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Exhibit 10.18
VARIABLE SHARE
QUOTA SHARE REINSURANCE AGREEMENT
Reinsured: COMMONWEALTH MORTGAGE ASSURANCE COMPANY
(AND AFFILIATES)
Reinsurer: CAPITAL MORTGAGE REINSURANCE COMPANY
Effective Date: January 1,1995
Term: Continuous from the Effective Date until terminated as
provided below.
Definitions: When used in this Agreement, the following terms shall have
the specific meanings shown unless the context of any
provision hereof clearly indicates otherwise. Any
definitions set forth herein shall (i) include the singular
as well as plural, and (ii) all accounting terms involving
premium and loss calculations shall have the meanings
ascribed to them under statutory accounting principles
prescribed or permitted under the laws and regulations of
the Commonwealth of Pennsylvania.
"Affiliate" means any insurance company controlled by,
controlling or under common control with the Reinsured or
Reinsurer, as applicable.
"Losses" means losses paid plus allocated loss adjustment
expenses paid by the Reinsured during the Term of this
Agreement arising from Covered Business and reported by the
Reinsured within its statutory financial statements, net of
any salvage in connection therewith. Reinsured's
determination of Losses shall be binding on the Reinsurer.
"Calendar Year" means each whole calendar year, i.e. each
January 1 through December 31.
"Calendar Year's Earned Premium" means for any Calendar
Year, the amount of gross earned premium allocable to
Covered Business and reported by the Reinsured within its
statutory financial statement for the particular Calendar
Year.
"Calendar Year's Losses" means, for any Calendar Year, the
amount of Losses allocable to Covered Business and reported
by the Reinsured within its year-end statutory
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financial statement for the particular Calendar Year.
"Calendar Year's Ever to Date Written Premium" means for any
particular Calendar Year, the aggregate amount of all gross
written premium allocable to Covered Business reported by
the Reinsured within its year-end financial statements for
the period from Underwriting Year through the end of the
particular Calendar Year.
"Calendar Year's Ever to Date Covered Losses" means, for any
particular Calendar Year, the aggregate amount of all Losses
reimbursed, or reimbursable by the Reinsurer hereunder,
whether under the Calendar Year Variable Quota Share
Coverage or the Underwriting Year Excess Coverage, from the
Effective Date through the end of the particular Calendar
Year.
"Underwriting Year" means the Calendar Year beginning
January 1, 1995 and ending December 31, 1995.
"Underwriting Year's Written Premium" means the gross
written premium allocable to Covered Business written by the
Reinsured during the Underwriting Year.
"Underwriting Year's Net Losses" means the aggregate of all
Losses allocable to Covered Business minus the amount of
such Losses reimbursed, or reimbursable by the Reinsurer
pursuant to this Agreement from the Effective Date through
the end of a particular Calendar Year.
"Gross Risk in Force" means the aggregate amount of exposure
arising from Covered Business calculated by multiplying the
unpaid principal balance of each mortgage loan insured by
Reinsured by the coverage percentage for each such loan.
Covered Business: All primary mortgage guaranty insurance policies issued by
the Reinsured during the Underwriting Year.
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Exclusions: Pool Insurance
Reinsurance Assumed
Any policy issued as a replacement for an
outstanding mortgage insurance policy of any entity
acquired by Reinsured.
Coverages: Calendar Year Variable Quota Share Coverage:
The Reinsurer will assume as reinsurance and be liable
for:
(i) 7.5% of the amount of each Calendar Year's
Losses that do not exceed 55% of such
Calendar Year's Earned Premium.
(ii) 11.25% of the amount of each Calendar Year's
Losses that exceed 55% but are less than or
equal to 180% of such Calendar Year's Earned
Premium. Provided, however, that for any
Calendar Year in which such Calendar Year's
Losses exceed 55% of such Calendar Year's
Earned Premium, Reinsurer shall assume and be
liable for an additional 3.75% of such
Calendar Year's Losses up to 55% of such
Calendar Year's Earned Premium.
(iii) 15% of the amount of each Calendar Year's
Losses that exceed 180% of such Calendar
Year's Earned Premium.
(iv) 100% of the amount of each Calendar Year's
Losses that exceed 85% of the Reinsured's
Gross Risk in Force at the end of such
Calendar Year and are not covered pursuant to
provisions (i) through (iii) above.
Underwriting Year Excess Coverage: The Reinsurer will
assume as reinsurance and be liable for:
(i) 100% of the Underwriting Year's Net Losses
incurred by the Reinsured during Calendar
Years one through four, to the extent that 8%
of the Underwriting Year's Written Premium,
plus any unpaid ceding commission, exceeds
the Calendar Year's Ever to Date Covered
Losses at the end of
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the fourth Calendar Year of this Agreement.
