FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

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

MGIC INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

WISCONSIN (State or other jurisdiction of incorporation or organization)		39-1486475 (I.R.S. Employer Identification No.)
250 E. KILBOURN AVENUE MILWAUKEE, WISCONSIN (Address of principal executive offices)		53202 (Zip Code)

(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 þ		NO o

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).

YES o		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 þ		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).

YES o		NO þ

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

07/31/09

125,101,730

 

 

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2009 (Unaudited) and December 31, 2008

						As adjusted
						(note 1)
		June 30,				December 31,
		2009				2008
		(In thousands of dollars)
ASSETS
Investment portfolio (notes 7 and 8):
Securities, available-for-sale, at fair value:
Fixed maturities (amortized cost, 2009-$7,412,380; 2008-$7,120,690)		$	7,475,530			$	7,042,903
Equity securities (cost, 2009-$2,826; 2008-$2,778)			2,748				2,633
Total investment portfolio			7,478,278				7,045,536
Cash and cash equivalents			1,008,190				1,097,334
Accrued investment income			89,404				90,856
Reinsurance recoverable on loss reserves			363,520				232,988
Prepaid reinsurance premiums			3,857				4,416
Premiums receivable			95,834				97,601
Home office and equipment, net			30,146				32,255
Deferred insurance policy acquisition costs			9,973				11,504
Income taxes recoverable			—				370,473
Other assets			142,827				163,771
Total assets		$	9,222,029			$	9,146,734
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves (note 12)		$	5,698,638			$	4,775,552
Premium deficiency reserves (note 12)			227,149				454,336
Unearned premiums			313,084				336,098
Short- and long-term debt (note 2)			426,948				698,446
Convertible debentures (note 3)			281,486				272,465
Income taxes payable			28,177				—
Other liabilities			229,538				175,604
Total liabilities			7,205,020				6,712,501
Contingencies (note 5)
Shareholders’ equity:
Common stock, $1 par value, shares authorized 460,000,000; shares issued, 06/30/2009 - 130,162,973 12/31/08 - 130,118,744; shares outstanding, 06/30/09 - 125,101,730 12/31/08 - 125,068,350			130,163				130,119
Paid-in capital			435,410				440,542
Treasury stock (shares at cost, 06/30/09 - 5,061,243 12/31/08 - 5,050,394)			(269,698	)			(276,873	)
Accumulated other comprehensive loss, net of tax (note 9)			(1,459	)			(106,789	)
Retained earnings			1,722,593				2,247,234
Total shareholders’ equity			2,017,009				2,434,233
Total liabilities and shareholders’ equity		$	9,222,029			$	9,146,734

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2009 and 2008
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
						As adjusted								As adjusted
						(note 1)								(note 1)
		2009				2008				2009				2008
		(In thousands of dollars, except per share data)
Revenues:
Premiums written:
Direct		$	359,781			$	423,766			$	737,735			$	844,312
Assumed			844				3,239				2,307				6,002
Ceded			(30,242	)			(55,208	)			(62,146	)			(110,063	)
Net premiums written			330,383				371,797				677,896				740,251
Decrease (increase) in unearned premiums, net			16,749				(21,505	)			25,066				(44,471	)
Net premiums earned			347,132				350,292				702,962				695,780
Investment income, net of expenses			78,036				76,982				155,209				149,464
Realized investment gains (losses), excluding other-than-temporary impairments (note 7)			23,920				(1,755	)			32,361				(2,949	)
Net investment impairment losses (note 7)			(9,401	)			(8,508	)			(35,103	)			(8,508	)
Other revenue			14,795				7,522				34,237				14,621
Total revenues			454,482				424,533				889,666				848,408
Losses and expenses:
Losses incurred, net			769,631				688,143				1,527,524				1,379,791
Change in premium deficiency reserves (note 12)			(62,386	)			(158,898	)			(227,187	)			(422,679	)
Underwriting and other expenses, net			61,721				68,236				124,270				145,222
Reinsurance fee (note 4)			—				363				26,407				363
Interest expense			23,930				22,946				47,856				34,019
Total losses and expenses			792,896				620,790				1,498,870				1,136,716
Loss before tax and joint ventures			(338,414	)			(196,257	)			(609,204	)			(288,308	)
Provision (credit) for income tax (note 11)			1,421				(85,215	)			(84,809	)			(132,792	)
Income from joint ventures, net of tax			—				11,157				—				21,134
Net loss		$	(339,835	)		$	(99,885	)		$	(524,395	)		$	(134,382	)
Loss per share (note 6):
Basic		$	(2.74	)		$	(0.81	)		$	(4.22	)		$	(1.29	)
Diluted		$	(2.74	)		$	(0.81	)		$	(4.22	)		$	(1.29	)
Weighted average common shares outstanding — diluted (shares in thousands, note 6)			124,244				123,834				124,122				103,981
Dividends per share		$	—			$	0.025			$	—			$	0.050

