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Exhibit "A"
Exhibit 10.16
VARIABLE SHARE
QUOTA SHARE REINSURANCE AGREEMENT
Reinsured: Commonwealth Mortgage Assurance Company (and Affiliates)
Reinsurer: Capital Mortgage Reinsurance Company
Effective Date: January 1, 1994
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 the Calendar Year in which
the underlying primary mortgage guaranty insurance
policies were issued 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, 1994 and ending December 31, 1994.
"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 the 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.
Exclusions: Pool Insurance
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Reinsurance Assumed
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 60% of such Calendar Year's Earned Premium.
(ii) 11.25% of the amount of each Calendar Year's Losses that
exceed 60% 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 60% 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 60% 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
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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 (30%) of the Premium paid hereunder, provided, however,
that for any Calendar Year for which such Calendar Year's Losses
exceed sixty percent (60%) 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 Reinsured's Losses during
each calendar quarter during the Term of this Agreement no later
than the later of (i) thirty
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(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 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.
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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"), ▇▇▇▇▇'▇
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.
4. Each party shall have the right to terminate this Agreement on
December 31, 2003 (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
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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 sixty percent (60%)
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, 16.67% 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 (16.67%) 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
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from time to time by S&P and/or ▇▇▇▇▇'▇, (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
▇▇▇▇▇'▇, 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 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
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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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Date: 5/24/94
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Capital Mortgage Reinsurance Company
By:
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Date:
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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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Date:
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Capital Mortgage Reinsurance Company
By: /s/ [ILLEGIBLE SIGNATURE]
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Date: 5/24/94
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