3. REINSURANCE The Company utilizes reinsurance as a risk management tool,  to reduce net risk in force to meet regulatory risk to capital requirements and to comply with the regulatory maximum per loan coverage percentage limitation of 25%. Although the use  of reinsurance does not discharge an insurer from its primary liability to the insured, the reinsuring company assumes the related liability. Included in other assets are unearned premiums (prepaid reinsurance) of $12,182,000 and $9,415,000 at December 31, 2001 and 2000, respectively. The effect of reinsurance on premiums written and earned is as follows: The 2001, 2000 and 1999 figures included $4,062,000, $9,561,000 and $14,423,000, respectively, for premiums written and $4,299,000, $9,772,000 and $14,781,000, respectively,  for premiums earned, for reinsurance ceded under variable quota share treaties entered into in 1997, 1996, 1995 and 1994 covering the books of business originated by Radian Guaranty in those years. Included in provisional losses recoverable was $47,016,000 and $43,740,000 for 2001 and 2000, respectively, which represented amounts due under variable quota share treaties entered into in 1997, 1996, 1995 and 1994, covering the books of business originated by Radian Guaranty in those  years. The term of each treaty is ten years and is non-cancelable by either party except under certain conditions. The treaties also include underwriting year excess coverage in years four, seven, and ten of the treaty. Under the terms of these treaties, Radian Guaranty cedes premium to the reinsurer based on 15% of the premiums received by Radian Guaranty on the covered business. Radian Guaranty is entitled to receive a ceding commission ranging from 30% to 32% of the premium paid under the treaty provided that certain loss ratios are not exceeded. In return for the payment of premium, Radian Guaranty receives variable quota share loss relief at levels ranging from 7.5% to 15.0% based upon the loss ratio on the covered business. In addition, Radian Guaranty is entitled to receive, under the underwriting year excess coverage, 8% of the ceded premium written under each treaty to the extent that this amount is greater than the total amount received under the variable quota share coverage business. Premiums are payable to the reinsurer on a quarterly basis net of ceding commissions due and any losses calculated under the variable quota share coverage. At the end of the fourth, seventh, and tenth years of each treaty, depending on the extent of losses recovered to date under the variable quota share provisions of the treaty, Radian Guaranty may recover amounts due under the underwriting year excess coverage provisions of the treaty. The Company accounts for this reinsurance coverage under guidance provided in EITF 93-6, “Accounting for Multiple- Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises.” Under EITF 93-6, the Company recognizes an asset for amounts due from the reinsurer based on experience to date under the contract. For the years ended December 31, 2001, 2000, and 1999, Radian Guaranty paid $4,062,000, $9,561,000 and $14,423,000 respectively, less ceding commissions of $2,216,000, $4,833,000 and $6,098,000 and recovered variable quota share losses under the treaties of $611,000, $2,262,000 and $6,066,000, respectively. Radian Guaranty has also entered into captive reinsurance arrangements with certain customers. The arrangements are typically structured on an excess layer basis with insured loans grouped by loan origination year. Radian Guaranty retains the first layer of risk on a particular book of business, the captive reinsurer assumes the next layer, and Radian Guaranty assumes all losses above that point. The captive reinsurers are required to maintain minimum capitalization equal to 10% of the risk assumed. At December 31, 2001, approximately $681,595,000 of risk was ceded under captive reinsurance arrangements. For the years ended December 31, 2001, 2000, and 1999, Radian Guaranty had ceded premiums written of $55,653,000, $39,686,000, and $26,931,000, respectively and ceded premiums earned  of $52,472,000, $39,501,000, and $27,502,000, respectively, under these various captive reinsurance arrangements. In addition, Radian Guaranty reinsures all of its direct insurance in force under an excess of loss reinsurance program. Under this program, the reinsurer is responsible for 100%  of Radian Guaranty’s covered losses (subject to an annual and aggregate limit) in excess of an annual retention limit. Premiums are paid to the reinsurer on a quarterly basis, net of any losses due to Radian Guaranty. For the year ended December 31, 1999, Radian Guaranty had ceded premiums written of $3,183,000 and ceded premiums earned of $1,992,000, under this excess of loss reinsurance program. Beginning in 2000, this treaty was accounted for under Statements of Position 98-7, “Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk” (“SOP 98-7”) and therefore, $5,269,000 and $5,370,000 were included in incurred losses during 2001 and 2000, respectively, relating to the excess of loss reinsurance program. Amerin Guaranty also reinsured all of its direct insurance in force under a $100 million excess loss protection treaty that covered Amerin Guaranty in the event the combined ratio exceeded 100% and the risk to capital ratio exceeded  24.9 to 1. This excess loss protection program was cancelled  >28 Year Ended December 31 (in thousands) 2001 2000 1999  Premiums written: Direct $753,392 $592,734 $496,646  Assumed 90,917 80 93  Ceded (60,665) (48,542) (44,922)  Net premiums written $783,644 $544,272 $451,817 Premiums earned: Direct $699,085 $570,425 $517,364  Assumed 77,569 80 87  Ceded (60,774) (49,634) (44,816)  Net premiums earned $715,880 $520,871 $472,635 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS