Reserve for Premium Deficiency

The PDR in our mortgage insurance business at December 31, 2011 and 2010 relates to our second-lien business.

The following table reconciles our mortgage insurance segment's beginning and ending second-lien PDR for the periods indicated:



	Year Ended December 31
(In thousands)	2011			2010
Balance at January 1	$	10,736		$	25,357
Incurred losses recognized in loss reserves	(11,143		)	(10,233		)
Premiums recognized in earned premiums	2,851			2,501
Changes in underlying assumptions	595			(8,368		)
Accretion of discount and other	605			1,479
Balance at December 31	$	3,644		$	10,736

For our first-lien insurance business, because the combination of the net present value of expected premiums and already established reserves (net of reinsurance recoverables) exceeds the net present value of expected losses and expenses, a first-lien PDR was not required as of December 31, 2011. Our pre-tax investment yield used as the discount rate in these present value calculations was 2.62% and 2.44% as of December 31, 2011 and 2010, respectively. Expected losses are based on an assumed paid claim rate of approximately 14.2% on our total first-lien insurance portfolio (8.9% on performing loans and 43.1% on defaulted loans). Assuming all other factors remained constant, if our paid claim rate increased from approximately 14.2% to 15.8%, we would be required to establish a premium deficiency reserve. New business originated since the beginning of 2009 is expected to be profitable, which has contributed to the overall expected net profitability of our first-lien portfolio. In addition, estimated rescissions and denials on insured loans are expected to partially offset the impact of expected defaults and claims.

For our financial guaranty business, no PDR was necessary as of December 31, 2011 or 2010.