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required.
e. Right To Withhold
The 1988 Agreement provided that Guardian would pay
petitioner reinsurance premiums and an initial consideration
equal to the total reserves on the reinsurance policies in force
at the start of the agreement. The 1988 Agreement permitted
Guardian to elect to withhold funds equal to the coinsurance
reserves on the reinsured policies. The 1988 Agreement permitted
petitioner to elect to withhold funds equal to the ceding
commission. Guardian had to pay petitioner interest on the funds
that it withheld, and petitioner had to pay Guardian interest on
the funds that it withheld.
The 1988 Agreement provided that all moneys due either
Guardian or petitioner would be netted against each other. The
1988 Agreement provided that negative experience refunds could
offset positive experience refunds within the same calendar year.
The 1988 Agreement allowed petitioner to carry forward negative
net refunds for a calendar year to future calendar years.
Although the 1988 Agreement allowed each party to withhold funds
equal to the amount specified in the agreement, the parties could
not withhold funds in excess of the amount specified. Within 45
days after the end of each calendar quarter, Guardian was
obligated to pay petitioner, and petitioner was obligated to pay
Guardian, the amounts due under the 1988 Agreement, subject to
each party’s right to withhold funds up to the maximum amount.
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