Radian Group Inc. Notes to Consolidated Financial Statements - (Continued) Financial Guaranty Reserve for Premium Deficiency Derivative Instruments 181 We recorded premiums and origination costs related to our CDS and certain other derivative contracts in change in fair  value of derivative instruments and policy acquisition costs, respectively , on our consolidated statements of operations. Our  classification of these contracts is the same whether we are a direct insurer or we reinsure these contracts. Derivative instruments are recorded at fair value and changes in fair value are recorded in change in fair value of  derivative instruments in the statement of operations.  All of our derivative instruments are recognized in our consolidated  balance sheets as either derivative assets or derivative liabilities.  We provide credit protection in the form of CDS pursuant to  which we guaranty the holder of a financial obligation the full and timely payment of principal and interest when due, or in  excess of specified levels of losses.  These derivatives have various maturity dates, but the majority of the underlying CDS  mature within five years. See Note 4 for further information. For our financial guaranty business, to determine whether a premium deficiency char ge is necessary, we compare  projected earned premiums and investment income to projected future losses, LAE, unamortized deferred acquisition costs and  maintenance costs. If the sum of the costs exceeds the amount of the revenues, the excess is first char ged against deferred  acquisition costs and is referred to as a premium deficiency char ge. For our second-lien insurance business, we project future premiums and losses for this business using historical results to  help determine future performance for both repayments and claims.  An estimated expense factor is then applied, and the result  is discounted using a rate of return that approximates our pre-tax investment yield.  This net present value, less any existing  reserves, is recorded as a premium deficiency and the reserve is updated at least quarterly based on actual results for that  quarter, along with updated transaction level projections.  See Note 11 for further information. For our mortgage insurance business, we group our mortgage insurance products into two products: first-lien and second- lien. To assess the need for a PDR on our first-lien insurance portfolio, we develop loss projections based on modeled loan  defaults related to our current RIF . This projection is based on recent trends in default experience, severity and rates of  defaulted loans moving to claim (such default to claim rates are net of our estimates of rescissions and denials), as well as  recent trends in the rate at which loans are prepaid.  Insurance enterprises are required to establish a PDR if the net present value of the expected future losses and expenses  for a particular product exceeds the net present value of expected future premiums and existing reserves for that product.  We  reassess our expectations for premiums, losses and expenses for our financial guaranty and mortgage insurance businesses at  least quarterly and update our premium deficiency analysis accordingly . Expected future expenses include consideration of  maintenance costs associated with maintaining records relating to insurance contracts and with the processing of premium  collections. We also consider investment income in the premium deficiency calculation through the use of our pre-tax  investment yield to discount certain cash flows for this analysis. The risk management function in our financial guaranty business is responsible for the identification, analysis,  measurement and surveillance of credit, market, legal and operational risk associated with our financial guaranty insurance  contracts. Risk management is also primarily responsible for claims prevention and loss mitigation strategies.  This discipline is  applied during the ongoing monitoring and surveillance of each exposure in the portfolio. See Note 12 for further information. In our financial guaranty segment, we recognize a net claim liability on our non-derivative transactions prior to an event  of default (insured event) when there is evidence that credit deterioration has occurred for a particular policy and that the  present value of the expected claim loss exceeds the unearned premium revenue.  The expected claim loss is based on the  probability-weighted present value of expected net cash outflows to be paid under , or in connection with, the policy. In  measuring the net claim liability, we develop the present value of expected net cash outflows by using our own assumptions  about the likelihood of various possible outcomes, including potential settlements or commutations, based on information  currently available. We determine the existence of credit deterioration on directly insured policies based on periodic reporting  from the insured party , indenture trustee or servicer and based on our surveillance ef forts. These expected cash outflows are  discounted using a risk-free rate. Our assumptions about the likelihood of outcomes, expected cash outflows and the  appropriate risk-free rate are updated each reporting period. For assumed policies, we use information provided by the ceding  company, as well as our specific knowledge of the credit for determining expected loss.