Edgar Filing: MGIC INVESTMENT CORP

form10q.htm

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number 1-10816

MGIC INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

WISCONSIN		39-1486475
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

250 E. KILBOURN AVENUE		53202
MILWAUKEE, WISCONSIN		(Zip Code)
(Address of principal executive offices)

(414) 347-6480

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YESx NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NO x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

CLASS OF STOCK	PAR VALUE	DATE	NUMBER OF SHARES
Common stock	$1.00	07/31/11	201,146,648

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2011 and December 31, 2010

(Unaudited)

	June 30,			December 31,
	2011			2010
ASSETS	(In thousands)
Investment portfolio (notes 7 and 8):
Securities, available-for-sale, at fair value:
Fixed maturities (amortized cost, 2011 - $6,618,208; 2010 - $7,366,808)	$	6,743,812		$	7,455,238
Equity securities		2,637			3,044
Total investment portfolio		6,746,449			7,458,282

Cash and cash equivalents		1,038,568			1,304,154
Accrued investment income		67,555			70,305
Reinsurance recoverable on loss reserves (note 4)		206,170			275,290
Reinsurance recoverable on paid losses		32,259			34,160
Prepaid reinsurance premiums		1,962			2,637
Premium receivable		74,717			79,567
Home office and equipment, net		28,962			28,638
Deferred insurance policy acquisition costs		7,970			8,282
Other assets		65,124			72,327
Total assets	$	8,269,736		$	9,333,642

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loss reserves (note 12)	$	5,082,902		$	5,884,171
Premium deficiency reserve (note 13)		158,913			178,967
Unearned premiums		186,985			215,157
Senior notes (note 3)		321,621			376,329
Convertible senior notes (note 3)		345,000			345,000
Convertible junior debentures (note 3)		329,330			315,626
Other liabilities		332,125			349,337

Total liabilities		6,756,876			7,664,587

Contingencies (note 5)

Shareholders' equity:
Common stock ($1 par value, shares authorized 460,000,000; shares issued, 2011 - 205,046,780; 2010 - 205,046,780; shares outstanding, 2011 - 201,146,648; 2010 - 200,449,588)		205,047			205,047
Paid-in capital		1,131,557			1,138,942
Treasury stock (shares at cost, 2011 - 3,900,132; 2010 - 4,597,192)		(163,586	)		(222,632	)
Accumulated other comprehensive income, net of tax (note 9)		50,977			22,136
Retained earnings		288,865			525,562
Total shareholders' equity		1,512,860			1,669,055

Total liabilities and shareholders' equity	$	8,269,736		$	9,333,642

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Three and Six Months Ended June 30, 2011 and 2010

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Revenues:	(In thousands of dollars, except per share data)
Premiums written:
Direct	$	283,471		$	314,310		$	571,188		$	589,444
Assumed		700			779			1,430			1,576
Ceded		(13,772	)		(19,743	)		(27,756	)		(39,616	)

Net premiums written		270,399			295,346			544,862			551,404
Decrease in unearned premiums, net		14,055			13,828			28,138			29,722

Net premiums earned		284,454			309,174			573,000			581,126
Investment income, net of expenses		55,490			62,868			112,033			131,727
Realized investment gains, net		21,734			31,702			27,495			64,656
Total other-than-temporary impairment losses		-			-			-			(6,052	)
Portion of losses recognized in other comprehensive income, before taxes		-			-			-			-
Net impairment losses recognized in earnings		-			-			-			(6,052	)
Other revenue		5,329			2,611			7,592			5,668

Total revenues		367,007			406,355			720,120			777,125

Losses and expenses:
Losses incurred, net (note 12)		459,552			320,077			769,983			774,588
Change in premium deficiency reserve (note 13)		(11,035	)		(10,619	)		(20,053	)		(24,185	)
Amortization of deferred policy acquisition costs		1,723			1,770			3,448			3,493
Other underwriting and operating expenses, net		52,320			52,280			108,145			110,502
Interest expense		26,326			25,099			52,368			46,117

Total losses and expenses		528,886			388,607			913,891			910,515

(Loss) income before tax		(161,879	)		17,748			(193,771	)		(133,390	)
Benefit from income taxes (note 11)		(10,147	)		(6,803	)		(8,378	)		(7,850	)

Net (loss) income	$	(151,732	)	$	24,551		$	(185,393	)	$	(125,540	)

(Loss) earnings per share (note 6):
Basic	$	(0.75	)	$	0.14		$	(0.92	)	$	(0.82	)
Diluted	$	(0.75	)	$	0.13		$	(0.92	)	$	(0.82	)

Weighted average common shares outstanding - diluted (note 6)		201,097			182,156			200,921			152,344

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Year Ended December 31, 2010 and Six Months Ended June 30, 2011

(unaudited)

	Common stock		Paid-in capital			Treasury stock			Accumulated other comprehensive income (loss)			Retained earnings			Comprehensive loss
	(In thousands)

Balance, December 31, 2009	$	130,163	$	443,294		$	(269,738	)	$	74,155		$	924,707

Net loss		-		-			-			-			(363,735	)	$	(363,735	)
Change in unrealized investment gains and losses, net		-		-			-			(69,074	)		-			(69,074	)
Common stock shares issued		74,884		697,492			-			-			-
Reissuance of treasury stock, net		-		(14,425	)		47,106			-			(35,410	)
Equity compensation		-		12,581			-			-			-
Defined benefit plan adjustments, net		-		-			-			6,390			-			6,390
Unrealized foreign currency translation adjustment, net		-		-			-			10,665			-			10,665
Comprehensive loss		-		-			-			-			-		$	(415,754	)

Balance, December 31, 2010	$	205,047	$	1,138,942		$	(222,632	)	$	22,136		$	525,562

Net loss		-		-			-			-			(185,393	)	$	(185,393	)
Change in unrealized investment gains and losses, net (notes 7 and 8)		-		-			-			24,317			-			24,317
Reissuance of treasury stock, net		-		(13,534	)		59,046			-			(51,304	)
Equity compensation		-		6,149			-			-			-
Unrealized foreign currency translation adjustment		-		-			-			4,524			-			4,524
Comprehensive loss (note 9)		-		-			-			-			-		$	(156,552	)

Balance, June 30, 2011	$	205,047	$	1,131,557		$	(163,586	)	$	50,977		$	288,865

See accompanying notes to consolidated financial statements

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2011 and 2010

(Unaudited)

	Six Months Ended
	June 30,

	2011			2010
	(In thousands)
Cash flows from operating activities:
Net loss	$	(185,393	)	$	(125,540	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		39,269			27,825
Decrease in deferred insurance policy acquisition costs		312			816
Decrease in accrued investment income		2,750			9,341
Decrease (increase) in reinsurance recoverable on loss reserves		69,120			(7,315	)
Decrease (increase) in reinsurance recoverable on paid losses		1,901			(7,685	)
Decrease in prepaid reinsurance premiums		675			429
Decrease (increase) in premium receivable		4,850			(1,643	)
Decrease in loss reserves		(801,269	)		(316,061	)
Decrease in premium deficiency reserve		(20,053	)		(24,185	)
Decrease in unearned premiums		(28,172	)		(31,300	)
Deferred tax benefit		(11,970	)		(12,588	)
Increase in income taxes payable (current)		585			294,095
Realized investment gains, excluding impairment losses		(27,495	)		(64,656	)
Net investment impairment losses		-			6,052
Other		(22,572	)		68,624
Net cash used in operating activities		(977,462	)		(183,791	)

Cash flows from investing activities:
Purchase of fixed maturities		(1,881,026	)		(2,593,435	)
Purchase of equity securities		(62	)		(56	)
Proceeds from sale of equity securities		504			-
Proceeds from sale of fixed maturities		1,818,354			2,483,172
Proceeds from maturity of fixed maturities		821,954			352,525
Net increase in payable for securities		3,921			44,664
Net cash provided by investing activities		763,645			286,870

Cash flows from financing activities:
Net proceeds from convertible senior notes		-			334,450
Common stock shares issued		-			772,300
Repurchases of long-term debt		(51,769	)		-
Net cash (used in) provided by financing activities		(51,769	)		1,106,750

Net (decrease) increase in cash and cash equivalents		(265,586	)		1,209,829
Cash and cash equivalents at beginning of period		1,304,154			1,185,739
Cash and cash equivalents at end of period	$	1,038,568		$	2,395,568

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

(Unaudited)

Note 1 - Basis of presentation

MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation ("MGIC") and several other subsidiaries, is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities (“GSEs”) to protect against loss from defaults on low down payment residential mortgage loans.

