Mortgage Guaranty Insurance Corp. (MGIC) has entered into a reinsurance agreement with an affiliate of HCC Insurance Holdings Inc. The reinsurance agreement is effective for up to $50 billion of qualifying new insurance written annually beginning April 1, 2008 and ending on December 31, 2010, subject to two one-year extensions that may be exercised by HCC.
MGIC believes that substantially all of the insurance that it is currently writing qualifies under the reinsurance agreement. Curt S. Culver, chairman and CEO of MGIC Investment Corp. and MGIC, notes that the reinsurance agreement completes another step in the company's capital plan and is expected to provide claims-paying resources in catastrophic loss environments for insurance written beginning April 1.
The transaction will be accounted for under deposit accounting rather than reinsurance accounting. The premium ceded to the reinsurer and the brokerage commission paid to an affiliate of the reinsurer, net of a profit commission to MGIC, will be recorded as expense. In non-catastrophic loss environments, MGIC expects the net expense will be approximately 5% of the net premiums written on business covered by the agreement.
Source: MGIC Investment Corp.