As filed with the Securities and Exchange Commission on March 30, 2016

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

United Guaranty Corp.

(Exact name of registrant as specified in its charter)

Delaware

6351

38-3993056

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

230 N. Elm Street

Greensboro, North Carolina 27401

(336) 373-0232

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Donna DeMaio

Chief Executive Officer

United Guaranty Corp.

230 N. Elm Street

Greensboro, North Carolina 27401

(336) 373-0232

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Robert G. DeLaMater

Jared M. Fishman

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

(212) 558-4000

Craig B. Brod

Jeffrey D. Karpf

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10005

(212) 225-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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.


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

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price⁽¹⁾⁽²⁾	Amount of Registration Fee
Common stock, par value $0.01 per share	$100,000,000	$10,070

(1)	Includes the offering price of shares of common stock that the underwriters have the option to purchase.

(2)	Estimated pursuant to Rule 457(o) of the Securities Act of 1933, as amended.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. The selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where such offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MARCH 30, 2016

Shares

LOGO

United Guaranty Corp.

Common Stock

This is our initial public offering of shares of our common stock.

American International Group, Inc. (“AIG” or the “selling shareholder”), our parent company, is offering shares in this offering. We, United Guaranty Corp., will not receive any of the proceeds from the sale of the shares being sold by AIG.

We currently anticipate that the initial public offering price per share will be between $ and $ per share.

We intend to apply to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “ .”

Investing in our common stock involves a high degree of risk. See “Risk Factors” on page 11 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to AIG	$	$

The underwriters have the option to purchase up to an additional shares from AIG at the initial public offering price less the underwriting discount within 30 days from the date of this prospectus.

The underwriters expect to deliver the shares against payment in New York, New York on , 2016.

Joint Global Coordinators



J.P. Morgan		Morgan Stanley

Prospectus dated , 2016

TABLE OF CONTENTS


	Page
Prospectus Summary		1
Risk Factors		11
Separation Transactions		40
Use of Proceeds		40
Dividend Policy		41
Capitalization		42
Dilution		43
Selected Consolidated Financial Data		44
Management’s Discussion and Analysis of Financial Condition and Results of Operations		47
Business		78
Regulation		103
Management		111
Executive Compensation		115
Relationships and Related Party Transactions		139
Principal and Selling Shareholder		144
Description of Capital Stock		145
Shares Eligible for Future Sale		149
Material United States Taxation Considerations		151
Underwriting		157
Validity of Common Stock		164
Experts		164
Where You Can Find More Information		164
Glossary of Selected Insurance, Housing Finance and Other Terms		165
Index to Consolidated Financial Statements		F-1

None of the selling shareholder, we or the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us on behalf of us or the selling shareholder, or to which we, the selling shareholder or the underwriters have referred you. The selling shareholder, the underwriters and we take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

For investors outside the United States: None of the selling shareholder, we or any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we or the selling shareholder may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

Unless otherwise indicated, all amounts are in U.S. dollars and are approximate.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. Forward-looking statements include statements relating to future developments in our business or expectations for our future financial performance and any statement not involving a historical fact. Forward-looking statements include statements preceded by, followed by or including words such as “will,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “view,” “target,” “goal” and other words and terms of similar meaning in connection with a discussion of future operating or financial performance.

Forward-looking statements reflect our current expectations regarding future events, results or outcomes, and may or may not be realized. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give you no assurance that these expectations will prove to have been correct and you should not place undue reliance on them. Some of these expectations may be based upon assumptions, data or judgments that prove to be incorrect. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors. Although it is not possible to identify all of these risks and factors, they include, among others, the following:

•

actual or perceived changes in general economic, market and political conditions and policies, unemployment, interest rates, housing prices or other conditions that affect the housing market or the markets for mortgages or mortgage insurance;

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changes with regard to the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac,” and together with Fannie Mae, the “GSEs”) or other government-sponsored entities through federal legislative activity, restructurings or a shift in business practices;

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competition within the mortgage insurance industry with regard to pricing, terms and conditions, underwriting guidelines, loss management practices, financial strength, certainty of coverage, reputation, customer relationships, service, technology, innovation and ease of use;

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declines in the volume of low down payment mortgage originations;

•

preferences of lenders or investors regarding alternatives to private mortgage insurance, including federal government mortgage insurance programs, simultaneous second loan structures such as “piggyback” loans or other non-mortgage insurance forms of credit enhancement and the perceived willingness of private mortgage insurers to pay claims;

•

changes in our ability to attract and retain a diverse customer base and avoid undue concentration by geographic regions, customers or product type;

•

impact of partial and potential full separation from AIG;

•

changes in the regulatory environment and other requirements applicable to our business, including the GSEs’ revised Private Mortgage Insurer Eligibility Requirements (“PMIERs”), which became effective as of December 31, 2015, and our continued ability to meet all applicable requirements;

•

potential inability of our insurance subsidiaries to pay dividends due to constraints imposed by PMIERs and state insurance regulatory requirements;

•

our dependence on our management team, sales force and other key personnel, including our ability to recruit, train, motivate and retain these individuals;

•

uncertainty with regard to the efficacy of our risk management strategies, including our risk-based pricing framework;

•

uncertainty with regard to the estimation of our reserves and the timing and magnitude of loss emergence;

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•

our ability to maintain, improve and continue to develop necessary operational processes and information technology systems or work with our service providers to meet industry and customer demands, including protection against the risk of cyber-attacks;

•

possible disruptions in the servicing of mortgages covered by our insurance policies or poor servicer performance; and

•

risk of future legal proceedings, regulatory investigations and claims disputes.

We urge you to consider these factors before investing in our common stock. The forward-looking statements included in this prospectus and any free writing prospectus are made only as of the date of the prospectus or free writing prospectus, as applicable, and we do not intend and we undertake no obligation to publicly update these statements to reflect subsequent events or circumstances, except as may be required by law. Some of these risks and uncertainties, and certain additional risks and uncertainties, are described in greater detail under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” in this prospectus.

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BASIS OF PRESENTATION

United Guaranty Corp. (“UGC”) was formed as a Delaware corporation on March 3, 2016 by AIG to act as a holding company for United Guaranty Corporation, our North Carolina intermediate holding company (“UGCNC”), and its subsidiaries. Prior to this offering, each of UGC and UGCNC have been wholly-owned subsidiaries of AIG. AIG will contribute 100% of the common stock of UGCNC to UGC in connection with this offering. See “Separation Transactions.”

UGCNC is the predecessor of the issuer, UGC, for financial reporting purposes. The historical consolidated financial information included in this prospectus is that of UGCNC and is not necessarily indicative of our financial results to be achieved in future periods, or what our financial results would have been had we been an independent, publicly traded company during the periods presented. The financial results of UGC have not been presented since UGC is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this prospectus.

MARKET DATA

This prospectus includes market and industry data and forecasts that we have developed from independent research firms, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent research reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Our internal data, estimates and forecasts are based on information obtained from our customers, trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions.

TRADEMARKS

We have proprietary rights to certain trademarks used in this prospectus, which are important to our business and many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “^®” or “™” symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent permissible under applicable law, our rights or the rights of the applicable licensor of these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before deciding to invest in our common stock. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Unless the context otherwise requires, we use the terms “UGC,” “company,” “we,” “us” and “our” in this prospectus to refer to United Guaranty Corp., the issuer and our Delaware holding company, and its subsidiaries; the term “UGCNC” to refer to United Guaranty Corporation, our North Carolina intermediate holding company; and the terms “AIG” or “selling shareholder” to refer to American International Group, Inc. When we refer to our portfolio or book, we are referring to our primary first-lien U.S. mortgage insurance portfolio unless the context otherwise requires. In accordance with standard industry practice, in-force amounts presented here are shown before the effect of reinsurance ceded. For your reference, we have included a glossary beginning on page 165 of selected insurance, housing finance and other terms.

Overview

We are the leading private mortgage insurance company in the United States. We were formed in 1963 and have been a wholly-owned subsidiary of AIG since 1981. We believe that our position as the leader in the U.S. private mortgage insurance market reflects our long-standing operating history, strong and diverse customer relationships, proprietary risk-based pricing framework and robust financial strength.

Private mortgage insurance plays a key role in the U.S. housing finance system by protecting mortgage lenders and investors against default on a portion of the unpaid principal balance of a covered mortgage. Private mortgage insurers help mitigate mortgage credit risk and facilitate the sale of mortgages to Fannie Mae or Freddie Mac, which we refer to as the GSEs, and the secondary market. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to prospective homeowners.

We have a large and diverse customer base. Our long-standing presence in the private mortgage insurance market has allowed us to build customer relationships with many of the nation’s largest and highest quality lenders, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders and internet-sourced lenders. We have active relationships (defined as customers who delivered new insurance written (“NIW”) during the 12 months ending December 31, 2015) with over 1,800 customers. Our customer base is broadly diversified by lender size, type and geography, with no one customer representing more than 6% of our NIW in 2015. We have a national sales force of approximately 100 professionals, which we believe to be one of the largest in the industry, that helps drive growth in our client franchise.

We use a proprietary risk selection engine and pricing strategy that we believe differentiate us from our competitors. Following the financial crisis, we developed and implemented our proprietary Risk Quality Index (“RQI”) and Performance Premium models, which draw on over a decade of historical loan and mortgage insurance data. RQI utilizes over fifteen predictive variables to assess the likelihood of default on a given loan and assign a proprietary risk score. We use RQI to select which loans to insure, and, for most new business, in determining pricing on an individualized basis. The RQI score for each individual loan is a core component of our Performance Premium risk-based pricing model. Under our Performance Premium model, we have the flexibility to set and charge premium rates commensurate with the underlying risk of each loan that we underwrite. We believe that our proprietary RQI and Performance Premium models provide us with a more

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granular and analytical approach to selecting and pricing risk, and that this approach yields a high-quality mortgage insurance portfolio and attractive risk-adjusted returns.

We have a large and high-quality book of existing in-force mortgage insurance policies with $183.5 billion of insurance in-force (“IIF”) and $47.4 billion of gross risk in-force (“RIF”) as of December 31, 2015. As of December 31, 2015, over 80% of our gross RIF was written after 2008, and our portfolio had an average loan-to-value ratio (“LTV”) of 92% and an average Fair Isaac Corporation credit score (“FICO score”) of 738. Only 3.4% of our insured policies were reported to be delinquent as of December 31, 2015.

In addition to our primary business of writing first-lien mortgage insurance in the United States, we offer loan evaluation and contract underwriting services on a selective basis and have certain insurance portfolios that are currently in run-off. In 2015, our loan evaluation and contract underwriting services collectively accounted for less than 1% of our income before income tax. Our run-off portfolios generated $54 million of income before income tax for the period and accounted for less than 3% of our gross RIF as of December 31, 2015.

Market Opportunity

Demand for mortgage insurance is driven by the origination of “low down payment” or “high LTV” mortgages where the loan amount exceeds 80% of the value of the underlying home. The GSEs and other government participants in the mortgage market generally require mortgage insurance or other forms of credit enhancement before purchasing such low down payment mortgages. Mortgage insurance is offered by both private companies and three government agencies, the Federal Housing Administration (the “FHA”), the U.S. Department of Veterans Affairs (the “VA”) and the U.S. Department of Agriculture (the “USDA”). Since 2009, the private mortgage insurance industry has generated improving financial returns as the overall economic outlook and the U.S. housing market have recovered. As the leading private mortgage insurer, we believe we are well-positioned to benefit from a number of continuing market trends.

•

Improving fundamentals of the housing market: The U.S. housing market has experienced a dramatic recovery following the financial crisis with purchase-money origination volume growing, the rate of household formation rising, new housing starts and home sales increasing, foreclosure activity declining and home prices across most of the country rebounding strongly. We believe that recent data support continued optimism in housing market fundamentals including the following:

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Purchase-money origination volume was $759 billion in 2014, grew by 16% to $881 billion in 2015 and is expected to grow an additional 9% to $963 billion in 2016, according to the Mortgage Bankers Association as of February 18, 2016.

•

The S&P Case-Shiller 20-City Composite Home Price Index of residential housing prices has rebounded 36% from its post-crisis low in March 2012 through December 31, 2015, including 6% appreciation in 2015. However, the index remained 12% below its peak in July 2006.

We believe that these sound fundamentals will lead to continued robust activity in the housing market and support growth in the mortgage insurance industry.

•

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20% down payment and do not have access to the equity value in an existing property as an alternative source of funds. In addition to entering the typical age cohort of first-time homebuyers, the millennial generation has exhibited lower savings and homeownership rates relative to previous generations, according to Moody’s Analytics, Inc. and the U.S. Census Bureau, respectively. We believe that the maturing of the millennial generation, their projected transition from renters to homeowners, and their current savings rates will drive significant low down payment home purchase activity and opportunity in the private mortgage insurance market.

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Higher credit quality of new mortgage originations: The credit quality of a mortgage loan is driven primarily by the credit profile of the borrower, as well as the type and value of the housing collateral supporting the loan. Borrowers with strong credit profiles are generally less likely to become delinquent on their mortgage loans. Following the financial crisis, mortgage lenders significantly tightened their underwriting standards, generally limiting the availability of loans to borrowers with high FICO scores and low ratios of debt to income who can fully document their income and assets. From 2009 through 2015, the average annual borrower FICO score on all mortgage loans originated in the United States and sold to the GSEs was 755, compared to 718 for the period from 2005 through 2008, based on data from the GSEs. Mortgage lenders largely stopped offering loans with certain characteristics that generated high levels of defaults and losses during the financial crisis, including interest-only, negative amortization and limited documentation loans. We believe that prudent underwriting standards, higher credit quality borrowers and lower mortgage default experience will translate into fewer claims for the mortgage insurance industry on policies written in the post-crisis period.

Although we expect that credit standards will ease somewhat over time, we believe that regulatory reforms implemented as a result of the financial crisis, including the recently adopted Qualified Mortgage (“QM”), Ability to Repay (“ATR”) and Qualified Residential Mortgage (“QRM”) rules, will create incentives for mortgage lenders to originate loans using prudent underwriting standards and result in a more stable housing market and housing finance system.

Our Strengths

We are the leader in the private mortgage insurance industry, and we believe we have a number of competitive strengths that will allow us to capitalize on favorable market opportunities and deliver attractive risk-adjusted returns to our shareholders:

•

Largest private mortgage insurance provider: We are the largest private mortgage insurer in the United States by NIW and IIF. We grew our market position significantly in the post-crisis period, rising from the fourth largest private mortgage insurer by NIW in 2006 to the largest in 2011. We have maintained our leadership position since 2011 and believe the significant expansion of our franchise during what is generally acknowledged to have been a highly attractive mortgage credit environment provides a strong foundation for our future growth and financial performance.

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Well-established, diversified lender relationships built upon a customer-centric approach: We focus on delivering a differentiated customer experience across all phases of the mortgage insurance product lifecycle, including underwriting, servicing, risk management and claims handling. Our customer relationships are managed by an experienced sales force of approximately 100 professionals, which we believe to be one of the largest in the industry. During 2015, we had active relationships with over 1,800 customers. Our customer base and, by extension, our insured portfolio is broadly diversified by lender size, type and geography, with no one customer representing more than 6% of our NIW in 2015.

•

Proprietary risk selection engine and pricing model: We employ a proprietary risk-based pricing framework that we believe differentiates us from other participants in the private mortgage insurance

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industry. Through our proprietary RQI, we evaluate every mortgage insurance application we receive against a multivariate framework to assess its relative likelihood of default. Our RQI scores are a key input in our Performance Premium pricing model, where we set individualized premium rates for most new business based on our view of the relative riskiness of each loan. Our pricing approach targets through-the-cycle returns that exceed our cost of capital. We believe that our RQI and Performance Premium models provide us with a granular understanding of the risks in our insured portfolio and will allow us to maintain a high-quality mortgage insurance portfolio and achieve attractive risk-adjusted returns.

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Fully-scaled portfolio of high-quality insurance in-force: As of December 31, 2015, we had $183.5 billion of IIF and $47.4 billion of gross RIF. We have delivered significant growth in our insured portfolio during the post-crisis period, writing an aggregate $225 billion NIW from January 1, 2009 through December 31, 2015 and increasing our IIF by 45% over the same period. As of December 31, 2015, over 80% of our insured portfolio covered higher-quality mortgages originated since 2009, 72% of our insured portfolio covered mortgages made to borrowers with FICO scores of 720 or better and 91% of our insured portfolio covered mortgages written with LTVs of 95% or lower. Only 3.4% of our insured policies were reported to be delinquent as of December 31, 2015.

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Strong balance sheet and financial position: We are a strongly-capitalized and highly-rated counterparty for our customers. As of December 31, 2015, our primary operating subsidiaries were in compliance with the newly effected private mortgage insurance eligibility requirements (“PMIERs”) with combined PMIERs available assets of $3.6 billion and combined PMIERs minimum required assets of $3.0 billion. As of the same date, our first-lien U.S. mortgage insurance subsidiaries had combined statutory capital of $2.5 billion and a risk-to-capital ratio of 14.5:1. Our strong financial position and counterparty strength is critical to maintaining the confidence of our existing customers, establishing new customer relationships and growing our business.

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Proactive, comprehensive risk management framework: We embed risk management throughout our business, including customer selection and counterparty management, policy underwriting, RQI scoring and Performance Premium pricing, ongoing portfolio monitoring, managing geographic and lender concentrations, loss reserving and claims and investment portfolio allocation. We believe our underwriting process, in which we evaluate and assign an RQI score to all insured loans and perform a full-file review of the majority of loans submitted for coverage by lenders, differentiates us from our competitors and provides us with a more detailed understanding of the risks in our insured portfolio. We also utilize reinsurance and capital markets issuances to actively manage our risk aggregations, shape our insured portfolio composition and support our PMIERs compliance. In July 2015, we secured approximately $300 million of aggregate excess of loss reinsurance coverage at inception for new delinquencies on a portfolio of in-force policies through a mortgage insurance-linked notes offering by Bellemeade Re Ltd. (“Bellemeade Re”), a special purpose reinsurance company.

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Highly experienced management team: Our senior management team averages over 25 years of relevant experience in the mortgage, insurance and financial services industries. We believe our management team brings together a broad range of critical customer development, risk management and operating skills that are necessary to drive long-term success and market leadership in the private mortgage insurance industry.

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Our Strategy

Our goal is to build on our position as the leading private mortgage insurer in the United States through our focus on long-term customer relationships, disciplined and proactive risk selection and management, financial strength and profitability. We intend to pursue strategies that leverage our competitive strengths with the goal of producing attractive risk-adjusted returns, including:

•

Capitalizing on the attractive market environment to grow our high-quality mortgage insurance portfolio: We believe that improving fundamentals in the U.S. housing market, favorable demographic trends and stringent mortgage lending standards will continue to provide a positive backdrop for the private mortgage insurance industry in the United States. In this environment, we intend to continue growing our private mortgage insurance platform, which is a market leader, and writing coverage for high-quality mortgages.

•

Leveraging existing and establishing new customer relationships: We believe that we offer lenders a compelling opportunity to align with a well-capitalized, collaborative, private mortgage insurance partner that is focused on speed and quality of service, transparent claim practices, joint product design and regular loan portfolio reviews. We intend to continue to be customer-focused and to leverage our national sales force to deepen existing and establish new customer relationships.

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Prudently managing risk to protect our balance sheet and financial strength: We follow a disciplined process to assess, report and manage risks across our business. Our RQI and Performance Premium models allow us to align our pricing with the risk levels of individual mortgage loans. We intend to continue targeting high-quality mortgage insurance opportunities, evaluating reinsurance and capital markets opportunities, and prudently managing our investment portfolio and capital structure to remain a well-capitalized counterparty for our customers.

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Investing in technology to drive operational excellence across our business: We continue to invest significantly in our technology and systems to enhance our customer experience, further our risk management capabilities and drive expense efficiencies. We intend to continue to invest and innovate, and believe our technology systems will allow us to provide a differentiated offering to our customers and support our growth efforts going forward.

Our Principal and Selling Shareholder

AIG currently owns 100% of our outstanding common stock. AIG is selling shares of our common stock in this offering ( shares if the underwriters exercise their option to purchase additional shares in full). Following the offering, AIG will own approximately % of our outstanding common stock (or % if the underwriters exercise their option to purchase additional shares in full).

Separation Transactions

On January 26, 2016, AIG announced its plan to sell up to 19.9% of our common stock in this offering, subject to regulatory and GSE approval, as a first step towards a full separation.

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framework for our ongoing relationship. These agreements include a shareholder agreement governing AIG’s rights at various ownership levels, services agreements pursuant to which we and AIG will agree to continue to provide each other with certain services, one or more tax sharing and separation agreements, and a registration rights agreement requiring that we register shares of our common stock beneficially owned by AIG under certain circumstances. See “Separation Transactions” and “Relationships and Related Party Transactions.”

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider all of the information in this prospectus, including the discussion of these risks under “Risk Factors” and information in the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” before deciding whether to invest in our common stock. Some of these risks include the following:

•

Actual or perceived changes in general economic, market and political conditions and policies, unemployment, interest rates, housing prices or other conditions that affect the housing market or the markets for mortgages or mortgage insurance may result in more homeowners defaulting and could increase our losses.

•

Changes to the role of the GSEs in the U.S. mortgage market or to the charters or business practices of the GSEs, including actions or decisions to decrease or discontinue the use of mortgage insurance, could adversely affect our financial condition and results of operations or significantly impact our business.

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Competition within the mortgage insurance industry with regard to pricing, terms and conditions, underwriting guidelines, loss management practices, financial strength, certainty of coverage, reputation, customer relationships, service, technology, innovation and ease of use could adversely affect our business, financial condition and results of operations.

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Declines in the volume of low down payment originations or changes in the preferences of lenders or investors regarding alternatives to private mortgage insurance may reduce our business and adversely affect our financial condition and results of operations.

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Changes in the regulatory environment and other requirements applicable to our business, including PMIERs, could adversely affect our business, financial condition and results of operations.

•

Our partial and potential full separation from AIG may adversely affect our financial performance and operational capabilities.

Our Corporate Information

United Guaranty Corp. was formed as a Delaware corporation on March 3, 2016 by AIG to act as a holding company for United Guaranty Corporation, our North Carolina intermediate holding company, and its subsidiaries. UGC is a newly incorporated entity and has had no business transactions or activities to date. Prior to this offering, UGC has been a wholly-owned subsidiary of AIG. AIG will contribute 100% of the common stock of UGCNC to UGC in connection with this offering. See “Separation Transactions.” Our business was founded in 1963 as a predecessor to UGCNC, a North Carolina corporation, and UGCNC has been a wholly-owned subsidiary of AIG since 1981. We operate our business through our insurance company subsidiaries.

Our principal executive offices are located at 230 N. Elm Street, Greensboro, North Carolina 27401, and our main telephone number is (336) 373-0232. Our internet address is www.ugcorp.com. Information contained on our website or that can be accessed through our website is not incorporated into and does not constitute a part of this prospectus. We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.

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THE OFFERING

Common stock offered by the selling shareholder

shares ( shares if the underwriters exercise their option to purchase additional shares in full)

Common stock to be outstanding immediately after this offering

Voting rights

Each share of our common stock entitles its holder to one vote on all matters to be voted on by shareholders generally. See “Description of Capital Stock—Authorized Capital Stock—Common Stock.”

Dividend policy

We do not intend to pay cash dividends on our common stock. See “Dividend Policy.”

Use of proceeds

We will not receive any of the proceeds from the sale of shares of our common stock by AIG. See “Use of Proceeds.”

Listing

We intend to apply to list our common stock on the NYSE.

Proposed ticker symbol

“ ”

The number of shares of our common stock that will be outstanding after this offering is based on the shares of common stock outstanding as of , 2016.

Unless otherwise indicated, all information in this prospectus assumes:

•

no exercise by the underwriters of their right to purchase up to an additional shares of our common stock from AIG;

•

an offering price of $ per share of common stock, which is the mid-point of the range set forth on the cover of this prospectus;

•

the filing of our amended and restated certificate of incorporation, reflecting a for stock split, and the adoption of our amended and restated bylaws immediately prior to the completion of this offering; and

•

the contribution by AIG of 100% of the shares of common stock of UGCNC to us.

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial and other data is for UGCNC and its subsidiaries. UGCNC is the predecessor of the issuer, UGC, for financial reporting purposes. The following summary consolidated income statement data for the years ended December 31, 2015, 2014 and 2013 and balance sheet data as of December 31, 2015 and 2014 are derived from UGCNC’s audited consolidated financial statements that are included elsewhere in this prospectus. The combined statutory capital information set forth below has been derived from the annual statements of our insurance subsidiaries filed with the North Carolina Department of Insurance (“NCDOI”) that were prepared in conformity with statutory accounting practices of the NCDOI. Such practices differ from accounting principles generally accepted in the United States (“GAAP”). Prospective investors should read these summary consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes and definitions included elsewhere in this prospectus. Prior to the completion of this offering, UGCNC has been a wholly-owned subsidiary of AIG since 1981. The historical results presented below are not necessarily indicative of our financial results to be achieved in future periods, or what our financial results would have been had we been an independent, publicly traded company during the periods presented. The summary consolidated financial and other data of UGC have not been presented since UGC is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.


	Year Ended December 31,
	2015		2014		2013

Selected income statement data (dollars in thousands, except per share data)
Gross premiums written	$	1,067,411	$	1,039,644	$	1,086,714
Net premiums written^(a)		651,288		1,001,957		1,035,624
Net premiums earned^(a)		772,146		891,917		801,226
Net investment income		139,230		137,236		131,540
Total revenues		922,609		1,031,566		934,818
Losses and expenses:
Losses and loss adjustment expenses (“LAE”) incurred		153,985		223,194		521,382
Acquisition expenses		74,918		71,119		78,847
General operating expenses		146,403		153,055		141,202

Total losses and expenses		375,306		447,368		741,431
Income tax expense		187,496		190,513		30,676

Net income	$	359,807	$	393,685	$	162,711

Earnings per share
Net income per weighted average common share outstanding	$	163,104	$	178,461	$	73,758
Weighted average common shares outstanding		2,206		2,206		2,206
Unaudited pro forma net income per weighted average common share outstanding^(b)
Unaudited pro forma weighted average common shares outstanding^(b)

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	As of December 31,
	2015		2014

Selected balance sheet data (dollars in thousands)
Total investments	$	4,215,394	$	4,169,811
Cash		36,556		15,963
Other assets		1,212,111		962,128

Total assets	$	5,464,061	$	5,147,902

Liability for unpaid losses and LAE		738,018		1,007,220
Unearned premiums		882,646		741,349
Other liabilities		424,511		122,747
Total shareholder’s equity		3,418,886		3,276,586

Total liabilities and shareholder’s equity	$	5,464,061	$	5,147,902



	Year Ended December 31,
	2015			2014			2013

Selected additional data
Loss ratio^(c)		19.9	%		25.0	%		65.1	%
Expense ratio^(d)		28.7	%		25.1	%		27.5	%

Combined ratio^(e)		48.6	%		50.1	%		92.6	%


	As of or for the Year Ended December 31,
	2015			2014			2013

U.S. first-lien mortgage insurance portfolio (dollars in millions)
NIW^(f)	$	50,842		$	42,038		$	49,356
IIF^(f)(g)	$	183,466		$	165,623		$	146,390
Gross RIF^(f)(g)(h)	$	47,409		$	42,656		$	37,059
Net RIF^(f)(g)(h)	$	36,664		$	42,525		$	36,716
Policies in force^(f)(g)		923,627			865,861			799,573
Delinquent loans^(f)(g)		31,285			38,357			47,518
Delinquency ratio^(f)(g)		3.4	%		4.4	%		5.9	%
Combined PMIERs available assets⁽ⁱ⁾	$	3,627			N/A			N/A
Combined PMIERs minimum required assets⁽ⁱ⁾	$	3,027			N/A			N/A
Combined statutory capital^(f)	$	2,457		$	2,137		$	1,944
Combined risk-to-capital ratio (adjusted net-RIF-to-statutory-capital)^(f)(j)		14.5:1			18.9:1			17.6:1

(a)

Net premiums written and net premiums earned for the year ended December 31, 2015 include the impact of our 50% quota share agreement, as amended, with National Union Fire Insurance Company of Pittsburgh, Pa. (“NUFIC”), American Home Assurance Company (“American Home”) and Lexington Insurance Company (“Lexington”), each an AIG affiliate (such agreement, as amended, our “50% quota share agreement with NUFIC”). We expect that this agreement will have an increasing impact on our financial results in future periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Financial Results—Reinsurance.”

(b)	Pro forma amounts are calculated based on shares of UGC common stock outstanding following the for stock split to be effected prior to the completion of this offering.

(c)	Loss ratio is calculated by dividing losses and LAE incurred by net premiums earned.

(d)	Expense ratio is calculated by dividing acquisition and general operating expenses by net premiums earned.

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(e)	Combined ratio is calculated by dividing the sum of losses and LAE incurred and acquisition and general operating expenses by net premiums earned.

(f)

Reflects the results and position of the following subsidiaries: United Guaranty Residential Insurance Company (“UGRIC”), United Guaranty Mortgage Indemnity Company (“UGMIND”), United Guaranty Mortgage Insurance Company, United Guaranty Mortgage Insurance Company of North Carolina and United Guaranty Insurance Company, which we refer to as our first-lien U.S. mortgage insurance subsidiaries. See “Business—Our Company.”

(g)

As presented in this prospectus, amounts exclude our structured mortgage insurance portfolio, which had $130.5 million, $162.8 million and $172.7 million of gross and net RIF as of December 31, 2015, 2014 and 2013, respectively. We have not written any new structured mortgage insurance coverage since 2008. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Key Metrics—First-Lien U.S. Mortgage Guaranty—Insurance In Force and Risk In Force” and “Business—Our Products and Services—First-Lien U.S. Mortgage Insurance—Structured Mortgage Insurance Products.”

(h)	Gross RIF is RIF before the effect of reinsurance ceded. Net RIF is RIF net of reinsurance ceded.

(i)	PMIERs became effective on December 31, 2015. Accordingly, the combined PMIERs available assets and combined PMIERs minimum required assets of our primary operating subsidiaries are not shown for prior periods.

(j)	Adjusted net RIF for purposes of calculating combined statutory risk-to-capital differs from net RIF presented elsewhere in this prospectus. In accordance with North Carolina insurance regulations, adjusted net RIF excludes delinquent policies.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in our common stock. Our business, prospects, financial condition and results of operations could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our common stock could decline as a result of any of these risks, and you could lose part or all of your investment in our common stock. The following risk factors are not necessarily presented in order of relative importance and should not be considered to represent a complete set of all potential risks that could affect us. When deciding whether to invest in our common stock, you should also refer to the other information in this prospectus, including our consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections of this prospectus.

Risks Related to Our Business

Losses result from events that reduce borrowers’ ability or willingness to continue making mortgage payments. A deterioration in general economic conditions, across the United States or in specific regional economies, especially increases in unemployment, would increase the likelihood that borrowers lack sufficient income to pay their mortgages. It could also adversely affect housing values and decrease borrowers’ willingness to make mortgage payments, particularly if mortgage balances exceed the values of the homes. Increases in interest rates may also increase mortgage payments and the likelihood that borrowers lack sufficient income to pay their mortgages, especially when coupled with a deterioration in general economic conditions. A significant downturn in economic conditions or an extended period of flat or declining housing values could result in increased losses that would materially affect our business, financial condition and results of operations. Our premiums and underwriting standards may not be adequate to shield us from such losses. Although the U.S. housing market has made a significant recovery following the financial crisis, the future is not certain and may be affected by weakness or volatility in the U.S. economy, including any impacts arising out of global market effects from international sources.

Independent of any deterioration in broad economic conditions, housing values could also decline due to specific trends that would affect the housing and mortgage markets, such as decreased demand for homes, changes in homebuyers’ expectations for potential future home value appreciation, increased restrictions or costs for obtaining mortgage credit due to tightened underwriting standards, higher interest rates and lenders’ liquidity issues. Other factors affecting housing values include possible regulatory developments such as a phase-out of the mortgage interest deduction, reduced deductibility of mortgage insurance premiums or changes in the tax treatment of residential property. Declining housing values may impact the effectiveness of our loss management programs, eroding the value of mortgage collateral and reducing the likelihood that properties with defaulted mortgages can be sold for an amount sufficient to offset unpaid principal and interest losses.

Natural disasters, including floods and tornadoes, acts of terrorism, pandemics or other catastrophic or unforeseeable events, could cause us to experience increased claims against policies that we have written. Although we do not cover damages resulting from such occurrences, these events may affect the ability of homeowners to meet their mortgage payments.

We may not be able to anticipate or accurately assess the impact of negative economic events or natural disasters or similar events and we cannot assure you that any strategies we may employ to mitigate the impact on

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us of such events will be successful, including limitations under our master policy on the payment of claims in certain circumstances, the dispersal of our risk by geography and the potential use of reinsurance structures. See “—Our underwriting and risk management policies and practices may not anticipate all risks and/or the magnitude of potential for loss” and “—The premiums we charge may not be adequate to compensate us for our liabilities for losses and, as a result, any inadequacy could materially affect our financial condition and results of operations.”

The GSEs are the most significant purchasers and sellers of conventional mortgages in the U.S. housing market and are the beneficiaries of the majority of our insurance policies. In 2008, the GSEs were placed under the conservatorship of the Federal Housing Finance Authority (“FHFA”), which has regulatory and operational control over the GSEs and has directed, and is likely to continue to direct, changes to the business practices of the GSEs in ways that affect the mortgage insurance industry. Since the commencement of the GSEs’ conservatorship, the U.S. mortgage market has been the target of numerous and differing proposals for reform. These range from elimination, privatization or replacement of the GSEs, to a more limited ongoing role of the GSEs that combines private capital with the backing of the U.S. government. A 2011 plan from the Obama Administration proposed to reduce the role of the GSEs in the mortgage market and, ultimately, wind down both institutions and replace them with a new housing finance model. The Housing Finance Reform and Taxpayer Protection Act of 2013 and the Housing Finance Reform and Taxpayer Protection Act of 2014 were introduced in the Senate to repeal the federal charters of the GSEs and replace them with a new independent entity called the Federal Mortgage Insurance Corporation. Other members of Congress have introduced additional proposals, presenting variations on the reform options described above including during 2015. None of these proposals have passed into law, and, given their variety and the continuing interest in housing and mortgage finance reform issues, we cannot predict how or when the conservatorship of the GSEs will be resolved or the role of the GSEs in the U.S. mortgage market may change, or in what ways such changes would impact our business, operations and financial condition. Any such changes could have a significant impact on us.

In addition to the possibility of systemic reforms affecting the GSEs’ economic role, the charters of the GSEs may also be modified in ways that would affect our mortgage insurance business. The charters of the GSEs specify that they may purchase or guarantee low down payment mortgages for which the lender has provided certain credit enhancements, including private mortgage insurance. Lenders have historically relied on private mortgage insurance to satisfy the credit enhancement requirement. If the charters of the GSEs are amended to change or eliminate the acceptability of private mortgage insurance or authorize other forms of credit enhancement, our volume of new business and revenue may decline significantly.

Federal legislative action is required for changes to the statutory requirements of the FHFA’s conservatorship of the GSEs, the elimination of the GSEs, the replacement of the GSEs with any successor entities or structures, or changes to the GSE charters. We cannot predict the timing or substance of any such legislative changes or of other changes that would require only executive action, or the impact any such changes may have on the U.S. mortgage market or our business.

Changes in the business practices of the GSEs, which can be implemented by the GSEs at the FHFA’s direction or otherwise, could also adversely affect our business, financial condition and results of operations. We cannot predict what or when changes may be made to the GSEs’ business practices. Such changes, particularly changes that decrease or discontinue the use of mortgage insurance, could have a material adverse effect on our business, financial condition and results of operations, including changes to:

•

the level of private mortgage insurance coverage used to satisfy the credit enhancement requirements of the GSE charters;

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•

the amount of loan-level price adjustments and guaranty fees (to the extent that they result in higher costs to borrowers) that the GSEs may assess on loans that require mortgage insurance;

•

whether the GSEs influence the lender’s selection of the mortgage insurer providing coverage;

•

the underwriting standards that determine eligible mortgages for purchase by the GSEs, which can affect the quality of risk insured by us and the number of mortgages available to insure;

•

the terms on which mortgage insurance coverage can be cancelled before reaching cancellation thresholds established by law;

•

the loss management programs established by the GSEs and the circumstances in which mortgage servicers must implement such programs;

•

the terms the GSEs require in the mortgage insurance policies insuring mortgages they purchase;

•

the extent to which the GSEs intervene in mortgage insurers’ claims payment and rescission practices;

•

the maximum loan limits of the GSEs in comparison to those of other mortgage purchasers;

•

the GSEs’ eligibility requirements for private mortgage insurers, including minimum capital adequacy requirements; and

•

the extent to which the GSEs accept alternate risk sharing structures involving insurers other than conventional private mortgage insurers in satisfaction of their existing charter requirements.

In the last three years and for 2016, the FHFA has set goals for the GSEs to transfer significant portions of the GSE mortgage credit risk to the private sector. Accordingly, since 2013, the GSEs have expanded their sale of mortgage credit risk with novel transactions, such as Freddie Mac Structured Agency Credit Risk (“STACR”) and Fannie Mae Connecticut Avenue Securities which are unsecured bonds that pay out based on the performance of a pool of reference mortgages, and Freddie Mac Agency Credit Insurance Structure (“ACIS”) and Fannie Mae Credit Insurance Risk Transfer which are risk sharing transactions that shift the credit risk on a pool of reference mortgages to reinsurers. In particular, since 2013 Freddie Mac has used its STACR, Whole Loan Securities (a risk transfer securitization backed by single family mortgages) and ACIS programs to transfer a substantial portion of the credit risk on more than $422 billion of unpaid principal balance on single-family mortgages. Should the GSEs continue to increase their activities in alternate risk sharing structures, or target those more specifically to high LTV loans, the market for conventional mortgage insurance may be reduced.

Competition within the mortgage insurance industry could result in the loss of market share, loss of customers, lower premiums, wider credit guidelines and other changes which could have a material adverse effect on our business, financial condition and results of operations.

The private mortgage insurance industry is highly competitive. We compete with other private mortgage insurers on a variety of factors, including pricing, terms and conditions, underwriting guidelines, loss management practices, financial strength, certainty of coverage, reputation, customer relationships, service, technology, innovation and ease of use. One or more private mortgage insurers may seek increased market share, either from other private mortgage insurers, or from public mortgage insurers such as federal mortgage insurance programs (including those offered by the FHA, VA and USDA) and state-supported mortgage insurance funds (“public mortgage insurance”). Reducing pricing, loosening underwriting guidelines or relaxing risk or loss management practices by our competitors, could negatively affect our level of NIW. Additionally, to the extent we follow our competitors in any of these actions, it may negatively affect our business, financial condition and results of operations or delinquency rate. A decline in NIW across the industry could exacerbate this competition.

A recent trend in the private mortgage insurance industry towards using more competitive pricing structures may also put pressure on our ability to maintain our profitability and leading market position. In the last quarter of 2015, two of our competitors announced new rate structures, aiming to reduce rates overall or reduce cross-

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subsidization within a provider by tailoring pricing structures to better reflect expected risk. If this trend continues, the industry in general may experience downward pricing pressure, resulting in lower returns and erosion of our market leadership in terms of our position as well as our practices.

Mortgage lenders seek to diversify the mortgage insurers they engage to underwrite insurance in order to mitigate counterparty risk. At the same time, consolidation among mortgage lenders has increased the share of the mortgage lending market held by large lenders.

