MORTGAGE INSURANCE STOP LOSS EXCESS OF LOSS AGREEMENT
AGREEMENT AR 13044
FINAL PLACEMENT SLIP
COMPANY: Triad Guaranty Insurance Corporation
an Illinois corporation
TERM AND
TERMINATION: This Agreement will apply to Covered Losses
arising out of Covered Business on or after 12:01
a.m. in Chicago, Il on January 1st 2001 ("the
Effective Date") and will remain in full force
and effect until it is terminated as hereinafter
provided. "Covered Business" will mean
Certificates issued by the Company prior to, or
during the Term, provided that, with respect to
Certificates issued prior to the Term, such
Certificates are in force as of the Effective
Date.
The Agreement will terminate as of 12:00 a.m. in
Chicago, IL on January 1, 2003 ("the Termination
Date").
The Company may elect to purchase Run-off
Coverage upon providing thirty (30) days prior
written notice before the Termination Date
delivered by certified or registered mail and by
paying to the Reinsurer the Run-Off Premium
within thirty (30) days following the Termination
Date. This Agreement will automatically terminate
if the Reinsurer does not receive the Run-off
Premium when it is due and payable and the
Reinsurer will be fully and finally released of
all obligations with respect to this Agreement
and the transaction hereunder. In the event that
the Company purchases Run-off Coverage, the
Reinsurer will remain liable through the end of
the Run-off Period with respect to Covered Losses
arising from Certificates issued prior to the
Termination Date up to the Limit of Liability,
provided that the Company's Combined Ratio
exceeds 100% and the Risk-to-Capital Ratio
exceeds 25-to-1 during the Run-off Period. The
Reinsurer will not be liable for Covered Losses
in any calendar quarter in which the Company's
Combined Ratio is equal to, or less than 100% and
the Risk-to-Capital Ratio is equal to or less
than 25-to-1.
This Agreement will automatically terminate if
the Reinsurer does not receive the Deposit
Premium when it is due and payable and the
Reinsurer will be fully and finally released of
all obligations with respect to this Agreement
and the transaction hereunder.
SPECIAL
TERMINATION: If the Company violates any provision set forth
in the Warranty Article of this Agreement, the
Reinsurer may cancel this Agreement by giving at
least 45 days prior written notice by certified
or registered mail to the Company. The date 45
days after the Reinsurer has mailed such
TRIAD GUARANTY INSURANCE CORP. MORTGAGE INS STOP LOSS XOL
SPECIAL
TERMINATION:
(continued)
notice will be referred to herein as the "Special
Termination Date". In such event, the Company
will have the option of purchasing Run-off
Coverage by payment to the Reinsurer of the
Run-off Premium within ten (10) days after
the Special Termination Date. This Agreement will
automatically terminate if the Reinsurer does not
receive the Run-off Premium when it is due and
payable and the Reinsurer will be fully and
finally released of all obligations with respect
to this Agreement and the transaction hereunder.
In the event that the Company purchases Run-off
Coverage, the Reinsurer will remain liable
through the end of the Run-off Period with
respect to Covered Losses arising from
Certificates issued prior to the Special
Termination Date up to the Limit of Liability,
provided that the Company's Combined Ratio
exceeds 100%. The Reinsurer will not be liable
for Covered Losses in any calendar quarter in
which the Company's Combined Ratio is equal to or
less than 100%.
If the Company is acquired by or merged with
another entity during the Term or during the
Run-off Period so that the Company is not the
surviving organization, then within 90 days of
the announcement date of such acquisition or
merger, the Reinsurer may, at the Reinsurer's
sole discretion, provide the Company with notice
of cancellation by certified or registered mail.
In such event, this Agreement will be canceled on
a Cut-off Basis as of the date such notice is
mailed to the Company (the "Cut-off Termination
Date") and the Reinsurer will, within ten (10)
days of such notice, return to the Company any
unearned premium received by the Reinsurer hereon
as of the date of such cancellation, calculated
on a pro-rata basis over the calendar quarter. In
the event of such cancellation the Company will
not have the option to purchase Run-off Coverage
and the Reinsurer will be fully and finally
released of all obligations with respect to this
Agreement and the transaction hereunder.