The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2010 included in our Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.

In the opinion of management the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our financial position and results of operations for the periods indicated. The results of operations for the interim period may not be indicative of the results that may be expected for the year ending December 31, 2011.

Capital

The insurance laws or regulations of 16 jurisdictions, including Wisconsin, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the risk in force (or a similar measure) in order for the mortgage insurer to continue to write new business. We refer to these requirements as the risk-to-capital requirement. While formulations of minimum capital may vary in certain jurisdictions, the most common measure applied allows for a maximum permitted risk-to-capital ratio of 25 to 1. At June 30, 2011, MGIC’s risk-to-capital ratio was 20.4 to 1. Our risk-to-capital ratio will increase if the percentage decrease in capital exceeds the percentage decrease in insured risk. Therefore, as capital decreases, the same dollar decrease in capital will cause a greater percentage decrease in capital and a greater increase in the risk-to-capital ratio. Based upon internal company estimates, MGIC’s risk-to-capital ratio over the next few years, after giving effect to any contribution to MGIC of the proceeds from our April 2010 common stock and convertible notes offerings beyond the contribution already made, could reach 40 to 1 or even higher under a stress loss scenario. Also, at June 30, 2011, MGIC’s policyholders position (policyholders position is the insurer’s net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums) exceeded the required regulatory minimum of our domiciliary state by approximately $183 million, and on a combined statutory basis we exceeded the minimum by approximately $260 million. At June 30, 2011, the risk-to-capital ratio of our combined insurance operations (which includes reinsurance affiliates) was 23.4 to 1. A higher risk-to-capital ratio on a combined basis may indicate that, in order for MGIC to continue to utilize reinsurance arrangements with its subsidiaries or subsidiaries of our holding company, additional capital contributions to the reinsurance affiliates could be needed. These reinsurance arrangements permit MGIC to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements.

In December 2009, the Office of the Commissioner of Insurance for Wisconsin (“OCI”) issued an order waiving, until December 31, 2011, its risk-to-capital requirement. MGIC has also applied for waivers in all other jurisdictions that have risk-to-capital requirements. MGIC has received waivers from some of these jurisdictions which expire at various times. One waiver expired on December 31, 2010 and was not immediately renewed because the need for a waiver was not considered imminent. MGIC may reapply for the waiver. Some jurisdictions have denied the request and others may deny the request. The OCI and insurance departments of other jurisdictions, in their sole discretion, may modify, terminate or extend their waivers. If the OCI or another insurance department modifies or terminates its waiver, or if it fails to renew its waiver after expiration, depending on the circumstances, MGIC could be prevented from writing new business anywhere, in the case of the waiver from the OCI, or in the particular jurisdiction, in the case of the other waivers, if MGIC’s risk-to-capital ratio exceeds 25 to 1 unless MGIC obtained additional capital to enable it to comply with the risk-to-capital requirement. New insurance written in the jurisdictions that have risk-to-capital requirements represented approximately 50% of new insurance written in 2010 and approximately 47% in the first two quarters of 2011. If we were prevented from writing new business in all jurisdictions, our insurance operations in MGIC would be in run-off (meaning no new loans would be insured but loans previously insured would continue to be covered, with premiums continuing to be received and losses continuing to be paid on those loans) until MGIC either met the applicable risk-to-capital requirement or obtained a necessary waiver to allow it to once again write new business.

We cannot assure you that the OCI or any other jurisdiction that has granted a waiver of its risk-to-capital requirements will not modify or revoke the waiver, that it will renew the waiver when it expires or that MGIC could obtain the additional capital necessary to comply with the risk-to-capital requirement. Depending on the circumstances, the amount of additional capital we might need could be substantial.

We have implemented a plan to write new mortgage insurance in MGIC Indemnity Corporation (“MIC”), a direct subsidiary of MGIC, in selected jurisdictions in order to address the likelihood that in the future MGIC will not meet the minimum regulatory capital requirements discussed above and may not be able to obtain appropriate waivers of these requirements in all jurisdictions in which minimum requirements are present. MIC has received the necessary approvals, including from the OCI, to write business in all of the jurisdictions in which MGIC would be prohibited from continuing to write new business in the event of MGIC’s failure to meet applicable regulatory capital requirements and obtain waivers of those requirements.

In October 2009, we, MGIC and MIC entered into an agreement with Fannie Mae (the “Fannie Mae Agreement”) under which MGIC agreed to contribute $200 million to MIC (which MGIC has done) and Fannie Mae approved MIC as an eligible mortgage insurer through December 31, 2011 subject to the terms of the Fannie Mae Agreement. Under the Fannie Mae Agreement, MIC will be eligible to write mortgage insurance only in those jurisdictions (other than Wisconsin) in which MGIC cannot write new insurance due to MGIC’s failure to meet regulatory capital requirements and if MGIC fails to obtain relief from those requirements or a specific waiver of them.

On February 11, 2010, Freddie Mac notified MGIC that it may utilize MIC to write new business in jurisdictions in which MGIC does not meet minimum regulatory capital requirements to write new business and does not obtain appropriate waivers of those requirements. This conditional approval to use MIC as a “Limited Insurer” (the “Freddie Mac Notification”) will expire December 31, 2012. This conditional approval includes terms substantially similar to those in the Fannie Mae Agreement.

Under the Fannie Mae Agreement, Fannie Mae approved MIC as an eligible mortgage insurer only through December 31, 2011. We expect to engage in discussions with Fannie Mae in the third quarter of 2011 regarding an extension of the Fannie Mae Agreement. Freddie Mac has approved MIC as a “Limited Insurer” only through December 31, 2012. Unless Fannie Mae and Freddie Mac extend or modify the terms of their approvals of MIC, whether MIC will continue as an eligible mortgage insurer after these dates will be determined by the applicable GSE’s mortgage insurer eligibility requirements then in effect. Further, under the Fannie Mae Agreement and the Freddie Mac Notification, MGIC cannot capitalize MIC with more than the $200 million contribution already made without prior approval from each GSE, which, in future years, may limit the amount of business MIC would otherwise write. Depending on the level of losses that MGIC experiences in the future, however, it is possible that regulatory action by one or more jurisdictions, including those that do not have specific regulatory capital requirements applicable to mortgage insurers, may prevent MGIC from continuing to write new insurance in some or all of the jurisdictions in which MIC is not an eligible mortgage insurer.

In late July 2011, a competitor announced that the waiver of risk-to-capital requirements that its flagship mortgage insurer received from its domiciliary state expires August 31, 2011 and that it has not yet received approval from its domiciliary state or the GSEs to write new business in a separately capitalized subsidiary that we understand is a sister entity, and not a subsidiary, of the flagship mortgage insurer. In early August, the competitor announced that while it continued to pursue such approvals, it would discontinue writing new insurance commitments after August 31, 2011. Both Fannie Mae and Freddie Mac suspended the flagship mortgage insurer and the separately capitalized subsidiary as approved mortgage insurers. We are uncertain how such events, including the actions taken by the GSEs, will impact the status of MGIC's waivers and approvals to utilize MGIC's direct subsidiary, MIC. Because it is wholly owned by MGIC, the operating results from business written by MIC would positively (in the case of profitable business) or negatively (in the case of unprofitable business) impact MGIC.

A failure to meet the specific minimum regulatory capital requirements to insure new business does not necessarily mean that MGIC does not have sufficient resources to pay claims on its insurance liabilities. While we believe that MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force, even in scenarios in which it fails to meet regulatory capital requirements, we cannot assure you that the events that led to MGIC failing to meet regulatory capital requirements would not also result in it not having sufficient claims paying resources. Furthermore, our estimates of MGIC’s claims paying resources and claim obligations are based on various assumptions. These assumptions include our anticipated rescission activity, future housing values and future unemployment rates. These assumptions are subject to inherent uncertainty and require judgment by management. Current conditions in the domestic economy make the assumptions about housing values and unemployment rates highly volatile in the sense that there is a wide range of reasonably possible outcomes. Our anticipated rescission activity is also subject to inherent uncertainty due to the difficulty of predicting the amount of claims that will be rescinded and the outcome of any legal proceedings related to rescissions that we make, including those with Countrywide (for more information about the Countrywide legal proceedings, see Note 5 – “Litigation and contingencies”).

Historically, rescissions of policies for which claims have been submitted to us were not a material portion of our claims resolved during a year. However, beginning in 2008, our rescissions of policies have materially mitigated our paid losses. In each of 2009 and 2010, rescissions mitigated our paid losses by approximately $1.2 billion and in the first two quarters of 2011, rescissions mitigated our paid losses by approximately $0.4 billion (in each case, the figure includes amounts that would have either resulted in a claim payment or been charged to a deductible under a bulk or pool policy, and may have been charged to a captive reinsurer). While we have a substantial pipeline of claims investigations that we expect will eventually result in future rescissions, we expect that rescissions will not continue at the same rates (as a percentage of claims received) we have previously experienced.

In addition, our loss reserving methodology incorporates the effects we expect rescission activity to have on the losses we will pay on our delinquent inventory. A variance between ultimate actual rescission rates and these estimates, as a result of the outcome of claims investigations, litigation, settlements or other factors, could materially affect our losses. We estimate rescissions mitigated our incurred losses by approximately $2.5 billion in 2009 and $0.2 billion in 2010. For the first two quarters of 2011, we estimate that rescissions had no significant impact on our losses incurred. All of these figures include the benefit of claims not paid in the period as well as the impact of changes in our estimated expected rescission activity on our loss reserves in the period. In recent quarters, between 18% and 24% of claims received in a quarter have been resolved by rescissions. At June 30, 2011, we had 184,452 loans in our primary delinquency inventory; the resolution of a significant portion of these loans will not involve paid claims.

If the insured disputes our right to rescind coverage, the outcome of the dispute ultimately would be determined by legal proceedings. Legal proceedings disputing our right to rescind coverage may be brought up to three years after the lender has obtained title to the property (typically through a foreclosure) or the property was sold in a sale that we approved, whichever is applicable, although in a few jurisdictions there is a longer time to bring such an action. For nearly all of our rescissions that are not subject to a settlement agreement, the period in which a dispute may be brought has not ended. We consider a rescission resolved for reporting purposes even though legal proceedings have been initiated and are ongoing. Although it is reasonably possible that, when the proceedings are completed, there will be a determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Under Accounting Standards Codification (“ASC”) 450-20, an estimated loss from such proceedings is accrued for only if we determine that the loss is probable and can be reasonably estimated. Therefore, when establishing our loss reserves, we do not include additional loss reserves that would reflect an adverse outcome from ongoing legal proceedings, including those with Countrywide. Countrywide has filed a lawsuit against MGIC alleging that MGIC has denied, and continues to deny, valid mortgage insurance claims. MGIC has filed an arbitration case against Countrywide regarding rescissions and Countrywide has responded seeking damages, including exemplary damages. For more information about this lawsuit and arbitration case, see Note 5 – “Litigation and contingencies.”

We continue to discuss with other lenders their objections to material rescissions. In 2010, we entered into a settlement agreement with a lender-customer regarding our rescission practices and we may, subject to GSE approval, enter into additional settlement agreements with other lenders in the future. In April 2011, Freddie Mac advised its servicers that they must obtain its prior approval for rescission settlements and Fannie Mae advised its servicers that they are prohibited from entering into such settlements. In addition, in April 2011, Fannie Mae notified us that we must obtain its prior approval to enter into certain settlements. There can be no assurances that the GSEs will approve any future settlement agreements.

In addition to the proceedings involving Countrywide, we are involved in legal proceedings with respect to rescissions that we do not consider to be collectively material in amount. Although it is reasonably possible that, when these discussions or proceedings are completed, there will be a conclusion or determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability.

Reclassifications

Certain reclassifications have been made in the accompanying financial statements to 2010 amounts to conform to 2011 presentation.

Subsequent events

We have considered subsequent events through the date of this filing.

Note 2 - New Accounting Guidance

In June 2011, new guidance was issued requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. The new requirements are generally effective for public entities in fiscal years (including interim periods) beginning after December 15, 2011. Early adoption is permitted. Full retrospective application is required. We are currently evaluating the provisions of this guidance and intend to meet the new requirements beginning in the first quarter of 2012.

In May 2011, new guidance was issued regarding fair value measurement. The guidance in the new standard is intended to harmonize the fair value measurement and disclosure requirements for United States and International standards. Many of the changes in the standard represent clarifications to existing guidance, but the standard also includes some new guidance and new required disclosures. The guidance is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the provisions of this guidance and the impact on our financial statements and disclosures.

In October 2010, new guidance was issued on accounting for costs associated with acquiring or renewing insurance contracts. The new guidance will likely change how insurance companies account for acquisition costs, particularly in determining what costs are deferrable. The new requirements are effective for fiscal years beginning after December 15, 2011, either prospectively or by retrospective adjustment. We are currently evaluating the provisions of this guidance and the impact on our financial statements and disclosures.

Note 3 – Debt

Senior Notes

At June 30, 2011 we had outstanding $77.4 million, 5.625% Senior Notes due in September 2011 and $245 million, 5.375% Senior Notes due in November 2015. In the second quarter of 2011 we repurchased $55 million in par value of our 5.375% Senior Notes due in November 2015. We recognized a gain on the repurchases of approximately $3.2 million, which is included in other revenue on the Consolidated Statements of Operations for the three and six months ended June 30, 2011. At December 31, 2010 we had outstanding $77.4 million, 5.625% Senior Notes due in September 2011 and $300 million, 5.375% Senior Notes due in November 2015. Covenants in the Senior Notes include the requirement that there be no liens on the stock of the designated subsidiaries unless the Senior Notes are equally and ratably secured; that there be no disposition of the stock of designated subsidiaries unless all of the stock is disposed of for consideration equal to the fair market value of the stock; and that we and the designated subsidiaries preserve our corporate existence, rights and franchises unless we or such subsidiary determines that such preservation is no longer necessary in the conduct of its business and that the loss thereof is not disadvantageous to the Senior Notes. A designated subsidiary is any of our consolidated subsidiaries which has shareholders’ equity of at least 15% of our consolidated shareholders’ equity. We were in compliance with all covenants at June 30, 2011.

If we fail to meet any of the covenants of the Senior Notes discussed above; there is a failure to pay when due at maturity, or a default results in the acceleration of maturity of, any of our other debt in an aggregate amount of $40 million or more; or we fail to make a payment of principal of the Senior Notes when due or a payment of interest on the Senior Notes within thirty days after due and we are not successful in obtaining an agreement from holders of a majority of the applicable series of Senior Notes to change (or waive) the applicable requirement or payment default, then the holders of 25% or more of either series of our Senior Notes each would have the right to accelerate the maturity of that series. In addition, the trustee, U.S. Bank National Association, of these two issues of Senior Notes could, independent of any action by holders of Senior Notes, accelerate the maturity of the Senior Notes.

At June 30, 2011 and December 31, 2010, the fair value of the amount outstanding under our Senior Notes was $295.7 million and $355.6 million, respectively. The fair value was determined using publicly available trade information.

Interest payments on the Senior Notes were $10.3 million in each of the six months ended June 30, 2011 and 2010.

Convertible Senior Notes

At June 30, 2011 and December 31, 2010 we had outstanding $345 million principal amount of 5% Convertible Senior Notes due in 2017. Interest on the Convertible Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year. We do not have the right to defer interest payments on the Convertible Senior Notes. The Convertible Senior Notes will mature on May 1, 2017, unless earlier converted by the holders or repurchased by us. Covenants in the Convertible Senior Notes include a requirement to notify holders in advance of certain events and that we and the designated subsidiaries (defined above) preserve our corporate existence, rights and franchises unless we or such subsidiary determines that such preservation is no longer necessary in the conduct of its business and that the loss thereof is not disadvantageous to the Convertible Senior Notes.

If we fail to meet any of the covenants of the Convertible Senior Notes; there is a failure to pay when due at maturity, or a default results in the acceleration of maturity of, any of our other debt in an aggregate amount of $40 million or more; a final judgment for the payment of $40 million or more (excluding any amounts covered by insurance) is rendered against us or any of our subsidiaries which judgment is not discharged or stayed within certain time limits; or we fail to make a payment of principal of the Convertible Senior Notes when due or a payment of interest on the Convertible Senior Notes within thirty days after due and we are not successful in obtaining an agreement from holders of a majority of the Convertible Senior Notes to change (or waive) the applicable requirement or payment default, then the holders of 25% or more of the Convertible Senior Notes would have the right to accelerate the maturity of those notes. In addition, the trustee of the Convertible Senior Notes could, independent of any action by holders, accelerate the maturity of the Convertible Senior Notes.