As of December 31, 2015, we remain the private mortgage insurance industry leader by market share. In addition to the competitive factors described above, we also face the inherent difficulty of sustaining a position as the largest current participant in the industry. We cannot ensure that we will be able to maintain the advantages of our current operating conditions, including our market share, revenues and cost structures, or how we will be affected by potential actions of our private or public mortgage insurance competitors.

The amount of new insurance we are able to write may be adversely affected if the volume of low down payment home mortgage originations declines.

Our ability to write new business depends, among other things, on the origination volume of low down payment mortgages that require mortgage insurance. Factors that affect the volume of low down payment mortgage originations include:

•

the health of the domestic economy as well as conditions in regional and local economies, including rates of unemployment;

•

the level of and rate and direction of change in home mortgage interest rates;

•

the deductibility of mortgage interest and mortgage insurance premiums for income tax purposes;

•

housing affordability;

•

population trends, including the rate of household formation, preferences of potential mortgage borrowers and cultural shifts;

•

the rate of home price appreciation or decline, which in times of significant refinancing can affect whether refinanced loans have LTV that require private mortgage insurance;

•

government housing policies encouraging loans to borrowers that may need low down payment financing, such as first-time homebuyers;

•

the extent to which the guaranty fees, loan-level price adjustments, credit underwriting guidelines and other business terms provided by the GSEs affect the affordability of low down payment mortgages;

•

restrictions on mortgage credit due to more stringent underwriting standards and liquidity issues; and

•

requirements for ATR determinations prior to extending credit as discussed below.

If the volume of low down payment loan originations declines, then our ability to write new policies may suffer, and our revenue and results of operations may be negatively impacted.

The amount of insurance we are able to write may be adversely affected if lenders and investors select alternatives to private mortgage insurance.

We compete for business with alternatives to private mortgage insurance, consisting primarily of public mortgage insurance programs but also including home purchase or refinancing alternatives that do not use any form of mortgage insurance.

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Public mortgage insurance programs include, but are not limited to:

•

Federal mortgage insurance programs, including those offered by the FHA, VA and USDA; and

•

State-supported mortgage insurance funds.

Alternatives to mortgage insurance include, but are not limited to:

•

lenders and other investors holding mortgages in their portfolios and self-insuring;

•

investors (including the GSEs) using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage, such as obtaining insurance from non-mortgage insurers and engaging in credit-linked note transactions in the capital markets, or accepting credit risk without credit enhancement;

•

mortgage sellers retaining at least a 10% participation in a loan or mortgage sellers agreeing to repurchase or replace a loan upon an event of default; and

•

lenders originating mortgages using “piggyback structures” that avoid private mortgage insurance, such as a first mortgage with an 80% LTV and a second mortgage with a 10%, 15% or 20% LTV (referred to as “80-10-10,” “80-15-5” or “80-20” loans, respectively) rather than a first mortgage with a 90%, 95% or 100% LTV that has private mortgage insurance.

Any of these alternatives to private mortgage insurance could reduce or eliminate the demand for our product, cause us to lose business or limit our ability to attract the business that we would prefer to insure. In particular, there has been substantial competition from public mortgage insurance programs in the wake of the financial crisis. Public mortgage insurance programs are not subject to the same capital requirements, risk tolerance or business objectives that we and other private mortgage insurance companies are, and therefore, generally have greater financial flexibility in setting their pricing, guidelines and capacity, which could put us at a competitive disadvantage. In addition, loans insured under FHA and other U.S. federal government-supported mortgage insurance programs are eligible for securitization in Government National Mortgage Association (“Ginnie Mae”) securities, which may be viewed by investors as more desirable than Fannie Mae and Freddie Mac securities due to the explicit backing of Ginnie Mae securities by the full faith and credit of the U.S. federal government.

Consequently, if the public mortgage insurance programs maintain or increase their share of the mortgage insurance market, our business and industry could be affected. Factors that could cause public mortgage insurance programs to maintain or increase their share of the mortgage insurance market include:

•

a reduction in the premiums charged for government mortgage insurance or a loosening of underwriting guidelines;

•

capital constraints in the private mortgage insurance industry;

•

increases in premium rates or tightening of underwriting guidelines by private mortgage insurers;

•

increased levels of loss management activity by private mortgage insurers when compared to the more limited loss management activities of government insurance programs;

•

imposition of additional loan-level pricing adjustments by the GSEs on loans that require mortgage insurance;

•

increases in GSE guaranty fees and the difference in the spread between GSE mortgage-backed securities and Ginnie Mae mortgage-backed securities;

•

the perceived operational ease of using government insurance compared to the products of private mortgage insurers;

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•

the perceived willingness of private mortgage insurers to pay claims, which may be affected by recent or historical macroeconomic or market events, general public opinion, outcomes of litigation or regulatory determinations, as well specific claims provisions in insurers’ master policies;

•

differences in the enforcement of program requirements by the FHA relative to the enforcement of policy terms by private entities; and

•

the implementation of new regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended from time to time (the “Dodd-Frank Act”), particularly the recently adopted QM and ATR rules, which in general are more favorable to the FHA than to private mortgage insurers.

In the event that a public mortgage insurance program in one of our markets reduces prices significantly or alters the terms and conditions of its mortgage insurance or other credit enhancement products, in furtherance of political, social or other goals rather than a profit motive, we may no longer be able to compete in that market effectively or may find our market share in such market significantly diminished. In January 2015, the FHA significantly reduced its annual mortgage insurance premiums; absent other changes, reductions in FHA premiums make private mortgage insurance less competitive for borrowers with certain credit characteristics. The VA’s market share has also increased since 2009. Due to the factors discussed above, we cannot predict the FHA’s and VA’s future market share.

More recently, lenders have also been seeking to offer high LTV mortgages that do not require private mortgage insurance through the use of front-end risk sharing. We believe that lenders’ appetite for such alternatives may increase as certain large bank lenders have indicated a desire to find alternatives to FHA loans due to the number of large recent settlements between lenders and the FHA, the buyback risk on FHA loans and ongoing regulatory uncertainty. Although this shift has not yet reduced FHA loan volumes, as nonbank lenders have filled the void, it is causing bank lenders to consider developing alternative products competitive with FHA loans, which potentially includes low down payment mortgages that do not require private mortgage insurance. As an example, at least one national lender has announced that it will offer up to 97% LTV mortgages that do not require private mortgage insurance and will be eventually sold to Freddie Mac through the use of front-end risk sharing. If lenders increase their use of such alternatives, the amount of insurance we write may materially decline.

Changes in the composition of our business or undue concentration by geographic region, customer or product type may adversely affect us by increasing our exposure to adverse performance of a small segment of our overall business.

Even though currently we have active relationships with over 1,800 customers and no one customer represented more than 6% of our NIW in 2015, changes in our ability to attract and retain a diverse customer base, and avoid undue concentration by geographic region, customer or product type may adversely affect us.

Historically, regional housing markets have experienced changes in home prices and unemployment at different rates and to different extents. In addition, certain geographic regions have experienced local recessions, falling home prices and rising unemployment based on economic conditions that did not impact, or impacted to a lesser degree, the overall U.S. economy. Geographic concentration in our mortgage portfolio therefore increases our exposure to losses due to localized economic conditions. We may not adequately maintain the geographic diversity of our portfolio, exposing us to greater losses.

Customer concentration may adversely affect our financial condition if a significant customer chooses to increase its use of other mortgage insurers or alternatives to mortgage insurance or experiences a decrease in their business. In addition, customer concentration increases the risk that our pricing and underwriting terms with those customers may not be as favorable as those we might receive from a smaller customer.

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Certain types of mortgages have demonstrated higher probabilities of claims. These include loans with LTVs of over 95%, FICO scores below 620, limited underwriting, including limited borrower documentation, higher total debt-to-income ratios, or certain adjustable rate mortgages as well as loans having combinations of higher risk factors. As of December 31, 2015, approximately 9.6% of our net RIF consisted of loans with LTVs equal to or greater than 95% and 1.9% with FICO scores below 620 or not reported. Although we attempt to incorporate these higher expected claim rates into the RQI and Performance Premium models, there can be no assurance that the premiums earned and the associated investment income will be adequate to compensate for actual losses under our current underwriting requirements.

We may be unable to continue to comply with the applicable GSEs’ PMIERs, which could adversely affect our business, financial condition and results of operations.

The substantial majority of our gross RIF is on mortgages sold to the GSEs, which are and historically have been the major purchasers of the mortgages insured by private mortgage insurers. In order to be eligible to insure loans purchased or guaranteed by the GSEs, private mortgage insurers must meet each of the GSEs’ eligibility requirements, referred to as PMIERs, which became effective on December 31, 2015. The GSEs have designated our primary operating subsidiaries, UGRIC and UGMIND, as approved private mortgage guaranty insurers. As of December 31, 2015, we have met the requirements of each of the GSE’s respective PMIERs, but there can be no assurance that we will continue to be in compliance with the requirements.

The eligibility requirements imposed by PMIERs include financial strength, business and quality control and certain transaction approval requirements. In particular, PMIERs’ risk-based framework requires that an approved insurer have a sufficient level of liquid assets from which to pay claims. The amount of combined PMIERs minimum required assets that we must maintain is influenced by the risk characteristics of the mortgages we insure and by whether the policy is for lender- or borrower-paid mortgage insurance, with riskier mortgages and lender-paid policies resulting in higher levels of combined PMIERs minimum required assets. Changes in the type of mortgages we insure or an increase in the amount of lender-paid policies may increase the amount of assets we need to maintain PMIERs compliance. PMIERs currently provide that the factor tables used to determine PMIERs minimum required assets will be updated every two years, and may also be updated more frequently to reflect changes in macroeconomic conditions or loan performance. If we are unable to continue to comply with the enhanced requirements of PMIERs, the GSEs could restrict UGRIC and UGMIND from conducting certain types of business or take actions that may include deciding not to purchase loans insured by UGRIC and UGMIND, which could adversely affect our business, financial condition and results of operations. In addition, either of the GSEs may amend PMIERs at any time, as applicable to one or more mortgage insurers, and there can be no assurance that either of the GSEs will not make PMIERs or the application thereof more onerous in the future. See “Regulation—Agency Qualification Requirements.”

The amount of insurance we are able to write may be adversely affected if our financial strength ratings are downgraded.

Financial strength ratings, which various ratings organizations publish as a measure of an insurance company’s ability to meet contract holder and policyholder obligations, are important to maintain confidence in our products and our competitive position. In assigning financial strength ratings, in addition to considering the adequacy of the mortgage insurer’s capital to withstand very high claim scenarios under assumptions determined by the rating agency, we believe rating agencies review a mortgage insurer’s historical and projected operating performance, franchise risk, business outlook, competitive position, management, corporate strategy and other factors. The rating agency issuing the financial strength rating can withdraw or change its rating at any time. A downgrade in our financial strength ratings, or the announced potential for a downgrade, could have an adverse effect on our business, financial condition and results of operations in many ways, including: (1) increased scrutiny of us and our financial condition by our customers, potentially resulting in a decrease in the amount of new insurance policies that we write; (2) requiring us to reduce the premiums that we charge for mortgage insurance in order to remain competitive; and (3) adversely affecting our ability to obtain reinsurance, reasonable

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pricing on reinsurance or direct access to the capital markets for reinsurance. A ratings downgrade could also increase our cost of capital, limit our access to the capital markets and adversely affect our ability to write insurance on loans sold in the private market. Financial strength ratings may also be considered by issuers of non-GSE mortgage-backed securities or users of alternative risk-sharing structures in determining whether to purchase private mortgage insurance.

See “—Risks Related to Our Separation from, and Continuing Relationship with, AIG—Our separation from AIG may adversely affect our financial performance and operational capabilities.”

We rely on our senior management team, our sales force and our highly trained and skilled workforce, and our business could be harmed if we are unable to retain qualified personnel.

Our success depends, in part, on the skills, working relationships and continued services of our senior management team, our client-focused sales force and our highly trained and skilled workforce. We do not have employment agreements with our senior management team other than with our chief executive officer. Departures of key personnel could adversely affect the conduct of our business. In such an event, we would be required to retain or hire other personnel to manage and operate our business, and there can be no assurance that we would be able to employ a suitable replacement for the departing individual, or that a replacement could be hired on terms that are favorable to us. Our business could be materially harmed if we are unable to retain our senior management, our sales force or our highly trained and skilled workforce.

Changes in interest rates, home prices or mortgage insurance cancellation requirements impact the length of time that our policies remain in force, which could cause a decline in our revenue or an increase in the level of claims.

Approximately two-thirds of our premiums are from policies on which premiums are paid on a periodic basis during the coverage term of the policy. As a result, the length of time insurance remains in force, which is also generally referred to as persistency, is a significant determinant of our revenues. A lower level of persistency could reduce our future revenues. Our annual persistency rate was 83.2% as of December 31, 2015, compared to 87.0% as of December 31, 2014. The factors affecting the persistency of our insurance portfolio include:

•

the level of current mortgage interest rates compared to the mortgage interest rates on the IIF, which affects the incentives of borrowers we have insured to refinance;

•

the amount of equity in a home, as homeowners with more equity in their homes can more readily move to a new residence or refinance their existing mortgage;

•

the rate at which homeowners sell their existing homes and move to new locations, generally referred to as housing turnover, with more rapid economic growth and stronger job markets tending to increase housing turnover;

•

the mortgage insurance cancellation policies of mortgage investors along with the current values of the homes underlying the mortgages in the IIF;

•

the cancellation of borrower-paid mortgage insurance mandated by law based on the amortization schedule of the loan, which generally occurs sooner if the rate of the insured loan is lower; and

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the efforts of lenders to solicit borrower refinancing, which is facilitated by increased use of internet and other electronic communications.

Some portion of our insured portfolio may be able to refinance at the current level of mortgage rates, which may reduce our future revenues. In addition, as interest rates rise, persistency is likely to increase, which may extend the average life of our insured portfolio, particularly for lender-paid policies that in general are non-cancellable, and result in higher levels of future claims as more loans remain outstanding.

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We depend on RQI, Performance Premium and other models to select and underwrite the mortgages we insure, price our mortgage insurance and determine our reserves, which subjects us to model risk and requires accurate data from third parties.

We depend on models, including RQI and Performance Premium pricing, to select and underwrite the mortgages we insure and, for most of the new insurance we write, to price our mortgage insurance products. Our models require accurate and high-quality data, including financial statements, credit reports or other financial information. In addition, in contrast to the rate cards that we believe the majority of our competitors use, our risk-based pricing framework places an additional requirement on our customers to provide more data for each loan in order to provide a quote. Requiring such additional data from our customers may make our competitors more attractive to our customers. Reliance on inaccurate, fraudulent or misleading financial statements, credit reports or other financial information could result in loan losses, reputational damage or other effects that could have a material adverse effect on our business, financial condition and results of operations. In addition, if any of our models contain programming or other errors, are ineffective, use data provided by third parties that is incorrect, or if we are unable to obtain relevant data from third parties, our approval and pricing process could be negatively affected, resulting in mispriced, incorrectly approved or denied policies. The models may prove in practice to be less predictive than we expect for a variety of reasons, including errors in constructing, interpreting or using the models or inaccurate assumptions (e.g., failures to update assumptions appropriately or in a timely manner). Our assumptions may be inaccurate for many reasons as they often involve matters that are inherently difficult to predict and beyond our control (e.g., macroeconomic conditions and their impact on behavior) and often involve complex interactions between a number of variables, factors and other assumptions. A failure in our models may have a material adverse effect on our business, financial condition and results of operations. In addition, the design and construction of our models is based upon historical data that may not be representative of future conditions, and so such models may not operate effectively in the future.

Our underwriting and risk management policies and practices may not anticipate all risks and/or the magnitude of potential for loss.

We have established underwriting and risk management policies and practices that seek to mitigate our exposure to borrower default risk in constructing our insured loan portfolio by anticipating future risks and the magnitude of those risks. Our underwriting and risk management guidelines are based on what we believe to be the major factors that impact mortgage credit and prepayment risk. We identify these factors in “Business—Delinquencies, Claims and Loss Management—Loss Management” and “Business—Delinquencies, Claims and Loss Management—Risk Management.” In addition, there are certain types of loan characteristics relating to the individual loan or borrower that affect the risk potential for a loan. The presence of multiple higher-risk characteristics in a loan materially increases the likelihood of a claim on such a loan unless there are other characteristics to mitigate the risk.

The frequency and severity of claims we incur will be uncertain and will depend largely on general economic conditions, including home prices, rates of unemployment and interest rates. To the extent that a risk is unforeseen or is underestimated in terms of magnitude of loss, our underwriting and risk management policies and practices may not insulate us from the effects of those risks. If these policies and practices do not correctly anticipate risk or the potential for loss, we may underwrite business for which we have not charged a premium commensurate with the risk or we may establish our reserves at a rate that does not accurately approximate our actual ultimate loss payments. Either one of these could result in adverse effects on our business, financial condition and results of operations.

Management of our operational risk may fail for a number of reasons, exposing us to significant loss.

Our business performance is highly dependent on our ability to manage operational risks that arise from a large number of day-to-day business activities, including insurance underwriting, claims processing, servicing, investment, financial and tax reporting, compliance with regulatory requirements and other activities, many of

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which are very complex and for some of which we rely on third parties. In addition, information technology investments we have made or plan to make in order to improve our operations may be subject to material challenges, uncertainties and risks which may adversely affect our ability to achieve the anticipated business growth, expense reduction and operational efficiencies we expect to result from these investments. See “—Our information technology systems may become outmoded, be temporarily interrupted, or fail, causing us to fail to meet our customers’ demands. Large information technology projects that we are currently implementing may not be delivered correctly, on time or on budget or may not be correctly focused, and could have a material adverse effect on our business and results of operations.” Operational risk and losses can result from internal and external fraud; errors by employees or third parties; failure to document transactions properly or to obtain proper authorization; failure to comply with applicable regulatory requirements and conduct of business rules; equipment failures, including those caused by natural disasters or by electrical, telecommunications or other essential utility outages; business continuity and data security system failures, including those caused by computer viruses, cyber-attacks or unforeseen problems encountered while implementing major new computer systems or upgrades to existing systems; or the inadequacy or failure of systems and controls, including those of our suppliers or counterparties. We seek to monitor and control our exposure to risks arising out of these activities through a risk control framework encompassing a variety of reporting systems, internal controls, management review processes and other mechanisms. We cannot be completely confident that these processes and procedures will effectively control all known risks or effectively identify unforeseen risks, or that our employees and third-party agents will effectively implement them. Management of operational risks can fail for a number of reasons, including human error, design failure, systems failure, failures to perform, cyber security attacks, or unlawful activities on the part of employees or third parties. See “—The security of our information technology systems could be compromised and confidential information that we maintain, including nonpublic personal information, could be improperly disclosed. Any failure to protect the confidentiality of borrower or customer information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.” In the event that our controls are not effective or not properly implemented, we could suffer financial or other loss, disruption of our businesses, regulatory sanctions or damage to our reputation. Losses resulting from these failures can vary significantly in size, scope and scale and may have material adverse effects on our business, financial condition and results of operations. In addition, we are subject to the risk of fraud carried out by third parties, including borrowers, developers, lenders and appraisers. Fraudulent practices continue to change so we are unlikely to detect all such instances and our rescission practices may not protect us from all fraud.

The premiums we charge may not be adequate to compensate us for our liabilities for losses and, as a result, any inadequacy could materially affect our financial condition and results of operations.

Our mortgage insurance premium rates may not be adequate to cover future losses. We set premiums at the time a policy is issued based on a number of factors, including our expectations regarding likely mortgage performance over the expected life of the coverage. These expectations may prove to be incorrect. We use a proprietary pricing model, Performance Premium, to set premiums on most of the new insurance we write. This pricing model also takes into account our RQI risk-based scoring model. Our models require accurate data inputs from our customers and use assumptions that may prove to be incorrect. Our models may also fail to work as intended due to programming or other errors. While we update our models on a regular basis, such updates may not be implemented in all markets at the same time or may not be able to be updated on a timely basis to reflect revised assumptions.

In addition to establishing loss reserves for loans for which we have received a notice of delinquency, under statutory accounting rules and GAAP, we are required to establish a premium deficiency reserve for our mortgage insurance products if the amount by which the net present value of expected future losses for a particular product and the expenses for such product exceeds the net present value of expected future premiums and existing reserves for such product. We evaluate whether a premium deficiency exists at the end of each fiscal year or more frequently if there are significant changes to or volatility in our forecasts. Our evaluation of premium deficiency is based on our best estimates of future losses, expenses and premiums. This evaluation

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depends upon many significant assumptions, including assumptions regarding future macroeconomic conditions, and therefore, is inherently uncertain and may prove to be inaccurate. There can be no assurance that premium deficiency reserves will not be required in future periods. In addition, even if we were required to establish a premium deficiency reserve, there can be no assurance that it will be adequate. If one of these were to occur, it would have an adverse effect on our financial condition and results of operations.

Generally, we cannot cancel mortgage insurance coverage or adjust renewal premiums during the life of a mortgage insurance policy. As a result, higher than anticipated claims generally cannot be offset by premium increases on policies in force or mitigated by our non-renewal or cancellation of insurance coverage. The premiums we charge, and the associated investment income, may not be adequate to compensate us for the risks and costs associated with the insurance coverage provided to customers. Should we wish to increase our premium rates, any such change would be prospectively applied to new policies written, and the changes would be subject to approval by state regulatory agencies, which may delay or limit our ability to increase our premium rates.

Because we establish reserves only upon mortgage loan delinquency (rather than based on estimates of our ultimate losses on RIF) we expect to incur future losses beyond what we have recorded in our consolidated GAAP financial statements, and losses may have a disproportionate adverse effect on our earnings in certain periods.

In accordance with industry practice and statutory accounting rules applicable to insurance companies, we establish reserves in our consolidated GAAP financial statements only for loans for which we have received a notice of delinquency. A notice of delinquency is received after the borrower misses two or more mortgage payments. Loss reserves are established for reported insurance losses and LAE based on when notices of delinquency on insured mortgage loans are received. Reserves for the associated LAE consist of the estimated cost of the claims administration process, including legal and other fees as well as other general expenses of administering the claims settlement process. We also estimate and establish reserves for delinquencies that have occurred but have not yet been reported to us (“IBNR reserves”), including for the associated LAE. We establish reserves using estimated claim rates and claim amounts. Because our reserving method does not account for the impact of future losses that could occur from loans that are not yet delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our consolidated GAAP financial statements, except in the case where a premium deficiency exists. As a result, future losses on loans that are not currently delinquent may have a material adverse effect on future results as delinquencies occur.

Because reserve estimates are subject to uncertainties and are based on assumptions that may be volatile, ultimate losses may be substantially different than our loss reserves.

We establish our reserves using estimated claim rates and claim amounts in estimating the ultimate loss on delinquent loans. The estimated claim rates and claim amounts represent our best estimates of what we will actually pay on the delinquent loans as of the reserve date. We rescind coverage on loans or deny claims in cases where we believe our policy allows us to do so.

The establishment of reserves is subject to inherent uncertainty and requires judgment by management. Our estimates of claim rates and claim sizes are based primarily upon historical data. We also consider to a limited extent prevailing economic conditions, such as current rates or trends in unemployment, housing price appreciation and/or interest rates, and our best judgments as to the future values or trends of these macroeconomic factors. If prevailing economic conditions deteriorate suddenly and/or unexpectedly, our estimates of reserves could be materially understated, which may adversely affect our financial condition and results of operations. Changes to our estimates could result in a material adverse effect on our results of operations, even in a stable economic environment, and there can be no assurance that actual claims paid by us will not be substantially different than our reserves.

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If servicers fail to adhere to appropriate servicing standards or experience disruptions to their businesses, our losses could increase.

We depend on reliable, consistent third-party servicing of the loans that we insure. Among other things, our mortgage insurance policies require our policyholders and their servicers to timely submit premium and monthly IIF and delinquency reports and to use commercially reasonable efforts to limit and mitigate loss when a loan is delinquent. If one or more servicers were to experience adverse effects to its business, such servicers could experience delays in their reporting and premium payment requirements. Without reliable, consistent third-party servicing, our insurance subsidiaries may be unable to correctly record new loans as they are underwritten, receive and process payments on insured loans and/or properly recognize and establish reserves on loans when a delinquency exists or occurs but is not reported to us. In addition, if these servicers fail to limit and mitigate losses when appropriate, our losses may unexpectedly increase. Significant failures by large servicers or other disruptions in the servicing of mortgage loans covered by our insurance policies may have a material adverse effect on our business, financial condition and results of operations.

In recent years, mortgage loan servicers have increasingly consolidated as the mortgage lending and mortgage loan servicing industries come under increasing regulation and scrutiny. The reduction in the number of servicers could lead to disruptions in the servicing of mortgage loans covered by our insurance policies, which in turn may contribute to a rise in delinquencies and could have a material adverse effect on our business, financial condition and results of operations. High delinquency rates could also strain the resources of servicers, reducing their ability to undertake mitigation efforts that would help limit losses.

Furthermore, we have delegated to the GSEs, who have in turn delegated to most of their servicers, the authority to accept modifications, short sales and deeds-in-lieu of foreclosure on loans we insure. Servicers are required to operate under protocols established by the GSEs in accepting these loss management alternatives. We are dependent upon servicers in making these decisions and mitigating our exposure to losses. In some cases, loss management decisions favorable to the GSEs may not be favorable to us, and may increase the incidence of paid claims. Inappropriate delegation protocols or failure of servicers to service in accordance with the protocols may increase the magnitude of our losses and have an adverse effect on our business, financial condition and results of operations. Our delegation of loss management decisions to the GSEs is subject to cancellation, but exercise of our cancellation rights may have an adverse effect on our relationship with the GSEs and lenders.

Our delegated underwriting program may subject our mortgage insurance business to unanticipated claims.

In our mortgage insurance business, we enter into agreements with our customers that commit us to insure loans made by them using pre-established underwriting guidelines. Once we accept a customer into our delegated underwriting program, we generally insure a loan originated by that customer without reconfirming the customer followed our specified underwriting guidelines. Under this program, a customer could commit us to insure a material number of loans with unacceptable risk profiles before we discover the problem and terminate that customer’s delegated underwriting authority. Although coverage on such loans may be rescindable under the terms of our master policy, the burden of establishing the right to rescind or deny coverage lies with the insurer, and may therefore be legally unavailable in some instances.

We face risks associated with our loan evaluation and contract underwriting businesses.

We provide loan evaluation services to an affiliate of AIG on whole loan investment opportunities. We also provide contract underwriting services, where we perform the underwriting of a mortgage on behalf of the originator based on prescribed guidelines, for certain of our customers, including on loans for which we are not providing mortgage insurance. For substantially all of the existing loans that were underwritten through our loan evaluation and contract underwriting services, we have agreed that if we make a material error in providing these services and the error leads to a loss for the customer, the customer may, subject to certain conditions and limitations, claim a remedy. We also face regulatory and litigation risk in providing these services.

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We are subject to regulation in various jurisdictions, and material changes in regulation or enforcement could adversely affect us.

Our insurance and reinsurance subsidiaries are subject to government regulation in each of the jurisdictions in which they are licensed or authorized to do business. State insurance laws generally grant broad supervisory powers to agencies or officials to examine insurance companies, enforce rules and exercise discretion affecting almost every significant aspect of the insurance business, including trade and claims practices, accounting methods, premium rates, marketing practices, advertising, policy forms and capital adequacy. These agencies are concerned primarily with the protection of policyholders rather than shareholders. Moreover, insurance laws and regulations, among other things:

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establish solvency requirements, including minimum reserves and capital and surplus requirements;

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object to pricing practices that differentiate among customers or do not follow explicit posted rates, including regulation of the use of “big data;”

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determine whether a single insurance subsidiary may use both Performance Premium and rate cards in the same state;

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limit the amount of dividends, tax distributions, intercompany loans and other payments our insurance subsidiaries can make without prior regulatory approval; and

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impose restrictions on the amount and type of investments we may hold.

The National Association of Insurance Commissioners (the “NAIC”) examines existing state insurance laws and regulations in the United States. During 2012, the NAIC established a Mortgage Guaranty Insurance Working Group (the “MGIWG”), to determine and make recommendations to the NAIC’s Financial Condition Committee regarding what, if any, changes are deemed necessary to the solvency regulation of mortgage guaranty insurers. On June 24, 2013, the MGIWG approved submission of a request to the NAIC’s Executive Committee to revise the Mortgage Guaranty Insurance Model Act (the “Model Act”), and the MGIWG has issued several proposed draft revisions during 2014 and 2015, which include more stringent capital requirements than those under the current Model Act. If the NAIC were to adopt a revised Model Act, it may result in state legislatures enacting and implementing the revised provisions. At this time we cannot predict the outcome of this process, the effect these changes, if any, will have on the mortgage guaranty insurance market generally, or on our businesses specifically, the additional costs associated with compliance with any such changes, or any changes to our operations that may be necessary to comply, any of which could have a material adverse effect on our business, cash flows, financial condition and results of operations. We also cannot predict whether other regulatory initiatives will be adopted or what impact, if any, such initiatives, if adopted as laws, may have on our business, financial condition and results of operations.

We have been involved in legal proceedings, are subject to the risk of additional legal proceedings in the future and, as a participant in the mortgage insurance industry, are subject to litigation and regulatory risk generally.

Although we are not currently subject to any material regulatory investigation or material private litigation, mortgage insurance is a highly regulated industry and our operations are, and likely will continue to be, subject to substantial federal and state regulation from a variety of sources, resulting in significant litigation and regulatory risk. Increased federal or state regulatory scrutiny could lead to new legal precedents, new regulations or new practices, or regulatory actions or investigations, each of which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to comprehensive, detailed regulation by state insurance departments that may lead to liabilities or other negative effects on our business. These regulations cover nearly all aspects of our business, including rates, products and financial requirements. They are principally designed for the protection of our insured policyholders and consumers, rather than for the benefit of investors. Although the scope varies, state

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insurance laws generally grant broad supervisory powers to agencies or officials, allowing them to examine insurance companies in detail and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business. In addition, a handful of states, including New York and California, may apply their mortgage insurance regulations extraterritorially, so these state-level requirements may be applicable to our operations nationwide. State insurance regulatory authorities could take additional actions, including changes in capital requirements, which could also have a material adverse effect on us.

We are subject to litigation and regulatory risk from federal authorities as well as from state authorities. The Consumer Financial Protection Bureau (“CFPB”) has been extremely active in regulating the mortgage industry, and has brought enforcement actions against dozens of industry participants. While the CFPB does not have jurisdiction to regulate insurance companies generally, the CFPB promulgates and enforces consumer protection laws, such as rules pertaining to mortgage servicing and debt collection, that can and have affected our business. On several occasions the CFPB has taken positions inconsistent with past regulatory guidance, increasing the uncertainty surrounding their treatment of established business practices and increasing the risk of litigation for industry participants. The mortgage insurance industry, including us, has been subject to enforcement actions by the CFPB alleging violations of Section 8 of the Real Estate Settlement Procedures Act of 1974 (“RESPA”). Section 8 of RESPA generally precludes mortgage insurers from paying referral fees to mortgage lenders for the referral of mortgage insurance business. This limitation may also prohibit, in exchange for the referral of mortgage insurance business services, providing services or products to mortgage lenders free of charge, charging fees for services that are lower than their reasonable or fair market value and paying fees for services provided by mortgage lenders that are higher than their reasonable or fair market value.

We are also subject to civil litigation arising out of the normal course of our business. We have been involved in litigation with insured parties who dispute our ability to deny, rescind or curtail coverage under the master policy. We regularly engage in discussions with insured parties and our servicers over disputed claim decisions, and enter into settlement agreements relating to such disputes. In the event that settlement cannot be reached, litigation can and has arisen relating to disputed claims practices. Additionally, we are subject to consumer litigation arising out of our loss management and recoveries activities, including litigation under the Fair Debt Collection Practices Act (“FDCPA”) and similar statutes. In order to mitigate losses relating to claims, we sometimes pursue mortgage debtors for deficiency judgments after foreclosure. These activities carry the risk of drawing litigation under consumer protection laws, as well as of inviting regulatory scrutiny. We are also subject to other general litigation risks that may arise as a result of our operations.

Our success depends, in part, on our ability to manage risks in our investment portfolio.

Our investment portfolio consists primarily of investment-grade debt obligations. Our investments are subject to fluctuations in value as a result of broad changes in market conditions as well as risks inherent in particular securities. Changing market conditions could materially impact the future valuation of securities in our investment portfolio, which may cause us to impair, in the future, some portion of the value of those securities and which could have a significant adverse effect on our liquidity, financial condition and results of operations.

Income from our investment portfolio is a source of cash to support our operations and make claims payments. If we, or our investment advisors, improperly structure our investments to meet those future liabilities or we have unexpected losses, including losses resulting from the forced liquidation of investments before their maturity, we may be unable to meet those obligations. Our investments and investment policies are subject to state insurance laws, which results in our portfolio being predominantly limited to highly rated fixed income securities. If interest rates rise, the market value of our investment portfolio would decrease, which may adversely affect our financial condition and results of operations.

In addition, compared to historical averages, interest rates and investment yields on highly rated investments have generally been low during the period in which we purchased the securities in our portfolio, which limits the investment income we can generate. We depend on our investments as a source of revenue, and a prolonged period of low investment yields would have an adverse effect on our financial condition and results of operations.

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A significant portion proportion of our fixed income securities portfolio consists of municipal securities which carry certain tax advantages. If the tax treatment of such securities is altered in the future, the value to us of such securities could be adversely affected.

We have relied on an affiliate of AIG to manage our investment portfolio. After our separation from AIG we may choose to engage a third-party investment manager and may not be able to receive as favorable terms as we did from the affiliate of AIG. See “—Risks Related to Our Separation from, and Continuing Relationship with, AIG” and “Relationships and Related Party Transactions—Relationship with AIG—Investment Management.”

We may be forced to change our investments or investment policies depending upon regulatory, economic and market conditions, and our existing or anticipated financial condition and operating requirements, including the tax position, of our business. Our investment objectives may not be achieved. Although our portfolio consists predominately of investment-grade fixed income securities and complies with applicable regulatory requirements, the success of our investment activity and the value of our portfolio is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets and the level and volatility of interest rates.

Our information technology systems may become outmoded, be temporarily interrupted, or fail, causing us to fail to meet our customers’ demands. Large information technology projects that we are currently implementing may not be delivered correctly, on time or on budget or may not be correctly focused, and could have a material adverse effect on our business and results of operations.

Our business is highly dependent on the effective operation of our information technology systems, which we use to store, retrieve, evaluate and apply borrower, customer, employee, and company data and information. Some of these systems rely in turn on third-party systems. These systems are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attacks, security breaches, catastrophic events and errors in usage. Although we have disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion. Additionally, we may not satisfy our customers’ requirements if we fail to invest sufficient resources in, or otherwise are unable to maintain and upgrade our information technology systems. We rely on our information technology systems for many critical functions, including providing insurance quotes, processing premium payments, making changes to existing policies, filing and paying claims, providing customer support, operating our pricing and risk management models and conducting research. If such systems were to fail or become outmoded, it could compromise our ability to perform these functions in a timely manner or we may experience a significant disruption in our operations and in the business we receive, which could harm our ability to conduct business, hurt our relationships with our business partners and customers and negatively affect our business, financial condition and results of operations. In the event of a natural disaster, a computer virus, unauthorized access, a terrorist attack or other disruption inside or outside the United States, our systems may be inaccessible to our employees, customers or business partners for an extended period of time, and our employees may be unable to perform their duties for an extended period of time if our data or systems are disabled or destroyed.

In addition to general information technology systems risks, we are exposed to risks related to our implementation of a number of information technology projects and upgrades, which may adversely affect our results of operations and reputation with our customers if not delivered correctly, on time or on budget. The implementation of these technological improvements is complex, expensive and time-consuming. Information technology projects could have unforeseen impacts or errors. In addition, as technology rapidly changes, if we do not focus on the right information technology projects, our competitive position may be adversely impacted. Our distribution channels are becoming increasingly dependent upon technological advancement, such as our ability to provide efficient turnaround times, process information via mobile devices, accept electronic signatures, provide instant process status updates and other conveniences expected by our customers. Maintaining and improving this technology may require significant capital expenditures. If we fail to timely and successfully

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implement new technology systems, to improve or maintain our technology, or if the systems do not operate as expected, it could adversely affect our business, financial condition and results of operations.

The security of our information technology systems could be compromised and confidential information that we maintain, including nonpublic personal information, could be improperly disclosed. Any failure to protect the confidentiality of borrower or customer information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.

Our systems may in the future be subject to unauthorized access, such as physical or electronic break-ins or unauthorized tampering. Like other companies, we have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks, unauthorized access, systems failures and disruptions. There is no assurance that our security measures will prove fully effective against such future events. In some cases, such unauthorized accesses or failures may not be immediately detected. This may impede or interrupt our business operations and could adversely affect our business, financial condition and results of operations.

In addition, we routinely transmit, receive and store personal, confidential and proprietary information, including nonpublic personal information of mortgage borrowers, by email and other electronic means. Although we attempt to keep such information confidential and secure, we may be unable to do so in all events, especially with employees who may not follow the controls we have implemented and clients, vendors, service providers, counterparties and other third parties who may not have or use appropriate controls to protect personal, confidential or proprietary information, including in the event that information is improperly handled. Furthermore, certain of our businesses are subject to compliance with laws and regulations enacted by U.S. federal and state governments or other jurisdictions, or by various regulatory organizations or exchanges relating to the privacy and security of the information of clients, employees or others. Our customers are sensitive to cyber-attacks, and any compromise of personal, confidential or proprietary information could result in remediation costs, legal liability, regulatory action or reputational harm, and our businesses and relationships with customers are dependent upon our ability to maintain the confidentiality of our and our customers’ confidential information (including customer transactional data and personal data about our employees, our customers and the employees and customers of our customers). There can be no assurance that our information security policies and systems in place can prevent unauthorized use or disclosure of confidential information, including nonpublic personal information. Any failure to protect the confidentiality of borrower or customer information could adversely affect our reputation and have a material adverse effect on our business, financial condition and results of operations.

Pursuant to federal laws, various federal regulatory and law enforcement agencies have established rules protecting the privacy and security of personal information. In addition, most states have enacted laws, which vary significantly from jurisdiction to jurisdiction, to safeguard the privacy and security of personal information. Certain of our employees and contractors have access to and routinely process personal information of borrowers through a variety of media, including the internet and software applications. We rely on various internal processes and controls to protect the confidentiality of borrower information that is accessible to, or in the possession of, us, our employees, contractors and sales personnel. However, it remains possible that an employee, contractor or sales personnel could, intentionally or unintentionally, disclose or misappropriate confidential borrower information. If we fail to maintain adequate internal controls, or if our employees or contractors fail to comply with our policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of borrower information could occur. Any noncompliance or internal control inadequacies could materially damage our reputation, result in regulatory action or lead to civil or criminal penalties, and may have a material adverse effect on our business, financial condition and results of operations.

Our success will depend on our ability to maintain effective operating procedures and internal controls.

Operational risk and losses can result from, among other things, fraud, errors, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements,

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information technology failures and failure to appropriately transition new hires or external events. We continue to enhance our operating procedures and internal controls to effectively support our business and our regulatory and reporting requirements. Our management does not expect that our disclosure controls or our internal controls will prevent all potential errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met. Any ineffectiveness in our controls or procedures could have a material adverse effect on our business.

