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Exhibit 10.20
VARIABLE SHARE
QUOTA SHARE REINSURANCE AGREEMENT
REINSURED: Commonwealth Mortgage Assurance Company (and Affiliates)
REINSURER: Capital Mortgage Reinsurance Company
EFFECTIVE DATE: January 1, 1997
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
the Reinsurer, as applicable.
"Captive Insurer" means an insurer that is controlled by,
controlling or under common control with a mortgage
originator and assumes risk on mortgage loans insured by the
Reinsured (or any insurer controlled by, controlling or
under common control with the Reinsured) and originated by
such mortgage lender.
"Agreement" means this Variable Share Quota Share
Reinsurance Agreement.
"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. The Reinsured's
determination of Losses shall be binding on the Reinsurer.
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"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 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 the 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,
1997 and ending December 31, 1997.
"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 as
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follows: (i) in the case of primary mortgage guaranty
insurance policies, the unpaid principal balance of
each mortgage loan insured multiplied by the coverage
percentage for each such loan, and (ii) in the case of
Agency Pool Insurance policies, the stop loss amount
for each policy less any losses paid by the Reinsured
in connection with such policy.
"Agency Pool Insurance" means coverage provided by the
Reinsured to either the Federal Home Loan Mortgage
Corporation or Federal National Mortgage Association
(the "Agencies") that a mortgage originator or one of
the Agencies purchases from the Reinsured on a pool of
mortgages sold to such Agency.
"Agency Pool Insurance Limit" means $100 million of
risk originated new for 1997 under Agency Pool
Insurance policies. For the avoidance of doubt, the
aggregate amount of Agency Pool Insurance risk the
Reinsured may write and cede to the Reinsurer under the
Agreement is $100 million and the maximum amount of
Loss on Agency Pool Insurance payable by the Reinsurer
is $15 million (i.e., 15% of $100 million). Any Agency
Pool Insurance risk written by the Reinsured in excess
of the Agency Pool Insurance Limit shall be voided for
coverage purposes on a last written first excluded
basis.
COVERED BUSINESS: All primary mortgage guaranty insurance policies and
Agency Pool Insurance policies issued by the Reinsured
during the Underwriting Year, subject to the Agency
Pool Insurance Limit.
EXCLUSIONS: (i) Pool Insurance (other than Agency Pool
Insurance)
(ii) Reinsurance Assumed
(iii) Any policy issued as a replacement for an
outstanding mortgage insurance policy of any entity
acquired by the Reinsured.
(iv) Any policy with regard to which the insured
under such policy (or its affiliate) provides any
insurance or co-insurance (or its functional
equivalent) to the Reinsured in connection with such
policy.
(v) Any policy for which any portion of the risk
is ceded to a Captive Insurer.
(vi) Any Agency Pool Insurance Policy issued to
Norwest Mortgage Corporation.
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(vii) Any policy issued in connection with
"supernotes," i.e., a risk sharing financial product
sold by the 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, the 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 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
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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.
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 the 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 the Reinsurer of a schedule
setting forth the amount of the Reinsured's Losses
during such quarter. Sixty (60) days after the end of
each Calendar Year (or any shorter
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period in the event of a termination) the Reinsured
shall prepare and forward to the 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 the 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 the 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 the 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. The
Reinsured shall provide the 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 the 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 the Reinsurer's receipt of the
loss account for the fourth, seventh 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 the 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.
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B. Upon the occurrence of one or more of the following
events, the Reinsured, upon providing ninety (90) days
prior written notice to the 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 the Reinsured
full financial statement credit according to the
statutory requirements of the Commonwealth of
Pennsylvania or any other jurisdiction in which the
failure of the 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.
4. Each party shall have the right to terminate this
Agreement on December 31, 2006 (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,
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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 the
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 the 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 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
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(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, the Reinsured or
any Affiliate of either. The 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 the
Reinsurer's obligations hereunder, provided that such
obligations have not been previously reimbursed 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
the Reinsured and the Reinsurer agree 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
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Inspections Clause
Taxes Clause
Service of 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:
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NAME:
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TITLE:
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DATE:
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CAPITAL MORTGAGE REINSURANCE COMPANY
BY:
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NAME:
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TITLE:
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DATE:
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