Exhibit 10.21
MORTGAGE INSURANCE STOP LOSS EXCESS OF LOSS
REINSURANCE AGREEMENT (the "Agreement")
FINAL PLACEMENT SLIP
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COMPANY: Triad Guaranty Insurance Corporation, an
Illinois-domiciled insurance company.
LEAD
REINSURER: Capital Mortgage Reinsurance Company.
TERM: Commencing on the Effective Date and continuous thereafter
unless and until terminated in accordance with the
"Termination" provisions below.
EFFECTIVE
DATE: 11:59 p.m. on December 31, 1999.
TERMINATION: The Agreement may be terminated on a Run-Off Basis as of
11:59 p.m. on December 31, 2002 or any subsequent December
31 by either party upon not less than 90 days' prior written
notice delivered by certified or registered mail. In the
event of such a termination, such December 31 shall be the
"Termination Date".
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%, the Reinsurer shall have the
right to terminate the Agreement on a Run-Off Basis by
notice to the Company delivered by certified or registered
mail. In the event of such a termination, the end of such
calendar quarter shall be the "Termination Date".
In the event the Company fails to make any payment of
Reinsurance Premium due hereunder within 30 days of written
notice from the Reinsurer that such amount is overdue, the
Reinsurer shall have the right to terminate the Agreement on
a Cut-Off Basis by notice to the Company delivered by
certified or registered mail (unless the failure of the
Company to pay Reinsurance Premium hereunder is due to the
Reinsurer's failure to pay Covered Losses owing by the
Reinsurer hereunder); provided, if the Company's failure to
pay is the direct result of the insolvency of the Company,
the Reinsurer shall instead have the right to terminate the
Agreement on a Run-Off Basis. In the event of such a
termination, the date of such notice shall be the
"Termination Date".
Page 1 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
TERMINATION: In the event the parties enter into the Optional Reinsurance
(cont'd) Agreement and the Company fails to make any payment of
premium due under the Optional Reinsurance Agreement within
30 days of written notice from the Reinsurer that such
amount is overdue, the Reinsurer shall have the right to
terminate the Agreement on a Cut-Off Basis by notice to the
Company delivered by certified or registered mail (unless
the failure of the Company to pay premium under the Optional
Reinsurance Agreement is due to the Reinsurer's failure to
pay losses owing by the Reinsurer under the Optional
Reinsurance Agreement); provided, if the Company's failure
to pay is the direct result of the insolvency of the
Company, the Reinsurer shall instead have the right to
terminate the Agreement on a Run-Off Basis. In the event of
such a termination, the date of such notice shall be the
"Termination Date".
In the event the Company is merged into another entity or
acquired by another entity such that the Company is not the
surviving entity, the Reinsurer shall have the right to
terminate this Agreement on either a Run-Off Basis or a
Cut-Off Basis (at the election of the Reinsurer) by notice
to the Company delivered by certified or registered mail
within 90 days of the date of announcement of the completion
of the merger or acquisition. In the event of such a
termination, the date of completion of the merger or
acquisition shall be the "Termination Date".
"Run-Off Basis" means that, subject to the terms and
conditions hereof, the Reinsurer shall remain liable through
the end of the Run-Off Period with respect to Covered Losses
arising from Certificates issued prior to the Termination
Date, and the Company shall remain obligated to pay
Reinsurance Premium through the end of the Run-Off Period.
"Run-Off Period" means the 10-year period commencing as of
11:59 p.m. on the Termination Date.
"Cut-Off Basis" means that (i) the Reinsurer shall have no
liability for Covered Losses paid by the Company after the
Termination Date and (ii) the Company shall have no
obligation to pay Reinsurance Premium for any period after
the Termination Date.
Page 2 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
COVERED
BUSINESS: 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.
"Certificates" means 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.
"Master Policies" means 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.
TERRITORY: USA, its territories and possessions, to follow the Master
Policies and Certificates included in the Covered Business.
LIMIT &
RETENTION: Once the aggregate losses payable under the First Loss
Reinsurance equal $25 million, the Reinsurer shall be liable
for subsequent Covered Losses paid by the Company in any
calendar quarter during the Term and any Run-Off Period in
which (i) the Risk-to-Capital Ratio exceeds 25-to-1 and (ii)
the Combined Ratio exceeds 100%, subject to the Limit of
Liability.
"First Loss Reinsurance" means the Mortgage Insurance Stop
Loss Excess of Loss Reinsurance Agreement.
