VIEs

The following relates to our consolidated and unconsolidated VIEs.

Financial Guaranty Insurance Contracts

Our interests in VIEs for which we are not the primary beneficiary may be accounted for as insurance, reinsurance or credit derivatives. For insurance and reinsurance contracts, we record reserves for losses and LAE, and for derivative interests, we record cumulative changes in fair value as a corresponding derivative asset or liability. Our primary involvement with these VIEs relates to transactions in which we provide a financial guaranty to one or more classes of beneficial interest holders in the VIE. The underlying collateral in the VIEs includes residential and commercial mortgages, manufactured housing loans, consumer receivables and other financial assets sold to a VIE and repackaged into securities or similar beneficial interests.

In continually assessing our involvement with VIEs, we consider certain events such as the VIE's failure to meet certain contractual conditions, such as performance tests and triggers, servicer termination events and events of default, that should they occur, may provide us with additional control rights over the VIE. The occurrence of these events would cause us to reassess our initial determination of whether we are the primary beneficiary of a VIE. In addition, changes to its governance structure that would allow us to direct the activities of a VIE or our acquisition of additional financial interests in the VIE would also cause us to reassess our determination of whether we are the primary beneficiary of a VIE. Since many of our financial guaranty contracts provide us with substantial control rights over the activities of VIEs upon the occurrence of default or other performance triggers described above, additional VIEs may be consolidated by us if these events occur.

We consolidate the assets and liabilities associated with one CDO of ABS transaction. Due to provisions in our financial guaranty contracts that allow us to direct the collateral manager to sell the underlying assets of this transaction, we concluded that we have the power to direct the activities that most significantly impact the economic performance of this VIE. In addition, as the guarantor of certain classes of debt issued by this VIE, we have the obligation to absorb losses that are significant to this VIE. The consolidated assets of this CDO of ABS VIE are accounted for as trading securities and represent assets to be used to settle the obligation of this VIE. While the assets of this VIE may only be used to settle the obligations of the VIE, due to our guarantee, the creditors have recourse to our general credit for this consolidated VIE debt.

We also consolidate the assets and liabilities associated with two other financial guaranty transactions. In these transactions, we provide guarantees for VIEs that own manufactured housing loans. Prior to their consolidation, these transactions had been accounted for as insurance contracts. Due to the contractual provisions that allow us to replace and appoint the servicer who manages the collateral underlying the assets of the transactions, we concluded that we have the power to direct the activities of these VIEs. In addition, as the guarantor of certain classes of debt issued by these VIEs, we have the obligation to absorb losses that could be significant to these VIEs. The assets of these VIEs may only be used to settle the obligations of the VIEs, while due to the nature of our guarantees, creditors have recourse to our general credit as it relates to the VIE debt. However, due to the seniority of the bonds we insure in these transactions, we do not expect to incur a loss from our involvement with these two VIEs; as such, we did not have a net liability recorded for these transactions as of December 31, 2011.

The following tables provide a summary of our maximum exposure to losses, and the financial impact on our consolidated balance sheets, our consolidated statements of operations and our consolidated statements of cash flows as of and for the periods indicated, as it relates to our consolidated and unconsolidated financial guaranty insurance contracts and credit derivative VIEs:



	Consolidated				Unconsolidated
	December 31,				December 31,
(In millions)	2011		2010		2011		2010
Balance Sheet:
Trading securities	$	94.5	$	83.2	$	—	$	—
Derivative assets	—		—		4.1		6.0
Premiums receivable	—		—		3.6		5.2
Other assets	105.9		112.4		—		—
Unearned premiums	—		—		3.8		6.0
Reserve for losses and LAE	—		—		7.9		15.0
Derivative liabilities	19.5		19.2		79.5		585.9
VIE debt—at fair value	218.8		379.1		—		—
Accounts payable and accrued expenses	0.5		0.8		—		—

Maximum exposure (1)	580.0		584.6		6,126.3		6,874.2

_______________


(1)	The difference between the carrying amounts of the net asset/liability position and maximum exposure related to VIEs is primarily due to the difference between the face amount of the obligation and the recorded fair values, which include an adjustment for our non-performance risk. The maximum exposure is based on the net par amount of our insured obligations as of the reporting date.