We have a risk management framework designed to assess and monitor our risks. However, there can be no assurance that we can effectively review and monitor all risks or that all of our employees will operate within our risk management framework, nor can there can be any assurance that our risk management framework will result in accurately identifying all risks and accurately limiting our exposures based on our assessments. Risk management is an important focus of regulatory examinations of companies under supervision. There can be no assurance that our risk management framework and documentation will meet the expectations of such regulators.

We may not be able to protect our intellectual property and may be subject to infringement claims.

We rely on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect our intellectual property, including our proprietary models such as RQI and Performance Premium. Although we endeavor to protect our rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability. This would represent a diversion of resources that may be significant and our efforts may not prove successful. The inability to secure or protect our intellectual property assets could have a material adverse effect on our business and our ability to compete.

Risks Related to Our Separation from, and Continuing Relationship with, AIG

Our separation from AIG may adversely affect our financial performance and operational capabilities.

Prior to the completion of this offering, our business has been a wholly-owned subsidiary of AIG since 1981. We believe the association with AIG, due to its strong capital base and financial strength, has been a contributing factor in some customers’ choosing to do business with us. If our customers believe that our separation from AIG negatively impacts our financial strength, the amount of insurance we are able to write may decline, which may have a material adverse effect on our financial performance and results of operations.

AIG currently performs or supports many important corporate functions for our operations, including investment management, tax, human resources, corporate insurance, and other services. Replicating or replacing these functions may adversely affect our operational capabilities. See “—Our access to the services provided by AIG will be of limited duration, and we may experience challenges in our business as we seek to perform these services with our own personnel.”

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AIG will continue to have significant control over us following the completion of this offering, and our continuing relationship with AIG and its affiliates may affect our ability to operate our business as we deem appropriate.

Following this offering, AIG will continue to own a substantial majority of our common stock and we will be a consolidated subsidiary of AIG for purposes of its financial reporting. As a result, AIG will have significant control over us. Going forward, AIG’s degree of control will depend on, among other things, its level of ownership of our common stock and its ability to exercise certain rights under the terms of the shareholder agreement that we intend to enter into with AIG in connection with this offering. The risks relating to our separation from AIG could materialize or evolve at any time as AIG’s ownership declines.

Under the shareholder agreement, AIG will be entitled to designate nominees for election to our board of directors (the number of which will depend on its level of ownership) and make certain appointments to committees of our board. For so long as AIG controls more than 50% of our outstanding common stock, it will be able to determine the outcome of all matters requiring approval of shareholders, cause or prevent a change of control of our company and preclude all unsolicited acquisitions of our company, including transactions that may be in the best interests of our shareholders. Until the date that AIG is no longer deemed to control us for purposes of regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), we will be required to obtain AIG’s prior written approval before undertaking (or permitting or authorizing any of our subsidiaries to undertake) various significant corporate actions (subject to certain exceptions) and entering into certain other significant transactions.

In addition, under the shareholder agreement, AIG will have access to our internal information in the same manner and to the same extent as we provided immediately prior to this offering. Because AIG’s interests may differ from those of other shareholders, actions that AIG takes or omits to take with respect to us (including those corporate or business actions requiring its prior written approval), for as long as it is our controlling shareholder, may not be as favorable to other shareholders as they are to AIG.

In connection with this offering, we intend to enter into a registration rights agreement with AIG, which will give AIG a right, subject to certain conditions, to require us to register the sale of our common stock beneficially owned by AIG after this offering. See “—Risks Related to This Offering and Ownership of Our Common Stock—Future sales of shares by existing shareholders could cause our share price to decline.”

We cannot accurately predict whether any of the terms of the shareholder agreement will have a negative effect on our businesses.

Conflicts of interest and other disputes may arise between AIG and us that may be resolved in a manner unfavorable to us and our other shareholders.

Conflicts of interest and other disputes may arise between AIG and us in connection with our past and ongoing relationships, and any future relationships we may establish.

All of our directors immediately following the offering will have been designated to our board of directors by AIG. Certain of these directors may also be officers or employees of AIG. Because of their current or former positions with AIG, these directors, as well as a number of our officers, own substantial amounts of AIG common stock and options to purchase AIG common stock. Ownership interests of our directors or officers in AIG common stock, or service of certain of our directors as officers of AIG, may create, or may create the appearance of, conflicts of interest when such director or officer is faced with a decision that could have different implications for the two companies. For example, potential conflicts could arise regarding the desirability of acquisition opportunities, business plans, employee retention or recruiting, capital management or our dividend policy.

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In addition, in connection with this offering, we and AIG intend to enter into certain agreements that will provide a framework for our ongoing relationship, including a shareholder agreement, services agreements, a registration rights agreement and one or more tax sharing and separation agreements. Disagreements regarding the rights and obligations of AIG or us under each of these agreements or any renegotiation of their terms could create conflicts of interest for certain of these directors and officers, as well as actual disputes that may be resolved in a manner unfavorable to us and our other shareholders. Interruptions to or problems with services provided under a services agreement could result in conflicts between us and AIG that increase our costs both for the processing of business and the potential remediation of disputes. Although we believe these agreements will contain commercially reasonable terms, the terms of these agreements may later prove not to be in the best interests of our future shareholders or may contain terms less favorable than those we could obtain from third parties. In addition, certain of our officers negotiating these agreements may appear to have conflicts of interest as a result of their ownership of AIG common stock and holdings of AIG equity awards. The foregoing factors may become more acute if AIG’s period of ownership is extended and applicable agreements need to be extended or renegotiated, accordingly.

Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of AIG, any of its affiliates or any of our directors who have served or may serve as directors, officers, employees or agents of AIG will have any duty to refrain from (1) engaging in a corporate opportunity in the same or similar lines of business in which we or our affiliates now engage or propose to engage or (2) otherwise competing with us or our affiliates. As a result of these charter provisions, our future competitive position and growth potential could be adversely affected. See “Description of Capital Stock” and “—Risks Related to This Offering and Ownership of Our Common Stock—Our amended and restated certificate of incorporation limits the obligations of AIG or any of its affiliates and certain of our directors to refer potential business opportunities to us.”

Our access to the services provided by AIG will be of limited duration, and we may experience challenges in our business as we seek to perform these services with our own personnel.

AIG currently performs or supports many important corporate functions for our operation, including investment management, tax, human resources, corporate insurance and other services. Prior to the completion of this offering we intend to enter into a services agreement with AIG that provides us continued access to certain of these services. We do not intend to enter into arrangements with AIG concerning other services necessary in connection with our transition to operation as a public company, such as external financial reporting, external communications or investor relations services. If services are terminated by AIG before we have arranged replacement services, or if we find it difficult to replace these services with services by our existing or newly recruited personnel, we may experience operational problems and diversion of management attention and incur additional costs. We may not be able to replace these services on terms as favorable as those we received as a subsidiary of AIG. Furthermore, after our separation from AIG we may choose to engage a third-party investment manager and may not be able to receive as favorable terms as we did from the affiliate of AIG. These operational risks could have a material adverse effect on our business, financial condition and results of operations. For additional discussion of the services, see “Relationships and Related Party Transactions—Relationship with AIG—Services Agreements.”

The terms of our existing arrangements between AIG and third parties under which we receive services as an affiliate of AIG may be more favorable than we will be able to obtain from a third party on our own.

As a subsidiary of AIG, we have benefited, and after this offering will continue to benefit, from certain master agreements between AIG and various third-party vendors. There is no assurance that, once we are no longer entitled to benefit from these agreements, we will be able to obtain these services at the same levels or obtain the same benefits through new, independent relationships with third-party vendors. Likewise, we may not be able to replace these services and arrangements in a timely manner or on terms and conditions, including cost, as favorable as those we have previously received as a subsidiary of AIG.

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We will elect to be treated as a “controlled company” following this offering, within the meaning of the rules of the NYSE and, as a result, will be exempt from certain corporate governance requirements.

Upon the completion of this offering, AIG will beneficially own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full). For as long as AIG continues to beneficially own more than 50% of our outstanding common stock, AIG generally will be able to determine the outcome of many corporate actions requiring shareholder approval, including the election of directors and the amendment of our certificate of incorporation and bylaws. We will elect to be treated as a “controlled company” for purposes of the NYSE corporate governance rules, and accordingly, for as long as AIG owns more than 50% of our outstanding common stock, we will not be subject to the requirement that a majority of our directors be “independent” as defined under such rules, or that we have a compensation committee and a nominating and governance committee that meet the director independence requirements of such rules. As a result, you will not have certain of the protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements. In addition, under the provisions of a shareholder agreement that we intend to enter into with AIG prior to or concurrently with the completion of this offering, AIG will have consent rights with respect to certain corporate and business activities that we may undertake, including during periods where AIG holds less than a majority of our common stock. See “Relationships and Related Party Transactions—Relationship with AIG—Shareholder Agreement.”

The historical consolidated financial data included in this prospectus is not necessarily representative of the results we would have achieved as a standalone company and may not be a reliable indicator of our future results.

The historical consolidated financial data included in this prospectus is for UGCNC and its subsidiaries. UGCNC is our predecessor for financial reporting purposes. Prior to the completion of this offering, UGCNC has been a wholly-owned subsidiary of AIG since 1981. This historical consolidated financial data does not necessarily reflect the financial condition, results of operations or cash flows we would have achieved as a standalone company during the periods presented, or those we will achieve in the future. Significant increases may occur in our cost structure as a result of this offering, including costs related to public company reporting and investor relations. As a result of these matters, among others, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

If AIG were to distribute the portion of our common stock it will retain after this offering in a transaction that would be intended to be tax-free for U.S. federal income tax purposes, and if there were a subsequent determination that such distribution or certain preliminary transactions were in fact taxable for U.S. federal income tax purposes, then AIG and its shareholders could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities. As a result, we may not be able to engage in desirable strategic or capital-raising transactions following the separation without potentially becoming liable for adverse tax consequences resulting therefrom.

After this offering, AIG will have retained an amount of our common stock that could permit AIG, should it so choose, to structure its subsequent disposition of our common stock as a transaction intended to be tax-free for U.S. federal income tax purposes, in the form of a split-off and/or any pro rata spin-off. In such case, AIG would seek to obtain the opinion of tax counsel that certain preliminary transactions and such a split-off and/or pro rata spin-off qualified and would qualify as tax-free for U.S. federal income tax purposes under Section 351 and/or Section 368 and Section 355 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Such opinion would be based upon various factual representations and assumptions, as well as certain undertakings made by AIG and us (including those relating to past and future conduct). If any of those factual representations or assumptions were to be untrue or incomplete in any material respect, any undertaking were not to be complied with, or the facts upon which the tax opinion were to be based were to be materially different from the facts at the time of any split-off and/or pro rata spin-off, such transactions may not qualify for tax-free treatment. Opinions of counsel are not binding on the Internal Revenue Service (the “IRS”). As a result, the conclusions

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expressed in the opinion of tax counsel would be subject to challenge by the IRS, and if the IRS were to prevail in such challenge, the tax consequences of any such preliminary transactions and any such split-off and/or pro rata spin-off could be materially less favorable. If any split-off and/or any pro rata spin-off (or any of the preliminary transactions) were determined to be taxable, AIG and its shareholders could incur significant tax liabilities, and under the tax sharing and separation agreements that we (and our subsidiaries) intend to enter into with AIG, we (and our subsidiaries) may be required to indemnify AIG for any liabilities incurred by AIG under certain circumstances.

To preserve the tax-free treatment of any split-off and/or any pro rata spin-off (and any of the preliminary transactions), until the lapse of the two-year period following any split-off and/or pro rata spin-off, we would be prohibited, except in specific circumstances, from: (1) entering into any transaction pursuant to which all or a portion of our shares would be acquired, whether by merger or otherwise, (2) issuing equity securities beyond certain thresholds and except in certain circumscribed manners, (3) repurchasing shares of our common stock except in certain circumscribed manners, (4) ceasing to actively conduct certain of our businesses or (5) taking or failing to take any other action that prevents any split-off and/or any pro rata spin-off (and the preliminary transactions) from being tax-free.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. For more information, please refer to “Relationships and Related Party Transactions—Relationship with AIG—Tax Sharing Agreements.”

We may not realize the full benefit of the unearned premium reserve that is recorded as a deferred tax asset on the notes to our balance sheet, and we will not realize the benefit of net operating loss carryforwards that are described in the notes to our balance sheet.

The notes to our balance sheet record as a deferred tax asset an unearned premium reserve that has been established because AIG has, in its consolidated return, reported the taxable income of UGCNC and its subsidiaries based on the so-called “accelerated method,” notwithstanding that, under the tax sharing agreements in place immediately prior to this offering between AIG on the one hand and each of UGCNC and certain of its subsidiaries on the other hand, the separate company taxable income of such entities was, among other things, calculated as if the relevant entity reported gross premiums written in accordance with the so-called “annual method” as provided for in Treasury Regulation section 1.832-4(a)(5)(v). In connection with this offering, we (and our subsidiaries) will enter into one or more tax sharing and separation agreements with AIG which will entitle AIG to determine in its sole discretion whether it is advisable to make an election to change the method for reporting gross premiums written from the “accelerated method” to the “annual method” which could result in significant deductions attributable to the unearned premium reserve. Under such tax sharing and separation agreements, (1) the benefit of such deductions will be solely for the account of AIG, (2) AIG will not pay us or our subsidiaries for the use of such deductions or take such deductions into account in determining the separate company taxable income of us and our subsidiaries and (3) if we or our subsidiaries realize the benefit of such deductions at a time when we and our subsidiaries are no longer part of AIG’s consolidated tax return, we will have to reimburse AIG for such benefit.

In addition, the notes to our balance sheet state that AIG has reimbursed UGCNC and its subsidiaries for certain net operating loss carryforwards, although certain such tax attributes have not been used by AIG on a consolidated basis to date. Under the tax sharing and separation agreements described in the previous paragraph, (1) the benefit of such carryforwards will be solely for the account of AIG, (2) AIG will not pay us or our subsidiaries for the use of such carryforwards or take such carryforwards into account in determining the separate company taxable income of us and our subsidiaries and (3) if we or our subsidiaries realize the benefit of such carryforwards at a time when we and our subsidiaries are no longer part of AIG’s consolidated tax return, we will have to reimburse AIG for such benefit.

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Following this offering, AIG may not complete the divestiture of our common stock that it owns as planned or at all.

On January 26, 2016, AIG announced its plan to sell up to 19.9% of our common stock in this offering, subject to regulatory and GSE approval, as a first step towards a full separation. This offering is the first step in AIG’s separation from our business. After the completion of this offering, AIG will beneficially own % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full). The timing of any subsequent sales by AIG of shares of our common stock is unknown at this time and will be subject to market conditions and the lock-up agreement entered into by AIG and the underwriters in connection with this offering.

Although AIG stated that this offering is the first step towards a full separation, a full separation ultimately may not occur. Any delay by AIG in completing, or uncertainty about its ability or intention to complete, the divestiture of our common stock that it owns, could have a material adverse effect on our company and the market price of our common stock.

For as long as AIG is subject to Federal Reserve supervision and the Federal Reserve deems that AIG controls us, we will remain subject to certain regulations applicable to controlled subsidiaries of systemically important financial institutions (“SIFIs”).

The Financial Stability Oversight Council (“FSOC”) determined in 2013 that AIG should be regulated by the Federal Reserve as a nonbank SIFI pursuant to Section 113 of the Dodd-Frank Act. The FSOC reviews its determination annually; however, the FSOC’s 2014 and 2015 annual reevaluations did not result in a change to AIG’s nonbank SIFI status. As a nonbank SIFI, AIG is subject to the Federal Reserve’s examination, supervision and enforcement authority and certain reporting requirements. The Federal Reserve has focused its general supervisory authority over AIG in several areas, including financial and control-related reporting, oversight of AIG’s capital planning, capital analysis and review process, model governance and validation, operational risk management, recovery planning and resolution planning. If AIG does not satisfy certain requirements, the Federal Reserve has the authority, as part of its general prudential supervisory powers, to limit AIG’s ability to conduct certain activities that would otherwise be permissible. AIG is currently required to provide to the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”), on an annual basis (or more frequently, if required), and to respond to regulatory inquiries concerning, a plan for rapid and orderly resolution in the event of its material financial distress or failure, which must, among other things, provide a detailed resolution strategy and analyses of its material entities, organizational structure, interconnections and interdependencies, and management information systems.

Under the Federal Reserve’s interpretations of the Bank Holding Company Act of 1956 and the regulations promulgated thereunder applicable to bank holding companies (the “BHC Act”), we believe that we would be deemed a “controlled” subsidiary of AIG unless AIG greatly reduces its ownership of our voting securities (possibly to as low as 5% of our voting securities) or otherwise receives confirmation from the Federal Reserve that AIG no longer controls us. As a controlled subsidiary of AIG, we may be subject to the Federal Reserve’s examination, supervision and enforcement authority, and we may be required to provide information and reports to AIG for use by or submission to the Federal Reserve, or, with respect to resolution planning, to the FDIC.

Although AIG is not a bank holding company, it may become subject in the future to regulations similar to those applicable to bank holding companies, including enhanced prudential standards and capital standards. We cannot predict what additional rules and regulations AIG may become subject to as part of the Federal Reserve’s examination, supervision and enforcement authority, nor can we predict what additional rules and regulations we may become subject to as a subsidiary of AIG or what impact such additional rules or regulations could have on our business.

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restrictions will continue for so long as AIG is deemed to control us for purposes of Federal Reserve regulation (which may be at a lower ownership threshold than that at which such rights would be expected to fall away in a similar transaction with a non-regulated parent company). See “Relationships and Related Party Transactions—Relationship with AIG—Shareholder Agreement.”

Risks Related to This Offering and Ownership of Our Common Stock

There has been no prior public market for our common stock and an active public market may never develop, which could cause our common stock to trade at a discount and make it difficult for holders of our common stock to sell their shares.

Prior to this offering, there has been no established trading market for our common stock, and there can be no assurance that an active trading market for our common stock will develop, or if one develops, be maintained. If an active public market for our common stock does not develop, or is not maintained, it may be difficult for you to sell our common stock at a price that is attractive to you or at all. AIG will negotiate the initial public offering price per share with the representatives of the underwriters and therefore that price may not be indicative of the market price of our common stock after this offering. Accordingly, no assurance can be given as to the ability of our shareholders to sell their common stock or the price that our shareholders may obtain for their common stock. The market price for our common stock may fall below the initial public offering price. In addition, the market price of our common stock may fluctuate significantly. Some of the factors that could negatively affect the market price of our common stock include:

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actual or anticipated variations in our quarterly operating results;

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changes in our earnings estimates or publication of research reports about us or the real estate industry;

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changes in market valuations of similar companies;

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any indebtedness we incur in the future;

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changes in credit markets and interest rates;

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changes in government policies, laws and regulations;

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changes impacting the GSEs, the FHA and Ginnie Mae;

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additions to or departures of our key management;

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actions by shareholders;

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delay in, or uncertainty about AIG’s ability or intention to complete, our full separation from AIG;

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speculation in the press or investment community;

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strategic actions by us or our competitors;

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changes in our financial strength ratings;

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general market and economic conditions;

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our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; and

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price and volume fluctuations in the stock market generally.

The stock markets have experienced volatility and price and volume fluctuations in recent years that have been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In particular, the market prices of securities of insurance and financial services companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. These market fluctuations could result in excess volatility in the price of shares of our common stock, which could cause a decline in the value of your investment. You should also be aware that price volatility may be greater if the public float and trading volume of shares of our common stock are low.

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Future sales of shares by existing shareholders could cause our share price to decline.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, may cause the market price of our common stock to decline. Upon completion of this offering, we will have outstanding common stock and AIG will beneficially own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full). All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act of 1933, as amended (the “Securities Act”), unless held by “affiliates,” as that term is defined in Rule 144 under the Securities Act. Of the remaining shares of common stock, shares will be “restricted securities” within the meaning of Rule 144 under the Securities Act, but will be eligible for resale subject to applicable volume, means of sale, holding period and other limitations of Rule 144 or pursuant to an exemption from registration under the Securities Act, subject to any restrictions on unvested shares issued under our share incentive plans and subject to the terms of the lock-up agreements described below. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, the representatives of the underwriters, may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements entered into in connection with this offering. See “Underwriting.”

AIG and our executive officers and directors have agreed to a “lock-up,” meaning that, subject to certain exceptions, neither we nor they will sell any shares without the prior consent of the representatives of the underwriters for 180 days after the date of this prospectus. Following the expiration of this 180-day lock-up period, shares of common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 and subject to any restrictions on unvested shares issued under our share incentive plans. See “Shares Eligible for Future Sale.” Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144. As resale restrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. In addition, AIG, which holds approximately shares, or % of our outstanding common stock following the offering (approximately % if the underwriters’ option to purchase additional shares is exercised in full), will have registration rights, subject to certain conditions, to require us to file registration statements covering the sale of its shares or to include its shares in registration statements that we may file for ourselves or other shareholders in the future, although we will be restricted from filing such registration statements during the 180-day lock-up period. Once we register the shares for AIG, they will be freely tradable in the public market upon resale by AIG.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into or exchangeable for our common stock. Any of these issuances could result in substantial dilution to our existing shareholders and could cause the trading price of our common stock to decline.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of us by securities or industry analysts, the trading price for our common stock could be negatively affected. In the event we obtain securities or industry analyst coverage or if one or more of these analysts downgrades our shares or publishes misleading or unfavorable research about our business, our share price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our share price or trading volume to decline.

We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to retain all our future earnings, if any, to fund our growth. Therefore, you are not likely to

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receive any dividends on your common stock for the foreseeable future and the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which our shareholders have purchased their shares. Furthermore, our subsidiaries are restricted by state insurance laws and regulations from declaring dividends to us. See “—As a holding company, we depend on the ability of our subsidiaries to transfer funds to us to meet our obligations. The ability of our insurance subsidiaries to pay dividends and other distributions to us is further limited by state insurance laws.”

Provisions of state corporate and state insurance laws, of PMIERs and of our amended and restated certificate of incorporation and amended and restated bylaws may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.

State laws, PMIERs and provisions of our amended and restated certificate of incorporation and amended and restated bylaws may delay, deter, prevent or render more difficult a takeover attempt that our shareholders might consider in their best interests. For example, such laws or provisions may prevent our shareholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

The insurance laws and regulations of the various states in which our insurance subsidiaries are organized may delay or impede a business combination involving our company. State insurance laws prohibit an entity from acquiring control of an insurance company without the prior approval of the domestic insurance regulator. Under most states’ statutes, an entity is presumed to have control of an insurance company if it owns, directly or indirectly, 10% or more of the voting stock of that insurance company or its parent company. In addition, PMIERs may delay or impede a business combination or change of control involving our company. PMIERs require us to obtain the prior written approval of the GSEs before we permit a material change in, or acquisition of, control or beneficial ownership of our company or make changes to our corporate or legal structure. These restrictions may delay, deter or prevent a potential merger or sale of our company, even if our board of directors decides that it is in the best interests of shareholders for us to merge or be sold. These restrictions also may delay sales by us or acquisitions by third parties of our insurance subsidiaries.

Our amended and restated certificate of incorporation and bylaws will include provisions that may have anti-takeover effects, such as prohibiting shareholders from calling special meetings of our shareholders and, from and after such time as AIG ceases to beneficially own at least 50% of our outstanding common stock, from taking action by written consent. See “Description of Capital Stock—Certain Anti-Takeover Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Applicable Law.”

There are regulatory limitations on the ownership and transfer of our common stock.

The insurance holding company laws and regulations of the State of North Carolina, the state in which our insurance company subsidiaries are domiciled, require that, before a person can acquire direct or indirect control of an insurer domiciled in the state, prior written approval must be obtained from the NCDOI. Such state insurance regulator is required to consider various factors, including the financial strength of the acquirer, the integrity and management experience of the acquirer’s board of directors and executive officers, and the acquirer’s plans for the future operations of the insurer. Pursuant to applicable laws and regulations, “control” over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing, 10% or more of the voting securities of that reinsurer or insurer. Indirect ownership includes ownership of our common stock. See “—Provisions of state corporate and state insurance laws, of PMIERs and of our amended and restated certificate of incorporation and amended and restated bylaws may prevent or delay an acquisition of us, which could decrease the trading price of our common stock.”

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The insurance regulations governing our captive insurance company subsidiary domiciled in Vermont provide that any change of control requires the approval of the insurance commissioner of Vermont. Although our captive insurance company subsidiary is not subject to Vermont’s insurance holding company laws, such domiciliary state insurance regulator may use all or a part of the holding company law framework described above in determining whether to approve a proposed change of control.

The application of various insurance laws in non-U.S. jurisdictions where we have an operating entity also could be a significant deterrent to any person interested in acquiring control of us. In general, these laws provide that no person or entity may directly or indirectly acquire control of an insurance company unless that person or entity has received the prior approval of the applicable insurance regulatory authorities.

As a holding company, we depend on the ability of our subsidiaries to transfer funds to us to meet our obligations. The ability of our insurance subsidiaries to pay dividends and other distributions to us is further limited by state insurance laws.

UGC is the holding company for all our operations, and dividends and returns of capital from our subsidiaries are the principal sources of funds available to UGC to pay corporate operating expenses and other obligations. These subsidiaries are legally distinct from UGC and have no obligation to make funds available to UGC for such payments. The ability of our subsidiaries to pay dividends or other distributions to UGC in the future will depend on their earnings, tax considerations and applicable regulatory restrictions. In addition, such payments may be limited as a result of claims against our subsidiaries by their creditors, including suppliers, vendors, lessors and employees. The ability of our insurance subsidiaries to pay dividends and make other distributions to us will further depend on their ability to meet applicable regulatory standards and receive regulatory approvals, as discussed below. In addition, our insurance subsidiaries are obligated under state insurance regulations to contribute 50% of net earned premiums each year into a statutory contingency reserve, restricting their ability to pay dividends out of surplus.

Under PMIERs, we may not take assets out of our primary operating subsidiaries to pay dividends and make other distributions unless the respective subsidiary has PMIERs available assets in excess of PMIERs minimum required assets. The payment of dividends and other distributions to UGC by our insurance subsidiaries is further regulated by state insurance laws and regulations. The jurisdictions in which our insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends to their respective parents. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. Under the insurance laws applicable to our insurance subsidiaries domiciled in North Carolina and Vermont, an extraordinary dividend or distribution is defined as a dividend or distribution that, together with other dividends and distributions made within the preceding 12 months, exceeds the greater (or, in Vermont, the lesser) of (1) 10% of the insurer’s surplus as regards policyholders as of the preceding December 31 and (2) net income for the 12-month period ending the preceding December 31. See “Dividend Policy” and “Regulation—State Regulation—Dividends” for further discussion of dividend payment and restrictions.

If the ability of our insurance or non-insurance subsidiaries to pay dividends or make other distributions or payments to us is materially restricted by regulatory requirements, other cash needs, bankruptcy or insolvency, or our need to maintain the financial strength ratings of our insurance subsidiaries, or is limited due to operating results or other factors, we may be required to raise cash through the incurrence of debt, the issuance of equity or equity-related securities or the sale of assets. However, there is no assurance that we would be able to raise cash by these means. This could have a material adverse effect on our ability to pay our obligations and the price of our common stock.

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The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business and cause us to incur incremental costs.

Historically, we have not been subject to the same financial, reporting and other corporate governance requirements as public companies. After this offering, we will be required to prepare and file annual, quarterly and other reports with the SEC, including financial statements that comply with the SEC’s detailed reporting requirements. We will also be subject to other reporting and corporate governance requirements under the listing standards of the NYSE and the Sarbanes-Oxley Act of 2002, which will impose significant compliance costs and obligations upon us. The changes necessitated by our becoming a public company will require a significant commitment of additional resources and management oversight, which may increase our operating costs. These changes will also place significant additional demands on our finance and accounting staff, who may not have experience working for a newly public company, and on our financial accounting and information systems. We may in the future hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. We may also incur other expenses associated with being a public company, including, but not limited to, increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees. As a public company, we will be required, among other things, to:

•

prepare and file periodic reports, and distribute other shareholder communications, in compliance with the federal securities laws and the listing requirements and rules of NYSE;

•

define and expand the roles and the duties of our board of directors and its committees;

•

institute more comprehensive compliance, investor relations and internal audit functions; and

•

evaluate and maintain our system of internal controls over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and the Public Company Accounting Oversight Board.

AIG currently performs or supports many important corporate functions for our operations, including investment management, tax, human resources, corporate insurance and other services. Our consolidated financial statements reflect charges for these services. There is no assurance that, following the completion of this offering, these services will be sustained at the same levels as when we were receiving such services from AIG, even under a services agreement, or that we will be able to obtain the same benefits from either AIG or other sources. Once we begin to operate these functions independently, if we do not have our own adequate systems and business functions in place or if we are unable to obtain them from other providers, we may not be able to operate our business effectively or at comparable cost levels, and our profitability may decline. We will need to make infrastructure investments in order to operate without the same access to AIG’s existing operational and administrative infrastructure. These initiatives may be costly to implement. Due to the scope and complexity of the underlying projects relative to these efforts, the amount of total costs could be materially higher than our estimate, and the timing of the incurrence of these costs may be subject to change. In addition, our business has benefited from AIG’s purchasing power when procuring goods and services. As a standalone company, we may be unable to obtain such goods and services at comparable prices or on terms as favorable as those obtained prior to this offering, which could decrease our overall profitability. See “—Risks Related to Our Separation from, and Continuing Relationship with, AIG—The terms of our existing arrangements between AIG and third parties under which we receive services as an affiliate of AIG may be more favorable than we will be able to obtain from a third party on our own.”

Our amended and restated certificate of incorporation limits certain liabilities and obligations of our directors to us or you.

Our amended and restated certificate of incorporation will include provisions that limit the personal liability of our directors for monetary damages for breach of their fiduciary duties as directors, except, to the extent required by the Delaware General Corporation Law (the “DGCL”), for (1) any breach of their duty of loyalty to

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us or our shareholders, (2) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (3) any unlawful payment of a dividend or unlawful stock repurchase or redemption, as provided in Section 174 of the DGCL, or (4) any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation and amended and restated bylaws will provide for indemnification, to the fullest extent permitted by the DGCL, of any person made or threatened to be made a party to any action, suit or proceeding by reason of the fact that such person is or was a director or officer of our company, or is or was a director or officer of a subsidiary of ours, or, at our request, serves or served as a director or officer of or in any other capacity for, or in relation to, any other enterprise, against all expenses, liabilities, losses and claims actually incurred or suffered by such person in connection with the action, suit or proceeding. In addition, we intend to enter into indemnification agreements with each of our officers and directors pursuant to which we will agree to indemnify each such officer and director to the fullest extent permitted by the DGCL. See “Description of Capital Stock—Limitation of Liability and Indemnification of Directors and Officers.”

Our amended and restated certificate of incorporation limits the obligations of AIG or any of its affiliates and certain of our directors to refer potential business opportunities to us.

Our amended and restated certificate of incorporation will provide that AIG and its affiliates and certain of our directors, who have also served or may serve as directors, officers, employees or agents of AIG, are relieved of the obligation to refer potential business opportunities to UGC or to notify UGC of potential business opportunities of which they become aware, and they may instead refer such opportunities to AIG, subject to certain limited exceptions, and may engage in one or more corporate opportunities in the same or similar lines of business as we now engage or propose to engage and otherwise compete with us. Accordingly, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business or prospects. In addition, due to their affiliations with AIG, certain of our directors may have conflicts of interest in determining whether to present a particular business opportunity to us or AIG. These conflicts of interest may not be resolved in our favor. See “Description of Capital Stock—Potential Business Opportunities.”

Future offerings of equity securities that may rank senior to our common stock may restrict our operating flexibility and adversely affect the market price of our common stock.

Any equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may adversely affect the market price of our common stock. Any such preference equity securities will rank senior to our common stock and will also have priority with respect to any distributions upon a liquidation, dissolution or similar event, which could result in the loss of all or a portion of your investment. Our board of directors will have discretion whether to make any such issuances. Our decision to issue such securities will depend on market conditions and other factors beyond our control, and we cannot predict or estimate the amount, timing or nature of our future offerings. In addition, should AIG contribute, or be required to contribute, additional capital to us, you may experience immediate dilution to the value of your shares of common stock.

Future sales or distributions of our common stock, such as in a spin- or split-off, may result in substantial sales of our common stock by AIG’s shareholders, including index fund or institutional investors, and could depress the market price for our common stock.

The common stock of our parent company, AIG, is listed on the NYSE and is included as a component stock in various indices, including the S&P 500 stock market index. After our separation from AIG, our business profile or market capitalization as an independent company may not fit the investment objectives or requirements of AIG’s shareholders, including index funds, which may affect investors’ appetite for our stock.

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Subsequent to this offering, AIG may choose to spin- or split-off some or all of its remaining holdings in us to its shareholders, and its shareholders that are not affiliates of us would not be subject to any resale restrictions. In particular, some of our shares may be distributed to index funds or other institutional investors whose investments mirror indices that include AIG common stock as a component stock. These investors, like AIG’s other shareholders, may sell or reduce their holdings of our common stock if we do not meet their investment objectives or requirements. The sales of significant amounts of our common stock by these investors and AIG’s shareholders generally or the perception in the market that such sales are likely to occur may result in the lowering of the market price of our common stock.

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SEPARATION TRANSACTIONS

AIG currently owns 100% of our outstanding common stock. On January 26, 2016, AIG announced its plan to sell up to 19.9% of our common stock in this offering, subject to regulatory and GSE approval, as a first step towards a full separation. AIG is selling all of the shares of our common stock sold in this offering. Following the offering, AIG will own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full).

We previously effected, and prior to the completion of this offering we will effect, certain transactions which are referred to in this prospectus as the separation transactions. UGC was formed as a Delaware corporation on March 3, 2016 by AIG to act as a holding company for UGCNC and its subsidiaries. UGC is a newly incorporated entity and has had no business transactions or activities to date. AIG will contribute 100% of the common stock of UGCNC to UGC in connection with this offering.

Prior to the completion of this offering, UGCNC expects to dividend its ownership interest in its wholly-owned subsidiary AIG United Guaranty Insurance (Asia) Limited (“UG Asia”) to AIG. UG Asia is a first-lien mortgage insurance company based in Hong Kong and had approximately $40 million in shareholder’s equity as of December 31, 2015, and accounted for less than $1 million of our net income for each of the years ended December 31, 2015, 2014 and 2013.

Prior to the completion of this offering, UGCNC expects to dividend its ownership interest in its wholly-owned subsidiary Connective Mortgage Advisory Company to AIG. This subsidiary provides loan evaluation services to an affiliate of AIG on whole loan investment opportunities. For the years ended December 31, 2015, 2014 and 2013, fees from these services were $10.4 million, $4.0 million and $0.7 million, respectively.

As a wholly-owned subsidiary of AIG, UGCNC, and its subsidiaries, historically have received financial support and certain administrative services, including reinsurance and investment management, from AIG and its affiliates. In connection with this offering, we and AIG intend to enter into certain agreements that will provide a framework for our ongoing relationship. These agreements include a shareholder agreement governing AIG’s rights at various ownership levels, services agreements pursuant to which we and AIG will agree to continue to provide each other with certain services, one or more tax sharing and separation agreements, and a registration rights agreement requiring that we register shares of our common stock beneficially owned by AIG under certain circumstances. See “Relationships and Related Party Transactions.”

USE OF PROCEEDS

We will not receive any proceeds from the sale by the selling shareholder of our common stock in this offering.

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DIVIDEND POLICY

We intend to retain all available funds and any future earnings for use in the operation of our business, and therefore we do not expect to pay any cash dividends on our common stock for the foreseeable future. Any declaration of dividends will be at the discretion of our board of directors and will depend on our financial condition, earnings, cash needs, PMIERs and other capital requirements (including requirements of our subsidiaries), regulatory constraints and any other factors that the board of directors deems relevant in making such a determination. See “Risk Factors—Risks Related to This Offering and Ownership of Our Common Stock—We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.”

We are a holding company, and we have no direct operations. All of our business operations are conducted through our subsidiaries and our ability to pay dividends depends on our receipt of cash distributions from our operating subsidiaries. Under PMIERs, the GSEs restrict the ability of our primary operating subsidiaries to pay dividends and make other distributions to us unless the respective subsidiary has PMIERs available assets in excess of PMIERS minimum required assets. State restrictions on our insurance subsidiaries’ ability to pay dividends to us, or any future similar restrictions adopted by the states in which our insurance subsidiaries are domiciled, also could have the effect, under certain circumstances, of blocking dividends or other amounts payable to us by our subsidiaries without affirmative approval of state regulatory authorities. In addition, Delaware law requires that dividends be paid only out of “surplus,” which is defined as the fair market value of our net assets, minus our stated capital; or out of the current or the immediately preceding year’s earnings. For more details, see “Risk Factors—Risks Related to This Offering and Ownership of Our Common Stock—As a holding company, we depend on the ability of our subsidiaries to transfer funds to us to meet our obligations. The ability of our insurance subsidiaries to pay dividends and other distributions to us is further limited by state insurance laws” and “Regulation—State Regulation—Dividends.”

During the years ended December 31, 2015 and 2014, UGCNC paid cash dividends to AIG of $1.7 million and $20.0 million, respectively. On March 30, 2016, UGCNC paid a cash dividend to AIG of $78.0 million.

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CAPITALIZATION

The following table sets forth UGCNC’s cash and cash equivalents and capitalization as of December 31, 2015. AIG is selling all of the shares of our common stock sold in this offering, and we will not receive any proceeds from the sale of the shares. UGC was incorporated on March 3, 2016 and therefore the cash and cash equivalents and capitalization as of December 31, 2015 of UGC have not been presented. Prior to the completion of this offering, AIG will contribute 100% of the common stock of UGCNC to UGC in connection with this offering.

You should read this table with the sections “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.


	As of December 31, 2015
(dollars in thousands, except share data)
Cash and cash equivalents^(a)	$	36,556

Shareholder’s equity:
Common stock, par value $1.00; 5,000,000 shares authorized, 2,206 shares issued and outstanding	$	2
Additional paid-in capital		2,096,458
Additional other comprehensive income		(6,894	)
Retained earnings		1,329,320

Total shareholder’s equity^(a)	$	3,418,886

Total capitalization	$	3,418,886

(a)	On March 30, 2016, UGCNC paid to AIG a $310 million dividend, in $78 million of cash and $232 million of fixed maturity securities having a fair market value equal to their carrying value.

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DILUTION

All shares of our common stock being sold in this offering were issued and outstanding prior to the completion of this offering. As a result, this offering will not have a dilutive effect on our shareholders.

Dilution occurs when the per share price of common stock in an offering is greater than the net tangible book value attributable to equity holders as adjusted to give effect to the offering. Our net tangible book value represents our total tangible assets (total fixed and current assets) less total liabilities, and our net tangible book value per share represents our net tangible book value divided by the number of shares of our common stock outstanding. Our net tangible book value per share of our common stock, after giving effect to the separation transactions, will not be affected by the sale of shares of our common stock in this offering by AIG and, after giving effect to the separation transactions, was $ as of .

The following table summarizes as of and after giving effect to the separation transactions and this offering, based on an assumed initial public offering price of $ per share, the midpoint of the range on the cover of this prospectus (before deducting estimated offering expenses payable by us), the number of shares of common stock purchased, the total consideration paid and the average price per share paid by AIG and by investors participating in this offering.


	Shares Purchased				Total Consideration

	Number	Percent			Amount (dollars in thousands)	Percent			Average Price Per Share

AIG				%	$			%	$
New public investors

Total			100.0	%	$		100	%	$

To the extent that following this offering, we grant and issue equity awards under an equity incentive plan or we issue additional shares of common stock in the future, there may be dilution to investors participating in this offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial and other data is for UGCNC and its subsidiaries. UGCNC is the predecessor of the issuer, UGC, for financial reporting purposes. The following selected consolidated income statement data for the years ended December 31, 2015, 2014 and 2013 and balance sheet data as of December 31, 2015 and 2014 are derived from UGCNC’s audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated income statement data for the year ended December 31, 2012 and balance sheet data as of December 31, 2013 are derived from UGCNC’s audited consolidated financial statements that are not included in this prospectus. The selected unaudited consolidated income statement data for the year ended December 31, 2011 and balance sheet data as of December 31, 2012 and 2011 are derived from UGCNC’s unaudited consolidated financial statements for such periods and dates, which are not included in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information contained in those statements. The combined statutory capital information set forth below have been derived from the annual statements of our insurance subsidiaries filed with the NCDOI that were prepared in conformity with statutory accounting practices of the NCDOI. Such practices differ from GAAP. Prospective investors should read these selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. Prior to the completion of this offering, UGCNC has been a wholly-owned subsidiary of AIG since 1981. The historical results presented below are not necessarily indicative of our financial results to be achieved in future periods, or what our financial results would have been had we been an independent, publicly traded company during the periods presented. The selected consolidated financial and other data of UGC have not been presented since UGC is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.


	Year Ended December 31,
	2015		2014		2013		2012			2011

Selected income statement data (dollars in thousands, except per share data)
Gross premiums written	$	1,067,411	$	1,039,644	$	1,086,714	$	1,084,636		$	1,056,606
Net premiums written^(a)		651,288		1,001,957		1,035,624		773,658			826,393
Net premiums earned^(a)		772,146		891,917		801,226		590,366			813,759
Net investment income		139,230		137,236		131,540		110,017			128,037
Total revenues		922,609		1,031,566		934,818		698,450			975,162
Losses and expenses:
Losses and LAE incurred		153,985		223,194		521,382		862,044			640,790
Acquisition expenses		74,918		71,119		78,847		68,416			68,275
General operating expenses		146,403		153,055		141,202		123,654			116,807

Total losses and expenses		375,306		447,368		741,431		1,054,114			825,872
Income tax expense (benefit)		187,496		190,513		30,676		(149,937	)		(79,875	)

Net income (loss)	$	359,807	$	393,685	$	162,711	$	(205,727	)	$	229,165

Earnings per share
Net income (loss) per weighted average common share outstanding	$	163,104	$	178,461	$	73,758	$	(93,258	)	$	103,883
Weighted average common shares outstanding		2,206		2,206		2,206		2,206			2,206
Unaudited pro forma weighted average net income (loss) per common share outstanding^(b)
Unaudited pro forma weighted average common shares outstanding^(b)

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	As of December 31,
	2015		2014		2013		2012		2011

Selected balance sheet data
(dollars in thousands)
Total investments	$	4,215,394	$	4,169,811	$	3,915,714	$	4,154,242	$	4,038,442
Cash		36,556		15,963		13,760		63,496		40,342
Other assets		1,212,111		962,128		875,547		851,486		2,523,628

Total assets	$	5,464,061	$	5,147,902	$	4,805,021	$	5,069,224	$	6,602,412

Reserve for losses and LAE		738,018		1,007,220		1,349,031		1,949,219		3,104,554
Unearned premiums		882,646		741,349		622,434		382,150		242,124
Other liabilities		424,511		122,747		117,193		162,406		723,380
Total shareholder’s equity		3,418,886		3,276,586		2,716,363		2,575,449		2,532,354

Total liabilities and shareholder’s equity	$	5,464,061	$	5,147,902	$	4,805,021	$	5,069,224	$	6,602,412


	Year Ended December 31,
	2015			2014			2013			2012			2011

Selected additional data
Loss ratio^(c)		19.9	%		25.0	%		65.1	%		146.0	%		78.7	%
Expense ratio^(d)		28.7	%		25.1	%		27.5	%		32.5	%		22.7	%

Combined ratio^(e)		48.6	%		50.1	%		92.6	%		178.5	%		101.4	%



	As of or for the Year Ended December 31,
	2015			2014			2013			2012			2011

U.S. first-lien mortgage insurance portfolio
(dollars in millions)
NIW^(f)	$	50,842		$	42,038		$	49,356		$	37,273		$	18,423
IIF^(f)(g)	$	183,466		$	165,623		$	146,390		$	121,378		$	110,131
Gross RIF^(f)(g)(h)	$	47,409		$	42,656		$	37,059		$	29,611		$	26,586
Net RIF^(f)(g)(h)	$	36,664		$	42,525		$	36,716		$	28,830		$	25,383
Policies in force^(f)(g)		923,627			865,861			799,573			710,230			682,288
Delinquent loans^(f)(g)		31,285			38,357			47,518			62,832			94,000
Delinquency ratio^(f)(g)		3.4	%		4.4	%		5.9	%		8.8	%		13.9	%
Combined PMIERs available assets⁽ⁱ⁾	$	3,627			N/A			N/A			N/A			N/A
Combined PMIERs minimum required assets⁽ⁱ⁾	$	3,027			N/A			N/A			N/A			N/A
Combined statutory capital^(f)	$	2,457		$	2,137		$	1,944		$	1,742		$	1,789
Combined risk-to-capital ratio (adjusted net-RIF-to-statutory-capital)^(f)(j)		14.5:1			18.9:1			17.6:1			16.7:1			14.4:1

(a)

Net premiums written and net premiums earned for the year ended December 31, 2015 include the impact of our 50% quota share agreement with NUFIC. We expect that this agreement will have an increasing impact on our financial results in future periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Financial Results—Reinsurance.”

(b)	Pro forma amounts are calculated based on shares of UGC common stock outstanding following the for stock split to be effected prior to the completion of this offering.

(c)	Loss ratio is calculated by dividing losses and LAE incurred by net premiums earned.

(d)	Expense ratio is calculated by dividing acquisition and general operating expenses by net premiums earned.

(e)	Combined ratio is calculated by dividing the sum of losses and LAE incurred and acquisition and general operating expenses by net premiums earned.

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(f)

Reflects the results and position of the following subsidiaries: UGRIC, UGMIND, United Guaranty Mortgage Insurance Company, United Guaranty Mortgage Insurance Company of North Carolina and United Guaranty Insurance Company, which we refer to as our first-lien U.S. mortgage insurance subsidiaries. See “Business—Our Company.”

(g)

As presented in this prospectus, amounts exclude our structured mortgage insurance portfolio, which had $130.5 million, $162.8 million, $172.7 million, $178.0 million and $300.9 million of gross and net RIF as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. We have not written any new structured mortgage insurance coverage since 2008. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Key Metrics—First-Lien U.S. Mortgage Guaranty—Insurance In Force and Risk In Force” and “Business—Our Products and Services—First-Lien U.S. Mortgage Insurance—Structured Mortgage Insurance Products.”

(h)	Gross RIF is RIF before the effect of reinsurance ceded. Net RIF is RIF net of reinsurance ceded.

(i)	PMIERs became effective on December 31, 2015. Accordingly, the combined PMIERs available assets and combined PMIERs minimum required assets of our primary operating subsidiaries are not shown for prior periods.

(j)	Adjusted net RIF for purposes of calculating combined statutory risk-to-capital differs from net RIF presented elsewhere in this prospectus. In accordance with North Carolina insurance regulations, adjusted net RIF excludes delinquent policies.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion is of the consolidated results of UGCNC, our predecessor for financial reporting purposes, and should be read in conjunction with the “Selected Consolidated Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in this section and the sections entitled “Note Regarding Forward-Looking Statements” and “Risk Factors.” We are not undertaking any obligation, except as may be required by law, to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document is declared effective by the SEC. Prior to the completion of this offering, UGCNC has been a wholly-owned subsidiary of AIG since 1981. The historical results presented below are not necessarily indicative of our financial results to be achieved in future periods, or what our financial results would have been had we been an independent, publicly traded company during the periods presented.

Overview

We are the leading private mortgage insurance company in the United States. We conduct our mortgage insurance business through our primary operating subsidiaries, UGRIC and UGMIND. Our mortgage insurance products provide mortgage lenders and investors protection against default on a portion of the unpaid principal balance of a covered mortgage. We believe that our position as the leader in the U.S. private mortgage insurance market reflects our long-standing operating history, strong and diverse customer relationships, proprietary risk-based pricing framework and robust financial strength.

We have a large and diverse customer base. Our long-standing presence in the private mortgage insurance market has allowed us to build customer relationships with many of the nation’s largest and highest-quality lenders, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders and internet-sourced lenders. We have active relationships with over 1,800 customers that are broadly diversified by size, type and geography, with no one customer representing more than 6% of our NIW in 2015. As of December 31, 2015, we had $183.5 billion of IIF and $47.4 billion of gross RIF. Our insured portfolio is fully-scaled, high quality and reflects the underlying diversity of our customer base.

Operating Environment

Our business is affected by the size of the U.S. mortgage origination market, which is impacted by macroeconomic factors such as the economic growth rate, unemployment rate, household savings rate, housing prices and affordability, interest rates and the general availability of mortgage credit. In 2015, U.S. mortgage origination volume increased, driven by declining mortgage interest rates and continued improvements in housing prices and the unemployment rate. Interest rates also affect the persistency of our policies, with rising interest rates generally extending the length of time our policies remain in force and increasing our revenue.

We compete with both public and private mortgage insurance providers. Private mortgage insurers generally compete on a variety of factors, including pricing, terms and conditions, underwriting guidelines, loss management practices, financial strength, certainty of coverage, reputation, customer relationships, service, technology, innovation and ease of use. Since the financial crisis, public mortgage insurers, including the FHA

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and VA, have captured an increased share of the overall mortgage insurance market. Public mortgage insurance providers are not subject to the same capital requirements, risk tolerances or business objectives that are present in the private mortgage insurance market. In 2015, pricing competition increased both within and between the public and private mortgage insurance markets.

Our exposure to potential losses stems from the risk of borrower default, which is primarily driven by home price depreciation, increases in the unemployment rate, deterioration in mortgage underwriting standards and borrower health and life events. In 2015, the U.S. mortgage market experienced fewer new delinquencies and higher cure rates, which favorably impacted the level of incurred losses in the mortgage insurance market.

Legislative and Regulatory Developments

The GSEs are the most significant purchasers and sellers of conventional mortgages in the U.S. housing market and are the beneficiaries of the majority of our insurance policies. As a result, changes to the role of the GSEs in the U.S. mortgage market or to the charters or business practices of the GSEs could significantly impact our business. In order to be eligible to insure loans purchased or guaranteed by the GSEs, we and other private mortgage insurers must meet the GSEs’ PMIERs eligibility requirements that became effective on December 31, 2015. In addition, our insurance and reinsurance subsidiaries are subject to government regulation in each of the jurisdictions in which they are licensed or authorized to do business. See “Regulation.”

Factors Affecting Our Financial Results

New Insurance Written, Insurance In Force and Risk In Force

NIW is the aggregate mortgage amount on new policies written during a given period. NIW is affected by the overall size of the mortgage origination market, the volume of low down payment mortgage originations, the percentage of such low down payment originations covered by private versus public mortgage insurance or other alternative credit enhancement structures, and our share of the private mortgage insurance market. NIW, together with persistency, drives our IIF. IIF is the aggregate estimated unpaid principal balance of the mortgages we insure at a given date and represents the sum total of NIW from all prior periods less policy cancellations (including for prepayment, nonpayment of premiums and claims payment) and rescissions. RIF is related to IIF, and represents the aggregate amount of coverage we provide on all outstanding policies at a given date. RIF is calculated as the sum total of the coverage percentage of each individual policy in our portfolio applied to the estimated unpaid principal balance of such insured mortgage. RIF is affected by IIF and the LTV profile of our insured mortgages, with lower LTV loans having a lower coverage percentage and higher LTV loans having a higher coverage percentage. Gross RIF represents RIF without any consideration of the impact of reinsurance. Net RIF represents RIF net of reinsurance ceded and is therefore affected by our reinsurance purchasing decisions.

Net Premiums Written and Net Premiums Earned

Premiums on individual policies are set based on NIW and are generally fixed over the estimated life of the underlying loan. Net premiums written are gross premiums written minus ceded premiums under our reinsurance arrangements. As a result, net premiums written are generally influenced by:

•

NIW;

•

premium rates, which are based on the risk characteristics of the loans insured and the payment type of the policy, which are either single, monthly or annual premiums, as described below;

•

cancellation rates of our insurance policies, which are impacted by payments or prepayments on mortgages, home prices and refinancings, which are affected by mortgage interest rates and by levels of claims payments; and

•

cession or assumption of premiums under reinsurance arrangements.

Premiums are paid either in a single payment at origination (“single premium”), on a monthly installment basis (“monthly premium”) or on an annual installment basis (“annual premium”). Our net premiums written will

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differ from our net premiums earned due to policy payment type. For single premiums, we receive a single premium payment at origination, which is initially recorded as unearned premium and gradually earned over the estimated life of the policy. Substantially all of our single premium policies in force as of December 31, 2015 were non-refundable. If non-refundable single premium policies are cancelled, we immediately recognize the remaining unearned premium balances as earned premium revenue. Monthly premiums are recorded in the month the coverage is effective. Annual premiums are earned on a straight-line basis over the year of coverage. Substantially all of our policies provide for either single or monthly premiums. In 2015, our net premiums written and earned also differed due to the implementation of the 50% quota share agreement with NUFIC. See “—Reinsurance.”

The percentage of IIF that remains on our books after any 12-month period is defined as our persistency rate. Because our insurance premiums are earned over the life of a policy, higher persistency rates can have a significant impact on our profitability. Generally, faster speeds of mortgage prepayment lead to lower persistency. Prepayment speeds and the relative mix of business between single and monthly premium policies also impact our profitability. Our premium rates include certain assumptions regarding repayment or prepayment speeds of the mortgages underlying our policies. Because premiums are paid at origination on single premium policies, assuming all other factors remain constant, if loans are prepaid earlier than expected, our profitability on these loans is likely to increase and, if loans are repaid slower than expected, our profitability on these loans is likely to decrease. By contrast, if monthly premium loans are repaid earlier than anticipated, our premium earned with respect to those loans decreases and therefore our profitability is likely to decline. When we rescind coverage, we return all premiums previously paid to us under a policy and are relieved of our obligation to pay a claim under such policy.

Reinsurance

We evaluate reinsurance opportunities in the normal course of business as a potential means to manage our risk aggregations, shape our insured portfolio and support our PMIERs compliance. We currently have both quota share and excess of loss reinsurance arrangements in place. Under a quota share reinsurance agreement, the reinsurer receives a premium and, in exchange, agrees to cover an agreed-upon portion of incurred losses. Such a quota share arrangement reduces net premiums written and earned, but also reduces net RIF, which provides capital relief to the insurance company ceding the RIF and reduces incurred losses in accordance with the terms of the reinsurance agreement. In addition, reinsurers typically pay ceding commissions as part of quota share transactions, which offset the ceding company’s overall expenses. Under an excess of loss agreement, the insurer is typically responsible for losses up to an agreed-upon threshold and the reinsurer then provides coverage in excess of such threshold up to a maximum agreed-upon limit. In general, there are no ceding commissions under excess of loss reinsurance agreements.

Effective January 1, 2015, UGRIC entered into a 50% quota share reinsurance agreement with NUFIC (such agreement as amended, the “50% quota share agreement with NUFIC”). Under the terms of the original agreement, UGRIC (1) ceded 50% of the risk relating to policies written in 2014 that were current as of January 1, 2015, (2) ceded 50% of the risk relating to all policies written in 2015 and (3) will cede 50% of the risk relating to all policies written in future periods, each in exchange for a 30% ceding commission and reimbursement of 50% of the losses and LAE incurred on covered policies. The cession of 50% of covered risks results in a 50% reduction in net premiums written and earned from the associated insurance policies, offset by a corresponding reduction in losses and LAE incurred and a reduction in acquisition and general operating expenses related to the 30% ceding commission. While we will receive reimbursement for 50% of the losses and LAE incurred on covered policies, the claims activity on these policies (originated beginning in 2014) has been minimal given the strong credit quality of the underlying mortgages. For the year ended December 31, 2015, UGRIC ceded written premiums of $379 million and ceded unearned premium reserves of $253 million. For the year ended December 31, 2015, we accrued ceding commissions of $113 million, of which $15 million was recorded as an offset to deferred policy acquisition costs, $79 million was recorded as deferred ceding commission and $19 million was recorded as an offset to acquisition and general operating expenses. Paid losses for the year ended December 31, 2015 were immaterial under the quota share agreement. The 50% quota share

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agreement with NUFIC had a significant impact on our financial results for the year ended December 31, 2015, and we expect that it will have an increasing impact on our financial results in future periods.

On February 11, 2016, UGRIC executed a novation and amendment agreement with NUFIC to add two additional AIG affiliates, American Home and Lexington. Under the terms of the revised agreement, NUFIC and American Home each provide 17.5% quota share coverage and Lexington provides 15% quota share coverage, totaling to a 50% quota share. The novation and amendment agreement also amended the original agreement to terminate on a run-off basis on December 31, 2016 unless renewed with GSE non-disapproval and to provide for settlement of ceded balances on a written basis instead of an earned basis. As a result, $160 million of reinsurance funds withheld were settled and paid to the reinsurers on February 29, 2016. Finally, the novation and amendment agreement amended the assets the reinsurers are required to keep in trust to the greater of the amount required to receive statutory credit for the reinsurance or the percentage of the applicable risk-based required asset amount under PMIERs, which changes in part based on the reinsurers’ rating and was 25% as of the effective date of the novation and amendment agreement. The related trust agreement was also amended to include the additional parties.

On July 29, 2015, our U.S. first-lien mortgage insurance subsidiaries secured approximately $300 million of aggregate excess of loss reinsurance coverage at inception for new delinquencies on a portfolio of in-force policies issued between January 1, 2009 and March 31, 2013 through a mortgage insurance-linked notes offering by Bellemeade Re, a special purpose reinsurance company domiciled in Bermuda. The approximately $300 million coverage amount decreases over a ten-year period as the underlying covered mortgages amortize, and was $252 million as of December 31, 2015. For the coverage period, the ceding insurers will retain the first layer of $129.9 million of aggregate losses and Bellemeade Re will then provide second layer coverage up to the outstanding coverage amount. The ceding insurers will then retain losses in excess of the outstanding coverage limit. Under the terms of the transaction, the ceding insurers makes risk premium payments for the applicable outstanding coverage amount and also reimburses Bellemeade Re for certain operating expenses. The mortgage insurance-linked notes mature on July 25, 2025 and may be redeemed at the ceding insurers’ option on or after July 25, 2020. The mortgage insurance-linked notes are also subject to mandatory and optional redemption events.

We also have reinsurance arrangements with mortgage lenders, commonly referred to as captive reinsurance arrangements, whereby we cede a portion of business originated from a given lender to reinsurance subsidiaries owned by such lender. We discontinued the majority of our captive reinsurance arrangements in 2009 and, in accordance with the terms of a 2013 settlement with the CFPB and a consent order with the Minnesota Commissioner of Commerce, stopped ceding new business premiums for policy years beginning in 2013 to all such captives.

See “Regulation—Federal Regulation—RESPA” and Notes 11, 13 and 17 to our consolidated financial statements for further information on our reinsurance arrangements.

Services Revenue

Our services revenue is fee-based and is primarily derived from providing loan evaluation and contract underwriting services. Services revenue depends in large part on the overall activity in the mortgage finance market.

Net Investment Income

The principal factors that influence our investment income are the size of our investment portfolio and its yield. As measured by amortized cost (which excludes changes in fair market value, such as from changes in interest rates), the size of our investment portfolio is mainly a function of cash generated from or used in operations, which is impacted by net premiums written, investment earnings and payments for net claims, expenses and taxes.

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Net Realized Capital Gains and Losses

Net realized capital gains and losses are a function of the difference between the amount received on the sale of a security and the security’s amortized cost, as well as any other-than-temporary impairments recognized in earnings. The amount received on the sale of fixed income securities is affected by prevailing market conditions at the time of sale. Historically, our investment portfolio has been managed by an affiliate of AIG. See “Relationships and Related Party Transactions—Relationship with AIG—Investment Management.” After our separation from AIG we may choose to engage a third-party investment manager.

Losses and LAE incurred

Losses and LAE incurred represent estimated future claims payments on newly delinquent insured loans as well as any change in our claim estimates for previously existing delinquencies. Our losses incurred are based on estimates of the magnitude and timing of anticipated claims payments and the rate at which defaults will ultimately result in paid claims.

Losses incurred are generally affected by:

•

the overall state of the economy, which broadly affects the likelihood that borrowers may become delinquent on their loans and have the ability to cure such delinquencies;

•

changes in housing values, which affect borrower willingness to continue to make mortgage payments when the value of the home is below or perceived to be below the mortgage balance, as well as the ability to mitigate our losses through the sale of properties with loans in default;

•

loan quality, with loans having higher risk characteristics, such as loans to borrowers with higher debt-to-income ratios and lower FICO scores, generally resulting in higher rates of defaults and claims;

•

the size of loans insured, with higher average loan amounts tending to increase the amount of losses incurred;

•

the LTV, with higher average LTVs tending to increase losses incurred;

•

the percentage of coverage on insured loans, with higher coverage tending to increase losses incurred;

•

the impact of our loss management efforts; and

•

the rate at which origination defects are present and we rescind coverage.

Reserves for mortgage guaranty insurance losses and allocated LAE are established for mortgage loan delinquencies, which we refer to as case reserves, when we are notified that a borrower has missed two or more mortgage payments. We also make estimates of IBNR delinquencies, which are delinquencies that have been incurred but have not been reported by loan servicers, based upon historical reporting trends, and establish IBNR reserves for those estimates. The company also establishes reserves for unallocated LAE not associated with a specific claim. The LAE consist of the estimated cost of the claim administration process, including legal and other fees as well as other general expenses of administering the claims settlement process. Reserves are established by estimating the number of delinquent loans that will result in a claim payment, which is referred to as claim frequency, and the amount of the claim payment expected to be paid on each such delinquent loan, which is referred to as claim severity. Claim frequency and severity estimates are established based on historical experience regarding certain loan factors, such as age of the delinquency, cure rates and size of the loan. Reserves are released the month in which a delinquent loan is brought current, which is referred to as a cure. Adjustments to reserve estimates are reflected in the period in which the adjustment is made. Reserves are also ceded to reinsurers under our reinsurance agreements. The company does not establish reserves for future claims on insured loans which are not currently delinquent.

Acquisition and General Operating Expenses

Acquisition expenses are those expenses that are incremental and directly related to the acquisition of new insurance contracts. Our acquisition expenses include sales support, commissions, underwriting support and

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premium taxes and generally increase or decrease with the level of NIW. These expenses are capitalized and recognized over the life of the policy. Our general operating expenses typically do not vary with the level of NIW. General operating expenses include servicing support and corporate functions. Acquisition and general operating expenses are offset by ceding commissions.

After the completion of the offering, we expect to incur incremental costs related to being a public company, including increases in expenses for external financial reporting, external communications and investor relations.

Taxes

Prior to or concurrently with this offering, we and our subsidiaries will enter into one or more new tax sharing and separation agreements, which will govern the respective rights, responsibilities and obligations of AIG on the one hand, and us and our subsidiaries on the other hand, with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes. Among other things, the tax sharing and separation agreements will allocate (which may result in required cash payments) to AIG the benefit of the utilization of certain tax attributes, including any deductions we may use as a result of changing the method for reporting gross premiums written from the so-called “accelerated method” to the so-called “annual method” and any deductions resulting from certain net operating loss carryforwards for which AIG has previously reimbursed UGCNC and its subsidiaries. The tax sharing and separation agreements will also separately allocate among the parties any tax liability arising as a result of any failure of any split-off and/or pro rata spin-off to qualify as a tax-free transaction.

Currently UGCNC and its subsidiaries are part of AIG’s consolidated federal income tax group and have recorded taxes in accordance with UGCNC’s accounting policy which states that federal taxes will be computed on a separate return with benefits for loss basis. Under this method, U.S. federal income taxes generally were allocated to UGCNC and UGCNC’s subsidiaries as if each entity were filing its own separate company return except that the net operating losses and certain other tax attributes are characterized as realized (or realizable) when those tax attributes are realized (or realizable) by AIG. UGCNC and its eligible subsidiaries are subject to alternative minimum tax only if the AIG consolidated tax group is subject to alternative minimum tax.

For purposes of determining UGCNC’s standalone tax liability, in addition to the provisions noted above, the relevant current tax sharing agreements stipulate that separate company taxable income will, among other things, be calculated as if UGCNC reported its gross premiums written in accordance with the so-called “annual method” as provided for in Treasury Regulation section 1.832-4(a)(5)(v), notwithstanding that AIG’s U.S. federal consolidated income tax return reports UGCNC’s taxable income based on the so-called “accelerated method” as provided for in Treasury Regulation section 1.832-4(a)(5)(i). Differences between tax amounts computed under accelerated method versus amounts due under the tax sharing agreements with AIG are reflected in UGCNC’s consolidated financial statements as equity transactions (i.e., capital contribution or return of capital).

If during the year ended December 31, 2015, UGCNC had computed taxes using the separate return method, the unaudited pro forma income before income tax would remain unchanged. The total unaudited pro forma income tax expense would have been $181.7 million, and the unaudited pro forma current and deferred income tax expenses would have been $90.7 million and $91.0 million, respectively. The difference in current income tax expense between the separate return with benefits for loss method and the separate return method would have resulted from the utilization of net operating loss carryforwards and foreign tax credits as well as UGCNC being subject to alternative minimum tax. The difference in deferred income tax expense between the separate return with benefits for loss method and the separate return method would have resulted from the utilization of net operating loss carryforwards and foreign tax credits as well as UGCNC recording a deferred tax benefit for alternative minimum tax credits.

UGCNC accounts for state income taxes on a separate return basis. UGCNC files as part of a unitary combined income tax return filing with AIG in certain states. UGCNC accrued current and deferred state income taxes as if it filed on a standalone unitary basis.

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Deferred income taxes are determined under the asset and liability method and are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates expected to apply to taxable income in the periods in which the deferred tax liability or asset is expected to be settled or realized. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. UGCNC provides a valuation allowance against deferred tax assets when it is more likely than not that such deferred tax assets will not be realized in the foreseeable future. U.S. federal deferred tax assets are realizable when considered in the context of UGCNC’s own operations or that of AIG while state deferred tax assets are realizable when considered in the context of UGCNC’s own operations.

UGCNC provides for uncertain tax positions and the related interest and penalties based on our assessment of whether a tax benefit is more likely than not to be sustained under any examination by the taxing authorities. Interest and penalties related to unrecognized tax benefits would be recognized in income tax expense.

For more information, please refer to “Relationships and Related Party Transactions—Relationship with AIG—Tax Sharing Agreements” and Note 9 to our consolidated financial statements.

Seasonality

Historically, our business has been subject to modest seasonality in both NIW production and delinquency experience. Consistent with the seasonality of home sales, purchase origination volumes typically increase in late spring and peak during the summer months, leading to a rise in NIW volume during the second and third quarters of a given year. Refinancing volume, however, does not follow a set seasonal trend and instead is primarily influenced by interest rates. An increase in refinancing volume may limit the seasonal effect of home purchase patterns on mortgage insurance NIW. In addition, while macroeconomic factors in any given period may influence the delinquency rate in our mortgage insurance business to a greater extent than does seasonality, historically, our mortgage insurance business has experienced a fourth quarter seasonal increase in the number of delinquencies, and a first quarter seasonal decline in the number of delinquencies and increase in the number of cures.

The following table presents our NIW for our First-Lien U.S. Mortgage Guaranty business by type of mortgage for the periods indicated.


	Quarterly Period Ended
	December 31, 2015		September 30, 2015		June 30, 2015		March 31, 2015		December 31, 2014		September 30, 2014		June 30, 2014		March 31, 2014

NIW (dollars in millions)
Type of mortgage
Purchases	$	8,954	$	12,547	$	11,616	$	7,080	$	8,879	$	11,282	$	10,018	$	6,612
Refinances		1,673		1,935		3,574		3,463		1,854		1,361		1,039		993

Total	$	10,627	$	14,482	$	15,190	$	10,543	$	10,733	$	12,643	$	11,057	$	7,605

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The following table presents our delinquent inventory for our First-Lien U.S. Mortgage Guaranty business as of the dates or for the periods indicated.


	As of or for the Quarterly Period Ended
	December 31, 2015			September 30, 2015			June 30, 2015			March 31, 2015			December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014

Number of policies
Number of delinquencies at the beginning of the period		31,908			32,648			34,372			38,357			39,222			39,801			42,781			47,518
Newly reported delinquencies		10,169			10,331			9,290			9,829			11,765			12,206			10,906			12,362
Cures		(8,333	)		(8,342	)		(8,541	)		(11,063	)		(9,420	)		(9,516	)		(10,270	)		(13,474	)
Claims paid		(1,723	)		(2,276	)		(1,998	)		(2,454	)		(2,818	)		(2,711	)		(3,015	)		(3,057	)
Other^(a)		(736	)		(453	)		(475	)		(297	)		(392	)		(558	)		(601	)		(568	)

Number of delinquencies at the end of the period		31,285			31,908			32,648			34,372			38,357			39,222			39,801			42,781

(a)	Other includes rescissions and commutations.

Segment

We have a single reportable operating segment, First-Lien U.S. Mortgage Guaranty. All other operations and results are reported as Corporate and Other, which includes our run-off second-lien mortgage insurance, run-off student loan default insurance and international results, including UG Asia, as well as our loan evaluation and contract underwriting services and certain UGCNC items.

Initial Public Offering and Separation Transactions

On January 26, 2016, AIG announced its plan to sell up to 19.9% of our common stock in this offering, subject to regulatory and GSE approval, as a first step towards a full separation. As a wholly-owned subsidiary of AIG, UGCNC, and its subsidiaries, historically have received financial support and certain administrative services, including reinsurance and investment management, from AIG and its affiliates. In connection with this offering, we and AIG intend to enter into certain agreements that will provide a framework for our ongoing relationship. These agreements include a shareholder agreement governing AIG’s rights at various ownership levels, services agreements pursuant to which we and AIG will agree to continue to provide each other with certain services, one or more tax sharing and separation agreements, and a registration rights agreement requiring that we register shares of our common stock beneficially owned by AIG under certain circumstances. See “Relationships and Related Party Transactions.”

Prior to the completion of this offering, UGCNC expects to dividend its ownership interest in its wholly-owned subsidiary UG Asia to AIG. UG Asia is a first-lien mortgage insurance company based in Hong Kong and had approximately $40 million in shareholder’s equity as of December 31, 2015 and accounted for less than $1 million of our net income for each of the years ended December 31, 2015, 2014 and 2013.

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The historical results presented herein are not necessarily indicative of our financial results to be achieved in future periods, or what our financial results would have been had we been an independent, publicly traded company during the periods presented. In addition, our historical financial information does not reflect changes that we expect to experience in the future as result of the separation from AIG, including increased expenses and any changes in the financing needs of our business.

Results of Operations and Key Metrics

Consolidated Results

The following table presents our consolidated results for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Selected income statement data (dollars in thousands)
Gross premiums written	$	1,067,411		$	1,039,644		$	1,086,714
Ceded premiums^(a)		(416,123	)		(37,687	)		(51,090)

Net premiums written^(a)		651,288			1,001,957			1,035,624
Decrease (increase) in unearned premiums		120,858			(110,040	)		(234,398)

Net premiums earned^(a)		772,146			891,917			801,226
Service revenue		12,126			5,308			5,520

Total underwriting and service revenue		784,272			897,225			806,746
Losses and LAE incurred		153,985			223,194			521,382
Acquisition expenses		74,918			71,119			78,847
General operating expenses		146,403			153,055			141,202

Total losses and expenses		375,306			447,368			741,431

Underwriting and service income		408,966			449,857			65,315
Net investment income		139,230			137,236			131,540
Net realized capital (losses) gains		(893	)		(2,895	)		(3,468)
Income tax expense		187,496			190,513			30,676

Net income	$	359,807		$	393,685		$	162,711

Selected additional data
Loss ratio		19.9	%		25.0	%		65.1%
Expense ratio		28.7	%		25.1	%		27.5%

Combined ratio		48.6	%		50.1	%		92.6%

(a)	Ceded premiums, net premiums written and net premiums earned for the year ended December 31, 2015 include the impact of our 50% quota share agreement with NUFIC. We expect that this agreement will have an increasing impact on our financial results in future periods.

Net Income

For the year ended December 31, 2015, we reported net income of $359.8 million, compared to $393.7 million for the year ended December 31, 2014. The decrease in net income was primarily due to a decrease in pre-tax operating income in our First-Lien U.S. Mortgage Guaranty and Corporate and Other results. The decrease in First-Lien U.S. Mortgage Guaranty pre-tax operating income was primarily due to a reduction in net premiums written and earned tied to the implementation of the 50% quota share agreement with NUFIC, offset by an increase in our NIW and resulting growth in IIF, and a reduction in our losses and LAE incurred.

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The year ended December 31, 2015 was the first year in which the 50% quota share agreement with NUFIC impacted First-Lien U.S. Mortgage Guaranty results. We expect that the 50% quota share agreement with NUFIC will have an increasing impact on our financial results in future periods. The decrease in Corporate and Other pre-tax operating income was primarily due to a decrease in pre-tax operating income from our second-lien mortgage insurance portfolio as the business continued to run off. See “—First-Lien U.S. Mortgage Guaranty—Net Premiums Written and Net Premiums Earned.”

For the year ended December 31, 2014, we reported net income of $393.7 million, compared to $162.7 million for the year ended December 31, 2013. The increase in net income was primarily due to an increase in our First-Lien U.S. Mortgage Guaranty pre-tax operating income tied to an increase in net premiums earned from growth in IIF, reflecting higher persistency, and a reduction in losses and LAE incurred due to fewer new delinquencies, higher cure rates and favorable prior year loss development. Net income also increased due to an increase in pre-tax operating income in our Corporate and Other results, due to favorable prior year loss development and a settlement relating to the second-lien business.

Net Realized Capital (Losses) Gains

The following table presents the components of our net realized capital (losses) gains on investments and foreign currency transactions for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Net realized capital (losses) gains (dollars in thousands)
Sales of fixed maturity securities	$	205		$	(3,564	)	$	(5,562)
Other-than-temporary impairments		(1,613	)		—			—
Foreign exchange transactions		53			887			2,170
Derivative instruments		462			—			—
Other		—			(218	)		(76)

Net realized capital (losses) gains	$	(893	)	$	(2,895	)	$	(3,468)

Our other-than-temporary impairments were $1.6 million in 2015 due to an impairment of a single fixed maturity investment in the energy sector. We had no other-than-temporary impairments in 2014 or 2013. Our gain on derivative instruments was $0.5 million in 2015, resulting from a derivative economically hedging Euro exposure in our international business. We owned no derivative instruments in 2014 or 2013. During 2012, AIG liquidated an affiliated reinsurer and transferred securities to us. In 2014 and 2013, a majority of these securities were called, which resulted in net realized capital losses.

Income Tax Expense

Our effective tax rate was 34.3% in 2015 and 32.6% in 2014, with the difference from the statutory tax rate of 35% in both periods primarily due to our investment in tax-exempt securities. Our effective tax rate was 15.9% in 2013, with the difference from the statutory tax rate of 35% primarily due to our investment in tax-exempt securities, which had a greater impact on the effective tax rate because of the lower amount of income before income tax in 2013, and the beneficial impact on state income taxes from tax losses in our contract underwriting subsidiary.

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First-Lien U.S. Mortgage Guaranty

The following table presents First-Lien U.S. Mortgage Guaranty results for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Selected income statement data (dollars in thousands)
Gross premiums written	$	1,015,489		$	951,840		$	994,011
Ceded premiums^(a)		(401,215	)		(26,522	)		(44,118	)

Net premiums written^(a)		614,274			925,318			949,893
Decrease (increase) in unearned premiums		116,257			(116,817	)		(256,037	)

Net premiums earned^(a)		730,531			808,501			693,856
Losses and LAE incurred		168,964			232,984			461,777
Acquisition expenses		74,676			69,658			75,337
General operating expenses		134,068			134,595			94,990

Total expenses		208,744			204,253			170,327

Underwriting income		352,823			371,264			61,752
Net investment income		127,464			123,867			115,575

Pre-tax operating income	$	480,287		$	495,131		$	177,327

Selected additional data (dollars in millions)
Net loss ratio		23.1	%		28.8	%		66.6	%
Net expense ratio		28.6	%		25.3	%		24.5	%

Net combined ratio		51.7	%		54.1	%		91.1	%

NIW	$	50,842		$	42,038		$	49,356

	As of December 31,
	2015			2014			2013

IIF	$	183,466		$	165,623		$	146,390
Net RIF	$	36,664		$	42,525		$	36,716
Persistency rate		83.2	%		87.0	%		82.5	%
Policies in force		923,627			865,861			799,573
Delinquent loans		31,285			38,357			47,518
Delinquency ratio		3.4	%		4.4	%		5.9	%

(a)	Ceded premiums, net premiums written and net premiums earned for the year ended December 31, 2015 include the impact of our 50% quota share agreement with NUFIC. We expect that this agreement will have an increasing impact on our financial results in future periods.

For the year ended December 31, 2015, our First-Lien U.S. Mortgage Guaranty business generated pre-tax operating income of $480.3 million, compared to pre-tax operating income of $495.1 million for the year ended December 31, 2014. The decrease in pre-tax operating income was primarily due to a reduction in net premiums written and earned tied to the implementation of the 50% quota share agreement with NUFIC, offset by an increase in our NIW and resulting growth in IIF, increased earned premium upon the cancellation of single premium policies due to increased refinancing activity and a reduction in our losses and LAE incurred.

For the year ended December 31, 2014, our First-Lien U.S. Mortgage Guaranty business generated pre-tax operating income of $495.1 million compared to pre-tax operating income of $177.3 million for the year ended December 31, 2013. The increase in pre-tax operating income was primarily due to an increase in net premiums earned from growth in IIF, tied to higher persistency and a reduction in losses and LAE incurred due to fewer new delinquencies, higher cure rates and favorable prior year loss development.

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New Insurance Written

For the year ended December 31, 2015, NIW increased 20.9% to $50.8 billion, from $42.0 billion for the year ended December 31, 2014, primarily due to an increase in the overall volume of mortgage loan originations. Our insured purchase volume increased 9.3% and benefited from continued improvement in home prices, a decrease in unemployment levels and a decrease in residential mortgage interest rates in late 2014 that persisted through 2015. Our insured refinancing volume increased 102.9% year-over-year due to the decline in mortgage interest rates and a corresponding increase in mortgage refinancing activity.

For the year ended December 31, 2014, NIW decreased 14.8% to $42.0 billion, from $49.4 billion for the year ended December 31, 2013, primarily due to contraction in the mortgage origination market driven by higher residential mortgage interest rates in the first half of 2014 and an increase in competition from and market share gains made by other private mortgage insurers.

The following table presents NIW by underlying type of mortgage for the periods indicated.


	Year Ended December 31,
	2015		2014		2013

NIW (dollars in millions)
Type of mortgage
Purchases	$	40,197	$	36,791	$	36,234
Refinances		10,645		5,247		13,122

Total	$	50,842	$	42,038	$	49,356

The following table presents NIW by policy payment type for the periods indicated.


