3.  Credit Analytics 5.  Reinsurance—Ceded 4.  Loss Mitigation We establish and maintain mortgage-related, credit risk policies that reflect our willingness to accept risk regarding  counterparty, portfolio, operational and structured risks involving mortgage collateral.  We establish risk guidelines for product  types and loan attributes. Quality control is a key element of our credit analytics function, and as part of our quality control  program, we audit individual loan files to examine underwriting decisions for compliance with agreed-upon underwriting  guidelines. These audits are conducted across loans submitted through our delegated and non-delegated underwriting channels. We have a dedicated loss mitigation group that works with servicers to identify and pursue loss mitigation opportunities  for loans in both our performing and non-performing (defaulted) portfolios.  This work includes regular surveillance and  benchmarking of servicer performance with respect to default reporting, borrower retention ef forts, foreclosure alternatives and  foreclosure processing. Through this process, we seek to hold servicers accountable for their performance and communicate to  servicers identified best practices for servicer performance.  In addition, as part of our loss mitigation ef forts, we continue to  support and participate in the large scale modification and refinancing programs being led by the U.S. Department of the  Treasury and Federal Housing Finance Agency (“FHFA”), several top mortgage servicers and numerous borrower outreach  campaigns. See “Regulation—Federal Regulation—Homeowner Assistance Programs” for further discussion of these  programs. We have used reinsurance in our mortgage insurance business for purposes of risk and statutory capital management. Excess-of-Loss and Quota Share Reinsurance . Certain states limit the amount of risk a mortgage insurer may retain on a  single loan to 25% of the total loan amount. Radian Guaranty currently uses reinsurance from af filiated companies to remain in  compliance with these insurance regulations. See “Regulation—State Regulation—Reinsurance” below . In addition, Radian  Guaranty uses reinsurance with its subsidiaries to reduce its net RIF . In order to improve its capital position, in the fourth  quarter of 2012, Radian Guaranty entered into an excess-of-loss reinsurance transaction with Radian Mortgage Insurance Inc.  (“Radian Mortgage Insurance”) under which Radian Guaranty transferred approximately $2.5 billion of RIF to Radian  Mortgage Insurance. In 2011 and 2010, Radian Guaranty entered into excess-of-loss reinsurance agreements with Radian  Insurance Inc. (“Radian Insurance”) under which Radian Guaranty initially transferred a total of approximately $6.1 billion of  RIF to Radian Insurance. The pools of loans that have been reinsured by Radian Mortgage Insurance and Radian Insurance  generally consist of recently underwritten fixed-rate, prime, loans with high FICO scores.  As of December 31, 2012, the  remaining RIF under all of these reinsurance agreements was $6.3 billion.  During the second quarter of 2012, Radian Guaranty entered into a quota share reinsurance agreement with a third-party  reinsurance provider (the “Initial Quota Share Reinsurance  Transaction”). Through the Initial Quota Share Reinsurance  Transaction, Radian Guaranty agreed to reinsure to a third party  20% of its NIW beginning with the business written in the  fourth quarter of 201 1. As of December 31, 2012, RIF ceded under the Initial Quota Share Reinsurance  Transaction was $1.5  billion. Radian Guaranty has the ability , at its option, to commute two-thirds of the reinsurance ceded as part of this transaction  on December 31, 2014, which would result in Radian Guaranty reassuming the related RIF in exchange for payment of a  predefined commutation amount from the reinsurer . Under the Initial Quota Share Reinsurance  Transaction, for the year ended December 31, 2012, ceded premiums written  were $52.2 million and ceded premiums earned were $16.1 million. In the fourth quarter of 2012, Radian Guaranty and the same third-party reinsurance provider agreed to the terms of a  second quota share reinsurance agreement (the “Second Quota Share Reinsurance  Transaction,” and together with the Initial  Quota Share Reinsurance Transaction, the “Reinsurance Transactions”) that provides for additional ceded risk of $750 million  initially, and the parties have the ability to mutually increase the aggregate amount of ceded risk up to a maximum of $2 billion.  As of December 31, 2012, the amount ceded pursuant to the Second Quota Share Reinsurance  Transaction was $368.4 million  of Radian Guaranty’ s RIF. The agreed upon terms also provide that, ef fective as of December 31, 2015, Radian Guaranty will  have the ability, at its option (the “Commutation Option”), to commute one-half of the reinsurance ceded with respect to  conventional GSE loans, which would result in Radian Guaranty reassuming the related RIF in exchange for a payment of a  predefined commutation amount from the reinsurer . Pursuant to the agreed upon terms: 21