Our expenses essentially consist of (a) amounts paid on claims submitted, (b) changes in reserves for estimated future claim payments on loans that are currently in default, (c) general and administrative costs of acquiring new business and servicing existing policies, (d) other general business expenses, (e) interest expense on long-term debt and line of credit, and (f) income taxes.
We discontinued a special lender-paid program at the end of the second quarter that had been responsible for approximately $600 million of NIW per quarter for each of the first two quarters of 2007 and the last quarter of 2006.
A decline in the percentage of business defined as prime credit quality;
We experienced strong growth in earned premiums in both 2007 and 2006 due to growth in direct premiums written in both years. Direct premium written is comprised of premiums written for both Primary and Modified Pool business. Our direct premium written for 2007 and 2006 grew substantially as a result of increases in both insurance in force and the average basis points, which is attributable to an increase in risk characteristics in the portfolio. Primary insurance in force at December 31, 2007 increased 36% compared to December 31, 2006 while Modified Pool insurance in force decreased 4% for the same period. Overall annual persistency was 81.9% at December 31, 2007 compared to 76.8% at December 31, 2006. Increased persistency has a positive effect on insurance in force.
Ceded premium written is comprised of premiums written under excess of loss reinsurance treaties with captive as well as non-captive reinsurance companies. The growth in ceded premium written in 2007 and 2006 was not as large as the increase in direct premium written because a larger percentage of direct premiums written were not subject to captive reinsurance arrangements.
Our default inventory has shifted and certificates originated during 2006 and 2007 comprise 45% of our loans in default, but 60% of the risk in default at December 31, 2007. The difference in percentages of loan default and risk in default reflects the higher loan amounts and a changing mix of our business. To illustrate the impact of the changes in the frequency and severity factors utilized in the reserve model, the following table details the amount of risk in default and the reserve balance as a percentage of risk at December 31, 2007 and 2006.
Our long-term debt has a single maturity date of 2028. The following table represents our aggregate contractual obligations as of December 31, 2007:
We review the persistency of policies in force and make appropriate adjustments to the amortization of deferred policy acquisition costs to reflect actual policy cancellations. We also prepare an analysis to determine that the DAC on our balance sheet is recoverable against the future profits of our existing book of business. The critical assumptions that we utilize in assessing the recoverability of the DAC is the persistency of the premium stream and the amount and timing of paid losses. We make our best estimate of the persistency and claim patterns based upon the information available at the time. Because these estimates of persistency and amount of and timing of claims are