	Year Ended December 31,
	2015		2014		2013

NIW (dollars in millions)
Policy payment type
Monthly	$	31,342	$	26,303	$	28,678
Single		19,492		15,728		20,666
Annual/Other		8		7		12

Total	$	50,842	$	42,038	$	49,356

The following table presents NIW by FICO score for the periods indicated.


	Year Ended December 31,
	2015		2014		2013

NIW (dollars in millions)
FICO score
Greater than or equal to 760	$	24,696	$	20,205	$	25,142
720 to 759		15,669		12,824		15,228
680 to 719		8,233		6,942		7,352
620 to 679		2,243		2,067		1,634
Less than 620		1		—		—

Total	$	50,842	$	42,038	$	49,356

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The following table presents NIW by LTV for the periods indicated.


	Year Ended December 31,
	2015		2014		2013

NIW (dollars in millions)
LTV
Greater than 95%	$	1,417	$	284	$	2,462
90.01% to 95%		25,045		23,711		24,791
85.01% to 90%		17,727		13,548		15,724
80.01% to 85%		6,653		4,495		6,379

Total	$	50,842	$	42,038	$	49,356

In 2015, 95.6% of our NIW consisted of insured loans with FICO scores greater than 680 and 97.2% of our NIW consisted of insured loans with LTVs equal to 95% or less, compared to 95.1% and 99.3% in 2014, respectively, and 96.7% and 95.0% in 2013, respectively.

Insurance In Force and Risk In Force

As of December 31, 2015, IIF was $183.5 billion, an increase of 10.8% from $165.6 billion as of December 31, 2014 and gross RIF was $47.4 billion, an increase of 11.1% from $42.7 billion as of December 31, 2014. The increases in IIF and gross RIF were primarily due to an increase in NIW partially offset by cancellations driven by lower persistency in 2015 due to the decline in residential mortgage interest rates.

As of December 31, 2014, IIF was $165.6 billion, an increase of 13.1% from $146.4 billion as of December 31, 2013 and gross RIF was $42.7 billion, an increase of 15.1% from $37.1 billion as of December 31, 2013. The increases in IIF and gross RIF were primarily due to higher persistency caused by higher residential mortgage interest rates in the first half of 2014, partially offset by a decrease in NIW caused by the same interest rate increase.

The following table presents IIF by policy year and persistency rate as of the dates indicated.


	As of December 31,
	2015			% of IIF			2014			% of IIF			2013			% of IIF

IIF (dollars in millions)
Policy year
2005 and older	$	7,693			4.2	%	$	9,991			6.0	%	$	13,114			9.0	%
2006		5,820			3.2			6,931			4.2			8,031			5.5
2007		12,092			6.6			14,003			8.4			15,975			10.9
2008		6,535			3.6			7,811			4.7			9,066			6.2
2009		2,216			1.2			3,250			2.0			4,403			3.0
2010		2,313			1.3			3,411			2.1			4,509			3.1
2011		7,172			3.9			9,683			5.8			12,152			8.3
2012		22,601			12.3			28,830			17.4			33,862			23.1
2013		34,103			18.6			42,592			25.7			45,278			30.9
2014		35,465			19.3			39,121			23.7			—			—
2015		47,456			25.8			—			—			—			—

IIF	$	183,466			100.0	%	$	165,623			100.0	%	$	146,390			100.0	%

Persistency rate		83.2	%					87.0	%					82.5	%

As of December 31, 2015, net RIF was $36.7 billion, a 13.6% decrease from $42.5 billion as of December 31, 2014. The decrease in net RIF was primarily due to the implementation of the 50% quota share agreement with NUFIC and was partially offset by higher gross RIF.

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As of December 31, 2014, net RIF was $42.5 billion, a 15.8% increase from $36.7 billion as of December 31, 2013. The increase in net RIF was primarily due to the increase in IIF and gross RIF.

The following table presents gross RIF by policy year and ceded and net RIF as of the dates indicated.


	As of December 31,
RIF (dollars in millions)	2015			% of Gross RIF			2014			% of Gross RIF			2013			% of Gross RIF

Policy year
2005 and older	$	2,096			4.4	%	$	2,754			6.5	%	$	3,630			9.8	%
2006		1,478			3.1			1,758			4.1			2,033			5.5
2007		3,035			6.4			3,515			8.2			4,004			10.8
2008		1,609			3.4			1,922			4.5			2,221			6.0
2009		520			1.1			759			1.8			1,001			2.7
2010		613			1.3			872			2.0			1,120			3.0
2011		1,901			4.0			2,518			5.9			3,082			8.3
2012		5,908			12.4			7,347			17.2			8,384			22.6
2013		9,043			19.1			11,067			26.0			11,584			31.3
2014		9,250			19.6			10,144			23.8			—			—
2015		11,956			25.2			—			—			—			—

Gross RIF	$	47,409			100.0	%	$	42,656			100.0	%	$	37,059			100.0	%

Ceded RIF^(a)		(10,745	)					(131	)					(343	)

Net RIF	$	36,664					$	42,525					$	36,716

(a)	Ceded RIF as of December 31, 2015 includes the impact of our 50% quota share agreement with NUFIC. We expect that this agreement will have an increasing impact on our financial results in future periods.

The following table presents the development of IIF as of the dates or for the periods indicated.


	As of or for the Year Ended December 31,
	2015			2014			2013

IIF (dollars in millions)
IIF, beginning of period	$	165,623		$	146,390		$	121,378
NIW		50,842			42,038			49,356
Cancellations and other reductions^(a)		(32,999	)		(22,805	)		(24,344	)

IIF, end of period	$	183,466		$	165,623		$	146,390

(a)	Other reductions primarily reflect the estimated amortization of the unpaid principal balance of covered mortgages.

In addition to the IIF and gross and net RIF presented in the tables above, we had $2.3 billion, $2.5 billion and $2.6 billion of IIF and $130.5 million, $162.8 million and $172.7 million of gross and net RIF on structured mortgage insurance policies as of December 31, 2015, 2014 and 2013, respectively. We have not written any new structured mortgage insurance coverage since 2008. The financial results of our structured mortgage insurance portfolio are included in our First-Lien U.S. Mortgage Guaranty results of operations; however, they are excluded from the presentation of insured portfolio statistics including IIF, gross and net RIF, persistency rate and delinquencies. See “Business—Our Products and Services—First-Lien U.S. Mortgage Insurance—Structured Mortgage Insurance Products.”

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Gross Premiums Written

For the year ended December 31, 2015, gross premiums written increased by 6.7% to $1.0 billion, compared to $951.8 million for the year ended December 31, 2014, primarily due to growth in our NIW and IIF. For the year ended December 31, 2014, gross premiums written decreased by 4.2% to $951.8 million compared to $994.0 million for the year ended December 31, 2013, primarily due to a decrease in the single premium portion of NIW, partially offset by growth in IIF.

The table below shows gross premiums written by policy payment type for the periods indicated.


	Year Ended December 31,
	2015					2014					2013
Gross premiums written (dollars in thousands)	Gross Premiums Written		Percentage by Gross Premiums Written			Gross Premiums Written		Percentage by Gross Premiums Written			Gross Premiums Written		Percentage by Gross Premiums Written

Policy payment type
Monthly	$	687,178		67.7	%	$	663,102		69.6	%	$	619,871		62.4	%
Single		317,175		31.2			277,556		29.2			355,516		35.8
Annual/Other		11,136		1.1			11,182		1.2			18,624		1.8

Total	$	1,015,489		100.0	%	$	951,840		100.0	%	$	994,011		100.0	%

Net Premiums Written and Net Premiums Earned

For the year ended December 31, 2015, net premiums written decreased by 33.6% to $614.3 million from $925.3 million for the year ended December 31, 2014, and net premiums earned decreased 9.6% to $730.5 million from $808.5 million for the year ended December 31, 2014, in each case primarily due to the implementation of the 50% quota share agreement with NUFIC.

For the year ended December 31, 2014, net premiums written decreased by 2.6% to $925.3 million from $949.9 million for the year ended December 31, 2013, primarily due to a decrease in the single premium policy portion of NIW, partially offset by growth in IIF. For the year ended December 31, 2014, net premiums earned increased by 16.5% to $808.5 million from $693.9 million primarily due to growth in IIF.

The table below presents net premiums earned by policy year for the periods indicated.


	Year Ended December 31,
	2015					2014					2013
Net premiums earned (dollars in thousands)	Net Premiums Earned		Percentage by Net Premiums Earned			Net Premiums Earned		Percentage by Net Premiums Earned			Net Premiums Earned		Percentage by Net Premiums Earned

Policy year
2015	$	62,754		8.6	%	$	—		—	%	$	—		—	%
2014		76,532		10.5			74,926		9.3			—		—
2013		187,730		25.7			220,802		27.3			102,143		14.7
2012		108,057		14.8			147,839		18.3			143,083		20.7
2011		35,152		4.8			52,985		6.5			61,238		8.8
2010		14,917		2.0			23,610		2.9			29,356		4.2
2009		14,655		2.0			24,193		3.0			29,843		4.3

2009 to 2015		499,797		68.4			544,355		67.3			365,663		52.7
2008 and prior		230,734		31.6			264,146		32.7			328,193		47.3

Total	$	730,531		100.0	%	$	808,501		100.0	%	$	693,856		100.0	%

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As shown in the table above, our net premiums earned from post-crisis (2009 to 2015) policy years increased as a percentage of our net premiums earned from 2013 to 2014 and 2014 to 2015. Net premiums earned in 2015 were impacted by premiums ceded to NUFIC under the 50% quota share agreement.

Net Investment Income

For the year ended December 31, 2015, net investment income increased to $127.5 million, from $123.9 million for the year ended December 31, 2014, primarily due to an increase in the size of our investment portfolio as a result of cash flows generated from operations and partially offset by lower yields on new investments. Our average cash and invested asset balance was $4.2 billion and $4.0 billion during the years ended December 31, 2015 and 2014, respectively, of which the majority was held by our First-Lien U.S. Mortgage Guaranty segment. Our pre-tax investment yield was 3.3% and 3.5% for the years ended December 31, 2015 and 2014, respectively. Pre-tax investment yield is calculated as net investment income divided by the daily average book value of our invested assets during the period.

For the year ended December 31, 2014, net investment income increased to $123.9 million from $115.6 million for the year ended December 31, 2013, primarily due to an increase in the size of our investment portfolio as a result of cash flows generated from operations. Our average cash and invested asset balance was $4.0 billion and $3.5 billion during the years ended December 31, 2014 and 2013, respectively, of which the majority was held by our First-Lien U.S. Mortgage Guaranty segment. Our pre-tax investment yield was 3.5% and 3.7% for the years ended December 31, 2014 and 2013, respectively.

Losses and LAE Incurred

For the year ended December 31, 2015, losses and LAE incurred decreased to $169.0 million, from $233.0 million for the year ended December 31, 2014. The 27.5% decline was driven by a reduction in our delinquent inventory during the year ended December 31, 2015, as cures and paid claims exceeded the number of newly reported delinquencies for the period. Our primary delinquency ratio as of December 31, 2015 was 3.4% compared to 4.4% as of December 31, 2014. The decline was also driven by favorable prior year loss development of $34.3 million in 2015.

For the year ended December 31, 2014, losses and LAE incurred decreased to $233.0 million, from $461.8 million for the year ended December 31, 2013. The 49.5% decline was driven by a reduction in our delinquent inventory during the year ended December 31, 2014, as cures and paid claims exceeded the number of newly reported delinquencies for the period. Our primary delinquency ratio as of December 31, 2014 was 4.4% compared to 5.9% as of December 31, 2013. The decline was also driven by favorable prior year loss development of $47.2 million in 2014, which primarily related to a settlement with a large lender, compared to an unfavorable prior year loss development of $46.3 million in 2013.

The following table presents losses and LAE incurred by current year and prior year components for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Losses and LAE incurred (dollars in thousands)
Current year incurred	$	203,222		$	280,180		$	415,487
Prior year loss development		(34,258	)		(47,196	)		46,290

Losses and LAE incurred	$	168,964		$	232,984		$	461,777

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The following table presents a summary of our delinquent inventory activity as of the dates or for the periods indicated.


	As of or for the Year Ended December 31,
	2015			2014			2013

Number of policies Delinquent inventory
Number of delinquencies at the beginning of the period		38,357			47,518			62,832
Newly reported delinquencies		39,619			47,239			56,194
Cures		(36,279	)		(42,680	)		(51,283	)
Claims paid		(8,451	)		(11,601	)		(19,862	)
Other^(a)		(1,961	)		(2,119	)		(363	)

Number of delinquencies at the end of the period		31,285			38,357			47,518
Number of policies in force		923,627			865,861			799,573
Delinquency ratio		3.4	%		4.4	%		5.9	%
Cure rate^(b)		46.5	%		45.0	%		43.1	%

(a)	Other includes rescissions and commutations.

(b)	Cure rate is calculated by dividing the number of cures in a period by the sum of the number of delinquencies at the beginning of the period and newly reported delinquencies in the period.

The decrease in the number of newly reported delinquencies during the years ended December 31, 2015 and 2014 was primarily due to improving macroeconomic conditions in the United States, including an increase in home prices and a decrease in unemployment rates generally.

The following table presents a summary of our delinquent inventory by delinquency status as of the dates indicated.


	As of December 31,
	2015				2014				2013

Number of policies
Delinquency status
Missed payments:
Three payments or less		11,255	36.0	%		12,609	32.9	%		14,405	30.3	%
Four to eleven payments		7,955	25.4			9,951	25.9			12,380	26.1
Twelve or more payments		11,281	36.1			14,696	38.3			18,879	39.7
Pending claims		794	2.5			1,101	2.9			1,854	3.9

Total		31,285	100.0	%		38,357	100.0	%		47,518	100.0	%

The following table presents a summary of our delinquent inventory and delinquency rate by policy year grouping as of the dates indicated.


	As of December 31,
	2015					2014					2013
	Delinquencies		Rate			Delinquencies		Rate			Delinquencies		Rate

Number of policies
Policy year
2009 to 2015		2,684		0.4	%		1,946		0.3	%		1,272		0.3	%
2008 and prior		28,601		12.1			36,411		13.0			46,246		14.0

Total		31,285		3.4	%		38,357		4.4	%		47,518		5.9	%

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The following table presents a summary of our case reserves by policy year grouping as of the dates indicated.


	As of December 31,

Case reserves (dollars in thousands)	2015		2014

Policy year
2009 to 2015	$	48,068	$	37,974
2008 and prior		594,496		809,285

Case reserves	$	642,564	$	847,259

The following table presents a roll-forward of our loss and LAE reserves as of the dates or for the periods indicated.


	As of or for the Year Ended December 31,

Loss and LAE reserves (dollars in thousands)	2015			2014			2013

Policy year
Gross loss and LAE reserves at the beginning of the period	$	936,049		$	1,223,791		$	1,663,828
Less: Reinsurance recoverables		29,027			61,575			120,135

Net loss and LAE reserves at the beginning of the period		907,022			1,162,216			1,543,693
Incurred related to:
Current accident year		203,222			280,180			415,487
Prior accident year		(34,258	)		(47,196	)		46,290

Total incurred		168,964			232,984			461,777
Paid related to:
Current accident year		13,611			15,732			34,280
Prior accident year		378,971			471,964			808,084

Total paid		392,582			487,696			842,364
Foreign exchange effect		(225	)		(482	)		(890	)

Net loss and LAE reserves at the end of the period		683,179			907,022			1,162,216
Less: Reinsurance recoverables		23,341			29,027			61,575

Gross loss and LAE reserves at the end of the period	$	706,520		$	936,049		$	1,223,791

For the years ended December 31, 2015, 2014 and 2013 we paid $392.6 million, $487.7 million and $842.4 million in total claims, respectively. Our paid claims activity declined from 2013 through 2015 as policies originated prior to the financial crisis continued to run off and newly reported delinquencies declined.

Acquisition Expenses

For the year ended December 31, 2015, acquisition expenses increased 7.2% to $74.7 million, from $69.7 million for the year ended December 31, 2014, primarily due to growth in our NIW, partially offset by the effect of the 30% ceding commission under the 50% quota share agreement with NUFIC.

For the year ended December 31, 2014, acquisition expenses decreased 7.5% to $69.7 million, from $75.3 million for the year ended December 31, 2013, primarily due to the decrease in our NIW.

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General Operating Expenses

For the year ended December 31, 2015, general operating expenses remained flat at $134.1 million, from $134.6 million for the year ended December 31, 2014, primarily due to the amortization of the 30% deferred ceding commission under the 50% quota share agreement with NUFIC, partially offset by an increase in costs related to servicing the growth of the in-force business, higher allocation of corporate expenses to First-Lien U.S. Mortgage Guaranty as a result of increased IIF in that business compared to a decrease in IIF in Corporate and Other as insured portfolios contained therein continued to run off, technology and customer service initiatives, an impairment charge on certain capitalized technology costs and severance charges.

For the year ended December 31, 2014, general operating expenses increased 41.7% to $134.6 million, from $95.0 million for the year ended December 31, 2013, primarily due to increased technology expenses, an impairment charge on certain capitalized technology costs, and increased servicing costs.

Corporate and Other

The following table presents Corporate and Other results for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Selected income statement data (dollars in thousands)
Gross premiums written	$	51,922		$	87,804		$	92,703
Ceded premiums		(14,908	)		(11,165	)		(6,972	)

Net premiums written		37,014			76,639			85,731
Decrease in unearned premiums		4,601			6,777			21,639

Net premiums earned		41,615			83,416			107,370
Service revenue		12,126			5,308			5,520

Total underwriting and service revenue		53,741			88,724			112,890
Losses and LAE incurred		(14,979	)		(9,790	)		59,605
Acquisition expenses		242			1,461			3,510
General operating expenses		12,335			18,460			46,212

Total expenses		12,577			19,921			49,722
Net investment income		11,766			13,369			15,965

Pre-tax operating income	$	67,909		$	91,962		$	19,528

For the year ended December 31, 2015, pre-tax operating income in Corporate and Other was $67.9 million, compared to $92.0 million for the year ended December 31, 2014. This decrease was primarily due to a decrease in pre-tax operating income from our second-lien mortgage insurance portfolio which generated low premiums earned as the business continued to run off. Second-lien results in 2014 also benefited from a $23.7 million settlement.

For the year ended December 31, 2014, pre-tax operating income in Corporate and Other was $92.0 million, compared to $19.5 million for the year ended December 31, 2013, primarily due to $41.4 million of favorable prior year loss development within our run-off second-lien mortgage insurance portfolio and the previously mentioned $23.7 million settlement.

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Pre-Tax Operating Income

Pre-tax operating income is an important measure of performance used by our chief operating decision makers in our First-Lien U.S. Mortgage Guaranty segment in accordance with Accounting Standard Codification 280—Segment Reporting. We also use it as a measure of performance in our Corporate and Other results. Pre-tax operating income is derived by excluding net realized capital gains and losses and income taxes from net income. Net realized capital gains and losses can vary significantly across periods as such activity is highly discretionary based on the timing of individual security sales due to such factors as market opportunities, our tax and capital profile, and the overall market cycle. As such, we do not view net realized capital gains and losses as part of the operating performance of our segment. Pre-tax operating income is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP income before income tax, the most comparable GAAP financial measure. Our definition of pre-tax operating income may not be comparable to similarly named measures reported by other companies. See Note 4 to our consolidated financial statements.

The following table shows pre-tax operating income for our First-Lien U.S. Mortgage Guaranty segment and Corporate and Other results and income before income tax for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

(dollars in thousands)
First-Lien U.S. Mortgage Guaranty pre-tax operating income	$	480,287		$	495,131		$	177,327
Corporate and Other pre-tax operating income		67,909			91,962			19,528

Total pre-tax operating income		548,196			587,093			196,855
Net realized capital losses		(893	)		(2,895	)		(3,468	)

Income before income tax	$	547,303		$	584,198		$	193,387

Investments

Substantially all of our investment portfolio consists of fixed maturity securities. As of December 31, 2015, the total fair value of our fixed maturity securities was $4.1 billion, compared to $3.9 billion as of December 31, 2014. In addition, as of December 31, 2015, our investment portfolio included approximately $123.3 million of short-term investments, compared to $189.8 million as of December 31, 2014. We have adopted an investment policy that defines specific limits for investment concentration by asset sector, issuer, credit rating, asset duration, industry and geographic concentration, and by eligible and ineligible investments.

The following table presents the fair value of our available-for-sale fixed maturity securities as of the dates indicated.


	As of December 31,
Fair value (dollars in thousands)	2015				2014

Fixed maturity securities
U.S. government and government-sponsored entities	$	23,065	0.6	%	$	46,605	1.2	%
Obligations of states, municipalities and political subdivisions		1,443,954	35.2			1,686,671	43.0
Non-U.S. governments		57,193	1.4			112,001	2.9
Corporate debt		2,198,589	53.8			1,794,227	45.8
Commercial mortgage-backed securities		182,118	4.5			126,553	3.2
Collateralized debt obligations/asset-backed securities		184,672	4.5			151,944	3.9

Total	$	4,089,591	100.0	%	$	3,918,001	100.0	%

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As of December 31, 2015, based on fair value, 95.1% of our fixed maturity securities were rated investment grade. The following table presents the composite credit ratings of our fixed maturity securities calculated on the basis of their fair value as of the dates indicated. For substantially all of our fixed maturity securities, the credit ratings reflect a composite of the ratings of the three major rating agencies, Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Financial Services LLC (“S&P”) and Fitch Ratings, Inc., or when agency ratings are not available, the rating assigned by the NAIC Securities Valuation Office. For less than 1% of our fixed maturity securities, the credit ratings reflect our equivalent internal ratings when these investments have not been rated by any of the major rating agencies or the NAIC.


	As of December 31,
Fair value (dollars in thousands)	2015				2014

Credit rating
Government and corporate fixed maturity securities
AAA	$	352,425	8.6	%	$	404,901	10.3	%
AA		1,136,796	27.8			1,316,458	33.6
A		1,053,073	25.8			945,959	24.1
BBB		980,433	24.0			843,104	21.5
Below investment grade		200,074	4.9			129,082	3.3

Total	$	3,722,801	91.1	%	$	3,639,504	92.8	%

Mortgage-backed, asset-backed and collateralized
AAA	$	143,480	3.5	%	$	107,958	2.8	%
AA		91,527	2.2			78,806	2.0
A		65,076	1.6			60,951	1.6
BBB		66,296	1.6			30,374	0.8
Below investment grade		411	0.0			408	0.0

Total	$	366,790	8.9	%	$	278,497	7.2	%

Total
AAA	$	495,905	12.1	%	$	512,859	13.1	%
AA		1,228,323	30.0			1,395,264	35.6
A		1,118,149	27.4			1,006,910	25.7
BBB		1,046,729	25.6			873,478	22.3
Below investment grade		200,485	4.9			129,490	3.3

Total	$	4,089,591	100.0	%	$	3,918,001	100.0	%

The credit ratings assigned by rating agencies are based on many quantitative and qualitative factors, and may change at any time. A rating agency issuing the rating may withdraw or change its rating at any time, which could have an adverse effect on the market price of the securities included in our investment portfolio.

As of December 31, 2015, our U.S. municipal bond portfolio was composed primarily of essential service revenue bonds and high-quality tax-backed bonds with over 97.4% of the portfolio rated A or higher.

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The following table presents the fair values of our available-for-sale U.S. municipal bond portfolio by state and municipal bond type as of the dates indicated.


	As of December 31, 2015								As of December 31, 2014 Total Fair Value
	State General Obligation		Local General Obligation		Revenue		Total Fair Value		As of December 31, 2014 Total Fair Value

State (dollars in thousands)
New York	$	—	$	7,361	$	249,942	$	257,303	$	235,404
California		11,386		50,210		148,557		210,153		259,688
Texas		45,480		50,014		60,252		155,746		258,229
Illinois		18,827		9,232		55,888		83,947		78,182
Washington		44,070		27,612		11,099		82,781		66,734
Massachusetts		49,850		—		20,877		70,727		108,572
Virginia		11,313		—		50,332		61,645		76,188
Connecticut		39,162		—		16,260		55,422		38,407
Florida		6,199		—		47,610		53,809		70,509
Georgia		49,254		—		—		49,254		53,708
Nevada		38,393		—		—		38,393		39,572
Washington DC		—		—		36,302		36,302		33,294
Maryland		4,207		14,534		13,730		32,471		40,381
All other states^(a)		8,885		43,160		203,956		256,001		327,803

Total^(b)	$	327,026	$	202,123	$	914,805	$	1,443,954	$	1,686,671

(a)	Excludes certain university and not-for-profit entities that issue their bonds in the corporate debt market. Includes industrial revenue bonds.

(b)	Includes $282.8 million of pre-refunded municipal bonds.

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The following table presents the aging of the pre-tax unrealized losses of our fixed maturity securities, the extent to which the fair value is less than amortized cost or cost, and the number of respective items in each category as of December 31, 2015.


As of December 31, 2015	Less Than or Equal to 20% of Cost^(b)						Greater Than 20% to 50% of Cost^(b)						Greater Than 50% of Cost^(b)						Total

Aging^(a)	Unrealized						Unrealized						Unrealized						Unrealized
(dollars in thousands)	Cost^(c)		Loss		Items^(d)		Cost^(c)		Loss		Items^(d)		Cost^(c)		Loss^(e)		Items^(d)		Cost^(c)		Loss		Items^(d)

Investment grade bonds
0 to 6 months	$	931,701	$	12,409		322	$	—	$	—		—	$	—	$	—		—	$	931,701	$	12,409		322
7 to 11 months		431,271		17,763		139		9,847		2,035		2		—		—		—		441,118		19,798		141
12 months or more		98,139		6,472		48		3,001		661		1		—		—		—		101,140		7,133		49

Total	$	1,461,111	$	36,644		509	$	12,848	$	2,696		3	$	—	$	—		—	$	1,473,959	$	39,340		512

Below investment grade bonds
0 to 6 months	$	79,695	$	2,597		131	$	5,591	$	1,753		5	$	—	$	—		—	$	85,286	$	4,350		136
7 to 11 months		17,719		1,436		39		4,319		1,235		9		—		—		—		22,038		2,671		48
12 months or more		12,531		1,097		14		3,321		988		4		5,909		3,917		3		21,761		6,002		21

Total	$	109,945	$	5,130		184	$	13,231	$	3,976		18	$	5,909	$	3,917		3	$	129,085	$	13,023		205

Total bonds
0 to 6 months	$	1,011,396	$	15,006		453	$	5,591	$	1,753		5	$	—	$	—		—	$	1,016,987	$	16,759		458
7 to 11 months		448,990		19,199		178		14,166		3,270		11		—		—		—		463,156		22,469		189
12 months or more		110,670		7,569		62		6,322		1,649		5		5,909		3,917		3		122,901		13,135		70

Total	$	1,571,056	$	41,774		693	$	26,079	$	6,672		21	$	5,909	$	3,917		3	$	1,603,044	$	52,363		717

(a)	Represents the number of consecutive months that fair value has been less than cost by any amount.

(b)	Represents the percentage by which fair value is less than cost as of December 31, 2015.

(c)	Represents amortized cost.

(d)	Item count is by CUSIP by subsidiary.

(e)

Primarily comprised of three fixed maturity securities in the energy sector. These securities were evaluated for other-than-temporary impairments and, where applicable, an impairment was recorded to the recoverable value, which became their new carrying value in 2015. As of December 31, 2015 management believed that the current carrying value should not be further impaired. These securities will continue to be reviewed for other-than-temporary impairments in 2016.

As of December 31, 2015, we held 717 individual fixed maturity securities that were in an unrealized loss position, of which 70 were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities as of December 31, 2015 because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts, and other available market data.

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The following table presents the industry categories of our available-for-sale corporate debt securities as of the dates indicated.


	As of December 31,
Fair value (dollars in thousands)	2015		2014

Available-for-sale corporate debt securities
Financial institutions	$	443,443	$	120,134
Utilities		284,180		239,951
Energy		235,570		240,524
Capital goods		218,054		159,447
Consumer non-cyclical		216,423		292,871
Consumer cyclical		204,140		204,363
Basic		162,196		168,834
Transportation		145,849		66,177
Communications		119,661		125,510
Technology		94,337		89,135
Other		74,736		87,281

Total	$	2,198,589	$	1,794,227

As of December 31, 2015 and 2014, approximately 91.0% and 93.0%, respectively, of our available-for-sale corporate debt holdings were rated investment grade.

The following table presents the fair values and average yield of our available-for-sale bond portfolio by maturity as of the dates indicated.


Available-for-sale fixed maturity securities by maturity (dollars in thousands)	As of December 31,
	2015					2014

	Fair Value		Average Yield			Fair Value		Average Yield

Less than one year	$	45,198		2.9	%	$	55,332		3.5	%
1 to <2 years		24,187		3.5			239,402		2.8
2 to <3 years		112,143		3.4			85,622		2.6
3 to <4 years		157,184		3.5			246,750		3.1
4 to <5 years		135,329		4.1			250,967		3.2
Five or more years		3,615,550		3.8			3,039,928		3.8

Total	$	4,089,591		3.8	%	$	3,918,001		3.6	%

Liquidity and Capital Resources

Overview

UGC serves as the holding company for UGCNC and its subsidiaries and does not have any operations of its own. UGCNC is also a holding company with limited operations. UGC’s and UGCNC’s principal liquidity demands include funds for: (1) payment of certain corporate expenses and reimbursable expenses of our subsidiaries, (2) capital support for our insurance subsidiaries and (3) payment of federal and state income taxes.

We expect to meet the liquidity needs of UGC with dividends from UGCNC, which in turn will be derived from a combination of (1) expense reimbursements from subsidiaries, (2) dividends from our insurance subsidiaries, if available and permitted by state regulators and the GSEs, (3) investment income from UGCNC’s investment portfolio and (4) available cash and investments.

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Our primary operating subsidiaries, UGRIC and UGMIND, are domiciled in North Carolina. Under North Carolina’s insurance laws, an insurer may pay “ordinary dividends” without the prior approval of the NCDOI when the total of all other dividends declared or distributed by it during the preceding 12 months does not exceed the greater of (1) 10% of its surplus as regards policyholders as of the preceding December 31, or (2) the net income (not including realized capital gains) for the 12-month period ending the preceding December 31. North Carolina’s insurance laws also require that ordinary dividends be paid out of positive unassigned surplus. As of December 31, 2015, UGRIC had positive unassigned surplus of approximately $666 million. The NCDOI, in its discretion, may also approve a dividend distribution greater than would be permitted as an ordinary dividend (an “extraordinary dividend”). Under North Carolina’s statute, as of December 31, 2015, the calculated maximum amount of ordinary dividends payable by UGRIC in 2016 is approximately $310 million. On February 25, 2016, the board of directors of UGCNC authorized payment of a dividend of up to $310 million to AIG, and such dividend received the last regulatory non-objection on March 30, 2016. The $310 million dividend was subsequently paid to AIG on March 30, 2016, in $78 million of cash and $232 million of fixed maturity securities having a fair market value equal to their carrying value.

In addition to NCDOI state regulatory limitations, future dividends from our primary operating subsidiaries, UGRIC and UGMIND, will be restricted to the excess of PMIERs available assets over PMIERs minimum required assets at each respective subsidiary. As of December 31, 2015, we held combined PMIERs available assets of $3.6 billion and our combined PMIERs minimum required assets were $3.0 billion.

As of December 31, 2015, UGCNC had $6.4 million of cash, compared to $2.2 million as of December 31, 2014. UGCNC’s cash increased during the year ended December 31, 2015 as compared to the year ended December 31, 2014, primarily as a result of higher investment income in 2015, and a decrease in cash during the year ended December 31, 2014 due to a $20.0 million dividend payment to AIG.

At the operating subsidiary level, our primary source of funds consists of:

•

premiums, net of reinsurance, that we receive from our existing IIF as well as insurance we write in the future;

•

amounts that we recover from reinsurance arrangements; and

•

net investment income from our investment portfolio.

Our primary obligations at the operating subsidiary level primarily consist of:

•

claims payments under our mortgage insurance policies; and

•

costs and expenses of operating our business.

Cash flow and capital at individual operating subsidiaries are not transferrable across legal entities because of the dividend restrictions mentioned above and other regulatory requirements.

The following table presents a summary of our sources and uses of cash for the periods indicated.


	Year Ended December 31,
	2015			2014			2013

Sources and uses of cash (dollars in thousands)
Net cash provided by (used in) operating activities	$	272,456		$	248,996		$	(17,751	)
Net cash (used in) provided by investing activities		(248,713	)		(224,487	)		71,566
Net cash (used in) financing activities		(1,746	)		(20,000	)		(90,000	)
Effect of exchange rate changes on cash		(1,404	)		(2,306	)		2,155

Change in cash	$	20,593		$	2,203		$	(34,030	)

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Operating Activities

For the year ended December 31, 2015, net cash provided by operating activities was $272.5 million compared to $249.0 million for the year ended December 31, 2014. The increase in net cash provided was due to reduced claims payments due to lower delinquent inventory, partially offset by the implementation of the 50% quota share agreement with NUFIC. See “Relationships and Related Party Transactions—Relationship with AIG—Reinsurance.”

For the year ended December 31, 2014, net cash provided by operating activities was $249.0 million compared to $17.8 million used in operating activities for the year ended December 31, 2013. The increase in net cash provided was primarily attributable to a decrease in claims payments due to lower delinquent inventory.

Investing Activities

For the year ended December 31, 2015, net cash used in investing activities was $248.7 million compared to $224.5 million for the year ended December 31, 2014. The increase in net cash used was primarily due to the investment of increased operating cash flow.

For the year ended December 31, 2014, net cash used in investing activities was $224.5 million compared to $71.6 million provided by investing activities for the year ended December 31, 2013. The increase in net cash used was primarily due to the investment of increased operating cash flow.

Financing Activities

For the year ended December 31, 2015, net cash used in financing activities was $1.7 million compared to $20.0 million for the year ended December 31, 2014. The decrease in net cash used was due to a decrease in cash dividends paid to AIG in 2015. Non-cash dividends of $78.3 million were paid to AIG in 2015 in the form of a transfer of investment securities.

For the year ended December 31, 2014, net cash used in financing activities was $20.0 million compared to $90.0 million for the year ended December 31, 2013. The decrease in net cash used was due to lower dividends paid to AIG in 2014.

Liquidity

We expect to have sufficient liquidity available, both at the holding company level and in our insurance and other operating subsidiaries, to meet our operating cash needs and obligations and committed capital expenditures for the next 12 months through cash from operations and, to the extent necessary, sales of securities. As of December 31, 2015, we maintained liquidity in the form of cash and short-term investments, and we also held significant levels of investment-grade fixed maturity securities, which can be monetized should our cash and short-term investments not be sufficient to meet obligations.

Liquidity may be impacted by a significant decline in the value of our investments and an inability to sell invested assets, a decline in premiums collected, an increase in claims payments on our insurance policies or an increase in operating expenses. Separately, additional capital may be required to meet any new capital requirements imposed by the GSEs, state insurance regulators or other authorities, including revisions to or changes in the application of PMIERs, to the extent that they were to occur over time.

Our operating subsidiaries are party to agreements with AIG that provide liquidity and capital support under certain circumstances. Effective January 1, 2015, UGRIC entered into a 50% quota share agreement with NUFIC. Under the terms of the agreement, as amended, UGRIC (1) ceded 50% of the risk relating to policies written in 2014 that were current as of January 1, 2015, (2) ceded 50% of the risk relating to all policies written in 2015 and (3) will cede 50% of the risk relating to all policies written in 2016, each in exchange for a 30% ceding commission and reimbursement of 50% of the losses and LAE incurred on covered policies. See

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“Relationships and Related Party Transactions—Relationship with AIG—Reinsurance.” Additionally, UGRIC is party to a capital maintenance agreement with AIG, pursuant to which AIG has agreed to provide capital in the event that UGRIC’s risk-to-capital ratio rises above 19:1, and a net worth maintenance agreement with AIG, pursuant to which AIG has agreed to provide capital in the event that UGRIC’s risk-to-capital ratio rises above 21:1. The net worth maintenance agreement was terminated on a run-off basis on July 1, 2013; however, AIG remains bound by its terms until all policies written prior to July 1, 2013 are no longer in force. Our intermediate holding company, UGCNC, also has a line of credit agreement with AIG of $200 million. Currently, no amounts are drawn on this line of credit.

Risk-to-Capital Ratio

We compute our risk-to-capital ratio on a separate company statutory basis, as well as for our combined insurance operations. The risk-to-capital ratio is net RIF divided by policyholders’ surplus (including statutory contingency reserve). Our net RIF represents risk in force from both primary and pool policies, net of reinsurance ceded, and excludes risk on policies that are currently delinquent and for which loss reserves have been established.

The following table presents our combined risk-to-capital ratio as of December 31, 2015.


Combined statutory capital^(a)
(dollars in thousands)
Surplus as regards policyholders	$	1,501,097
Contingency reserves		956,304

Combined statutory capital	$	2,457,401

Adjusted net RIF^(b)	$	35,612,554
Combined risk-to-capital ratio (adjusted net-RIF-to-statutory-capital)^(b)		14.5:1

(a)	Reflects the results and position of our first-lien U.S. mortgage insurance subsidiaries.

(b)	Adjusted net RIF for purposes of calculating combined statutory risk-to-capital differs from net RIF presented elsewhere in this prospectus. In accordance with North Carolina insurance regulations, adjusted net RIF excludes delinquent policies.

Our first-lien U.S. mortgage insurance subsidiaries are domiciled in North Carolina. Under the insurance regulations of North Carolina, mortgage insurance companies are required to maintain an individual company risk-to-policyholder position ratio below 25:1 in order to continue writing new business. Combined statutory capital is calculated as surplus as regards policyholders plus contingency reserves. Each of our first-lien U.S. mortgage insurance subsidiaries maintained a ratio below this level for the years ended December 31, 2015, 2014 and 2013.

PMIERs

In April 2015, Fannie Mae and Freddie Mac each released revised PMIERs, which became effective December 31, 2015. PMIERs include revised financial requirements for mortgage insurers, under which a mortgage insurer must maintain financial adequacy as measured using a risk-based evaluation comparing available assets to minimum required assets. Under these rules, “PMIERs available assets” are, generally, assets that are readily available to pay claims and primarily include investments such as cash and bonds. “PMIERs minimum required assets” are a function of an insurer’s RIF as adjusted for certain risks ceded to or assumed from non-exclusive affiliated reinsurers or non-affiliated reinsurers and for the risk profile of the associated loans; PMIERs minimum required asset amount is computed using tables of factors published as part of PMIERs, with several risk dimensions applied to the adjusted RIF.

As of December 31, 2015, we were in compliance with all aspects of PMIERs. We held combined PMIERs available assets of $3.6 billion and our combined PMIERs minimum required assets were $3.0 billion.

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Financial Strength Ratings

The following table presents our primary operating subsidiaries’ financial strength ratings from Moody’s and S&P.


	Moody’s	S&P

UGRIC	Baa1	BBB+
UGMIND	Not rated	BBB+

As a result of AIG’s announcement of its plan to sell up to 19.9% of our common stock, on March 23, 2016, S&P lowered its financial strength ratings of UGRIC and UGMIND to BBB+ (stable) from A to reflect the removal of long-term parental support. The BBB+ (stable) financial strength ratings are one notch higher than S&P’s previously indicated standalone ratings for UGRIC and UGMIND, reflecting their improved standalone credit profile. In addition, Moody’s placed its rating of UGRIC under review for downgrade. Moody’s has not yet announced the outcome of its review.

