Radian Group Inc.
Q4 2009 Earnings Call Transcript

Published: 23 Feb 2010

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Radian's fourth quarter 2009 earnings conference call. For the conference today our participants are in a listen-only mode. However, there will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions). And as a reminder, today's call is being recorded. With that being said I'll turn the conference now to Ms. Emily Riley. Please go ahead.

[Emily Riley:]

Thank you and welcome to Radian's fourth quarter 2009 conference call. Our press release, which contains Radian's financial results for the quarter was issued earlier today and is now posted to the investor section of our website at www.radian.biz. During today's call you will hear from S.A. Ibrahim, Radian's Chief Executive Officer and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce, President of Radian Guaranty; Dave Beidler, President of Radian Asset Assurance; and Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty. Before we begin I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risk and uncertainties, which may cause actual results to differ materially. For discussion of these risks please review the cautionary statements regarding forward looking statement included in our earnings releases and the risk factors including in our third quarter 2009 Form 10-Q. These are also available on our website. Now, I would turn the call over to S.A.

[S.A. Ibrahim:]

Thank you, Emily, and thank you all for joining us. In our first quarter earning call in 2009 I outlined several priorities that were critical to Radian's success. Today, I am pleased to report on our progress and to review the actions we took to achieve our goals in the face of many challenges. My remarks today will focus on the significant progress made as well as our priorities going forward. But first I will begin with few highlights of our fourth quarter and year-end performance. After my comments Bob will cover the details of our financial position, then before we open the call to your questions I will summarize our accomplishments in 2009 and our priorities for 2010. Earlier today, we reported a fourth quarter net loss of $91.9 million or $1.12 per share. The net loss for the full year 2009 was a $147.9 million or a $1.80 per share. While these results clearly reflect the challenging business in macro economic environment, it is worth noting that our performance was better than we expected and there were signs of improvement in our core mortgage insurance business. For example, for those familiar with the seasonal trends affecting mortgage insurance, the fourth quarter is typically the weakest with a largest increase in delinquency. In the fourth quarter of 2009, however, we experience a lower rate of new delinquencies which is clearly encouraging. We also encouraged by a delinquency report released by the Mortgage Bankers Association last week where the MBAs chief economist Jay Brinkmann noted that mortgage delinquency rate had dropped from the third quarter to the fourth quarter 2009. This has only happened three times in the nearly 40 year history of MBA survey. You can see the details of Radian's new defaults and other data on our new default roll forward chart on slide 16 of our webcast presentation. Now I would like to highlight Radian's progress on our key priority areas for 2009. First, we believe that we have successfully eliminated any potential GAAP in near term liquidity. At the beginning of 2009, we had a combination of bank lines and public debt maturing in 2011 that totaled $350 million as well as inter-company tax obligations. We now project sufficient liquidity to satisfy all of our obligations in 2011 and project excess liquidity through 2012. This was the result of a lower than estimated inter-company tax payment in 2010 due to better than expected 2009 results as well as a number of proactive strategies including buying back debt at a discount, transferring the equity interest in our Sherman Financial subsidiary to Radian Guaranty and the CPS tender announced late last year. Next, the risk to capital ratio for Radian Guaranty was 15.4

[Bob Quint:]

Thank you S.A. I'll be updating you on our P&L activity and trends for the fourth quarter of 2009 and our year-end financial position. Our MI provision for losses of $459.9 million this quarter reflects a continued ageing of delinquencies increased severity and higher delinquency count albeit at a slower pace than previous quarters and at significantly lower level than we had anticipated. The fourth quarter is typically the worst quarter seasonally and although incurred losses were higher in the fourth quarter than the previous quarters of 2009, we had expected much higher level. In contrast, the first quarter is usually the best quarter seasonally. There is a slight reduction in our rescissionary denial rate estimates this quarter, as compared to the first three quarters of 2009 when these estimates were. The dollar amount of denial in rescissions for the fourth quarter of 2009 rose to approximately $315 million compared to $309 million in the third quarter and was approximately $1.3 billion for the year 2009. These figures included significant amount for loans and deals with remaining deductibles for which a claim would not have actually been paid. So in effect our rescission and denials preserved the subordination in front of our position. The claims paid for the quarter consisted of $239 million of first liens and $15 million of second lien. We also made $198 million termination payment for a large group of modified pool and pooled structured transaction and we received $25 million of recoveries from trust accounts of terminated cap of reinsurance agreements. We expect the total claims paid will be approximately $1.5 billion for 2010, as a result of an anticipated increase in foreclosures working their way through the system. We completed a series of MI transactions during the quarter that are consistent with our strategy of reducing non core exposure on favorable each term. They are as follows