"Covered Losses" means losses and allocated loss adjustment
expenses paid by the Company during the Term and any Run-Off
Period in respect of the Covered Business less any salvage
or recovery (including reinsurance recoveries other than the
reinsurance provided hereby). (Covered Losses shall not
include payments for extra-contractual obligations or losses
in excess of policy limits.)
"Risk-to-Capital Ratio" means, with respect to any calendar
quarter, (i) (A) the aggregate of the Coverage Percent
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 less (B)
risk ceded to reinsurers with respect to the Covered
Business, divided by (ii) 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).
Page 3 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
LIMIT &
RETENTION:
(cont'd) "Coverage Percentage" means, with respect to a Certificate
included in the Covered Business, the coverage percentage
specified on the face of such Certificate.
"Current Principal Amount" means, 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.
"Combined Ratio" means, with respect to any calendar
quarter, the sum of (i) losses and allocated loss adjustment
expense incurred in such calendar quarter divided by earned
premium for such calendar quarter and (ii) other
underwriting expenses incurred in such calendar quarter
divided by written premium for such calendar quarter, as the
same are reported in the Company's statutory filings with
the Illinois regulators.
"Limit of Liability" means (i) from and including the
Effective Date to and including December 31, 2000, the sum
of the Initial Limit and each Additional Limit and (ii)after
December 31, 2000, Covered Losses in an amount equal to $100
million; provided, however, in the event the Company fails
to make any payment of Reinsurance Premium due hereunder as
a direct result of the insolvency of the Company within 30
days of written notice from the Reinsurer that such amount
is overdue, the Limit of Liability shall be reduced (but
only for purposes of determining Covered Losses payable by
the Reinsurer hereunder, and not for purposes of determining
the Reinsurance Premium) by an amount equal to (i) the
Reinsurance Premium payable hereunder during the Term and
any Run-Off Period less (ii) the Reinsurance Premium
actually paid hereunder.
"Initial Limit" means Covered Losses in an amount equal to
$50 million.
STAND-BY LIMIT: As of the beginning of each calendar quarter of 2000, the
Company may increase the then-current Limit of Liability by
an amount up to $12.5 million upon written notice to the
Reinsurer delivered within 30 days of the beginning of such
quarter or, with respect to the first quarter of 2000,
within 60 days of the beginning of such quarter (the amount
of each such increase is referred to herein as an
"Additional Limit").
Page 4 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
STAND-BY LIMIT
PREMIUM: A quarterly amount payable within 30 days of the beginning
of each calendar quarter of 2000 as follows:
1st Quarter: $50,000
2nd Quarter: $37,500
3rd Quarter: $25,000
4th Quarter: $12,500
LOSS EXPENSE: Included within the Limit of Liability.
REINSURANCE
PREMIUM: An annual amount equal to 2.1% of the Limit of Liability,
payable quarterly within 30 days of the beginning of each
calendar quarter during the Term and any Run-Off Period on
the Limit of Liability in effect at the beginning of such
quarter.
OPTIONAL
REINSURANCE
AGREEMENT: If, with respect to any calendar quarter during the Term or
the Run-Off Period, the Risk-to-Capital Ratio exceeds
23-to-1, then, upon notice by the Lead Reinsurer (which may
be given at the Lead Reinsurer's sole discretion), the
Company and the Reinsurer shall, within 30 days of such
notice, enter into a Primary Mortgage Insurance Quota Share
Agreement substantially in the form of Appendix A attached
hereto (the "Optional Reinsurance Agreement").
REINSURER
DOWNGRADE: In the event of a Reinsurer Downgrade by any Rating Agency,
the Reinsurer shall, within 30 days of the occurrence of the
Reinsurer Downgrade, (i) restore the Reinsurer's financial
strength rating by such Rating Agency to at least the
Required Rating, (ii) deliver a guarantee in form and
substance satisfactory to the Company from an entity
satisfactory to the Company, guaranteeing the obligations of
the Reinsurer hereunder, (iii) provide evidence, in form and
substance satisfactory to the Company, that a third party
reinsurer, acceptable to the Company, has agreed to assume
or reinsure on a stand-by basis the obligations of the
Reinsurer hereunder, (iv) deliver a letter of credit, in
form and substance satisfactory to the Company, issued by a
bank satisfactory to the Company, securing the obligations
of the Reinsurer hereunder or (v) otherwise satisfy the
Company as to the Reinsurer's claims paying ability.
