4.  Contingency Reserves For statutory reporting, mortgage insurance companies are required annually to provide for additions to their contingency  reserve in an amount equal to 50% of earned premiums. Such amounts cannot be released into surplus for a period of 10 years,  except when loss ratios exceed 35%, in which case the amount above 35% can be released under certain circumstances.  The  contingency reserve, which is designed to be a reserve against catastrophic losses, essentially restricts dividends and other  distributions by mortgage insurance companies. We classify the contingency reserve as a statutory liability . At December 31,  2012, Radian Guaranty had no contingency reserves remaining and Radian Insurance had  $20.6 million of contingency  reserves. Our financial guaranty business also is required to establish contingency reserves.  The contingency reserve on direct  financial guaranty business written is established net of reinsurance, in an amount equal to the greater of 50% of premiums  written or a stated percentage (based on the type of obligation insured or reinsured) of the net amount of principal guaranteed,  ratably over 15 to 20 years, depending on the category of obligation insured.  The contingency reserve may be released with  regulatory approval to the extent that losses in any calendar year exceed a pre-determined percentage of earned premiums for  such year, with the percentage threshold dependent upon the category of obligation insured. Such reserves may also be released,  subject to regulatory approval in certain instances, upon demonstration that the reserve amount is excessive in relation to the  outstanding obligation. In 2010, 2011 and 2012, we received approval from the NYSDFS to release approximately $42.1 million, $30.4 million  and $54.5 million, respectively, from the contingency reserves of Radian  Asset Assurance to statutory surplus as a result of  certain policies that matured and other insurance coverage that was terminated.  An additional $87.0 million of contingency  reserves were released as a result of the  Assured Transaction in the first quarter of 2012.  At December 31, 2012, Radian Asset Assurance had a contingency reserve of  $300.1 million. In January 2013, $6.7  million of contingency reserves were released due to the FGIC Commutation, and on February 7, 2013, the  NYSDFS approved  the release of an additional $61.1 million of contingency reserves of Radian  Asset Assurance resulting from the maturity or  termination of financial guaranty policies. 5.  Reinsurance B. Federal Regulation 1.  Real Estate Settlement Practices Act of 1974 (“RESPA”) Certain states limit the amount of risk a mortgage insurer may retain on a single loan to 25% of the total loan amount.  Coverage in excess of 25% (i.e., deep coverage) must be reinsured. Radian Guaranty currently uses reinsurance from af filiated  companies to remain in compliance with these insurance regulations. Radian Guaranty currently reinsures coverage in excess of  25% with CMAC of Texas, Radian Insurance and Radian Mortgage Insurance to remain in compliance with these insurance  regulations. The origination or refinance of a federally regulated mortgage loan is subject to RESP A. In December 1992, regulations  were issued stating that mortgage insurance also is a settlement service, and therefore, subject to RESP A. As a result, mortgage  insurers are subject to the anti-referral fee provisions of Section 8(a) of RESP A, which generally provide, among other things,  that mortgage insurers are prohibited from paying any thing of value to a mortgage lender or any settlement service provider in  consideration of the lender’s referral of business to the mortgage insurer . Many states have similar provisions that prohibit  mortgage insurers from giving rebates. RESP A has been interpreted to cover many non-fee services as well.  We and other mortgage insurers have faced and are currently facing private lawsuits alleging, among other things, that  our captive reinsurance arrangements, as well as pool insurance and contract underwriting services, constitute unlawful  payments to mortgage lenders under RESP A. See “Legal Proceedings.” The insurance law provisions of many states, including New  York, also prohibit paying for the referral of insurance  business and provide various mechanisms to enforce this provision. In February 1999, the NYSDFS issued Circular Letter  No. 2 that discusses its position concerning various transactions between mortgage guaranty insurance companies licensed in  New York and mortgage lenders. The letter confirms that captive reinsurance transactions are permissible if they “constitute a  legitimate transfer of risk” and “are fair and equitable to the parties.”  The letter also states that “supernotes/performance notes,”  “dollar pool” insurance, and “un-captive captives” violate New  York insurance law. 49