The following discussion is intended to provide information that the Company believes is relevant to an assessment and understanding of the Company’s consolidated financial position, results of operations and cash flows and should be read in conjunction with the Consolidated Financial Statements and Notes contained herein. In addition, the current adverse market conditions in the home mortgage and residential housing markets are unprecedented from an historical standpoint and have subjected our business, financial condition and results of operations to substantial risks, many of which are summarized under “Risk Factors” above, which should be read in conjunction with the following discussion.
events occurs: the policy is cancelled at the insured’s request; we terminate the policy for non-payment of premium; the policy defaults and we satisfy all amounts due under the insurance contact; or we rescind the policy for violations of provisions of a master policy.
Persistency is an important metric in understanding our premium revenue, especially in run-off as no new business is being written, so our overall premium base is essentially fixed and will decline over time. The longer a policy remains on our books, or “persists”, the greater the amount of renewal premium revenue that we will earn from the policy. Cancellations result primarily from the borrower refinancing or selling insured mortgaged residential properties, from policies being rescinded due to fraud, misrepresentation or other underwriting violations, from a servicer choosing to cancel the insurance, from the payment of a claim, and, to a lesser degree, from the borrower achieving prescribed equity levels, at which point the lender no longer requires mortgage guaranty insurance.
Mark K. Tonnesen, our former President and Chief Executive Officer and a former director, resigned from those positions effective July 18, 2008 and subsequently retired on August 15, 2008. The Board of Directors appointed William T. Ratliff, III, the Chairman of the Board, as the interim President and Chief Executive Officer effective July 18, 2008. On October 22, 2008, the Board of Directors appointed Kenneth W. Jones, who had been serving as our Chief Financial Officer, as our new President and Chief Executive Officer. Mr. Jones retained the responsibilities of Chief Financial Officer following his appointment as our President and Chief Executive Officer. Mr. Ratliff continues to serve as our Chairman of the Board and served as an executive officer following his relinquishment of the role of President and Chief Executive Officer until March 10, 2009.
Certain segments of our insured portfolio have contributed more than others to the growth rate in the number of defaults and risk in default. These segments include:
We believe that a policy with a high LTV, all else being equal, will have a greater risk of default than a policy with a low LTV, especially in periods such as we are in currently with declining home prices. In the table above, the percentage of risk in force by LTV is based on the LTV at the time the loan was originated. We have not been provided with the “mark-to-market” LTV of our insured portfolio. To the extent that an insured loan in our portfolio has experienced a decline in the underlying value, and we believe this to be the case for a large percentage of our insured portfolio, the “mark-to-market” LTV of the policy may be substantially higher than that at origination.
The following table shows the net change in reserves for losses and LAE for 2008 and 2007:
Net cash received from premiums amounted to $274.7 million in 2008 compared to $281.3 million in 2007. The decrease is due to the overall decline in insurance in force as well as an increase in premium refunds due to rescission activity. Although persistency has remained high, the rate of decline in total insurance in force has accelerated in the last two quarters of 2008 following our decision to stop writing new business and enter into voluntary run off. Additionally, we anticipate more refunds of premiums in 2009 based on the number of policies currently under review. Based upon the two items enumerated above, we believe the decline in premiums will continue in 2009.
of the parent company to repay the entire $35 million is subject to substantial risks and cannot be assured unless a source of funds is secured. The ability of the parent company to pay the debt service with funds obtained from Triad, whether in the form of dividends, payments on the surplus note or otherwise, will require the approval of the Division, and it is unlikely that such approval will be sought or obtained in the foreseeable future.
our ability to demonstrate to the satisfaction of the Illinois Division of Insurance that our revised financial and operating plan will likely produce a solvent run-off under refined assumptions, which requires, among other things, that we maintain an appropriate level of policyholders’ surplus under statutory accounting principles;
the impact of recently adopted programs affecting modifications and refinancings of mortgages could materially impact our financial performance in run-off;
our financial condition and performance in run-off could be affected by recently adopted legislation, such as EESA and HASP;
our ability to lower operating expenses to the most efficient level while still providing the ability to mitigate losses effectively during run-off, which will directly impact our financial performance in run-off; and