U.S. Public Finance Insurance Results

The Company’s U.S. public finance insurance business is primarily conducted through its National Public Finance Guarantee Corp. (National) subsidiary.

The U.S. public finance insurance segment recorded $148 million of pre-tax income in the second quarter of 2012 compared with $144 million of pre-tax income in the second quarter of 2011. The modest improvement in pre-tax income in the second quarter of 2012 resulted from an increase in total premiums earned driven by higher refunding volume, partially offset by an increase in legal and litigation-related costs and expenses and a reduced benefit from loss and loss adjustment expenses.

Total premiums earned in the U.S. public finance insurance segment were $130 million in the second quarter of 2012, up 23 percent from $106 million of total premiums earned in the second quarter of 2011, as a decrease in scheduled premiums earned was more than offset by an increase in refunding premiums earned.

Net investment income for the U.S. public finance insurance segment increased 4 percent to $56 million in the second quarter of 2012 from $54 million in the comparable period of 2011, primarily due to a higher yield on the $1.6 billion secured loan with MBIA Corp. relative to the previously invested assets.

The U.S. public finance insurance segment’s loss and loss adjustment expenses were a benefit of $3 million in the second quarter of 2012 compared with a benefit of $9 million in the second quarter of 2011.

Expenses associated with the amortization of deferred acquisition costs totaled $26 million in the second quarter of 2012, up 13 percent from $23 million in the second quarter of 2011 and in line with insured portfolio amortization.

Operating expenses were $28 million in the second quarter of 2012, compared with $19 million in the comparable period of 2011. The increase in operating expenses was driven by higher legal and litigation-related costs and expenses.

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