the amount of benefit reinsured at the date of claim bears to the total amount at risk for the benefit under the Policy at that time plus such proportion of expenses to be reimbursed by the Reinsurer.
(ii) Reinsurance on a Coinsurance Basis
That proportion of the settlement which the amount of benefit reinsured at the date of claim bears to the amount of benefit under the Policy at that time plus such proportion of expenses to be reimbursed by the Reinsurer.
(iii) Refund of Premiums
In the event of a contested claim where it has been decided to deny liability and refund premiums, the Reinsurer will be liable to the Ceding Company in the amount of the reinsurance premium paid plus the Reinsurer's proportion of expenses to be reimbursed by the Reinsurer.
(d) Adjustments for Misstatement of Age or Sex
In the event of an increase or reduction in the Policy because of a misstatement of age or sex being established, the Ceding Company and the Reinsurer shall share in such increase or reduction, in proportion to their initial liabilities under the Policy. The Reinsurance Cession Form shall be rewritten from commencement on the basis of the adjusted amounts using the reinsurance schedule and premiums at the correct ages or sex, and an adjustment for the difference in reinsurance premiums without interest shall be made.
Expenses incurred by the Ceding Company's full-time employees and any investigating costs normally required for a claim of that size and duration shall be borne entirely by the Ceding Company. Additional costs shall be shared by the Ceding Company and the Reinsurer proportionately, provided the Reinsurer has agreed to participate in an attempt to contest or compromise a claim.
Expenses paid entirely by the Ceding Company would generally include items such as doctor and hospital reports, autopsy and coroner reports, and police investigation reports that a company can write for and obtain directly from the source, for a fee.
Shared expenses would generally be incurred only after obtaining or attempting to obtain normal claims reports or after the issuance of a writ.
(f) Advanced Payment of Death Benefits
Any advanced payment of death benefit by the Ceding Company is the full responsibility of the Ceding Company unless there is an agreement to the contrary. If such payment is requested or offered within the contestable period, however, the Reinsurer should be promptly notified of such request or offer before it is tendered to the claimant. If the amount assumed by the Reinsurer under the Policy exceeds the Ceding Company's retention on the Policy, the Ceding Company shall submit all papers in connection with the claim to the Reinsurer for consideration and shall make a reasonable effort to secure mutual agreement before making settlement of any claim on that life.
There are a number of reasons why it is advisable to obtain notification of the first death on a Joint Second-to-Die policy at the time it arises even though no claim is payable at that time.
Firstly, if the death occurs during the contestable period, then it is much easier to investigate and pursue possible misrepresentation at that time rather than several years later, particularly as the insurer is continuing to accept premiums.
Given that the insurer does obtain notification of first death when it occurs, it is important that any investigation into the contestability of the claim be conducted at that same time, including an investigation of the surviving life if this is thought necessary. Failure to act might be interpreted as a waiver of rights.
Secondly, there is a change in the risk at the time of first death. Companies might wish to review the level of reserves held to cover the additional risk which arises at that time.
Several Ceding Companies and Reinsurers follow the practice of issuing Joint Second-to-Die policies on which one of the lives is declinable for a single life policy. The company should not refrain from contesting a claim owing to misrepresentation on the part of the declinable life. There may be, for example, medical or financial information which was not disclosed which could form valid grounds for contesting the claim. (See also Explanatory Note, Section 12, Joint Life Policies).
In jurisdictions which impose premium taxes on the Ceding Company without deductions for reinsurance, the Reinsurer shall reimburse the Ceding Company for taxes paid on the amount of the reinsurance premiums. If, however, the Reinsurer is required to pay direct tax on reinsurance premiums, then the Reinsurer is not required to reimburse the Ceding Company for such taxes. In any jurisdiction where the tax is calculated on the premiums less certain deductions, any reimbursement by the Reinsurer shall be on the same basis.
The Reinsurer shall also be responsible for any Excise Taxes which are applicable to the business reinsured by the Ceding Company.
The Reinsurer shall not be responsible for the reimbursement of any taxes other than those outlined above.