The Convertible Senior Notes are convertible, at the holder's option, at an initial conversion rate, which is subject to adjustment, of 74.4186 shares per $1,000 principal amount at any time prior to the maturity date. This represents an initial conversion price of approximately $13.44 per share. These Convertible Senior Notes will be equal in right of payment to our existing Senior Notes, discussed above, and will be senior in right of payment to our existing Convertible Junior Debentures, discussed below. Debt issuance costs are being amortized to interest expense over the contractual life of the Convertible Senior Notes. The provisions of the Convertible Senior Notes are complex. The description above is not intended to be complete in all respects. Moreover, that description is qualified in its entirety by the terms of the notes, which are contained in the Supplemental Indenture, dated as of April 26, 2010, between us and U.S. Bank National Association, as trustee, and the Indenture dated as of October 15, 2000, between us and the trustee.

At June 30, 2011 and December 31, 2010, the fair value of the amount outstanding under our Convertible Senior Notes was $306.2 million and $400.5 million, respectively. The fair value was determined using publicly available trade information.

Interest payments on the Convertible Senior Notes were $8.6 million in the six months ended June 30, 2011. There were no interest payments on the Convertible Senior Notes in the six months ended June 30, 2010.

Convertible Junior Subordinated Debentures

At June 30, 2011 and December 31, 2010 we had outstanding $389.5 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063 (the “debentures”). The debentures have an effective interest rate of 19% that reflects our non-convertible debt borrowing rate at the time of issuance. At June 30, 2011 and December 31, 2010 the amortized value of the principal amount of the debentures is reflected as a liability on our consolidated balance sheet of $329.3 million and $315.6 million, respectively, with the unamortized discount reflected in equity. The debentures rank junior to all of our existing and future senior indebtedness.

Interest on the debentures is payable semi-annually in arrears on April 1 and October 1 of each year. As long as no event of default with respect to the debentures has occurred and is continuing, we may defer interest, under an optional deferral provision, for one or more consecutive interest periods up to ten years without giving rise to an event of default. Deferred interest will accrue additional interest at the rate then applicable to the debentures. During an optional deferral period we may not pay or declare dividends on our common stock. Violations of the covenants under the Indenture governing the debentures, including covenants to provide certain documents to the trustee, are not events of default under the Indenture and would not allow the acceleration of amounts that we owe under the debentures. Similarly, events of default under, or acceleration of, any of our other obligations, including those described above, would not allow the acceleration of amounts that we owe under the debentures. However, violations of the events of default under the Indenture, including a failure to pay principal when due under the debentures and certain events of bankruptcy, insolvency or receivership involving our holding company would allow acceleration of amounts that we owe under the debentures.

Interest on the debentures that would have been payable on the scheduled interest payment dates of April 1, 2009, October 1, 2009 and April 1, 2010 had been deferred past the scheduled payment date. During this deferral period the deferred interest continued to accrue and compound semi-annually at an annual rate of 9%.

On October 1, 2010 we paid each of those deferred interest payments, including the compound interest on each. The interest payments, totaling approximately $57.5 million, were made from the net proceeds of our April 2010 common stock offering. We have remained current on these interest payments since October 1, 2010. We continue to have the right to defer interest that is payable on subsequent scheduled interest payment dates if we give the required 15 day notice. Any deferral of such interest would be on terms equivalent to those described above.

When interest on the debentures is deferred, we are required, not later than a specified time, to use reasonable commercial efforts to begin selling qualifying securities to persons who are not our affiliates. The specified time is one business day after we pay interest on the debentures that was not deferred, or if earlier, the fifth anniversary of the scheduled interest payment date on which the deferral started. Qualifying securities are common stock, certain warrants and certain non-cumulative perpetual preferred stock. The requirement to use such efforts to sell such securities is called the Alternative Payment Mechanism.

The net proceeds of Alternative Payment Mechanism sales are to be applied to the payment of deferred interest, including the compound portion. We cannot pay deferred interest other than from the net proceeds of Alternative Payment Mechanism sales, except at the final maturity of the debentures or at the tenth anniversary of the start of the interest deferral. The Alternative Payment Mechanism does not require us to sell common stock or warrants before the fifth anniversary of the interest payment date on which that deferral started if the net proceeds (counting any net proceeds of those securities previously sold under the Alternative Payment Mechanism) would exceed the 2% cap. The 2% cap is 2% of the average closing price of our common stock times the number of our outstanding shares of common stock. The average price is determined over a specified period ending before the issuance of the common stock or warrants being sold, and the number of outstanding shares is determined as of the date of our most recent publicly released financial statements.

We are not required to issue under the Alternative Payment Mechanism a total of more than 10 million shares of common stock, including shares underlying qualifying warrants. In addition, we may not issue under the Alternative Payment Mechanism qualifying preferred stock if the total net proceeds of all issuances would exceed 25% of the aggregate principal amount of the debentures.

The Alternative Payment Mechanism does not apply during any period between scheduled interest payment dates if there is a “market disruption event” that occurs over a specified portion of such period. Market disruption events include any material adverse change in domestic or international economic or financial conditions.

The provisions of the Alternative Payment Mechanism are complex. The description above is not intended to be complete in all respects. Moreover, that description is qualified in its entirety by the terms of the debentures, which are contained in the Indenture, dated as of March 28, 2008, between us and U.S. Bank National Association, as trustee.

We may redeem the debentures prior to April 6, 2013, in whole but not in part, only in the event of a specified tax or rating agency event, as defined in the Indenture. In any such event, the redemption price will be equal to the greater of (1) 100% of the principal amount of the debentures being redeemed and (2) the applicable make-whole amount, as defined in the Indenture, in each case plus any accrued but unpaid interest. On or after April 6, 2013, we may redeem the debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds 130% of the then prevailing conversion price of the debentures for at least 20 of the 30 trading days preceding notice of the redemption. We will not be able to redeem the debentures, other than in the event of a specified tax event or rating agency event, during an optional deferral period.

The debentures are currently convertible, at the holder's option, at an initial conversion rate, which is subject to adjustment, of 74.0741 common shares per $1,000 principal amount of debentures at any time prior to the maturity date. This represents an initial conversion price of approximately $13.50 per share. If a holder elects to convert their debentures, deferred interest owed on the debentures being converted is also converted into shares of our common stock. The conversion rate for any deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert. In lieu of issuing shares of common stock upon conversion of the debentures occurring after April 6, 2013, we may, at our option, make a cash payment to converting holders equal to the value of all or some of the shares of our common stock otherwise issuable upon conversion.

The fair value of the debentures was approximately $311.6 million and $432.4 million, respectively, at June 30, 2011 and December 31, 2010, as determined using available pricing for these debentures or similar instruments.

Interest payments on the debentures were $17.5 million in the six months ended June 30, 2011. There were no interest payments on the debentures in the six months ended June 30, 2010, as we were in a deferral period that ended on October 1, 2010 as discussed above.

Note 4 – Reinsurance

The reinsurance recoverable on loss reserves as of June 30, 2011 and December 31, 2010 was approximately $206 million and $275 million, respectively. Within those amounts, the reinsurance recoverable on loss reserves related to captive agreements was approximately $186 million at June 30, 2011 and $248 million at December 31, 2010. The total fair value of the trust fund assets under our captive agreements at June 30, 2011 was $451 million, compared to $510 million at December 31, 2010. Trust fund assets of $3 million were transferred to us as a result of captive terminations during the first six months of 2011.

Note 5 – Litigation and contingencies

In addition to the matters described below, we are involved in legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course legal proceedings will not have a material adverse effect on our financial position or results of operations.

Consumers are bringing a growing number of lawsuits against home mortgage lenders and settlement service providers. Mortgage insurers, including MGIC, have been involved in litigation alleging violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. MGIC settled class action litigation against it under RESPA in October 2003. MGIC settled the named plaintiffs’ claims in litigation against it under FCRA in December 2004 following denial of class certification in June 2004. Since December 2006, class action litigation has been brought against a number of large lenders alleging that their captive mortgage reinsurance arrangements violated RESPA. On November 29, 2010, six mortgage insurers (including MGIC) and a large mortgage lender (which was the named plaintiffs’ lender) were named as defendants in a complaint, alleged to be a class action, filed in Federal District Court for the District of Columbia. The complaint alleged various causes of action related to the captive mortgage reinsurance arrangements of this mortgage lender, including that the defendants violated RESPA by paying the lender’s captive reinsurer excessive premiums in relation to the risk assumed by that captive. In March 2011, the complaint was voluntarily dismissed by the plaintiffs as to MGIC and all of the other mortgage insurers. There can be no assurance that we will not be subject to future litigation under RESPA (or FCRA) or that the outcome of any such litigation would not have a material adverse effect on us.