[S.A. Ibrahim:]

Thank you Bob, before we open the call to your questions, I would like to remind you of our important accomplishments in 2009 once again. We successfully improved our liquidity position and now project except liquidity through 2012. We improved the risk to capital ratio for Radian Guaranty to 15.421, as a result of this and our preparation of Amerin if needed we now expect to continue writing [ph] high quality mortgage insurance business uninterrupted for the foreseeable future. Our mortgage insurance franchise remains strong and we are in a strong competitive position. We leveraged our financial Guaranty business as a source of capital. We have successfully retained an attractive talented employee despite the economic downturn. In 2010, we will continue to focus on many of these same goals to further strengthen our MI franchise by writing new profitable business, to utilize our financial guaranty businesses as a source of capital, to commute non-core credit risk and to position Radian with the people, products and competitive strength to succeed as markets recover. And now operator, we are ready to take questions.

[Operator:]

(Operator Instructions). And we'll go to Mike Grasher with Piper Jaffray. Please go ahead.

[Mike Grasher:]

Thank you. Good morning, everyone. Bob, wanted you to talk just for a second here on the reserve build in the quarter, and not just the quarter I guess, but looking ahead to 2010. As we look at the delinquency count, I think it's on the slide 16 in terms of new defaults, 39,000, is there any way to sort of gauge the vintage that those are arriving from? And as we look ahead to 2010 and thinking about that, if you do have new delinquencies coming in from new vintages or younger vintages versus old, what does that say about expectations for a reserve build in 2010?

[Bob Quint:]

Mike, the new delinquencies are still coming mostly from the '06, '07 in particular and early '08 vintages. They are coming from, the '09 so far has performed very well, and we did say that we think overall by the end of 2010, the delinquency counts will be down. So absent other influences, and I think certainly delinquency counts are major driver to the reserve, but you're going to also going to depend on the other things that impact reserves like ageing and severity [ph] et cetera. So, obviously that's hard to say, but its encouraging that the new delinquencies is slow in the fourth quarter and our statement about the expectation of 2010 is certainly encouraging as well.

[Mike Grasher:]

Okay. Is it fair to say that the multiplier on '06, '07 vintages is a bigger multiplier than what maybe new stage delinquencies might be?

[S.A. Ibrahim:]

What's your question? Mike, would you mind?

[Mike Grasher:]

Vintages in new delinquency from '06, 07. Would the reserves on those be any different than say a delinquent loan coming in from '08 or even '09 just thinking about how may be you change your underwriting methodologies in those different Vintage years?

[Bob Quint:]

I mean to the extent that a lot of the know 607 or on the non core products you know the (inaudible) and subprime those are certainly of a higher role [ph] rate expectation and therefore the run rates on those would be higher. The prime long term lower run rate expectation so I think again all things being equal that would have a lower reserve but you have to look at the loan size and the ageing. There are other factors that influence it, but I think that your question is on the products certainly prime would have a lower reserve.

[Mike Grasher:]

Okay. One other topic just to discuss real quickly. Is there any way to tell us in terms of how much are HAMP and other modification programs impacting your default inventory?

[Teresa Bryce:]

We are starting to see more traction around both the HAMP and HARP programs, but certainly more from HAMP perspective as you probably have seen some of the reports we've seen quite a bit of volume going up from the HAMP inventory, but now you are starting to also as S.A. mentioned focus on moving from just getting loans into HAMP trial mod into permanent status. So, we are encouraged by those numbers. We are starting to see our numbers go up in that regard and we hope that trend will continue.

