☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 23-2691170 | |||||||||||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
1500 Market Street | , | Philadelphia | , | PA | 19102 | |||||||||||||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock, $0.001 par value per share | RDN | New York Stock Exchange |
Large Accelerated Filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
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Term | Definition | ||||
2014 Master Policy | Radian Guaranty’s master insurance policy, setting forth the terms and conditions of our mortgage insurance coverage, which became effective October 1, 2014 | ||||
2016 Single Premium QSR Agreement | Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in the first quarter of 2016 and subsequently amended in the fourth quarter of 2017 | ||||
2018 Single Premium QSR Agreement | Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in October 2017 to cede a portion of Single Premium NIW beginning January 1, 2018 | ||||
Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in January 2020 to cede a portion of Single Premium NIW beginning January 1, 2020 | |||||
ABS | Asset-backed securities | ||||
All Other | Radian’s non-reportable operating segments and other business activities, including income (losses) from assets held by our holding company, related general corporate operating expenses not attributable or allocated to our reportable segments and, for all periods through the first quarter of 2020 prior to its sale, income and expenses related to Clayton | ||||
ASU | Accounting Standards Update, issued by the FASB to communicate changes to GAAP | ||||
Available Assets | As defined in the PMIERs, assets primarily including the liquid assets of a mortgage insurer, and reduced by premiums received but not yet earned | ||||
Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020 | |||||
CFPB | Consumer Financial Protection Bureau | ||||
Claim Curtailment | Our legal right, under certain conditions, to reduce the amount of a claim, including due to servicer negligence | ||||
Claim Denial | Our legal right, under certain conditions, to deny a claim | ||||
Claim Severity | The total claim amount paid divided by the original coverage amount | ||||
Clayton | Clayton | ||||
COVID-19 | The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020 | ||||
COVID-19 Amendment | Temporary amendment to the PMIERs effective June 30, 2020, primarily to recognize the COVID-19 pandemic as a nationwide “FEMA Declared Major Disaster” and to set forth guidelines on the application of the Disaster Related Capital Charge to COVID-19 Defaulted Loans | ||||
COVID-19 Crisis Period | Time period extending from | ||||
COVID-19 Defaulted Loans | All non-performing loans that either: (i) have an Initial Missed Payment occurring during the COVID-19 Crisis Period or (ii) are subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which is assumed under the COVID-19 Amendment to be the case for any loan that has an Initial Missed Payment occurring during the COVID-19 Crisis Period and is subject to a forbearance plan), the terms of which are materially consistent with the terms of | ||||
Loans that were in default as of the beginning of a period and are no longer in default because payments were received such that the loan is no longer 60 or more days past due | |||||
Default to Claim Rate | The percentage of defaulted loans that are assumed to result in a claim |
Term | Definition | ||||
Disaster Related Capital Charge | Under the PMIERs, multiplier of 0.30 applied to the required asset amount factor for each non-performing loan: (i) backed by a property located in a FEMA Designated Area and (ii) either subject to a certain forbearance plan or with an initial default date occurring within a certain timeframe | ||||
Discrete Item(s) | For tax calculation purposes, certain items that are required to be accounted for in the provision for income taxes as they occur and are not considered components of the estimated annualized effective tax rate for purposes of reporting interim results. Generally, these are items that are: (i) clearly defined (such as changes in tax rate or tax law); (ii) infrequent or unusual in nature; or (iii) gains or losses that are not components of continuing operating income, such as income from discontinued operations or losses reflected as components of other comprehensive income. These items impact the difference between the statutory rate and Radian’s effective tax rate. | ||||
Dodd-Frank Act | Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended | ||||
Eagle Re | A group of unaffiliated special purpose reinsurers (VIEs) domiciled in Bermuda, comprising Eagle Re 2018-1 Ltd., | ||||
Eagle Re 2019-1 Ltd., | |||||
Excess-of-Loss Program | The credit risk protection obtained by Radian Guaranty in the form of excess-of-loss reinsurance, which indemnifies the ceding company against loss in excess of a specific agreed limit, up to a specified sum. The program includes reinsurance agreements with | ||||
Exchange Act | Securities Exchange Act of 1934, as amended |
Extraordinary Distribution | A dividend or distribution of capital that is required to be approved by an insurance company’s primary regulator that is greater than would be permitted as an ordinary distribution (which does not require regulatory approval) | ||||
Fannie Mae | Federal National Mortgage Association | ||||
FASB | Financial Accounting Standards Board | ||||
FEMA | Federal Emergency Management Agency, an agency of the U.S. Department of Homeland Security | ||||
Generally, an area that has been subject to a disaster, designated by FEMA as an individual assistance disaster area for the purpose of determining eligibility for various forms of federal assistance | |||||
FHA | Federal Housing Administration | ||||
FHFA | Federal Housing Finance Agency | ||||
FHLB | Federal Home Loan Bank of Pittsburgh | ||||
FICO | Fair Isaac Corporation (“FICO”) credit scores, for Radian’s portfolio statistics, represent the borrower’s credit score at origination and, in circumstances where there are multiple borrowers, the lowest of the borrowers’ FICO scores is utilized | ||||
Foreclosure Stage Default | The stage of default of a loan in which a foreclosure sale has been scheduled or held | ||||
Freddie Mac | Federal Home Loan Mortgage Corporation | ||||
GAAP | Generally accepted accounting principles in the U.S., as amended from time to time | ||||
GSE(s) | Government-Sponsored Enterprises (Fannie Mae and Freddie Mac) | ||||
HARP | Home Affordable Refinance Program | ||||
IBNR | Losses incurred but not reported | ||||
IIF | Insurance in force, equal to the aggregate unpaid principal balances of the underlying loans | ||||
Definition | |||||
IRS | Internal Revenue Service | ||||
Loss adjustment expenses, which include the cost of investigating and adjusting losses and paying claims | |||||
LIBOR | London Inter-bank Offered Rate | ||||
Loss Mitigation Activity/Activities | Activities such as Rescissions, Claim Denials, Claim Curtailments and cancellations | ||||
LTV | Loan-to-value ratio, calculated as the percentage of the original loan amount to the original value of the property | ||||
Master Policies | The Prior Master Policy, | ||||
Minimum Required | A risk-based minimum required asset amount, as defined in the PMIERs, calculated based on net RIF (RIF, net of credits permitted for reinsurance) and a variety of measures related to expected credit performance and other factors, including the impact of the Disaster Related Capital Charge | ||||
Model Act | Mortgage Guaranty Insurance Model Act, as issued by the NAIC to establish minimum capital and surplus requirements for mortgage insurers | ||||
Monthly and Other Recurring Premiums (or Recurring Premium Policies) | Insurance premiums or policies, respectively, where premiums are paid on a monthly or other installment basis, in contrast to Single Premium Policies | ||||
Moody’s | Moody’s Investors Service | ||||
Mortgage | |||||
MPP Requirement | Certain states’ statutory or regulatory risk-based capital requirement that the mortgage insurer must maintain a minimum policyholder position, which is calculated based on both risk and surplus levels | ||||
National Association of Insurance Commissioners | |||||
NIW | New insurance written |
NOL | |||||
Net operating loss; for tax purposes, accumulated during years a company reported more tax deductions than taxable income. NOLs may be carried back or carried forward a certain number of years, depending on various factors which can reduce a company’s tax liability. | |||||
Persistency Rate | The percentage of IIF that remains in force over a period of time | ||||
PMIERs | Private Mortgage Insurer Eligibility Requirements issued by the GSEs under oversight of the FHFA to set forth requirements an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans acquired by the | ||||
GSEs. The current PMIERs | |||||
requirements, sometimes referred to as PMIERs 2.0, | |||||
Pool Insurance | Pool Insurance differs from primary insurance in that our maximum liability is not limited to a specific coverage percentage on an individual mortgage loan. Instead, an aggregate exposure limit, or “stop loss,” and/or deductible is applied to the initial aggregate loan balance on a group or “pool” of mortgages. | ||||
Prior Master Policy | Radian Guaranty’s master insurance policy, setting forth the terms and conditions of our mortgage insurance coverage, which was in effect prior to the effective date of the 2014 Master Policy | ||||
QM | |||||
QSR Program | The quota share reinsurance agreements entered into with a third-party reinsurance provider in the second and fourth quarters of 2012, collectively | ||||
Radian | Radian Group Inc. together with its consolidated subsidiaries | ||||
Radian Group | Radian Group Inc. | ||||
Radian Guaranty | Radian Guaranty Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group | ||||
Radian Reinsurance | Radian Reinsurance Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group |
Term | Definition | ||||
Radian Title Insurance | Radian Title Insurance Inc., formerly known as EnTitle Insurance Company, an Ohio domiciled insurance company and an indirect subsidiary of Radian Group | ||||
RBC States | Risk-based capital states, which are those states that currently impose a statutory or regulatory risk-based capital requirement | ||||
Radian’s business segment that is primarily a fee-for-service business that offers a broad array of title, valuation, asset management and other real estate services to market participants across the real estate value chain | |||||
Reinstatements | Reversals of previous Rescissions, Claim Denials and Claim Curtailments | ||||
Rescission | Our legal right, under certain conditions, to unilaterally rescind coverage on our mortgage insurance policies if we determine that a loan did not qualify for insurance | ||||
RIF | Risk in force; for primary insurance, RIF is equal to the underlying loan unpaid principal balance multiplied by the insurance coverage percentage, whereas for Pool Insurance, it represents the remaining exposure under the agreements | ||||
Risk-to-capital | Under certain state regulations, a maximum ratio of net RIF calculated relative to the level of statutory capital | ||||
RMBS | Residential mortgage-backed securities | ||||
S&P | Standard & Poor’s Financial Services LLC | ||||
Statutory accounting principles and practices, including those required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries | |||||
SEC | United States Securities and Exchange Commission | ||||
Senior Notes due 2024 | Our 4.500% unsecured senior notes due October 2024 ($450 million original principal amount) |
Senior Notes due 2025 | Our 6.625% unsecured senior notes due March 2025 ($525 million original principal amount) | ||||
Senior Notes due 2027 | Our 4.875% unsecured senior notes due March 2027 ($450 million original principal amount) | ||||
Single Premium Policy / Policies | Insurance policies where premiums are paid in a single payment, which includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically shortly after the loans have been originated) | ||||
Single Premium QSR Program | The 2016 Single Premium QSR Agreement, | ||||
Stage of Default | The stage a loan is in relative to the foreclosure process, based on whether a foreclosure sale has been scheduled or held | ||||
Statutory RBC Requirement | Risk-based capital requirement imposed by the RBC States, requiring a minimum surplus level and, in certain states, a minimum ratio of statutory capital relative to the level of risk | ||||
Surplus | |||||
Variable interest entity |
($ in thousands, except per-share amounts) | September 30, 2019 | December 31, 2018 | ||||||||||||||||
(In thousands, except per-share amounts) | (In thousands, except per-share amounts) | September 30, 2020 | December 31, 2019 | |||||||||||||||
Assets | Assets | |||||||||||||||||
Investments (Note 5) | ||||||||||||||||||
Fixed-maturities available for sale—at fair value (amortized cost $4,369,273 and $4,098,962) | $ | 4,527,223 | $ | 4,021,575 | ||||||||||||||
Trading securities—at fair value (amortized cost of $307,891 and $468,696) | 329,935 | 469,071 | ||||||||||||||||
Equity securities—at fair value (cost of $119,408 and $139,377) | 121,759 | 130,565 | ||||||||||||||||
Short-term investments—at fair value (includes $34,767 and $11,699 of reinvested cash collateral held under securities lending agreements) | 552,095 | 528,403 | ||||||||||||||||
Investments (Notes 5 and 6) | Investments (Notes 5 and 6) | |||||||||||||||||
Fixed-maturities available for sale—at fair value, net of allowance for credit losses of $2,290 as of September 30, 2020 (amortized cost of $5,338,536 and $4,549,534) | Fixed-maturities available for sale—at fair value, net of allowance for credit losses of $2,290 as of September 30, 2020 (amortized cost of $5,338,536 and $4,549,534) | $ | 5,628,992 | $ | 4,688,911 | |||||||||||||
Trading securities—at fair value (amortized cost of $262,131 and $297,505) | Trading securities—at fair value (amortized cost of $262,131 and $297,505) | 291,650 | 317,150 | |||||||||||||||
Equity securities—at fair value (cost of $92,638 and $125,311) | Equity securities—at fair value (cost of $92,638 and $125,311) | 91,317 | 130,221 | |||||||||||||||
Short-term investments—at fair value (includes $33,121 and $25,561 of reinvested cash collateral held under securities lending agreements) | Short-term investments—at fair value (includes $33,121 and $25,561 of reinvested cash collateral held under securities lending agreements) | 567,146 | 518,393 | |||||||||||||||
Other invested assets—at fair value | 2,712 | 3,415 | Other invested assets—at fair value | 5,472 | 4,072 | |||||||||||||
Total investments | 5,533,724 | 5,153,029 | Total investments | 6,584,577 | 5,658,747 | |||||||||||||
Cash | 49,393 | 95,393 | Cash | 82,020 | 92,729 | |||||||||||||
Restricted cash | 2,853 | 11,609 | Restricted cash | 4,424 | 3,545 | |||||||||||||
Accounts and notes receivable | 144,113 | 78,652 | Accounts and notes receivable | 145,164 | 93,630 | |||||||||||||
Deferred income taxes, net (Note 9) | — | 131,643 | ||||||||||||||||
Goodwill and other acquired intangible assets, net (Note 6) | 52,533 | 58,998 | ||||||||||||||||
Goodwill and other acquired intangible assets, net (Note 7) | Goodwill and other acquired intangible assets, net (Note 7) | 25,268 | 28,187 | |||||||||||||||
Prepaid reinsurance premium | 374,339 | 417,628 | Prepaid reinsurance premium | 295,062 | 363,856 | |||||||||||||
Other assets (Note 8) | 513,647 | 367,700 | ||||||||||||||||
Other assets (Note 9) | Other assets (Note 9) | 640,830 | 567,619 | |||||||||||||||
Total assets | $ | 6,670,602 | $ | 6,314,652 | Total assets | $ | 7,777,345 | $ | 6,808,313 | |||||||||
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | |||||||||||||||||
Unearned premiums | $ | 647,856 | $ | 739,357 | Unearned premiums | $ | 501,787 | $ | 626,822 | |||||||||
Reserve for losses and loss adjustment expense (Note 10) | 398,141 | 401,361 | ||||||||||||||||
Senior notes (Note 11) | 886,643 | 1,030,348 | ||||||||||||||||
FHLB advances (Note 11) | 104,492 | 82,532 | ||||||||||||||||
Reserve for losses and loss adjustment expense (Note 11) | Reserve for losses and loss adjustment expense (Note 11) | 825,792 | 404,765 | |||||||||||||||
Senior notes (Note 12) | Senior notes (Note 12) | 1,404,759 | 887,110 | |||||||||||||||
FHLB advances (Note 12) | FHLB advances (Note 12) | 141,058 | 134,875 | |||||||||||||||
Reinsurance funds withheld | 352,532 | 321,212 | Reinsurance funds withheld | 318,773 | 291,829 | |||||||||||||
Other liabilities | 358,431 | 251,127 | Other liabilities | 462,797 | 414,189 | |||||||||||||
Total liabilities | 2,748,095 | 2,825,937 | Total liabilities | 3,654,966 | 2,759,590 | |||||||||||||
Commitments and contingencies (Note 12) | ||||||||||||||||||
Commitments and contingencies (Note 13) | Commitments and contingencies (Note 13) | |||||||||||||||||
Stockholders’ equity | Stockholders’ equity | |||||||||||||||||
Common stock: par value $0.001 per share; 485,000 shares authorized at September 30, 2019 and December 31, 2018; 220,174 and 231,132 shares issued at September 30, 2019 and December 31, 2018, respectively; 202,219 and 213,473 shares outstanding at September 30, 2019 and December 31, 2018, respectively | 220 | 231 | ||||||||||||||||
Treasury stock, at cost: 17,955 and 17,660 shares at September 30, 2019 and December 31, 2018, respectively | (901,556 | ) | (894,870 | ) | ||||||||||||||
Common stock: par value $0.001 per share; 485,000 shares authorized at September 30, 2020 and December 31, 2019; 210,061 and 219,123 shares issued at September 30, 2020 and December 31, 2019, respectively; 191,556 and 201,164 shares outstanding at September 30, 2020 and December 31, 2019, respectively | Common stock: par value $0.001 per share; 485,000 shares authorized at September 30, 2020 and December 31, 2019; 210,061 and 219,123 shares issued at September 30, 2020 and December 31, 2019, respectively; 191,556 and 201,164 shares outstanding at September 30, 2020 and December 31, 2019, respectively | 210 | 219 | |||||||||||||||
Treasury stock, at cost: 18,505 and 17,959 shares at September 30, 2020 and December 31, 2019, respectively | Treasury stock, at cost: 18,505 and 17,959 shares at September 30, 2020 and December 31, 2019, respectively | (909,745) | (901,657) | |||||||||||||||
Additional paid-in capital | 2,469,097 | 2,724,733 | Additional paid-in capital | 2,238,869 | 2,449,884 | |||||||||||||
Retained earnings | 2,229,107 | 1,719,541 | Retained earnings | 2,561,076 | 2,389,789 | |||||||||||||
Accumulated other comprehensive income (loss) (Note 14) | 125,639 | (60,920 | ) | |||||||||||||||
Accumulated other comprehensive income (loss) (Note 15) | Accumulated other comprehensive income (loss) (Note 15) | 231,969 | 110,488 | |||||||||||||||
Total stockholders’ equity | 3,922,507 | 3,488,715 | Total stockholders’ equity | 4,122,379 | 4,048,723 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 6,670,602 | $ | 6,314,652 | Total liabilities and stockholders’ equity | $ | 7,777,345 | $ | 6,808,313 |
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
(In thousands, except per-share amounts) | 2019 | 2018 | 2019 | 2018 | (In thousands, except per-share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Revenues: | Revenues: | |||||||||||||||||||||||||||||||||||||
Net premiums earned—insurance | $ | 281,185 | $ | 258,431 | $ | 843,863 | $ | 752,325 | ||||||||||||||||||||||||||||||
Services revenue | 42,509 | 36,566 | 114,565 | 106,558 | ||||||||||||||||||||||||||||||||||
Net premiums earned (Note 8) | Net premiums earned (Note 8) | $ | 286,471 | $ | 281,185 | $ | 813,181 | $ | 843,863 | |||||||||||||||||||||||||||||
Services revenue (Note 4) | Services revenue (Note 4) | 33,943 | 42,509 | 93,945 | 114,565 | |||||||||||||||||||||||||||||||||
Net investment income | 42,756 | 38,995 | 130,364 | 110,424 | Net investment income | 36,255 | 42,756 | 115,922 | 130,364 | |||||||||||||||||||||||||||||
Net gains (losses) on investments and other financial instruments | 13,009 | (4,480 | ) | 47,462 | (30,771 | ) | Net gains (losses) on investments and other financial instruments | 17,652 | 13,009 | 42,901 | 47,462 | |||||||||||||||||||||||||||
Other income | 879 | 1,174 | 2,677 | 2,997 | Other income | 913 | 879 | 2,807 | 2,677 | |||||||||||||||||||||||||||||
Total revenues | 380,338 | 330,686 | 1,138,931 | 941,533 | Total revenues | 375,234 | 380,338 | 1,068,756 | 1,138,931 | |||||||||||||||||||||||||||||
Expenses: | Expenses: | |||||||||||||||||||||||||||||||||||||
Provision for losses | 29,231 | 20,881 | 97,412 | 77,501 | Provision for losses | 88,084 | 29,231 | 428,453 | 97,412 | |||||||||||||||||||||||||||||
Policy acquisition costs | 6,435 | 5,667 | 18,531 | 18,780 | Policy acquisition costs | 10,166 | 6,435 | 23,594 | 18,531 | |||||||||||||||||||||||||||||
Cost of services | 29,044 | 25,854 | 81,046 | 73,185 | Cost of services | 24,353 | 29,044 | 64,466 | 81,046 | |||||||||||||||||||||||||||||
Other operating expenses | 76,384 | 70,125 | 225,235 | 203,552 | Other operating expenses | 69,377 | 76,384 | 199,069 | 225,235 | |||||||||||||||||||||||||||||
Restructuring and other exit costs | — | 4,464 | — | 5,940 | ||||||||||||||||||||||||||||||||||
Interest expense | 13,492 | 15,535 | 44,150 | 45,906 | Interest expense | 21,088 | 13,492 | 49,981 | 44,150 | |||||||||||||||||||||||||||||
Loss on extinguishment of debt | 5,940 | — | 22,738 | — | Loss on extinguishment of debt | 0 | 5,940 | 0 | 22,738 | |||||||||||||||||||||||||||||
Amortization and impairment of other acquired intangible assets | 2,139 | 3,472 | 6,465 | 8,968 | Amortization and impairment of other acquired intangible assets | 961 | 2,139 | 2,919 | 6,465 | |||||||||||||||||||||||||||||
Total expenses | 162,665 | 145,998 | 495,577 | 433,832 | Total expenses | 214,029 | 162,665 | 768,482 | 495,577 | |||||||||||||||||||||||||||||
Pretax income | 217,673 | 184,688 | 643,354 | 507,701 | Pretax income | 161,205 | 217,673 | 300,274 | 643,354 | |||||||||||||||||||||||||||||
Income tax provision | 44,235 | 41,891 | 132,229 | 41,469 | Income tax provision | 26,102 | 44,235 | 54,661 | 132,229 | |||||||||||||||||||||||||||||
Net income | $ | 173,438 | $ | 142,797 | $ | 511,125 | $ | 466,232 | Net income | $ | 135,103 | $ | 173,438 | $ | 245,613 | $ | 511,125 | |||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||||||||||||
Net Income Per Share: | Net Income Per Share: | |||||||||||||||||||||||||||||||||||||
Basic | $ | 0.85 | $ | 0.67 | $ | 2.45 | $ | 2.17 | Basic | $ | 0.70 | $ | 0.85 | $ | 1.25 | $ | 2.45 | |||||||||||||||||||||
Diluted | $ | 0.83 | $ | 0.66 | $ | 2.39 | $ | 2.13 | Diluted | $ | 0.70 | $ | 0.83 | $ | 1.25 | $ | 2.39 | |||||||||||||||||||||
Weighted-average number of common shares outstanding—basic | 203,107 | 213,309 | 208,561 | 214,499 | Weighted-average number of common shares outstanding—basic | 193,176 | 203,107 | 196,120 | 208,561 | |||||||||||||||||||||||||||||
Weighted-average number of common and common equivalent shares outstanding—diluted | 208,691 | 217,902 | 213,963 | 218,783 | Weighted-average number of common and common equivalent shares outstanding—diluted | 194,156 | 208,691 | 197,247 | 213,963 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Net income | $ | 135,103 | $ | 173,438 | $ | 245,613 | $ | 511,125 | |||||||||||||||
Other comprehensive income (loss), net of tax (Note 15): | |||||||||||||||||||||||
Unrealized gains (losses) on investments: | |||||||||||||||||||||||
Unrealized holding gains (losses) arising during the period for which an allowance for expected losses has not been recognized | 30,839 | 40,654 | 143,602 | 190,677 | |||||||||||||||||||
Less: Reclassification adjustment for net gains (losses) included in net income (loss): | |||||||||||||||||||||||
Net realized gains (losses) on disposals and non-credit related impairment losses | 10,884 | 3,477 | 24,172 | 4,115 | |||||||||||||||||||
Net decrease (increase) in expected credit losses | 147 | 0 | (2,051) | 0 | |||||||||||||||||||
Net unrealized gains (losses) on investments | 19,808 | 37,177 | 121,481 | 186,562 | |||||||||||||||||||
Net foreign currency translation adjustments | 0 | 0 | 0 | (3) | |||||||||||||||||||
Other comprehensive income (loss), net of tax | 19,808 | 37,177 | 121,481 | 186,559 | |||||||||||||||||||
Comprehensive income | $ | 154,911 | $ | 210,615 | $ | 367,094 | $ | 697,684 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income | $ | 173,438 | $ | 142,797 | $ | 511,125 | $ | 466,232 | |||||||
Other comprehensive income (loss), net of tax (Note 14): | |||||||||||||||
Unrealized gains (losses) on investments: | |||||||||||||||
Unrealized holding gains (losses) arising during the period | 40,654 | (5,341 | ) | 190,677 | (93,788 | ) | |||||||||
Less: Reclassification adjustment for net gains (losses) included in net income | 3,477 | (4,044 | ) | 4,115 | (8,512 | ) | |||||||||
Net unrealized gains (losses) on investments | 37,177 | (1,297 | ) | 186,562 | (85,276 | ) | |||||||||
Net foreign currency translation adjustments | — | — | (3 | ) | 3 | ||||||||||
Other comprehensive income (loss), net of tax | 37,177 | (1,297 | ) | 186,559 | (85,273 | ) | |||||||||
Comprehensive income | $ | 210,615 | $ | 141,500 | $ | 697,684 | $ | 380,959 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Common Stock | |||||||||||||||||||||||
Balance, beginning of period | $ | 210 | $ | 223 | $ | 219 | $ | 231 | |||||||||||||||
Issuance of common stock under incentive and benefit plans | 0 | 0 | 2 | 1 | |||||||||||||||||||
Shares repurchased under share repurchase program (Note 14) | 0 | (3) | (11) | (12) | |||||||||||||||||||
Balance, end of period | 210 | 220 | 210 | 220 | |||||||||||||||||||
Treasury Stock | |||||||||||||||||||||||
Balance, beginning of period | (909,738) | (901,419) | (901,657) | (894,870) | |||||||||||||||||||
Repurchases of common stock under incentive plans | (7) | (137) | (8,088) | (6,686) | |||||||||||||||||||
Balance, end of period | (909,745) | (901,556) | (909,745) | (901,556) | |||||||||||||||||||
Additional Paid-in Capital | |||||||||||||||||||||||
Balance, beginning of period | 2,232,949 | 2,539,803 | 2,449,884 | 2,724,733 | |||||||||||||||||||
Issuance of common stock under incentive and benefit plans | 825 | 1,660 | 3,096 | 4,418 | |||||||||||||||||||
Share-based compensation | 5,095 | 5,169 | 12,183 | 15,119 | |||||||||||||||||||
Shares repurchased under share repurchase program (Note 14) | 0 | (77,535) | (226,294) | (275,173) | |||||||||||||||||||
Balance, end of period | 2,238,869 | 2,469,097 | 2,238,869 | 2,469,097 | |||||||||||||||||||
Retained Earnings | |||||||||||||||||||||||
Balance, beginning of period | 2,450,423 | 2,056,175 | 2,389,789 | 1,719,541 | |||||||||||||||||||
Net income | 135,103 | 173,438 | 245,613 | 511,125 | |||||||||||||||||||
Dividends and dividend equivalents declared | (24,450) | (506) | (74,326) | (1,559) | |||||||||||||||||||
Balance, end of period | 2,561,076 | 2,229,107 | 2,561,076 | 2,229,107 | |||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||
Balance, beginning of period | 212,161 | 88,462 | 110,488 | (60,920) | |||||||||||||||||||
Net unrealized gains (losses) on investments, net of tax | 19,808 | 37,177 | 121,481 | 186,562 | |||||||||||||||||||
Net foreign currency translation adjustment, net of tax | 0 | 0 | 0 | (3) | |||||||||||||||||||
Balance, end of period | 231,969 | 125,639 | 231,969 | 125,639 | |||||||||||||||||||
Total Stockholders’ Equity | $ | 4,122,379 | $ | 3,922,507 | $ | 4,122,379 | $ | 3,922,507 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Common Stock | |||||||||||||||
Balance, beginning of period | $ | 223 | $ | 231 | $ | 231 | $ | 233 | |||||||
Issuance of common stock under incentive and benefit plans | — | — | 1 | 1 | |||||||||||
Shares repurchased under share repurchase program (Note 13) | (3 | ) | — | (12 | ) | (3 | ) | ||||||||
Balance, end of period | 220 | 231 | 220 | 231 | |||||||||||
Treasury Stock | |||||||||||||||
Balance, beginning of period | (901,419 | ) | (894,610 | ) | (894,870 | ) | (893,888 | ) | |||||||
Repurchases of common stock under incentive plans | (137 | ) | (25 | ) | (6,686 | ) | (747 | ) | |||||||
Balance, end of period | (901,556 | ) | (894,635 | ) | (901,556 | ) | (894,635 | ) | |||||||
Additional Paid-in Capital | |||||||||||||||
Balance, beginning of period | 2,539,803 | 2,715,426 | 2,724,733 | 2,754,275 | |||||||||||
Issuance of common stock under incentive and benefit plans | 1,660 | 1,014 | 4,418 | 2,593 | |||||||||||
Share-based compensation | 5,169 | 4,186 | 15,119 | 13,808 | |||||||||||
Shares repurchased under share repurchase program (Note 13) | (77,535 | ) | — | (275,173 | ) | (50,050 | ) | ||||||||
Balance, end of period | 2,469,097 | 2,720,626 | 2,469,097 | 2,720,626 | |||||||||||
Retained Earnings | |||||||||||||||
Balance, beginning of period | 2,056,175 | 1,438,032 | 1,719,541 | 1,116,333 | |||||||||||
Cumulative effect of adopting accounting standard updates | — | — | — | (663 | ) | ||||||||||
Net income | 173,438 | 142,797 | 511,125 | 466,232 | |||||||||||
Dividends declared | (506 | ) | (533 | ) | (1,559 | ) | (1,606 | ) | |||||||
Balance, end of period | 2,229,107 | 1,580,296 | 2,229,107 | 1,580,296 | |||||||||||
Accumulated Other Comprehensive Income (Loss) | |||||||||||||||
Balance, beginning of period | 88,462 | (57,943 | ) | (60,920 | ) | 23,085 | |||||||||
Cumulative effect of adopting accounting standard updates | — | — | — | 2,948 | |||||||||||
Net unrealized gains (losses) on investments, net of tax | 37,177 | (1,297 | ) | 186,562 | (85,276 | ) | |||||||||
Net foreign currency translation adjustment, net of tax | — | — | (3 | ) | 3 | ||||||||||
Balance, end of period | 125,639 | (59,240 | ) | 125,639 | (59,240 | ) | |||||||||
Total Stockholders’ Equity | $ | 3,922,507 | $ | 3,347,278 | $ | 3,922,507 | $ | 3,347,278 |
(In thousands) | Nine Months Ended September 30, | ||||||||||
2020 | 2019 | ||||||||||
Cash Flows from Operating Activities: | |||||||||||
Net cash provided by (used in) operating activities | $ | 498,756 | $ | 506,805 | |||||||
Cash Flows from Investing Activities: | |||||||||||
Proceeds from sales of: | |||||||||||
Fixed-maturities available for sale | 894,998 | 770,393 | |||||||||
Trading securities | 11,602 | 120,875 | |||||||||
Equity securities | 77,445 | 52,295 | |||||||||
Proceeds from redemptions of: | |||||||||||
Fixed-maturities available for sale | 443,723 | 287,557 | |||||||||
Trading securities | 22,112 | 36,827 | |||||||||
Purchases of: | |||||||||||
Fixed-maturities available for sale | (2,099,281) | (1,352,883) | |||||||||
Equity securities | (69,206) | (45,748) | |||||||||
Sales, redemptions and (purchases) of: | |||||||||||
Short-term investments, net | (21,797) | (12,199) | |||||||||
Other assets and other invested assets, net | 989 | 687 | |||||||||
Proceeds from sale of a subsidiary, net of cash sold | 16,481 | 0 | |||||||||
Purchases of property and equipment, net | (14,723) | (20,707) | |||||||||
Net cash provided by (used in) investing activities | (737,657) | (162,903) | |||||||||
Cash Flows from Financing Activities: | |||||||||||
Dividends and dividend equivalents paid | (73,365) | (1,559) | |||||||||
Issuance of senior notes, net | 515,567 | 442,498 | |||||||||
Repayments and repurchases of senior notes | 0 | (610,739) | |||||||||
Issuance of common stock | 1,505 | 2,126 | |||||||||
Repurchases of common shares | (226,305) | (275,185) | |||||||||
Credit facility commitment fees paid | (1,993) | (710) | |||||||||
Change in secured borrowings, net (with terms three months or less) | (19,191) | 9,568 | |||||||||
Proceeds from secured borrowings (with terms greater than three months) | 138,909 | 73,011 | |||||||||
Repayments of secured borrowings (with terms greater than three months) | (105,977) | (37,550) | |||||||||
Repayments of other borrowings | (79) | (114) | |||||||||
Net cash provided by (used in) financing activities | 229,071 | (398,654) | |||||||||
Effect of exchange rate changes on cash and restricted cash | 0 | (4) | |||||||||
Increase (decrease) in cash and restricted cash | (9,830) | (54,756) | |||||||||
Cash and restricted cash, beginning of period | 96,274 | 107,002 | |||||||||
Cash and restricted cash, end of period | $ | 86,444 | $ | 52,246 |
Radian Group Inc. | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||
(In thousands) | Nine Months Ended September 30, | ||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net cash provided by (used in) operating activities | $ | 506,805 | $ | 491,929 | |||
Cash flows from investing activities: | |||||||
Proceeds from sales of: | |||||||
Fixed-maturities available for sale | 770,393 | 577,034 | |||||
Trading securities | 120,875 | 35,182 | |||||
Equity securities | 52,295 | 92,702 | |||||
Proceeds from redemptions of: | |||||||
Fixed-maturities available for sale | 287,557 | 337,857 | |||||
Trading securities | 36,827 | 53,437 | |||||
Purchases of: | |||||||
Fixed-maturities available for sale | (1,352,883 | ) | (1,307,335 | ) | |||
Equity securities | (45,748 | ) | (59,625 | ) | |||
Sales, redemptions and (purchases) of: | |||||||
Short-term investments, net | (12,199 | ) | (216,778 | ) | |||
Other assets and other invested assets, net | 687 | 2,111 | |||||
Purchases of property and equipment, net | (20,707 | ) | (20,323 | ) | |||
Acquisitions, net of cash acquired | — | (662 | ) | ||||
Net cash provided by (used in) investing activities | (162,903 | ) | (506,400 | ) | |||
Cash flows from financing activities: | |||||||
Dividends paid | (1,559 | ) | (1,606 | ) | |||
Issuance of senior notes, net | 442,498 | — | |||||
Repayments and repurchases of senior notes | (610,739 | ) | — | ||||
Issuance of common stock | 2,126 | 1,128 | |||||
Repurchases of common shares | (275,185 | ) | (50,053 | ) | |||
Credit facility commitment fees paid | (710 | ) | (643 | ) | |||
Change in secured borrowings, net (with terms less than 3 months) | 9,568 | 41,414 | |||||
Proceeds from secured borrowings (with terms greater than 3 months) | 73,011 | 45,458 | |||||
Repayments of secured borrowings (with terms greater than 3 months) | (37,550 | ) | (3,000 | ) | |||
Repayments of other borrowings | (114 | ) | (133 | ) | |||
Net cash provided by (used in) financing activities | (398,654 | ) | 32,565 | ||||
Effect of exchange rate changes on cash and restricted cash | (4 | ) | — | ||||
Increase (decrease) in cash and restricted cash | (54,756 | ) | 18,094 | ||||
Cash and restricted cash, beginning of period | 107,002 | 96,244 | |||||
Cash and restricted cash, end of period | $ | 52,246 | $ | 114,338 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands, except per-share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Net income —basic and diluted | $ | 135,103 | $ | 173,438 | $ | 245,613 | $ | 511,125 | |||||||||||||||
Average common shares outstanding—basic (1) | 193,176 | 203,107 | 196,120 | 208,561 | |||||||||||||||||||
Dilutive effect of share-based compensation arrangements (2) | 980 | 5,584 | 1,127 | 5,402 | |||||||||||||||||||
Adjusted average common shares outstanding—diluted | 194,156 | 208,691 | 197,247 | 213,963 | |||||||||||||||||||
Net income per share: | |||||||||||||||||||||||
Basic | $ | 0.70 | $ | 0.85 | $ | 1.25 | $ | 2.45 | |||||||||||||||
Diluted | $ | 0.70 | $ | 0.83 | $ | 1.25 | $ | 2.39 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per-share amounts) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income—basic and diluted | $ | 173,438 | $ | 142,797 | $ | 511,125 | $ | 466,232 | |||||||
Average common shares outstanding—basic | 203,107 | 213,309 | 208,561 | 214,499 | |||||||||||
Dilutive effect of share-based compensation arrangements (1) | 5,584 | 4,593 | 5,402 | 4,284 | |||||||||||
Adjusted average common shares outstanding—diluted | 208,691 | 217,902 | 213,963 | 218,783 | |||||||||||
Net income per share: | |||||||||||||||
Basic | $ | 0.85 | $ | 0.67 | $ | 2.45 | $ | 2.17 | |||||||
Diluted | $ | 0.83 | $ | 0.66 | $ | 2.39 | $ | 2.13 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Shares of common stock equivalents | 710 | 0 | 1,046 | 160 | |||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||
Shares of common stock equivalents | — | 338 | 160 | 338 |
Business Activity | Current Segmentation | Prior Segmentation | ||||||
Mortgage insurance and risk services | Mortgage | Mortgage Insurance | ||||||
Contract underwriting services | Mortgage | Services | ||||||
Title and real estate services (1) | Real Estate | Services | ||||||
Clayton | All Other | Services | ||||||
Income (loss) from holding company assets (and related corporate expenses) | All Other | Mortgage Insurance |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Adjusted pretax operating income (loss): | ||||||||||||||||||||||||||
Mortgage (1) | $ | 145,836 | $ | 209,601 | $ | 263,182 | $ | 627,942 | (2) | |||||||||||||||||
Real Estate (3) | (5,941) | (2,541) | (15,625) | (10,238) | ||||||||||||||||||||||
Total adjusted pretax operating income (loss) for reportable segments | 139,895 | 207,060 | 247,557 | 617,704 | ||||||||||||||||||||||
All Other adjusted pretax operating income (loss) | 5,085 | 5,683 | 13,523 | 12,948 | ||||||||||||||||||||||
Net gains (losses) on investments and other financial instruments | 17,652 | 13,009 | 42,901 | 47,462 | ||||||||||||||||||||||
Loss on extinguishment of debt | 0 | (5,940) | 0 | (22,738) | ||||||||||||||||||||||
Amortization and impairment of other acquired intangible assets | (961) | (2,139) | (2,919) | (6,465) | ||||||||||||||||||||||
Impairment of other long-lived assets and other non-operating items | (466) | 0 | (788) | (5,557) | ||||||||||||||||||||||
Consolidated pretax income | $ | 161,205 | $ | 217,673 | $ | 300,274 | $ | 643,354 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Adjusted pretax operating income (loss): | |||||||||||||||
Mortgage Insurance | $ | 214,256 | $ | 204,620 | $ | 641,791 | (1) | $ | 573,771 | ||||||
Services | (1,513 | ) | (7,921 | ) | (11,139 | ) | (21,960 | ) | |||||||
Total adjusted pretax operating income | 212,743 | 196,699 | 630,652 | 551,811 | |||||||||||
Net gains (losses) on investments and other financial instruments | 13,009 | (4,480 | ) | 47,462 | (30,771 | ) | |||||||||
Loss on extinguishment of debt | (5,940 | ) | — | (22,738 | ) | — | |||||||||
Amortization and impairment of other acquired intangible assets | (2,139 | ) | (3,472 | ) | (6,465 | ) | (8,968 | ) | |||||||
Impairment of other long-lived assets and other non-operating items | — | (4,059 | ) | (5,557 | ) | (4,371 | ) | ||||||||
Consolidated pretax income | $ | 217,673 | $ | 184,688 | $ | 643,354 | $ | 507,701 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Allocated corporate operating expenses | $ | 29,435 | $ | 26,671 | $ | 83,700 | $ | 76,684 | ||||||||||||||||||
Depreciation expense | 2,895 | 3,817 | 9,719 | 11,528 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Allocated corporate operating expenses | $ | 3,818 | $ | 2,910 | $ | 10,993 | $ | 8,364 | ||||||||||||||||||
Depreciation expense | 683 | 561 | 2,125 | 1,769 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Mortgage (1) | $ | 320,013 | $ | 317,646 | $ | 922,040 | $ | 956,660 | (2) | |||||||||||||||||
Real Estate (1) | 33,328 | 30,139 | 88,003 | 80,789 | ||||||||||||||||||||||
Total revenues for reportable segments | 353,341 | 347,785 | 1,010,043 | 1,037,449 | ||||||||||||||||||||||
All Other revenues (3) | 5,858 | 19,812 | 19,984 | 55,170 | ||||||||||||||||||||||
Net gains (losses) on investments and other financial instruments | 17,652 | 13,009 | 42,901 | 47,462 | ||||||||||||||||||||||
Other non-operating revenue | 0 | 0 | 247 | 0 | ||||||||||||||||||||||
Elimination of inter-segment revenues (3) | (1,617) | (268) | (4,419) | (1,150) | ||||||||||||||||||||||
Total revenues | $ | 375,234 | $ | 380,338 | $ | 1,068,756 | $ | 1,138,931 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Reportable segment revenues: | |||||||||||||||
Mortgage Insurance | $ | 321,056 | $ | 295,031 | $ | 968,215 | (1) | $ | 859,380 | ||||||
Services | 47,378 | 40,901 | 126,406 | 115,577 | |||||||||||
Total reportable segment revenues | 368,434 | 335,932 | 1,094,621 | 974,957 | |||||||||||
Add: Net gains (losses) on investments and other financial instruments | 13,009 | (4,480 | ) | 47,462 | (30,771 | ) | |||||||||
Less: Inter-segment revenues (2) | 1,105 | 766 | 3,152 | 2,653 | |||||||||||
Total revenues | $ | 380,338 | $ | 330,686 | $ | 1,138,931 | $ | 941,533 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Services revenue | |||||||||||||||||||||||
Real Estate services: | |||||||||||||||||||||||
Valuation services | $ | 11,881 | $ | 14,772 | $ | 31,519 | $ | 40,836 | |||||||||||||||
Title services | 9,081 | 4,590 | 25,445 | 11,189 | |||||||||||||||||||
Asset management services | 8,453 | 6,567 | 21,791 | 19,300 | |||||||||||||||||||
Other real estate services | 614 | 335 | 1,364 | 407 | |||||||||||||||||||
Mortgage services | 3,914 | 2,340 | 10,965 | 4,856 | |||||||||||||||||||
All Other services (1) | 0 | 13,905 | 2,861 | 37,977 | |||||||||||||||||||
Total services revenue | $ | 33,943 | $ | 42,509 | $ | 93,945 | $ | 114,565 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Services revenue | |||||||||||||||
Mortgage Services | $ | 19,218 | $ | 18,839 | $ | 51,531 | $ | 55,552 | |||||||
Real Estate Services | 17,865 | 15,984 | 50,640 | 44,948 | |||||||||||
Title Services | 5,426 | 1,743 | 12,394 | 6,058 | |||||||||||
Total services revenue | $ | 42,509 | $ | 36,566 | $ | 114,565 | $ | 106,558 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Accounts Receivable | $ | 18,956 | $ | 15,461 | |||
Unbilled Receivables | 25,110 | 19,917 | |||||
Deferred Revenues | 3,036 | 3,204 |
(In thousands) | Level I | Level II | Total | |||||||||||||||||||||||
Assets at fair value | ||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||
Fixed-maturities available for sale: | ||||||||||||||||||||||||||
U.S. government and agency securities | $ | 157,407 | $ | 29,494 | $ | 186,901 | ||||||||||||||||||||
State and municipal obligations | 0 | 159,975 | 159,975 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 2,898,357 | 2,898,357 | |||||||||||||||||||||||
RMBS | 0 | 850,113 | 850,113 | |||||||||||||||||||||||
CMBS | 0 | 718,962 | 718,962 | |||||||||||||||||||||||
Other ABS | 0 | 809,388 | 809,388 | |||||||||||||||||||||||
Foreign government and agency securities | 0 | 5,296 | 5,296 | |||||||||||||||||||||||
Total fixed-maturities available for sale | 157,407 | 5,471,585 | 5,628,992 | |||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||
State and municipal obligations | 0 | 120,547 | 120,547 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 122,858 | 122,858 | |||||||||||||||||||||||
RMBS | 0 | 13,930 | 13,930 | |||||||||||||||||||||||
CMBS | 0 | 34,315 | 34,315 | |||||||||||||||||||||||
Total trading securities | 0 | 291,650 | 291,650 | |||||||||||||||||||||||
Equity securities | 84,255 | 7,062 | 91,317 | |||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||
U.S. government and agency securities | 29,716 | 0 | 29,716 | |||||||||||||||||||||||
State and municipal obligations | 0 | 26,973 | 26,973 | |||||||||||||||||||||||
Money market instruments | 232,105 | 0 | 232,105 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 106,013 | 106,013 | |||||||||||||||||||||||
Other investments (1) | 0 | 172,339 | 172,339 | |||||||||||||||||||||||
Total short-term investments | 261,821 | 305,325 | 567,146 | |||||||||||||||||||||||
Total investments at fair value (2) | 503,483 | 6,075,622 | 6,579,105 | |||||||||||||||||||||||
Other: | ||||||||||||||||||||||||||
Loaned securities: (3) | ||||||||||||||||||||||||||
Corporate bonds and notes | 0 | 13,932 | 13,932 | |||||||||||||||||||||||
Equity securities | 43,990 | 0 | 43,990 | |||||||||||||||||||||||
Total assets at fair value (2) | $ | 547,473 | $ | 6,089,554 | $ | 6,637,027 | ||||||||||||||||||||
(In thousands) | Level I | Level II | Total | ||||||||
Assets at fair value | |||||||||||
Investments: | |||||||||||
Fixed-maturities available for sale: | |||||||||||
U.S. government and agency securities | $ | 128,443 | $ | 34,012 | $ | 162,455 | |||||
State and municipal obligations | — | 110,981 | 110,981 | ||||||||
Corporate bonds and notes | — | 2,347,346 | 2,347,346 | ||||||||
RMBS | — | 619,935 | 619,935 | ||||||||
CMBS | — | 563,338 | 563,338 | ||||||||
Other ABS | — | 717,986 | 717,986 | ||||||||
Foreign government and agency securities | — | 5,182 | 5,182 | ||||||||
Total fixed-maturities available for sale | 128,443 | 4,398,780 | 4,527,223 | ||||||||
Trading securities: | |||||||||||
State and municipal obligations | — | 121,190 | 121,190 | ||||||||
Corporate bonds and notes | — | 156,648 | 156,648 | ||||||||
RMBS | — | 17,116 | 17,116 | ||||||||
CMBS | — | 34,981 | 34,981 | ||||||||
Total trading securities | — | 329,935 | 329,935 | ||||||||
Equity securities | 116,762 | 4,997 | 121,759 | ||||||||
Short-term investments: | |||||||||||
U.S. government and agency securities | 120,969 | — | 120,969 | ||||||||
State and municipal obligations | — | 25,547 | 25,547 | ||||||||
Money market instruments | 196,372 | — | 196,372 | ||||||||
Corporate bonds and notes | — | 37,593 | 37,593 | ||||||||
Other investments (1) | — | 171,614 | 171,614 | ||||||||
Total short-term investments | 317,341 | 234,754 | 552,095 | ||||||||
Total investments at fair value (2) | 562,546 | 4,968,466 | 5,531,012 | ||||||||
Other assets: | |||||||||||
Loaned securities: (3) | |||||||||||
U.S. government and agency securities | 19,960 | — | 19,960 | ||||||||
Corporate bonds and notes | — | 15,227 | 15,227 | ||||||||
Equity securities | 30,257 | — | 30,257 | ||||||||
Total assets at fair value (2) | $ | 612,763 | $ | 4,983,693 | $ | 5,596,456 |
(In thousands) | Level I | Level II | Total | |||||||||||||||||||||||
Assets at fair value | ||||||||||||||||||||||||||
Investments: | ||||||||||||||||||||||||||
Fixed-maturities available for sale: | ||||||||||||||||||||||||||
U.S. government and agency securities | $ | 143,884 | $ | 35,700 | $ | 179,584 | ||||||||||||||||||||
State and municipal obligations | 0 | 119,994 | 119,994 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 2,237,611 | 2,237,611 | |||||||||||||||||||||||
RMBS | 0 | 779,354 | 779,354 | |||||||||||||||||||||||
CMBS | 0 | 608,015 | 608,015 | |||||||||||||||||||||||
Other ABS | 0 | 759,129 | 759,129 | |||||||||||||||||||||||
Foreign government and agency securities | 0 | 5,224 | 5,224 | |||||||||||||||||||||||
Total fixed-maturities available for sale | 143,884 | 4,545,027 | 4,688,911 | |||||||||||||||||||||||
Trading securities: | ||||||||||||||||||||||||||
State and municipal obligations | 0 | 118,949 | 118,949 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 147,232 | 147,232 | |||||||||||||||||||||||
RMBS | 0 | 16,180 | 16,180 | |||||||||||||||||||||||
CMBS | 0 | 34,789 | 34,789 | |||||||||||||||||||||||
Total trading securities | 0 | 317,150 | 317,150 | |||||||||||||||||||||||
Equity securities | 124,009 | 6,212 | 130,221 | |||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||
U.S. government and agency securities | 127,152 | 0 | 127,152 | |||||||||||||||||||||||
State and municipal obligations | 0 | 21,475 | 21,475 | |||||||||||||||||||||||
Money market instruments | 202,461 | 0 | 202,461 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 20,298 | 20,298 | |||||||||||||||||||||||
Other investments (1) | 0 | 147,007 | 147,007 | |||||||||||||||||||||||
Total short-term investments | 329,613 | 188,780 | 518,393 | |||||||||||||||||||||||
Total investments at fair value (2) | 597,506 | 5,057,169 | 5,654,675 | |||||||||||||||||||||||
Other: | ||||||||||||||||||||||||||
Loaned securities: (3) | ||||||||||||||||||||||||||
U.S. government and agency securities | 35,309 | 0 | 35,309 | |||||||||||||||||||||||
Corporate bonds and notes | 0 | 3,669 | 3,669 | |||||||||||||||||||||||
Equity securities | 27,464 | 0 | 27,464 | |||||||||||||||||||||||
Total assets at fair value (2) | $ | 660,279 | $ | 5,060,838 | $ | 5,721,117 | ||||||||||||||||||||
(In thousands) | Level I | Level II | Total | ||||||||
Assets at fair value | |||||||||||
Investments: | |||||||||||
Fixed-maturities available for sale: | |||||||||||
U.S. government and agency securities | $ | 55,658 | $ | 28,412 | $ | 84,070 | |||||
State and municipal obligations | — | 138,313 | 138,313 | ||||||||
Corporate bonds and notes | — | 2,222,473 | 2,222,473 | ||||||||
RMBS | — | 332,142 | 332,142 | ||||||||
CMBS | — | 539,915 | 539,915 | ||||||||
Other ABS | — | 704,662 | 704,662 | ||||||||
Total fixed-maturities available for sale | 55,658 | 3,965,917 | 4,021,575 | ||||||||
Trading securities: | |||||||||||
State and municipal obligations | — | 168,359 | 168,359 | ||||||||
Corporate bonds and notes | — | 228,152 | 228,152 | ||||||||
RMBS | — | 21,082 | 21,082 | ||||||||
CMBS | — | 51,478 | 51,478 | ||||||||
Total trading securities | — | 469,071 | 469,071 | ||||||||
Equity securities | 126,607 | 3,958 | 130,565 | ||||||||
Short-term investments: | |||||||||||
U.S. government and agency securities | 133,657 | — | 133,657 | ||||||||
State and municipal obligations | — | 18,070 | 18,070 | ||||||||
Money market instruments | 95,132 | — | 95,132 | ||||||||
Corporate bonds and notes | — | 105,625 | 105,625 | ||||||||
Other ABS | — | 806 | 806 | ||||||||
Other investments (1) | — | 175,113 | 175,113 | ||||||||
Total short-term investments | 228,789 | 299,614 | 528,403 | ||||||||
Total investments at fair value (2) | 411,054 | 4,738,560 | 5,149,614 | ||||||||
Other assets: | |||||||||||
Loaned securities: (3) | |||||||||||
U.S. government and agency securities | 9,987 | — | 9,987 | ||||||||
Corporate bonds and notes | — | 7,818 | 7,818 | ||||||||
Equity securities | 10,055 | — | 10,055 | ||||||||
Total assets at fair value (2) | $ | 431,096 | $ | 4,746,378 | $ | 5,177,474 |
September 30, 2019 | December 31, 2018 | ||||||||||||||
(In thousands) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||
Liabilities: | |||||||||||||||
Senior notes | $ | 886,643 | $ | 919,125 | $ | 1,030,348 | $ | 1,007,687 | |||||||
FHLB advances | 104,492 | 105,661 | 82,532 | 82,899 |
September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||
(In thousands) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||||||||
Liabilities: | |||||||||||||||||||||||
Senior notes | $ | 1,404,759 | $ | 1,450,590 | $ | 887,110 | $ | 949,500 | |||||||||||||||
FHLB advances | 141,058 | 144,280 | 134,875 | 135,997 |
September 30, 2020 | |||||||||||||||||||||||||||||
(In thousands) | Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
Fixed-maturities available for sale: | |||||||||||||||||||||||||||||
U.S. government and agency securities | $ | 186,457 | $ | 0 | $ | 2,105 | $ | (1,661) | $ | 186,901 | |||||||||||||||||||
State and municipal obligations | 145,318 | 0 | 14,850 | (193) | 159,975 | ||||||||||||||||||||||||
Corporate bonds and notes | 2,703,446 | (2,290) | 218,127 | (7,471) | 2,911,812 | ||||||||||||||||||||||||
RMBS | 813,006 | 0 | 37,137 | (30) | 850,113 | ||||||||||||||||||||||||
CMBS | 686,414 | 0 | 37,339 | (4,791) | 718,962 | ||||||||||||||||||||||||
Other ABS | 811,687 | 0 | 4,051 | (6,350) | 809,388 | ||||||||||||||||||||||||
Foreign government and agency securities | 5,098 | 0 | 198 | 0 | 5,296 | ||||||||||||||||||||||||
Total securities available for sale, including loaned securities | 5,351,426 | $ | (2,290) | $ | 313,807 | $ | (20,496) | 5,642,447 | |||||||||||||||||||||
Less: loaned securities | 12,890 | 13,455 | |||||||||||||||||||||||||||
Total fixed-maturities available for sale | $ | 5,338,536 | $ | 5,628,992 |
September 30, 2019 | |||||||||||||||
(In thousands) | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | |||||||||||
Fixed-maturities available for sale: | |||||||||||||||
U.S. government and agency securities | $ | 176,682 | $ | 182,415 | $ | 5,839 | $ | 106 | |||||||
State and municipal obligations | 100,070 | 110,981 | 10,911 | — | |||||||||||
Corporate bonds and notes | 2,254,627 | 2,362,004 | 108,541 | 1,164 | |||||||||||
RMBS | 605,687 | 619,935 | 15,286 | 1,038 | |||||||||||
CMBS | 542,284 | 563,338 | 21,966 | 912 | |||||||||||
Other ABS | 718,854 | 717,986 | 2,394 | 3,262 | |||||||||||
Foreign government and agency securities | 5,089 | 5,182 | 93 | — | |||||||||||
Total securities available for sale, including loaned securities | 4,403,293 | 4,561,841 | $ | 165,030 | $ | 6,482 | |||||||||
Less: loaned securities | 34,020 | 34,618 | |||||||||||||
Total fixed-maturities available for sale | $ | 4,369,273 | $ | 4,527,223 |
December 31, 2018 | |||||||||||||||
(In thousands) | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | |||||||||||
Fixed-maturities available for sale: | |||||||||||||||
U.S. government and agency securities | $ | 85,532 | $ | 84,070 | $ | 46 | $ | 1,508 | |||||||
State and municipal obligations | 138,022 | 138,313 | 2,191 | 1,900 | |||||||||||
Corporate bonds and notes | 2,288,720 | 2,229,885 | 5,053 | 63,888 | |||||||||||
RMBS | 334,843 | 332,142 | 1,785 | 4,486 | |||||||||||
CMBS | 546,729 | 539,915 | 544 | 7,358 | |||||||||||
Other ABS | 712,748 | 704,662 | 814 | 8,900 | |||||||||||
Total securities available for sale, including loaned securities | 4,106,594 | 4,028,987 | $ | 10,433 | $ | 88,040 | |||||||||
Less: loaned securities | 7,632 | 7,412 | |||||||||||||
Total fixed-maturities available for sale | $ | 4,098,962 | $ | 4,021,575 |
December 31, 2019 | |||||||||||||||||||||||
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||
Fixed-maturities available for sale: | |||||||||||||||||||||||
U.S. government and agency securities | $ | 198,613 | $ | 2,048 | $ | (733) | $ | 199,928 | |||||||||||||||
State and municipal obligations | 112,003 | 8,032 | (41) | 119,994 | |||||||||||||||||||
Corporate bonds and notes | 2,136,819 | 106,189 | (1,728) | 2,241,280 | |||||||||||||||||||
RMBS | 766,429 | 14,452 | (1,527) | 779,354 | |||||||||||||||||||
CMBS | 593,647 | 14,993 | (625) | 608,015 | |||||||||||||||||||
Other ABS | 760,785 | 2,018 | (3,674) | 759,129 | |||||||||||||||||||
Foreign government and agency securities | 5,091 | 133 | 0 | 5,224 | |||||||||||||||||||
Total securities available for sale, including loaned securities | 4,573,387 | $ | 147,865 | $ | (8,328) | 4,712,924 | |||||||||||||||||
Less: loaned securities | 23,853 | 24,013 | |||||||||||||||||||||
Total fixed-maturities available for sale | $ | 4,549,534 | $ | 4,688,911 |
(In thousands) | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | |||||||||
Beginning balance | $ | 2,476 | $ | 0 | |||||||
Current provision for securities without prior allowance | 0 | 2,596 | |||||||||
Net increases (decreases) in allowance on previously impaired securities | (186) | 0 | |||||||||
Reduction for securities sold | 0 | (306) | |||||||||
Ending balance | $ | 2,290 | $ | 2,290 |
September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) Description of Securities | Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
# of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities | 4 | $ | 99,250 | $ | (1,661) | 0 | $ | 0 | $ | 0 | 4 | $ | 99,250 | $ | (1,661) | |||||||||||||||||||||||||||||||||||||||||
State and municipal obligations | 10 | 27,543 | (193) | 0 | 0 | 0 | 10 | 27,543 | (193) | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds and notes | 130 | 306,915 | (7,471) | 0 | 0 | 0 | 130 | 306,915 | (7,471) | |||||||||||||||||||||||||||||||||||||||||||||||
RMBS | 4 | 11,723 | (19) | 2 | 956 | (11) | 6 | 12,679 | (30) | |||||||||||||||||||||||||||||||||||||||||||||||
CMBS | 60 | 176,482 | (4,537) | 6 | 7,146 | (254) | 66 | 183,628 | (4,791) | |||||||||||||||||||||||||||||||||||||||||||||||
Other ABS | 101 | 308,637 | (3,025) | 29 | 152,098 | (3,325) | 130 | 460,735 | (6,350) | |||||||||||||||||||||||||||||||||||||||||||||||
Total | 309 | $ | 930,550 | $ | (16,906) | 37 | $ | 160,200 | $ | (3,590) | 346 | $ | 1,090,750 | $ | (20,496) |
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
($ in thousands) Description of Securities | Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
# of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency securities | 2 | $ | 26,142 | $ | (731) | 2 | $ | 2,529 | $ | (2) | 4 | $ | 28,671 | $ | (733) | |||||||||||||||||||||||||||||||||||||||||
State and municipal obligations | 1 | 3,959 | (41) | 0 | 0 | 0 | 1 | 3,959 | (41) | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate bonds and notes | 25 | 110,871 | (1,728) | 0 | 0 | 0 | 25 | 110,871 | (1,728) | |||||||||||||||||||||||||||||||||||||||||||||||
RMBS | 27 | 184,378 | (535) | 16 | 36,192 | (992) | 43 | 220,570 | (1,527) | |||||||||||||||||||||||||||||||||||||||||||||||
CMBS | 36 | 109,589 | (478) | 8 | 6,346 | (147) | 44 | 115,935 | (625) | |||||||||||||||||||||||||||||||||||||||||||||||
Other ABS | 63 | 225,944 | (670) | 44 | 209,661 | (3,004) | 107 | 435,605 | (3,674) | |||||||||||||||||||||||||||||||||||||||||||||||
Total | 154 | $ | 660,883 | $ | (4,183) | 70 | $ | 254,728 | $ | (4,145) | 224 | $ | 915,611 | $ | (8,328) |
September 30, 2019 | |||||||||||||||||||||||||||||||||
($ in thousands) Description of Securities | Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||
# of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | |||||||||||||||||||||||||
U.S. government and agency securities | 4 | $ | 68,719 | $ | 89 | 3 | $ | 9,051 | $ | 17 | 7 | $ | 77,770 | $ | 106 | ||||||||||||||||||
Corporate bonds and notes | 28 | 126,732 | 1,145 | 4 | 8,543 | 19 | 32 | 135,275 | 1,164 | ||||||||||||||||||||||||
RMBS | 5 | 30,478 | 52 | 23 | 44,649 | 986 | 28 | 75,127 | 1,038 | ||||||||||||||||||||||||
CMBS | 18 | 32,861 | 724 | 10 | 9,120 | 188 | 28 | 41,981 | 912 | ||||||||||||||||||||||||
Other ABS | 60 | 257,688 | 1,003 | 40 | 155,904 | 2,259 | 100 | 413,592 | 3,262 | ||||||||||||||||||||||||
Total | 115 | $ | 516,478 | $ | 3,013 | 80 | $ | 227,267 | $ | 3,469 | 195 | $ | 743,745 | $ | 6,482 |
December 31, 2018 | |||||||||||||||||||||||||||||||||
($ in thousands) Description of Securities | Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||||||||||
# of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | # of securities | Fair Value | Unrealized Losses | |||||||||||||||||||||||||
U.S. government and agency securities | 2 | $ | 27,415 | $ | 796 | 8 | $ | 23,476 | $ | 712 | 10 | $ | 50,891 | $ | 1,508 | ||||||||||||||||||
State and municipal obligations | 12 | 41,263 | 955 | 16 | 39,982 | 945 | 28 | 81,245 | 1,900 | ||||||||||||||||||||||||
Corporate bonds and notes | 330 | 1,208,430 | 36,284 | 126 | 601,533 | 27,604 | 456 | 1,809,963 | 63,888 | ||||||||||||||||||||||||
RMBS | 15 | 92,315 | 782 | 28 | 77,395 | 3,704 | 43 | 169,710 | 4,486 | ||||||||||||||||||||||||
CMBS | 62 | 328,696 | 3,973 | 33 | 125,728 | 3,385 | 95 | 454,424 | 7,358 | ||||||||||||||||||||||||
Other ABS | 129 | 503,109 | 7,917 | 26 | 89,628 | 983 | 155 | 592,737 | 8,900 | ||||||||||||||||||||||||
Total | 550 | $ | 2,201,228 | $ | 50,707 | 237 | $ | 957,742 | $ | 37,333 | 787 | $ | 3,158,970 | $ | 88,040 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net realized gains (losses): | |||||||||||||||
Fixed-maturities available for sale (1) | $ | 4,401 | $ | (4,219 | ) | $ | 5,209 | $ | (9,030 | ) | |||||
Trading securities | 19 | (260 | ) | (391 | ) | (910 | ) | ||||||||
Equity securities | (28 | ) | (69 | ) | (708 | ) | 571 | ||||||||
Other investments | 205 | 101 | 521 | 392 | |||||||||||
Net realized gains (losses) on investments | 4,597 | (4,447 | ) | 4,631 | (8,977 | ) | |||||||||
Other-than-temporary impairment losses | — | (900 | ) | — | (1,744 | ) | |||||||||
Net unrealized gains (losses) on investments | 4,419 | 1,405 | 33,005 | (17,132 | ) | ||||||||||
Total net gains (losses) on investments | $ | 9,016 | $ | (3,942 | ) | $ | 37,636 | $ | (27,853 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Net realized gains (losses): | |||||||||||||||||||||||
Fixed-maturities available for sale (1) | $ | 13,777 | $ | 4,401 | $ | 31,998 | $ | 5,209 | |||||||||||||||
Trading securities | 0 | 19 | 4 | (391) | |||||||||||||||||||
Equity securities | 0 | (28) | 361 | (708) | |||||||||||||||||||
Other investments | 196 | 205 | 273 | 521 | |||||||||||||||||||
Net realized gains (losses) on investments | 13,973 | 4,597 | 32,636 | 4,631 | |||||||||||||||||||
Impairment losses due to intent to sell | 0 | 0 | (1,401) | 0 | |||||||||||||||||||
Net decrease (increase) in expected credit losses | 186 | 0 | (2,596) | 0 | |||||||||||||||||||
Net unrealized gains (losses) on investments | 2,813 | 4,419 | 916 | 33,005 | |||||||||||||||||||
Total net gains (losses) on investments | $ | 16,972 | $ | 9,016 | $ | 29,555 | $ | 37,636 | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Gross investment gains from sales and redemptions | $ | 4,697 | $ | 814 | $ | 10,926 | $ | 1,831 | |||||||
Gross investment losses from sales and redemptions | (296 | ) | (5,033 | ) | (5,717 | ) | (10,861 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Gross investment gains from sales and redemptions | $ | 14,219 | $ | 4,697 | $ | 34,422 | $ | 10,926 | |||||||||||||||
Gross investment losses from sales and redemptions | (442) | (296) | (2,424) | (5,717) |
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Net unrealized gains (losses) on investments still held: | Net unrealized gains (losses) on investments still held: | |||||||||||||||||||||||||||||||||||||
Trading securities | $ | 4,132 | $ | (2,581 | ) | $ | 18,962 | $ | (18,431 | ) | Trading securities | $ | (1,150) | $ | 4,132 | $ | 9,990 | $ | 18,962 | |||||||||||||||||||
Equity securities | 563 | 2,971 | 9,170 | 2,238 | Equity securities | 4,455 | 563 | (8,158) | 9,170 | |||||||||||||||||||||||||||||
Other investments | 47 | 430 | (64 | ) | 655 | Other investments | (173) | 47 | 152 | (64) | ||||||||||||||||||||||||||||
Net unrealized gains (losses) on investments still held | $ | 4,742 | $ | 820 | $ | 28,068 | $ | (15,538 | ) | Net unrealized gains (losses) on investments still held | $ | 3,132 | $ | 4,742 | $ | 1,984 | $ | 28,068 |
September 30, 2019 | September 30, 2020 | |||||||||||||||||
Available for Sale | Available for Sale | |||||||||||||||||
(In thousands) | Amortized Cost | Fair Value | (In thousands) | Amortized Cost | Fair Value | |||||||||||||
Due in one year or less (1) | $ | 132,819 | $ | 132,897 | Due in one year or less (1) | $ | 94,375 | $ | 94,832 | |||||||||
Due after one year through five years (1) | 885,660 | 903,546 | Due after one year through five years (1) | 984,406 | 1,034,592 | |||||||||||||
Due after five years through 10 years (1) | 1,108,946 | 1,168,298 | Due after five years through 10 years (1) | 1,246,319 | 1,351,007 | |||||||||||||
Due after 10 years (1) | 409,043 | 455,841 | Due after 10 years (1) | 715,219 | 783,553 | |||||||||||||
RMBS (2) | 605,687 | 619,935 | ||||||||||||||||
CMBS (2) | 542,284 | 563,338 | ||||||||||||||||
Other ABS (2) | 718,854 | 717,986 | ||||||||||||||||
Asset-backed and other mortgage-backed securities (2) | Asset-backed and other mortgage-backed securities (2) | 2,311,107 | 2,378,463 | |||||||||||||||
Total | 4,403,293 | 4,561,841 | Total | 5,351,426 | 5,642,447 | |||||||||||||
Less: loaned securities | 34,020 | 34,618 | Less: loaned securities | 12,890 | 13,455 | |||||||||||||
Total fixed-maturities available for sale | $ | 4,369,273 | $ | 4,527,223 | Total fixed-maturities available for sale | $ | 5,338,536 | $ | 5,628,992 |
(In thousands) | Goodwill | Accumulated Impairment Losses | Net | ||||||||||||||
Balance at December 31, 2018 | $ | 200,561 | $ | (186,469) | $ | 14,092 | |||||||||||
Goodwill acquired | 538 | — | 538 | ||||||||||||||
Impairment losses | — | (4,828) | (4,828) | ||||||||||||||
Balance at December 31, 2019 | 201,099 | (191,297) | 9,802 | ||||||||||||||
Goodwill disposed (1) | (191,297) | 191,297 | 0 | ||||||||||||||
Balance at September 30, 2020 | $ | 9,802 | $ | 0 | $ | 9,802 |
(In thousands) | Goodwill | Accumulated Impairment Losses | Net | ||||||||
Balance at December 31, 2017 | $ | 197,391 | $ | (186,469 | ) | $ | 10,922 | ||||
Goodwill acquired | 3,170 | — | 3,170 | ||||||||
Balance at December 31, 2018 | 200,561 | (186,469 | ) | 14,092 | |||||||
Goodwill acquired | 538 | — | 538 | ||||||||
Balance at September 30, 2019 | $ | 201,099 | $ | (186,469 | ) | $ | 14,630 |
September 30, 2019 | |||||||||||
(In thousands) | Original Amount Acquired | Accumulated Amortization and Impairment | Net Carrying Amount | ||||||||
Client relationships | $ | 83,860 | $ | (52,764 | ) | $ | 31,096 | ||||
Technology | 16,964 | (14,382 | ) | 2,582 | |||||||
Trade name and trademarks | 8,340 | (4,511 | ) | 3,829 | |||||||
Non-competition agreements | 185 | (183 | ) | 2 | |||||||
Licenses | 463 | (69 | ) | 394 | |||||||
Total | $ | 109,812 | $ | (71,909 | ) | $ | 37,903 |
September 30, 2020 | |||||||||||||||||
(In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
Client relationships | $ | 43,550 | $ | (29,748) | $ | 13,802 | |||||||||||
Technology | 8,285 | (6,988) | 1,297 | ||||||||||||||
Trade name and trademarks | 480 | (461) | 19 | ||||||||||||||
Licenses | 463 | (115) | 348 | ||||||||||||||
Total | $ | 52,778 | $ | (37,312) | $ | 15,466 |
December 31, 2019 | |||||||||||||||||
(In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
Client relationships | $ | 43,550 | $ | (27,269) | $ | 16,281 | |||||||||||
Technology | 8,435 | (6,789) | 1,646 | ||||||||||||||
Trade name and trademarks | 480 | (404) | 76 | ||||||||||||||
Licenses | 463 | (81) | 382 | ||||||||||||||
Total | $ | 52,928 | $ | (34,543) | $ | 18,385 |
December 31, 2018 | |||||||||||
(In thousands) | Original Amount Acquired | Accumulated Amortization and Impairment | Net Carrying Amount | ||||||||
Client relationships | $ | 84,000 | $ | (48,227 | ) | $ | 35,773 | ||||
Technology | 17,362 | (13,141 | ) | 4,221 | |||||||
Trade name and trademarks | 8,340 | (3,864 | ) | 4,476 | |||||||
Non-competition agreements | 185 | (177 | ) | 8 | |||||||
Licenses | 463 | (35 | ) | 428 | |||||||
Total | $ | 110,350 | $ | (65,444 | ) | $ | 44,906 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net premiums written—insurance: | |||||||||||||||
Direct | $ | 287,000 | $ | 279,137 | $ | 828,022 | $ | 820,449 | |||||||
Assumed (1) | 2,608 | 1,987 | 7,528 | 4,803 | |||||||||||
Ceded (2) | (15,455 | ) | (24,348 | ) | (39,900 | ) | (76,162 | ) | |||||||
Net premiums written—insurance | $ | 274,153 | $ | 256,776 | $ | 795,650 | $ | 749,090 | |||||||
Net premiums earned—insurance: | |||||||||||||||
Direct | $ | 305,493 | $ | 272,505 | $ | 919,507 | (3) | $ | 796,448 | ||||||
Assumed (1) | 2,614 | 1,994 | 7,545 | 4,822 | |||||||||||
Ceded (2) | (26,922 | ) | (16,068 | ) | (83,189 | ) | (3) | (48,945 | ) | ||||||
Net premiums earned—insurance | $ | 281,185 | $ | 258,431 | $ | 843,863 | (3) | $ | 752,325 | ||||||
Ceding commissions earned | $ | 12,153 | $ | 8,373 | $ | 37,191 | (3) | $ | 25,728 | ||||||
Ceded losses | 771 | 1,191 | 4,326 | 3,356 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
(In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Net premiums written: | |||||||||||||||||||||||||||||
Direct | $ | 269,240 | $ | 287,000 | $ | 820,267 | $ | 828,022 | |||||||||||||||||||||
Assumed (1) | 2,942 | 2,608 | 9,585 | 7,528 | |||||||||||||||||||||||||
Ceded (2) | (9,789) | (15,455) | (72,912) | (39,900) | |||||||||||||||||||||||||
Net premiums written | $ | 262,393 | $ | 274,153 | $ | 756,940 | $ | 795,650 | |||||||||||||||||||||
Net premiums earned: | |||||||||||||||||||||||||||||
Direct | $ | 328,728 | $ | 305,493 | $ | 945,287 | $ | 919,507 | (3) | ||||||||||||||||||||
Assumed (1) | 2,946 | 2,614 | 9,599 | 7,545 | |||||||||||||||||||||||||
Ceded (2) | (45,203) | (26,922) | (141,705) | (83,189) | (3) | ||||||||||||||||||||||||
Net premiums earned | $ | 286,471 | $ | 281,185 | $ | 813,181 | $ | 843,863 | (3) | ||||||||||||||||||||
Ceding commissions earned (4) | $ | 17,038 | $ | 12,153 | $ | 40,457 | $ | 37,191 | (3) | ||||||||||||||||||||
Ceded losses | 10,189 | 771 | 51,786 | 4,326 |
(In millions) | 2020 Single Premium QSR Agreement | 2018 Single Premium QSR Agreement | 2016 Single Premium QSR Agreement | |||||||||||||||||
NIW Policy Dates | Jan 1, 2020-Dec 31, 2021 | Jan 1, 2018-Dec 31, 2019 | Jan 1, 2012-Dec 31, 2017 | |||||||||||||||||
Effective Date | January 1, 2020 | January 1, 2018 | January 1, 2016 | |||||||||||||||||
Scheduled Termination Date | December 31, 2031 | December 31, 2029 | December 31, 2027 | |||||||||||||||||
Optional Termination Date | January 1, 2024 | January 1, 2022 | January 1, 2020 | |||||||||||||||||
Quota Share % | 65% | 65% | 20% - 65% | (1) | ||||||||||||||||
Ceding Commission % | 25% | 25% | 25% | |||||||||||||||||
Profit Commission % | Up to 56% | Up to 56% | Up to 55% | |||||||||||||||||
As of September 30, 2020 | ||||||||||||||||||||
RIF Ceded | $ | 1,331 | $ | 2,352 | $ | 3,676 | ||||||||||||||
As of December 31, 2019 | ||||||||||||||||||||
RIF Ceded | $ | 0 | $ | 3,231 | $ | 5,351 |
(In millions) | Eagle Re 2020-1 Ltd. | Eagle Re 2019-1 Ltd. | Eagle Re 2018-1 Ltd. | |||||||||||||||||
Issued | February 2020 | April 2019 | November 2018 | |||||||||||||||||
NIW Policy Dates | Jan 1, 2019-Sep 30, 2019 | Jan 1, 2018-Dec 31, 2018 | Jan 1, 2017-Dec 31, 2017 | |||||||||||||||||
Initial RIF | $ | 9,866 | $ | 10,705 | $ | 9,109 | ||||||||||||||
Initial Coverage | 488 | 562 | 434 | (1) | ||||||||||||||||
Initial First Layer Retention | 202 | 268 | 205 | |||||||||||||||||
As of September 30, 2020 | ||||||||||||||||||||
RIF | $ | 7,155 | $ | 5,514 | $ | 4,742 | ||||||||||||||
Remaining Coverage | 488 | 385 | 276 | (1) | ||||||||||||||||
First Layer Retention | 202 | 266 | 202 |
At September 30, 2019 | |||||||||||||||||||||||||||
Maximum Exposure to Loss | Total VIE Assets and Liabilities (1) | ||||||||||||||||||||||||||
(In thousands) | Total VIE Assets (1) | On - Balance Sheet | Off - Balance Sheet (2) | Total | (In thousands) | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||
Eagle Re 2018-1 | $ | 408,586 | $ | 1,493 | (3) | $ | 408,586 | $ | 410,079 | ||||||||||||||||||
Eagle Re 2019-1 | 562,036 | 2,202 | (3) | 562,036 | 564,238 | ||||||||||||||||||||||
Eagle Re 2020-1 Ltd. | Eagle Re 2020-1 Ltd. | $ | 488,385 | $ | 0 | ||||||||||||||||||||||
Eagle Re 2019-1 Ltd. | Eagle Re 2019-1 Ltd. | 384,602 | 508,449 | ||||||||||||||||||||||||
Eagle Re 2018-1 Ltd. | Eagle Re 2018-1 Ltd. | 275,718 | 357,005 | ||||||||||||||||||||||||
Total | $ | 970,622 | $ | 3,695 | $ | 970,622 | $ | 974,317 | Total | $ | 1,148,705 | $ | 865,454 | ||||||||||||||
At December 31, 2018 | |||||||||||||||||||||||||||
Maximum Exposure to Loss | |||||||||||||||||||||||||||
(In thousands) | Total VIE Assets (1) | On - Balance Sheet | Off - Balance Sheet (2) | Total | |||||||||||||||||||||||
Eagle Re 2018-1 | $ | 434,034 | $ | 1,114 | (3) | $ | 434,034 | $ | 435,148 | ||||||||||||||||||
Total | $ | 434,034 | $ | 1,114 | $ | 434,034 | $ | 435,148 |
(1)Assets held by the Eagle Re Issuers are required to be invested in U.S. government money market funds, cash or U.S. Treasury securities. Liabilities of the Eagle Re Issuers consist of their mortgage insurance-linked notes, described above. In October 2020, Radian Guaranty entered into a fourth fully collateralized reinsurance agreement, with Eagle Re 2020-2 Ltd. Eagle Re 2020-2 Ltd. is a VIE and is not a subsidiary or affiliate of Radian Guaranty. This reinsurance agreement provides for up to $390.3 million of aggregate excess-of-loss reinsurance coverage for the |
(In thousands) | September 30, 2020 | December 31, 2019 | |||||||||
Prepaid federal income taxes (Note 10) | $ | 191,889 | $ | 134,800 | |||||||
Company-owned life insurance | 112,311 | 105,721 | |||||||||
Reinsurance recoverables | 66,515 | 16,976 | |||||||||
Internal-use software (net of accumulated amortization of $80,060 and $73,498) | 61,549 | 58,356 | |||||||||
Loaned securities (Note 5) | 57,922 | 66,442 | |||||||||
Accrued investment income | 36,093 | 32,333 | |||||||||
Right-of-use assets | 34,662 | 37,866 | |||||||||
Property and equipment (net of accumulated depreciation of $70,519 and $68,436) | 27,168 | 29,523 | |||||||||
Deferred policy acquisition costs | 17,926 | 20,759 | |||||||||
Unbilled receivables | 8,581 | 13,772 | |||||||||
Assets held for sale (1) | 0 | 24,908 | |||||||||
Other | 26,214 | 26,163 | |||||||||
Total other assets | $ | 640,830 | $ | 567,619 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Company-owned life insurance | $ | 103,877 | $ | 83,377 | |||
Prepaid federal income taxes (Note 9) | 89,200 | — | |||||
Loaned securities (Note 5) | 65,444 | 27,860 | |||||
Internal-use software (1) | 55,190 | 51,367 | |||||
Right-of-use assets (2) | 42,613 | — | |||||
Property and equipment (3) | 34,339 | 37,090 | |||||
Accrued investment income | 33,187 | 34,878 | |||||
Unbilled receivables | 25,110 | 19,917 | |||||
Deferred policy acquisition costs | 19,928 | 17,311 | |||||
Reinsurance recoverables | 16,906 | 14,402 | |||||
Current federal income tax receivable (4) | — | 44,506 | |||||
Other | 27,853 | 36,992 | |||||
Total other assets | $ | 513,647 | $ | 367,700 |
(In thousands) | September 30, 2020 | December 31, 2019 | |||||||||
Mortgage insurance loss reserves (1) | $ | 821,708 | $ | 401,273 | |||||||
Title insurance loss reserves | 4,084 | 3,492 | |||||||||
Total reserve for losses and LAE | $ | 825,792 | $ | 404,765 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Mortgage Insurance loss reserves | $ | 394,087 | $ | 397,891 | |||
Services loss reserves (1) | 4,054 | 3,470 | |||||
Total reserve for losses and LAE | $ | 398,141 | $ | 401,361 |
Nine Months Ended September 30, | |||||||||||
(In thousands) | 2020 | 2019 | |||||||||
Balance at beginning of period | $ | 401,273 | $ | 397,891 | |||||||
Less: Reinsurance recoverables (1) | 14,594 | 11,009 | |||||||||
Balance at beginning of period, net of reinsurance recoverables | 386,679 | 386,882 | |||||||||
Add: Losses and LAE incurred in respect of default notices reported and unreported in: | |||||||||||
Current year (2) | 448,584 | 107,866 | |||||||||
Prior years | (21,494) | (10,579) | |||||||||
Total incurred | 427,090 | 97,287 | |||||||||
Deduct: Paid claims and LAE related to: | |||||||||||
Current year (2) | 2,841 | 1,784 | |||||||||
Prior years | 54,167 | 101,927 | |||||||||
Total paid | 57,008 | 103,711 | |||||||||
Balance at end of period, net of reinsurance recoverables | 756,761 | 380,458 | |||||||||
Add: Reinsurance recoverables (1) | 64,947 | 13,629 | |||||||||
Balance at end of period | $ | 821,708 | $ | 394,087 |
Nine Months Ended September 30, | |||||||
(In thousands) | 2019 | 2018 | |||||
Balance at beginning of period | $ | 397,891 | $ | 507,588 | |||
Less: Reinsurance recoverables (1) | 11,009 | 8,350 | |||||
Balance at beginning of period, net of reinsurance recoverables | 386,882 | 499,238 | |||||
Add: Losses and LAE incurred in respect of default notices reported and unreported in: | |||||||
Current year (2) | 107,866 | 100,047 | |||||
Prior years | (10,579 | ) | (24,075 | ) | |||
Total incurred | 97,287 | 75,972 | |||||
Deduct: Paid claims and LAE related to: | |||||||
Current year (2) | 1,784 | 2,316 | |||||
Prior years | 101,927 | 173,911 | |||||
Total paid | 103,711 | 176,227 | |||||
Balance at end of period, net of reinsurance recoverables | 380,458 | 398,983 | |||||
Add: Reinsurance recoverables (1) | 13,629 | 9,997 | |||||
Balance at end of period | $ | 394,087 | $ | 408,980 |
(In thousands) | September 30, 2020 | December 31, 2019 | |||||||||
Senior notes: | |||||||||||
Senior Notes due 2024 | $ | 445,241 | $ | 444,445 | |||||||
Senior Notes due 2025 | 516,210 | 0 | |||||||||
Senior Notes due 2027 | 443,308 | 442,665 | |||||||||
Total senior notes | $ | 1,404,759 | $ | 887,110 | |||||||
FHLB advances: | |||||||||||
FHLB advances due 2020 | $ | 52,200 | $ | 79,002 | |||||||
FHLB advances due 2021 | 30,000 | 19,000 | |||||||||
FHLB advances due 2022 | 16,925 | 11,925 | |||||||||
FHLB advances due 2023 | 21,995 | 14,994 | |||||||||
FHLB advances due 2024 | 9,954 | 9,954 | |||||||||
FHLB advances due 2025 | 9,984 | 0 | |||||||||
Total FHLB advances | $ | 141,058 | $ | 134,875 |
(In thousands) | September 30, 2019 | December 31, 2018 | |||||
Senior notes: | |||||||
5.500% Senior Notes due 2019 | $ | — | $ | 158,324 | |||
5.250% Senior Notes due 2020 | — | 232,729 | |||||
7.000% Senior Notes due 2021 | — | 195,867 | |||||
4.500% Senior Notes due 2024 | 444,186 | 443,428 | |||||
4.875% Senior Notes due 2027 | 442,457 | — | |||||
Total senior notes | $ | 886,643 | $ | 1,030,348 | |||
FHLB advances: | |||||||
FHLB advances due 2019 | $ | 58,881 | $ | 60,550 | |||
FHLB advances due 2020 | 6,621 | 2,991 | |||||
FHLB advances due 2021 | 14,000 | 8,000 | |||||
FHLB advances due 2022 | 9,000 | — | |||||
FHLB advances due 2023 | 8,994 | 8,995 | |||||
FHLB advances due 2024 | 6,996 | 1,996 | |||||
Total FHLB advances | $ | 104,492 | $ | 82,532 |
($ in thousands) | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | |||||
Operating lease cost | $ | 2,340 | $ | 7,006 | |||
Short-term lease cost | 36 | 111 | |||||
Total lease cost | $ | 2,376 | $ | 7,117 | |||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows from operating leases | $ | (2,657 | ) | $ | (7,933 | ) | |
($ in thousands) | September 30, 2019 | ||
Operating leases: | |||
Operating lease right-of-use assets (1) | $ | 42,613 | |
Operating lease liabilities (2) | 65,816 | ||
Weighted-average remaining lease term - operating leases (in years) | 10.0 years | ||
Weighted-average discount rate - operating leases | 6.77 | % | |
Remaining maturities of lease liabilities for the remainder of 2019 and thereafter is as follows: | |||
2019 | $ | 2,681 | |
2020 | 10,408 | ||
2021 | 9,945 | ||
2022 | 10,140 | ||
2023 | 10,279 | ||
2024 and thereafter | 56,421 | ||
Total lease payments | 99,874 | ||
Less: Imputed interest | (34,058 | ) | |
Present value of lease liabilities (2) | $ | 65,816 |
($ in thousands) | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating leases: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating lease right-of-use assets (1)
(1)Classified in
See Note Share Repurchase Program On August 14, 2019, Radian Group’s board of directors approved a Other Purchases We may purchase shares on the open market to settle stock options exercised by employees and purchases under Dividends 37 Radian Group Inc. Notes to Unaudited Condensed Consolidated Financial Statements (Continued) Share-Based and Other Compensation Programs We have granted performance-based or time-based awards in the form of non-qualified stock options, restricted stock, RSUs, phantom stock, or stock appreciation rights. See Note 15 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for additional information regarding the Company’s share-based and other compensation programs. During the second quarter of 2020, executive and non-executive officers were granted time-vested and performance-based RSUs to be settled in common stock. The maximum payout of performance-based RSUs at the end of the three-year performance period is 200% of a grantee’s target number. The vesting of the performance-based RSUs granted to each executive officer and non-executive will be based upon the cumulative growth in Radian’s book value per share, adjusted for certain defined items, over a three-year performance period. The time-vested RSU awards granted to executive and non-executive officers in 2020 generally vest in pro rata installments on each of the first 3 anniversaries of the grant date. In addition, time-vested RSU awards were also granted to non-employee directors and generally are subject to one-year cliff vesting. Information with regard to RSUs to be settled in stock for periods indicated is as follows:
______________________ (1)The final number of RSUs distributed depends on the level of performance achieved along with each employee’s continued service through the vest date, which could result in changes in vested RSUs. (2)For performance-based RSUs, amount represents the probable outcome at grant date. (3)Represents an adjustment to the number of unvested performance-based RSUs due to changes during the period in our estimated payouts, which can range from 0 to 200% of target depending on results over the applicable performance periods. (4)Represents amounts vested during the year, which can include both original shares granted and the impact of performance adjustments. 38 Radian Group Inc. Notes to Unaudited Condensed Consolidated Financial Statements (Continued) 15. Accumulated Other Comprehensive Income (Loss) The following table shows the rollforward of accumulated other comprehensive income (loss) as of the periods indicated:
______________________ (1)
State insurance regulations include various capital requirements and dividend restrictions based on our insurance subsidiaries’ statutory financial position and results of operations, as described below. As of September 30, Under state insurance regulations, our mortgage insurance subsidiaries are required to maintain minimum surplus levels. In certain RBC States, mortgage insurers licensed in those states must also satisfy a Statutory RBC Requirement that is a minimum ratio of statutory capital relative to the level of net RIF, or Risk-to-capital. Other RBC States require mortgage 39 Radian Group Inc. Notes to Unaudited Condensed Consolidated Financial Statements (Continued) In addition, in order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. At September 30, Radian Guaranty’s Risk-to-capital calculation appears in the table below. For purposes of the Risk-to-capital requirements imposed by certain states, statutory capital is defined as the sum of statutory policyholders’ surplus plus statutory contingency reserves.