BUSINESS
COVERED: All business classified by the Company as
Mortgage Guaranty Insurance.
TERRITORY: To follow the Company's Certificates.
RETENTION
& LIMIT: The Reinsurer will be liable for 100% of Covered
Losses, paid by the Company in any calendar
quarter during the Run-off Period, if any, in
which:
A. The Risk-to-Capital Ratio exceeds 25-to-1; and
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RETENTION
& LIMIT:
(continued)
B. The Combined Ratio exceeds 100%.
The Reinsurer's liability for Covered Losses will
not exceed the Limit of Liability.
"Limit of Liability" will mean Covered Losses in
an amount equal to $25,000,000. The maximum Limit
of Liability during the Term and any Run-off
Period is $25,000,000 in the aggregate.
RUN OFF: In the event the Risk-to-Capital Ratio for any
calendar quarter exceeds 25-to-1 and the Combined
Ratio for such calendar quarter exceeds 100%
during the Term, the Agreement will automatically
terminate by notice to the Company delivered
by certified or registered mail and the Run-off
Coverage will commence. In the event of such a
termination, the last day of such calendar
quarter will be the Termination Date.
The Company will pay the Run-off Premium in
accordance with the Premium Adjustment
calculation outlined in the Premium Section of
this Agreement. The Reinsurer will remain liable
through the end of the Run-off Period with
respect to Covered Losses arising from
Certificates issued prior to such Termination
Date up to the Limit of Liability, provided that
the Company's Combined Ratio exceeds 100% and the
Risk-to-Capital Ratio exceeds 25-to-1 during the
Run-off Period.
ALLOCATED LOSS
ADJUSTMENT
EXPENSE: Included within the Reinsurer's Limit of
Liability.
PREMIUM: Deposit Premium of $1,400,000 payable quarterly
over the Term within 30 days of the following
dates:
January 1, 2001 $175,000
April 1, 2001 $175,000
July 1, 2001 $175,000
October 1, 2001 $175,000
January 1, 2002 $175,000
April 1, 2002 $175,000
July 1, 2002 $175,000
October 1, 2002 $175,000
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PREMIUM:
(continued)
Premium Adjustment
Run-off Premium will be equal to 50% of the
difference between $25,000,000 and the cumulative
Deposit Premium received by the Reinsurer.
In the event that Run-off Coverage is purchased
subsequent to the Termination Date or Special
Termination Date, the Company will pay the entire
Run-off Premium within 10 days of the Termination
Date or effective date of the Special
Termination, whichever applies.
In the event that Run-off Coverage is triggered
during the Term, no Run-off Premium will be due
until the Reinsurer has paid Covered Losses in
excess of $12,500,000 plus the cumulative Deposit
Premium received by the Reinsurer as of the
Termination Date. At such time, the Run-off
Premium, or a portion thereof will be due in 10
days provided that payment of the entire Run-Off
Premium or portion thereof does not cause the
Company's Risk-to-Capital Ratio to exceed 25:1.
Whenever the Company's Risk-to-Capital Ratio
falls below 25:1, it will pay the Reinsurer the
largest portion of the unpaid Run-off Premium
that it can pay without forcing its
Risk-to-Capital Ratio to exceed 25:1. The Company
will make such payments until it has p aid the
entire Run-off Premium.
NO CLAIMS BONUS: The Reinsurer will pay the Company a No Claims
Bonus, if
1. The Agreement either expires at the
Termination Date or is terminated by the
Reinsurer prior to the Termination date for any
reason set forth in the Special Termination
Article, except special termination in the
event of merger or acquisition of the Company,
2. No Covered Losses have been paid by the
Reinsurer hereunder, and
3. The Company elects not to purchase Run-off
Coverage.
In such event, the No Claims Bonus will equal 50%
of the Deposit Premium received by the Reinsurer
prior to the Special Termination Date or
Termination Date, whichever applies, provided
that the Reinsurer retains a minimum of
$2,000,000 of the Deposit Premium after payment
of such No Claims Bonus.