[Mike Grasher:]

Okay. And is there any way to note sort of the performance of those permanent mods I guess to date.

[Teresa Bryce:]

Its really too early at this point with respect to the HAMP program in particular but I did see some information out at the OCC and OTS that was in I think one of their December reports that would indicate that when payments are reduced for borrowers the incidents of re-default goes down significant and so since the HAMP program is designed to lower the payment for borrowers if that would indicate that we should see our lower default rate associated with those modifications.

[Operator:]

And next from line of Mike Grondahl with Northland Securities. Please go ahead.

[Mike Grondahl:]

Yes, just a couple questions. Could you talk a little bit about the termination that was done, Bob? It looks like you paid about $15,000 per delinquent loan, that's a lot lower than a typical claim paid of $45,000 to $50,000. I'd just like to understand that better. And then secondly, the tender I guess happened in January. Can you explain the effect on the first quarter that that will have?

[Bob Quint:]

Okay on the termination we've paid a price that was less than the amount of reserve on the books so we booked not a substantial but a profit in the fourth quarter because we paid an amount that was less than the reserve. So we and our counter party agreed on a price that made sense but these were loans that were substantially reserve or deal that were substantially reserved so think about the stock losses being almost fully exhausted and then what was the other question Mike?

[Mike Grondahl:]

Just on the tender and its effect on the first quarter?

[Bob Quint:]

Yes I mean more from a liquidity stand point so I don't think in terms of P&L impact that the price we paid was reflected already in our P&L so the impact potentially to whatever quarter we act if we decide to collapse the trust would be we look at cash so its more of a liquidity impact than a P&L impact.

[Mike Grondahl:]

Okay, good. But that is cash coming in the first quarter

[Bob Quint:]

Well it could be in the first quarter if we decide to collapse a trust or whenever we do

[Mike Grondahl:]

Okay. And then help me, how do I think on the bank TruPs slide where you included that interest coverage column, how should I think about interest coverage? Just help me, how do I think about that, what does that mean?

[Dave Beidler:]

The interest coverage ratio I think of it as interest corrections on the collateral minus associated transaction expenses expressed as a percentage of some of hedge payments and interest payments do on our tranche, any pari passu tranches and any senior tranches.

[Mike Grondahl:]

Okay and obviously the higher the number the more cash you have coming in to cover kind of the debt service on that tranche if you were

[Dave Beidler:]

Correct the higher the better

[Mike Grondahl:]

Okay. And then, Bob, on the cumulative slide where you come up with cumulative losses, you mentioned that that went up third quarter to fourth quarter. What was the primary driver of that percentage now being a cumulative loss, 13.7% versus 12.5%?

[Bob Quint:]

Mike, we constantly update that based on actual results and the low rates has gone up a little bit based on just actual experience. So, it's mostly the default that claim rates going up a little bit and that's updated as best we can every quarter.

[Mike Grondahl:]

Okay. Thanks, guys, and congratulations on all the progress you made on liquidity. And delinquencies will be something to watch, but it's finally getting a little bit of good news there too. Thank you.

[Operator:]

Now we will go to Matthew Howlett with Macquarie Capital. Please go ahead.

[Matthew Howlett:]

Guys, thanks for taking my question. On the paid claim guidance, I know there's a backlog of inventory that needs to be paid eventually and that was the case last year and I think you beat your guidance last year substantially. In your guidance for this year, what are you baking in in terms of, first, the GSE buyouts you're going to be taking, obviously there are delinquencies on the balance sheet and one would presume they're going to delay the amount of foreclosures going forward. And then two, Obama yesterday just made it harder for banks undertaking HAMP to basically foreclose. They said that you have to wait 30 days after they fail to see what they can do. And they also made it tougher for banks to threaten HAMP foreclosures on borrowers in HAMP trials. What are you baking, how are you baking those two components into your guidance?

