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Reinsurance | 9 Months Ended
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Sep. 30, 2018
Reinsurance Disclosures [Abstract] |
Reinsurance | Reinsurance The reinsurance agreements to which we are a party, 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 September 30, |  | Nine Months Ended September 30,
| (In thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
| Premiums earned: |  |  |  |  |  |  |  |
| Direct |  | $ | 275,044 |  |  | $ | 268,709 |  |  | $ | 808,531 |  |  | $ | 789,317 |
| Assumed |  | 709 |  |  | 312 |  |  | 936 |  |  | 472 |
| Ceded |  | (25,327 | ) |  | (31,938 | ) |  | (79,970 | ) |  | (92,467 | )
| Net premiums earned |  | $ | 250,426 |  |  | $ | 237,083 |  |  | $ | 729,497 |  |  | $ | 697,322 |
| Losses incurred: |  |  |  |  |  |  |  |
| Direct |  | $ | (2,081 | ) |  | $ | 35,313 |  |  | $ | 12,642 |  |  | $ | 99,122 |
| Assumed |  | 55 |  |  | (97 | ) |  | 45 |  |  | 69 |
| Ceded |  | 508 |  |  | (5,469 | ) |  | (3,810 | ) |  | (14,486 | )
| Losses incurred, net |  | $ | (1,518 | ) |  | $ | 29,747 |  |  | $ | 8,877 |  |  | $ | 84,705 |
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 eligible new business written in 2018. 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 eligible new business written January 1, 2017 through December 29, 2017. Under the 2017 QSR Transaction 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”) provides coverage on eligible business written before 2017. Under 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 bi-annually thereafter, 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 2017 and 2015 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 nine months ended September 30, 2018 and 2017.
| Table | 4.2 |  |  |  |  |  |  |  |
Quota share reinsurance |  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) |  | 2018 |  | 2017 |  | 2018 |  | 2017
| Ceded premiums written and earned, net of profit commission (1) |  | $ | 25,248 |  |  | $ | 30,880 |  |  | $ | 79,716 |  |  | $ | 88,692 |
| Ceded losses incurred |  | (522 | ) |  | 5,879 |  |  | 3,531 |  |  | 14,990 |
| Ceding commissions (2) |  | 12,983 |  |  | 12,500 |  |  | 38,268 |  |  | 36,751 |
| Profit commission |  | 39,664 |  |  | 31,621 |  |  | 111,622 |  |  | 95,063 |
(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 the QSR Transactions, ceded premiums, ceding commission and profit commission are settled net on a quarterly basis. The ceded premiums 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 $33.1 million as of September 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. Excess of Loss reinsurance Refer to Note 16 - “Subsequent Events,” for further information about our excess of loss reinsurance agreement entered into in October 2018. The excess of loss reinsurance agreement covers losses beginning August 1, 2018, but had no material impact on our consolidated financial statements as of and for the three and nine months ended September 30, 2018.

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- Definition The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -URI http://asc.fasb.org/topic&trid=2303980 + Details
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