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NO CLAIMS BONUS:
(continued)
The Reinsurer will pay the Company a No Claims
Bonus if the Reinsurer cancels this Agreement
under the Special Termination provision (other
than if the Company is acquired by or merged with
another entity so that the Company is not the
surviving organization, then within 90 days of
the announcement date of such acquisition or
merger) and the Company elects to purchase
Run-off Coverage subsequent to which:
1) the Run-off Period expires with no Covered
Losses paid by the Reinsurer, or
2) no Covered Losses have been paid by the
Reinsurer and the Company and the Reinsurer
agree to a full and final commutation of
this Agreement and the transaction
hereunder.
In such event, the No Claims Bonus will equal 90%
of the Run-off Premium received by the Reinsurer.
Upon payment to the Company of the No Claims
Bonus, the Reinsurer will be fully and finally
released of all obligations with respect to this
Agreement and the transaction hereunder.
WARRANTY:
1. The Company will not provide traditional or
dollar mortgage pool insurance. However, the
Company may provide co-primary insurance of
policies on which it has issued primary
coverage, such co-primary insurance may have
certain pool characteristics. Co-primary
coverage is defined as the level of primary
coverage required to reduce the investor's
risk exposure to that of the 80% GSE charter
requirements, plus provide second layer pool
coverage of up to 60% of the risk. This pool
is capped, however, at 1.75% of the original
risk written for that entire book. If a pool
layer is ever exhausted, mortgage insurance
will then be limited to only primary charter
level coverages. Primary coverage levels under
the co-primary umbrella would be 16% at 95%
LTV, 12% at 90% LTV, and 6% at 85% LTV. Pool
coverage extends each of these primary
coverage levels upward by 60%
2. The Reinsurer is to be notified of any
potential Risk-in Force to Capital growth
greater than 35% per year.
3. The Reinsurer is to be notified of material
changes in underwriting and/or reserving
philosophies and methodologies.
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WARRANTY:
(continued)
4. The Reinsurer is to be notified of any
primary rate decrease(s) which, either
individually or cumulatively with prior
primary rate decreases are expected to
result in an aggregate primary rate
decrease of greater than 10% in any one
year.
5. The Reinsurer is to be notified prior to
or as soon as practicable after any
sudden, unannounced or unusual
reductions (10% or more) in Capital,
including but not limited to dividend
payments, stock buy back plans or
premature debt retirement.
6. The Company will advise the Reinsurer of
any changes in the Company's master policy.
REPORTS: Within 45 days after the end of each calendar
quarter, the Company will furnish the Reinsurer
with a report of reinsurance premium due them for
that period. Such report will contain such other
information as may be required by the Reinsurer
for completion of its NAIC interim and/or annual
statement, or as may be required by the Federal
National Mortgage Association, the Federal Home
Loan Mortgage Corporation,or any other regulatory
agency or rating entity. Such report will also
contain the following information:
1. RISK IN FORCE. Gross insurance in force for
all risk, including gross risk outstanding
and gross unearned premiums thereon, before
any deduction for reinsurance hereunder.
2. REINSURED LOANS IN DEFAULT. The number of
loans which have been reported in default,
the total aggregate principal balance of
such loans, the maximum potential risk
for such loans in default, the reserve before
any deduction for reinsurance therefore that
the Company has established, and the
Reinsurer's share of such reserve.
3. CLAIMS RECEIVED. The number of loans for
which claims have been received (but not
paid), the aggregate amount of such claims,
the reserve therefore that the Company
has established before deduction for
reinsurance, and the Reinsurer's share of
such reserve.
4. LOAN LEVEL DETAIL.A computer readable compact
disc in the standard "MICA" format detailing
lending during such calendar quarter.
5. PREMIUMS.A summary of aggregate loan balances
for which either an initial premium or
renewal premium was paid to the Company, the
gross written premiums and unearned premium
reserves.
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REPORTS:
(continued)
6. REINSURANCE PREMIUMS. Reinsurance Premiums
due from the Company.
7. REINSURANCE CLAIMS. Covered Losses and the
amounts, if any, due from the Reinsurer.
Within 30 days after receipt of such report, the
Reinsurer will remit any amounts due the Company.
