MANAGEMENT’S DISCUSSION AND ANALYSIS of Results of Operations and Financial Condition which are included in industry new insurance written figures. During 2001 Mortgage Insurance wrote $8.7 billion of such transactions compared to $1.2 billion in 2000. The Company’s participation in the structured transactions market is likely to vary from year to year due to the competitive bidding process associated with this business, as well as the fluctuating supply of such transactions from period to period. During 2001, the Company wrote $255.4 million of pool insurance risk compared to $187.9 million in 2000. The majority of the pool insurance outstanding relates to a group of structured transactions composed primarily of Fannie Mae and Freddie Mac eligible conforming mortgage loans (known as “GSE Pool” loans). This business contains loans with loan-to-value ratios above 80%, which have primary insurance that places the pool insurance in a secondary loss position and loans with loan- to-value ratios of 80% and below for which the pool coverage is in a first loss position. The performance of this business written in prior years has been better than anticipated although the historical performance might not be an indication of future performance. The Company’s mortgage insurance volume was positively impacted by low interest rates in 2001, which affected the entire mortgage industry. The trend toward lower interest rates, which began in the fourth quarter of 2000, caused refinancing activity during 2001 to increase significantly and contributed to the increase in the mortgage insurance industry new insurance written volume in 2001. The Company’s refinancing activity as a percentage of primary new insurance written was 40.3% compared to 14.0% in 2000. The persistency rate, which is defined as the percentage of insurance in force that is renewed in any given year, was 63.3% for 2001 compared to 78.2% for 2000. This decrease was consistent with the increased level of refinancing activity, which started in the fourth quarter of 2000 and continued throughout 2001, and has caused cancellation rates to increase. The expectation for 2002 is lower industry volume and higher persistency rates, influenced by relatively higher interest rates. >40 The Office of Federal Housing Enterprise Oversight issued new risk based capital regulations for Fannie Mae and Freddie Mac, which take effect September 13, 2002. The most relevant provision to the Company is a distinction between AAA rated insurers and AA rated insurers. The new regulations would impose a credit haircut that the Government Sponsored  Entities (“GSEs”) are given for exposure ceded to AAA insurers by 3.5% and to AA insurers by 8.75%. This would be phased  in over a ten-year period commencing on the effective date  of the regulation. The Company believes that this distinction  will not have a material effect on its business. The Company insures non-traditional loans, specifically Alternative A and A minus loans (collectively, referred to as “non-prime” business). Alternative A borrowers have an equal or better credit profile than the Company’s typical insured borrowers, but these loans are underwritten with reduced documentation and verification of information. The Company typically charges a higher premium rate for this business due  to the reduced documentation, but the Company does not consider this business to be significantly more risky than the Company’s normal primary business. The A minus loan programs typically have non-traditional credit standards that are less stringent than standard credit guidelines. To compensate for this additional risk, the Company receives a higher premium for insuring this product that the Company believes is commensurate with the additional default risk. During 2001, non-prime business accounted for $14.3 billion or 31.8% of Mortgage Insurance’s new primary insurance written as compared to $5.4 billion  or 21.8% for the same period in 2000. At December 31, 2001,  non-prime insurance in force was $18.2 billion or 16.8% of total insurance in force as compared to $8.4 billion or 8.3%  of insurance in force a year ago. In the third quarter of 2000, the Company began to insure mortgage-related assets in a Pennsylvania domiciled insurer, Radian Insurance Inc. (“Radian Insurance”). Radian Insurance  Net premiums earned in 2001 were $609.4 million,  an $88.5 million or 17.0% increase from $520.9 million for 2000. This increase, which was greater than the increase in insurance in force, reflected the premiums earned in Radian Insurance  of $38.8 million in 2001, and the change in the mix of new insurance written volume originated by the Company throughout 2001 combined with the increase in insurance in force. This change in mix included a higher percentage of non-prime business. This type of business has higher premium rates, which are commensurate with the increased level of risk associated with the insurance. The insurance in force growth resulting from is rated AA by S&P and Fitch and Aa3 by Moody’s and was formed to write credit insurance and financial guaranty insurance  on assets that are not permitted to be insured by monoline  mortgage guaranty insurers. Such assets include manufactured housing loans, second mortgages, home equity loans and mortgages with loan-to-value ratios above 100%. During 2001, Radian Insurance wrote $3.4 billion of insurance compared  to $1.6 billion in 2000. Risk in force at December 31, 2001 was $348.3 million compared to $211.0 million of risk at December 31, 2000. Such business is similar to mortgage guaranty insurance, however, the structures of the deals vary and thus premium rates and commensurate risk levels will vary from deal to deal. The performance of this business is too young to determine whether the premium rates charged will compensate the Company for the anticipated level of risk. Beginning in October 2001, Radian Insurance entered into a reinsurance agreement with one of its affiliates, Radian Asset Assurance, whereby Radian Insurance ceded substantially all of the insurance business and premium associated with certain obligations secured by mortgage-backed securities and manufactured housing loans. Because most Financial Guaranty business on mortgage related assets will be written in Radian Asset Assurance and Amerin Guaranty will be the primary writer of second mortgage insurance in the future, the business written by Radian Insurance will likely be substantially reduced in 2002.