Financial strength ratings are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and are not an evaluation directed to investors. A rating agency issuing the rating may withdraw or change its rating at any time.

Contractual Obligations

The following table presents our payments due under contractual obligations by period as of December 31, 2015.


	Payment due by period

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Contractual Obligations (dollars in millions)
Operating lease obligations	$	25.1	$	6.8	$	12.4	$	5.9	$	—
Estimated loss and LAE reserves^(a)		738.0		317.3		310.0		81.2		29.5

Total	$	763.1	$	324.1	$	322.4	$	87.1	$	29.5

(a)

Our estimate of loss and LAE reserves reflects the application of accounting policies described in “—Critical Accounting Estimates—Loss Reserves.” The payments due by period are based on management’s estimates and assume that all of the loss and LAE reserves included in the table will result in payments.

Off-Balance Sheet Arrangements

Bellemeade Re is a special purpose variable interest entity that is not consolidated in our financial results because we do not have the unilateral power to direct those activities that are significant to its economic performance. As of December 31, 2015, our estimated off-balance sheet maximum exposure to loss from Bellemeade Re was $1.3 million. See Note 12 to our consolidated financial statements for further information.

Quantitative and Qualitative Disclosures about Market Risk

We own a large investment portfolio of various holdings, types and maturities. Investment income is one of our primary sources of cash flow to support operations and claims payments. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance.

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Our investment portfolio has been managed by an affiliate of AIG. We manage market risk under a defined investment policy implemented by our treasury function, with oversight from our board of directors and our senior management. Important drivers of our market risk exposure include, but are not limited to:

•

Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates, which may in turn require that the investment portfolio be restructured to better align with future liabilities and claims payments. Such restructuring may require investments to be liquidated when market conditions are adverse.

•

Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.

•

Market volatility or changes in real or perceived credit quality of our investments. Deterioration in the quality of our investments, identified through changes to our own or to third-party (e.g., rating agency) assessments, may reduce the value and potentially the liquidity of our investments.

•

Concentration risk. If our investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by a change in value of just one asset or in a group of highly correlated assets.

•

Prepayment risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt. Such prepayment may affect the long-term distribution of our investments.

As of December 31, 2015, the modified duration of our fixed income investment portfolio was approximately 5.8 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 5.8% in the fair value of our fixed income portfolio. An upward shift in the yield curve would cause the fair value of our portfolio to decrease and a downward shift in the yield curve would cause the fair value to increase.

Market risk is measured for all investment assets at the individual security level. Market risks that are not fully captured by the quantitative analysis are highlighted. In addition, material market risk changes between current and previous reporting periods are discussed. Changes to how risks are managed will also be identified and described.

We have historically been exposed to modest foreign exchange risk through our international operations. This exposure has declined as we have moved to exit the majority of these international businesses.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. The accounting policies that we believe are most dependent on the application of estimates and assumptions which are critical accounting estimates are related to the determination of:

•

loss reserves,

•

premiums,

•

deferred policy acquisition costs and ceding commissions, and

•

investments.

These accounting estimates require the use of assumptions about various matters, some of which may be highly uncertain at the time of estimation. To the extent actual experience may differ from the assumptions used, our consolidated financial condition, results of operations and cash flows may be materially affected.

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Loss Reserves. We establish a liability for unpaid losses and LAE when we receive notices of two or more missed payments on insured mortgage loans. We evaluate reserves using loss development methods, supplemented by an internal claims analysis by our actuaries and staff. The reserve analysis projects ultimate losses for claims within each of several reserving categories based on actual historical experience, using primarily a frequency/severity loss development approach. Additional reserve analyses are also employed, such as measuring the trend of losses as a percent of RIF. Reserves are reviewed separately for each line of business considering the loss development characteristics, volume of claims data available and applicability of various actuarial methods to each line.

Losses and LAE reserves are established for reported delinquencies and estimates of delinquencies that have been incurred but have not been reported by loan servicers, based upon historical reporting trends. We establish reserves using a percentage of the contractual liability (for each delinquent loan reported) that is based upon projected claim experience for each category of delinquency, consistent in total with the overall reserve estimate.

Our losses and LAE can be affected by macroeconomic events, such as home prices and unemployment rates. Because these macroeconomic events are subject to adverse or favorable change, the determination of the ultimate losses and LAE requires a high degree of judgment. In addition, loans with modifications through government and lender programs may re-default resulting in new losses if adverse economic conditions were to return.

Premiums. Contracts for mortgage insurance are generally guaranteed as non-cancellable by the insurer, and are renewable at the insured’s option on a monthly, annual or single premium basis. Premiums written under policies having single premium payments for the entire policy term are initially deferred as unearned premium reserve and amortized into earnings over the policy life in accordance with the expiration of risk based on our estimated loss emergence pattern. Our estimation of loss emergence patterns involves significant assumptions about the frequency and severity of losses on such policies based upon historical experience. We conduct an annual actuarial review to evaluate and, if necessary, update these assumptions.

Deferred Policy Acquisition Costs and Ceding Commissions. Direct and incremental costs associated with the successful acquisition of mortgage insurance business, such as premium taxes, employee compensation, and other policy issuance and underwriting expenses, are initially deferred and reported as deferred policy acquisition costs. Deferred policy acquisition costs are amortized in proportion to estimated gross profits. The estimation of expected gross profits involves significant judgment and assumptions regarding persistency rate and loss emergence patterns. These assumptions are evaluated annually and updated as necessary.

Ceding commissions on reinsurance transactions that represent a recovery of policy acquisition costs that have been deferred are reflected in deferred policy acquisition costs. Any remaining ceding commissions are recorded as a liability and amortized into expenses. Ceding commissions are amortized in proportion to estimated gross profits. As a result, the amortization of ceding commissions is subject to the estimates described for deferred policy acquisition costs.

Investments. Our fixed maturity securities are recorded at fair value in the consolidated balance sheets and are measured and classified in a hierarchy for disclosure purposes consisting of three “levels” based on the observability of inputs available in the marketplace used to measure the fair value. Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is unobservable. We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when valuing the asset or liability. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment. We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant unobservable inputs in their valuation, including contractual terms, prices and rates, yield curves, credit curves, measures of volatility, prepayment rates, default rates, mortality rates and correlations of such inputs. See Note 6 to our consolidated financial statements for additional information.

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Each quarter we perform reviews of all 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:

•

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;

•

extent and duration of the decline;

•

failure of the issuer to make scheduled interest or principal payments;

•

credit ratings from third-party rating agencies and changes in these credit ratings below investment grade;

•

current credit spreads, downgrade trends, industry and asset sector trends, and issuer disclosures and financial reports to determine if credit ratings from third party credit agencies are reasonable; and

•

adverse conditions specifically related to the security, an industry, or a geographic area.

Accounting Standards

For a description of the accounting standard adopted during 2015 and the future application of accounting standards, see Note 3 to our consolidated financial statements.

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BUSINESS

Overview

Private mortgage insurance plays a key role in the U.S. housing finance system by protecting mortgage lenders and investors against default on a portion of the unpaid principal balance of a covered mortgage. Private mortgage insurers help mitigate mortgage credit risk and facilitate the sale of mortgages to the GSEs and the secondary market. Such credit protection and secondary market sales allow lenders to increase their capacity for mortgage commitments and expand financing access to prospective homeowners.

We have a large and diverse customer base. Our long-standing presence in the private mortgage insurance market has allowed us to build customer relationships with many of the nation’s largest and highest quality lenders, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders and internet-sourced lenders. We have active relationships with over 1,800 customers. Our customer base is broadly diversified by lender size, type and geography, with no one customer representing more than 6% of our NIW in 2015. We have a national sales force of approximately 100 professionals, which we believe to be one of the largest in the industry, that helps drive growth in our client franchise.

We use a proprietary risk selection engine and pricing strategy that we believe differentiate us from our competitors. Following the financial crisis, we developed and implemented our proprietary RQI and Performance Premium models, which draw on over a decade of historical loan and mortgage insurance data. RQI utilizes over fifteen predictive variables to assess the likelihood of default on a given loan and assign a proprietary risk score. We use RQI to select which loans to insure, and, for most new business, in determining pricing on an individualized basis. The RQI score for each individual loan is a core component of our Performance Premium risk-based pricing model. Under our Performance Premium model, we have the flexibility to set and charge premium rates commensurate with the underlying risk of each loan that we underwrite. We believe that our proprietary RQI and Performance Premium models provide us with a more granular and analytical approach to selecting and pricing risk, and that this approach yields a high-quality mortgage insurance portfolio and attractive risk-adjusted returns.

We have a large and high-quality book of existing in-force mortgage insurance policies with $183.5 billion of IIF and $47.4 billion of gross RIF as of December 31, 2015. As of December 31, 2015, over 80% of our gross RIF was written after 2008, and our portfolio had an average LTV of 92% and an average FICO score of 738. Only 3.4% of our insured policies were reported to be delinquent as of December 31, 2015.

Market Opportunity

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private companies and three government agencies, the FHA, the VA and the USDA. Since 2009, the private mortgage insurance industry has generated improving financial returns as the overall economic outlook and the U.S. housing market have recovered. As the leading private mortgage insurer, we believe we are well-positioned to benefit from a number of continuing market trends.

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We believe that these sound fundamentals will lead to continued robust activity in the housing market and support growth in the mortgage insurance industry.

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Favorable long-term demographic drivers: According to the U.S. Census Bureau, the millennial generation, the cohort of Americans born between 1980 and 2000, is the largest demographic segment of the United States by age, representing more than one-quarter of the total population as of 2014. As the millennial generation ages, a record number of its members will reach and surpass 34 years of age, which is the average age of a first-time home buyer in the United States, according to a National Association of Homebuilders’ study of U.S. Census Bureau data. First-time homebuyers are particularly active users of mortgage insurance because they often lack the savings necessary to fund a 20% down payment and do not have access to the equity value in an existing property as an alternative source of funds. In addition to entering the typical age cohort of first-time homebuyers, the millennial generation has exhibited lower savings and homeownership rates relative to previous generations, according to Moody’s Analytics, Inc. and the U.S. Census Bureau, respectively. We believe that the maturing of the millennial generation, their projected transition from renters to homeowners, and their current savings rates will drive significant low down payment home purchase activity and opportunity in the private mortgage insurance market.

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Although we expect that credit standards will ease somewhat over time, we believe that regulatory reforms implemented as a result of the financial crisis, including the recently adopted QM, ATR and QRM rules, will create incentives for mortgage lenders to originate loans using prudent underwriting standards and result in a more stable housing market and housing finance system.

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Our Strengths

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Proprietary risk selection engine and pricing model: We employ a proprietary risk-based pricing framework that we believe differentiates us from other participants in the private mortgage insurance industry. Through our proprietary RQI, we evaluate every mortgage insurance application we receive against a multivariate framework to assess its relative likelihood of default. Our RQI scores are a key input in our Performance Premium pricing model, where we set individualized premium rates for most new business based on our view of the relative riskiness of each loan. Our pricing approach targets through-the-cycle returns that exceed our cost of capital. We believe that our RQI and Performance Premium models provide us with a granular understanding of the risks in our insured portfolio and will allow us to maintain a high-quality mortgage insurance portfolio and achieve attractive risk-adjusted returns.

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Strong balance sheet and financial position: We are a strongly-capitalized and highly-rated counterparty for our customers. As of December 31, 2015, our primary operating subsidiaries were in compliance with the newly effected private mortgage insurance eligibility requirements with combined PMIERs available assets of $3.6 billion and combined PMIERs minimum required assets of $3.0 billion. As of the same date, our first-lien U.S. mortgage insurance subsidiaries had combined statutory capital of $2.5 billion and a risk-to-capital ratio of 14.5:1. Our strong financial position and counterparty strength is critical to maintaining the confidence of our existing customers, establishing new customer relationships and growing our business.

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competitors and provides us with a more detailed understanding of the risks in our insured portfolio. We also utilize reinsurance and capital markets issuances to actively manage our risk aggregations, shape our insured portfolio composition and support our PMIERs compliance. In July 2015, we secured approximately $300 million of aggregate excess of loss reinsurance coverage at inception for new delinquencies on a portfolio of in-force policies through a mortgage insurance-linked notes offering by Bellemeade Re, a special purpose reinsurance company.

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Our Strategy

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Leveraging existing and establishing new customer relationships: We believe that we offer lenders a compelling opportunity to align with a well-capitalized, collaborative, private mortgage insurance partner that is focused on speed and quality of service, transparent claims practices, joint product design and regular loan portfolio reviews. We intend to continue to be customer-focused and to leverage our national sales force to deepen existing and establish new customer relationships.

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Our Company

United Guaranty Corp. was formed as a Delaware corporation on March 3, 2016 by AIG to act as a holding company for UGCNC and its subsidiaries. UGC is a newly incorporated entity and has had no business transactions or activities to date. Prior to this offering, UGC has been a wholly-owned subsidiary of AIG. AIG will contribute 100% of the common stock of UGCNC to UGC in connection with this offering.

Our business was founded in 1963 as a predecessor to UGCNC, a North Carolina corporation. UGCNC has been a wholly-owned subsidiary of AIG since 1981. We operate our business through our primary operating subsidiaries, UGRIC and UGMIND. UGRIC and UGMIND are domiciled in and regulated by the state of North Carolina. Both operate as monoline mortgage guaranty insurers and are approved as private mortgage guaranty insurers by the GSEs. United Guaranty Mortgage Insurance Company, United Guaranty Mortgage Insurance Company of North Carolina and United Guaranty Insurance Company are internal reinsurers that provide UGRIC and UGMIND with statutorily required reinsurance for loans with a coverage percentage in excess of 25%.

Other domestic insurance subsidiaries of UGC include:

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United Guaranty Partners Insurance Company, a captive reinsurance company domiciled in Vermont;

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United Guaranty Commercial Insurance Company of North Carolina, a credit insurance company domiciled in North Carolina;

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United Guaranty Residential Insurance Company of North Carolina, a credit insurance company domiciled in North Carolina;

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United Guaranty Credit Insurance Company, a monoline second-lien mortgage guaranty insurance company domiciled in North Carolina; and

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AIG Structured Mortgage Insurance Company, a mortgage guaranty insurance company domiciled in North Carolina. See “—Our Products and Services—First-Lien U.S. Mortgage Insurance—Structured Mortgage Insurance Products.”

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Set forth below is a summary organizational chart displaying our domestic insurance companies, our direct subsidiary UGCNC, and our parent company, AIG, following the completion of this offering and assuming no exercise of the underwriters’ option to purchase additional shares. All companies shown below are currently organized under the laws of North Carolina unless otherwise noted. Certain non-U.S. and non-insurance subsidiaries of UGCNC are not shown in light of their immaterial size or importance to our insurance business. Ownership of the entities in the table below is 100% unless otherwise noted. Upon the completion of this offering, AIG will beneficially own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full) and public shareholders will own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full).

LOGO

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Our Industry

Mortgage Market

The U.S. residential mortgage market is one of the largest in the world with approximately $10 trillion of debt outstanding as of September 30, 2015, and includes both primary and secondary components. The primary market consists of lenders originating home loans to borrowers, and includes loans made to support new home purchases, which are referred to as purchase-money originations, and loans made to refinance existing mortgages, which are referred to as refinancing originations. The secondary market includes institutions buying and selling mortgages in the form of whole loans or securitized assets, such as mortgage-backed securities.

GSEs

The GSEs are the largest participants in the secondary mortgage market, buying residential mortgages from banks and other primary lenders as part of their government mandate to provide liquidity and stability in the U.S. housing finance system. According to the Federal Reserve, the GSEs held or guaranteed approximately $4.8 trillion, or 48%, of total U.S. residential mortgage debt as of September 30, 2015. The GSE charters generally prohibit them from purchasing a low down payment loan unless the loan is insured by a GSE approved qualified insurer, the mortgage seller retains at least a 10% participation in the loan or the seller agrees to repurchase or replace the loan in the event of a default. Historically, private mortgage insurance has been the preferred method lenders have utilized to meet this GSE charter requirement. As a result, the nature of the private mortgage insurance industry in the United States is driven in large part by the business practices and mortgage insurance requirements of the GSEs.

Mortgage Insurance

Mortgage insurance plays a critical role in the U.S. residential mortgage market by facilitating secondary market sales to the GSEs. Mortgage insurance also provides lenders and investors a means to diversify their exposures and mitigate mortgage credit risk and offers certain financial institutions that hold high LTV loans credit against their regulatory capital requirements. Today, mortgage insurance products are primarily geared towards GSE secondary market sales. Prior to the financial crisis, there was also strong demand for mortgage insurance by private secondary market participants in connection with private label securitizations. Demand for and use of mortgage insurance may change if the private label securitization market rebounds in the future. The overall new business opportunity in the private mortgage insurance market may be modestly affected by normal seasonal trends in origination of low down payment mortgages. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Financial Results—Seasonality.”

Mortgage insurance volume is directly related to the total volume of high LTV mortgage originations and the mix between purchase-money and refinancing originations. Historically, mortgage insurance utilization has been meaningfully higher with new home purchases than with refinancings. In 2015, the total U.S. mortgage origination volume was $1.6 trillion, comprised of $881 billion purchase-money originations and $749 billion refinancing originations, according to the Mortgage Bankers Association.

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The following graph provides details on trends in total residential mortgage originations, and the split of the mortgage market between purchase-money and refinancing origination volumes, based on data from the Mortgage Bankers Association.

Residential Mortgage Originations: Purchase-Money vs. Refinancing (dollars in billions)

LOGO

Financial Crisis and Recovery

The severe economic and housing market dislocation experienced during the recent financial crisis had a profound impact on our industry. Mortgage insurers experienced record highs in claims activity and sustained significant financial losses. However, the dramatic improvement of housing market fundamentals and the high credit quality of new mortgage originations in the post-crisis period since 2009 have driven, and are expected to continue to drive, growth and profitability in the private mortgage insurance sector.

Prior to the financial crisis, private mortgage insurers accounted for the majority of the insured mortgage origination market. In 2007, private mortgage insurance represented 76.7% of insured mortgages. During the financial crisis, government agencies, including the FHA and VA, began to insure an increasing percentage of the market as private insurers came under significant financial stress. By 2009, private mortgage insurance represented only 14.9% of the insured mortgage market. Since 2010, the private mortgage insurance industry has captured an increased share of the total insured mortgage market and, in 2015, covered 34.1% of total insured mortgages.

A range of factors may drive continued change in the relative share of the public and private mortgage insurance markets, including the actual or perceived financial strength of private market participants, customer claims experience and confidence in counterparty willingness to fund obligations as owed, all-in cost of coverage differences, product cancellability features and relative risk appetite. We believe that changes imposed by the GSEs following the financial crisis to private mortgage insurance master policy forms and the implementation of PMIERs, among other developments, have strengthened the private mortgage insurance industry and enhanced the appeal of private mortgage insurance solutions.

In contrast to us and other private mortgage insurers, public mortgage insurers generally apply a flat pricing structure regardless of an individual borrower’s credit profile. As a result, borrowers with lower FICO scores are more likely to secure loans with public mortgage insurance coverage and borrowers with higher FICO scores are more likely to secure loans with private mortgage insurance coverage.

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In addition, public mortgage insurance policies are generally non-cancellable, meaning that borrowers are obligated to pay for coverage through the life of their loan. Private mortgage insurance policies, however, are cancellable in certain circumstances as provided by HOPA and GSE guidelines when the LTV of an underlying mortgage falls below 80%. As a result, borrowers with the highest LTVs are more likely to secure loans with public mortgage insurance coverage and those with lower LTVs (though still greater than 80%) are more likely to secure loans with private mortgage insurance coverage.

Competition

The U.S. private mortgage insurance industry is highly competitive. Private mortgage insurers generally compete on the basis of pricing, terms and conditions, underwriting guidelines, loss management practices, financial strength, certainty of coverage, reputation, customer relationships, service, technology, innovation and ease of use. The private mortgage insurance industry currently consists of seven active private mortgage insurers, including us and each of Arch Capital Group Ltd., Essent Group Ltd., Genworth Financial, Inc., MGIC Investment Corporation, NMI Holdings, Inc. and Radian Group Inc. We believe that our long-standing operating history, strong and diverse customer relationships, proprietary risk-based pricing framework and robust financial strength differentiate us from our competitors and have allowed us to maintain our leadership position in a competitive environment.

We and other private mortgage insurers also compete with federal and state governmental and quasi-governmental agencies that provide mortgage insurance, including the FHA and the VA. Currently this competition is principally on the basis of price and terms. In addition to competition from the FHA and the VA, we and other private mortgage insurers face limited competition from state-sponsored mortgage insurance funds in several states, including California and New York. From time to time, other state legislatures and agencies consider expanding the authority of their state governments to insure residential mortgages. We also believe that certain large bank lenders are evaluating alternative low down payment mortgage products that would not require mortgage insurance. We believe such discussions are driven by recent settlements between lenders and the FHA, perceived buyback risk of FHA loans and general FHA regulatory uncertainty. The introduction of such products may also have an effect on the private mortgage insurance market.

Additionally, our industry competes with products designed to eliminate the need for private mortgage insurance, such as “piggyback loans,” which combine a first-lien loan with a second-lien loan in order to meet the 80% LTV threshold required for sale to the GSEs without certain credit protections. In addition, we compete with investors willing to hold credit risk on their own balance sheets without credit enhancement, front-end risk sharing structures that do not require private mortgage insurance on loans sold to the GSEs and, in some markets, with alternative forms of credit enhancement such as structured finance products and derivatives.

Our Products and Services

First-Lien U.S. Mortgage Insurance

In general, there are two types of private mortgage insurance:

Primary Mortgage Insurance

Primary mortgage insurance provides protection on individual loans and generally covers a percentage of the unpaid principal balance and delinquent interest on a specific loan, plus certain expenses associated with the default and subsequent foreclosure process. Substantially all of our business is primary mortgage insurance written for first-lien mortgage loans secured by single-family homes.

To be eligible for purchase by the GSEs, low down payment loans with mortgage insurance must comply with insurance coverage percentages established by the GSEs. The GSEs’ insurance coverage percentages are tied to the LTV at origination, with lower LTV loans requiring lower coverage and higher LTV loans requiring higher coverage. Generally, our RIF across all policies written is approximately 25% of the underlying IIF, but typically varies from policy to policy between 6% and 35% coverage.

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Premium payments for primary mortgage insurance coverage may be made by either the borrower or lender. Mortgage insurance paid directly by the borrower is referred to as borrower-paid mortgage insurance. Loans for which premiums are paid by the lender are referred to as lender-paid mortgage insurance. Typically, lenders will seek to recover premiums on lender-paid mortgage insurance policies through an increase in the interest rate on a mortgage or higher origination fees. In either case, borrower-paid mortgage insurance or lender-paid mortgage insurance, the payment of premium to us is generally the legal responsibility of the insured.

Our premium rates cannot be changed after the issuance of coverage and, in general, we may not terminate coverage except in the event there is non-payment of premiums or certain material violations of our mortgage insurance policies. HOPA requires the automatic termination of borrower-paid mortgage insurance on most loans when the LTV, based upon the original property value and amortized loan balance, reaches 78%, and also provides for cancellation of borrower-paid mortgage insurance upon a borrower’s request when the LTV, based on the original value of the property, reaches 80% upon satisfaction of the conditions set forth in HOPA. GSE guidelines also provide for a borrower meeting certain conditions to request cancellation of mortgage insurance coverage when the principal balance of a loan is 80% or less of a property’s current value. In addition, some states impose their own mortgage insurance notice and cancellation requirements on mortgage loan servicers.

Our premiums are generally calculated as a percentage of the original principal balance of the underlying mortgage and payments may be made on a (1) single basis, where the entire premium is paid upfront at the time the mortgage loan is originated, (2) monthly basis, where premiums are collected monthly over the life of the policy or (3) annual basis, where premiums are paid in advance for the subsequent 12 months. Substantially all of our policies are on a single or monthly premium basis. Generally, premiums are not refundable once paid.

Our RQI and Performance Premium models, which draw upon over a decade of historical loan and mortgage data, allow us to set individualized premium rates based on our view of the relative riskiness of each loan—a process we deem “risk-based pricing.”

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Risk Quality Index (RQI) Risk Scoring Model: RQI utilizes over fifteen predictive variables to assess the likelihood of default for a given loan. Our RQI model assigns a proprietary risk score to each loan we evaluate, with lower risk loans receiving a lower RQI score and higher risk loans receiving a higher RQI score. We do not provide coverage for loans with RQI scores above a certain threshold. RQI scores are a key component of our Performance Premium risk-based pricing model.

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Performance Premium (Risk-Based Pricing): Under our Performance Premium model, we have the flexibility to set and charge premium rates commensurate with the underlying risk of each loan that we underwrite. In contrast to our multi-variate risk-based pricing framework, we believe that the majority of our competitors continue to rely on a legacy rate card approach that primarily considers loan LTV and borrower FICO scores to determine premium rates. We believe that our Performance Premium model allows us to set premium rates that are more closely aligned with the underlying risk of each loan in our portfolio and offer insurance coverage on a more expansive basis.

We price most new business using our Performance Premium model, and also have a rate card pricing option used by a limited number of customers whose operational practices are not compatible with Performance Premium.

Structured Mortgage Insurance Products

Structured mortgage insurance is typically used to provide additional credit enhancement for certain secondary market mortgage transactions. Structured mortgage insurance differs from primary mortgage insurance in that it covers a group of loans subject to an agreed-upon deductible and/or limit. We have not written any new structured mortgage insurance coverage since 2008; however, we may choose to do so again depending on future market dynamics, customer needs, product risk and return characteristics and our financial strength ratings profile. We had $130.5 million, $162.8 million, $172.7 million, $178.0 million and $300.9 million of gross and net RIF as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively.

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Our first-lien U.S. mortgage insurance business is reported in our single reportable operating segment, First-Lien U.S. Mortgage Guaranty. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Key Metrics—First-Lien U.S. Mortgage Guaranty” and Note 4 to our consolidated financial statements.

Loan Evaluation Services

We provide loan evaluation services to an affiliate of AIG on whole loan investment opportunities. These services include post-closing investor reviews of credit, collateral, compliance and analytics to recommend purchases of residential mortgage loans underwritten and originated by unaffiliated lenders, as well as overseeing servicers. See “Risk Factors—Risks Related to Our Business—We face risks associated with our loan evaluation and contract underwriting businesses.”

Contract Underwriting

In addition to mortgage insurance, we provide contract underwriting services on a limited basis when requested to do so by customers. Under this platform, we provide outsourced underwriting support to mortgage origination customers and assess whether data provided by the customer relating to a mortgage application comply with the customer’s own loan underwriting guidelines. These services are provided both for loans that do and do not require private mortgage insurance. Under the terms of our contract underwriting agreements with customers, subject to contractual limitations on liability, the majority of which are capped at $3,000, we agree to indemnify the customer against losses incurred in the event that we make an underwriting error and such error materially restricts or impairs the saleability of a loan, results in a material reduction in the value of a loan or results in the customer being required to repurchase a loan. The indemnification may be in the form of monetary or other remedies, subject to per loan limitations on liability discussed above and other limitations. See “Risk Factors—Risks Related to Our Business—We face risks associated with our loan evaluation and contract underwriting businesses.”

Run-off

We have certain businesses in which we are no longer actively selling products and have placed our portfolios into run-off, including second-lien mortgage insurance and student loan default insurance in the United States, and first-lien mortgage insurance in Mexico and Korea (a branch of UG Asia). While in run-off, we continue to service the remaining IIF, including collecting premiums and recoveries and paying claims. As of December 31, 2015, we had $399 million net second-lien mortgage insurance RIF, $120 million net student loan default insurance RIF and $8 million net first-lien mortgage insurance RIF in Mexico. First-lien mortgage insurance in Korea is subject to our 100% quota share reinsurance agreement with NUFIC. See “Relationships and Related Party Transactions—Relationship with AIG—Reinsurance” and Note 11 to our consolidated financial statements. We are in the process of winding down our operations in Mexico and Korea. Our net RIF from these portfolios and related premiums, recoveries and claims will decline further as these policies continue to run off. For the years ended December 31, 2015 and 2014, we generated $53.6 million and $88.3 million of income before income taxes, respectively, from our run-off businesses.

The following table presents net RIF in our run-off portfolios as of the dates indicated.


	As of December 31,
	2015		2014		2013

Net RIF (dollars in millions)
Run-off Portfolio
Second-lien mortgage insurance	$	399	$	459	$	1,026
Student loan default insurance		120		127		135
First-lien Mexico mortgage insurance		8		35		43

Our loan evaluation, contract underwriting and run-off businesses are reported in Corporate and Other. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Key Metrics—Corporate and Other” and Note 4 to our consolidated financial statements.

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Our First-Lien U.S. Mortgage Insurance Portfolio

We believe that we have a fully-scaled, high-quality mortgage insurance portfolio across a variety of metrics. The following tables present our IIF and net RIF as of December 31, 2015 by policy year as of the dates indicated.


	As of December 31, 2015
	Aggregate IIF		Percentage by IIF

IIF (dollars in millions)
Policy Year
2015	$	47,456		25.9	%
2014		35,465		19.3
2013		34,103		18.6
2012		22,601		12.3
2011		7,172		3.9
2010		2,313		1.2
2009		2,216		1.2
2008		6,535		3.6
2007		12,092		6.6
2006		5,820		3.2
2005 and older		7,693		4.2

Total	$	183,466		100.0	%


	As of December 31, 2015
	Aggregate Net RIF		Percentage by Net RIF

Net RIF (dollars in millions)
Policy Year
2015	$	9,317		25.4	%
2014		7,208		19.7
2013		7,012		19.1
2012		4,495		12.3
2011		1,446		3.9
2010		465		1.3
2009		393		1.1
2008		1,249		3.4
2007		2,361		6.4
2006		1,148		3.1
2005 and older		1,570		4.3

Total	$	36,664		100.0	%

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The following tables present the borrower FICO score at origination, LTV at origination, loan type and amortization period of our portfolio by IIF or net RIF as of the dates indicated.

Distribution by FICO Score at Origination


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

IIF (dollars in millions)	Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF

FICO Score
Greater than or equal to 760	$	80,138		43.7	%	$	70,332		42.5	%	$	59,637		40.8	%
720 to 759		52,909		28.8			46,321		28.0			39,405		26.9
680 to 719		30,936		16.9			28,233		17.0			25,186		17.2
620 to 679		16,063		8.7			16,698		10.1			17,339		11.8
Less than 620 or not reported		3,420		1.9			4,039		2.4			4,823		3.3

Total	$	183,466		100.0	%	$	165,623		100.0	%	$	146,390		100.0	%


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

Net RIF (dollars in millions)	Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF

FICO Score
Greater than or equal to 760	$	15,887		43.3	%	$	18,028		42.4	%	$	14,860		40.4	%
720 to 759		10,694		29.1			12,069		28.4			10,032		27.3
680 to 719		6,216		17.0			7,278		17.1			6,373		17.4
620 to 679		3,179		8.7			4,146		9.7			4,262		11.6
Less than 620 or not reported		688		1.9			1,004		2.4			1,189		3.3

Total	$	36,664		100.0	%	$	42,525		100.0	%	$	36,716		100.0	%

Distribution by LTV at Origination


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

IIF (dollars in millions)	Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF

LTV
Less than or equal to 80%	$	122		0.1	%	$	132		0.1	%	$	152		0.1	%
80.01% to 85%		18,814		10.2			17,062		10.3			16,711		11.4
85.01% to 90%		61,479		33.5			55,809		33.7			50,641		34.6
90.01% to 95%		87,436		47.7			75,722		45.7			59,812		40.9
Greater than 95%		15,615		8.5			16,899		10.2			19,075		13.0

Total	$	183,466		100.0	%	$	165,623		100.0	%	$	146,390		100.0	%


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

Net RIF (dollars in millions)	Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF

LTV
Less than or equal to 80%	$	20		0.1	%	$	24		0.1	%	$	30		0.1	%
80.01% to 85%		1,697		4.6			1,991		4.7			1,909		5.2
85.01% to 90%		11,434		31.2			13,263		31.2			11,816		32.2
90.01% to 95%		19,985		54.5			22,364		52.5			17,456		47.5
Greater than 95%		3,528		9.6			4,883		11.5			5,505		15.0

Total	$	36,664		100.0	%	$	42,525		100.0	%	$	36,716		100.0	%

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Distribution by Loan Type and Amortization Period


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

IIF (dollars in millions)	Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF

Type
Fixed Rate longer than 20 years	$	8,623		4.7	%	$	8,870		5.4	%	$	10,266		7.0	%
Fixed Rate 20 years or less		164,903		89.9			146,388		88.4			125,691		85.9
Adjustable Rate/Other		9,940		5.4			10,365		6.3			10,433		7.1

Total	$	183,466		100.0	%	$	165,623		100.0	%	$	146,390		100.0	%


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

Net RIF (dollars in millions)	Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF

Type
Fixed Rate longer than 20 years	$	1,112		3.0	%	$	1,527		3.6	%	$	1,656		4.5	%
Fixed Rate 20 years or less		33,620		91.7			38,485		90.5			32,541		88.6
Adjustable Rate/Other		1,933		5.3			2,512		5.9			2,519		6.9

Total	$	36,664		100.0	%	$	42,525		100.0	%	$	36,716		100.0	%

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We have a geographically diversified mortgage insurance portfolio. The following tables present our top ten states and top ten core-based statistical areas by IIF or net RIF (based on 2015 data) as of the dates indicated.

Geographic Distribution by State


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

IIF (dollars in millions)	Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF

State
Texas	$	15,918		8.7	%	$	14,938		9.0	%	$	13,155		9.0	%
California		9,118		5.0			7,996		4.8			6,908		4.7
Virginia		8,508		4.6			7,578		4.6			6,313		4.3
Washington		8,178		4.5			7,100		4.3			5,960		4.1
North Carolina		7,245		3.9			6,342		3.8			5,435		3.7
Colorado		7,003		3.8			6,503		3.9			5,284		3.6
Maryland		6,950		3.8			6,149		3.7			5,219		3.6
Illinois		6,883		3.8			6,435		3.9			6,275		4.3
Georgia		6,437		3.5			5,766		3.5			5,246		3.6
New York		6,020		3.3			5,555		3.4			5,285		3.6
Other states		101,206		55.2			91,261		55.1			81,310		55.5

Total	$	183,466		100.0	%	$	165,623		100.0	%	$	146,390		100.0	%


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

Net RIF (dollars in millions)	Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF

State
Texas	$	3,313		9.0	%	$	4,031		9.5	%	$	3,490		9.5	%
California		1,671		4.6			1,880		4.4			1,591		4.3
Virginia		1,670		4.6			1,914		4.5			1,564		4.3
Washington		1,607		4.4			1,810		4.3			1,498		4.1
North Carolina		1,476		4.0			1,669		3.9			1,401		3.8
Colorado		1,406		3.8			1,704		4.0			1,360		3.7
Maryland		1,361		3.7			1,554		3.7			1,292		3.5
Illinois		1,336		3.6			1,587		3.7			1,507		4.1
Georgia		1,306		3.6			1,489		3.5			1,323		3.6
Florida		1,204		3.3			1,386		3.3			1,302		3.5
Other states		20,314		55.4			23,501		55.3			20,388		55.5

Total	$	36,664		100.0	%	$	42,525		100.0	%	$	36,716		100.0	%

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Geographic Distribution by Core-Based Statistical Areas


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

IIF (dollars in millions)	Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF			Aggregate IIF		Percentage by IIF

Core-based statistical area
Washington-Arlington-Alexandria	$	7,301		4.0	%	$	6,598		4.0	%	$	5,439		3.7	%
Atlanta-Sandy Springs-Roswell		4,807		2.6			4,273		2.6			3,852		2.6
Minneapolis-St. Paul-Bloomington		4,596		2.5			3,804		2.3			3,159		2.2
Dallas-Fort Worth-Arlington		4,436		2.4			4,086		2.5			3,507		2.4
Seattle-Tacoma-Bellevue		4,359		2.4			3,771		2.3			3,106		2.1
Chicago-Naperville-Elgin		4,322		2.4			3,963		2.4			3,841		2.6
Denver-Aurora-Lakewood		4,164		2.3			3,957		2.4			3,158		2.2
Houston-The Woodlands-Sugar Land		3,979		2.2			3,745		2.3			3,352		2.3
New York-Newark-Jersey City		3,872		2.1			3,458		2.1			3,249		2.2
Baltimore-Columbia-Towson		3,465		1.9			3,018		1.8			2,571		1.8
Other core-based statistical areas		138,165		75.2			124,950		75.3			111,156		75.9

Total	$	183,466		100.0	%	$	165,623		100.0	%	$	146,390		100.0	%


	As of December 31, 2015					As of December 31, 2014					As of December 31, 2013

Net RIF (dollars in millions)	Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF			Aggregate Net RIF		Percentage by Net RIF

Core-based statistical area
Washington-Arlington-Alexandria	$	1,412		3.9	%	$	1,650		3.9	%	$	1,337		3.6	%
Atlanta-Sandy Springs-Roswell		972		2.7			1,099		2.6			967		2.6
Minneapolis-St. Paul-Bloomington		934		2.5			995		2.3			806		2.2
Dallas-Fort Worth-Arlington		920		2.5			1,102		2.6			928		2.5
Seattle-Tacoma-Bellevue		839		2.3			947		2.2			776		2.1
Denver-Aurora-Lakewood		835		2.3			1,037		2.4			815		2.2
Chicago-Naperville-Elgin		826		2.3			957		2.3			904		2.5
Houston-The Woodlands-Sugar Land		826		2.3			1,007		2.4			886		2.4
New York-Newark-Jersey City		732		2.0			834		2.0			769		2.1
Baltimore-Columbia-Towson		686		1.9			771		1.8			645		1.8
Other core-based statistical areas		27,682		75.3			32,126		75.5			27,883		76.0

Total	$	36,664		100.0	%	$	42,525		100.0	%	$	36,716		100.0	%

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Customers

We have a large and diverse customer base, including active relationships with over 1,800 of the largest and highest quality lenders in the United States. Our customers are broadly diversified by size, type and geography, and include national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders and internet-sourced lenders. None of our customers represented more than 6% of our NIW, or more than 10% of our consolidated revenue, in 2015. We categorize our customer base into two groups that are aligned with their business and operational needs:

•

Strategic Accounts. Strategic accounts consist of national or large regional lenders that either make decisions about the placement and allocation of private mortgage insurance at a centralized, corporate level or those that make such decisions at the field or branch level, but have complex mortgage operations. These accounts require a coordinated sales coverage model and executive-level relationships.

•

Field Accounts. Field accounts consist of small or regional lenders that make decisions about the placement and allocation of private mortgage insurance at the field or branch level.

We issue a master policy agreement to each of our customers before accepting their business. The master policy agreement sets forth the general terms and conditions of our mortgage insurance coverage, including loan eligibility requirements, coverage term, policy administration, payment processing, and exclusions or reductions in coverage. We also issue a policy commitment letter which clarifies the master policy terms and conditions and addresses topics not specifically included in the master policy (such as underwriting guidelines and exceptions to the guidelines).