[Bob Quint:]

We are not really expecting those things to impact the claims so if they do it's certainly conceivable that the claim volume is continuing to be less than we expect and it's going to slow things down. So that is certainly possible, we are though expecting the amount of claims receive to increase and some of the moratoriums to be lifted and things to work themselves through the system so we haven't looked and at it and said those things are going to impact claims and reduce claims. So if they do we may be below our guidance again but we have no reason to see that at this point.

[Matthew Howlett:]

Okay, and then the same with the GSE buyouts, you're just assuming that they basically just continue the foreclosure process as they normally would, there wouldn't be any delay because they've taken them on balance sheet, if you will?.

[Bob Quint:]

That's right we haven't figured that and because we really didn't have the right estimate.

[Matthew Howlett:]

Got you, okay. And then moving to the Financial Guaranty unit with great performance. You mentioned your credit spreads tightening could result in a mark-to-market loss on some of the CDS. And your credit spreads presumably will begin to tighten given your liquidity. Can you give us just a sense on how you view book value, changes in book value going forward if your spreads were to tighten not back to maybe historical areas, but maybe they that we come in 500 basis points over time? And then maybe it's just the underlying corporate CDOs, they'll tighten. I mean, how do you look at your book value? Any sort of clarity you can give us on that? Because there's going to be some volatility on the GAAP number as we move forward. Any type of clarity would be great in how you view book value going forward.

[Bob Quint:]

Yeah I mean is a great question and so far as years have gone and the spread movement has been fairly in sync so with corporate spreads come in and our spreads comes in a similar way they will offset each other in terms of fair value like they have this year for example although with the quarters may be a little bit volatile, but we did want to point out and you said it that if our spreads come in much more than the underlined collateral we may have a significant GAAP loss that you know in the end absent credit events wouldn't really be meaningful. All the while the structure transactions which are derivative are going to expire over time which is going to offset any impact positive or negative. So, you are right it could be volatile and we did want to point out the possibility of our spread tightening significantly and if that were to happen sort of in a vacuum with no other credit events, we would view it as meaningless and it would reverse over time. But it could impact book value from quarter-to-quarter potentially in a big way. There is nothing covenant wise and business wise that we think would be triggered from that, but certainly we just want to make sure that people understand it and are aware of it.

[Matthew Howlett:]

Great. Thanks for the clarification. So your $24 plus book value today, that's a real number and any volatility will just financially be reversed out ultimately if you don't pay any claims on the corporate seat that is what has very high attachment points anyway?

[Bob Quint:]

But this is relatively real certainly there are some transactions that might be a little bit different but relatively.

[Operator:]

Our next question is from Nat Otis with KBW, please go ahead.

[Nat Otis:]

Couple of quick questions. First one, just to clean up on a numbers one for HAMP. You said that to date 27,000 have gone into HAMP with 1,750 have actually completed the modification process?

[Teresa Bryce:]

Yeah, those were the numbers actually as of the end of the year. So, the numbers are slightly up as of the end of the January, but yes.

[Nat Otis:]

Okay, any thoughts on how many are out of it without having been modified or cured that are now not in not there about 27,000, but aren't necessarily haven't been modified?

[Teresa Bryce:]

Do you mean loans that were put in a trial status that may have been cancelled or fallen out?

[Nat Otis:]

Yeah, correct.

[Teresa Bryce:]

I believe the number’s relatively small, but it's probably about a little under 1,500 loans.

[Nat Otis:]

That's helpful, I wouldn't have expected it to be high, just was curious to kind of get that. Second, on page 16 the slide where you talked about the rescission and denial activity, anything to read into? Fourth quarter numbers, you seem to do pretty well on the rescissions and denials in the fourth quarter more or so than prior quarters in '09 any, thoughts on why there was just more done in the quarter or is that just a matter of cleaning up by year end?

[Bob Quint:]

No I mean I think that trajectory on actual denials and rescissions have been going up although the estimate came down slightly in this quarter, the actual number has gone up and that's basically what we expected.

[Nat Otis:]

Fair enough. And then just last, any comments on competition out there, you have new market entrants that got GSE approval and this morning you just had some commentary from another competitor talking about lowering pricing for higher FICO business that might compete against FHA, any comments on competition in the market right now?