Reinsurance shall be in Canadian dollars, unless otherwise agreed.
26. ACCESS TO INFORMATION
Both the Ceding Company and the Reinsurer may inspect at all reasonable times at the office of the other, all the original papers, records, books, files and other documents relating to any Reinsurance Cessions between them.
There is a mutual obligation on both the Ceding Company and the Reinsurer to hold confidential and not to disclose or make competitive use of any shared proprietary information unless otherwise agreed to in writing, or unless the information otherwise becomes publicly available or the disclosure of which is required for retrocession purposes or has been mandated by law.
To the extent they are consistent with Canadian Law, the following rules shall apply:
(a) In the event of the Insolvency of the Ceding Company, all reinsurance covered by these Guidelines shall remain in full force and effect, and all reinsurance premiums shall continue to be paid in accordance with Section 10, with the following exceptions:
(i) any amounts owing to the Reinsurer which have been outstanding for more than 60 days will be due immediately; and
(ii) any amounts owed to the Ceding Company by the Reinsurer will be offset by the amounts owed to the Reinsurer by the Ceding Company.
In the event of a claim on a reinsured Policy after the Insolvency of the Ceding Company has been declared, the Reinsurer may investigate and interpose, at its own expense, in the proceedings where the claim is to be adjudicated, any defences which it may deem available to the Ceding Company or its legal successor.
(b) In the event of the Insolvency of the Reinsurer, the Ceding Company shall have the right, at any time during such Insolvency, to recapture all business ceded to the Reinsurer.
(c) Parties should note that, no matter what provisions are in the Guidelines or in any treaty, they may be overruled by the statutory provisions for insolvency.
28. GENERAL ERRORS AND OMISSIONS
For a Reinsurance Cession governed by all or part of these Guidelines, failure to comply with any of the agreed terms shall not be deemed to invalidate the Reinsurance Cession, provided that such failure can be shown to be unintentional and the result of oversight on the part of either the Reinsurer or Ceding Company. Both Companies shall take all possible steps to restore each other to the positions they would have occupied had not such an error or oversight occurred.
This clause will not apply if the Ceding Company has not notified the Reinsurer of its acceptance of an offer of facultative reinsurance. In this situation the Ceding Company will be liable for the entire risk.
Nor shall this clause serve to relieve either party from making every reasonable effort to perform its administrative obligations within the time standards either recommended herein or otherwise mutually agreed upon. Unless an agreement has been reached with the Reinsurer beforehand, the Ceding Company will be liable for the entire risk when the required reinsurance has not been reported to the Reinsurer in a timely manner due to a continuous back-log in the Ceding Company's administration.
It is understood that either party shall be liable for reinsurance incorrectly ceded or accepted due to its practice of not performing an alpha index search.
There is a mutual obligation on both Ceding Company and Reinsurer to ensure that all errors and omissions (both favorable and unfavorable) are identified and corrected in an equitable manner at the earliest possible date. Any monetary adjustments made between the Ceding Company and the Reinsurer to correct an error shall be made with interest.
29. DETERMINATION OF DISPUTES
If the Reinsurer and the Ceding Company cannot mutually resolve a dispute that arises out of, or relates to a reinsurance treaty, or a breach thereof, the dispute will be settled by arbitration. Any such dispute arising between the Reinsurer and the Ceding Company with reference to any reinsurance contract shall be referred to a committee of three persons, all of whom have been or are employed by insurance or reinsurance companies doing Life Insurance business in Canada. No employee or past employee of either party or its affiliates can serve as an arbitrator. Each party shall choose one member of the committee and once selected, these two members shall choose a third member. If the two members cannot agree on a third member, they will be dismissed, and the parties will choose two new members. If for the second time a third member cannot be agreed upon, the matter shall be referred to the Council Executive of the Canadian Reinsurance Conference. The Chairman will choose a third member. If the Chairman is associated with either party to the dispute then the Past Chairman will choose.
Each committee member should disclose in advance all relationships with either party. Any objection to a committee member should be stated before arbitration begins.
