Radian Group Inc. Notes to Consolidated Financial Statements - (Continued) We are required to establish a valuation allowance against our  deferred tax asset (“DTA”) when it is more likely than not  that all or some portion of our DT A will not be realized. At each balance sheet date, we assess our need for a valuation  allowance and this assessment is based on all available evidence, both positive and negative, and requires management to  exercise judgment and make assumptions regarding whether such DT A will be realized in future periods. Future realization of  our DTA will ultimately depend on the existence of suf ficient taxable income of the appropriate character (ordinary income or  capital gains) within the applicable carryback and carryforward periods provided under the tax law . The primary sources of  negative evidence that we considered are our cumulative losses in recent years and the continued uncertainty around our future  operating results. We also considered several sources of positive evidence when assessing the need for a valuation allowance,  such as future reversals of existing taxable temporary dif ferences, future projections of taxable income, taxable income within  the applicable carryback periods and potential tax planning strategies. In making our assessment of the more likely than not  standard, the weight assigned to the ef fect of both negative and positive evidence is commensurate with the extent to which  such evidence can be objectively verified.  In 2010, in accordance with the accounting standard regarding the accounting and disclosure of income taxes in interim  periods, we used an annualized effective tax rate to compute our tax expense each quarter . We adjusted this annualized ef fective  tax rate each quarter by the following discrete items: (i) net gains or losses resulting from the change in fair value of our  derivatives and other financial instruments; (ii) investment gains or losses; (iii) the liabilities recorded under the accounting  standard regarding accounting for uncertainty in income taxes; and (iv) prior year provision-to-filed tax return adjustments.  Given the impact on our pre-tax results of net gains or losses resulting from our derivative transactions and our investment  portfolio and the continued uncertainty around our ability to rely on short-term financial projections, which directly af fects our  ability to estimate an effective tax rate for the full year , in 2012 and 2011, we booked our income tax expense (benefit) in  interim periods based on actual results of operations. Assets and liabilities denominated in foreign currencies are revalued or translated at year -end exchange rates. Operating  results are translated at average rates of exchange prevailing during the year . Unrealized gains and losses, net of deferred taxes,  resulting from translation are included in accumulated other comprehensive income (loss) in stockholders’  equity. Realized  gains and losses resulting from transactions in foreign currency are recorded in our statements of operations. Included in our restricted cash balances as of December 31, 2012 were: (1) funds for a mortgage insurance reserve policy  held in escrow for any future duties, rights and liabilities; (2) funds held as collateral under our insurance trust agreements  related to health care benefits; and (3) funds held in trust for the benefit of certain policyholders. Within our consolidated statements of cash flows, we classify cash receipts and cash payments related to items measured  at fair value according to their nature and purpose.  While our securities trading activity was significant in 2012 and 201 1, this  activity was primarily driven by strategic repositioning of the portfolio in order to: (1) shorten duration for liquidity purposes;  and (2) increase our allocation to taxable bonds to maximize our after -tax yields. Because this activity relates to overall  strategic initiatives and is not trading related, it is reflected as cash flows from investing activities. We group assets in our investment portfolio into one of three main categories: held to maturity , available for sale or  trading securities. Fixed-maturity securities for which we have the positive intent and ability to hold to maturity are classified  as held to maturity and are reported at amortized cost. Investments in securities not classified as held to maturity or trading  securities are classified as available for sale and are reported at fair value, with unrealized gains and losses (net of tax) reported  as a separate component of stockholders’  equity as accumulated other comprehensive income (loss). Investments classified as  trading securities are reported at fair value, with unrealized gains and losses reported as a separate component of income. Short- term investments consist of assets invested in money market instruments, certificates of deposit  (“CDs”) and highly liquid,  interest bearing instruments with an original maturity of three months or less at the time of purchase.  Amortization of premium  and accretion of discount are calculated principally using the interest method over the term of the investment. Realized gains  and losses on investments are recognized using the specific identification method.  See Note 5 for further discussion on the fair  value of investments. Investments Cash and Restricted Cash Foreign Currency Revaluation/Translation 185