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Year Ended December 31, 2008 and Six Months Ended June 30, 2009 (unaudited)

														Accumulated
														other
		Common				Paid-in				Treasury				comprehensive				Retained				Comprehensive
		stock				capital				stock				income (loss)				earnings				(loss) income
										(In thousands of dollars)
Balance, December 31, 2007		$	123,067			$	316,649			$	(2,266,364	)		$	70,675			$	4,350,316
Net loss			—				—				—				—				(525,356	)		$	(525,356	)
Change in unrealized investment gains and losses, net			—				—				—				(116,939	)			—				(116,939	)
Dividends declared			—				—				—				—				(8,159	)
Common stock shares issued			7,052				68,706				—				—				—
Reissuance of treasury stock, net			—				(41,686	)			1,989,491				—				(1,569,567	)
Equity compensation			—				20,562				—				—				—
Defined benefit plan adjustments, net			—				—				—				(44,649	)			—				(44,649	)
Unrealized foreign currency translation adjustment			—				—				—				(16,354	)			—				(16,354	)
Convertible debentures issued (note 3)			—				77,300				—				—				—
Other			—				(989	)			—				478				—				478
Comprehensive loss			—				—				—				—				—			$	(702,820	)
Balance, December 31, 2008, as adjusted (note 1)		$	130,119			$	440,542			$	(276,873	)		$	(106,789	)		$	2,247,234
Net loss			—				—				—				—				(524,395	)		$	(524,395	)
Change in unrealized investment gains and losses, net			—				—				—				90,677				—				90,677
Common stock shares issued			44				167				—				—				—
Reissuance of treasury stock, net			—				(11,652	)			7,175				—				(541	)
Equity compensation			—				6,353				—				—				—
Unrealized foreign currency translation adjustment			—				—				—				14,653				—				14,653
Other			—				—				—				—				295
Comprehensive loss			—				—				—				—				—			$	(419,065	)
Balance, June 30, 2009		$	130,163			$	435,410			$	(269,698	)		$	(1,459	)		$	1,722,593

See accompanying notes to consolidated financial statements

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2009 and 2008
(Unaudited)

		Six Months Ended
		June 30,
						As adjusted
						(note 1)
		2009				2008
		(In thousands of dollars)
Cash flows from operating activities:
Net loss		$	(524,395	)		$	(134,382	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of deferred insurance policy acquisition costs			3,961				4,393
Increase in deferred insurance policy acquisition costs			(2,430	)			(3,618	)
Depreciation and amortization			32,201				14,734
Decrease (increase) in accrued investment income			1,452				(13,636	)
Increase in reinsurance recoverable on loss reserves			(130,532	)			(135,329	)
Decrease in prepaid reinsurance premiums			559				593
Decrease (increase) in premium receivable			1,767				(1,303	)
Decrease in book value of real estate owned			25,000				80,231
Increase in loss reserves			923,086				758,691
Decrease in premium deficiency reserve			(227,187	)			(422,679	)
(Decrease) increase in unearned premiums			(23,014	)			48,152
Decrease in income taxes recoverable			398,650				647,163
Equity earnings in joint ventures			—				(29,363	)
Distributions from joint ventures			—				22,010
Realized gains (losses), excluding other-than-temporary impairments			(32,361	)			11,457
Net investment impairment losses			35,103				—
Other			(51,799	)			9,717
Net cash provided by operating activities			430,061				856,831
Cash flows from investing activities:
Purchase of fixed maturities			(2,260,868	)			(2,040,723	)
Purchase of equity securities			(48	)			(43	)
Additional investment in joint ventures			—				(490	)
Sale of investment in joint ventures			—				27,594
Proceeds from sale of fixed maturities			1,641,643				852,957
Proceeds from maturity of fixed maturities			318,961				241,101
Other			32,867				2,496
Net cash used in investing activities			(267,445	)			(917,108	)
Cash flows from financing activities:
Dividends paid to shareholders			—				(5,013	)
Repayment of note payable			(200,000	)			—
Repayment of long-term debt			(51,760	)			—
Net proceeds from convertible debentures			—				377,303
Reissuance of treasury stock			—				383,959
Common stock issued			—				75,758
Net cash (used in) provided by financing activities			(251,760	)			832,007
Net (decrease) increase in cash and cash equivalents			(89,144	)			771,730
Cash and cash equivalents at beginning of period			1,097,334				288,933
Cash and cash equivalents at end of period		$	1,008,190			$	1,060,663

See accompanying notes to consolidated financial statements.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009
(Unaudited)

Note 1 — Basis of presentation and summary of certain significant accounting policies

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, 2008 included in our Annual Report on Form 10-K.

In the opinion of management such financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly present our financial position and results of operations for the periods indicated. We have considered subsequent events through the date of this filing, August 10, 2009. The results of operations for the six months ended June 30, 2009 may not be indicative of the results that may be expected for the year ending December 31, 2009.

New Accounting Standards

In May 2009 the Financial Accounting Standards Board (FASB) issued FASB Statement 165, “Subsequent Events”. The objective of this statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. We have applied these requirements beginning with the quarter ended June 30, 2009.

In June 2009 the FASB issued Statement 167, “Amendments to FASB Interpretation 46(R).” The objective of this statement is to improve financial reporting by companies involved with variable interest entities. The statement is effective for annual reporting periods beginning after November 15, 2009. We are currently evaluating the provisions of this statement and the impact on our financial statements and disclosures.

In June 2009 the FASB issued Statement 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement 162”. The Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then existing non-SEC accounting and reporting standards. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Our financial statement disclosures beginning in the

third quarter of 2009 will contain Codification citations in place of any corresponding references to legacy accounting pronouncements.

Effective January 1, 2009 we have adopted FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. This FSP requires retrospective application. As such, amounts relating to 2008 have been retrospectively adjusted to reflect our adoption of this standard.

The following tables show the impact of our adoption of this FSP on our 2008 financial results:

     CONSOLIDATED BALANCE SHEET

						As originally
		As adjusted				reported
		December 31,				December 31,
		2008				2008
		(Unaudited)				(audited)
		(in thousand of dollars)
Income taxes recoverable		$	370,473			$	406,568
Convertible debentures			272,465				375,593
Shareholders’ equity			2,434,233				2,367,200

     CONSOLIDATED STATEMENT OF OPERATIONS

		Three Months Ended June 30, 2008								Six Months Ended June 30, 2008
						As originally								As originally
		As adjusted				reported				As adjusted				reported
		(Unaudited) (In thousands of dollars, except per share data)
Interest expense		$	22,946			$	19,891			$	34,019			$	30,805
Credit for income tax			(85,215	)			(84,146	)			(132,792	)			(131,667	)
Net loss			(99,885	)			(97,899	)			(134,382	)			(132,293	)
Diluted loss per share			(0.81	)			(0.79	)			(1.29	)			(1.27	)

In addition the adoption will result in an increase to interest expense of $16.3 million for 2009, $20.4 million for 2010, $25.5 million for 2011, $31.7 million for 2012 and $9.0 million for 2013. These increases, and those shown in the tables above, result from our Convertible Junior Subordinated Debentures issued in 2008 and discussed in Note 3.

Effective January 1, 2009 we have adopted FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating

Securities.” This FSP clarifies that share-based payment awards that entitle holders to receive nonforfeitable dividends before vesting should be considered participating securities. As participating securities, these instruments should be included in the calculation of basic earnings per share. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, interim periods within those years, and on a retrospective basis for all historical periods presented. The adoption of this FSP did not have an impact on our calculations of basic and diluted earnings per share due to our current net loss position.

In April 2009 the Financial Accounting Standards Board (FASB) issued three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities. FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157, “Fair Value Measurements”. FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The FSPs are effective for interim and annual periods ending after June 15, 2009. We adopted the provision of these FSPs as of April 1, 2009. The adoption of these standards did not have a material impact on our financial position or results of operations. (See Note 7.)

In December 2008, the FASB issued FSP 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” which amends FASB Statement No. 132R, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP is effective for fiscal years ending after December 15, 2009. We are currently evaluating the provisions of this statement and the impact this statement will have on our disclosures.

Reclassifications

Certain reclassifications have been made in the accompanying financial statements to 2008 amounts to conform to 2009 presentation.

Note 2 — Short- and long-term debt, excluding convertible debentures discussed in Note 3

In June 2009 we repaid the $200 million that was then outstanding under our bank revolving credit facility and terminated the facility. At December 31, 2008 we had $200 million outstanding under that facility, which was scheduled to expire in March 2010.

Through June 30, 2009, we repurchased approximately $71.6 million in par value of our 5.625% Senior Notes due in September 2011. We recognized a gain on the repurchases of approximately $19.9 million, which is included in other revenue on the

Consolidated Statement of Operations for the six months ended June 30, 2009. At June 30, 2009 we had approximately $128.4 million, 5.625% Senior Notes due in September 2011 and $300 million, 5.375% Senior Notes due in November 2015 outstanding. At December 31, 2008 we had $200 million, 5.625% Senior Notes due in September 2011 and $300 million, 5.375% Senior Notes due in November 2015 outstanding. 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 shareholder’s equity of at least 15% of our consolidated shareholders equity.

If (i) we fail to meet any of the covenants of the Senior Notes discussed above or (ii) 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 debt. In addition, the Trustee 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, 2009 and December 31, 2008, the fair value of the amount outstanding under our Senior Notes was $290.8 million and $338.3 million, respectively. The fair value of amounts outstanding under our credit facility at December 31, 2008 was $200 million. The fair value of our credit facility was approximated at par and the fair value of our Senior Notes was determined using publicly available trade information.

Interest payments on all long-term and short-term debt, excluding the convertible debentures, were $20.1 million and $21.4 million for the six months ended June 30, 2009 and 2008, respectively.

Note 3 — Convertible debentures and related derivatives

In March and April 2008 we completed the sale of $390 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063. The debentures have an effective interest rate of 19% that reflects our non-convertible debt borrowing rate at the time of issuance. For more information about the effective interest rate and related effect on interest expense, see the discussion of FSP APB 14-1 in Note 1 — New Accounting Standards. At June 30, 2009 and December 31, 2008 we had $389.5 million and $390.0 million, respectively, of principal amount outstanding on the convertible debentures with the amortized value reflected as a liability on our consolidated balance sheet of $281.5 million and $272.5 million, respectively, with the unamortized discount reflected in equity. The debentures were sold in private placements to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. 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. 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 in “Note 2 — Short- and long-term debt, excluding convertible debentures discussed in Note 3” 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.

On March 11, 2009 we sent notice to the holders of record of our convertible debentures that we were deferring to April 1, 2019 the interest payment that was scheduled to be paid on April 1, 2009. During this 10-year deferral period the deferred interest will continue to accrue and compound semi-annually to the extent permitted by applicable law at an annual rate of 9%.

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.

In addition to the deferral of the interest that would have been payable April 1, 2009, we have the right to defer interest that is payable on subsequent scheduled interest payment dates if we give notice as required by the debentures. Any deferral of such interest would be on terms equivalent to those described above.

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. The Indenture is filed as Exhibit 4.6 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.

The debentures rank junior to all of our existing and future senior indebtedness. The net proceeds of the debentures were approximately $377 million. A portion of the net proceeds of the debentures and a concurrent offering of common stock was used to increase the capital of MGIC and a portion was used for our general corporate purposes. Debt issuance costs are being amortized over the expected life of five years to interest expense.

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 the 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 the second quarter of 2009, we issued 44,220 shares of our common stock on conversion of $477,000 principal amount of our convertible debentures.

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 convertible debentures was approximately $161.7 million at June 30, 2009, as determined using available pricing for these debentures or similar instruments.

Note 4 — Reinsurance

Effective January 1, 2009, we are no longer ceding new business under excess of loss reinsurance treaties with lender captive reinsurers. Loans reinsured on an excess of loss basis through December 31, 2008 will run off pursuant to the terms of the particular captive arrangement. New business remains eligible to be ceded under quota share reinsurance arrangements, limited to a 25% cede rate.

In June 2008 we entered into a reinsurance agreement that was effective on the risk associated with up to $50 billion of qualifying new insurance written each calendar year. The term of the reinsurance agreement began April 1, 2008 and was scheduled to end on December 31, 2010, subject to two one-year extensions that could have been exercised by the reinsurer. Effective March 20, 2009, we terminated this reinsurance agreement. The termination resulted in a reinsurance fee of $26.4 million as reflected in our results of operations for the six months ended June 30, 2009. There are no further obligations under this reinsurance agreement.

Note 5 — Litigation and contingencies

In addition to the matters described below, we are involved in other litigation in the ordinary course of business. In our opinion, the ultimate resolution of this ordinary course litigation 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. Seven 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’s settlement of class action litigation against it under RESPA became final in October 2003. MGIC settled the named plaintiffs’ claims in litigation against it under FCRA in late December 2004 following denial of class certification in June 2004. Since December 2006, class action litigation was separately brought against a number of large lenders alleging that their captive mortgage reinsurance arrangements violated RESPA. While we are not a defendant in any of these cases, 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.

We are subject to comprehensive, detailed regulation by state insurance departments. These regulations are principally designed for the protection of our insured policyholders, rather than for the benefit of investors. Although their scope varies, state insurance laws generally grant broad supervisory powers to agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business. Given the recent significant losses incurred by many insurers in the mortgage and financial guaranty industries, our insurance subsidiaries have been subject to heightened scrutiny by insurance regulators. State insurance regulatory authorities could take actions, including changes in capital requirements, that could 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, which regulates insurance, we provided the Department with information about captive mortgage reinsurance and certain other matters. We subsequently provided additional information to the Minnesota Department of Commerce, and beginning in March 2008 that Department has sought additional information as well as answers to questions regarding captive mortgage reinsurance on several occasions. In June 2008, we received a subpoena 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 Minnesota Department of Commerce, 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 the Department of Housing and Urban Development 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 October 2007, the Division of Enforcement of the Securities and Exchange Commission requested that we voluntarily furnish documents and information primarily relating to C-BASS, the now-terminated merger with Radian and the subprime mortgage assets “in the Company’s various lines of business.” We have provided responsive documents and/or other information to the Securities and Exchange Commission and understand this matter is ongoing.

