Investment strategy We rate RDN Sell/Speculative risk (3S). Although there are cyclical positives for RDN such as higher earned premiums off of higher insurance in force and a generally higher interest rate environment which makes competitors products such as piggy-backs less attractive, there are still concerns. Specifically, there is much uncertainty surrounding RDN's credit exposure - especially its remaining NIM risk in force as the company reported surprising write-downs recently due to "non-subprime" second lien credit issues and prospects for further write-down is uncertain given continued deterioration of subprime mortgage credit. With this uncertainty (and the NIMs exposure unique to RDN) and a generally worsening credit environment beyond our and the industry's expectations, we believe that RDN is in a worst position relative to its peers. Valuation In determining our price target for RDN, we use historical price-to-book value (P/B). MIs like other insurance companies, tend to trade on their book value because the financial assets on the balance sheet are the main driver behind earnings. We believe that the past year signals a different business environment for the MIs than prior years, mainly due to the much worse than expected credit deterioration related to subprime but bleeding over into Alt-A and prime mortgages. Over three months, RDN's P/B has ranged from a high of 0.19x to a low of 0.02x, with a mean of 0.12x and a median of 0.14x. Over the past year, P/B has ranged from a high of 1.05x to a low of 0.02x, with a mean of 0.31x and median of 0.25x.