## Notes to Consolidated Financial Statements - (Continued) 

## Radian Group Inc. 

Case Reserve . This category consists of insured transactions where a payment default on the insured obligation has occurred. LAE reserves are normally required as remediation ef forts often continue for credits classified at this level to mitigate claims. Direct and assumed exposures in this category that satisfy certain criteria, including minimum outstanding par thresholds, are generally reviewed quarterly . 

In our directly insured financial guaranty business, we establish loss and LAE reserves on our non-derivative financial guaranty contracts. The assumptions used to determine reserves for directly insured credits are based upon the analysis as more fully described above. In our financial guaranty reinsurance business, the primary obligation for assessing and mitigating claims rests with the ceding company. We generally establish reserves for our assumed Watch List credits based upon information provided by the ceding company . 

In general, in response to deterioration in the credit performance of a transaction, risk management works with the appropriate parties in an attempt to avoid a default or to minimize the claims that we may be obligated to pay on our policy . Loss mitigation can consist of: 

• restructuring the obligation; 

• enforcing available security arrangements; 

• working with the issuer to work through or to find alternatives to mitigate the impact of financial management and/ or potential political factors; 

• when appropriate, exercising applicable rights to replace servicers, trustees, advisers or the other parties responsible for the performance of the transaction; and 

• purchasing the insured obligation at a discount to its net par outstanding. 

Issuers typically are under no obligation to restructure insured transactions to prevent losses, but often will cooperate to avoid being associated with an obligation that experiences losses. When appropriate, we discuss potential settlement options regarding particular obligations with appropriate parties. On occasion, loss mitigation may include an early termination of our obligations, which could result in payments to or from us. To determine the appropriate loss mitigation approach, we generally consider various factors relevant to such insured transaction, which may include: 

• the current and projected performance of the underlying obligation (both on an expected case basis and stressed for more adverse performance and/or market circumstances than we expect); 

• the likelihood that we will pay a claim in light of credit deterioration and reductions in available payment reserves and existing subordination; 

• our total exposure to the obligation; 

• expected future premium payments from the credit; 

• the potential impact on our capital position; and 

• the cost to us of pursuing mitigation remedies. 