	Consolidated							Unconsolidated
	Year Ended December 31,							Year Ended December 31,
(In millions)	2011			2010			2009	2011			2010			2009
Statement of Operations:
Premiums earned	$	—		$	—		—	$	2.6		$	2.8		$	3.5
Net investment income	8.7			10.9			—	—			—			—
Net gains on investments	14.7			—			—	—			—			—
Change in fair value of derivative instruments—(loss) gain	(10.7		)	(14.5		)	—	511.2			(478.3		)	—
Net gain (loss) on other financial instruments	155.5			(143.5		)	—	—			—			—
Provision for losses—increase (decrease)	—			—			—	(6.0		)	6.5			(4.4		)
Other operating expenses	3.1			3.5			—	—			—			—

Net Cash Inflow (Outflow)	0.8			0.9			—	7.6			(32.1		)	(2.8		)

NIMS VIEs

We consolidate all of the assets and liabilities associated with NIMS VIEs, due to provisions in our contracts that allow us to purchase assets of these VIEs and thus direct the activities that most significantly impact the economic performance of each VIE. As the guarantor of either all or a significant portion of the debt issued by each NIMS VIE, we have the obligation to absorb losses that are significant to the VIEs. As a result, we have also concluded that we are the primary beneficiary of these VIEs. The consolidated NIMS assets are accounted for as derivatives and represent assets to be used to settle the obligation of the VIEs. We elected the fair value option as it relates to the NIMS VIE debt, and therefore, the consolidated NIMS VIE debt is recorded at fair value. Our VIE debt includes amounts for which third parties do not have recourse to us.

In total, our net cash outflow related to NIMS during 2011 has been primarily as a result of claim payments. All but two of our existing NIMS transactions mature within one year. The following tables provide a summary of our maximum exposure to losses, and the financial impact on our consolidated balance sheets, our consolidated statements of operations and our consolidated statements of cash flows as of and for the periods indicated, as it relates to our consolidated NIMS VIEs:



	December 31,
(In millions)	2011		2010
Balance Sheet:
Derivative assets	$	1.6	$	10.9
VIE debt—at fair value	9.4		141.0

Maximum exposure (1)	18.5		135.8

_______________


(1)	The difference between the carrying amounts of the net asset/liability position and maximum exposure related to VIEs is primarily due to the difference between the face amount of the obligation and the recorded fair values, which includes an adjustment for our non-performance risk. The maximum exposure is based on the net par amount of our insured obligations as of the reporting date.



	Year Ended December 31,
(In millions)	2011			2010			2009
Statement of Operations:
Net premiums earned	$	—		$	—		$	0.8
Net investment income	0.5			0.4			—
Change in fair value of derivative instruments—loss	(1.6		)	(0.9		)	(6.2		)
Net gain (loss) on other financial instruments	4.4			(39.6		)	(99.5		)

Net Cash Outflow	(119.1		)	(187.1		)	(68.1		)

Put Options on CPS

In September 2003, Radian Asset Assurance entered into a contingent capital transaction pursuant to which three custodial trusts issued an aggregate of $150 million in CPS ($50 million by each custodial trust) to various holders. Radian Group and its subsidiaries have purchased by tender offer and privately negotiated transactions all of the face amount of the CPS issued by the custodial trusts. Our continued involvement with these VIEs has included the payment of a put premium representing the spread between the investment income of the custodial trusts and amounts payable to CPS holders and other fees and expenses payable by the custodial trusts, which has typically not been material. We eliminate the premium associated with the purchased CPS.

As of December 31, 2009, we consolidated the assets and liabilities of two of the CPS trusts with which we are involved as we had acquired a majority of the securities issued by these two trusts at that date. We purchased substantially all of the securities issued by the remaining CPS trust in 2010, and we consolidated the assets and liabilities of that trust during 2010. We recognized a loss of $13.9 million within net (losses) gains on other financial instruments upon consolidation, based on the difference between the consideration paid for the CPS trust securities and the net amount of the trust's identifiable assets and liabilities recognized and measured at fair value at the date of consolidation.

Based on our involvement in these trusts, combined with the put options Radian Asset Assurance holds on these trusts (which together are considered in the determination of the primary beneficiary), we concluded that we are the party that directs the activities that most significantly influences the economic performance of these VIEs and has the right to receive benefits that would be significant to these VIEs. Therefore, given that we have a variable interest in each of these VIEs, we concluded that we are the primary beneficiary. As such, the assets and liabilities of these trusts were consolidated at their respective fair values, net of liabilities to us. The assets of the consolidated trusts are reported in short-term investments. During 2011, our net cash outflow related to our involvement with these VIEs was de minimis.



	Consolidated
	December 31,
(In millions)	2011		2010
Balance Sheet:
Short-term investments	$	150.0	$	150.0

Maximum exposure (1)	150.0		150.0

_____________


(1)	The maximum exposure is based on our carrying amounts of the investments.



	Consolidated								Unconsolidated
	Year Ended December 31,								Year Ended December 31,
(In millions)	2011			2010			2009		2011		2010			2009
Statement of Operations:
Net investment income	$	0.2		$	—		$	—	$	—	$	—		$	—
Change in fair value of derivative instruments—gain (loss)	—			0.2			—		—		(6.3		)	(56.2		)
Net loss on other financial instruments	—			(25.7		)	—		—		—			—
Other operating expenses	0.4			0.4			—		—		—			—

Net Cash Outflow	(0.2		)	(83.4		)	—		—		(0.9		)	(3.7		)