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Exhibit 10.19
REINSURANCE AGREEMENT
REINSURED: Commonwealth Mortgage Assurance Company
REINSURER: Capital Reinsurance Company
COVERED AGREEMENT: The Quota Share Primary Mortgage Reinsurance Cover (the
"Covered Agreement") dated January 1, 1996 between the
Reinsured and Capital Mortgage Reinsurance Company ("CMRC").
TERM: This Reinsurance Agreement (the "Agreement") shall be
effective January 1, 1996, and shall remain in effect until
(i) canceled as provided for below, (ii) all liability of
CMRC under the Covered Agreement shall have expired, been
commuted, or been released, whichever occurs first, or (iii)
terminated by virtue of and concurrently with the
termination of the Covered Agreement.
REINSURANCE
COVERAGE: If CMRC fails to pay any Loss to the Reinsured as a result
of CMRC's insolvency, then subject to the Reinsurer's Limit
of Liability hereunder, the Reinsurer shall be liable to and
will reimburse the Reinsured for one hundred percent (100%)
of such Loss.
LIMIT OF LIABILITY: The Reinsurer's limit of liability to the Reinsured for Loss
hereunder shall not exceed CMRC's limit of liability under
the Covered Agreement.
INSOLVENCY: As used herein, the term "insolvency" means:
(a) a "delinquency proceeding" as that term is defined and
used in the NAIC Insurers Supervision, Rehabilitation and
Liquidation Model Act (the "Act") (see Section 3D of the
Act) as enacted in any state or any substantially similar
enacted state law, or
(b) any supervisory, rehabilitation, insolvency, or
liquidation proceeding under any state laws of similar
import and intention to that of the Act or the Uniform
Insurers Liquidation Act, or
(c) any supervisory, rehabilitation, insolvency, or
liquidation laws of any other junction.
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CMRC would be insolvent only if a proceeding under one of
the above laws resulted in an order of a court or an
insurance regulator in its jurisdiction of domicile: (i)
which prevented CMRC from paying reinsurance proceeds in
full to the Reinsured, as reinsurance becomes due and
payable under the terms of the Covered Agreement, without
any deferral, acceleration or other change in timing because
of the effect of the legal proceeding; or (ii) which delayed
or otherwise limited the ability of CMRC to perform its
obligations to other reinsureds under its reinsurance
agreements generally. Each of the above laws are as amended
from time to time.
PREMIUM: The Reinsured shall pay to the Reinsurer as premium the sum
of $500 on the date this Agreement is executed.
TERMINATION: The Reinsured shall have the right to terminate this
Agreement on a cut-off basis.
(a) by at least ninety (90) days prior written notice to the
Reinsurer in the event the Reinsured receives written notice
from Xxxxx'x Investors Services, Inc. ("Moody's") that
Moody's no longer requires this Agreement for maintenance of
the Reinsured's Xxxxx'x rating of Aa3; or
(b) by providing at least ninety (90) days prior written
notice to the Reinsurer as any December 31.
The Reinsurer shall have no liability to the Reinsured
hereunder for any Loss with a date of loss on or after the
date of termination of this Agreement.
LOSS PAYMENTS: At the end of each calendar quarter, the Reinsured shall
submit to the Reinsurer satisfactory proof of loss for all
Loss paid by the Reinsurer under the Covered Agreement and
the Loss actually due to the Reinsured under this Agreement
for such quarter. The Reinsurer shall remit to the Reinsured
the amount of Loss recoverable from it under this Agreement
within ten (10) days of receipt of such quarterly proof of
Loss.
REPORTS: Quarterly as mutually agreed between the Reinsured and the
Reinsurer.
EXCLUSIONS: As per the Covered Agreement.
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DEFINED TERMS: All terms not otherwise defined herein shall have the
meaning given to them in the Covered Agreement.
KEY DEFINITIONS
AND CLAUSES: Follow the Fortunes Clause,
Offset Clause,
Errors and Omissions Clause,
Inspections Clause,
Service of Suit Clause,
Insolvency Clause,
Arbitration Clause,
Assignment Clause,
Notices Clause,
Waiver Clause,
Governing Law Clause (New York)
WORDING: As agreed.
Agreed to and accepted by:
REINSURED: Commonwealth Mortgage Assurance Company
By: /s/ [Illegible]
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Date 6-24-96
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REINSURER: Capital Reinsurance Company
By: /s/ [Illegible]
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Date: May 9, 1996
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VARIABLE SHARE
QUOTA SHARE REINSURANCE AGREEMENT
REINSURED: Commonwealth Mortgage Assurance Company (and Affiliates)
REINSURER: Capital Mortgage Reinsurance Company
EFFECTIVE DATE: January 1, 1996
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.
"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.
"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
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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, 1996 and ending December 31, 1996.
"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
the 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: (i) 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.
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
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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 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
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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 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
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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 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, 2005 (or any subsequent December
31) by providing at least ninety (90) days prior written
notice of its intention to terminate this Agreement.
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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 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
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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 Moody's, 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, 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
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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 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: /s/ Xxxxx X. Xxxxxxx
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Name: Xxxxx X. Xxxxxxx
Title: President
Date: 6-24-96
Capital Mortgage Reinsurance Company
By: /s/ [illegible]
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Name: illegible
Title: EVP
Date: May 3, 1996
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