Trans City Life Insurance Company, an Arizona Corporation - Page 34

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          death or surrender so that the losses associated with these                 
          policies exceeded the investment income due petitioner,                     
          petitioner would lose money.                                                
               e.  Right To Withhold                                                  
               The 1989 Agreement provided that Guardian would pay                    
          petitioner an initial consideration equal to the total reserves             
          on policies in force at the start of the agreement.  Petitioner             
          was obligated to pay Guardian cash if the EAB was negative by               
          more than $1 million.  Petitioner could offset negative                     
          experience refunds against positive experience refunds within the           
          same calendar year.                                                         
               The 1989 Agreement allowed both Guardian and petitioner to             
          withhold certain funds from each other.  The 1989 Agreement                 
          permitted Guardian to withhold funds equal to the coinsurance               
          reserves on the reinsured policies.  The 1989 Agreement permitted           
          petitioner to elect to withhold funds equal to the ceding                   
          commission.  When petitioner and Guardian signed the 1989                   
          Agreement, each elected to exercise its right to withhold funds             
          and made no cash payments.                                                  
               All moneys due either Guardian or petitioner were to be                
          netted against each other, and interest was required to be paid             
          on the funds withheld.  Cash settlements were required when the             
          netted amounts exceeded the right of either party to withhold               
          funds.                                                                      








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Last modified: May 25, 2011