By way of background the contingency reserve is an NAIC recommended reserve
for mortgage guarantee insurers that is in addition to the traditional loss
reserve covering losses that have already been incurred. The contingency
reserve is a "catastrophic" type reserve covering mortgage insurers in times
of extreme economic conditions. It is calculated as 50% of the annual earned
premium and can be released in 10 years or when the annual loss ratio exceeds
35%, if earlier.
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