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3. When a VSC sold by the dealer expired, the dealer was
entitled to the release of unconsumed reserves attributable to
that contract, subject to certain limitations. First, under the
program administered by MBP, corpus and investment income of the
PLRF were separately accounted for, and the dealer was not
entitled to release of the investment income portion of the
unconsumed reserves. This limitation was relaxed under the
program administered by API; corpus and income were available for
release to the dealer on the same terms. Second, a dealer
forfeited its right to unconsumed reserves attributable to a
contract if it committed certain specified acts of default:
Failure to achieve a minimum sales quota in the year the contract
was sold, breach of the Administrator Agreement, bankruptcy,
termination of participation in the program without achieving a
minimum balance in its PLRF account, dissolution without a
successor in interest, and the like. Third, no unconsumed
reserves were released unless, in the judgment of the Escrow
Trustees and Travelers, the dealer's account balance would remain
at an actuarially safe level for satisfaction of the dealer's
obligations under all unexpired contracts. It was Travelers'
policy to approve release of unconsumed reserves only to the
extent that the particular dealer's loss to earned reserve ratio
did not exceed 70 percent.
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