Sales and Marketing

Our sales and marketing efforts are designed to help us establish and maintain in-depth, high-quality customer relationships. We operate under the brand United Guaranty. We have a national sales force of approximately 100 employees that helps drive growth in our client franchise and deliver, what we believe to be, a uniquely collaborative experience to our customers. We structure our sales force into Strategic Accounts that focus on relationships with national or large regional lenders and Field Accounts that focus on relationships with small or regional lenders, such as community banks, credit unions, mortgage bankers and branches of Strategic Accounts. Each customer account has a specialized account executive who serves as a key point of contact and provides tailored customer service. We also have customer service teams that offer support in loan submission and underwriting servicing, risk management and technology. Mortgage insurance sales and account management personnel are compensated by salary and other incentive-based pay, which may be tied to the achievement of certain sales goals or the promotion of certain products. Commissions vary based on product in order to incentivize sales personnel to achieve an appropriate mix of products in accordance with our business objectives.

Our sales force has built strong relationships across all key areas of our operation and has been critical to achieving customer adoption of our Performance Premium risk-based pricing model and full-file underwriting process. We focus our support initiatives on simplifying and streamlining ease of use and the overall customer experience. These initiatives include the introduction of new technologies such as our next generation MI Guide website and the MI NOW mobile application. Our MI Guide website is a portal that provides our customers with systems and resources related to our mortgage insurance products, including our Rate Runner tool that provides Performance Premium price quotes. Our MI NOW mobile application provides our customers with a rate quote on a mobile device and links to MI Guide to ease the quote to application process.

Underwriting

We have established underwriting guidelines that we believe protect our balance sheet and result in a high-quality insurance portfolio. Our underwriting guidelines incorporate credit eligibility requirements that, among

other things, restrict our coverage to mortgages that meet our thresholds with respect to borrower FICO scores, maximum debt-to-income levels, maximum LTVs and documentation requirements. Our underwriting guidelines also limit the coverage we provide for certain higher-risk mortgages, including those for cash-out refinancings, second homes or investment properties. Most applications for mortgage insurance are submitted to us electronically, and we rely upon the lender’s representations and warranties that the data submitted is true and correct when making our insurance decision.

We regularly seek to enhance our underwriting guidelines through extensive data gathering, detailed loan-level risk analysis and assessments of trends in key macroeconomic factors such as housing prices, interest rates and employment. We utilize proprietary models that enable us to assess the risk of individual loans with a high degree of granularity and set pricing for our policies within a risk-adjusted return framework. We have adopted a balanced underwriting approach, which considers our risk analysis, return objectives and market factors.

Our policies are issued through one of two underwriting programs:

•

Non-Delegated Underwriting. Under non-delegated or “full-file” underwriting, customers submit loan files to us so that we may individually underwrite each application in order to reach a decision as to whether we will insure a loan. On receipt of the non-delegated loan file, we review the loan file and validate the data using internal and third-party data sources. We believe our validation process is more comprehensive than that applied by our competitors. For the year ended December 31, 2015, approximately 54% of our NIW by loan count was originated on a non-delegated, full-file underwriting basis.

•

Delegated Underwriting. Under delegated underwriting, we delegate to eligible customers the ability to underwrite our policies based on agreed-upon underwriting guidelines. To perform delegated underwriting, customers must be approved by our risk management group. Some customers prefer to assume underwriting responsibility because it is more efficient within their loan origination process. Because delegated underwriting is performed by third parties, we have implemented certain risk management controls applicable to our delegated business. Prior to binding a delegated policy, we receive certain customer-generated loan information that allows us to filter each delegated loan through our RQI model and flag loans that fail to meet certain gating criteria. We also regularly perform quality assurance reviews on a sample of delegated loans to assess compliance with our guidelines. For the year ended December 31, 2015, approximately 46% of our NIW by loan count was originated on a delegated basis. See “Risk Factors—Risks Related to Our Business—Our delegated underwriting program may subject our mortgage insurance business to unanticipated claims.”

RQI is a core component of our current underwriting process. All loans, whether originated on a non-delegated or delegated basis, are filtered through our proprietary RQI model and assigned an individual risk score.

We also offer a post-closing underwriting review when requested by customers for both non-delegated and delegated loans. Upon satisfactory completion of the post-closing underwriting review, which involves updating and confirming our original assessment through closing for non-delegated loans and performing a comprehensive full-file review for delegated loans, we agree to waive our right to rescind coverage under certain circumstances on an accelerated basis under our SecureCert rescission relief endorsement to our master policy.

Our underwriting staff is geographically dispersed throughout the United States, and we believe this allows us to make prompt underwriting determinations across different time zones and best serve our customers.

Delinquencies, Claims and Loss Management

Delinquencies

The delinquency and claim cycle on private mortgage insurance generally begins with the receipt of a delinquency notice on an insured loan from a servicer. We consider a loan to be delinquent when it is two or

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more mortgage payments past due. The incidence of delinquency is affected by a variety of factors, including housing price appreciation or depreciation, unemployment, the level of borrower income, divorce, illness, the level of interest rates, general borrower creditworthiness and macroeconomic conditions. Delinquencies that are not cured result in a claim.

The number and percentage of total delinquent loans in our in-force portfolio have decreased dramatically in the post-crisis period. The following table presents the number of policies in force and delinquency ratios as of the dates indicated.


	As of December 31,

	2015			2014			2013

Policy Year
Number of policies in force
2008 and prior		234,445			278,805			331,371
2009 to 2015		689,182			587,056			468,202

All policies in force		923,627			865,861			799,573

Delinquency ratio
2008 and prior		12.2	%		13.1	%		14.0	%
2009 to 2015		0.4	%		0.3	%		0.3	%
All policies in force		3.4	%		4.4	%		5.9	%

Domestic First-Lien Delinquency Inventory Activity

The following table presents a summary of our domestic first-lien delinquency inventory activity as of the dates or for the periods indicated.


	As of or for the Year Ended December 31,

	2015			2014			2013

Number of Policies
Number of delinquent loans at the beginning of the year		38,357			47,518			62,832
Newly reported delinquencies		39,619			47,239			56,194
Cures		(36,279	)		(42,680	)		(51,283	)
Claims paid		(8,451	)		(11,601	)		(19,862	)
Other		(1,961	)		(2,119	)		(363	)

Number of delinquent loans at the end of the year		31,285			38,357			47,518

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Different areas of the United States may experience different delinquency rates due to varying local economic conditions from year to year. The following table presents the number of loans we insured that were delinquent and the delinquency rate for the ten states for which we had the largest number of delinquent loans (based on 2015 data) as of the dates indicated.


	December 31, 2015					December 31, 2014					December 31, 2013

Delinquent Loans Insured	Number of Delinquent Loans		Delinquency Rate by State			Number of Delinquent Loans		Delinquency Rate by State			Number of Delinquent Loans		Delinquency Rate by State

State
Florida		2,500		7.5	%		3,753		11.8	%		5,495		17.2	%
New York		2,254		7.6			2,700		9.5			3,009		10.8
Illinois		2,033		5.2			2,618		7.0			3,467		9.2
Pennsylvania		1,823		5.8			2,307		7.8			2,633		9.3
New Jersey		1,801		9.5			2,156		12.7			2,347		15.0
Georgia		1,341		3.8			1,630		5.0			2,035		6.5
Ohio		1,301		3.5			1,530		4.4			1,934		5.9
Maryland		1,024		3.9			1,279		5.4			1,604		7.8
California		806		2.5			980		3.4			1,248		4.9
Washington		579		1.8			782		2.7			1,049		4.2
All other states		15,823		2.6			18,622		3.2			22,697		4.3

Total		31,285		3.4	%		38,357		4.4	%		47,518		5.9	%

Claims

Claims result from delinquencies that are not cured, or from losses on short sales that we approve or the receipt of deeds in lieu of foreclosure on an underlying property. Various factors affect the frequency and severity of claims, including LTV at the time of foreclosure, size and coverage percentage of a loan, local housing prices and employment levels and interest rates. Our average claim paid was approximately $46,000 in 2015, compared to $44,000 in 2014 and $44,000 in 2013.

Under the terms of our master policy, lenders are required to file claims for primary insurance within 60 days of the earlier of (1) the date they have acquired title to the underlying property (typically through foreclosure), (2) the date of an approved short sale of the underlying property, or (3) the date a request is made by the company to file a claim. Our master policy allows a lender up to one year to file a claim from the applicable date; however, interest, taxes, insurance and other expenses that accrue after the 60 day period are not eligible for reimbursement.

We have the option to (1) pay the coverage percentage specified for a given loan, with the insured retaining title to the underlying property and receiving all proceeds from the eventual sale of the property, (2) pay the actual loss incurred by the insured upon a sale of the property to a third party, or (3) pay 100% of the claim amount in exchange for the lender’s conveyance of good and merchantable title to the property to us. In circumstances where we receive title to properties, we sell them for our own account. We settle a significant majority of our claims by paying the specified coverage percentage.

Claim activity is not evenly spread across the coverage period of a loan. Typically, relatively few claims are received during the first two years following issuance of coverage on a loan. This is generally followed by a period of rising claims which, based on industry experience, tends to reach its highest level in the third and fourth years after the year of loan origination. Thereafter, the number of claims typically received has historically declined at a gradual rate, although the rate of decline can be affected by conditions in the economy, including slowing home price appreciation or housing price depreciation. Moreover, when a loan is refinanced, the claims

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frequency for the new loan may be different from the historical frequency associated with the prior mortgage. Persistency and the condition of the economy, including unemployment and other factors, can also affect the pattern of claim activity.

The following table presents the gross amount of direct losses paid by policy year for the periods indicated. Direct losses paid represent first-lien claims paid prior to reinsurance recoveries and exclude captive termination payments, LAE paid and amounts paid under settlement agreements.


	December 31, 2015					December 31, 2014					December 31, 2013

Direct Losses Paid (dollars in thousands)	Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid
Direct Losses Paid (dollars in thousands)	Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid

Policy Year
2015	$	—		—	%	$	—		—	%	$	—		—	%
2014		184		0.1			—		—			—		—
2013		3,336		0.8			526		0.1			5		—
2012		3,794		1.0			1,944		0.4			611		0.1
2011		1,366		0.3			2,829		0.6			2,004		0.2
2010		2,183		0.6			3,567		0.7			2,375		0.3
2009		3,739		1.0			4,520		0.9			8,423		1.0
2008		41,398		10.5			54,877		11.3			98,039		11.6
2007		144,472		36.8			200,419		41.1			355,897		42.2
2006		83,651		21.3			103,431		21.2			181,565		21.6
2005 and older		108,459		27.6			115,583		23.7			193,445		23.0

Total	$	392,582		100.0	%	$	487,696		100.0	%	$	842,364		100.0	%

The following table presents the gross amount of direct losses paid for each of the ten states in which we had the highest level of direct losses paid (based on 2015 data) for the periods indicated.


	December 31, 2015					December 31, 2014					December 31, 2013

Direct Losses Paid (dollars in thousands)	Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid
Direct Losses Paid (dollars in thousands)	Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid			Direct Losses Paid		Percentage of Direct Losses Paid

State
Florida	$	61,397		15.6	%	$	87,330		17.9	%	$	145,380		17.3	%
Illinois		30,726		7.8			52,680		10.8			88,475		10.5
New Jersey		22,197		5.7			22,040		4.5			27,640		3.3
Maryland		21,180		5.4			26,573		5.4			33,180		3.9
Pennsylvania		17,740		4.5			19,622		4.0			23,173		2.8
California		15,158		3.9			19,328		4.0			66,166		7.9
Georgia		14,308		3.6			22,743		4.7			38,867		4.6
Washington		13,409		3.4			18,189		3.7			35,000		4.2
New York		11,183		2.8			14,695		3.0			14,228		1.7
Ohio		10,744		2.7			15,989		3.3			27,270		3.2
All other states		174,540		44.6			188,507		38.7			342,985		40.6

Total	$	392,582		100.0	%	$	487,696		100.0	%	$	842,364		100.0	%

Loss Management

Our loss management approach begins with a rigorous front-end customer qualification process in which we evaluate potential lenders before issuing master policies and a detailed policy acquisition review to analyze, underwrite (on a delegated or non-delegated basis) and approve coverage for individual loans. In the event that loans move into delinquency, our goal is to work with borrowers, lenders, investors and servicers to cure such delinquency and allow homeowners to retain ownership of their properties.

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When claim notices are received, we review loan and servicing files to determine the appropriateness of a claim amount. Our insurance policies generally provide that we can reduce or deny claims if the servicer does not materially comply with its obligations under our policies, including the requirement to pursue reasonable loss mitigation actions. Such actions may include pursuing foreclosure or bankruptcy relief in a diligent and timely manner. We deem a reduction in the claim amount paid relative to the amount requested in the claim notice to be a “curtailment.” We also periodically receive claim notices that request coverage for costs and expenses associated with items not covered under our policies, such as losses resulting from property damage to a covered home. We actively review claim notices to ensure we pay only for covered expenses.

When reviewing loan and servicing files in connection with the claims process, we may also make a determination to rescind coverage of the underlying mortgages or deny payment of claims. We may rescind coverage in situations where, among other things, (1) fraudulent misrepresentations were made or materially inaccurate information was provided regarding a borrower’s income, debts or intention to occupy a property, (2) an appraisal has been determined to have been fraudulent or otherwise in violation of professional standards, or (3) a loan was originated in material violation of our underwriting guidelines. We may deny claims if, among other things, we are not provided documents to which we are entitled in order to investigate a claim, or if a claim is not timely filed. If we rescind coverage, we return all premiums previously paid to us under a policy and are relieved of our obligation to pay a claim under such policy. If we issue a claim denial, only premiums collected after the event giving rise to the denial are returned.

If an insured disputes our decision to rescind coverage or deny, curtail or otherwise adjust a claim, we generally engage in discussions around a potential settlement. We have an appeals department that issues procedures to dispute a rescission, claim, curtailment or other adjustment. The appeals department reviews lender appeals and all relevant loan documentation, and either upholds or reverses the claim decision. If we are unable to reach a settlement, resolution of a dispute would ultimately be determined by legal proceeding or arbitration.

Our incidence of rescission and claims denial increased significantly immediately following the financial crisis; however, it has materially declined since 2012 as our delinquency rate and claims notices have declined. We aim to be a high-quality, reliable counterparty to our customers and expect that the number of claims that we resolve through rescission and claims denial will continue to decline, given the run-off of policies originated prior to the financial crisis and increasing proportion of policies underwritten on a full-file basis and the resulting rescission relief such policies are afforded.

Risk Management

We have established risk management controls throughout our organization and have a risk management framework that is designed to reduce the volatility of our financial results and capital position. We believe that our risk management framework encompasses the major risks we face, including our mortgage insurance portfolio, investment risk, liquidity risk, regulatory compliance risk, operational risk and others. To address risks within our insured portfolio, we seek to analyze and manage risk across the full life cycle of an insurance policy.

Life of Loan Risk Management

Our life of loan risk management practices include the following components:

•

Customer qualification: We conduct a detailed customer review process to understand customer business models, controls over loan origination functions, and the type and performance of loans originated.

•

Policy acquisition: We maintain underwriting guidelines that apply to the loans we insure and conduct rigorous up front underwriting of a majority of the new business we write. All loans are filtered through our proprietary RQI model and assigned an individual risk score. See “—Underwriting.” We also employ analytics to review borrower history and property valuation for fraud and compliance risks.

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•

Quality assurance: We perform post-closing quality assurance reviews of a statistically significant sample of individual policies underwritten on both a delegated and non-delegated basis to ensure that the loans meet our pre-determined eligibility and underwriting criteria. This process allows us to identify trends in lender underwriting and origination practices, as well as back-test underlying reasons for delinquencies, defaults and claims within our portfolio. We use this information to provide our underwriters and customers with timely feedback that fosters high quality loan production. In addition to random sampling of loans for review, we also use models to predict which mortgages would benefit from additional, targeted quality assurance sampling.

•

Claims management: We conduct a full forensic review of all loans submitted for a claim, which includes verification of claim validity, claim amount calculation and servicing activity. See “—Claims.”

•

Portfolio management: We continuously monitor the characteristics of our overall mortgage insurance portfolio. We have specific portfolio limits for risk concentration factors including RQI risk scoring bands, originators, geographies and policy years. We also monitor housing and economic conditions by core-based statistical areas in order to inform pricing decisions.

Modeling and Analytics Risk Management

In addition to life of loan risk management practices, we invest in proprietary statistical and actuarial models for assessing and pricing risk. We have a dedicated modeling and analytics team who deliver actionable models, tools, analysis and reporting to inform our credit underwriting and pricing decisions. The team utilizes proprietary behavioral and financial models that analyze mortgage, consumer, economic and housing data to help us assess credit, prepayment and loss severity trends.

Performance and profitability are evaluated across customers and products to identify the emergence of potential weaknesses and adverse risks. Geographic housing market analysis is also utilized in establishing market restrictions and/or pricing adjustments for certain products and segments.

We utilize our RQI and Performance Premium models to evaluate risk-adjusted returns and inform our pricing decisions. We also perform stress tests on our portfolio to analyze how our book of business may perform under adverse scenarios. We believe that our stress testing analysis helps to inform our capitalization targets, allowing us to prudently manage and protect our balance sheet.

Information Technology

We aim to stay current with technology and provide the latest tools to our customers. We utilize information technology as part of our risk-based approach. We accept insurance applications through electronic submission and issue electronic insurance approvals. In order to facilitate this process, we establish direct connections to the origination and servicing systems of our customers and servicers. We also provide our customers secure access to our web-based and mobile application mortgage insurance portals to facilitate transactions and provide customers with access to their account information.

We continue to upgrade and enhance systems and technology, including:

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investing in new customer-facing technology to replace our legacy underwriting system that improves our business agility and scalability and enables our customers to transact business faster and easier, including our MI NOW mobile application that provides our customers with a Performance Premium rate quote for mortgage insurance and upgrades to our MI Guide website portal that provides our customers with systems and resources related to our mortgage insurance products, including our Rate Runner tool that provides Performance Premium price quotes;

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implementing cloud-based technology and upgrading our systems to improve speed and efficiency, in particular with respect to decision times on new applications;

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integrating our platform with third-party technology providers used by our customers in their loan origination process and for ordering mortgage insurance;

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updating our proprietary RQI model and implementing updates across our mortgage insurance and pricing platforms;

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maintaining the ISO 27001 designation (first obtained in 2015), a globally recognized standard of commitment to information security based on an external audit of our operations and controls;

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establishing a best practice framework for information security management as part of our overall risk management policies; and

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centralizing and standardizing certain common functions across the technology components of various business units and expanding shared services and locations.

We believe that our technology, together with our information technology team, has greatly enhanced our operating efficiency and created competitive advantages. Our information technology team is experienced in large-scale project delivery, including mortgage insurance administration systems, enterprise cloud technology and the development of web- and mobile-enabled servicing capabilities, and maintains a customer-centric approach by utilizing customer interviews and feedback throughout the software development process. Technology costs are managed by enhancing our technology infrastructure, consolidating application and hardware systems and managing project execution risks.

Investment Portfolio

Our investment portfolio is managed by an affiliate of AIG. After our separation from AIG, we may choose to engage a third-party investment manager. We primarily invest in corporate and government bonds. As of December 31, 2015, the fair value of our investment portfolio was approximately $4.2 billion, including $4.1 billion in fixed maturities, of which 95% was investment grade. We also had an additional $36.6 million of cash as of December 31, 2015.

Our primary objectives with respect to our investment portfolio are to preserve capital, generate investment income and maintain sufficient liquidity to cover our operating expenses and pay future insurance claims. Consistent with PMIERs and our regulatory requirements, we aim to achieve diversification as to type, quality, maturity, industry, issuer and geographic location that maximizes the after-tax return on investments.

We have adopted an investment policy that defines specific limits for asset sectors, single issuer, credit rating, asset duration, industry and geographic concentration and eligible and ineligible investments. Our senior management team is responsible for the execution of our investment strategy and compliance with our investment policy, and reviews investment performance and strategy with our board of directors on a periodic basis. Our investment policies and strategies are subject to change depending upon regulatory, economic and market conditions and our existing or anticipated financial condition and operating requirements.

For more information on our investment portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments.”

Properties

As of December 31, 2015, we leased approximately 172,000 square feet of office facilities at our corporate headquarters in Greensboro, North Carolina under a lease that expires in June 2016. UGCNC is a limited partner in Irving Partners Limited Partnership (“Irving Partners”), the owner and operator of this office building. We also lease office spaces of less than 20,000 square feet each in Greensboro and Raleigh, North Carolina; Las Vegas, Nevada; and Chicago, Illinois. We believe our current facilities are adequate for our current needs and that suitable additional or alternative space will be available as and when needed.

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Intellectual Property

We hold registered trademarks with respect to the names United Guaranty, RQI, Performance Premium, United Guaranty’s MI Guide, Rate Runner, SecureCert and logos and various additional designs and word marks relating to these names. Our other intellectual property includes patents, proprietary know-how and technological innovations, such as RQI, Performance Premium and our other models, and other trade secrets that we have developed to maintain our competitive position.

Employees

As of December 31, 2015, we employed 1,061 employees, substantially all of whom worked in the United States. None of our employees are represented by a union and management believes that our relationship with our employees is good.

Legal Proceedings

We are not subject to any pending material legal proceedings. See Note 13 to our consolidated financial statements for additional information regarding our assessment of contingencies related to litigation and regulatory matters and for information regarding certain concluded legal proceedings.

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REGULATION

Our primary insurance regulator is the NCDOI. In addition, we must adhere to the laws of all jurisdictions in which our insurance subsidiaries are licensed to sell insurance and the regulations applicable to our non-insurance subsidiaries.

Under the direction of the FHFA, the GSEs have consolidated and updated their private mortgage insurance eligibility requirements as the revised PMIERs, which became effective on December 31, 2015. In addition to other operational requirements, PMIERs require mortgage insurers to hold specified levels and types of assets in order to be able to pay a prescribed level of claims in certain stress scenarios.

As of December 31, 2015, we were in compliance with the newly effected PMIERs, with combined PMIERs available assets of $3.6 billion and combined PMIERs minimum required assets of $3.0 billion. Our combined PMIERs minimum required assets will change in the future if our business mix changes, and may also change depending on future interpretations or prospective amendments by the GSEs. The GSEs may amend PMIERs at any time, as applicable to one or more mortgage insurers, and there can be no assurance that either of the GSEs will not make PMIERs or the application thereof more onerous in the future. In this regard, PMIERs currently provide that the factor tables used to determine PMIERs minimum required assets will be updated every two years, and may also be updated more frequently to reflect changes in macroeconomic conditions or loan performance. See “Risk Factors—Risks Related to Our Business—We may be unable to continue to comply with the applicable GSEs’ PMIERs, which could adversely affect our business, financial condition and results of operations.”

State Regulation

Our mortgage insurance subsidiaries are generally restricted to writing residential mortgage insurance business. Certain states have special restrictions on mortgage insurance, and several states limit the amount of risk a mortgage insurer may retain with respect to coverage on an insured loan to 25% of the mortgage loan amount. Coverage in excess of 25% typically must be reinsured.

Other than our Vermont captive insurer, our insurance subsidiaries are regulated by the NCDOI and by the insurance departments of each of the other states in which they are licensed to transact business. Regulation of insurance companies in the United States principally is designed for the protection of policyholders, rather than for the benefit of investors. Insurance laws vary from state to state, but generally grant broad supervisory powers to agencies or officials to examine the affairs of our insurance subsidiaries and to enforce rules or exercise discretion affecting almost every aspect of their businesses. Subsidiaries of UGCNC are currently licensed to transact mortgage insurance business in all 50 states and the District of Columbia.

Insurance regulations to which our insurance subsidiaries are subject relate, among other things, to the licensing of companies to transact business, claims handling, reinsurance requirements, premium rates and policy forms offered to customers, marketing of insurance products, statutory financial statements, prescribed accounting methodologies, periodic reporting, permissible investments and adherence to financial standards relating to capital, surplus, dividends and other criteria of solvency intended to assure the satisfaction of obligations to policyholders.

The premium rates and policy forms of our insurance subsidiaries are subject to regulation in every state in which the subsidiary is licensed to transact business in order to protect policyholders against the adverse effects of excessive, inadequate or unfairly discriminatory rates and to encourage competition in the insurance marketplace. In most states, premium rates and policy forms must be filed prior to their use. In some states, such rates and forms must also be approved prior to use. Changes in premium rates are subject to justification, generally on the basis of loss experience, expenses and future trend analysis. The general delinquency experience in the mortgage insurance industry may also be considered.

Each of our insurance subsidiaries is required by the insurance regulatory authority of their state of domicile, and the insurance regulatory authority of each other jurisdiction in which they are licensed to transact

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business, to make various filings with those insurance regulatory authorities and with the NAIC, including quarterly and annual financial statements prepared in accordance with statutory accounting principles. In addition, our insurance subsidiaries are subject to examination by the insurance regulatory authorities of each of the states and other jurisdictions in which they are licensed to transact business.

We conduct business primarily through UGRIC, a mortgage guaranty insurance company domiciled in North Carolina and licensed in all 50 states and the District of Columbia, and UGMIND, a mortgage guaranty insurance company domiciled in North Carolina that is licensed in 48 states and the District of Columbia.

Insurance Holding Company Regulation. We are a holding company, our subsidiary UGCNC is an insurance holding company domiciled in North Carolina, and our insurance subsidiaries belong to an insurance holding company system. All states have enacted laws regulating insurance holding company systems, including the non-insurer holding company within that system. These laws generally require each insurance subsidiary within an insurance holding company system to register with the insurance regulatory authority of its domiciliary state, and to furnish to the regulators in these states applicable financial statements, statements related to intercompany transactions and other information concerning the holding company and its affiliated companies within the holding company system that may materially affect the operations, management or financial condition of insurers or the holding company system.

Other than our captive insurer, which is domiciled in Vermont, all of our insurance subsidiaries are domiciled in North Carolina. The insurance holding company laws of North Carolina regulate, among other things, certain transactions between UGCNC, our insurance subsidiaries and other parties affiliated with us. These laws also govern certain transactions involving UGCNC’s common stock and UGC’s common stock, including transactions that constitute a “change of control” of UGCNC and UGC and, consequently, a “change of control” of our insurance subsidiaries. Specifically, under North Carolina’s insurance laws, no person may, directly or indirectly, seek to acquire “control” of UGCNC or UGC or any of its insurance subsidiaries unless that person files a statement and other documents with the commissioner of insurance of North Carolina and the commissioner’s prior approval is obtained. “Control” for such purposes is defined broadly. For example, under North Carolina’s insurance laws, control is “presumed to exist if any person, directly or indirectly, owns, controls, holds with power to vote, or holds proxies representing, ten percent (10%) or more of the voting securities” of a holding company of a North Carolina domestic insurer.

In addition, material transactions between us or our affiliates and our insurance subsidiaries or among our insurance subsidiaries are subject to certain conditions, including that they be “fair and reasonable.” These conditions generally apply to all persons controlling, or who are under common control with, us or our insurance subsidiaries. Certain transactions between UGCNC or our affiliates and our insurance subsidiaries may not be entered into unless the NCDOI is given 30 days’ prior notification and does not disapprove the transaction during that 30-day period.

Dividends. Our primary operating subsidiaries, UGRIC and UGMIND, are domiciled in North Carolina. Under North Carolina’s insurance laws, an insurer may pay “ordinary dividends” without the prior approval of the NCDOI when the total of all other dividends declared or distributed by it during the preceding 12 months does not exceed the greater of (1) 10% of its surplus as regards policyholders as of the preceding December 31, or (2) the net income (not including realized capital gains) for the 12-month period ending the preceding December 31. North Carolina’s insurance laws also require that ordinary dividends be paid out of positive unassigned surplus. As of December 31, 2015, UGRIC had positive unassigned surplus of approximately $666 million. The NCDOI, in its discretion, may also approve a dividend distribution greater than would be permitted as an ordinary dividend (an “extraordinary dividend”). Under North Carolina’s statute, as of December 31, 2015, the calculated maximum amount of ordinary dividends payable by UGRIC in 2016 is approximately $310 million. On February 25, 2016, the board of directors of UGCNC authorized payment of a dividend of up to $310 million to AIG, and such dividend received the last regulatory non-objection on March 30, 2016. The $310 million dividend was subsequently paid to AIG on March 30, 2016, in $78 million of cash and $232 million of fixed maturity securities having a fair market value equal to their carrying value.

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The NCDOI also require appropriations to a statutory contingency reserve in an annual amount equal to 50% of mortgage guaranty premiums earned. The change in contingency reserve, which is charged directly to unassigned statutory surplus, affects the level of unassigned surplus and, therefore, the ability to pay dividends. Appropriated amounts may not be withdrawn for a period of ten years except as permitted by the state for losses in excess of 35% of earned premiums. Although allowed under North Carolina’s insurance laws, UGRIC has elected not to accrue provisional withdrawals from the contingency reserve until such release is formally approved by the NCDOI.

Risk-to-Capital. Generally, insurance regulations limit the writings of mortgage guaranty insurance to an aggregate amount of net insured risk no greater than 25 times surplus as regards policyholders (including statutory contingency reserve). North Carolina requires mortgage insurance companies to maintain an individual company risk-to-policyholder position ratio below 25:1 in order to continue writing new business. Policyholder position is defined as surplus as regards policyholders plus contingency reserves, less ceded reinsurance. In this prospectus, we show policyholder position as statutory capital. As of December 31, 2015, the combined risk-to-capital ratio of UGRIC was 14.5 to 1, well within the regulatory requirements. UGRIC is also party to a capital maintenance agreement with AIG. Among other things, the capital maintenance agreement provides that AIG will maintain capital and surplus of UGRIC at or above a specified minimum required capital based on a specified risk-to-capital ratio. In addition, the capital maintenance agreement provides that if capital and surplus of UGRIC is in excess of that same specified minimum required capital, subject to its board approval and compliance with applicable insurance laws, UGRIC would declare and pay ordinary dividends to its equity holders up to an amount necessary to reduce projected or actual capital and surplus to a level equal to or not materially greater than such specified minimum required capital. As structured, the capital maintenance agreement contemplates that the specified minimum required capital would be reviewed and agreed upon at least annually. As of December 31, 2015, the minimum required capital for the capital maintenance agreement with AIG is based on a risk-to-capital ratio of 19 to 1.

The NAIC previously announced that it plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act, which could result in more stringent capital requirements in states that adopt the new Mortgage Guaranty Insurance Model Act. A working group of state regulators, the MGIWG, is considering this issue, although no date has been established by which the NAIC must propose revisions to such requirements. See “Risk Factors—Risks Related to Our Business—We are subject to regulation in various jurisdictions, and material changes in regulation or enforcement could adversely affect us.”

Agency Qualification Requirements

As the most significant purchasers and sellers of conventional mortgage loans and, therefore, beneficiaries of private mortgage insurance, the GSEs impose requirements on private mortgage insurers, including our mortgage insurance subsidiaries, so that they may be eligible to insure loans sold to the GSEs. Fannie Mae’s current eligibility requirements impose limitations on the type of risk insured, the forms and insurance policies issued, standards for the geographic and customer diversification of risk, procedures for claims handling, acceptable underwriting practices, standards for certain reinsurance cessions and financial requirements that generally mirror state insurance regulatory requirements, among other things. Freddie Mac has comparable eligibility requirements.

Under the direction of the FHFA, the GSEs have consolidated and updated their private mortgage insurance eligibility requirements as the revised PMIERs, which became effective on December 31, 2015. Representing the standards by which private mortgage insurers are eligible to provide mortgage insurance on loans owned or guaranteed by the GSEs, PMIERs are designed to reduce counterparty risk by enhancing the strength of the financial and operational requirements of private mortgage insurers, which increases the GSEs’ capacity to serve high LTV borrowers.

In lieu of relying on ratings agencies’ determinations to assess potential approved insurers, the revised PMIERs include new financial strength and risk requirements, incorporating a risk-based framework that requires

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approved insurers to have sufficient liquid assets from which to pay claims. PMIERs do not give full credit for future premium income on existing business. PMIERs also include enhanced operational, business and quality control requirements that are aimed at fortifying an insurer’s risk management infrastructure, emphasizing continuous process improvement and senior management oversight, and defining remedial actions that will apply should an approved insurer fail to comply.

PMIERs differentiate between borrower-paid mortgage insurance and lender-paid mortgage insurance, taking into consideration the effects of HOPA. In general, PMIERs require higher risk-based asset amounts for new lender-paid mortgage insurance coverage written after December 31, 2015 than borrower-paid mortgage insurance because borrower-paid mortgage insurance is automatically terminated in accordance with HOPA after the principal balance of a loan is reduced to 78% or less of the original property value, or is cancelled at the borrower’s request if the principal balance of a loan is reduced to 80% or less of the original property value upon satisfaction of the conditions set forth in HOPA. Additionally, and separate from HOPA cancellation requirements, the GSEs and certain investors publish guidelines permitting cancellation of mortgage insurance based on a property’s current value.

Federal Regulation

We and other private mortgage insurers are impacted by federal regulation of residential mortgage transactions. Mortgage origination and servicing transactions are subject to compliance with various state and federal laws, including RESPA, HOPA, the Fair Credit Reporting Act (“FCRA”), the FDCPA, the Equal Credit Opportunity Act (“ECOA”), the Fair Housing Act, the Truth In Lending Act (“TILA”), the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), the Dodd-Frank Act and others, including those discussed in this section. Among other things, these laws and their implementing regulations prohibit payments for referrals of settlement service business, require fairness and non-discrimination in granting or facilitating the granting of credit and insurance, govern the circumstances under which companies may obtain and use consumer credit information, define the manner in which companies may pursue collection activities, and provide for other consumer protections.

The CFPB, a federal agency created by the Dodd-Frank Act, is charged with implementation and enforcement of a number of federal laws governing the mortgage market, including TILA and RESPA.

RESPA. Settlement service providers operating in connection with the origination or refinance of a federally regulated mortgage loan are subject to RESPA. Under the Dodd-Frank Act, the authority to implement and enforce RESPA was transferred to the CFPB. RESPA authorizes the CFPB, the U.S. Department of Justice, state attorneys general and state insurance commissioners to bring civil enforcement actions, and also provides for criminal penalties and private rights of action.

Mortgage insurance is considered to be a settlement service for purposes of RESPA under applicable regulations. As a result, mortgage insurers are subject to the anti-referral fee provisions of Section 8 of RESPA which, among other things, generally provide that mortgage insurers are prohibited from paying or accepting anything of value in connection with the referral of a settlement service.

We have been part of industry-wide examinations by the Minnesota Department of Commerce and the CFPB regarding captive reinsurance practices by lenders and mortgage insurance companies to determine whether such arrangements violated the RESPA referral fee prohibition. In 2013, we settled with the CFPB and consented to discontinue remaining captive reinsurance practices, and, in 2015, we entered into a consent order with the Minnesota Commissioner of Commerce pursuant to which we again agreed to discontinue captive reinsurance practices. We discontinued the use of captive reinsurance for policy years beginning in 2013. In addition, in the past, a number of lawsuits have challenged the actions of private mortgage insurers, including us, under RESPA, alleging that the insurers have violated the referral fee prohibition by entering into captive reinsurance arrangements or providing products or services to mortgage lenders at improperly reduced prices in return for the referral of mortgage insurance, including the provision of contract underwriting services. We may be subject to additional litigation relating to captive reinsurance arrangements.

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HOPA. HOPA requires the automatic termination of borrower-paid mortgage insurance on most loans when the principal balance of the loan is first scheduled to reach 78% of the original value of the property and the borrower is current on the loan. HOPA also provides for cancellation of borrower-paid mortgage insurance upon a borrower’s request when the principal balance of the loan reaches (based on actual payments) or is first scheduled to reach 80% of the original property value, upon satisfaction of the conditions set forth in HOPA.

FCRA. FCRA, as amended, imposes restrictions on the permissible use of credit report information. FCRA has been interpreted by some Federal Trade Commission (“FTC”) staff and federal courts to require mortgage insurance companies to provide “adverse action” notices to consumers in the event an application for mortgage insurance is declined or offered at less than the best available rate for the loan program applied for on the basis of a review of the consumer’s credit. There has been class action litigation over these FCRA adverse action notices involving the mortgage insurance industry, including court-approved settlements.

Fair Housing Act. The Fair Housing Act generally prohibits discrimination in the terms, conditions or privileges in residential real estate-related transactions on the basis of race, color, religion, sex, familial status or national origin. Numerous courts have held that the Fair Housing Act prohibits discriminatory insurance practices. In addition, both the Department of Justice and the CFPB have pursued claims under the Fair Housing Act on a disparate impact theory as well. There has been litigation over the Fair Housing Act involving other mortgage insurers, resulting in some cases in court-approved settlements.

FDCPA. The FDCPA prohibits third party debt collectors from using abusive, unfair or deceptive practices to collect a debt. The FDCPA is enforced by the FTC and CFPB. For purposes of the FDCPA, a debt collector is a person who regularly collects or attempts to collect consumer debts for another person or institution. The FDCPA specifies, among other things, the times and places where a debt collector may communicate with the consumer and which third parties a debt collector may contact other than the consumer, as well as the ways in which such communication may be conducted. Failure to comply with the FDCPA may result in liability for actual damages, punitive damages and other costs and fees, all as set forth in the FDCPA. Our loss management, including our communications with borrowers who have defaulted regarding their options with the loan servicer or owner, and recoveries activities may result in litigation under the FDCPA.

Privacy and Information Security. The GLB Act imposes privacy requirements on financial institutions, including obligations to protect and safeguard consumers’ nonpublic personal information and records, and limitations on the re-use of such information. Federal regulatory agencies have issued the Interagency Guidelines Establishing Information Security Standards, or “Security Guidelines,” and interagency regulations regarding financial privacy, or “Privacy Rule,” implementing sections of GLB Act. The Security Guidelines establish standards relating to administrative, technical, and physical safeguards to ensure the security, confidentiality, integrity, and the proper disposal of consumer information. The Privacy Rule limits a financial institution’s disclosure of nonpublic personal information to unaffiliated third parties unless certain notice requirements are met and the consumer does not elect to prevent or “opt out” of the disclosure. The Privacy Rule requires that financial institutions that are required to provide privacy notices to their customers and consumers describe the financial institutions’ policies and practices to protect the confidentiality and security of the information. With respect to our business, the GLB Act is enforced by the CFPB and state insurance regulators. Many states have enacted privacy and data security laws that impose compliance obligations beyond those imposed by the GLB Act, including obligations to protect social security numbers and provide notification in the event that a security breach results in a reasonable belief that unauthorized persons may have obtained access to consumer nonpublic information. North Carolina has implemented the requirements of the GLB Act through the Consumer and Customer Information Privacy Act, and the NCDOI is our functional regulator on these issues.

Mortgage Servicing Rules. The Dodd-Frank Act amended and expanded upon mortgage servicing requirements under TILA and RESPA. The CFPB was required to amend Regulation Z (promulgated under TILA) and Regulation X (promulgated under RESPA) to conform these regulations to the new statutory requirements. The final rules implementing these expanded and detailed mortgage servicing requirements

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became effective in January 2014. The final rules include new or enhanced requirements for handling loans that are in default, handling escrow accounts, responding to borrower assertions of error and loss mitigation in the event that a borrower defaults. A provision of the required loss mitigation procedures prohibits a loan holder or servicer from commencing foreclosure until 120 days after the borrower’s delinquency. Since 2014, the CFPB has clarified those rules through subsequent rulemakings and provided guidance on how servicers must apply them in certain circumstances and continues to engage in new rulemakings. Complying with the new rules has been challenging and costly for loan servicers. These rules could reduce claims and mitigate losses, contribute to delays in realization upon collateral and have an adverse impact on resolution of claims with respect to the servicing of mortgage loans covered by our insurance policies.

