5 million in additional taxes and interest

We intend todefend vigorously any proceedings that may result from these investigations.The Internal Revenue Service has proposed significant adjustments to ourtaxable income for 2000 through 2004. The Internal Revenue Service conducted an examination of our federal incometax returns for taxable years 2000 though 2004. On June 1, 2007, as a resultof this examination, we received a revenue agent report. The adjustmentsreported on the revenue agent report would substantially increase taxableincome for those tax years and resulted in the issuance of an assessment forunpaid taxes totaling $189.5 million in taxes and accuracy related penalties,plus applicable interest. We have agreed with the Internal Revenue Service oncertain issues and paid $10.5 million in additional taxes and interest.

Theremaining open issue relates to our treatment of the flow through income andloss from an investment in a portfolio of residual interests of Real EstateMortgage Investment Conduits, or REMICs. This portfolio has been managed andmaintained during years prior to, during and subsequent to the examinationperiod. The Internal Revenue Service has indicated that it does not believe,for various reasons, that we have established sufficient tax basis in theREMIC residual interests to deduct the losses from taxable income. We disagreewith this conclusion and believe that the flow through income and loss fromthese investments was properly reported on our federal income tax returns inaccordance with applicable tax laws and regulations in effect during theperiods involved and have appealed these adjustments. The appeals process maytake some time and a final resolution may not be reached until a date manymonths or years into the future.

In July 2007, we made a payment on account of$65.2 million with the United States Department of the Treasury to eliminatethe further accrual of interest. If the outcome of this matter results in payments that differmaterially from our expectations, it could have a material impact on oureffective tax rate, results of operations and cash flows.Net premiums written could be adversely affected if the Department of Housingand Urban Development reproposes and adopts a regulation under the Real EstateSettlement Procedures Act that is equivalent to a proposed regulation that waswithdrawn in 2004. Department of Housing and Urban Development, or HUD, regulations under RESPAprohibit paying lenders for the referral of settlement services, includingmortgage insurance, and prohibit lenders from receiving such payments. In July2002, HUD proposed a regulation that would exclude from these anti-referralfee provisions settlement services included in a package of settlementservices offered to a borrower at a guaranteed price HUD withdrew thisproposed regulation in March 2004. Under the proposed regulation, if mortgageinsurance were required on a loan, the package must include any mortgageinsurance premium paid at settlement.

Although certain state insuranceregulations prohibit an insurer's payment of referral fees, had thisregulation been adopted in this form, our revenues could have been adverselyaffected to the extent that lenders offered such packages and received valuefrom us in excess of what they could have received were the anti-referral feeprovisions of RESPA to apply and if such state regulations were not applied toprohibit such payments.We could be adversely affected if personal information on consumers that wemaintain is improperly disclosed. While we believe we have appropriate information security policiesand systems to prevent unauthorized disclosure, there can be no assurance thatunauthorized disclosure, either through the actions of third parties oremployees, will not occur. In 1988, the Basel Committee on Banking Supervision developed the BaselCapital Accord (the Basel I), which set out international benchmarks forassessing banks' capital adequacy requirements. In June 2005, the BaselCommittee issued an update to Basel I (as revised in November 2005, Basel II).Basel II was implemented by many banks in the United States and many othercountries in 2008 and may be implemented by the remaining banks in the UnitedStates and many other countries in 2009.Basel II affects the capitaltreatment provided to mortgage insurance by domestic and international banksin both their origination and securitization activities.The Basel II provisions related to residential mortgages and mortgageinsurance may provide incentives to certain of our bank customers not toinsure mortgages having a lower risk of claim and to insure mortgages having ahigher risk of claim. The Basel II provisions may also alter the competitivepositions and financial performance of mortgage insurers in other ways,including reducing our ability to successfully establish or operate ourplanned international operations.We may not be able to recover the capital we invested in our Australianoperations for many years and may not recover all of such capital.