(ii) 100% of the Underwriting Year's Net Losses
incurred by the Reinsured during Calendar
Years five through seven, to the extent that
8% of the premium allocable to the
Underwriting Year and collected during the
first and second Calendar Years of this
Agreement plus any unpaid ceding commission,
exceeds the Calendar Year's Ever to Date
Covered Losses at the end of the seventh
Calendar Year of this Agreement
(iii) 100% of the Underwriting Year's Net Losses
incurred by the Reinsured through the end of
the tenth Calendar Year of this Agreement, to
the extent that 8% of the premium allocable
to the Underwriting Year, plus any unpaid
ceding commission, exceeds the Calendar
Year's Ever to Date Covered Losses, at the
end of the tenth Calendar Year of this
Agreement.
Premium: The Reinsured shall pay to the Reinsurer a premium (the
"Premium") during the Term of this Agreement equal to 15% of
the Reinsured's gross written premium allocable to Covered
Business during each calendar quarter. The Premium, net of
any ceding commission due hereunder, shall be due and
payable within thirty (30) days after the end of such
calendar quarter and shall be remitted as set forth below.
Ceding
Commission: The Reinsurer shall pay to the Reinsured a ceding
commission of thirty-two percent (32%) of the Premium paid
hereunder, provided, however, that for any Calendar Year for
which such Calendar Year's Losses exceed fifty-five percent
(55%) of such Calendar Year's Earned Premium, no ceding
commission shall be paid.
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Loss
Payments: Calendar Year Variable Quota Share Coverage
The Reinsurer shall pay to the Reinsured a provisional
payment for Losses reinsured under the Calendar Year
Variable Quota Share Coverage equal to 7.5% of the amount of
Reinsured's Losses during each calendar quarter during the
Term of this Agreement no later than the later of (i) thirty
(30) days after the end of such calendar quarter, and (ii)
ten (10) business days following the receipt by Reinsurer of
a schedule setting forth the amount of Reinsured's Losses
during such quarter. Sixty (60) days after the end of each
Calendar Year (or any shorter period in the event of a
termination) the Reinsured shall prepare and forward to
Reinsurer a loss account showing for such Calendar Year (or
shorter period) and the Underwriting Year, all Losses,
Written Premium, Earned Premium and Gross Risk in Force.
Within ten (10) days after Reinsurer's receipt of the loss
account for a particular Calendar Year (or shorter period),
the Reinsurer and the Reinsured shall transfer funds between
them so as to reconcile the difference between (i) the
Reinsured's Calendar Year's Losses reimbursed and
reimbursable hereunder, and (ii) the sum of the provisional
payments for Losses and payments of ceding commissions made
by Reinsurer with respect to the calendar quarters during
such Calendar Year (or shorter period).
Underwriting Year Excess Coverage
The Reinsurer shall remit to the Reinsured a provisional
payment of any amounts due Reinsured under the Underwriting
Year Excess Coverage on or before the last business day of
the fourth, seventh and tenth Calendar Years of this
Agreement. Reinsured shall provide Reinsurer with a
provisional loss account no later than thirty (30) days
prior to the end of any such Calendar Year.
Sixty (60) days after the end of the fourth, seventh and
tenth Calendar Years of this Agreement, the Reinsured shall
prepare and forward to Reinsurer a loss account showing for
such Calendar Year and the Underwriting Year, all Losses,
Written Premium, Earned Premium and Gross Risk in Force.
Within ten (10) business days after Reinsurer's receipt of
the loss account for the fourth, seventh
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and tenth Calendar Years, the Reinsurer and the
Reinsured shall transfer funds between them so as to
reconcile the difference between (i) the Reinsured's
Underwriting Year's Net Losses, and (ii) the sum of the
provisional payments made by Reinsurer under the
Underwriting Year Excess Coverage with respect to such
Calendar Year.
CANCELLATION,
TERMINATION: A. This Agreement is non-cancelable by either party
hereto for a period of ten years from the effective
date hereof, except as provided in Section (B) below.
B. Upon the occurrence of one or more of the following
events, the Reinsured, upon providing ninety (90) days
prior written notice to Reinsurer, shall have the right
to terminate this Agreement on a cut-off basis,
providing that such event or events have not been
corrected prior to the expiration of such ninety (90)
day period:
1. Notice from Standard & Poor's Corporation ("S&P"),
Xxxxx'x Investor Services, Inc. ("Moody's"), or any
other nationally recognized rating agency that rates
the Reinsured, confirmation of which shall be provided
to the Reinsurer, that the Reinsured's then-current
financial strength or claims-paying rating cannot be
maintained because of the reinsurance coverage provided
hereunder.
2. Receipt by the Reinsured of written notice from the
Pennsylvania Department of Insurance, or any other
regulatory authority, a copy of which notice shall be
provided to the Reinsurer, denying to Reinsured full
financial statement credit according to the statutory
requirements of the Commonwealth of Pennsylvania or any
other jurisdiction in which the failure of Reinsured to
obtain such full financial statement credit would have
a material adverse impact on the Reinsured.
3. Each party shall have the right to terminate this
Agreement in the event of any actual or alleged breach
or non-performance of a material provision of this
Agreement by the other party which is not corrected or
cured within thirty (30) days of the receipt by such
other party of a written notice specifying the nature
of the claimed breach or non-performance.