In June 2005, in response to a letter from the New York Insurance Department, we provided information regarding captive mortgage reinsurance arrangements and other types of arrangements in which lenders receive compensation. In February 2006, the New York Insurance Department requested MGIC to review its premium rates in New York and to file adjusted rates based on recent years’ experience or to explain why such experience would not alter rates. In March 2006, MGIC advised the New York Insurance Department that it believes its premium rates are reasonable and that, given the nature of mortgage insurance risk, premium rates should not be determined only by the experience of recent years. In February 2006, in response to an administrative subpoena from the Minnesota Department of Commerce (the “MN Department”), which regulates insurance, we provided the MN Department with information about captive mortgage reinsurance and certain other matters. We subsequently provided additional information to the MN Department, and beginning in March 2008 the MN Department has sought additional information as well as answers to questions regarding captive mortgage reinsurance on several occasions, including as recently as May 2011. In addition, beginning in June 2008, we have received subpoenas from the Department of Housing and Urban Development, commonly referred to as HUD, seeking information about captive mortgage reinsurance similar to that requested by the MN Department, but not limited in scope to the state of Minnesota. Other insurance departments or other officials, including attorneys general, may also seek information about or investigate captive mortgage reinsurance.

The anti-referral fee provisions of RESPA provide that HUD as well as the insurance commissioner or attorney general of any state may bring an action to enjoin violations of these provisions of RESPA. The insurance law provisions of many states prohibit paying for the referral of insurance business and provide various mechanisms to enforce this prohibition. While we believe our captive reinsurance arrangements are in conformity with applicable laws and regulations, it is not possible to predict the outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.

In September 2010, a housing discrimination complaint was filed against MGIC with the U.S. Department of Housing and Urban Development alleging that MGIC violated the Fair Housing Act and discriminated against the complainant on the basis of her sex and familial status when MGIC underwrote her loan for mortgage insurance. In May 2011, HUD commenced an administrative action against MGIC and two of its employees, seeking, among other relief, aggregate fines of $48,000. The HUD complainant elected to have charges in the administrative action proceed in federal court and on July 5, 2011, the U.S. Department of Justice (“DOJ”) filed a civil complaint in the U.S. District Court for the Western District of Pennsylvania against MGIC and these employees on behalf of the complainant. The complaint seeks redress for the alleged housing discrimination, including compensatory and punitive damages for the alleged victims and a civil penalty payable to the United States. MGIC denies that any unlawful discrimination occurred and disputes many of the allegations in the complaint.

In October 2010, a separate purported class action lawsuit was filed against MGIC by the HUD complainant in the same District Court in which the DOJ action is pending alleging that MGIC discriminated against her on the basis of her sex and familial status when MGIC underwrote her loan for mortgage insurance. In May 2011, the District Court granted MGIC’s motion to dismiss with respect to all claims except certain Fair Housing Act claims.

MGIC intends to vigorously defend itself against the allegations in both the class action lawsuit and the DOJ lawsuit. Based on the facts known at this time, we do not foresee the ultimate resolution of these legal proceedings having a material adverse effect on us.

Five previously-filed purported class action complaints filed against us and several of our executive officers were consolidated in March 2009 in the United States District Court for the Eastern District of Wisconsin and Fulton County Employees’ Retirement System was appointed as the lead plaintiff. The lead plaintiff filed a Consolidated Class Action Complaint (the “Complaint”) on June 22, 2009. Due in part to its length and structure, it is difficult to summarize briefly the allegations in the Complaint but it appears the allegations are that we and our officers named in the Complaint violated the federal securities laws by misrepresenting or failing to disclose material information about (i) loss development in our insurance in force, and (ii) C-BASS, including its liquidity. Our motion to dismiss the Complaint was granted on February 18, 2010. On March 18, 2010, plaintiffs filed a motion for leave to file an amended complaint. Attached to this motion was a proposed Amended Complaint (the “Amended Complaint”). The Amended Complaint alleged that we and two of our officers named in the Amended Complaint violated the federal securities laws by misrepresenting or failing to disclose material information about C-BASS, including its liquidity, and by failing to properly account for our investment in C-BASS. The Amended Complaint also named two officers of C-BASS with respect to the Amended Complaint’s allegations regarding C-BASS. The purported class period covered by the Amended Complaint began on February 6, 2007 and ended on August 13, 2007. The Amended Complaint sought damages based on purchases of our stock during this time period at prices that were allegedly inflated as a result of the purported violations of federal securities laws. On December 8, 2010, the plaintiffs’ motion to file an amended complaint was denied and the Complaint was dismissed with prejudice. On January 6, 2011, the plaintiffs appealed the February 18, 2010 and December 8, 2010 decisions to the United States Court of Appeals for the Seventh Circuit. On June 6, 2011, the plaintiffs filed a motion with the District Court for relief from that court’s judgment of dismissal on the grounds that the transcripts it obtained of testimony taken by the Securities and Exchange Commission in its now-terminated investigation regarding C-BASS are newly discovered evidence showing that amending its complaint would not be futile. On August 1, 2011, we filed a response to the plaintiffs’ motion seeking its dismissal. We are unable to predict the outcome of these consolidated cases or estimate our associated expenses or possible losses. Other lawsuits alleging violations of the securities laws could be brought against us.

Several law firms have issued press releases to the effect that they are investigating us, including whether the fiduciaries of our 401(k) plan breached their fiduciary duties regarding the plan’s investment in or holding of our common stock or whether we breached other legal or fiduciary obligations to our shareholders. We intend to defend vigorously any proceedings that may result from these investigations.

With limited exceptions, our bylaws provide that our officers and 401(k) plan fiduciaries are entitled to indemnification from us for claims against them.

On December 17, 2009, Countrywide filed a complaint for declaratory relief in the Superior Court of the State of California in San Francisco (the “California State Court”) against MGIC. This complaint alleges that MGIC has denied, and continues to deny, valid mortgage insurance claims submitted by Countrywide and says it seeks declaratory relief regarding the proper interpretation of the insurance policies at issue. On January 19, 2010, we removed this case to the United States District Court for the Northern District of California (the “District Court”). On March 30, 2010, the District Court ordered the case remanded to the California State Court. We appealed this decision to the United States Court of Appeals for the Ninth Circuit (the “Court of Appeals”) and asked the Court of Appeals to vacate the remand and stay proceedings in the District Court pending arbitration between the parties, discussed below. On May 17, 2010, the Court of Appeals denied a stay of the District Court’s remand order. On May 28, 2010, Countrywide filed an amended complaint substantially similar to the original complaint in the California State Court. On July 2, 2010, we filed a petition in the California State Court to compel arbitration and stay the litigation in that court. On August 26, 2010, Countrywide filed an opposition to our petition. Countrywide’s opposition states that there are thousands of loans for which it disputes MGIC’s interpretation of the flow insurance policies at issue. On September 16, 2010, we filed a reply to Countrywide’s opposition. On October 1, 2010, the California State Court stayed the litigation in that court pending a final ruling on our appeal. On June 15, 2011, the Court of Appeals reversed the District Court, holding that the District Court should not have remanded the case to the California State Court without ruling on MGIC’s stay motion.

In connection with the Countrywide dispute discussed above, on February 24, 2010, we commenced an arbitration action against Countrywide seeking a determination that MGIC was entitled to deny and/or rescind coverage on the loans involved in the arbitration action, which were insured through the flow channel and numbered more than 1,400 loans as of the filing of the action. On March 16, 2010, Countrywide filed a response to our arbitration action objecting to the arbitrator’s jurisdiction in view of the case initiated by Countrywide in the California State Court and asserting various defenses to the relief sought by MGIC in the arbitration. On December 20, 2010, we filed an amended demand in the arbitration proceeding. This amended demand increased the number of loans for which we denied and/or rescinded coverage and which were insured through the flow channel to more than 3,300. We continue to rescind insurance coverage on additional Countrywide loans. On December 20, 2010, Countrywide filed an amended response. In the amended response, Countrywide is seeking relief for rescissions on loans insured by MGIC through the flow channel and more than 30 bulk insurance policies. In April 2011, Countrywide indicated that it believes MGIC has improperly rescinded coverage on more than 5,000 loans. The amended response also seeks damages as a result of purported breaches of insurance policies issued by MGIC and additional damages, including exemplary damages, on account of MGIC’s purported breach of an implied covenant of good faith and fair dealing. The amended response states that Countrywide seeks damages “well-exceeding” $150 million; the original response sought damages of at least $150 million. On January 17, 2011, Countrywide filed an answer to MGIC’s amended demand and MGIC filed an answer to Countrywide’s amended response. Countrywide and MGIC have each selected 12 loans for which a three-member arbitration panel will determine coverage. While the panel’s determination will not be binding on the other loans at issue, the panel will identify the issues for these 24 “bellwether” loans and strive to set forth findings of fact and conclusions of law in such a way as to aid the parties to apply them to the other loans at issue. The hearing before the panel on the bellwether loans that had previously been scheduled to begin in October 2011 has been postponed to May 2012.