Five previously-filed class 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 on June 22, 2009. Due in part to its length and structure, it is difficult to summarize briefly the allegations in the Consolidated Class Action 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. The Complaint also names two officers of C-BASS with respect to the Complaint’s allegations regarding C-BASS. The purported class period covered by this lawsuit begins on October 12, 2006 and ends on February 12, 2008. The complaint seeks damages based on purchases of our stock during this time period at prices that were allegedly inflated as a result of the purported misstatements and omissions. With limited exceptions, our bylaws provide that our officers are entitled to indemnification from us for claims against them of the type alleged in the complaint. We will be filing a motion to dismiss this consolidated complaint in August 2009. However, 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.

Two law firms have issued press releases to the effect that they are investigating whether the fiduciaries of our 401(k) plan breached their fiduciary duties regarding the plan’s investment in or holding of our common stock. With limited exceptions, our bylaws provide that the plan fiduciaries are entitled to indemnification from us for claims against them. We intend to defend vigorously any proceedings that may result from these investigations.

Historically, claims submitted to us on policies we rescinded were not a material portion of our claims paid during a year. However, beginning in 2008 and continuing through the end of the second quarter of 2009 rescissions have materially mitigated our paid losses. If an insured disputes our right to rescind coverage, whether the requirements to rescind are met ultimately would be determined by arbitration or judicial proceedings. Objections to rescission may be made several years after we have rescinded an insurance policy. We are not involved in arbitration or judicial proceedings regarding a material amount of our rescissions. However, we have had discussions with lenders regarding their objections to rescissions that in the aggregate are material.

On June 1, 2007, as a result of an examination by the Internal Revenue Service (“IRS”) for taxable years 2000 through 2004, we received a Revenue Agent Report (“RAR”). The adjustments reported on the RAR substantially increase taxable income for those tax years and resulted in the issuance of an assessment for unpaid taxes totaling $189.5 million in taxes and accuracy-related penalties, plus applicable interest. We have agreed with the IRS on certain issues and paid $10.5 million in additional taxes and interest. The remaining open issue relates to our treatment of the flow through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits (“REMICs”). The IRS has indicated that it does not believe that, for various reasons, we have established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We disagree with this conclusion and believe that the flow through income and loss from these investments was properly reported on our federal income tax returns in accordance with applicable tax laws and regulations in effect during the periods involved and have appealed these adjustments. The appeals process may take some time and a final resolution may not be reached until a date many months or years into the future. On July 2, 2007, we made a payment of $65.2 million to the United States Department of the Treasury to eliminate the further accrual of interest. Although the resolution of this issue is uncertain, we believe that sufficient provisions for income taxes have been made for potential liabilities that may result. If the resolution of this matter differs materially from our estimates, it could have a material impact on our effective tax rate, results of operations and cash flows.

The IRS is presently examining our federal income tax returns for 2005 through 2007. We have not received any proposed adjustments to taxable income or assessments from the IRS related to these years. We believe that income taxes related to these years have been properly provided for in our financial statements.

Under our contract underwriting agreements, 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. The cost of remedies provided by us to customers for failing to meet these standards has not been material to our financial position or results of operations for the six months ended June 30, 2009 and 2008.

Note 6 — Earnings (loss) per share

Our basic and diluted earnings (loss) per share (“EPS”) have been calculated in accordance with SFAS No. 128, “Earnings Per Share” and FSP EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. 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 1.9 million and 1.6 million, respectively, for the three months ended June 30, 2009 and 2008 and 1.9 million and 1.4 million, respectively for the six months ended June 30, 2009 and 2008 because they were anti-dilutive due to our reported net loss. 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 debentures (issued in March 2008). In accordance with SFAS 128, if we report a net loss from continuing operations then our diluted EPS is computed in the same manner as the basic EPS. The following is a reconciliation of the weighted average number of shares; however for the three months ended June 30, 2009 and 2008 common stock equivalents of 35.0 million and 27.3 million, respectively, and for the six months ended June 30, 2009 and 2008 common stock equivalents of 35.3 million and 16.6 million, respectively, were not included because they were anti-dilutive.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in thousands)
Weighted-average shares — Basic			124,244				123,834				124,122				103,981
Common stock equivalents			—				—				—				—
Weighted-average shares — Diluted			124,244				123,834				124,122				103,981

Note 7 — Investments

The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2009 and December 31, 2008 are shown below. Debt securities consist of fixed maturities and short-term investments.