[S.A. Ibrahim:]

Yeah. And we'll answer it in two parts. First new entrants and then second the gaining ground in the FHA. In terms of new entrants, we look at that as a positive in terms of the fact that there's capital out there which finds our industry an attractive place to invest in. Having said that, we certainly appreciate the fact that new entrants delayed getting into the market until we and our peers got into a stronger position, rather than a year ago when we were most vulnerable. And with that, I'll ask to Teresa to address the FHA comment.

[Teresa Bryce:]

I mean we've been very focused on what we need to do to move MI penetration and move volume back to MI execution versus FHA and we've been working with lenders over the last few months to identify program, product and pricing opportunities that will move share back to MI. In particular, we've been working on the use of our existing Split Edge program that is competitively priced with FHA especially for high FICO borrowers. So, we're going to continue to explore and evaluate viable opportunities to move, share that's a big focus of ours for 2010.

[Nat Otis:]

And just one last quick question on looking at on 2010 when you are kind of projecting what the market’s going to do, what are you thinking from a home price appreciation standpoint, how does that factor into your projections out in 2010?

[Scott Theobald:]

We actually expect house prices, they have been flat to slightly up and we expect that trend to continue.

[Operator:]

Our next question is from Christopher Neczypor with Goldman Sachs. Please go ahead.

[Christopher Neczypor:]

Thanks for taking the call. Just a question on your financial guaranty book, given what we are seeing in the muni market may be Harrisburg is the headline example, I was hoping you could talk a little bit about what you are seeing in your underlying exposures within the public finance book and how you are thinking about any potential problem credits within that piece of the portfolio. Thanks very much.

[Dave Beidler:]

This is Dave Beidler again. We've you know I have seen stress across many sectors of our public finance portfolio and not surprising given the current environment. We believe that the sectors that most concern us surround our health care and long term care books of business at this point. And we also have our Chief Risk Officer Derek Brummer, is there anything you want to add to that?

[Derek Brummer:]

Well, I mean the trend we've seen with respect to government related issuers they've generally been holding up in the stress. unlike Dave said it’s really the health care and long term care where we've seen the most stress and we've seen a certain amount of stability on the health care side and certain issuers reversing investment losses that they seen in 2008 and 2009 are starting to reverse themselves.

[Christopher Neczypor:]

So for things like long term care I mean what is sort of the expectation for 2010 and 2011 and how that might manifest itself in terms of potential losses?

[Dave Beidler:]

Well, we monitor our credit very closely, some of them are receiving more scrutiny than others obviously, but we are not making any projections about losses in either of those sectors at this point.

[Operator:]

And next from the line of Mark DeVries with Barclays Capital. Please go ahead.

[Mark DeVries:]

I was hoping to get a little additional color about the guidance around delinquencies, expecting them to stabilize and then head down by the end of the year. Does that at all depend on loans curing through HAMP and a decline in unemployment? Or does your analysis suggest that given where your book is and its aging that you're kind of already nearing a peaking of losses?

[Scott Theobald:]

The answer is kind of yes and yes. We noted that there has been a slowdown in new defaults we've also seen stability in cures. We're seeing in early-stage delinquencies actually an increasing rate of cures which is a good sign. Obviously we've talked about modifications and we think those will be important to the delinquency inventory being reduced and lastly we look for signs of credit burnout and the earlier books, earlier vintages especially 2006 and prior, the composition of new defaults suggest that there’s credit burn out occurring and most of new defaults now are from repeat defaults as opposed to first time defaults.

[Mark DeVries:]

And can you give us any sense of the kind of pace you expect in the decline in delinquencies over the next year or two?

[Scott Theobald:]

I'm sorry I didn't quite hear that.

[Mark DeVries:]

Is there any color you can give us on the pace of delinquency, of the decline in delinquencies you'd expect over the next year or two?

[Scott Theobald:]

I've actually expected it to be kind of flat to slightly down throughout the year.

[Mark DeVries:]

Any developments recently around protests from servicers around rescissions? Any concern that you could be dealing with a lawsuit similar to what Magic faces?

