Note 5: Insurance Activity

The Company, through WMMRC, reinsures mortgage guaranty risks of mortgage loans originated by affiliates of the Company during the period from 1997 through 2008. WMMRC is (or was) a party to reinsurance agreements with UGRIC, GMIC, MGIC, PMI, Radian, RMIC and Triad. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. The reinsurance agreements with Triad and PMI were commuted on August 31, 2009 and October 2, 2012, respectively (see Note 13: Subsequent Events for additional information on the PMI commutation).

All agreements are on an excess of loss basis, except for certain reinsurance treaties with GMIC and Radian during 2007 and 2008, which are reinsured on a 50 percent quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5 percent to 10 percent of the risk in force in excess of the primary mortgage insurer’s first loss percentages which range from 4 percent to 5 percent.

As security for the ceding insurers, WMMRC has entered into separate trust agreements with each of the primary mortgage insurance companies whereby premiums assumed are held in trust accounts for the benefit of each separate insurer. Pursuant to the terms of the reinsurance agreements, WMMRC is required to keep such assets in trust for a minimum of five years and is subject to claims for up to ten (10) years from termination of obligations arising from the last year in which insurance business was written prior to runoff. Release of funds from the trust by WMMRC requires approval from the primary mortgage guaranty companies.

Premiums assumed and earned are as follows for the periods ended September 30, 2012 and 2011 respectively:


	Successor		Predecessor		Successor		Predecessor		Predecessor
	Three Months Ended September 30, 2012		Three Months Ended September 30, 2011		Period from March 20, 2012 through September 30, 2012		Period from January 1, 2012 through March 19, 2012		Nine Months ended September 30, 2011
Premiums assumed	$	4,149	$	8,653	$	10,385	$	6,130	$	26,591
Change in unearned premiums		45		48		96		47		166

Premiums earned	$	4,194	$	8,701	$	10,481	$	6,177	$	26,757

The components of the liability for losses and loss adjustment reserves are as follows as of September 30, 2012 and December 31, 2011:


	Successor		Predecessor
	September 30, 2012		December 31, 2011
Case-basis reserves	$	108,807	$	132,970
IBNR reserves		6,096		6,049
Premium deficit reserves		15,786		3,100

Total	$	130,689	$	142,119

Losses and loss adjustment reserve activity are as follows for the nine months ended September 30, 2012 and the year ended December 31, 2011:


	Successor			Predecessor
	September 30, 2012			December 31, 2011
Balance at beginning of period	$	142,119		$	190,036
Incurred—prior periods		27,567			47,321
Paid—prior periods		(38,997	)		(95,238	)

Total	$	130,689		$	142,119

The loss contract fair market reserve balance is analyzed and adjusted quarterly. The balances in the reserve was $52.4 million at September 30, 2012 and $0 at December 31, 2011 as the loss contract fair market reserve was established on March 19, 2012 at $63.1 million (as more fully described in Note 4 – Fresh Start Accounting). The fair market value of this reserve was decreased by $10.7 million during the period ended September 30, 2012 resulting in a decrease in expense of $10.7 million. This change was primarily the result of the commutation of PMI as more fully described in Note 13: Subsequent Events.