Page 5 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
REINSURER
DOWNGRADE:
(cont'd) "Reinsurer Downgrade" means the Reinsurer's financial
strength rating by any Rating Agency is downgraded below the
Required Rating.
"Required Rating" means, with respect to S&P, a financial
strength rating of "AA-" and, with respect to any Other
Rating Agency, the financial strength rating issued by such
Other Rating Agency that is the equivalent of an S&P
financial strength rating of "AA-"; provided, however, if
any Rating Agency gives less credit to the Company for
reinsurance provided by a "AA-" (or equivalent) rated
reinsurer than it gives for reinsurance provided by a "AA"
(or equivalent) rated reinsurer, Required Rating shall mean,
with respect to such Rating Agency, a financial strength
rating of "AA" or its equivalent.
"S&P" means Standard and Poor's Rating Group, a division of
McGraw Hill, Inc.
"Other Rating Agencies" means any rating agencies, other
than S&P, that, after the Effective Date, rate the financial
strength of the Reinsurer.
"Rating Agencies" means S&P and the Other Rating Agencies.
OTHER
REINSURANCE: Except as provided in the "Covenants" section, the Company
has the right to purchase additional reinsurance.
REPORTS &
REMITTANCES: Within 45 days after the end of each calendar quarter, the
Company will submit to the Reinsurer the following reports:
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 therefor that the Company has
established, and the Reinsurer's share of such reserve.
Page 6 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
REPORTS &
REMITTANCES:
(cont'd) 3. Claims Received. The number of loans for which claims
have been received (but not paid), the aggregate amount
of such claims, the reserve therefor that the Company
has established before deduction for reinsurance, the
Reinsurer's share of such reserve and, in the event the
First Loss Reinsurance attaches, the information
specified in Appendix B.
3. Loan Level Detail. A computer readable tape in the
standard "MICA" format detailing such Quarterly Cycle's
lending.
4. Premiums. A summary of aggregate loan balances for
which either an initial premium or renewal premium
therefor was paid to the Company, the gross written
premiums and unearned premium reserves.
5. Reinsurance Premiums. Reinsurance Premiums due from the
Company.
6. Reinsurance Claims. Covered Losses and the amounts, if
any, due from the Reinsurer.
The balance after offset due to a party by the other party
with respect to any calendar quarter shall be paid (i) if to
the Company, within 15 days following the receipt by the
Reinsurer of the quarterly report delivered for such
calendar quarter end (ii) if to the Reinsurer, within 45
days after the end of the calendar quarter and as an
accompaniment to the quarterly report delivered for such
calendar quarter.
EXCLUSIONS: (i) Pool insurance (other than Co-Primary Insurance), (ii)
assumed reinsurance, (iii) business insured by the Company
other than the Covered Business, (iv) bad faith, punitive
damages or other extracontractual liability asserted against
the Company, its officers, directors, employees or agents,
(v) any payment by the Company in excess of its contractual
obligations under a Master Policy or Certificate, and (vi)
unallocated office expenses of the Company and salaries of
officials and employees of the Company.
"Co-Primary Insurance" means "modified" pool insurance
issued by an insurer which covers loans with respect to
which such insurer has issued a primary policy. Co-Primary
Insurance has the following characteristics: (i) the
coverage percentages are 16% for 95% LTV loans, 12% for 90%
LTV loans and 6% for 85% LTV loans and (ii) it is available
to pay up to an additional 60% over the primary coverage
level up to a cumulative total of 1.75% of the original
amount of insurance written.
Page 7 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
COVENANTS: In the event the Company terminates, modifies or amends the
First Loss Reinsurance, the Company will be liable for the
First Loss Reinsurance limit of $25 million (unless and
until it obtains other reinsurance to replace the First Loss
Reinsurance). In no event will the Reinsurer be liable for
that $25 million under this Agreement.
The Company shall not purchase additional reinsurance on the
Covered Business (other than excess of loss reinsurance
which attaches above the reinsurance provided hereunder and
other than reinsurance purchased in connection with any risk
sharing captive arrangements) without the prior written
consent of the Reinsurer, which consent shall not be
unreasonably withheld.
The Company shall take all necessary actions to prudently
manage the Covered Business and the Covered Losses.
Except as otherwise provided, the reinsurance will be
subject to the terms, conditions, interpretations, waivers,
modifications and alterations of the Certificates included
in the Covered Business. The Agreement shall contain the
following general terms.
