Reinsurance

The reinsurance agreements we have entered into, excluding captive agreements (which were immaterial), are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.



	Table	4.1
Effect of Reinsurance			Three Months Ended June 30,						Six Months Ended June 30,
	(In thousands)		2018			2017			2018			2017
	Premiums earned:
	Direct		$	268,236		$	261,180		$	533,487		$	520,608
	Assumed		106			62			227			160
	Ceded		(21,378		)	(30,106		)	(54,643		)	(60,529		)
	Net premiums earned		$	246,964		$	231,136		$	479,071		$	460,239

	Losses incurred:
	Direct		$	(16,778	)	$	31,396		$	14,723		$	63,809
	Assumed		(100		)	61			(10		)	166
	Ceded		3,423			(4,118		)	(4,318		)	(9,017		)
	Losses incurred, net		$	(13,455	)	$	27,339		$	10,395		$	54,958

Quota share reinsurance

We utilize quota share reinsurance to manage our exposure to losses resulting from our mortgage guaranty insurance policies and to provide reinsurance capital credit under the PMIERs. Each of the reinsurers under our QSR Transactions has an insurer financial strength rating of A- or better by Standard and Poor’s Rating Services, A.M. Best or both.

2018 QSR Transaction. We entered into a QSR transaction with a group of unaffiliated reinsurers with an effective date of January 1, 2018 (“2018 QSR Transaction”), which provides coverage on new business written in 2018 that meets certain eligibility requirements. Under the 2018 QSR Transaction, we will cede losses incurred and premiums on or after the effective date through December 31, 2029, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021, and annually thereafter, for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The structure of the 2018 QSR Transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the 2018 QSR Transaction, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below 62%.

2017 and 2015 QSR Transactions.

Our 2017 quota share reinsurance agreement (“2017 QSR Transaction”) provides coverage on new business written January 1, 2017 through December 29, 2017 that meets certain eligibility requirements. Under the agreement we cede losses incurred and premiums on or after the effective date through December 31, 2028, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021 for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

Our 2015 quota share reinsurance agreement (“2015 QSR Transaction”) covers eligible risk in force written before 2017. The 2015 QSR Transaction cedes losses incurred and premiums through December 31, 2024, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2018 for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The structure of both the 2017 QSR Transaction and 2015 QSR Transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the QSR Transactions, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below 60%.

Table 4.2 below presents a summary of our quota share reinsurance agreements, excluding captive agreements (which were immaterial), for the three and six months ended June 30, 2018 and 2017.



	Table	4.2
Quota share reinsurance			Three Months Ended June 30,					Six Months Ended June 30,
Quota share reinsurance	(In thousands)		2018			2017		2018		2017
	Ceded premiums written and earned, net of profit commission ⁽¹⁾		$	21,432		$	28,917	$	54,468	$	57,812
	Ceded losses incurred		(3,735		)	4,424		4,053		9,111
	Ceding commissions ⁽²⁾		12,640			12,248		25,285		24,251
	Profit commission		41,769			32,325		71,958		63,442


⁽¹⁾	Under our QSR Transactions, premiums are ceded on an earned and received basis as defined in the agreements.


⁽²⁾	Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Under the terms of QSR Transactions, ceded premiums, ceding commission and profit commission are settled net on a quarterly basis. The ceded premium due after deducting the related ceding commission and profit commission is reported within “Other liabilities” on the consolidated balance sheets.

The reinsurance recoverable on loss reserves related to our QSR Transactions was $36.5 million as of June 30, 2018 and $39.3 million as of December 31, 2017. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers which are based on the funding requirements of PMIERs that address ceded risk.