OFFSET:
The parties hereto have the right to offset any
balance(s) due from one to the other under this
Agreement or any other agreement, including but
not limited to the Excess of Loss Reinsurance
Agreement heretofore or hereafter entered into
between the Company and the Reinsurer or any
affiliate of the Company and the Reinsurer,
whether acting as assuming reinsurer, ceding
company or in any other capacity. The party
asserting the right of offset may exercise such
right at any time whether the balance(s) due are
on account of premiums, losses, salvage or
otherwise. This provision shall not be affected
by the insolvency of either party hereto.
SALVAGE:
The Reinsurer will be credited with its share of
salvage in respect of claims settled under this
Agreement pursuant to the Property Acquisition
Settlement Option, less its share of recovery
expense.
In the event the Company exercises its Property
Acquisition Settlement Option, the Company will
use its best efforts to sell the property at a
fair and reasonable price as soon as practicable.
The sale of such property or an agreement as to
the salvage value will be a condition precedent
to the filing of a reinsurance claim with respect
to such loss payment.
If the amount recovered exceeds the recovery
expense, such expense will be borne by each party
in proportion to its benefit from the recovery.
If the recovery expense exceeds the amount
recovered, the amount recovered (if any) will be
applied to the reimbursement of recovery expense
and the remaining expense will be borne by each
party in proportion to its liability for the loss
before recovery was attempted.
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ENTIRE
AGREEMENT/AMENDMENTS:
This Agreement will constitute the entire
agreement between the parties. This Agreement may
be altered or amended in any of its terms and
conditions by mutual consent of the Company and
the Reinsurers either by written addenda hereto
or by an exchange of letters, signifying the
assent of both parties; such addenda or letters
will then constitute a part of this Agreement.
OTHER
PROVISIONS: The Reinsurer will be subject to terms, rates,
conditions, interpretations, waivers, modifi-
cations,and alterations of the Company's policies
that are the subject of this Agreement.
Insolvency Clause
Arbitration Clause
Definitions Article - as attached
Taxes Clause
Access to Records (Company to have the right to
approve/disapprove of third party
representatives of the Reinsurer)
Loss Settlements Clause
Delays, Errors or Omissions Clause(not applicable
as regards violation of the Warranty section
hereunder)
Service of Suit Clause
Currency (U.S. Dollars) Clause
Confidentiality Clause
Aon Re Inc. Intermediary Clause - as attached
and others as applicable.
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BROKERAGE: 10% of deposit premium, plus 1.5% of net developed premium if
program goes into run-off.
We ask that you review the terms and conditions set forth hereinabove. Assuming
that you find everything to be in order, please indicate your acceptance and
approval by signing and returning one copy of this Final Placement Slip to Aon
Re Inc.
REINSURER: Ace Capital Mortgage Reinsurance Co.
THRU:
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SIGNED REFERENCE
LINE: NUMBER:
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ACCEPTED &
APPROVED BY:
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(For processing purposes it is important that you provide your Company's
reference number for this program.)
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We ask that you review the terms and conditions set forth hereinabove. Assuming
that you find everything to be in order, please indicate your acceptance and
approval by signing and returning one copy of this Final Placement Slip to Aon
Re Inc.
REINSURER: Ace Capital Mortgage Reinsurance Co.
THRU:
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SIGNED REFERENCE
LINE: NUMBER:
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ACCEPTED &
APPROVED BY:
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(For processing purposes it is important that you provide your Company's
reference number for this program.)
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DEFINITIONS
The following definitions will apply to this Agreement:
a) "Allocated Loss Adjustment Expense" will mean any expense,
including, but not limited to fees and costs of outside
contractors, such as title companies, investigators, and
attorneys, incurred by the Company during the course of
receipt, evaluation or adjustment of any notice of
delinquency, loss or claim for any reason. Allocated Loss
Adjustment Expense will be included within the Limit of
Liability. Allocated Loss Adjustment Expense shall not include
salaries and overhead of the Company and its personnel.
b) "Certificates" will mean the certificates issued by the
Company pursuant to the terms and conditions specified in any
Master Policy that extend the indicated coverage option to
specified loans and renewals thereon.