Insolvency Clause
Arbitration Clause (final and binding; North Carolina)
Entire Agreement/Amendments Clause
Taxes Clause
Access to Records (Company has right to approve/disapprove
of third party representatives of the Reinsurer; provided
the Company must act reasonably; provided further that,
if the Company disapproves of a representative, the
Company must provide the Reinsurer with the names of
acceptable alternatives)
Loss Notices and Settlements Clause
Delays, Errors and Omissions Clause
Offset Clause (both within the Agreement and between this
Agreement and the Optional Reinsurance Agreement)
Definitions Clause
Salvage and Subrogation Clause
Service of Suit Clause
Governing Law Clause (New York)
Currency (US Dollars) Clause
Confidentiality Clause (relating to loan level detail
provided in MICA format)
Aon Re Inc. Intermediary Clause
Page 8 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
In accordance with your instruction we have placed reinsurance with the
Reinsurer(s) listed hereon, subject to the terms and conditions hereinabove
stated. We ask that you promptly advise us if the terms, conditions, or
Reinsurer(s) vary in any respect from your instructions. Aon Re Inc. will not be
responsible for the financial or other obligations of any Reinsurer(s). Should
you desire financial information regarding the Reinsurer(s) listed hereon,
please contact us and we will furnish it.
The Reinsurers' obligations under this Agreement are several and not joint and
are limited solely to the extent of their individual participations. The
Reinsurers are not responsible for the participation of any co-scribing
Reinsurer who for any reason does not satisfy all or part of its obligations.
REINSURED WITH PERCENTAGE
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DOMESTIC COMPANIES
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Capital Mortgage Reinsurance Company 95.00%
Federal Insurance Company 5.00%
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Total Domestic Companies 100.00%
TOTAL ALL PARTICIPANTS 100.00%
Assuming that you find everthing in order, please indicate your acceptance and
approval by signing and returning this Final Placement Slip to Aon Re Inc.
ACCEPTED &
APPROVED:
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REFERENCE
NUMBER: DATED:
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(For processing purposes it is important that you provide your Company's
reference number for this program.)
Page 9 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
FORM OF PRIMARY MORTGAGE INSURANCE
QUOTA SHARE REINSURANCE AGREEMENT
COMPANY: Triad Guaranty Insurance Corporation, an Illinois-domiciled
insurance company.
REINSURER: Capital Mortgage Reinsurance Company.
TERM: Commencing at 12:01 a.m. on the Effective Date and
terminating on a Cut-Off Basis on the later of (i) the
Termination Date (as such term is defined in the Excess of
Loss Agreement) under the Excess of Loss Agreement and (ii)
the last day of the Run-Off Period (as such term is defined
in the Excess of Loss Agreement) under the Excess of Loss
Agreement (such date, the "Q/S Termination Date"). "Cut-Off
Basis" means that (i) the Reinsurer shall have no liability
for Covered Losses paid by the Company after the Q/S
Termination Date and (ii) the Company shall have no
obligation to pay Reinsurance Premium for any period after
the Q/S Termination Date.
"Excess of Loss Agreement" means the Excess of Loss
Reinsurance Agreement dated as of January 21, 2000 entered
into between the Company and the Reinsurer.
EFFECTIVE
DATE: The date of the notice delivered pursuant to the "Optional
Reinsurance Agreement" provisions of the Excess of Loss
Agreement.
REINSURANCE
TYPE: Quota Share.
COVERED
BUSINESS: Certificates issued during the Underwriting Year(s) that (i)
begin prior to the commencement of, or during, the Term and
(ii) are specified by the Reinsurer under the "Selection
Option" provisions; provided that, with respect to
Certificates issued during Underwriting Year(s) beginning
prior to the commencement of the Term, such Certificates are
in force as of the Effective Date; provided, further, that
Certificates issued during any Underwriting Year in
connection with the Loan Performance Guaranty program, Loan
Performance Guaranty Plus program, LEAP program and any
other risk sharing captive program and representing no more
than 50% of the Original Principal Amount of Certificates
issued during such Underwriting Year shall be excluded from
Covered Business on a last in first out basis.
Page 10 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
COVERED
BUSINESS:
(cont'd) "Certificates" means 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.
"Master Policies" means 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.
"Underwriting Year" means January 1 through December 31,
both dates inclusive, of any year.
