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following that termination. The effective date of the 1989
Agreement marked an anniversary of the June 30, 1987, effective
date of the underlying reinsurance agreement.
The Agreements provided that petitioner would reimburse
Guardian for benefits paid to policyholders under life insurance
and annuity plans of insurance. Benefits included amounts
payable on the death of any insured, cash values payable when
withdrawn by policyholders or upon cancellation of the policies,
and annuity benefits payable upon policyholder annuitization.
Petitioner agreed to pay Guardian a ceding commission of $1
million on each of the Agreements, which represented the value
that petitioner was willing to pay in exchange for receiving its
share of future profits on the reinsured policies. If the
reinsured policies were profitable, petitioner would receive all
of the profits until it recovered its $1 million ceding
commission, plus a quarterly risk charge of .3 percent of the
unrecovered balance.9 Afterwards, petitioner would receive 10
percent of the profits, and Guardian would receive the remaining
90 percent by way of an experience refund. If the reinsured
policies were not profitable enough to allow petitioner to
receive its ceding commissions and risk charges, petitioner would
suffer the loss.
Petitioner could not compel Guardian to terminate the
Agreements under any circumstance. Before January 2, 1990, and
9 Prior to its amendment, the 1989 Agreement provided that
the quarterly risk fee would equal .25 percent of the unrecovered
balance.
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