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
June 30, 2009:		Cost				Gains				Losses (1)				Value
						(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	385,452			$	4,100			$	(734	)		$	388,818
Obligations of U.S. states and political subdivisions			5,568,475				159,722				(106,762	)			5,621,435
Corporate debt securities			1,218,646				20,159				(8,464	)			1,230,341
Residential mortgage-backed securities			129,247				3,307				(9,279	)			123,275
Debt securities issued by foreign sovereign governments			110,560				1,954				(853	)			111,661
Total debt securities			7,412,380				189,242				(126,092	)			7,475,530
Equity securities			2,826				1				(79	)			2,748
Total investment portfolio		$	7,415,206			$	189,243			$	(126,171	)		$	7,478,278

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
December 31, 2008:		Cost				Gains				Losses				Value
						(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	168,917			$	21,297			$	(405	)		$	189,809
Obligations of U.S. states and political subdivisions			6,401,903				141,612				(237,575	)			6,305,940
Corporate debt securities			314,648				6,278				(4,253	)			316,673
Residential mortgage-backed securities			151,774				3,307				(14,251	)			140,830
Debt securities issued by foreign sovereign governments			83,448				6,203				—				89,651
Total debt securities			7,120,690				178,697				(256,484	)			7,042,903
Equity securities			2,778				—				(145	)			2,633
Total investment portfolio		$	7,123,468			$	178,697			$	(256,629	)		$	7,045,536

The amortized cost and fair values of debt securities at June 30, 2009 and December 31, 2008, 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, 2009		Cost				Value
		(In thousands of dollars)
Due in one year or less		$	146,111			$	146,790
Due after one year through five years			2,207,553				2,248,021
Due after five years through ten years			1,320,007				1,368,731
Due after ten years			3,091,762				3,079,297
			6,765,433				6,842,839
Auction rate securities			517,700				509,417
Residential mortgage-backed securities			129,247				123,274
Total at June 30, 2009		$	7,412,380			$	7,475,530

		Amortized				Fair
December 31, 2008		Cost				Value
		(In thousands of dollars)
Due in one year or less		$	432,727			$	435,045
Due after one year through five years			1,606,915				1,630,086
Due after five years through ten years			1,230,379				1,283,317
Due after ten years			3,174,995				3,029,725
			6,445,016				6,378,173
Auction rate securities			523,900				523,900
Residential mortgage-backed securities			151,774				140,830
Total at December 31, 2008		$	7,120,690			$	7,042,903

At June 30, 2009 and December 31, 2008, the investment portfolio had gross unrealized losses of $126.2 million and $256.6 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, 2009		Value				Losses				Value				Losses				Value				Losses
										(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	194,539			$	512			$	1,384			$	221			$	195,923			$	733
Obligations of U.S. states and political subdivisions			1,015,304				18,782				960,961				87,980				1,976,265				106,762
Corporate debt securities			390,124				8,189				4,660				275				394,784				8,464
Residential mortgage-backed securities			—				—				32,481				9,279				32,481				9,279
Debt issued by foreign sovereign governments			5,951				45				25,819				808				31,770				853
Equity securities			95				1				2,252				79				2,347				80
Total investment portfolio		$	1,606,013			$	27,529			$	1,027,557			$	98,642			$	2,633,570			$	126,171

		Less Than 12 Months								12 Months or Greater								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
December 31, 2008		Value				Losses				Value				Losses				Value				Losses
										(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	13,106			$	245			$	1,242			$	160			$	14,348			$	405
Obligations of U.S. states and political subdivisions			1,640,406				102,437				552,191				135,138				2,192,597				237,575
Corporate debt securities			72,711				4,127				1,677				126				74,388				4,253
Residential mortgage-backed securities			41,867				14,251				—				—				41,867				14,251
Debt issued by foreign sovereign governments			—				—				—				—				—				—
Equity securities			227				10				2,062				135				2,289				145
Total investment portfolio		$	1,768,317			$	121,070			$	557,172			$	135,559			$	2,325,489			$	256,629

There were 501 securities in an unrealized loss position at June 30, 2009. The unrealized losses in all categories of our investments were primarily caused by the difference in interest rates at June 30, 2009 and December 31, 2008, compared to the interest rates at the time of purchase. Of those securities in an unrealized loss position greater than 12 months, 238 securities had a fair value greater than 80% of amortized cost and 16 securities had a fair value less than 80% of amortized cost.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments”. The FSP requires us to separate an other-than-temporary impairment (“OTTI”) of a debt security into two components when there are credit related losses associated with the impaired debt security for which we assert that we do not have the intent to sell the security, and it is more likely than not that we will not be required to sell the security before recovery of our cost basis. Under this FSP the amount of the OTTI related to a credit loss is recognized in earnings, and

the amount of the OTTI related to other factors (such as changes in interest rates or market conditions) is recorded as a component of other comprehensive income (loss). In instances where no credit loss exists but it is more likely than not that we will have to sell the debt security prior to the anticipated recovery, the decline in fair value below amortized cost is recognized as an OTTI in earnings. In periods after recognition of an OTTI on debt securities, we account for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. For debt securities for which OTTI were recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income. This FSP is effective for the quarter ending June 30, 2009.