"Original Principal Amount" means, with respect to a
Certificate included in the Covered Business, the original
principal amount advanced by the mortgage lender with
respect to a loan insured under such Certificate.
TERRITORY: USA, its territories and possessions, to follow the Master
Policies and Certificates included in the Covered Business.
COVERAGE: For each Underwriting Year selected pursuant to the
"Selection Option" provisions, the Reinsurer shall pay the
Underwriting Year Participation with respect to such
Underwriting Year of Covered Losses with respect to such
Underwriting Year.
"Underwriting Year Participation" means, with respect to
each separate Underwriting Year selected by the Reinsurer
pursuant to the "Selection Option" provisions, the quota
share percentage specified by the Reinsurer, subject to the
"Maximum Share" and "Participation Limit" provisions. For
the avoidance of doubt, the Underwriting Year Participation
may be different for each Underwriting Year selected
pursuant to the "Selection Option" provisions.
"Covered Losses" means, with respect to an Underwriting
Year, losses and allocated loss adjustment expenses paid by
the Company during any Applicable Period in respect of
Certificates issued during such Underwriting Year, less any
salvage or recovery (including reinsurance recoveries other
than those pursuant to this Agreement). (Covered Losses
shall not include payments for extra-contractual obligations
or losses in excess of policy limits.)
Page 11 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
COVERAGE:
(cond't) "Applicable Period" means any calendar quarter during the
Term in which the Risk-to-Capital-Ratio (determined without
the benefit of this Agreement) exceeds 23-to-1.
"Risk-to-Capital Ratio" means, with respect to any calendar
quarter, (i) (A) the aggregate of the Coverage Percent
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 less (B)
risk ceded to reinsurers with respect to the Covered
Business, divided by (ii) 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).
"Coverage Percentage" means, with respect to a Certificate
included in the Covered Business, the coverage percentage
specified on the face of such Certificate.
"Current Principal Amount" means, 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.
SELECTION
OPTION: On each Selection Date, the Reinsurer shall be entitled to
select any one or more Underwriting Year(s) to reinsure on
the terms and conditions set forth herein by written notice
to the Company. For the avoidance of doubt, each such
selection shall be at the Reinsurer's sole option. The
Company shall give the Reinsurer prompt written notice of
each occurrence of a Ratio Deterioration Trigger.
"Selection Date" means any of the following dates:
(i) a date no later than 45 days following the Effective
Date; and
(ii) a date no later than 45 days following notice to the
Reinsurer that a Ratio Deterioration Trigger has
occurred.
"Ratio Deterioration Trigger" means that, subsequent to the
payment by the Reinsurer of a Profit Commission hereunder,
the Risk-to-Capital Ratio has exceeded 23-1.
Page 12 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
MAXIMUM
SHARE: The Underwriting Year Participation shall not exceed 50% for
any Underwriting Year selected by the Reinsurer pursuant to
the "Selection Option" provisions.
PARTICIPATION
LIMIT: The Reinsurer's aggregate participation across all
Underwriting Years selected pursuant to the "Selection
Option" provisions shall be limited to an amount sufficient
to reduce the Risk-to-Capital Ratio to, but not less than,
23-to-1. If the Reinsurer's aggregate participation across
all Underwriting Years exceeds such limit, the Underwriting
Year Participation for each Underwriting Year selected
pursuant to the "Selection Option" provisions shall be
reduced in accordance with the instructions of the Reinsurer
so that the Reinsurer's aggregate participation across all
Underwriting Years does not reduce the Risk-to-Capital ratio
to less than 23-to-1.
LOSS EXPENSE: Included within the Limit of Liability.
REINSURANCE
PREMIUM: The Company shall pay the Reinsurer for each Underwriting
Year selected pursuant to the "Selection Option" provisions
a pro-rata amount (equal to the Underwriting Year
Participation) of the Company's gross primary premium on
Covered Business for such Underwriting Year due to the
Company during each Applicable Period. The Reinsurance
Premium shall be paid quarterly in arrears.
CEDING
COMMISSION: The Reinsurer shall allow a Ceding Commission equal to 20%
of the Reinsurance Premium.
PROFIT
COMMISSION: On each Profit Commission Date, a Profit Commission shall be
paid by the Reinsurer to the Company in an amount equal to
90% of the Notional Account Balance at such Profit
Commission Date, to the extent such balance is positive. The
Company shall give the Reinsurer prompt written notice of
each occurrence of a Ratio Improvement Trigger.