Arbitration shall take place at a location decided by a majority vote of the arbitrators.
Unless otherwise decided by the arbitrators, each respective party shall bear the fees of its own attorneys and all other expenses connected with the presentation of its own case and all the costs of the arbitration, including the fees and expenses of the arbitrators, shall be borne equally by the parties.
Each company shall submit its case in writing to the committee within one month of the date of the establishment of the committee. The committee shall be expected to give its decision in writing within one month after the final submission of the two companies.
It shall be the function of the members of the committee to determine the questions referred to them on such evidence as they deem material in light of their experience and expert knowledge, and they shall not be required to act only on such evidence as would be admissible in a court of law. The decision of the majority of the three members of the committee shall be deemed to be a decision of the committee. There shall be no appeal from its decision. Either party may petition a court having jurisdiction over the parties and the subject matter to reduce the arbitrators decision to judgment.
The members shall use the treaty as the initial terms of reference for their decision, including these Guidelines where explicitly referred to in the treaty. If these Guidelines are not explicitly referred to in the treaty, they may be used as a reference of generally accepted industry practice. The Reinsurer and the Ceding Company agree to accept the interpretation placed upon these Guidelines by the committee as if such Guidelines had been originally agreed upon as interpreted by the committee. Any conflict between the treaty and these Guidelines should be decided in favor of the treaty.
Notwithstanding anything contained in this clause, either the Reinsurer or the Ceding Company can, prior to a committee having been appointed, notify the other party in writing that it wishes to have the merits of the case determined by a court of law.
POLICY EXHIBIT SUMMARY AND
DETAILED MOVEMENT REPORT
REINSURANCE CESSION FORM
REINSURANCE APPLICATION FORM
METHODS FOR DETERMINING AMOUNT AT RISK
(a) Insurance with Cash Values
Policies on which the terminal reserve may exceed 10% of the Face Amount should be included in this category.
(i) Scheduled Face Amounts and Cash Values
Amounts at risk will be projected for 10 year intervals, (or until there is a scheduled change in face amount or premium amount, if less than 10 years). Cash values, or reserves for policies which do not bear cash values will be used to represent the fund at the end of an interval, and amounts at risk for each intervening year will be interpolated on a straight line basis.
Where m = duration at the end of the preceding interval
n = number of years during the current interval
t = the applicable duration since the preceding interval
FACE'm' = the face amount in year m
CV'm' = the cash value or reserve at the end of year m
(ii) Variable Face Amount or Cash Values
The amount at risk applicable to each policy year will be the projected amount at risk at the beginning of that policy year. Amounts at risk will be projected for five year intervals. Where an actual amount at risk diverges from an originally projected amount at risk by more than 10%, the Ceding Company may re-establish the projected schedule at the next policy anniversary for future amounts at risk. If the schedule is not amended, the existing established schedule will be used for determining premium and claim liabilities.
APPENDIX C (page 2)
(b) Insurance Without Cash Values
This category should include policies where the cash values or terminal reserves never exceed 10% of the Face Amount.
(i) Scheduled Face Amounts
The amount at risk applicable to each policy year will be the Face Amount applicable at the beginning of the policy year.
(ii) Variable Face Amounts
The amount at risk applicable to each policy year will be the face amount projected to be applicable at the beginning of that policy year. Face Amounts will be projected for five year intervals. Where actual face amounts diverge from the originally projected Face Amounts by more than 10%, the Ceding Company may re-establish the projected schedule at the next policy anniversary for future face amounts. If the schedule is not amended, the existing established schedule will be used for determining premium and claim liabilities.
Certain products on the market today are developed without cash values but do carry significant reserves. Policies under these plans would be treated by the Guidelines as having an amount at risk each year equal to the Face Amount of the Policy. Companies may wish to make arrangements for a reducing reinsurance amount which is inversely related to the Policy reserve increase. If so, they should ensure that satisfactory provision for this is made in their reinsurance agreements.
(c) Annual Determination of the NAAR
If the Ceding Company wants to determine the NAAR annually, it will provide the information within three months of the anniversary date of the Policy.