[Teresa Bryce:]

One of the things that we have been hearing from servicers and from some third parties who work with servicers is that servicers feel as if our process which of course hasn't changed over time is the most transparent process that's out there and we are continuing to try to make sure servicers understand the reason for any rescission or denial. With that being said we have seen rebuttal rate go up a little bit, it's probably around 20%, but a number of those rebuttals are sort of form rebuttals as well that don't really bring any new information to the table. So we have continued to have a process of making sure that servicers understand the reason for the rescission that they get information about that, that they have an opportunity to rebut that decision and we do review that. And if there is new information that they provide we have reversed those decisions with appropriate information but without that we see most of the rescission stand.

[Operator:]

And we will go to Steve Stelmach with FBR Capital Markets.

[Steve Stelmach:]

Just a quick follow-up on the delinquency guidance. You're expecting delinquencies to be flat or down by year end, that's a total count number. But can you give us a little bit more detail on the new delinquencies coming into the inventory? Maybe some historical context, you mentioned credit burnout. When books of business hit credit burnout, what's the pace of new delinquencies? Does it sort of plateau at those elevated levels or does it tend to come down pretty aggressively once you hit that burnout?

[Scott Theobald:]

I am not sure you can characterize that as being always the same and I think this economic situation is probably a little bit different from past, but usually what you'll see is you'll see the trend kind of rising, then it will kind of a bottoming period and that's what we refer to a kind of a bottoming period and then of course you will see it start to gradually improve.

[Steve Stelmach:]

I was going to say, so when you think about new delinquency count, does that tend to plateau once things peak and stay there for a while or does it tend to reverse?

[Scott Theobald:]

I expect the plateauing before a reversal.

[Steve Stelmach:]

Then is that usually a drawn-out process? I know it is tough to categorize this credit cycle like any other, but what's your expectation?

[Scott Theobald:]

I don't expect it to snap back sharply. I expect there is kind of bottoming process that has been going on for a bit of a time now, and I expect that to continue. In fact in the fourth quarter we made a comment about the seasonality of the fourth quarter. That was the first evidence that we actually saw kind of a cynical bucking of the seasonal trend. But it's awfully early to declare kind of a win and declaring that [ph] everything is clear from here.

[Operator:]

We will go to Alec Ofsevit with Credit Suisse.

[Alec Ofsevit:]

I have two quick questions. My first one is can you just tell us what your default to claim ratio is on the first lien book before denials and rescissions?

[Bob Quint:]

We don't disclose that. We give you the net number.

[Alec Ofsevit:]

Then my second question is a broader question. It is just what do you see as the future of the size of the private mortgage insurance market compared to the FHA market share, which today looks like it is close to 85%? I guess how do you see that trending over time?

[S.A. Ibrahim:]

I will ask Teresa to comment specifically in terms of some of the things she has been involved with and in customer discussions. But my sense from both reading what's happening at the FHA and their intent as well as from reading what the industry players on the mortgage side are feeling, I think there is a view that is shared by many others including the FHA that this market should have a room for both government and private players, and that is supported by the fact that we, the private mortgage insurance industry stood behind a significant amount of losses that otherwise would have been borne by the tax payers. Also from a lender perspective having been one myself and having at Radian a team of people running our mortgage insurance business who come more from a lender background than in mortgage insurance background and therefore are closer to our customers, the sense I get is lenders get concerned about putting too many eggs in one basket and there is the degree of concern. I sense on their part that they have too many eggs right now in the FHA basket. Having said that, we have to do a lot of work in making our products more attractive and other things that Teresa has been engaged in.

[Teresa Bryce:]

Yes, I would agree with S.A.'s comment that one of the things that we are hearing from our customers is that they would like to see movement back to a larger percent MILLION, sort of conventional execution. So as I mentioned, we are continuing to work with them to identify what program matters or pricing changes need to be made in order to make that happen. Obviously we want to that in a way that still allows us to have the appropriate credit and pricing for our book of business But clearly there seems to be a lot of focus there, both on our part and as well as the lender customers. I was also encourage by comment from the FHA and the Department of Housing that talk about the fact that they would also like to see some movement back to the private sector, but they think that FHA shouldn't be this large of a size of the market and so I view that as a positive as well for movement back.