"Profit Commission Date" means a date no later than 60 days
following notice to the Reinsurer that a Ratio Improvement
Trigger has occurred.
"Ratio Improvement Trigger" means that the Risk-to-Capital
Ratio has become less than or equal to 23-to-1.
Page 13 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
NOTIONAL
ACCOUNT: A Notional Account shall be calculated by the Company as
described below as of the Effective Date and periodically
(but no less than quarterly) throughout the Term (the date
as of which any such calculation is made being referred to
herein as a "Calculation Date"). On the Effective Date, the
balance of the Notional Account (the "Notional Account
Balance") shall equal zero. On any Calculation Date
thereafter, the balance of the Notional Account shall be
equal to:
A. the Notional Account Balance at the immediately
preceding Calculation Date (the "Preceding Calculation
Date"), plus
B. interest credited or debited (as applicable) at the
Applicable Rate on the average daily balance of the
Notional Account during the period from but excluding
the Preceding Calculation Date to and including the
Calculation Date (such period being referred to herein
as the "Calculation Period"), plus
C. Reinsurance Premium paid hereunder during such
Calculation Period, minus
D. Covered Losses paid hereunder during such Calculation
Period, minus
E. Ceding Commission paid hereunder during such
Calculation Period, minus
F. 111% of the Profit Commission paid hereunder during
such Calculation Period, minus
G. The excess of losses paid by the Reinsurer pursuant to
the Excess of Loss Agreement during such Calculation
Period over premium paid to the Reinsurer pursuant to
the Excess of Loss Agreement during such Calculation
Period.
For the purpose of calculating the interest referred to
in subparagraph B above, interest shall be credited to
or debited from the Notional Account on the last day of
each calendar quarter, the Reinsurance Premium shall be
credited to the Notional Account on the date actually
received by the Reinsurer, as notified by the
Reinsurer, Covered Losses paid hereunder shall be
debited from the Notional Account on the date actually
paid by the Reinsurer, Ceding Commission shall be
debited from the Notional Account on the date
Reinsurance Premium is credited to the Notional
Account, Profit Commission shall be debited from the
Notional Account on the date actually paid to the
Company, and the excess amount calculated pursuant to
subparagraph G above shall be debited from the Notional
Account on the last day of the quarter in which such
losses are paid.
Page 14 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
NOTIONAL
ACCOUNT:
(cont'd) "Applicable Rate" means the three-month treasury rate, as
published in the Wall Street Journal.
FUNDING OF
RESERVES: To the extent necessary to provide the Company with credit
in all applicable jurisdictions for the reinsurance provided
hereunder, the Reinsurer will provide, through the end of
the Term, a letter of credit or trust account containing
provisions acceptable to the Company and applicable
regulatory authorities, in respect of unearned premium (if
any), recoverables, outstanding loss and loss expense
reserves and any contingency reserves required by applicable
regulatory authorities.
REPORTS &
REMITTANCES: Within 45 days after the end of each calendar quarter, the
Company will submit to the Reinsurer the following reports:
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. Loans in Default. The number of loans which have been
reported in default, a loan by loan listing of the
loans which have been reported in default, the total
aggregate principal balance of such loans, the
origination date of such loans, the maximum potential
risk for such loans in default, the reserve before any
deduction for reinsurance therefor 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 therefor that the Company
has established before deduction for reinsurance, the
Reinsurer's share of such reserve and the information
specified in Schedule 1.
4. Loan Level Detail. A computer readable tape in the
standard "MICA" format detailing such Quarterly Cycle's
lending.
5. Premiums. A summary of aggregate loan balances for
which either an initial premium or renewal premium
therefor was paid to the Company, the gross written
premiums and unearned premium reserves.
Page 15 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
REPORTS &
REMITTANCES:
(cont'd) 6. Reinsurance Premiums. Reinsurance Premiums due from the
Company.
7. Reinsurance Claims. Covered Losses and the amounts, if
any, due from the Reinsurer.
The balance after offset due to a party by 8. the other
party with respect to any calendar quarter shall be
paid (i) if to the Company, within 15 days following
the receipt by the Reinsurer of the quarterly report
delivered for such calendar quarter end (ii) if to the
Reinsurer, within 45 days after the end of the calendar
quarter and as an accompaniment to the quarterly report
delivered for such calendar quarter.
