Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest-Rate Risk Credit Risk Market risk represents the potential for loss due to adverse changes in the value of financial instruments as a result of  changes in market conditions. Examples of market risk include changes in interest rates, foreign currency exchange rates, credit  spreads and equity prices. We perform a sensitivity analysis to determine the ef fects of market risk exposures on our investment  securities. In addition, certain of our financial guaranty contracts are required to be carried at fair value, and therefore our  results are subject to changes in interest rates and credit spreads, so we also perform a sensitivity analysis related to these  financial instruments. Our sensitivity analysis for interest rates and credit spreads is generally calculated as a parallel shift in  yield curve with all other factors remaining constant.  This analysis is performed by determining the potential loss in future  earnings, fair values or cash flows of market-risk-sensitive instruments resulting from one or more selected hypothetical  changes in interest rates, foreign currency exchange rates, credit spreads and equity prices. The primary market risk in our investment portfolio is interest-rate risk, namely , the fair value sensitivity of a fixed- income security to changes in interest rates. We regularly analyze our exposure to interest-rate risk and we have determined that  the fair value of our interest-rate-sensitive investment assets is materially exposed to changes in interest rates. We estimate the changes in fair value of our fixed-income securities by projecting an instantaneous increase and decrease  in interest rates. The carrying value of our total investment portfolio at  December 31, 2012 and 2011 was $5.2 billion and $5.8  billion, respectively, of which 94% and 91%, respectively, was invested in fixed-income securities. We calculate duration of our  fixed-income securities, expressed in years, in order to estimate interest rate sensitivity of these securities.  At December 31,  2012, a 100 basis point increase in interest rates would reduce the market value of our fixed-income securities by  $231.8  million, while a 100 basis point decrease in interest rates would increase the market value of our fixed-income securities by  $226.4 million. At December 31, 2012, the average duration of the fixed-income portfolio was  4.7 years compared to 4.6 years  at December 31, 2011.  A significant portion of our credit protection is in the form of CDS and other financial guaranty contracts that are marked  to market through earnings. With the exception of NIMS, these financial guaranty derivative contracts generally insure  obligations with considerable subordination beneath our exposure at the time of issuance.  The underlying asset classes of these  obligations include corporate entities, ABS, RMBS, CMBS and TruPs. With the exception of our insured TruPs CDOs and  related VIE (all of which are valued using a discounted cash flow analysis), the value of our financial guaranty derivative  contracts are affected predominantly by changes in credit spreads of the underlying obligations.  As credit spreads and ratings  change, the value of these financial guaranty derivative contracts change and the resulting gains and losses are recorded in our  operating results. In addition, with the adoption of the accounting standard regarding fair value measurements, we have  incorporated the market’s perception of our non-performance risk into the market value of our derivative instruments.  We have  determined that the fair value of our CDS and other financial guaranty contracts is materially exposed to changes in credit  spreads, including our own credit spread. Sensitivity to changes in credit spreads can be estimated by projecting a hypothetical instantaneous shift in credit spread  curves. The following tables present the pre-tax change in the fair value of our insured derivatives portfolio and our  VIE debt as  a result of instantaneous shifts in credit spreads, as well as our own credit default spread as of  December 31, 2012. These  changes were calculated using the valuation methods described in “Part II. Item 7. Management’ s Discussion and Analysis of  Financial Condition and Results of Operations—Critical  Accounting Policies—Fair Value of Financial Instruments” above,  which also includes a discussion of the material limitations of such methods. See also, “Part II. Item 7. Management’ s  Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Financial Guaranty— Financial Guaranty Portfolio— Impact of Radian’s Non-performance Risk on Financial Guaranty Results.”  Contracts for which  the fair value is calculated using specific dealer quotes or actual transaction prices are excluded from the following tables.  Radian Group’s five-year CDS spread was 9.13% at December 31, 2012. Radian Group’s five-year CDS spread is an  illustration of the market’ s view of our non-performance risk.  The CDS spread used in the valuation of specific derivatives  typically is based on the remaining term of the instrument.  The non-performance risk is commonly measured by default  probability, which lowers as the spread tightens. Radian Group’ s five-year CDS spread at December 31, 2012 implies a market  view that there is a 47.7% probability that Radian Group will default in the next five years, as compared to an  83.5% implied  probability of default at  December 31, 2011. Although the CDS spreads reflect the market view of our non-performance risk,  this magnitude of tightening should not be interpreted as a proportional decrease in our non-performance risk.  157