Between 2008 and early 2011, we added $155 million of new capital to the MI segment and this amounted to about a 13% addition to the capital base of $1.2 billion we had at year-end 2006. And we did this for two basic reasons. First, to maintain the minimum capital requirements of our mortgage guaranty company, so that we could write the better quality business that the marketplace allowed from late 2009 and forward. And second, to boost the particular account of one of our three MI insurance subsidiaries so that it could write new business and allow the other two companies to run off the legacy book.

So, with appropriate and necessary regulatory forbearance and market acceptance, we believe this strategy could have worked. But in August of last year, our key state insurance regulator in North Carolina advised that we were no longer permitted to write new business in our flagship MI company. So, the entire legacy book was placed into run-off, meaning that we would simply continue to collect renewal premiums and pay all legitimate claims. And then in January of this year, the North Carolina regulator placed our flagship carrier under its direct supervision and this meant that our MI operating practices generally would be subjected to its supervision pursuant to the order. And concurrent with the issuance of the supervision order, the insurance department established a so-called differing payment obligation plan that we require that all approved claims be paid in cash at the rate of 50%, and that the remaining 50% be capped in a reserve classified as part of the statutory capital of the MI insurance subsidiary.

Now, this second 50% portion was intended to be paid at a later date that’s allowing time for the run-off to produce more quantifiable, verifiable cash flow results during the run-off period. So, following the issuance of the order, the North Carolina department then organized an informal conference to which various lenders and other beneficiaries of our mortgage guaranty policies were invited to give their reactions and provide their thinking relative to the order and the related deferred payment obligation plan. At that meeting the view points of attendees was that the 50% front end cash payment portion of claims settlements was too low and that more could be paid. Since then, the North Carolina department has retained professional consultants to evaluate the implications and the possibilities inherent to the 50:50 plan so that it could perhaps document a possibly higher front end payment. We believe that the decision in this regards should be made in the next couple of months and of course as managers of the run-off will be guided accordingly.

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