[Operator:]

And our next question is from Mike Grondahl with Northland Securities.

[Mike Grondahl:]

Yes, just a quick follow-up. I might have missed it, but S.A., did you speak to what you thought your market share was in the fourth quarter? Sometimes you've given out that general level.

[S.A. Ibrahim:]

I did not, but our market share for the year came in at above 20%, but reason is that we feel good about the fact that we have gained share in this environment, but our priorities we want to be very careful, are focused on writing quality business first and market share is derived from them that rather than shooting for a particular market share objective. That being said we are very happy with the fact that we have gained share and it is a sign of our improved franchise and we continue to focus on actions like continuing to go after new customers and focus on writing new business which hopefully should be positive, but our first emphasis having come out of the cycle is the quality of business and if put in a position we would be willing to trade off market share for quality.

[Operator:]

Next we will go to the line of Steve Percoco with Lark Research.

[Steve Percoco:]

You have indicated that you have excess liquidity through 2012 and that the risk to capital ratio looks good, but what are you thinking about both the need and the opportunity to raise capital over the next few years?

[S.A. Ibrahim:]

We have consistently said that we remain open to new capital, but we want to do it at a time and in a way that makes sense to us if it does make sense to us at all. So, we again continue with the same position where we say that we remain open to it, based on the numbers you saw from the risk to capital perspective and a liquidity perspective. We have come a long way in terms of need for capital for liquidity and short-term liquidity needs in particular. But if there are opportunities in the market to do more business and having more capital in the face of uncertainty being positive we would be open to it if it makes sense.

[Steve Percoco:]

But you don't have any specific targets or thoughts that say a couple of years down the line you may need to or want to raise capital?

[S.A. Ibrahim:]

We do not comment on any specific targets or plans we have and particularly in the world that is changing so rapidly, our plans would get dated very quickly.

[Operator:]

And we'll go to Joe Di Carlo with CreditSights.

[Joe Di Carlo:]

Would you guys be able to comment on the impacts that you took from the terminations as well as the contingency reserve move if you haven't done that on risk in force to capital?

[Bob Quint:]

On the contingency reserve transfer added $143 million to surplus, so that's the transfer that occurred in Financial Guaranty. In terms of the terminations and some of the other things, all of them were positive to stat capital. None of them were nearly as material as the contingency reserve transfer even collectively, but they all positively contributed to the risk to capital situation.

[Joe Di Carlo:]

Is there any range you could give on what the risk in force to capital ratio would have been excluding those moves?

[Bob Quint:]

No, we don't really do that. I mean all of these were components of the calculation which are included, so to give numbers without them probably isn't really relevant.

[Joe Di Carlo:]

And looking at claims severity, is there a way that I could find that? I know it was in your K; is it going to be in your K going forward?

[Bob Quint:]

Yes, it's in our disclosure. It's actually on page Exhibit L of our disclosure where we have average claim paid, and average claim paid has gone up a little bit this year.

[Joe Di Carlo:]

Is the primary difference between, severity is pretty low; at year end it was about 28%, 2008, compared to maybe PMI which is closer to 100%. Is that all due to the effect that you're taking, claims paid by the original loan amount instead of risk in force?

[Bob Quint:]

That could account for that kind of difference. 28% sounds right because our average coverage percentage is about 25%, so that seems right as a percentage of the loan amount.

[Joe Di Carlo:]

Okay, so in terms of risk in force it's probably close to around a 100%.

[Bob Quint:]

Yes, absolutely or above.

[Joe Di Carlo:]

Or above. Okay.

[Operator:]

There are no further questions. I will turn it back to you Mr. Ibrahim for closing comments.

[S.A. Ibrahim:]

Thank you operator and thank you all for participating on our call. Thanks.

[Operator:]

And ladies and gentlemen, that does conclude your conference. You may now disconnect.