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4. Each party shall have the right to terminate this Agreement
on December 31, 2004 (or any subsequent December 31) by providing
at least ninety (90) days prior written notice of its intention
to terminate this Agreement.
After a termination cut-off pursuant to this Section, the
Reinsurer shall pay to the Reinsured a profit commission equal to
(i) 8% of the current Calendar Year's Ever to Date Written
Premium, plus (ii) any unpaid ceding commission not paid in any
Calendar Year when the Underwriting Year's Ever to Date Covered
Losses exceeded fifty-five percent (55%) of such Calendar Year's
Earned Premium, minus (iii) such Calendar Year's Ever to Date
Covered Losses.
At any termination of this Agreement, the Reinsurer shall refund
to the Reinsured, in addition to any other sums due to the
Reinsured hereunder, 14.67% of the Reinsured's ceded unearned
premium with respect to Covered Business as of the date of such
termination.
Financial
Statement
Credit: The Reinsurer shall take all steps necessary for the Reinsured to
obtain full financial statement credit according to the statutory
requirements of the Commonwealth of Pennsylvania, the State of
New York, and any other jurisdiction in which the failure of
Reinsured to obtain such full financial statement credit would
have a material adverse impact on the Reinsured.
Trust
Agreement: Upon the execution of this Agreement by the parties, the
Reinsurer shall establish a trust account (the "Trust") for the
benefit of the Reinsured at a financial institution and under a
trust agreement acceptable to Reinsured. The Reinsured shall
promptly reimburse the Reinsurer for the reasonable and customary
fees and expenses of the administration of the Trust.
The payments of Premium (net of any ceding commissions due) by
the Reinsured hereunder shall be made in two parts: (i) an amount
equal to (14.67%) of any Premium shall be remitted directly to
the Reinsurer; and (ii) any remaining Premium due, net of any
ceding commission, shall be
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deposited directly into the Trust.
Deposits of Premium into the Trust shall be invested at the
discretion of the Reinsurer, provided, however, that at each
quarter-end (i) at least ninety-five percent (95%) of the assets
of the Trust shall consist of instruments or securities
determined, as of the date of each quarter-end, to be of
investment grade as defined from time to time by S&P and/or
Xxxxx'x, (ii) at least fifty percent (50%) of the investments and
cash assets of the Trust shall consist of cash or cash
equivalents, or securities determined, as of the date of
purchase, to be of the highest investment grade as determined
from time to time by S&P and/or Xxxxx'x, and (iii) none of the
assets of the Trust may be invested in instruments or securities
with any real estate-related risk, and (iv) none of the assets of
the Trust may be invested in instruments or securities of the
Reinsurer, Reinsured or any Affiliate of either. Reinsurer shall
be entitled to the investment income generated by the Trust.
The Reinsured has the right and the obligation to withdraw assets
from the Trust at any time and from time to time, as the
Reinsured shall elect, in satisfaction of Reinsurer's obligations
hereunder, provided that such obligations have not been
previously reimbursed by to the Reinsured by the Reinsurer. In
the event that, at any time, the assets of the Trust are
insufficient to satisfy fully the obligations of the Reinsurer
hereunder, the Reinsurer shall satisfy such shortfall directly as
provided hereinabove.
The Reinsurer may withdraw, and retain for its own account, all
investment income earned on the Trust's assets at any time and
from time to time as the Reinsurer shall elect. The trustee shall
allow no other withdrawals or substitutions of assets from or to
the Trust except as permitted hereunder.
The trustee shall immediately honor all withdrawal requests made
in accordance herewith and take all steps necessary to transfer
the applicable assets held under the Trust to the appropriate
party.
Any disputes arising from the Trust may not be the subject of an
arbitration proceeding between the parties unless both Reinsured
and Reinsurer agree
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in writing to such an arbitration proceeding.
OTHER PROVISIONS: This Agreement is subject to the negotiation and execution
of a formal reinsurance treaty and a trust agreement both
acceptable to the parties containing in addition to the
terms and conditions set forth herein, ordinary and
customary clauses set forth in reinsurance transactions
generally, including, but not limited to the following:
Follow the Fortunes Clause
Offset Clause
Errors and Omissions Clause
Inspections Clause
Taxes Clause
Service and Suit Clause
Insolvency Clause
Arbitration Clause
Assignment Clause
Notices Clause
Waiver Clause
Negotiated Agreement Clause
Governing Law Clause (PA)
Salvage Clause
Subrogation Clause
Access to Records Clause
Reports Clause
Parental Wrap of Reinsurer Clause
Penalty Interest for Late Payments
Agreed to and accepted by:
COMMONWEALTH MORTGAGE ASSURANCE COMPANY
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx, President and
Chief Executive Officer
Date: 4/14/95
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CAPITAL MORTGAGE REINSURANCE COMPANY
By: /s/ [Illegible]
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Date: April 18, 1995
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