Non-Corporate CDOs and Other Derivative Transactions Our non-corporate CDO transactions include our guaranty of  TruPs CDOs, CDOs of ABS, CDOs of CMBS and CDOs  backed by other asset classes such as: (i) municipal securities; (ii) synthetic financial guarantees of  ABS; and (iii) project  finance transactions. The fair value of our non-corporate CDOs and other derivative transactions is calculated as the dif ference  between the present value of the expected future contractual premiums and our estimate of the fair premium amount for these  transactions. The present value of expected future contractual premiums is determined based on the methodology described  above for corporate CDOs. The contractual premiums associated with87% of the aggregate net par outstanding of our non- corporate CDO contracts are subject to change due to counterparties being provided the right to terminate these transactions.  We also cap the total estimated fair value of the contracts subject to termination such that none of these contracts are in a  derivative asset position. As of December 31, 2012,34% of the aggregate net par outstanding of our non-corporate CDO  transactions was capped in this manner . In all other instances, we utilize internal models to estimate the fair premium amount  as described below. These credit derivatives are categorized in Level III of the fair value hierarchy .  TruPs CDOs and TruPs-Related VIE Liabilities —Our TruPs transactions are CDS on CDOs where the collateral consists  primarily of deeply subordinated securities issued by banks, insurance companies, real estate investment trusts and other  financial institutions whose individual spreads are not observable. In each case, we provide credit protection on a specific  tranche of each CDO. To determine fair value for these transactions, we use a discounted cash flow valuation approach that  captures the credit characteristics of each transaction.  We estimate projected claims based on our internal credit analysis, which  is based on the current performance of each underlying reference obligation.  The present value of the expected cash flows to the  TruPs transaction is then determined using a discount rate derived from the observed market pricing for a  TruPs transaction  with similar characteristics. The present value of the insured cash flows is determined using a discount rate that is equal to our  CDS rate plus a risk-free rate.  For certain of our TruPs transactions, our counterparties may require that we pay them the outstanding par on the  underlying TruPs bond if an event of default has occurred and remains outstanding as of the termination date of our CDS  coverage (a “conditional liquidity claim”). For these transactions, an additional fair value adjustment is made.  To calculate this  adjustment, a probability that we will be required to pay a conditional liquidity claim is assigned based on our internal cash  flow projections. A discounted cash flow valuation is also performed for this scenario where we are required to make a  conditional liquidity claim. The fair value is set equal to the probability weighted average of the valuations from the two  scenarios: one in which our counterparty makes a conditional liquidity claim and one in which the claim is not made. In the second quarter of 2012, we agreed with one of our derivative counterparties to commute our credit protection on  six of our directly insured TruPs CDO transactions. A significant portion of the amount paid in consideration for these  commutations was deposited with an LPV (considered a VIE in accordance with the accounting guidance regarding  VIEs) to  cover the Counterparty’s potential future losses on the TruPs bonds underlying the Terminated TruPs CDOs, through a CDS  entered into by the VIE with the Counterparty. The CDS terminates concurrently with the Terminated TruPs Bonds for which  we had provided credit protection, and provides for payment to the Counterparty substantially in accordance with the terms of  our original CDS protection for the Terminated TruPs Bonds. In addition, pursuant to an agreement with the Counterparty , if  any LPV Capital amount is remaining following the maturity of the CDS, Radian  Asset Assurance is entitled to these remaining  funds. We consolidate this VIE and record the VIE’s assets and liabilities at fair value.  To determine fair value for the  VIE  liabilities, we use a discounted cash flow valuation approach that captures the credit characteristics of each transaction.  We  estimate projected claims based on our internal credit analysis, which is based on the current performance of each underlying  reference obligation. CDOs of ABS, including Related VIE Liabilities —The fair value amounts for our CDOs of  ABS transactions are derived  using standard market indices and discounted cash flows, to the extent expected losses can be estimated. Fair value for our CDO of  ABS transaction was estimated using a discounted cash flow analysis.  We estimated cash flows  for the transaction based on our internal credit analysis, which was based on the current performance of each security . The  estimated fair value of the underlying collateral securities was determined using either observed market transactions, including  broker-dealer quotes and actual trade activity on similar bonds, or expected cash flows discounted using the yield observed on  similar bonds. The present value of the insured cash flows (which represented the  VIE debt) was determined using a risk-free  rate that is applied to the cash flows adjusted for Radian’ s non-performance risk.  152