From January 1, 2008 through June 30, 2011, rescissions of Countrywide-related loans mitigated our paid losses on the order of $375 million. This is the amount we estimate we would have paid had the loans not been rescinded. On a per loan basis, the average amount that we would have paid had the loans not been rescinded was approximately $71,400. At June 30, 2011, 40,219 loans in our primary delinquency inventory were Countrywide-related loans (approximately 22% of our primary delinquency inventory). Of these 40,219 loans, some will cure their delinquency and the remainder will either become paid claims or will be rescinded. From January 1, 2008 through June 30, 2011, of the claims on Countrywide-related loans that were resolved (a claim is resolved when it is paid or rescinded; claims that are submitted but which are under review are not resolved until one of these two outcomes occurs), approximately 75% were paid and the remaining 25% were rescinded. We do not believe that the settlement agreement announced in June 2011 between Bank of America and certain investors in certain Countrywide residential mortgage backed securities will have a material impact on our Countrywide rescissions, if it becomes effective.

The flow policies at issue with Countrywide are in the same form as the flow policies that we use with all of our customers, and the bulk policies at issue vary from one another, but are generally similar to those used in the majority of our Wall Street bulk transactions. Because our rescission practices with Countrywide do not differ from our practices with other servicers with which we have not entered into settlement agreements, an adverse result in the Countrywide proceeding may adversely affect the ultimate result of rescissions involving other servicers and lenders. From January 1, 2008 through June 30, 2011, we estimate that total rescissions mitigated our incurred losses by approximately $3.1 billion, which included approximately $2.4 billion of mitigation on paid losses, excluding amounts that would have been applied to a deductible. At June 30, 2011, we estimate that our total loss reserves were benefited from rescissions by approximately $0.9 billion.

We intend to defend MGIC against Countrywide’s complaint and arbitration response, and to pursue MGIC’s claims in the arbitration, vigorously. However, we are unable to predict the outcome of these proceedings or their effect on us. Also, although it is reasonably possible that, when the proceedings are completed, there will be a determination that we were not entitled to rescind in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. Under ASC 450-20, an estimated loss is accrued for only if we determine that the loss is probable and can be reasonably estimated. Therefore, we have not accrued any reserves that would reflect an adverse outcome in this proceeding. An accrual for an adverse outcome in this (or any other) proceeding would be a reduction to our capital.

In addition to the rescissions at issue with Countrywide, we have a substantial pipeline of claims investigations (including investigations involving loans related to Countrywide) that we expect will eventually result in future rescissions. We continue to discuss with other lenders their objections to material rescissions. In addition to the proceedings involving Countrywide, we are involved in legal proceedings with respect to rescissions that we do not consider to be collectively material in amount.

Freddie Mac, one of our pool insurance insureds, is computing the aggregate loss limit under a pool insurance policy at a higher level than we are computing this limit because we believe the original aggregate limit decreases over time while they believe the limit remains constant. At June 30, 2011, the difference was approximately $535 million. Beginning in the second quarter of 2011, this difference has had an effect on our results of operations because the aggregate paid losses plus the portion of our loss reserves attributable to this policy have exceeded our interpretation of the loss limit by $52 million. Had we not limited our losses in a manner consistent with our interpretation of the policy, our losses incurred would have been $52 million higher in the second quarter of 2011, and our capital and risk-to-capital ratio would have been negatively impacted. Absent a change in our interpretation of the policy or that of Freddie Mac, we expect the aggregate impact on losses incurred will grow in future quarters. MGIC and Freddie Mac have each advised the other of the basis for its interpretation of the policy. It is reasonably possible that any eventual resolution of this matter could have a material adverse effect on us.

Our mortgage insurance business utilizes its underwriting skills to provide an outsourced underwriting service to our customers known as contract underwriting. As part of our contract underwriting activities, we are responsible for the quality of our underwriting decisions in accordance with the terms of the contract underwriting agreements with customers. We may be required to provide certain remedies to our customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such obligations. Through June 30, 2011, the cost of remedies provided by us to customers for failing to meet the standards of the contracts has not been material. However, a generally positive economic environment for residential real estate that continued until approximately 2007 may have mitigated the effect of some of these costs, and claims for remedies may be made a number of years after the underwriting work was performed. A material portion of our new insurance written through the flow channel in recent years, including for 2006 and 2007, has involved loans for which we provided contract underwriting services. We believe the rescission of mortgage insurance coverage on loans for which we provided contract underwriting services may make a claim for a contract underwriting remedy more likely to occur. Beginning in the second half of 2009, we experienced an increase in claims for contract underwriting remedies, which continued into the first half of 2011. Hence, there can be no assurance that contract underwriting remedies will not be material in the future.

See Note 11 – “Income taxes” for a description of federal income tax contingencies.

Note 6 – Earnings (loss) per share

Our basic EPS is based on the weighted average number of common shares outstanding, which excludes participating securities with non-forfeitable rights to dividends of 1.0 million, 1.2 million and 1.8 million for the three months ended June 30, 2011 and the six months ended June 30, 2011 and 2010, respectively, because they were anti-dilutive due to our reported net loss. For the three months ended June 30, 2010 our basic EPS includes participating securities of 1.8 million with non-forfeitable rights to dividends. Typically, diluted EPS is based on the weighted average number of common shares outstanding plus common stock equivalents which include certain stock awards, stock options and the dilutive effect of our convertible debt. In accordance with accounting guidance, if we report a net loss from continuing operations then our diluted EPS is computed in the same manner as the basic EPS. In addition if any common stock equivalents are anti-dilutive they are always excluded from the calculation. The following includes a reconciliation of the weighted average number of shares; however for the three months ended June 30, 2011 and 2010 common stock equivalents of 55.5 million and 53.3 million, respectively, and for the six months ended June 30, 2011 and 2010 common stock equivalents of 55.5 million and 45.8 million, respectively, were not included because they were anti-dilutive.

	Three Months Ended						Six Months Ended
		June 30,					June 30,

		2011			2010		2011			2010
	(In thousands, except per share data)

Basic earnings per share:
Average common shares outstanding			201,097			181,267		200,921			152,344
Net (loss) income		$	(151,732	)	$	24,551	$	(185,393	)	$	(125,540	)
Basic (loss) earnings per share		$	(0.75	)	$	0.14	$	(0.92	)	$	(0.82	)

Diluted earnings per share:
Weighted-average shares - Basic			201,097			181,267		200,921			152,344
Common stock equivalents			-			889		-			-

Weighted-average shares - Diluted			201,097			182,156		200,921			152,344

Net (loss) income		$	(151,732	)	$	24,551	$	(185,393	)	$	(125,540	)

Diluted (loss) earnings per share		$	(0.75	)	$	0.13	$	(0.92	)	$	(0.82	)

Note 7 – Investments

The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2011 and December 31, 2010 are shown below.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2011	Cost		Gains		Losses (1)			Value
	(In thousands)

U.S. Treasury securities and obligations of U.S.government corporations and agencies	$	873,069	$	18,039	$	(4,736	)	$	886,372
Obligations of U.S. states and political subdivisions		3,020,694		97,550		(33,449	)		3,084,795
Corporate debt securities		2,348,328		48,467		(6,530	)		2,390,265
Commercial mortgage-backed		164,428		977		(657	)		164,748
Residential mortgage-backed securities		64,282		2,334		-			66,616
Debt securities issued by foreign sovereign governments		147,407		3,947		(338	)		151,016
Total debt securities	$	6,618,208	$	171,314	$	(45,710	)	$	6,743,812
Equity securities		2,602		44		(9	)		2,637

Total investment portfolio	$	6,620,810	$	171,358	$	(45,719	)	$	6,746,449

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2010	Cost		Gains		Losses (1)			Value
	(In thousands)
U.S. Treasury securities and obligations of U.S.government corporations and agencies	$	1,092,890	$	16,718	$	(6,822	)	$	1,102,786
Obligations of U.S. states and political subdivisions		3,549,355		85,085		(54,374	)		3,580,066
Corporate debt securities		2,521,275		54,975		(11,291	)		2,564,959
Residential mortgage-backed securities		53,845		3,255		-			57,100
Debt securities issued by foreign sovereign governments		149,443		1,915		(1,031	)		150,327
Total debt securities	$	7,366,808	$	161,948	$	(73,518	)	$	7,455,238
Equity securities		3,049		40		(45	)		3,044

Total investment portfolio	$	7,369,857	$	161,988	$	(73,563	)	$	7,458,282

(1) At June 30, 2011 and December 31, 2010, there were no other-than-temporary impairment losses recorded in other comprehensive income.