EXCLUSIONS: (i) Pool insurance (other than Co-Primary Insurance), (ii)
assumed reinsurance, (iii) business insured by the Company
other than the Covered Business, (iv) bad faith, punitive
damages or other extracontractual liability asserted against
the Company, its officers, directors, employees or agents,
(v) any payment by the Company in excess of its contractual
obligations under a Master Policy or Certificate, and (vi)
unallocated office expenses of the Company and salaries of
officials and employees of the Company.
"Co-Primary Insurance" means "modified" pool insurance
issued by an insurer which covers loans with respect to
which such insurer has issued a primary policy. Co-Primary
Insurance has the following characteristics: (i) the
coverage percentages are 16% for 95% LTV loans, 12% for 90%
LTV loans and 6% for 85% LTV loans and (ii) it is available
to pay up to an additional 60% over the primary coverage
level up to a cumulative total of 1.75% of the original
amount of insurance written.
COVENANTS: The Company shall take all necessary actions to prudently
manage the Covered Business and the Covered Losses.
Page 16 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
OTHER
PROVISIONS: Except as otherwise provided, the reinsurance will be
subject to the terms, conditions, interpretations, waivers,
modifications and alterations of the Certificates included
in the Covered Business. The definitive agreement shall
contain the following general terms.
Insolvency Clause
Arbitration Clause (final and binding; North Carolina)
Entire Agreement/Amendments Clause
Taxes Clause
Access to Records (Company has right to approve/disapprove
of third party representatives of the Reinsurer; provided
the Company must act reasonably; provided further that, if
the Company disapproves of a representative, the Company
must provide the Reinsurer with the names of acceptable
alternatives)
Loss Notices and Settlements Clause
Delays, Errors and Omissions Clause
Offset Clause (both within the Agreement and between this
Agreement and the Excess of Loss Agreement)
Definitions Clause
Salvage Clause
Service of Suit Clause
Governing Law Clause (New York)
Currency (US Dollars) Clause
Confidentiality Clause (relating to loan level detail
provided in MICA format)
Aon Re Inc. Intermediary Clause
Page 17 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
You have already provided written authorization based on the terms set forth
hereon. Please formalize your acceptance and approval by signing and returning 1
copy of this Placement Slip to Aon Re Inc.
REINSURER:
----------------------------------------------------------------------
THRU:
--------------------------------------------------------------------------
SIGNED REFERENCE
LINE: NUMBER:
--------------------------------------- ------------------------
ACCEPTED &
APPROVED BY: DATE:
------------------------------------ ---------------------------
(For processing purposes it is important that you provide your Company's
reference number for this program.)
Page 18 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX A
(cont'd)
SCHEDULE 1
DEFAULT AND CLAIM DATA
o CERTIFICATE NUMBER
o POLICY STATUS (Inforce, canceled, expired)
o OUTSTANDING PRINCIPAL BALANCE (UPB)
o DELINQUENCY FLAG
o DATE LAST PAID INSTALLMENT
o CURE DATE
o FORECLOSURE FLAG
o FORECLOSURE SALE DATE
o CLAIM RECEIVED DATE
o CLAIM SETTLEMENT AMOUNT
o CLAIM SETTLEMENT DATE
REAL ESTATE OWNED (REO) DATA
o INVENTORY FLAG
o LIST PRICE
o SALE PRICE
o NET PROCEEDS OF SALE
o SETTLEMENT DATE
The above information will be in standard MICA format and will append the
original MICA database of insured loans.
Page 19 of 20
TRIAD GUARANTY INSURANCE CORPORATION EXCESS OF LOSS
APPENDIX B
DEFAULT AND CLAIM DATA
o CERTIFICATE NUMBER
o POLICY STATUS (Inforce, canceled, expired)
o OUTSTANDING PRINCIPAL BALANCE (UPB)
o DELINQUENCY FLAG
o DATE LAST PAID INSTALLMENT
o CURE DATE
o FORECLOSURE FLAG
o FORECLOSURE SALE DATE
o CLAIM RECEIVED DATE
o CLAIM SETTLEMENT AMOUNT
o CLAIM SETTLEMENT DATE
REAL ESTATE OWNED (REO) DATA
o INVENTORY FLAG
o LIST PRICE
o SALE PRICE
o NET PROCEEDS OF SALE
o SETTLEMENT DATE
The above information will be in standard MICA format and will append the
original MICA database of insured loans.
Page 20 of 20