Regulation of Mortgage Origination. Private mortgage insurers are also indirectly impacted by federal law and regulation affecting mortgage originators and lenders, purchasers of mortgage loans, and governmental insurers. Among the most significant of these laws and regulations are the Dodd-Frank Act and the QM and ATR rules and the QRM securitization risk retention provisions promulgated.

ATR and QM Rules. The Dodd-Frank Act ATR rule prohibits a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the borrower has a reasonable ability to repay the loan. The Dodd-Frank Act provides that a creditor may presume that a borrower will be able to repay a loan if the loan has certain low-risk characteristics that meet the definition of a QM.

Pursuant to its authority under the Dodd-Frank Act, the CFPB issued regulations that became effective on January 10, 2014, establishing underwriting and product feature requirements for mortgages to be deemed QM. The regulations provide that mortgages that meet the GSE underwriting and product guidelines are deemed to be QMs until the earlier of the end of the FHFA conservatorship of Fannie Mae and Freddie Mac or January 10, 2021.

The Dodd-Frank Act separately granted statutory authority to HUD (for FHA-insured loans), the VA (for VA-guaranteed loans), the USDA and Rural Housing Service to develop their own definitions of a QM in consultation with the CFPB. In December 2013, HUD adopted a separate definition of a QM for loans insured by the FHA. HUD’s qualified mortgage definition is less restrictive than the CFPB QM Rule in certain respects. To the extent that other government agencies guaranteeing residential mortgage loans may adopt definitions of a QM that are more favorable to lenders and mortgage holders than the CFPB QM rule, our mortgage insurance business could also be negatively impacted.

QRM Rule. The Dodd-Frank Act generally requires a securitizer to retain at least 5% of the risk associated with securitized mortgage loans that do not meet the QRM definition, and in some cases the retained risk may be allocated between the securitizer and the lender that originated the loan. In October 2014, a final rule implementing that requirement was released, which became effective on December 24, 2015 for asset-backed securities collateralized by residential mortgages. The final rule exempts securitizations of qualified residential mortgages, or QRMs, from the risk retention requirement, and generally aligns the definition of QRM with the definition of QM. There is a temporary category of QMs for mortgages that satisfy the general product feature requirements of QMs and meet the GSEs’ underwriting requirements. As a result, lenders that originate loans that are sold to the GSEs while they are in conservatorship would not be required to retain risk associated with those loans. The final rule requires the agencies that implemented the rule to review the QRM definition no later than four years after its effective date and every five years thereafter, and allows each agency to request a review of the definition at any time.

TILA-RESPA Integrated Disclosures (“TRID”). TRID mandates new disclosures in connection with the origination of most residential mortgages that became effective October 3, 2015. TRID disclosures must be provided to the borrower three days after an application is received from a borrower and three days prior to

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closing. Early public reports indicate that certain lenders and their service partners have had difficulties implementing this new disclosure regime, which has resulted in delays in closing loans and may result in possible liability for lenders and loan investors. Consequently, we believe TRID may in the short term have a negative impact on the volume of mortgage originations, which may in turn impact the market for mortgage insurance.

Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”). The SAFE Act establishes minimum standards for the licensing and registration of state-licensed mortgage loan originators (“MLOs”). The SAFE Act also requires the establishment of a nationwide mortgage licensing system and registry for the residential mortgage industry and its employees. As part of this licensing and registration process, MLOs who are employees of certain lending institutions must generally be licensed under the SAFE Act guidelines enacted by each state in which they engage in loan originator activities and registered with the registry. The CFPB administers and enforces the SAFE Act.

United Guaranty Services, Inc. is our subsidiary that provides non-insurance services to our insurance subsidiaries, as well as contract underwriting to state and federally regulated mortgage lenders. Each state has passed some version of the SAFE Act with varying treatment on the issue of licensing underwriters as MLOs. United Guaranty Services, Inc. has obtained corporate- and individual-level licenses for certain of our underwriters and also utilizes the services of a third-party licensed vendor in certain states where we have yet to obtain the required licensing. While we seek guidance from relevant state licensing departments prior to obtaining licenses, given the differing interpretations that can be attributed to these laws, we cannot assure that every state regulator will continue to agree with our licensing interpretations.

Federal Insurance Office. The Dodd-Frank Act established a Federal Insurance Office (“FIO”) within the U.S. Department of the Treasury, which is headed by a director appointed by the Secretary of the Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance (other than health insurance), including serving as a non-voting member of FSOC. On December 12, 2013, the FIO released a Dodd-Frank Act mandated study on how to modernize and improve the system of insurance regulation in the United States. The report listed several actions that states could take to improve the uniformity and efficiency of the existing state-based regulatory system and highlighted certain areas, including mortgage insurance, in which federal involvement was recommended. The FIO recommended that the states undertake reforms regarding capital adequacy, reform of insurer resolution practices, and marketplace regulation. On November 20, 2015, the Department of the Treasury and the Office of the U.S. Trade Representative announced their intention to negotiate an agreement between the U.S. and the European Union regarding prudential measures with respect to insurance and reinsurance. U.S. and European Union representatives met in February 2016 to discuss such an agreement, but no assurance can be given as to when or whether any agreement will be reached.

Federal Reserve Supervision of AIG

The FSOC determined in 2013 that AIG should be regulated by the Federal Reserve as a nonbank SIFI pursuant to Section 113 of the Dodd-Frank Act. The FSOC reviews its determination annually; however, FSOC’s 2014 and 2015 annual reevaluations did not result in a change to AIG’s nonbank SIFI status. As a nonbank SIFI, AIG is subject to the Federal Reserve’s examination, supervision and enforcement authority and certain reporting requirements. The Federal Reserve has focused its general supervisory authority over AIG in several areas, including financial and control-related reporting, oversight of AIG’s capital planning and capital analysis and review process, model governance and validation, operational risk management, recovery planning and resolution planning. If AIG does not satisfy certain requirements, the Federal Reserve has the authority, as part of its general prudential supervisory powers, to limit AIG’s ability to conduct certain activities that would otherwise be permissible. AIG is currently required to provide to the Federal Reserve and the FDIC, on an annual basis (or more frequently, if required), and to respond to regulatory inquiries concerning, a plan for rapid and orderly resolution in the event of its material financial distress or failure, which must, among other things, provide a detailed resolution strategy and analyses of its material entities, organizational structure, interconnections and interdependencies and management information systems.

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Under the Federal Reserve’s interpretations of the BHC Act and the regulations promulgated thereunder applicable to bank holding companies, we believe that we would be deemed a “controlled” subsidiary of AIG unless AIG greatly reduces its ownership of our voting securities (possibly to as low as 5% of our voting securities) or otherwise receives confirmation from the Federal Reserve that AIG no longer controls us. As a controlled subsidiary of AIG, we may be subject to the Federal Reserve’s examination, supervision and enforcement authority, and we may be required to provide information and reports to AIG for use by or submission to the Federal Reserve, or, with respect to resolution planning, to the FDIC.

We expect to enter into a shareholder agreement, in which we agree to certain covenants and grant certain rights to AIG that are intended to facilitate AIG’s compliance with its Federal Reserve supervision and the FDIC’s resolution authority and that may impose certain obligations and restrictions on us. Certain of these restrictions will continue for so long as AIG is deemed to control us for purposes of Federal Reserve regulation (which may be at a lower ownership threshold than that at which such rights would be expected to fall away in a similar transaction with a non-regulated parent company). See “Relationships and Related Party Transactions—Relationship with AIG—Shareholder Agreement.”

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MANAGEMENT

Executive Officers

The following table sets forth those individuals who will be our executive officers at the completion of this offering.


Name	Age		Position(s)
Donna DeMaio		56	President and Chief Executive Officer
Charles Compton		59	Executive Vice President and Chief Financial Officer
Brian Gould		44	Executive Vice President and Chief Operating Officer
Sara Millard		36	Senior Vice President and General Counsel
Thomas Parrent		54	Executive Vice President and Chief Risk Officer
Joseph Weider		47	Executive Vice President and Chief Business Officer

The business experience and certain other background information regarding our executive officers is set forth below.

Donna DeMaio. Donna DeMaio joined United Guaranty as chief operating officer in May 2012 and has been UGCNC’s chief executive officer since December 2012 and a director of UGCNC since November 2012, and chairman of the UGCNC board since January 2013. Ms. DeMaio was named as our president, chief executive officer and a director in March 2016. As CEO, Ms. DeMaio is responsible for our overall performance and strategic direction, including for both domestic and international operating groups. As COO, she oversaw our domestic and international sales, underwriting, and loss management, as well as domestic marketing, communications and business analytics. Before joining UGCNC in 2012, Ms. DeMaio was named President and CEO of MetLife Bank in 2005, and joined MetLife Bank in 2002 as chief financial officer. During her tenure with MetLife Bank, Ms. DeMaio provided executive management of the bank’s seven business lines and support for more than 6,000 employees across 200 locations. Prior to joining MetLife Bank, Ms. DeMaio was a partner with PricewaterhouseCoopers, focusing on financial services clients. She has been included among the Top 25 Women in Banking by American Banker (formerly U.S. Banker) several times over the past seven years. Ms. DeMaio has served as an executive group member on the Housing Policy Council. She is a certified public accountant and holds a B.A., summa cum laude, in accounting and business from Muhlenberg College. Ms. DeMaio’s qualifications to serve on our board of directors include her role as UGCNC’s chief executive officer since 2012, leadership experience and extensive knowledge of our business.

Charles Compton. Charles Compton has been UGCNC’s chief financial officer since 2011 and was named as our executive vice president and chief financial officer in March 2016. As chief financial officer, Mr. Compton oversees our accounting, financial planning and analysis and treasury groups. He is responsible for our financial reporting and performance, capital management and rating agency relationships. Mr. Compton joined UGCNC in 2011, bringing strong leadership experience in both finance and insurance. Before joining UGCNC, he was executive vice president and chief financial officer of HSBC Insurance where he was responsible for financial leadership of HSBC’s North American insurance operations and helped align the North American insurance business with HSBC’s global retail banking and wealth models. Prior to joining HSBC, Mr. Compton was partner at Adanac II LP. Before that, Mr. Compton was with Associates First Capital Corp. for 11 years, leaving as executive vice president for international insurance operations. Mr. Compton began his career at Ernst & Young. He is a certified public accountant and holds a B.A. from the University of North Texas.

Brian Gould. Brian Gould has been UGCNC’s chief operating officer since 2013 and was named as our executive vice president and chief operating officer in 2016. As chief operating officer, Mr. Gould currently oversees sales, credit policy and pricing, government relations, strategy, product development and UG Asia. Prior to these responsibilities, Mr. Gould managed underwriting, claims, loss management, customer support and business analytics at UGCNC. Mr. Gould previously managed customer contact and business

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analysis for the loss management unit and, prior to that, he was senior vice president—education loans, responsible for all management of that business unit. He also served as vice president—strategic planning and corporate development, for which he oversaw the company’s strategic planning process and its diversification efforts, including establishing a Canadian mortgage insurance subsidiary. Mr. Gould joined us in February 1999 as manager of pool operations and subsequently was assigned to our structured products group, where he worked with lenders to establish mortgage captive reinsurance programs. He earned the Associate in Claims designation in 1996 and the Chartered Property Casualty Underwriter designation in 2002. He holds a B.A. in economics with a minor in business administration from the University of North Carolina at Chapel Hill and an M.B.A. from the University of North Carolina at Greensboro.

Sara Millard. Sara Millard has been UGCNC’s general counsel since 2013 and was named as our senior vice president and general counsel in March 2016. As general counsel, Ms. Millard is responsible for all global legal, regulatory and compliance functions, working closely with executive management and operational leadership. Ms. Millard joined UGCNC in 2007 as assistant general counsel and was promoted to senior vice president and deputy general counsel in 2012. Prior to her current position, she had legal responsibility for all of our operational areas, including loss management, national production, servicing, marketing and communications, contract management, training and project management. Ms. Millard holds a J.D., summa cum laude, from North Carolina Central University, and a B.A., cum laude, from the University of North Carolina at Chapel Hill. She is a member of the American Bar Association, the North Carolina Bar Association and the Greensboro Bar Association.

Thomas Parrent. Thomas Parrent has been UGCNC’s chief risk officer since 2014 and was named as our executive vice president and chief risk officer in 2016. Mr. Parrent oversees our risk department and is the chief risk officer for all of our domestic insurance companies. Mr. Parrent joined UGCNC in January 2014 from AIG and is responsible for risk strategy, portfolio risk management, counterparty risk, quality assurance, operational risk, governance and risk aggregation models. Mr. Parrent joined AIG in 2012 as senior managing director of asset risk analytics within corporate enterprise risk management. In that role, he had responsibility for structured products analysis, credit risk analytics and asset stress testing. Prior to joining AIG, Mr. Parrent served as chief risk officer for Genworth US Mortgage Insurance. He has also held senior management positions at a number of major financial institutions including GMAC ResCap, ABN AMRO and Lincoln Capital Management. Mr. Parrent holds a B.A. in economics from Princeton University and an M.B.A. in statistics and finance from the University of Chicago.

Joseph Weider. Joseph Weider has been UGCNC’s chief information officer since 2011 and UGCNC’s chief business officer since 2015, and was named as our executive vice president and chief business officer in 2016. Mr. Weider has been responsible for domestic and international operations since 2015. He brings over 25 years of experience in technology leadership, management and transformation. Mr. Weider is responsible for developing our overall technology strategy while designing, communicating and executing our vision and long-range goals for operations, systems and technology. He is also responsible for our core operational functions, including underwriting operations, premium servicing, loss management and data analytics. Mr. Weider also oversees our digital operations and corporate administration departments. Prior to joining AIG in 2011, he served in similar roles at The Coca-Cola Company, AFLAC, SunTrust Mortgage, Inc., BB&T and most recently, First Citizens Bancshares in Raleigh, North Carolina. He serves as Chairman of the Advisory Board, Information Systems and Supply Change Management for the University of North Carolina at Greensboro. Mr. Weider holds a B.A. in management information systems from Mercer University.

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Board of Directors

The board of directors is responsible for the oversight of management of our company. The following table presents information regarding the current member of our board of directors. We expect that the composition of our board of directors will change at or prior to the offering.


Name	Age		Position(s)
Donna DeMaio		56	Director

The business experience and certain other background information regarding Ms. DeMaio is set forth under “—Executive Officers” and regarding our other directors is set forth below.

Director Independence

Our board of directors has determined that each of , and is “independent” as that term is defined under the listing requirements and rules of the NYSE.

Board Committees and Corporate Governance

Prior to this offering, our board of directors consists of members and does not have any standing committees. Following this offering, our board will consist of members and will have the following standing committees: .

Audit Committee

Pursuant to the phase-in provisions of NYSE listing requirements and Rule 10A-3 promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our audit committee will initially be composed of directors, of which directors will be “independent” under listing rules and Rule 10A-3. Within ninety days following the date of this prospectus, a majority of the audit committee will be so independent and within one year following the date of this prospectus, all members of our audit committee will be so independent.

Our audit committee will initially be composed of , and , each of whom of our board of directors has determined meets the qualifications for audit committee members set forth in listing rules. Our board of directors has also determined that is an “audit committee financial expert,” as defined by the SEC.

Our audit committee’s primary function will be to assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial reports and other financial information filed with the SEC or provided by us to regulators; our systems of internal controls regarding finance, accounting, legal compliance and ethics established by management and the board of directors; and our accounting and financial reporting process.

Compensation Committee

Our compensation committee will initially be composed of , and . At such time as AIG ceases to own more than 50% of our outstanding common stock, the compensation committee will consist solely of independent directors in accordance with the phase-in provisions of NYSE listing requirements.

Our compensation committee will be responsible for annually reviewing and approving the corporate goals and objectives relevant to the compensation of the chief executive officer and evaluating and approving the corporate goals and objectives relevant to the compensation of the chief executive officer and evaluating his or her performance in light of these goals; determining the compensation of our executive officers and other appropriate officers, and administering our incentive and equity-based compensation plans.

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Nominating and Governance Committee

Our nominating and governance committee will initially be composed of and . At such time as AIG ceases to own more than 50% of our shares, the nominating and governance committee will consist solely of independent directors in accordance with the phase-in provisions of NYSE listing requirements.

Our nominating and governance committee will be responsible for identifying and recommending candidates for election to our board of directors and each committee of our board of directors, reviewing and reporting to the board of directors on compensation of directors and board committee members, and developing, recommending and monitoring corporate governance principles applicable to the board of directors and the our company as a whole.

Codes of Ethics and Conduct

Prior to or concurrently with the completion of this offering, our board of directors will adopt a code of ethics and a code of conduct as such terms are used in Item 406 of Regulation S-K and listing rules. Once adopted, we will post on our website any amendment or waiver to such codes within the time period required by the SEC or NYSE.

“Controlled Company” Exemption

Because AIG will continue to own a majority of our common stock following this offering, we will be a “controlled company” for purposes of NYSE listing rules. Accordingly, our board of directors will not be required to have a majority of independent directors and our compensation and nominating and governance committees will not be required to meet the director independence requirements to which we would otherwise be subject until such time as we cease to be a “controlled company.”

Compensation Committee Interlocks and Insider Participation

During 2015, we did not have a compensation committee. No member of AIG’s Compensation and Management Resources Committee, the committee that made compensation decisions for certain of our executive officers in 2015, served as an officer or employee of the company. None of our executive officers serves, or has served during the past fiscal year, as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Introduction

This Compensation Discussion and Analysis provides a review of the compensation arrangements of our named executive officers. The following table sets forth those individuals who were serving as UGCNC’s named executive officers as of December 31, 2015.


Name		Position
Donna DeMaio		President and Chief Executive Officer
Charles Compton		Executive Vice President and Chief Financial Officer
Brian Gould		Executive Vice President and Chief Operating Officer
Thomas Parrent		Executive Vice President and Chief Risk Officer
Joseph Weider		Executive Vice President and Chief Business Officer

Compensation Philosophy and Objectives

As a wholly-owned subsidiary of AIG prior to the offering, the 2015 compensation packages of our named executive officers were governed by the compensation philosophy and structure of AIG and were ultimately approved by AIG. AIG’s compensation philosophy centers on creating a culture of performance management and pay for performance to motivate all AIG employees to achieve sustainable value through a strategic focus on AIG’s core businesses and achieving the right balance between growth, profitability and risk. AIG’s executive compensation program focuses on providing an appropriate balance of fixed and variable pay, driving achievement of AIG’s short- and long-term business strategies and aligning the economic interests of its executives with the long-term interests of AIG and its shareholders.

AIG’s compensation philosophy centers around the following objectives:

Attracting and retaining the strongest employees by providing competitive and consistent compensation opportunities.

Creating a culture of performance management and pay for performance by providing total direct compensation opportunities that reward the performance of AIG and individual employees.

Managing total direct compensation to provide a market-competitive, performance-driven structure through a four-part program that takes into account base salary, annual incentives, long-term incentives and benefits and perquisites.

Motivating all employees to achieve sustainable increases in AIG’s “intrinsic value,” which represents a balance of profitability, growth and risk, to drive long-term value creation for shareholders.

Aligning the long-term economic interests of key employees with those of shareholders by ensuring that a meaningful component of each key employee’s compensation is represented by AIG securities.

Avoiding incentives that encourage employees to take unnecessary or excessive risks that could threaten the value of AIG by appropriately balancing risk and reward as well as rewarding both annual and long-term performance.

Maintaining strong corporate governance practices by meeting evolving standards of compensation governance and complying with regulations applicable to employee compensation.

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In anticipation of our becoming a standalone company, we are reviewing and intend to implement an executive compensation program appropriate for the company for the periods following the completion of the offering. We anticipate that our compensation philosophy and objectives will be similar to many of the principles followed by AIG with respect to our management team.

Compensation Structure—Direct Compensation Components

AIG’s 2015 compensation structure consisted of market-competitive base salary, target short-term incentive opportunity and target long-term incentive opportunity. An executive’s total direct compensation target is determined and allocated across pay components based on his or her position, skills and experience and demonstrated performance, as well as market practice. Consistent with AIG’s compensation philosophy, this structure is designed to provide an appropriate balance of fixed and variable pay, drive achievement of AIG’s short- and long-term business strategies and align the economic interests of executives with the long-term interests of AIG and its shareholders.

The 2015 target total direct compensation opportunity for each of our named executives is set forth in the following table.


Named Executive Officer	Annual Base Salary		Target Short-Term Incentive		Target Long-Term Incentive		Total

Donna DeMaio	$	625,000	$	875,000	$	1,000,000	$	2,500,000
President and Chief Executive Officer
Charles Compton	$	275,000	$	160,000	$	140,000	$	575,000
Executive Vice President and Chief Financial Officer
Brian Gould	$	330,000	$	300,000	$	350,000	$	980,000
Executive Vice President and Chief Operating Officer
Thomas Parrent	$	350,000	$	182,200	$	167,800	$	700,000
Executive Vice President and Chief Risk Officer
Joseph Weider	$	300,000	$	175,000	$	175,000	$	650,000
Executive Vice President and Chief Business Officer

Base Salary

Annual base salary is paid in cash and is the sole fixed component of an executive’s total direct compensation. An executive’s base salary is established based on his or her experience, performance and salaries for comparable positions at competitors. This allocation is intended to fairly compensate the executive for the responsibilities of his or her position, achieve an appropriate balance of fixed and variable pay and provide the executive with sufficient liquidity to discourage excessive risk-taking.

Short-Term Incentive

Structure and Funding. Short-term incentive is designed to reward annual performance and drive near-term business strategies. It consists of an annual cash award with individual target amounts that reflect job grade, business unit or corporate function responsibilities and experience. The funding of AIG’s short-term incentive program is based on the same pre-established performance metrics that produce the “objective company score”, which are discussed below under “—Objective Company Score.”

As applied to our named executives, AIG’s short-term incentive program is based on an objective company score and a participant’s individual performance evaluation. In the first quarter of 2015, each business unit or segment of AIG is allocated a target amount of funding for its short-term incentive awards, which is based on the

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aggregate individual short-term incentive target opportunities of its participating employees. In the first quarter of 2016, this aggregate target amount for each business unit or segment is multiplied by the objective company score, which ranges from 0% to 125%, to determine the total pool of short-term incentive funding available to the business unit or segment. Each participant’s short-term incentive award is then determined, either below, at or above his or her individual target, based on the participant’s individual performance as evaluated by the participant’s managers and, in the case of Ms. DeMaio, AIG’s Compensation and Management Resources Committee (“AIG’s compensation committee”). For AIG’s executives in grade level 27 or above, which included Ms. DeMaio in 2015, one-half of any amount earned is deferred for one year and subject to clawback.

Objective Company Score. The objective company score is based on a single set of performance metrics that applies to all participants and ranges from 0% to 125% of target. The five company performance metrics for 2015 measure either profitability, expense management or risk-adjusted growth. The profitability performance metrics are normalized insurance company pre-tax operating income and normalized AIG return on equity (excluding deferred tax assets), the expense management performance metric is normalized AIG gross general operating expenses, and the risk-adjusted growth performance metrics are normalized production risk-adjusted profitability for AIG’s Property Casualty and Personal Insurance operating segments and normalized value of new business for AIG’s Retirement, Life, Institutional Markets and Mortgage Guaranty operating segments. The reasons for selecting each metric and the weightings are summarized below. AIG’s compensation committee determines the objective company score.

LOGO

(a)	Each of these goals represents a non-GAAP financial measure. For an explanation of how these measures are calculated, see “—Non-GAAP Financial Measures.”

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2015 Performance. In the first quarter of 2016, AIG’s compensation committee determined the objective company score for 2015 was 11% below target, or 89%, after reviewing performance against the pre-established performance metrics and normalization principles. AIG’s compensation committee retained the discretion to adjust the performance criteria and results, which it did not exercise for 2015.

Individual Performance Evaluation. For participants other than AIG’s Executive Leadership Team (of which none of our named executives were members), an individual’s short-term incentive award is based on his or her individual performance evaluation. Ms. DeMaio’s individual performance is reviewed and evaluated by AIG management and AIG’s compensation committee and is based on achievement of key financial, strategic, operational and organizational goals established for Ms. DeMaio in early 2015. For each of the other named executives, individual performance is reviewed and evaluated by his managers and is based on the named executive’s achievement of goals and accomplishments specific to his business unit and role.

For Ms. DeMaio, AIG’s compensation committee reviewed the following significant financial, strategic, operational and organizational achievements in determining her 2015 short-term incentive award:


Metric		Significant Achievements
Financial		Achieved across various performance metrics, including: normalized AIG Commercial Insurance pre-tax operating income (underperformed target by 7.3%), the contribution of the normalized AIG Mortgage Guaranty business to AIG pre-tax operating income (exceeded target by 6.9%), normalized value of new business for the AIG Mortgage Guaranty business (exceeded target by 28.1%) and normalized gross underwriting function general operating expenses (outperformed target by 1.5%).

Strategic		Designed and implemented customer profitability analytics to drive business decisions concerning products and pricing offered. Deployed strategies to ensure capital is being managed optimally. Explored and identified options of possible future products to expand consumer base.

Operational		Improved internal data collection and systems. Achieved expense management by eliminating work duplication with a goal to improve customer experience.

Organizational		Implemented products and solutions for customers that meet customer needs while ensuring proper risk practices are adhered to. Ensured each company employee’s goals are centered around providing valued service to customers and hired a Chief Customer Officer to lead efforts in putting customers first. Implemented solutions to enhance technology capabilities across the company.

For Mr. Compton, the following key achievements were considered in determining his 2015 short-term incentive award: achieved across various financial performance metrics, including the contribution of the normalized AIG Mortgage Guaranty business to AIG pre-tax operating income (exceeded target by 6.9%), normalized value of new business for the AIG Mortgage Guaranty business (exceeded target by 28.1%) and normalized gross underwriting function general operating expenses (outperformed target by 1.5%); contributed to major strategic company decisions on information technology projects, product offerings and pricing strategies; helped lead successful execution of the Bellemeade Re transaction in July 2015; implemented originator profitability metrics across all strategic accounts; developed and implemented new metrics for company financial measures; improved retention of the company’s top performing employees; implemented a diversity inclusion strategy; and supported implementation of new billing functionality and new policy administration function.

For Mr. Gould, the following key achievements were considered in determining his 2015 short-term incentive award: outperformed goal of NIW by nearly $15 billion; achieved normalized AIG Mortgage Guaranty business contribution to AIG pre-tax operating income (exceeded target by 6.9%), normalized value of new business for the AIG Mortgage Guaranty business (exceeded target by 28.1%); increased capability of our loan evaluation services

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subsidiary to purchase loans and managed expenses under budget; helped implement products and solutions for customers that meet customer needs while ensuring proper risk practices are adhered to; managed expenses by implementing internal process improvements and technological enhancements; implemented new internal data system for customer and product metrics; and helped maintain error rate on claims below 1% and material underwriting defect rate below 2%.

For Mr. Parrent, the following key achievements were considered in determining his 2015 short-term incentive award: supported growth by ensuring new products were responsibly designed; supported the development of a new program to ensure consistency and transparency in the measurement of internal capital on mortgage insurance exposures; led AIG’s real estate risk function; managed expenses within 2015 budget; partnered with functions across AIG to develop and implement a mortgage risk transfer framework; improved the quality assurance experience for customers; established risk metrics and created a monitoring framework to ensure portfolio composition stays aligned with business objectives; conducted in-depth reviews of company risk and financial models; provided operational risk oversight and support to increase efficiency through technological enhancements, new pricing processes and review of information technology procedures; established operational risk training and awareness programs; implemented enhancements to risk identification, prioritization and acceptance across the company.

For Mr. Weider, the following key achievements were considered in determining his 2015 short-term incentive award: led development and release of customer-facing technologies, including a new mobile application, to improve customer experience and engagement; ensured compliance with policies regarding sourcing and approvals; supported implementation of new policy administration system; outperformed across several company and informational technology financial performance metrics; identified and implemented information technology security and risk management solutions; and supported information technology solutions across the company.

Determination of Earned 2015 Short-Term Incentive Awards. Based on the objective company score and each named executive’s individual performance evaluation, the named executives earned the following short-term incentive amounts for 2015. For Ms. DeMaio, payment of 50% of her earned award will be deferred until March 2017.


Named Executive Officer	Individual Target Amount		Earned Award Amount

Donna DeMaio	$	875,000	$	1,012,375
Charles Compton	$	160,000	$	142,400
Brian Gould	$	300,000	$	267,000
Thomas Parrent	$	182,200	$	178,374
Joseph Weider	$	175,000	$	186,900

Long-Term Incentive

AIG’s long-term incentive program was introduced in 2013 and consists entirely of performance share unit (“PSU”) awards that are earned between 0% to 150% based on achievement of performance metrics over a three-year period. Following the three-year performance period, earned PSUs vest in three equal, annual installments, resulting in a five-year time horizon to vest in the full award. Vested PSUs are settled in AIG common stock (or, at the election of AIG, in cash). AIG believes that providing a significant portion of an executive’s compensation in equity, based on performance metrics over a three-year period and subject to an additional vesting period, will drive long-term value creation for its shareholders and appropriately account for the time horizon of risks.

To determine PSU grants, the target dollar amount of a named executive’s long-term incentive award is converted to a number of PSUs based on the average closing price of AIG common stock over the calendar month preceding the reference date, rounded down to the nearest whole unit. In general, the reference date refers

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to the grant date in the case of annual awards, the date of the offer of employment to a new hire or the effective date of a recipient’s promotion. For awards granted in 2015, earned PSUs range from 0% to 150% of the target grant based primarily on achieving relative total shareholder return (“TSR”) for the 2015 to 2017 performance period, in order to align with AIG’s business strategy and evaluate long-term performance relative to peers. To protect against excessive risk-taking, the TSR metric is balanced by the inclusion of credit default swap (“CDS”) spread as a risk adjustment metric (measured based on relative final CDS spread on five-year senior unsecured debt for 2015 awards). Earned PSU awards granted in 2015 vest one-third in January of each of 2018, 2019 and 2020.

The table below summarizes the two performance metrics used for the 2015 to 2017 performance period. Relative TSR is weighted 75%, and relative final CDS spread is weighted 25%. Actual performance below threshold will result in a 0% payout for that metric.


Performance Metric	Weighting	Threshold	Target	Maximum

Relative TSR	75%	25^th percentile	55^th percentile	75^th percentile
Relative Final CDS Spread	25%	5^th percentile	20–80^th percentile	95^th percentile

Payout		50%	100%	150%

Results will be certified by AIG’s compensation committee in the first quarter of 2018, and one-third of any earned PSUs will vest in each of January 2018, 2019 and 2020. Once earned, vested PSUs are settled in AIG common stock.

For 2015 long-term incentive awards, dividend equivalent rights in the form of additional PSUs accrue commencing with the first dividend record date of AIG common stock following the PSU grant date, are subject to the same vesting and performance conditions as the related PSUs and are paid when such related earned shares (if any) are delivered. The number of additional PSUs earned at any such time will be equal to (1) the cash dividend amount per share of AIG common stock times (2) the number of PSUs covered by the award (and, unless otherwise determined by AIG, any dividend equivalent units previously credited under the award) that have not been previously settled through the delivery of shares (or cash) prior to such date, divided by the fair market value of a share of AIG common stock on the applicable dividend record date.

Compensation Structure—Indirect Compensation Components

Welfare and Other Indirect Benefits. Our named executives generally participate in the same broad-based health, life and disability benefit programs as AIG’s other employees.

Retirement Benefits. AIG provides a number of retirement benefits to eligible employees, including both defined contribution plans (such as 401(k) plans) and traditional pension plans (called defined benefit plans). These plans can be either tax-qualified or non-qualified.

AIG’s only active defined contribution plan for the named executives is a 401(k) plan, which is tax-qualified. The plan was amended effective January 1, 2012 to provide all participants with a match of 100% of the first 6% of their eligible compensation contributed up to the IRS compensation limit ($265,000 for 2015). Accordingly, for the named executives in 2015, AIG matched a percentage of their contributions to the 401(k) plan up to $15,900. Effective January 1, 2016, AIG also provides a contribution of 3% of eligible compensation to all employees eligible to participate in the 401(k) plan, in addition to the 6% matching contribution, subject to IRS limits.

AIG’s defined benefit plans include the AIG Retirement Plan (the “Qualified Retirement Plan”) and the AIG Non-Qualified Retirement Income Plan (the “Non-Qualified Retirement Plan”). Each of our named executives participates in the Qualified Retirement Plan and the Non-Qualified Retirement Plan. Both of these plans provide for a yearly benefit based on years of service, average final salary, as well as pay credits and interest credits.

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Effective January 1, 2016, benefit accruals under the Qualified Retirement Plan and the Non-Qualified Retirement Plan were frozen. As a result, the Qualified Retirement Plan and the Non-Qualified Retirement Plan were closed to new participants, and current participants no longer earn additional benefits. These plans and their benefits are described in greater detail in “—Post-Employment Compensation—Pension Benefits.”

Perquisites and Other Compensation. To facilitate the performance of their management responsibilities, AIG provides some employees, including some of our named executives, with perquisites, which represent a very modest portion of total compensation and are usual and customary for similar businesses. In 2015, the perquisites provided to our named executives consisted of parking near our corporate headquarters in Greensboro, North Carolina.

Termination Benefits and Policies. AIG provides severance benefits to its executives in order to offer competitive total compensation packages, ensure executives’ ongoing retention when considering potential transactions that may create uncertainty as to their future employment with AIG and enable AIG to obtain a release of employment-related claims.

AIG’s 2012 Executive Severance Plan (the “2012 ESP”) applies to AIG executives in grade level 27 or above, which includes Ms. DeMaio. For purposes of the 2012 ESP, a participant’s grade level is the highest level at which he or she was employed at any time in the 12 months immediately prior to the qualifying termination. The 2012 ESP provides for severance payments and benefits upon a termination by AIG without “Cause” or if a qualifying executive terminates for “Good Reason,” including, for qualifying executives, after a “Change in Control.” In the event of a qualifying termination, a participant is generally eligible to receive severance in an amount equal to the product of a multiplier times the sum of salary and three-year-average annual incentives. The multiplier is either 1 or 1.5 depending on the executive’s grade level and increases to 1.5 or 2 for qualifying terminations within two years following a Change in Control.

AIG maintains its General Severance Plan for other eligible employees, including Messrs. Compton, Gould, Parrent and Weider. The General Severance Plan provides for severance payments and benefits upon a termination by AIG due to specified causes including reductions in force, job elimination, office closings and material restructuring of a position. In the event of a qualifying termination, a participant is generally eligible to receive severance in an amount equal to two weeks of base pay for each year of service, with a minimum of ten weeks base pay and a maximum of 52 weeks base pay.

Historic Compensation Components

Under AIG’s 2011 Long-Term Incentive Plan, participants earned stock appreciation rights (“SARs”) linked to the achievement of company and business unit performance measures and to the performance of AIG’s stock price. The number of SARs a participant earned could range from zero to two times the participant’s target SARs award opportunity, based on performance measures. The actual payout of SARs was based on the decrease or increase in AIG’s stock price over time. Generally, for each SAR a participant was granted, the participant would receive $1 of compensation for each $1 increase in AIG’s stock price over the settlement price, up to a maximum gain per SAR of two times the settlement price. Earned SARs awards were paid out in cash shortly after the vesting date, which was two years after the two-year performance period ended. If AIG’s stock price fell below the settlement price at vesting, the SARs would have no value. The SARs held by Mr. Gould that vested and were settled in 2015 are included in “—Holdings of and Vesting of Previously Awarded Equity—Vesting of Stock-Based Awards During 2015.”

Indemnification and Restrictive Covenants

Pursuant to Ms. DeMaio’s May 2, 2012 offer letter from UGCNC, we will indemnify and hold Ms. DeMaio harmless from, and provide her with advances with respect to any cost, expense or liability arising out of or relating to any act or directions made by Ms. DeMaio in the course of her performing services for us or any

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affiliated entity, in each case to the maximum extent permitted by law and the certificate of incorporation and bylaws of us and AIG. Ms. DeMaio’s offer letter required her to enter into a Non-Solicitation and Non-Disclosure Agreement with AIG.

Role of AIG’s Compensation Committee

After considering the recommendation of AIG’s chief executive officer, AIG’s compensation committee approves the compensation of key employees under its purview, which included Ms. DeMaio in 2015. AIG’s compensation committee also makes recommendations to AIG’s board of directors with respect to AIG’s compensation programs for other key employees and oversees AIG’s management development and succession planning programs.

Relationship of Compensation Policies and Practices to Risk Management

AIG’s executive compensation program is designed to avoid incentives that encourage employees to take unnecessary or excessive risks that could threaten the value of AIG and its subsidiaries, including UGC and its subsidiaries. AIG’s Enterprise Risk Management (“ERM”) conducted its annual risk assessment in 2015 to evaluate AIG’s active incentive plans and to assign a risk rating of low, medium or high to each plan. For plans which had been reviewed in 2014 and rated low risk, ERM reviewed a sample of such plans in 2015. No plan was categorized as high risk, and ERM concluded that AIG’s compensation policies and practices are not reasonably likely to have a material adverse effect on AIG.

Other Considerations

Clawback Policy. In 2013, AIG’s compensation committee adopted and implemented a comprehensive Clawback Policy to encourage sound risk management and individual accountability. The Clawback Policy covers all executive officers and any other employee as determined by AIG’s compensation committee and applies to covered compensation for such executive officers and employees. For Ms. DeMaio, covered compensation includes both her short-term and long-term 2013, 2014 and 2015 incentive awards, and for each of the other executive officers, covered compensation includes his 2013, 2014 and 2015 long-term incentive awards. In the event that AIG’s compensation committee determines that a triggering event under the Clawback Policy has occurred, the committee may require a covered employee to forfeit and/or repay all or any portion of any unpaid covered compensation or covered compensation paid in the 12 months (or such longer period of time as required by any applicable statute or government regulation) preceding the event. Triggering events generally include a material financial restatement; the award or receipt of covered compensation based on materially inaccurate financial statements or performance metrics that are materially inaccurately determined; a failure of risk management, including in a supervisory role, or material violation of AIG’s risk policies; and an action or omission that results in material financial or reputational harm to AIG.

No-Hedging Policy. AIG’s Code of Conduct and Insider Trading Policy prohibit employees, including our named executives, from engaging in hedging transactions with respect to any of AIG’s securities, including by trading in any derivative security relating to AIG’s securities.

Tax Deductibility of Executive Compensation. Section 162(m) of the Code generally disallows a tax deduction to a publicly traded corporation that pays compensation in excess of $1 million to any of its named executive officers (other than the chief financial officer) in any taxable year, unless certain performance and other requirements are met. Our intent generally is to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation paid to our executive officers. However, we believe that retaining the flexibility to attract, retain and motivate our employees with a program that supports long-term value creation, even though some compensation awards may not be deductible, is in the best interests of our shareholders, and we reserve the right to pay amounts that are not deductible under Section 162(m).

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Non-GAAP Financial Measures

Certain of the performance metrics used in AIG’s incentive program are “non-GAAP financial measures” under SEC rules and regulations. The non-GAAP financial measures presented may not be comparable to similarly named measures reported by other companies. The definition for each non-GAAP financial measure referenced in this Compensation Discussion and Analysis is set forth below.

“Normalized insurance company pre-tax operating income” is Insurance company pre-tax operating income (defined below) as adjusted by the Insurance Company Normalizations (defined below).

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“Insurance company pre-tax operating income” is the sum of the Pre-tax operating income (defined below) for AIG’s Commercial Insurance and Consumer Insurance reportable segments. Pre-tax operating income is derived by excluding the following items from Pre-tax income

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