As of December 31, 2012, we had assumed approximately $6.3 billion ($5.5 billion after giving ef fect to the FGIC  Commutation) in net par exposure from our primary reinsurance customers, compared to $20.6 billion as of  December 31,  2011. Substantially all of the remaining $5.5 billion of assumed reinsurance exposure is from subsidiaries of  Assured. Ceded Reinsurance. Historically, Radian Asset Assurance has ceded very little of its directly insured portfolio. However ,  in January 2012, pursuant to the Assured Cession, Radian Asset Assurance ceded approximately $1.8 billion of its direct public  finance net par outstanding to  Assured. Concurrently with the Assured Cession, Radian Asset Assurance entered into an  administrative services agreement with  Assured requiring Assured to provide surveillance, risk management, claims  administration and claims payment services in connection with the policies ceded to  Assured pursuant to the Assured Cession. In some circumstances, we have provided “second-to-pay” credit protection in which we are not required to pay a claim  unless both the underlying obligation defaults and another insurer who has the primary obligation to cover losses on its primary  insurance obligation. Consequently, if the conservator for an insolvent primary obligor (such as an insurance regulator) rejects  payment of all or a portion of a valid claim, we may be required to pay all or a portion of such valid claim. Because many  primary obligors of transactions for which we have second-to-pay exposure are currently experiencing significant financial  difficulties and are rated BIG, the likelihood of our having to pay a claim on our second-to-pay exposures has increased.  As of  December 31, 2012, we had insured approximately $2.1 billion net par outstanding in second-to-pay exposure.  In 2009, two of the companies that are the primary obligors on certain of the transactions for which we have provided  second-to-pay exposure, Syncora Guaranty Inc. (“Syncora”) and FGIC, suspended all claims payments following orders by the  NYSDFS. While the NYSDFS lifted the suspension of payments by Syncora in June 2010, Syncora has subsequently posted  additional losses and the NYSDFS could implement the suspension again in the future.  A rehabilitation proceeding for FGIC  pursuant to Article 74 of the New York Insurance Law is currently pending before the Supreme Court of the State of New  York  and as a result, FGIC is currently only permitted to pay 25% of the amount of any claims. We also have second-to-pay exposure to Ambac Assurance Corporation (“Ambac”). In 2010, Ambac placed a portion of  its obligations into a segregated account that is under the control of the  Wisconsin Office of the Commissioner of Insurance  (“WOCI”). We cannot provide any assurance whether or not the  WOCI will include any of our second-to-pay obligations where  Ambac is the primary insurer in the segregated account or otherwise limit  Ambac’s ability to pay claims with respect to such  transactions. As of December 31, 2012, Syncora, FGIC and Ambac are the primary insurers on $691.0 million net par  outstanding (or 32.2%) of our second-to-pay net par exposure, and $233.3 million (or 33.8%) of our second-to-pay exposure to  these three primary insurers is internally rated BIG.  The FGIC Commutation did not affect our second-to-pay exposure to  FGIC. In our financial guaranty business, the issuer of an insured obligation generally pays the premiums for our insurance,  either in full at the inception of the policy , which is the case for most public finance transactions, or , in the case of most non- synthetic structured finance transactions, in regular monthly , quarterly, semi-annual or annual installments from the cash flows  of the related collateral. Premiums for synthetic CDS are generally paid in periodic installments (i.e. monthly , quarterly, semi- annually or annually) directly from our counterparty and such payments are not dependent upon the cash flows of the insured  obligation or the collateral supporting the obligation. In such cases, the corporate creditworthiness of our counterparty is a more  important factor than the cash flows from the insured collateral in determining whether we will receive payment. In addition,  we generally have a right to terminate our synthetic transactions without penalty if our counterparty fails to pay us or is  financially unable to make timely payments to us under the terms of the CDS transactions.  For public finance transactions, premium rates typically represent a percentage of debt service, which includes total  principal and interest. For structured finance obligations, premium rates are typically stated as a percentage of the total par  outstanding. Premiums are generally non-refundable. Premiums paid in full at inception are recorded initially as unearned  premiums and “earned” over the life of the insured obligation (or the coverage period for such obligation, if shorter). 4.  Second-to-pay Obligations 5.  Premium Rates 31