The amortized cost and fair values of debt securities at June 30, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most auction rate and mortgage-backed securities provide for periodic payments throughout their lives, they are listed below in separate categories.

	Amortized		Fair
June 30, 2011	Cost		Value
	(In thousands)

Due in one year or less	$	398,691	$	400,037
Due after one year through five years		3,111,422		3,172,929
Due after five years through ten years		1,234,168		1,279,285
Due after ten years		1,342,969		1,373,046

	$	6,087,250	$	6,225,297

Commercial mortgage-backed securities		164,428		164,748
Residential mortgage-backed securities		64,282		66,616
Auction rate securities (1)		302,248		287,151

Total at June 30, 2011	$	6,618,208	$	6,743,812

(1) At June 30, 2011, approximately 97% of auction rate securities had a contractual maturity greater than 10 years.

At June 30, 2011 and December 31, 2010, the investment portfolio had gross unrealized losses of $45.7 million and $73.6 million, respectively. For those securities in an unrealized loss position, the length of time the securities were in such a position, as measured by their month-end fair values, is as follows:

	Less Than 12 Months						12 Months or Greater						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
June 30, 2011	Value			Losses			Value			Losses			Value			Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	181,707		$	4,736		$	-		$	-		$	181,707		$	4,736
Obligations of U.S. states and political subdivisions			566,735			14,439			274,603			19,010			841,338			33,449
Corporate debt securities			699,173			5,359			43,853			1,171			743,026			6,530
Commercial mortgage-backed securities			69,560			657			-			-			69,560			657
Residential mortgage-backed securities			-			-			-			-			-			-
Debt issued by foreign sovereign governments			10,152			86			4,814			252			14,966			338
Equity securities			720			9			-			-			720			9
Total investment portfolio		$	1,528,047		$	25,286		$	323,270		$	20,433		$	1,851,317		$	45,719

	Less Than 12 Months						12 Months or Greater						Total
	Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
December 31, 2010	Value			Losses			Value			Losses			Value			Losses
	(In thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	258,235		$	6,822		$	-		$	-		$	258,235		$	6,822
Obligations of U.S. states and political subdivisions			1,160,877			32,415			359,629			21,959			1,520,506			54,374
Corporate debt securities			817,471			9,921			28,630			1,370			846,101			11,291
Residential mortgage-backed securities			-			-			-			-			-			-
Debt issued by foreign sovereign governments			105,724			1,031			-			-			105,724			1,031
Equity securities			2,723			45			-			-			2,723			45
Total investment portfolio		$	2,345,030		$	50,234		$	388,259		$	23,329		$	2,733,289		$	73,563

The unrealized losses in all categories of our investments were primarily caused by the difference in interest rates at June 30, 2011 and December 31, 2010, respectively, compared to the interest rates at the time of purchase as well as the discount rate applied in our auction rate securities discounted cash flow model. The securities in an unrealized loss position for 12 months or greater are primarily auction rate securities (“ARS”) backed by student loans. See further discussion of these securities below.

We held $287.2 million in ARS backed by student loans at June 30, 2011. ARS are intended to behave like short-term debt instruments because their interest rates are reset periodically through an auction process, most commonly at intervals of 7, 28 and 35 days. The same auction process has historically provided a means by which we may rollover the investment or sell these securities at par in order to provide us with liquidity as needed. The ARS we hold are collateralized by portfolios of student loans, substantially all of which are ultimately 97% guaranteed by the United States Department of Education. At June 30, 2011, approximately 87% of our ARS portfolio was rated AAA/Aaa by one or more of the following major rating agencies: Moody’s, Standard & Poor’s and Fitch Ratings.

In mid-February 2008, auctions began to fail due to insufficient buyers, as the amount of securities submitted for sale in auctions exceeded the aggregate amount of the bids. For each failed auction, the interest rate on the security moves to a maximum rate specified for each security, and generally resets at a level higher than specified short-term interest rate benchmarks. At June 30, 2011, our entire ARS portfolio, consisting of 28 investments, was subject to failed auctions; however, from the period when the auctions began to fail through June 30, 2011, $235.6 million in par value of ARS was either sold or called, with the average amount we received being approximately 99% of par which approximated the aggregate fair value prior to redemption. To date, we have collected all interest due on our ARS.

As a result of the persistent failed auctions, and the uncertainty of when these investments could be liquidated at par, the investment principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, or final payments come due according to the contractual maturities of the debt issues. However, we continue to believe we will have liquidity to our ARS portfolio by December 31, 2014.

Under the current guidance a debt security impairment is deemed other than temporary if we either intend to sell the security, or it is more likely than not that we will be required to sell the security before recovery or we do not expect to collect cash flows sufficient to recover the amortized cost basis of the security. During the first six months of 2011 there were no other-than-temporary impairments (“OTTI”) recognized compared to $6.1 million during the first six months of 2010.

The following table provides a rollforward of the amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2010.

	Three Months			Six Months
	Ended			Ended
	June 30, 2010
	(In thousands)

Beginning balance	$	1,021		$	1,021
Addition for the amount related to the credit loss for which an OTTI was not previously recognized		-			-
Additional increases to the amount related to the credit loss for which an OTTI was previously recognized		-			-
Reductions for securities sold during the period (realized)		(1,021	)		(1,021	)
Ending balance	$	-		$	-

The net realized investment gains (losses) and OTTI on the investment portfolio are as follows:

		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2011			2010		2011			2010
	(In thousands)
Net realized investment gains (losses) and OTTI on investments:
Fixed maturities		$	21,749		$	31,680	$	27,478		$	58,316
Equity securities			7			19		39			57
Other			(22	)		3		(22	)		231

		$	21,734		$	31,702	$	27,495		$	58,604

	Three Months Ended						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)

Net realized investment gains (losses) and OTTI on investments:
Gains on sales	$	23,553		$	36,608		$	31,945		$	72,588
Losses on sales		(1,819	)		(4,906	)		(4,450	)		(7,932	)
Impairment losses		-			-			-			(6,052	)

	$	21,734		$	31,702		$	27,495		$	58,604

The net realized gains on investments during the first six months of 2010 and 2011 were a result of the continued restructuring of the portfolio into shorter duration, taxable securities. Such sales were made to reduce the proportion of our investment portfolio held in tax-exempt municipal securities and to increase the proportion held in taxable securities principally since the tax benefits of holding tax exempt municipal securities are no longer available based on our recent net operating losses and to shorten the duration of the portfolio to provide liquidity to meet our anticipated claim payment obligations.

Note 8 – Fair value measurements

In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities:

Level 1 – Quoted prices for identical instruments in active markets that we have the ability to access. Financial assets utilizing Level 1 inputs primarily include certain U.S. Treasury securities and obligations of the U.S. government.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the financial instrument. The observable inputs are used in valuation models to calculate the fair value of the financial instruments. Financial assets utilizing Level 2 inputs primarily include certain municipal and corporate bonds.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. Level 3 inputs reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Financial assets utilizing Level 3 inputs include certain state and auction rate (backed by student loans) securities. Non-financial assets which utilize Level 3 inputs include real estate acquired through claim settlement.

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

Assets classified as Level 3 are as follows:

Securities available-for-sale classified in Level 3 are not readily marketable and are valued using internally developed models based on the present value of expected cash flows. Our Level 3 securities primarily consist of auction rate securities as observable inputs or value drivers are unavailable due to events described in Note 7 – “Investments.” Due to limited market information, we utilized a discounted cash flow (“DCF”) model to derive an estimate of fair value of these assets at June 30, 2011 and December 31, 2010. The assumptions used in preparing the DCF model included estimates with respect to the amount and timing of future interest and principal payments, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with them. The DCF model is based on the following key assumptions:

Nominal credit risk as substantially all of the underlying collateral of these securities is ultimately guaranteed by the United States Department of Education;

Liquidity by December 31, 2012 through December 31, 2014;

Continued receipt of contractual interest; and

Discount rates ranging from 2.19% to 4.19%, which include a spread for liquidity risk.

