Note 3: 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. On April 3, 2014, WMMRC and UGRIC entered into a Commutation Agreement and Mutual Release which is subject to a number of conditions including obtaining all necessary consents, approvals and waivers as more fully described in Note 13: Subsequent Events.

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 percentage which range from 4 percent to 5 percent. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the premium that ranges from 25 to 40 percent.

As security for the ceding insurers, WMMRC has entered into separate trust agreements with each of the primary mortgage insurance companies whereby a portion of the funds from 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 (5) years and are 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 March 31, 2014 and 2013, respectively:


	Three Months Ended March 31, 2014		Three Months Ended March 31, 2013
Premiums assumed	$	2,039	$	3,374
Change in unearned premiums		127		31

Premiums earned	$	2,166	$	3,405

The components of the liability for losses and loss adjustment reserves are as follows as of March 31, 2014 and December 31, 2013, respectively:


	March 31, 2014		December 31, 2013
Case-basis reserves	$	32,133	$	41,159
IBNR reserves		668		713
Premium deficiency reserves		2,036		2,442

Total losses and loss adjustment reserves	$	34,837	$	44,314

Losses and loss adjustment reserve activity are as follows for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively:


	March 31, 2014			December 31, 2013
Balance at beginning of period	$	44,314		$	82,524
Incurred - prior periods		1,104			(6,159	)
Paid - prior periods		(10,581	)		(32,051	)

Total losses and loss adjustment reserves	$	34,837		$	44,314

The loss contract fair market reserve balance is analyzed and adjusted quarterly. The balance in the reserve was $46.3 million at March 31, 2014 and $46.3 million at December 31, 2013. The fair market value of this reserve remained unchanged during the three months ended March 31, 2014 and decreased by $1.0 million during the three months ended March 31, 2013, resulting in no impact on expense at March 31, 2014 and a decrease in expense of $1.0 million for the three months ended March 31, 2013.