c) "Combined Ratio" will mean, with respect to any calendar
quarter, the sum of:
1. Losses and Allocated Loss Adjustment Expense incurred in
such calendar quarter divided by earned premium for such
calendar quarter, and
2. Other underwriting expenses incurred in such calendar
quarter divided by written premium for such calendar
quarter,
as such quantities are reported in the Company's statutory
filings with the Illinois regulators.
d) "Coverage Percentage" will mean, with respect to a Certificate
included in the Covered Business, the coverage percentage
specified on the face of such Certificate.
e) "Covered Business" will mean Certificates issued by the
Company prior to or during the Underwriting Period; provided
that, with respect to Certificates issued prior to the Term,
such Certificates are in force as of the Effective Date.
f) "Covered Losses" will mean Loss and Allocated Loss Adjustment
Expenses paid by the Company during the Term and any Run-off
Period in respect of Covered Business, less any salvage or
recovery, including reinsurance recoveries other than the
reinsurance provided hereby.
g) "Current Principal Amount" will mean, with respect to a
Certificate included in the Covered Business at any date, the
latest reported principal amount at such date of the loan
insured under such Certificate.
h) "Cut-off Basis" will mean that the Reinsurer will have no
liability for Covered Losses paid by the Company after the
Cut-off Termination Date.
i) "Effective Date will mean 12:01 a.m. in Chicago, Illinois on
January 1, 2001.
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DEFINITIONS - (continued)
j) "Limit of Liability" will mean Covered Losses in an amount
equal to $25,000,000. The maximum Limit of Liability during
the Term and any Run-off Period is $25,000,000 in the
aggregate.
k) "Loss" as used in this Agreement will have the meaning set
forth in the Company's MasterPolicies and Certificates.
l) "Master Policies" will mean the mortgage guaranty insurance
policies issued by the Company to mortgage lenders setting
forth the terms and conditions of the mortgage guaranty
insurance provided by the Company.
m) "Property acquisition settlement option" as used in this
Agreement, and as its meaning is understood in the mortgage
insurance industry, will mean the method of claim settlement
whereby the Company pays the entire amount due the insured,
without reduction for the percentage of coverage, such payment
being a final discharge of the Company's liability, and
whereby the Company acquires Good and Merchantable Title to
the property.
n) "Risk-to-Capital Ratio" will mean,with respect to any calendar
quarter:
1. The aggregate of the Coverage Percentage multiplied
by the Current Principal Amount as of the end of such
calendar quarter of each mortgage loan insured under
the Certificates included in the Covered Business,
all less risk ceded to Reinsurers with respect to the
Covered Business, divided by
2. The Company's statutory surplus as regards
policyholders as of such calendar quarter end plus
the Company's contingency reserves as of such
calendar quarter end (as such statutory surplus and
contingency reserves are reported in the Company's
statutory filings with the Illinois regulators).
o) "Run-Off Coverage" will mean that, subject to the terms and
conditions hereof, the Reinsurer will remain liable through
the end of the Run-off Period with respect to Covered Losses
arising from Certificates issued prior to a Termination Date,
or the Special Termination Date.
p) "Run-off eriod" will mean either the 10-year period
commencing as of 11:59 p.m.on a Termination Date or the
Special Termination Date, whichever is earlier.
q) "Term" will mean the period commencing on the Effective Date
and ending on the earlier of the Termination Date, the Special
Termination Date or the Cut-off Termination Date.
r) "Underwriting Period" will mean a period of 24 consecutive
months, commencing with the Effective Date.
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INTERMEDIARY
Aon Re Inc., an Illinois corporation, or one of its affiliated
corporations duly licensed as a reinsurance intermediary, is hereby recognized
as the Intermediary negotiating this Agreement for all business hereunder. All
communications (including losses, loss expenses, salvages, and loss settlements)
relating to this Agreement will be transmitted to the Company or the Reinsurers
through the Intermediary. Payments by the Company to the Intermediary will be
deemed payments to the Reinsurers. Payments by the Reinsurers to the
Intermediary will be deemed payment to the Company only to the extent that such
payments are actually received by the Company.
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