·	Real estate acquired through claim settlement is fair valued at the lower of our acquisition cost or a percentage of appraised value. The percentage applied to appraised value is based upon our historical sales experience adjusted for current trends.

Fair value measurements for assets measured at fair value included the following as of June 30, 2011 and December 31, 2010:

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
June 30, 2011

U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	886,372	$	886,372	$	-	$	-
Obligations of U.S. states and political subdivisions		3,084,795		-		2,861,393		223,402
Corporate debt securities		2,390,265		2,610		2,317,616		70,039
Commercial mortgage-backed securities		164,748		-		164,748		-
Residential mortgage-backed securities		66,616		-		66,616		-
Debt securities issued by foreign sovereign governments		151,016		136,732		14,284		-
Total debt securities		6,743,812		1,025,714		5,424,657		293,441
Equity securities		2,637		2,316		-		321
Total investments	$	6,746,449	$	1,028,030	$	5,424,657	$	293,762

Real estate acquired (1)	$	2,828	$	-	$	-	$	2,828

December 31, 2010

U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	1,102,786	$	1,102,786	$	-	$	-
Obligations of U.S. states and political subdivisions		3,580,066		-		3,284,376		295,690
Corporate debt securities		2,564,959		2,563		2,492,343		70,053
Residential mortgage-backed securities		57,100		-		57,100		-
Debt securities issued by foreign sovereign governments		150,327		135,457		14,870		-
Total debt securities		7,455,238		1,240,806		5,848,689		365,743
Equity securities		3,044		2,723		-		321
Total investments	$	7,458,282	$	1,243,529	$	5,848,689	$	366,064

Real estate acquired (1)	$	6,220	$	-	$	-	$	6,220

(1) Real estate acquired through claim settlement, which is held for sale, is reported in Other Assets on the consolidated balance sheet.

There were no significant transfers of securities between Level 1 and Level 2 during the first six months of 2011 or 2010.

For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and six months ended June 30, 2011 and 2010 is as follows:

	Obligations of U.S. States and Political Subdivisions			Corporate Debt Securities			Equity Securities		Total Investments			Real Estate Acquired
	(In thousands)
Balance at March 31, 2011	$	270,731		$	70,273		$	321	$	341,325		$	4,876
Total realized/unrealized gains (losses):

Included in earnings and reported as losses incurred, net		-			-			-		-			(103	)

Included in other comprehensive income		(1,720	)		(234	)		-		(1,954	)		-

Purchases		-			-			-		-			1,427
Sales		(45,609	)		-			-		(45,609	)		(3,372	)
Transfers into Level 3		-			-			-		-			-
Transfers out of Level 3		-			-			-		-			-
Balance at June 30, 2011	$	223,402		$	70,039		$	321	$	293,762		$	2,828

Amount of total losses included in earnings for the three months ended June 30, 2011 attributable to the change in unrealized losses on assets still held at June 30, 2011	$	-		$	-		$	-	$	-		$	-

	Obligations of U.S. States and Political Subdivisions			Corporate Debt Securities			Equity Securities		Total Investments			Real Estate Acquired
	(In thousands)
Balance at December 31, 2010	$	295,690		$	70,053		$	321	$	366,064		$	6,220
Total realized/unrealized gains (losses):

Included in earnings and reported as losses incurred, net		-			-			-		-			(95	)

Included in other comprehensive income		(1,187	)		(14	)		-		(1,201	)		-

Purchases		-			-			-		-			2,796
Sales		(71,101	)		-			-		(71,101	)		(6,093	)
Transfers into Level 3		-			-			-		-			-
Transfers out of Level 3		-			-			-		-			-
Balance at June 30, 2011	$	223,402		$	70,039		$	321	$	293,762		$	2,828

Amount of total losses included in earnings for the six months ended June 30, 2011 attributable to the change in unrealized losses on assets still held at June 30, 2011	$	-		$	-		$	-	$	-		$	-

	Obligations of U.S. States and Political Subdivisions			Corporate Debt Securities			Equity Securities		Total Investments			Real Estate Acquired
	(In thousands)
Balance at March 31, 2010	$	367,916		$	130,066		$	321	$	498,303		$	4,753
Total realized/unrealized gains (losses):
Included in earnings and reported as realized investment losses, net		-			(1,398	)		-		(1,398	)		-

Included in earnings and reported as losses incurred, net		-			-			-		-			(557	)

Included in other comprehensive income		(864	)		(402	)		-		(1,266	)		-

Purchases, issuances and settlements		(46,002	)		(33,702	)		-		(79,704	)		1,475
Transfers in and/or out of Level 3		-			-			-		-			-
Balance at June 30, 2010	$	321,050		$	94,564		$	321	$	415,935		$	5,671

Amount of total losses included in earnings for the three months ended June 30, 2010 attributable to the change in unrealized losses on assets still held at June 30, 2010	$	-		$	-		$	-	$	-		$	-

	Obligations of U.S. States and Political Subdivisions			Corporate Debt Securities			Equity Securities		Total Investments			Real Estate Acquired
	(In thousands)
Balance at December 31, 2009	$	370,341		$	129,338		$	321	$	500,000		$	3,830
Total realized/unrealized gains (losses):

Included in earnings and reported as realized investment losses, net		-			(1,398	)		-		(1,398	)		-

Included in earnings and reported as losses incurred, net		-			-			-		-			(933	)

Included in other comprehensive income		43			326			-		369			-

Purchases, issuances and settlements		(49,334	)		(33,702	)		-		(83,036	)		2,774
Transfers in and/or out of Level 3		-			-			-		-			-
Balance at June 30, 2010	$	321,050		$	94,564		$	321	$	415,935		$	5,671

Amount of total losses included in earnings for the six months ended June 30, 2010 attributable to the change in unrealized losses on assets still held at June 30, 2010	$	-		$	-		$	-	$	-		$	-

Additional fair value disclosures related to our investment portfolio are included in Note 7. Fair value disclosures related to our debt are included in Note 3.

Note 9 - Comprehensive income

Our total comprehensive income for the three and six months ended June 30, 2011 and 2010 was as follows:

	Three Months Ended						Six months ended
	June 30,						June 30,

	2011			2010			2011			2010
	(In thousands)

Net (loss) income	$	(151,732	)	$	24,551		$	(185,393	)	$	(125,540	)
Other comprehensive income		53,528			14,384			28,841			20,174

Total comprehensive (loss) income	$	(98,204	)	$	38,935		$	(156,552	)	$	(105,366	)

Other comprehensive income (net of tax):
Change in unrealized gains and losses on investments	$	49,921		$	21,118		$	24,317		$	27,324
Unrealized foreign currency translation adjustment		3,607			(6,734	)		4,524			(7,150	)

Other comprehensive income	$	53,528		$	14,384		$	28,841		$	20,174

The tax expense on other comprehensive income was $14.6 million and $7.5 million for the three months ended June 30, 2011 and 2010 respectively. The tax expense on other comprehensive income was $15.3 million and $10.4 million for the six months ended June 30, 2011 and 2010 respectively.

At June 30, 2011, accumulated other comprehensive income of $51.0 million included $56.8 million of net unrealized gains on investments and $24.9 million of gains related to foreign currency translation adjustment, offset by a $30.8 million loss relating to defined benefit plans. At December 31, 2010, accumulated other comprehensive income of $22.1 million included $32.5 million of net unrealized gains on investments and $20.4 million of gains related to foreign currency translation adjustment, offset by a $30.8 million loss relating to defined benefit plans.

Note 10 - Benefit Plans

The following table provides the components of net periodic benefit cost for the pension, supplemental executive retirement and other postretirement benefit plans:

		Three Months Ended June 30,
	Pension and Supplemental							Other Postretirement
		Executive Retirement Plans							Benefits
		2011			2010				2011			2010
	(In thousands)

Service cost		$	2,287		$	2,082			$	291		$	239
Interest cost			3,927			3,946				321			252
Expected return on plan assets			(4,493	)		(3,654	)			(827	)		(726	)
Recognized net actuarial loss			789			1,524				129			126
Amortization of prior service cost			169			185				(1,555	)		(1,534	)

Net periodic benefit cost		$	2,679		$	4,083			$	(1,641	)	$	(1,643	)

			Six Months Ended June 30,
	Pension and Supplemental						Other Postretirement
		Executive Retirement Plans						Benefits
			2011		2010			2011		2010
	(In thousands)

Service cost			$	4,459	$	4,266		$	545	$	563
Interest cost