Each quarter we perform reviews of our investments in order to determine whether declines in fair value below amortized cost were considered other-than-temporary in accordance with applicable guidance. In evaluating whether a decline in fair value is other-than-temporary, we consider several factors including, but not limited to the following:

	•		the extent and duration of the decline;
	•		failure of the issuer to make scheduled interest or principal payments;
	•		change in rating below investment grade;
	•		adverse conditions specifically related to the security, an industry, or a geographic area, and
	•		our intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery.

Under the current guidance a debt security impairment is deemed other than temporary if (1) we either intend to sell the security, or its is more likely than not that we will be required to sell the security before recovery or (2) we do not expect to collect cash flows sufficient to recover the amortized cost basis of the security. During the second quarter and first six months of 2009 we recognized OTTI in earnings of $9.4 million and $35.1 million, respectively, related to securities that we intend to sell.

The net realized investment gains (losses) are as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2009				2008				2009				2008
		(In thousands of dollars)
Net realized investment gains (losses) on investments:
Fixed maturities		$	14,375			$	(9,965	)		$	(3,034	)			(10,888	)
Equity securities			12				(13	)			136				(7	)
Joint ventures			—				(274	)			—				(274	)
Other			132				(11	)			156				(288	)
		$	14,519			$	(10,263	)		$	(2,742	)			(11,457	)

Note 8 — Fair value measurements

We adopted SFAS No. 157 and SFAS No. 159 effective January 1, 2008. Both standards address aspects of the expanding application of fair-value accounting. SFAS No. 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements regarding fair-value measurements. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value with changes in fair value reported in earnings. The option to account for selected financial assets and liabilities at fair value is made on an instrument-by-instrument basis at the time of acquisition. For the six months ended June 30, 2009 and 2008, we did not elect the fair value option for any financial instruments acquired for which the primary basis of accounting is not fair value.

In accordance with SFAS No. 157, 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 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 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, corporate, auction rate (backed by student loans) and mortgage-backed securities. Non-financial assets which utilize Level 3 inputs include real estate acquired through claim settlement. Additionally, financial liabilities utilizing Level 3 inputs consisted of derivative financial instruments.

To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy a variety of inputs are utilized including benchmark yields, reported trades, 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 includes 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.

The values generated by this model are also reviewed for reasonableness and, in some cases, further analyzed for accuracy, which includes the review of other publicly available information. Securities whose fair value is primarily based on the use of our

multidimensional pricing model are classified in Level 2 and include certain municipal and corporate bonds.

Assets and liabilities 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. Our investments in auction-rate securities were classified as Level 3 beginning in the fourth quarter of 2008 as observable inputs or value drivers were unavailable due to events described in Note 4 of our Notes to Financial Statements for the year ended December 31, 2008 included in our Annual Report on Form 10-K. Due to limited market information, we utilized a discounted cash flow (“DCF”) model to derive an estimate of fair value of these assets at December 31, 2008 and June 30, 2009. 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.

	o		Nominal credit risk as securities are ultimately guaranteed by the United States Department of Education;
	o		Liquidity by December 31, 2012;
	o		Continued receipt of contractual interest; and
	o		Discount rates incorporating at least a 1.50% spread for liquidity risk

			The remainder of our level 3 securities are valued based on the present value of expected cash flows utilizing data provided by the trustees.
	•		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 items measured at fair value included the following as of June 30, 2009 and December 31, 2008:

						Quoted Prices in								Significant
						Active Markets for				Significant Other				Unobservable
						Identical Assets				Observable Inputs				Inputs
		Fair Value				(Level 1)				(Level 2)				(Level 3)
		(In thousands of dollars)
June 30, 2009
Assets
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	388,818			$	388,818			$	—			$	—
Obligations of U.S. states and political subdivisions			5,621,435				—				5,235,097				386,338
Corporate debt securities			1,230,341				2,370				1,093,901				134,070
Residential mortgage-backed securities			123,275				—				123,275				—
Debt securities issued by foreign sovereign governments			111,661				99,898				11,763				—
Total debt securities			7,475,530				491,086				6,464,036				520,408
Equity securities			2,748				2,427								321
Total investments			7,478,278				493,513				6,464,036				520,729
Real estate acquired (1)			7,858				—				—				7,858
December 31, 2008
Assets
Total investments		$	7,045,536			$	281,248			$	6,218,338			$	545,950
Real estate acquired (1)			32,858				—				—				32,858

For assets and liabilities 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, 2009 and 2008 is as follows:

		Obligations of U.S.
		States and Political				Corporate Debt				Equity				Total				Real Estate
		Subdivisions				Securities				Securities				Investments				Acquired
		(In thousands of dollars)
Balance at March 31, 2009		$	393,512			$	138,450			$	321			$	532,283			$	19,301
Total realized/unrealized losses:
Included in earnings and reported as realized investment losses, net			—				—				—				—				—
Included in earnings and reported as losses incurred, net			—				—				—				—				(1,736	)
Included in other comprehensive income			(6,103	)			(2,180	)			—				(8,283	)			—
Purchases, issuances and settlements			(1,071	)			(2,200	)			—				(3,271	)			(9,707	)
Transfers in and/or out of Level 3			—				—				—				—				—
Balance at June 30, 2009		$	386,338			$	134,070			$	321			$	520,729			$	7,858
Amount of total losses included in earnings for the three month period ended June 30, 2009 attributable to the change in unrealized losses on assets still held at June 30, 2009		$	—			$	—			$	—			$	—			$	(1,142	)

		Obligations of U.S.
		States and Political				Corporate Debt				Equity				Total				Real Estate
		Subdivisions				Securities				Securities				Investments				Acquired
		(In thousands of dollars)
Balance at December 31, 2008		$	395,388			$	150,241			$	321			$	545,950			$	32,858
Total realized/unrealized losses:
Included in earnings and reported as realized investment losses, net			—				(10,107	)			—				(10,107	)			—
Included in earnings and reported as losses incurred, net			—				—				—				—				(1,889	)
Included in other comprehensive income			(6,103	)			(1,429	)			—				(7,532	)			—
Purchases, issuances and settlements			(2,947	)			(4,635	)			—				(7,582	)			(23,111	)
Transfers in and/or out of Level 3			—				—				—				—				—
Balance at June 30, 2009		$	386,338			$	134,070			$	321			$	520,729			$	7,858
Amount of total losses included in earnings for the six month period ended June 30, 2009 attributable to the change in unrealized losses on assets still held at June 30, 2009		$	—			$	(10,107	)		$	—			$	(10,107	)		$	(1,167	)

		Total Investments				Real Estate Acquired				Other Liabilities
		(In thousands of dollars)
Balance at March 31, 2008		$	32,513			$	110,698			$	(20,547	)
Total realized/unrealized gains (losses):
Included in earnings and reported as realized investment losses, net			(3,339	)			—				—
Included in earnings and reported as other revenue			—				—				(3,351	)
Included in earnings and reported as losses incurred, net			—				(12,171	)			—
Included in other comprehensive income			5,482				—				—
Purchases, issuances and settlements			2,692				(33,908	)			1,741
Transfers in and/or out of Level 3			—				—				—
Balance at June 30, 2008		$	37,348			$	64,619			$	(22,157	)
Amount of total losses included in earnings for the three month period ended June 30, 2008 attributable to the change in unrealized gains (losses) on assets (liabilities) still held at June 30, 2008		$	(3,339	)		$	(11,893	)		$	(14,416	)

		Total Investments				Real Estate Acquired				Other Liabilities
		(In thousands of dollars)
Balance at January 1, 2008		$	37,195			$	145,198			$	(12,132	)
Total realized/unrealized gains (losses):
Included in earnings and reported as realized investment losses, net			(6,054	)			—				—
Included in earnings and reported as other revenue			—				—				(6,823	)
Included in earnings and reported as losses incurred, net			—				(17,758	)			—
Included in other comprehensive income			3,543				—				—
Purchases, issuances and settlements			2,664				(62,821	)			(3,202	)
Transfers in and/or out of Level 3			—				—				—
Balance at June 30, 2008		$	37,348			$	64,619			$	(22,157	)
Amount of total losses included in earnings for the six month period ended June 30, 2008 attributable to the change in unrealized gains (losses) on assets (liabilities) still held at June 30, 2008		$	(6,054	)		$	(15,807	)		$	(17,888	)

Note 9 — Comprehensive income

Our total comprehensive income, as calculated per SFAS No. 130, “Reporting Comprehensive Income”, was as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
						(In thousands of dollars)
Net loss		$	(339,835	)		$	(99,885	)		$	(524,395	)		$	(134,382	)
Other comprehensive income (loss)			28,869				(28,290	)			105,330				(59,748	)
Total comprehensive loss		$	(310,966	)		$	(128,175	)		$	(419,065	)		$	(194,130	)
Other comprehensive income (loss) (net of tax):
Change in unrealized gains and losses on investments		$	13,443			$	(32,155	)			90,677				(67,304	)
Unrealized foreign currency translation adjustment			15,426				4,219				14,653				7,847
Other			—				(354	)			—				(291	)
Other comprehensive income (loss)		$	28,869			$	(28,290	)		$	105,330			$	(59,748	)