Radian Guaranty’s statutory capital increased by In 40 Radian Notes to Unaudited Condensed Consolidated Financial Statements (Continued) intercompany surplus note has a 3% interest rate and a stated maturity of January 31, 2030. The surplus note may be redeemed at any time upon 30 days prior notice, subject to a request by Radian Guaranty for the approval of the Pennsylvania Insurance Department. For a description of our 41 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 2. Management’s Discussion and Analysis of Financial Condition and Results of The disclosures in this quarterly report are complementary to those made in our Subsequent to the sale of Clayton in January 2020, our Chief Executive Officer (Radian’s chief operating decision maker) implemented certain organizational changes that caused the composition of our reportable segments to change. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for information regarding the basis of our segment reporting, including the related allocations and the impacts of the sale of Clayton in January 2020 and subsequent organizational changes made in the first quarter of 2020. The following analysis of our financial condition and results of operations for the three and nine months ended September 30, See “Overview” and Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Overview We are a diversified mortgage and real estate Operating Environment As a seller of mortgage credit protection and other mortgage and credit risk management solutions, our Mortgage business results are subject to macroeconomic conditions and other events that impact the housing, 42 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) current global pandemic as well as seasonal fluctuations that specifically affect the mortgage origination environment. The macroeconomic conditions, seasonality and other events that impact the housing, mortgage finance and related real estate markets also affect the demand for our Beginning in March 2020, the unprecedented and continually evolving social and economic impacts associated with the COVID-19 pandemic on the U.S. and global economies generally, and in particular on the U.S. housing, real estate and housing finance markets had a negative effect on our business and our financial results for the In recent years, Radian and other participants in the private mortgage insurance industry have engaged in a range of In addition to the increased use of COVID-19 Impacts The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, lowered certain equity market valuations, created periods of significant volatility and disruption in financial markets, required adjustments in the housing finance system and real estate markets and increased unemployment levels. In addition, the pandemic has resulted in travel restrictions, temporary business shutdowns, and stay-at-home, quarantine, and similar orders, and even as some businesses have been reopened, numerous operating limitations such as social distancing and extensive health and safety measures have limited operations, all of which has further contributed to the rapid and significant rise in unemployment, which may continue to rise if the current disruption is prolonged. As a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment levels, we have experienced a material increase in new defaults, including as a result of mortgage payment forbearance 43 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) programs. The increase in the number of new mortgage defaults resulting from the COVID-19 pandemic had a negative effect on our results of operations for the second quarter of 2020, and to a lesser extent the third quarter of 2020. This negative impact could continue in future quarters, primarily due to the need to increase our reserve for losses related to the volume of new defaults. See Note 2 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for discussion of the reserving methodology for the mortgage insurance industry. As a result of this material increase in new defaults, our primary default rate increased from 2.0% at December 31, 2019 to 6.5% at June 30, 2020 and 5.9% at September 30, 2020. Favorable trends in the number of new defaults and cures were the primary drivers of the decline in our default inventory and default rate in the third quarter of 2020, compared to June 30, 2020. As a result of these recent more favorable trends, we updated the projections of our default rate, which we previously estimated would peak in the approximate range of 8-9% sometime later this year or in early 2021, and we currently expect this rate to remain below 6%, based on an assumption of continued economic recovery. We expect the elevated levels of both total defaults and new defaults, including defaults related to forbearances, to continue, although the number, timing and duration of new defaults and, in turn, the number of defaults that ultimately result in claims will depend on a variety of factors, including the scope, severity and duration of the COVID-19 pandemic, the resulting impact on the economy, including with respect to unemployment and housing prices, and the effectiveness of forbearance and other government efforts such as financial stimulus programs, to provide economic and individual relief to assist homeowners. Similarly, the number and rate of total defaults is difficult to predict and, in addition to the foregoing factors will depend on other factors, including the number and timing of Cures and claims paid and the net impact on IIF from our Persistency Rate and future NIW. See “Item 1A. Risk Factors” for additional discussion of these factors and other risks and uncertainties. The increase in new defaults resulting from the COVID-19 pandemic may also affect our ability to remain compliant with the PMIERs financial requirements. Our Master Policies generally provide that a default occurs when a borrower misses one monthly payment, regardless of why the payment was missed, including if the payment was deferred under a forbearance program. Once two missed payments have occurred, the PMIERs characterize a loan as “non-performing” and require us to establish an increased Minimum Required Asset factor for that loan regardless of the reason for the missed payments. However, as further described in “Item 1A. Risk Factors—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” pursuant to the COVID-19 Amendment that temporarily amends the PMIERs, a Disaster Related Capital Charge that effectively reduces the Minimum Required Asset factor by 70% is now applied nationwide to all COVID-19 Defaulted Loans for no longer than three calendar months beginning with the month the loan becomes non-performing (i.e., missed two monthly payments), or if greater, the period of time that the loan is subject to a forbearance plan, repayment plan or loan modification trial period granted in response to a financial hardship related to COVID-19. The current broad-based application of the Disaster Related Capital Charge has significantly reduced the total amount of assets that Radian Guaranty otherwise would be required to hold against COVID-19 Defaulted Loans. Nonetheless, since March 31, 2020, the overall volume of new defaults resulting from the pandemic, even after giving effect to the Disaster Related Capital Charge, resulted in an increase in Radian Guaranty’s Minimum Required Assets and a decrease in Radian Guaranty’s excess of Available Assets over Minimum Required Assets (“PMIERs cushion”) as of September 30, 2020. While we expect Radian Guaranty to continue to maintain its eligibility status with the GSEs, there are possible scenarios in which the projected increase in new defaults could impact Radian Guaranty’s ability to comply with the PMIERs financial requirements and could require us to contribute additional capital to Radian Guaranty, which could negatively impact our holding company liquidity. Further, the impact of the COVID-19 pandemic, including as a result of government stimulus efforts in response to the pandemic, has resulted in a historically low interest rate environment. As discussed above, this low interest rate environment contributed to strong NIW volume in the third quarter of 2020, including from continued elevated levels of refinance activity. Mortgage prepayment speeds impact the ultimate profitability of our mortgage insurance business. The increase in policy cancellations associated with the high level of refinance activity during 2020 has reduced our Persistency Rate, and in turn, limited the growth of our IIF, which is one of the primary drivers of future premiums that we expect to earn over time. If refinance activity remains elevated, resulting in earlier than anticipated loan prepayments, it could result in a decrease in our future revenues, particularly from our Recurring Premium Policies. The low interest rate environment also affected our investment portfolio, resulting in an increase in our unrealized gains on investments in the second and third quarters of 2020, and we expect it will result in the recognition of lower net investment income in future periods if the current low interest rate environment persists and we must reinvest cash flows in lower yielding securities. In addition, the negative impacts to the global economy could result in increased defaults on corporate bonds and other financial instruments, which could increase the frequency and severity of impairments in our investment portfolio. See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information about our investments. As further described in this report, although we are uncertain of the potential magnitude or duration of the business and economic impacts of the COVID-19 pandemic, we believe the resulting increased financial requirements under the PMIERs, reduced Persistency Rates due to a low interest rate environment and increased reserves for losses due to higher new defaults will negatively affect our business, results of operations and financial condition. The ultimate significance of the COVID-19 pandemic on our businesses will depend on, among other things: the extent and duration of the pandemic, the severity of and number of people infected with the virus and whether an effective anti-viral treatment or vaccine is developed and made widely 44 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) available; the wider economic effects of the pandemic and the scope and duration of governmental and other third party measures restricting day-to-day life and business operations; the impact of economic stimulus efforts to support the economy through the pandemic; and governmental and GSE programs implemented to assist borrowers experiencing a COVID-19-related hardship, including forbearance programs and suspensions of foreclosures and evictions. See “Item 1A. Risk Factors—The COVID-19 pandemic has adversely impacted our business, and its ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.” In response to the COVID-19 pandemic, we have raised additional capital, suspended our share repurchase program, aligned our business with the temporary origination and servicing guidelines announced by the GSEs, and made adjustments to our pricing and our underwriting guidelines to account for the increased risk and uncertainty associated with the COVID-19 pandemic. In addition, we have taken a number of actions to focus on protecting and supporting our workforce, while continuing to serve our customers with excellence and support our communities. We have activated our business continuity program by transitioning to a work-from-home virtual workforce model with certain essential activities supported by limited staff in controlled office environments, and in order to support our communities during this unprecedented time, we have, among other things, pledged financial support to certain charitable organizations focused on assisting first responders, health care workers and their families. Further actions to respond to the COVID-19 pandemic and comply with governmental regulations and government and GSE programs adopted in response to the pandemic may be necessary as conditions continue to evolve. Despite the risks and uncertainties posed by COVID-19, we believe that the steps we have taken in recent years, such as improving our debt maturity profile, enhancing our financial flexibility, implementing greater risk-based granularity into our pricing and increasing our use of risk distribution strategies Legislative and Regulatory Developments Our subsidiaries are subject to comprehensive regulations and other requirements. In addition to the discussion below, see “Item 1. Business— PMIERs. In order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. CARES Act. On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, provides: (i) loans, loan guarantees, grants, assistance payments, contracts and tax incentives to eligible businesses; (ii) tax relief for businesses, including a five-year NOL carryback, payroll tax relief and other provisions; (iii) direct cash assistance for individuals; and (iv) emergency funding for hospitals and assistance to state and local governments responding to the COVID-19 pandemic. In addition, under the CARES Act, upon request by borrowers of federally backed mortgage loans who attest to financial hardship related to the pandemic, mortgage servicers are required to provide these borrowers with up to 180 days forbearance on their mortgage payments, which may be extended for an additional 180 days upon request, without requiring validation by the borrowers of their hardship. The GSEs have amended their forbearance programs to align with the CARES Act, and we understand that a significant number of borrowers are participating in such programs, which has increased the number of defaults in our mortgage insurance portfolio and negatively impacted our results of operations, financial condition and Minimum Required Assets under the PMIERs. See “Item 1A. Risk Factors” for additional information on the potential impacts of the CARES Act on the GSEs, loan servicers and our PMIERs financial requirements. Qualified Mortgage (QM) Requirements - Ability to Repay Requirements. 45 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Enterprise Regulatory Capital Framework (ECF). As part of its priority to recapitalize the GSEs, the FHFA is seeking to finalize capital requirements for Quarterly Highlights and Recent Company Developments In October 2020, consistent with increased market demand for more technology-driven solutions, we Key Factors Affecting Our Results The key factors affecting our results are discussed in our 46 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Mortgage Insurance Portfolio (1)Policy years represent the original policy years, and have not been adjusted to reflect subsequent refinancing activity under HARP. (2)Adjusted to reflect subsequent refinancing activity under HARP, these percentages would decrease to 3.9%, 4.7% and 5.0% as of September 30, 2020, December 31, 2019 and September 30, 2019, respectively. New Insurance Written A key component of our current business strategy is to write profitable NIW. We wrote $33.3 billion and $75.4 billion of primary new mortgage insurance in the three and nine months ended September 30, 2020, respectively, compared to $22.0 billion and $51.4 billion of NIW in the three and nine months ended September 30, 2019, respectively. Our NIW for the third quarter of 2020, partially offset by a lower Persistency Rate, as described below, resulted in an increase in IIF to $245.5 billion at September 30, 2020, from $240.6 billion at December 31, 2019 as shown in the chart above. Our NIW increased by 51.2% and 46.6% for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019, due to a strong mortgage origination market including higher refinance activity, aided by a historically low interest rate environment, and increased private mortgage insurance penetration rates. According to industry forecasts, total mortgage origination volume was higher for the three and nine months ended September 30, 2020, as compared to the comparable periods in 2019, due to a strong purchase market and a significant increase in refinance originations driven largely by lower interest rates. Although it is difficult to project future volumes, industry sources expect the total mortgage origination market for the full year 2020 to increase significantly compared to 2019, driven by the increase in refinance originations as a result of lower interest rates. Based on industry forecasts and our projections, we currently expect our NIW in 2020 to be more than $100 billion, although the risks and uncertainties related to this projection have increased due to the COVID-19 pandemic. See "Overview—COVID-19 Impacts” and “Item 1A. Risk Factors” for more information. NIW for direct Single Premiums include policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans 47 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) have been originated). The following table provides selected information as of and for the periods indicated related to our mortgage insurance NIW.
(1)Lender-paid Single Premium Policies have higher Minimum Required Assets under the PMIERs as compared to borrower-paid Single Premium Policies. See “Item 1. Business—Regulation—GSE Requirements—PMIERs—Private Mortgage Insurer Eligibility Requirements” in our 2019 Form 10-K for additional information. (2)For loans with multiple borrowers, the percentage of primary NIW by FICO score represents the lowest of the borrowers’ FICO scores. Insurance and Risk in Force IIF at September 30, 2020 increased 3.5% as compared to the same period last year, reflecting a 10.0% increase in Monthly Premium Policies in force, partially offset by a 12.7% decline in Single Premium Policies in force. As shown in the table below, our Persistency Rate at September 30, 2020 declined as compared to the same period in 2019. Historically, there is a close correlation between interest rates and Persistency Rates. Lower interest rate environments generally increase refinancings, which increase the cancellation rate of our insurance and negatively affect our Persistency Rates. The decline in our Persistency Rate at September 30, 2020 was primarily attributable to increased refinance activity resulting from historically low interest rates, and resulted in an increase in single premium cancellations and the decline in Single Premium Policies in force. Our IIF is the primary driver of the future premiums that we expect to earn over time. Although not reflected in the current period financial statements, nor in our reported book value, we expect our IIF to generate substantial premiums in future periods, due to the high credit quality of our current mortgage insurance portfolio and its expected persistency over multiple years. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage Insurance—IIF; Persistency Rate; Mix of Business” in our 2019 Form 10-K for more information. Our earnings in future periods are subject to elevated risks and uncertainties due to the potential impact of the unprecedented and continually evolving social and economic impacts associated with the current COVID-19 pandemic on the 48 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) U.S. and global economies generally, and in particular on the U.S. housing, real estate and housing finance markets. See Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information about the COVID-19 pandemic, which could have a material negative effect on the Company’s business, liquidity, results of operations and financial condition. See “Overview—COVID-19 Impacts”and“Item 1A. Risk Factors” for additional information. Historical loan performance data indicates that credit scores and underwriting quality are key drivers of credit performance. As of September 30, 2020, our portfolio of business written subsequent to 2008, including refinancings under HARP, represented approximately 96.1% of our total primary RIF. Loan originations after 2008 have consisted primarily of high credit quality loans with significantly better credit performance than loans originated during prior periods. The volume of insurance that we have written on high credit quality loans after 2008 has significantly improved our mortgage insurance portfolio mix. To date, our actual and expected future losses on our portfolio written after 2008, together with refinancings under HARP, have been significantly lower than those experienced on our NIW prior to and including 2008. However, the impact to our future losses from the COVID-19 pandemic, including from recent and continuing increases in unemployment, which may be prolonged, is highly uncertain. Throughout this report, unless otherwise noted, RIF is presented on a gross basis and includes the amount ceded under reinsurance. RIF and IIF for direct Single Premiums include policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated). The following table provides selected information as of and for the periods indicated related to mortgage insurance IIF and RIF.
(1)The Persistency Rate was reduced in part by an increase in cancellations identified by our ongoing servicer monitoring process for Single Premium Policies. 49 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (2)The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods, and may not be indicative of full-year trends. (3)Lender-paid Single Premium Policies have higher Minimum Required Assets under the PMIERs as compared to borrower-paid Single Premium Policies. (4)For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers’ FICO scores. Risk Distribution We use third-party reinsurance in our mortgage insurance business as part of our risk distribution strategy, including to manage our capital position and risk profile. When we enter into a reinsurance agreement, the reinsurer receives a premium and, in exchange, insures an agreed-upon portion of incurred losses. While these arrangements have the impact of reducing our earned premiums, they reduce our required capital and are expected to increase our return on required capital for the related policies. The impact of these programs on our financial results will vary depending on the level of ceded RIF, as well as the levels of prepayments and incurred losses on the reinsured portfolios, among other factors. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage Insurance—Risk Distribution” and Note 8 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for more information about our reinsurance transactions. The table below provides information about the amounts by which Radian Guaranty’s reinsurance programs reduced its Minimum Required Assets as of the dates indicated.
(1)Excludes the impact of intercompany reinsurance agreement with Radian Reinsurance, which was terminated in January 2020. See Note 16 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. Results of Operations—Consolidated Three and Nine Months Ended September 30, Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. Our consolidated operating results for the three and nine months ended September 30, In addition to the results of our operating segments, pretax income (loss) is also affected by those factors described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results” in our 50 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) The following table highlights selected information related to our consolidated results of operations for the three and nine months ended September 30,
Net Income. As discussed in more detail below, our net income these items are Diluted Net Income Per Share. The Book Value Per Share. The increase in book value per share from Net Gains (Losses) on Investments and Other Financial Instruments. The increasein net gains on investments and other financial instruments for the three
51 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Return on Equity. The change in return on equity is primarily due to the Use of Non-GAAP Financial Measures. In addition to the traditional GAAP financial measures, we have presented “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity,” which are non-GAAP financial measures for the consolidated company, among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way our business performance is evaluated by both management and by our board of directors. These measures have been established in order to increase transparency for the purposes of evaluating our operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity” are non-GAAP financial measures, for the reasons discussed above we believe these measures aid in understanding the underlying performance of our operations. Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity are not measures of overall profitability, and therefore should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share or return on equity. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly-named measures reported by other companies. Our senior management, including our Adjusted pretax operating income (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as The following table provides a reconciliation of consolidated pretax income to our non-GAAP financial measure for the consolidated company of adjusted pretax operating income:
(1)The amount for the nine months ended September 30, 2019 primarily relates to impairments of other long-lived assets and is included in other operating expenses on the condensed consolidated statement of operations. 52 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (2)Total adjusted pretax operating income (loss) on a consolidated basis consists of adjusted pretax operating income (loss) for our Mortgage segment, our Real Estate segment and All Other activities, as further detailed in Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common stockholders, net of taxes computed using the Company’s statutory tax rate, by (ii) the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table provides a reconciliation of diluted net income (loss) per share to our non-GAAP financial measure for the consolidated company of adjusted diluted net operating income (loss) per share:
(1)Calculated using the Company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included. Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company’s statutory tax rate, by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented.
(1)Calculated by dividing annualized net income by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented. (2)Annualized, as a percentage of average stockholders’ equity. (3)Calculated using the Company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not 53 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019 The following
(1)Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the Company’s business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. (2)Includes allocation of corporate operating expenses of $29.4 million and $83.7 million for the three and nine months ended September 30, 2020, respectively, and $26.7 million and $76.7 million for the same periods in 2019, respectively. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about our allocation of corporate operating expenses to segments. Adjusted Pretax Operating Income. Our Mortgage segment’s adjusted Net Premiums Written and Earned. Net premiums written for the three and nine months ended September 30, 2020 decreased compared to the same periods in 2019. The decreases in both the three and nine months ended September 30, 2020 reflect lower premium rates on 54
Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(1)Includes a cumulative adjustment to unearned premiums recorded in the second quarter of 2019 related to an update to the amortization rates used to recognize revenue for Single Premium Policies. This adjustment increased the 2019 direct premium yield and net premium yield by 1.9 and 1.4 basis points, respectively. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for further information. (2)Includes premiums earned from our participation in certain credit risk transfer programs. (3)Includes the impact of related profit commissions. (4)The amounts represent the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations. (5)Calculated by dividing annualized direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF. (6)Calculated by dividing annualized net premiums earned by average primary IIF. For the nine months ended September 30, 2020, incorporates the impact of profit commission adjustments related to our Single Premium QSR Program, including a significant impact for nine months ended September 30, 2020 due to increased ceded losses. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for further information. Net premiums earned increased for the three months ended September 30, 2020 compared to the same period in 2019, primarily due to an increase in Single Premium Policy cancellations related to increased refinancing activity, as compared to the same period in 2019, partially offset by higher ceded premiums related to Single Premium Policies. The decrease in net premiums earned for the nine months ended September 30, 2020, as compared to the same period in 2019, was primarily impacted by the increase in ceded premiums resulting from increased Single Premium Policy cancellations and reduced profit commissions, as a result of higher ceded losses. Also contributing to the decline for the nine months ended September 30, 2020 compared to the comparable period in 2019 was a $32.9 million cumulative adjustment in 2019 related to an update to the amortization rates used to recognize revenue for Single Premium Policies. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for further information. These decreases to net premiums earned for the nine months ended September 30, 2020 were partially offset by the increase in direct premiums earned from Single Premium Policy cancellations, as compared to the same period in 2019. The level of mortgage prepayments affects the revenue ultimately produced by our mortgage insurance business and is influenced by the mix of business we write. We believe that writing a mix of Single Premium Policies and Monthly Premium Policies has the potential to moderate the overall impact on our results if actual prepayments are significantly different from expectations. However, the impact of this moderating effect is affected by the amount of reinsurance we obtain on portions of our portfolio, with the Single Premium QSR Program currently reducing the proportion of retained Single Premium Policies in our portfolio. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors 55
Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following table provides information related to the premium impact of our reinsurance
(1)Does not include ceded
Net Investment Income. Provision for Losses.The following table details the financial impact of the significant components of our provision for losses for the periods indicated:
Our mortgage insurance provision for losses for the three and nine months ended September 30, Our provision for losses during the three and nine months ended September 30, 56 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) increased uncertainty of the potential impacts of the COVID-19 pandemic. See Notes 1 and 11 of Notes to Unaudited Condensed Consolidated Financial Statements and “Item 1A. Risk Factors” for additional information. The favorable development for the three and nine months ended September 30, 2019 was primarily driven by a reduction during the period in certain Default to Claim Rate assumptions for prior year defaults compared to the assumptions used at December 31, 2018, partially offset by an increase in our IBNR reserve estimate Our primary default rate at September 30, 2020 was 5.9% compared to
(1)Includes those charged to (2)Net of any previous Rescissions and Claim Denials that were reinstated during the period. Such reinstated Rescissions and Claim Denials may ultimately result in a paid claim. The following tables show additional
N/A – Not applicable 57 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) We develop our Default to Claim Rate estimates based primarily on models that use a variety of loan characteristics to determine the likelihood that a default will reach claim status. Our
Our aggregate weighted average net Default to Claim Rate assumption for our primary loans used in estimating our reserve for losses, which is net of estimated Claim Denials and Rescissions, was Our mortgage insurance total loss reserve as a percentage of our mortgage insurance total RIF was 1.3% and 0.7% at We considered the sensitivity of our loss reserve estimates at September 30, Total mortgage insurance claims paid of $10.8 million and $57.0 million for the three and nine months ended September 30, 2020, respectively, decreased from claims paid of $36.7 million and $103.7 million for the The following table shows net claims paid by product and average claim paid by product for the periods indicated:
Other Operating Expenses. Other operating expenses for the three months ended September 30, 2020 decreased as compared to the same period in 2019, primarily due to: (i) an increase in ceding commissions and (ii) a decrease in variable compensation expense. The decrease in other operating expenses for the nine months ended September 30, 2020 as compared 58 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) to the same period in 2019 is primarily due to: (i) a decrease in technology-related expenses; (ii) a decrease in compensation expense in 2020 including variable and share-based compensation; and (iii) an increase in ceding commissions. This decrease in expense for the three and nine months ended September 30, Our expense ratio on a net premiums earned basis represents our Mortgage Results of Operations—Real Estate Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019 The following table summarizes our Real Estate segment’s results of operations for the three and nine months ended September 30, 2020 and 2019:
(1)Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the Company’s business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. (2)Includes allocation of corporate operating expenses of $3.8 million and $11.0 million for the three and nine months ended September 30, 2020, respectively, and $2.9 million and $8.4 million for the same periods in 2019, respectively. Adjusted Pretax Operating Income (Loss). Our Real Estate segment’s adjusted pretax operating loss for the three and nine months ended September 30, 2020 was $5.9 million and $15.6 million, respectively, compared to adjusted pretax operating loss of $2.5 million and $10.2 million for the same periods in 2019, respectively. The increase in our adjusted pretax operating loss for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, was primarily driven by higher other operating expenses and cost of services, partially offset by an increase in services revenue. Services Revenue.Services revenue increased for the three and nine months ended September 30, 2020, as compared to the same periods in 2019, primarily due to ongoing growth in title services. Other Operating Expenses. Other operating expenses include other selling, general and administrative expenses, depreciation, and allocations of corporate general and administrative expenses. Other operating expenses for the three and nine months ended September 30, 2020 increased compared to the same periods in 2019, due in part to higher allocated corporate operating expenses and continued investments in ongoing strategic initiatives. See “Results of Operations—Consolidated—Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019—Other Operating Expenses.” 59 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations— Three and Nine Months Ended September 30, All Other activities include income (losses) from assets held by our holding company, related general corporate operating expenses not attributable or allocated to our reportable segments and, for all periods through the first quarter of 2020, income and expenses related to Clayton prior to its sale on January 21, 2020. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. The following table summarizes our
Off-Balance Sheet Arrangements There have been no material changes in off-balance sheet arrangements from those specified in our Variable Interest Entity In For additional information about the Eagle Re Contractual Obligations and Commitments There have been no material changes outside of the ordinary course of business in our contractual obligations and commitments from those specified in our 60 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources Consolidated Cash Flows The following table summarizes our consolidated cash flows from operating, investing and financing activities:
Operating Activities.Our most significant source of operating cash flows is generally from premiums received from our mortgage insurance policies, while our most significant uses of operating cash flows are generally for claims paid on our mortgage insurance policies and our operating expenses. Net cash provided by operating activities totaled Investing Financing Activities. Net cash See “Item 1. Financial Statements (Unaudited)—Condensed Consolidated Statements of Cash Flows (Unaudited)” for additional information. Liquidity Analysis—Holding Company Radian Group serves as the holding company for our During the nine months ended September 30, 2020, Radian Group’s available liquidity increased by $455.5 million, In addition to available cash and marketable securities, Radian Group’s principal sources of cash to fund future liquidity needs 61 Part I. Item 2. Management’s Discussion and Analysis of Financial We expect Radian Group’s principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; and (iii) subject to approval by our board of directors and our ongoing assessment of our financial condition and potential capital demands in our mortgage insurance business, the payment of quarterly dividends on our common stock. In addition to our ongoing short-term liquidity needs discussed above, our most significant need for liquidity beyond the next 12 months is the repayment of $1.4 billion aggregate principal amount of our senior debt due in future years. See “—Capitalization—Holding Company” below for details of our debt maturity profile. Radian Group’s liquidity demands for the next 12 months or in future periods could also include: (i) early repurchases or redemptions of portions of our debt obligations; (ii) the repurchase of shares of our common stock, including pursuant to the share repurchase authorization, as described below, for which $198.9 million in authorization remains outstanding; (iii) potential additional If Radian Group’s current sources of liquidity are insufficient Share Corporate Expenses and Interest 62 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Capitalization—Holding Company The following table presents our holding company capital structure:
Stockholders’ equity increased by We regularly evaluate opportunities, based on market conditions, to finance our operations by accessing the capital markets or entering into other types of financing arrangements with institutional and other lenders and financing sources, and consider various measures to improve our capital and liquidity positions, as well as to strengthen our balance sheet, In May 2020, we issued $525 million aggregate principal amount of Senior Notes due 2025 and received net proceeds of $515.6 million. These notes mature on March 15, 2025 and bear interest at a rate of 6.625% per annum, payable semi-annually on March 15 and September 15 of each year, which interest payments commenced on September 15, 2020. See Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. Mortgage The principal demands for liquidity in our mortgage insurance business include: (i) the payment of claims and potential claim settlement transactions, net of reinsurance; (ii) As of September 30, 63 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Radian Guaranty’s Risk-to-capital as of September 30, Private mortgage insurers, including Radian Guaranty, are required to comply with the PMIERs to remain approved insurers of loans purchased by the GSEs. Radian Guaranty currently is an approved mortgage insurer under the In addition to the PMIERs cushion held at Radian Guaranty, our excess available resources include our unsecured revolving credit facility and holding company liquidity. While these resources may be utilized to enhance Radian Guaranty’s PMIERs cushion, the impact of the COVID-19 pandemic could affect our ability to remain compliant with the PMIERs financial requirements as the increase in defaults and resulting increase to our Minimum Required Assets could reduce or potentially exhaust our PMIERs cushion or exceed our Available Assets. See “Item 1A. Risk Factors” for additional information. The following chart (1)Percentages represent the values shown as a percentage of Minimum Required Assets under the applicable PMIERs financial requirements in effect for the dates shown. (2)Represents Radian Group’s liquidity, net of the $35 million minimum liquidity requirement under the unsecured revolving credit facility. (3)Represents Radian Guaranty’s excess of Available Assets over its Minimum Required Assets, calculated in accordance with the PMIERs financial requirements in effect for each date shown. Our PMIERs cushion as of September 30, 2020 includes the benefit from our reinsurance agreement with Eagle Re 2020-1 Ltd. effective February 2020 and the transfer of $200 million of cash and marketable securities from Radian Group in exchange for a surplus note in the same amount in January 2020, partially offset by an increase in Minimum Required Assets due to the termination of the intercompany reinsurance agreement with Radian Reinsurance. See Notes 8 and 16 of Notes to Unaudited Condensed Consolidated Financial Statements, respectively, for additional information on Eagle Re 2020-1 Ltd. and these intercompany actions. In October 2020, Radian Guaranty entered into a fourth fully collateralized reinsurance agreement, with Eagle Re 2020-2 Ltd. that will reduce net RIF by $390.3 million, and is expected to reduce the capital required to be held at Radian Guaranty by reducing the PMIERs Minimum Required Assets by the same amount. This expected growth in PMIERs excess available resources 64 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) domicile. Under Pennsylvania’s insurance laws, ordinary dividends and other distributions may only be paid out of an insurer’s positive unassigned surplus, measured as of the end of the prior fiscal Radian Guaranty and Radian Reinsurance are both members of the FHLB. As members, they may borrow from the FHLB, subject to certain conditions, which include As of September 30, Title insurance companies, including Radian Liquidity levels may fluctuate depending on the levels and contractual timing of our invoicing and the payment practices of Ratings Radian Group, Radian Guaranty and Radian Reinsurance have been assigned the ratings set forth in the chart below. We believe that ratings often are considered by others in assessing our credit strength and the financial strength of our primary mortgage insurance subsidiaries. The following ratings have been independently assigned by third-party statistical rating organizations, are for informational purposes only and are subject to change. For a discussion of how the COVID-19 pandemic has affected and may further affect our ratings, see “Item 1A. Risk Factors—The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company.”
(1)Based on the October 17, 2019 update, Moody’s outlook for Radian Group and Radian Guaranty currently is Stable. (2)Based on the March 26, 2020 update, S&P’s outlook for Radian Group, Radian Guaranty and Radian Reinsurance is currently Negative. (3)Based on the May 12, 2020 release, Fitch’s outlook for Radian Group and Radian Guaranty is currently Negative. Critical Accounting Policies As of the filing date of this report, there were no significant changes in our critical accounting policies from those discussed in our 65 Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures. We Item 3. Quantitative and Qualitative Disclosures About Market Market risk represents the potential for loss due to adverse changes in the value of financial instruments as a result of changes in market conditions. Examples of market risk include changes in interest rates, credit spreads, Our market risk exposures at September 30, Form 10-K. Item 4. Controls and Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, Changes in Internal Control Over Financial Reporting During the three-month period ended September 30, 66 PART II—OTHER INFORMATION Item 1. Legal We are routinely involved in a number of legal actions and proceedings, including litigation and other disputes arising in the ordinary course of our business. On December 22, 2016, Ocwen Loan Servicing, LLC and Homeward Residential, Inc. (collectively, “Ocwen”) filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania against Radian Guaranty alleging breach of contract and bad faith claims and seeking monetary damages and declaratory On August 31, 2018, Nationstar Mortgage LLC d/b/a Mr. Cooper (“Nationstar”) filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania against Radian Guaranty (the “Complaint”) alleging breach of contract, bad faith, equitable indemnification, unjust enrichment, and conversion claims and seeking monetary damages and declaratory relief. Exhibit 1 to the Complaint lists 3,014 mortgage insurance certificates issued under multiple insurance policies as subject to disputes involving insurance coverage decisions (the “Coverage Disputed Loans”). Exhibit 2 to the Complaint further lists 2,231 mortgage insurance certificates issued under multiple insurance policies as subject to disputes involving premium refund requests. In December 2018, Radian Guaranty filed a motion to dismiss the Complaint. In March 2019, the trial judge issued an order granting in part, and denying in part, our motion to dismiss, and dismissed Nationstar’s unjust enrichment and conversion claims. In May 2019, Radian Guaranty filed an answer to the Complaint, with affirmative defenses and As previously disclosed, based on developments in the Ocwen and Nationstar legal proceedings 67 the Ocwen Settlement, which became effective as of November 1, 2020, and the execution and expected implementation of the Nationstar Settlement, do not have a material impact on our mortgage insurance reserves for these legal proceedings. A failure to receive the required consents of the GSEs to the Nationstar Settlement could restart the applicable legal proceeding, the outcome of which could have an adverse effect on our future results of operations, liquidity or financial condition. We also are periodically subject to reviews and audits, as well as inquiries, information-gathering requests and investigations. In connection with these matters, from time to time we receive requests and subpoenas seeking information and documents related to aspects of our business. The legal and regulatory matters discussed above and in our Item 1A. Risk The COVID-19 pandemic has adversely impacted our business, and its ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic and actions taken by governmental authorities in response to the pandemic. The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, lowered certain equity market valuations, created periods of significant volatility and disruption in financial markets, required adjustments in the housing finance system and real estate markets and increased unemployment levels. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in most states and communities in the United States. As a result, the demand for certain of our products and services has been impacted, and this impact may continue for an unknown period and could expand in scope. Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, remote technology interruptions, quarantines, government actions, or other restrictions in connection with the pandemic. To date, in response to the pandemic, among other things, we have raised additional capital, aligned our business with the temporary origination and servicing guidelines announced by the GSEs, and activated our business continuity program by transitioning to a work-from-home virtual workforce model with certain essential activities supported by limited staff in controlled office environments, and made adjustments to our pricing and our underwriting guidelines to account for the increased risk and uncertainty associated with the COVID-19 pandemic. We expect that the COVID-19 pandemic and measures taken to reduce its spread will continue to impact our business, subjecting us to the following risks: ■As a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment levels, we have experienced a material increase in new defaults, including as a result of mortgage forbearance programs. If these conditions persist or deteriorate, it could impact Radian Guaranty’s ability to remain compliant with the PMIERs financial requirements. See“—The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages” and “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.” ■The increase in the number of new mortgage defaults resulting from the COVID-19 pandemic could potentially exhaust Radian Guaranty’s excess of Available Assets over Minimum Required Assets under the PMIERs, in which case we may be required to contribute capital to Radian Guaranty. The amount that Radian Group could be required to contribute to Radian Guaranty to support PMIERs compliance is uncertain, but could be significant and, under extreme economic scenarios, exhaust Radian Group’s available liquidity. See “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity” and “—Radian Group’s sources of liquidity may be insufficient to fund its obligations.” ■The pandemic has placed additional significant strain on the operations and financial condition of mortgage servicers, which could result in the disruption of the servicing of mortgage loans covered by our insurance policies or result in servicers failing to appropriately report the status of loans, including whether the loans are subject to a COVID-19-related forbearance program. We could receive less mortgage insurance premiums as a result of loans going into default. See “—Our business depends, in part, on effective and reliable loan servicing.” 68 ■As a result of COVID-19-related relief programs, we anticipate that defaults related to the pandemic, if not cured, could remain in our defaulted loan inventory for a protracted period of time, potentially resulting in higher levels of Claim Severity for those loans that ultimately result in a claim. See ��—An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.” ■The assumptions upon which we base our premium levels may ultimately prove to be inaccurate, especially in a period of high market volatility and economic uncertainty as currently exists due to the pandemic. We have experienced a material increase in new defaults as a result of the pandemic and we may continue to experience a high volume of new defaults associated with the pandemic in future periods. Future new defaults are not currently reflected in our mortgage insurance loss reserves because we generally are not permitted to establish reserves in anticipation of such defaults. As a result of the material increase in new defaults that we have experienced, our loss reserves increased significantly in the second quarter of 2020. Our loss reserves could continue to increase significantly in future periods as a result of new defaults stemming from the pandemic, which would negatively impact our results of operations and financial condition. See “—Our success depends on our ability to assess and manage our underwriting risks; the premiums we charge may not be adequate to compensate us for our liability for losses and the amount of capital we are required to hold against our insured risks. We expect to incur future provisions for losses beyond what we have reserved for in our financial statements.” ■The GSEs’ business practices have changed in response to the COVID-19 pandemic, with the primary objectives of supporting borrowers impacted by the pandemic and protecting the ongoing functioning of the housing finance system. As the situation continues to evolve, the actions of the FHFA and GSEs in response to COVID-19 are likely to continue to significantly impact the housing finance system. Because traditional mortgage insurance is an important component of this system, these actions have had, and may continue to have, an impact on our mortgage insurance operations and performance. See “—Changes in the charters, business practices, or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.” ■The number of home purchases or mortgage refinancings may be materially affected by the impacts of the pandemic on general economic conditions, including the unemployment rate, and on the availability of credit for mortgage loans. In addition, public and private sector initiatives to reduce the transmission of COVID-19, such as the imposition of restrictions on business activities, may affect the number of new mortgages available for us to insure, including as real estate markets confront challenges in the mortgage origination and home sale process created by social distancing and stay-at-home orders. See“—A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our Real Estate business.” ■The models, assumptions and estimates we use to establish loss reserves may not be accurate, especially in the event of an extended economic downturn or a period of extreme market volatility and uncertainty such as we are currently experiencing due to the COVID-19 pandemic. For example, the ultimate cure rate for loan defaults resulting from the pandemic may be lower than we have previously experienced in the context of other FEMA declared emergencies and lower than our expectations. See “—If the estimates we use in establishing loss reserves are incorrect, we may be required to take unexpected charges to income, which could adversely affect our results of operations.” ■The rating agencies continually review the financial strength ratings assigned to Radian Group and its mortgage insurance subsidiaries, and the ratings are subject to change. The COVID-19 pandemic and its impact on our financial results and condition, could cause one or more of the rating agencies to downgrade the ratings assigned to Radian Group and its mortgage insurance subsidiaries. See “—The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company.” ■The markets for credit and interest-rate-sensitive securities have been affected by the COVID-19 pandemic. The value of our fixed income securities has been volatile, which increases the risk that we will not achieve our investment objectives. If, as a result of the COVID-19 pandemic or otherwise, we underestimate our liabilities or improperly structure our investments to meet our expected liabilities, including claim payments in our mortgage insurance business, we could have unexpected losses resulting from the forced liquidation of investments before their maturity, which could adversely affect our results of operations. See“—Our success depends, in part, on our ability to manage risks in our investment portfolio.” Although we are uncertain of the ultimate magnitude or duration of the business and economic impacts of the COVID-19 pandemic, their ultimate effect on our businesses will depend on, among other things: the extent and duration of the pandemic; the severity of and the number of people infected with the virus and whether an effective anti-viral treatment or vaccine is developed and made widely available; the wider economic effects of the pandemic and the scope and duration of governmental and other third party measures restricting day-to-day life and business operations; the impact of economic stimulus efforts to support the economy through the pandemic; and governmental and GSE programs implemented to assist borrowers 69 experiencing a COVID-19-related hardship, including forbearance programs and suspensions of foreclosures and evictions. Due to the unprecedented and continually evolving social and economic impacts associated with the COVID-19 pandemic on the U.S. and global economies generally, and in particular on the U.S. housing, real estate and housing finance markets, there is significant uncertainty regarding the ultimate impact on our business, business prospects, operating results and financial condition and our estimates or predictions regarding such impact may be materially wrong. Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity. In order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. The PMIERs are comprehensive, covering virtually all aspects of the business of a private mortgage insurer, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer and the approved insurer’s financial condition, as well as extensive requirements related to the conduct and operations of a mortgage insurer’s business. If Radian Guaranty is unable to satisfy the requirements set forth in the PMIERs, the GSEs could restrict it from conducting certain types of business with them or take actions that may include not purchasing loans insured by Radian Guaranty. The PMIERs financial requirements currently require that a mortgage insurer’s Available Assets meet or exceed its Minimum Required Assets. At September 30, 2020, Radian Guaranty was in compliance with the PMIERs financial requirements and had Available Assets of $4.5 billion, which resulted in an excess of Available Assets over Minimum Required Assets (“PMIERs cushion”) of $1.0 billion over its Minimum Required Assets of $3.5 billion. Radian Guaranty’s ability to continue to comply with the PMIERs financial requirements could be impacted by, among other factors: (i) the volume and product mix of our NIW; (ii) factors affecting the performance of our mortgage insurance portfolio, including the level of new defaults and prepayments; (iii) for existing defaults, the aging of these existing defaults and whether they are subject to, and remain in, forbearance programs, and the ultimate losses we incur on new or existing defaults; (iv) the application of the Disaster Related Capital Charge (as discussed below) under the PMIERs and the amount of credit that we receive under the PMIERs financial requirements for our third-party reinsurance transactions (which is subject to initial and ongoing review by the GSEs); and (v) potential amendments or updates to the PMIERs. As a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment levels, we have experienced a material increase in new defaults, including as a result of borrowers participating in mortgage forbearance programs. As of September 30, 2020, Radian Guaranty’s default rate was 5.9%. The overall volume of new defaults resulting from the pandemic has resulted in an increase in Radian Guaranty’s Minimum Required Assets and a decrease in Radian Guaranty’s PMIERs cushion. This increase in defaults has also negatively impacted our results of operations since the onset of the pandemic, with the largest impact in the second quarter of 2020 following implementation of the forbearance programs, primarily due to the need to increase our reserve for losses related to the volume of new defaults. We may continue to experience a high level of defaults as a result of the pandemic for the foreseeable future, which defaults would continue to negatively impact Radian Guaranty’s PMIERs Minimum Required Assets and our results of operations. The amount of Minimum Required Assets Radian Guaranty is required to maintain, including potential future increases in Minimum Required Assets, will depend on the number, timing and duration of defaults related to the pandemic, including those defaulted loans participating in forbearance programs. This, in turn, will depend on the scope, severity and duration of the pandemic, its resulting impact on the economy, including unemployment levels and housing prices, and the ability of current and any future government programs to provide economic and individual relief, all of which will likely have an impact on the ability of borrowers to remain current on their mortgage payments and, if they have entered into forbearance or other relief programs, to resume making payments upon the expiration of the forbearance period. The expanded unemployment benefits provided under the CARES Act expired July 31, 2020 and while there has been ongoing congressional debate regarding extension of such benefits, it is unclear if and to what extent the benefits may be continued. The predominant portion of Radian Guaranty’s defaulted loans as of September 30, 2020 were subject to forbearance programs. Under the CARES Act, upon request by borrowers of federally backed mortgage loans who attest to financial hardship related to the pandemic, mortgage servicers are required to provide these borrowers with up to 180 days’ forbearance on their mortgage payments, which may be extended for an additional 180 days upon request, without requiring validation by the borrowers of their hardship. The CARES Act does not provide an expiration date for these forbearance requirements. The GSEs have amended their forbearance programs to align with the CARES Act, and a significant number of borrowers are participating in such programs. We expect that borrowers with loans covered by private mortgage insurance will continue to represent a high percentage of borrowers participating in GSE forbearance programs given the higher credit risk profile of these loans. In light of the current economic uncertainty, we believe many borrowers may have taken advantage of forbearance programs even if they are able to continue to make mortgage payments on a timely basis and that some borrowers have entered into forbearance programs while continuing to make their monthly mortgage payments. Our Master Policies generally provide that a default occurs when a borrower misses one monthly payment, regardless of why the payment was missed, including if the payment was deferred under a forbearance program. Once two missed payments have occurred, the PMIERs characterize a loan as “non-performing” and require us to establish an increased Minimum Required Asset factor for that loan regardless of the reason for the missed payments. However, as further described below, the PMIERs 70 apply a multiplier that reduces the Minimum Required Asset factor for loans that have become non-performing as a result of a “FEMA Declared Major Disaster” event, including as a result of participation in a forbearance program, because those loans generally have a higher likelihood of curing following the conclusion of the event. For these defaults, the PMIERs apply the Disaster Related Capital Charge, which is a 0.30 multiplier to the factor that normally would be applied to such default, effectively reducing the required asset amount by 70%, unless the resulting Minimum Required Asset amount after applying the Disaster Related Capital Charge would be less than the Minimum Required Asset amount for the loan if it was performing, in which case the Minimum Required Asset amount would equal the performing level amount. The GSEs recently issued guidelines (the “National Emergency Guidelines”) that, among other things, implement the COVID-19 Amendment such that the Disaster Related Capital Charge is now applied nationwide to all non-performing loans that either: (i) have an Initial Missed Payment (discussed below) occurring during the COVID-19 Crisis Period or (ii) are subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which the COVID-19 Amendment deems to be the case for any loan that has an Initial Missed Payment occurring during the COVID-19 Crisis Period), the terms of which are materially consistent with terms of forbearance plans offered by the GSEs. Under the COVID-19 Amendment, the Disaster Related Capital Charge applies for no longer than three calendar months beginning with the month the loan becomes non-performing (i.e., missed two monthly payments), or if greater, the period of time that the loan is subject to a forbearance plan, repayment plan or loan modification trial period granted in response to a financial hardship related to COVID-19. Under the COVID-19 Amendment, the Initial Missed Payment means the first missed monthly payment, which would be reported to us as delinquent as of the last day of the month for which it was due. For example, for a loan first reported to the approved insurer in May as having missed its payments due on April 1 and May 1, the Initial Missed Payment shall be deemed to have occurred on April 30. In this example, the loan would become a non-performing primary mortgage guaranty insurance loan in May and the 0.30 multiplier would be applied for May, June, and July. The National Emergency Guidelines state that they will be updated if the GSEs determine that the COVID-19 Crisis Period needs to be extended. The current broad-based application of the Disaster Related Capital Charge has reduced the total amount of Minimum Required Assets that Radian Guaranty otherwise would have been required to hold against pandemic-related defaults as of September 30, 2020 by approximately $1.0 billion, taking into consideration our existing risk distribution structures. Primarily as a consequence of the Disaster Related Capital Charge, Radian Guaranty maintained a significant PMIERs cushion as of September 30, 2020 and would have been able to absorb a default rate of approximately 20% and remain in compliance with the PMIERs financial requirements. We expect that application of the Disaster Related Capital Charge will continue to materially reduce Radian Guaranty’s PMIERs Minimum Required Assets for the foreseeable future; however, the benefit that Radian Guaranty currently is receiving from the Disaster Related Capital Charge is expected to diminish over time. Under the terms of the COVID-19 Amendment, unless extended by the GSEs, the COVID-19 Crisis Period ends January 1, 2021. If the COVID-19 Crisis Period is not extended, the Disaster Related Capital Charge would continue to apply to defaults then subject to such Disaster Related Capital Charge for as long as provided under the COVID-19 Amendment discussed above, but would no longer be applied to new defaults that have an Initial Missed Payment occurring after January 1, 2021 unless the loan was then subject to a forbearance plan granted in response to a financial hardship related to COVID-19. Given the lack of an expiration date under the CARES Act, it is difficult to estimate how long the GSEs may continue to offer COVID-19 forbearance programs for new defaults. With respect to existing defaults that are subject to the Disaster Related Capital Charge, the Disaster Related Capital Charge would no longer would apply, and they would then be subject to the full Minimum Required Asset factors required by the PMIERs, if: (i) they fail to enter a COVID-19 forbearance program within the period prescribed by the COVID-19 Amendment or (ii) for defaults subject to a forbearance program, repayment plan or loan modification trial period, they exit the program, plan or trial period without curing the default status. For loans that continue to remain in forbearance, increased asset factors under the PMIERs are applied against defaulted loans based on the amount of time the loans remain in default, with increases taking place upon four, six and twelve missed monthly payments. As a result, notwithstanding the continued application of the Disaster Related Capital Charge, the total amount of Minimum Required Assets we may be required to hold against defaulted loans will increase over time, including for loans subject to forbearance programs, because the 0.30 multiplier is applied to a higher base factor for the defaulting loans as they age. If existing and future new defaults continue to materially reduce Radian Guaranty’s Minimum Required Assets, we may be required or otherwise choose to: (i) contribute capital to Radian Guaranty; (ii) alter our strategy with respect to our NIW; or (iii) seek additional capital relief through reinsurance or otherwise, which may not be available on acceptable terms or on terms that would be approved by the GSEs. With respect to reinsurance, the market volatility stemming from the COVID-19 pandemic temporarily disrupted the market for new insurance-linked notes transactions. While new insurance-linked notes reinsurance transactions recently have been completed by Radian Guaranty and other private mortgage insurers, these transactions are on less favorable terms than similar reinsurance transactions executed prior to the pandemic. Under the PMIERs financial requirements, in addition to non-performing loans, there are increased financial requirements for performing loans with a higher likelihood of default and/or certain credit characteristics, such as higher LTVs and lower FICO scores, as well as for loans originated after January 1, 2016 that are insured under lender-paid mortgage insurance policies not subject to automatic termination under the Homeowners Protection Act of 1998. Therefore, if our mix of business includes more loans that are subject to these increased financial requirements, our Minimum Required Assets will increase. Depending on the 71 circumstances, we may limit the type and volume of business we are willing to write for certain of our products based on the increased financial requirements associated with certain loans. This could reduce the amount of NIW we write, which could reduce our future revenues. The GSEs may amend the PMIERs at any time and also have broad discretion to interpret the PMIERs, which could impact the calculation of Radian Guaranty’s Available Assets and/or Minimum Required Assets. The most recent large-scale revisions to PMIERs, or PMIERs 2.0, became effective on March 31, 2019. We expect the GSEs to continue to update the PMIERs periodically in the future, including if and when there are changes to the GSEs’ capital requirements, such as if and when the ECF is finalized. Compliance with the PMIERs financial requirements could impact our holding company liquidity. If additional capital support for Radian Guaranty is required for it to comply with the PMIERs financial requirements, in light of the amount of Surplus Notes currently outstanding between Radian Group and Radian Guaranty, we do not expect that Radian Guaranty would receive PMIERs credit for additional amounts contributed through surplus notes. As a result, any further amounts contributed to Radian Guaranty to support PMIERs compliance likely would be made in the form of capital contributions. The amount that Radian Group could be required to contribute to Radian Guaranty for this purpose is uncertain, but could be significant and, under extreme economic scenarios, exhaust Radian Group’s available liquidity. Based on our total available resources as of September 30, 2020 (which includes Radian Guaranty’s PMIERs cushion, Radian Group’s projected total liquidity, and amounts available under our unsecured credit facility) and assuming all amounts were contributed to Radian Guaranty to support compliance, Radian Guaranty would have been able to absorb a default rate of approximately 45% and remain in compliance with the PMIERs financial requirements. As discussed above, the default rate that Radian Guaranty would have been able to absorb as of September 30, 2020, inclusive of Radian Group’s total available liquidity, reflects the significant benefit Radian Guaranty is continuing to receive from application of the Disaster Related Capital Charge to defaults, which benefit is expected to diminish over time. Further, if Radian Guaranty becomes capital constrained, it may be more difficult for Radian Guaranty to return capital to Radian Group, which would compound the negative liquidity impact to Radian Group of the contributions it makes to Radian Guaranty and leave less liquidity to satisfy Radian Group’s other obligations. Depending on the amount of liquidity that is utilized from Radian Group, we may be required (or may decide) to seek additional capital by incurring additional debt, issuing additional equity, or selling assets, which we may not be able to do on favorable terms, if at all. In addition to the PMIERs financial requirements, the PMIERs contain requirements related to the operations of our mortgage insurance business, including extensive operational requirements in areas such as claim processing, loss mitigation, document retention, underwriting, quality control, reporting and monitoring, among others. These increased operational requirements have resulted in additional expenses and have required substantial time and effort from management and our employees, which we expect will continue. Further, as discussed above, the GSEs could amend the PMIERS to address the pandemic in ways that change our operations and/or restrict the rights available under our Master Policies. The PMIERs prohibit Radian Guaranty from engaging in certain activities such as insuring loans originated or serviced by an affiliate (except under certain circumstances) and require Radian Guaranty to obtain the prior consent of the GSEs before taking many actions, which may include, among other things, entering into various intercompany agreements, settling loss mitigation disputes with customers and commuting risk. Further, pursuant to the National Emergency Guidelines, through March 31, 2021, the consent of the GSEs is required for Radian Guaranty to: (i) pay dividends, make payments of principal or increase payments of interest beyond those commitments made prior to June 30, 2020 associated with the Surplus Notes; (ii) make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to June 30, 2020; (iii) pledge or transfer asset(s) to any affiliate or investor; or (iv) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to June 30, 2020. These restrictions could prohibit or delay Radian Guaranty from taking certain actions that would be advantageous to it or to Radian Group. Although we expect Radian Guaranty to retain its eligibility status with the GSEs and to continue to comply with the PMIERs financial requirements, including as potentially updated in the future, we cannot provide assurance that this will occur. Loss of Radian Guaranty’s eligibility status with the GSEs would have an immediate and material adverse impact on the franchise value of our mortgage insurance business and our future prospects, as well as a material negative impact on our future results of operations and financial condition. Our business depends, in part, on effective and reliable loan servicing. We depend on third-party servicing of the loans that we insure. Dependable servicing is necessary for timely billing and premium payments to us and effective loss mitigation opportunities for delinquent or near-delinquent loans. Servicers are required to comply with a multitude of legal and regulatory requirements, procedures and standards for servicing residential mortgages such as the CFPB’s mortgage servicing rules. While these requirements are intended to ensure a high level of servicing performance, they also impose a high cost of compliance on servicers that may impact their financial condition and their operating effectiveness. The COVID-19 pandemic has placed additional burdens on many servicers. Challenging economic and market conditions or periods of economic stress and high mortgage defaults such as currently exist make it more difficult for 72 servicers to effectively service the loans that we insure. Further, the various servicing-related requirements imposed by the CARES Act, the GSEs, the FHA and other federal and state governmental and regulatory bodies and agencies to address the impact of the COVID-19 pandemic on mortgage borrowers heighten the burdens placed on servicers in the current environment. This strain may be further heightened by the short timeframe over which these events have occurred, which has resulted in a high volume of COVID-19 related servicing demands, such as administering forbearance requests for borrowers, generally occurring and moving forward on similar timeframes, further stressing servicer performance as these matters develop and progress through various stages. In the event a borrower fails to make mortgage payments, including as the result of a forbearance program, servicers often are required to advance such amounts, including principal and interest on the mortgage and amounts to cover taxes and insurance, for a period of time, including with respect to loans purchased by the GSEs. These required “advances” have increased the financial strain on servicers, which could result in their financial insolvency or otherwise disrupt their operations. If we experience a disruption in the servicing of mortgage loans covered by our insurance policies or a failure by servicers to appropriately report the status of a loan, including whether the loan is subject to a COVID-19 related forbearance program, this, in turn, could impact the amount of assets Radian Guaranty is required to hold under the PMIERs or ultimately contribute to a rise in claims among those loans, which could have a material adverse effect on our business, financial condition and operating results. Under the terms of our 2014 Master Policy and 2020 Master Policy, mortgage insurance premiums are not required to be paid following an event of default. However, if a defaulted loan then cures, all mortgage insurance premiums must be brought current for our insurance coverage to continue, including all premiums that were not paid during the period following the event of default and through the date of cure. Because premiums must be brought current upon a cure, mortgage servicers typically continue to pay mortgage insurance premiums while loans remain in default, understanding that Radian Guaranty will refund these premiums if the loans fail to cure and ultimately go to claim. As part of the National Emergency Guidelines, the GSEs temporarily amended the PMIERs to require that mortgage insurers notify the GSEs before coverage is canceled in specific circumstances, and to give the GSEs the opportunity to pay the premium on behalf of the servicer to keep coverage in force. If we fail to receive mortgage insurance premiums following mortgage defaults resulting from the COVID-19 pandemic, Radian Guaranty’s cash flow could be reduced, potentially requiring Radian Guaranty to liquidate investments at a loss to pay future claims or otherwise require us to alter our investment strategy. Radian Group’s sources of liquidity may be insufficient to fund its obligations. Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. As of September 30, 2020, Radian Group had available, either directly or through unregulated subsidiaries, unrestricted cash and liquid investments of $1.1 billion. This amount excludes certain additional cash and liquid investments that have been advanced to Radian Group from our subsidiaries for corporate expenses and interest payments. Total liquidity, which includes our undrawn $267.5 million unsecured revolving credit facility was $1.4 billion as of September 30, 2020. We expect Radian Group’s principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; and (iii) subject to approval by our board of directors following an assessment of our financial condition and potential capital demands in our mortgage insurance business, the payment of quarterly dividends on our common stock. In addition to our ongoing short-term liquidity needs discussed above, our most significant need for liquidity beyond the next 12 months is the repayment of our senior debt due in future years. Radian Group’s liquidity demands for the next 12 months or in future periods could also include: (i) early repurchases or redemptions of portions of our debt obligations; (ii) the repurchase of shares of our common stock, including pursuant to our remaining share repurchase authorization; (iii) potential additional investments to support our business strategy; and (iv) potential additional capital contributions to our subsidiaries. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Analysis—Holding Company” for more information on our liquidity demands, including as impacted by the COVID-19 pandemic. As a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment levels, we experienced a material increase in new defaults, including as a result of mortgage forbearance programs, and we may continue to experience an elevated level of new defaults in future periods due to the COVID-19 pandemic. The number, timing and duration of new defaults and, in turn, the number of defaults that ultimately result in claims will depend, among other factors, on the scope, severity and duration of the pandemic, the resulting impact on the economy, including unemployment and housing prices, and the impact of government programs to provide economic and individual relief. If existing and future new defaults continue to materially reduce Radian Guaranty’s PMIERs cushion, we may be required or otherwise choose to contribute capital to Radian Guaranty. See “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity” above for additional information. If such additional capital support for Radian Guaranty is required, in light of the amount of Surplus Notes currently outstanding between Radian Group and Radian Guaranty, we do not expect that Radian Guaranty would receive PMIERs credit for additional amounts contributed through surplus notes. As a result, any further amounts contributed to Radian Guaranty to 73 support PMIERs compliance likely would be made in the form of capital contributions. The amount that Radian Group could be required to contribute to Radian Guaranty for this purpose is uncertain, but could be significant and, under extreme economic scenarios, exhaust Radian Group’s available liquidity. In addition to available cash and marketable securities, Radian Group’s principal sources of cash to fund future liquidity needs include: (i) payments made to Radian Group by its subsidiaries under expense- and tax-sharing arrangements; (ii) net investment income earned on its cash and marketable securities; (iii) to the extent available, dividends or other distributions from our subsidiaries; and (iv) amounts that Radian Guaranty is able to repay under the Surplus Notes. Radian Group also has in place a $267.5 million unsecured revolving credit facility with a syndicate of bank lenders, which has a maturity date of January 18, 2022. At September 30, 2020, the full $267.5 million remains undrawn and available under the facility. Radian Group’s expense-sharing arrangements with its principal operating subsidiaries require those subsidiaries to pay their allocated share of certain holding-company-level expenses, including interest payments on Radian Group’s outstanding senior notes. The expense-sharing arrangements between Radian Group and our mortgage insurance subsidiaries, as amended, have been approved by the Pennsylvania Insurance Department, but such approval may be modified or revoked at any time. In light of Radian Guaranty’s negative unassigned surplus related to operating losses in prior periods, the ongoing need to set aside contingency reserves, and the current ongoing economic uncertainty related to the COVID-19 pandemic, which could increase losses in future periods, we do not anticipate that Radian Guaranty will be permitted under applicable insurance laws to pay ordinary dividends to Radian Group for the foreseeable future. See Note 18 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for additional information on contingency reserve requirements. In addition, pursuant to the National Emergency Guidelines, through March 31, 2021, the consent of the GSEs is required for Radian Guaranty to: (i) pay dividends or make payments of principal or increase payments of interest beyond those commitments made prior to June 30, 2020 associated with the Surplus Notes; (ii) make any other payments, unless related to expenses incurred in the normal course of business or to commitments made prior to June 30, 2020; (iii) pledge or transfer asset(s) to any affiliate or investor; or (iv) enter into any new arrangements or alter any existing arrangements under tax sharing and intercompany expense-sharing agreements other than renewals and extensions of agreements in effect prior to June 30, 2020. These restrictions could prohibit or delay Radian Guaranty from taking certain actions that would be advantageous to it or to Radian Group. In light of Radian Group’s short- and long-term needs, it is possible that our sources of liquidity could be insufficient to fund our obligations and could exceed available holding company funds. If this were to occur, we may need or otherwise may decide to increase our available liquidity, which we may be unable to do on favorable terms, if at all. An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay. High levels of defaults and corresponding delays in foreclosures could delay our receipt of claims, resulting in an increase in the period of time that a loan remains in our defaulted loan inventory, and as a result, the Claim Severity. Following the financial crisis, the average time that it took for us to receive a claim increased. This was, in part, due to loss mitigation protocols that were established by servicers and also due to a significant backlog of foreclosure proceedings in many states, and especially in those states that impose a judicial process for foreclosures. Generally, foreclosure delays do not stop the accrual of interest or affect other expenses on a loan, and unless a loan is cured during such delay, once title to the property ultimately is obtained and a claim is filed, our paid claim amount may include additional interest and expenses, increasing the Claim Severity. In response to the COVID-19 pandemic, numerous federal and state governmental and regulatory agencies have instituted borrower relief programs, including payment and foreclosure forbearance, with the objective of supporting borrowers through the economic turmoil resulting from the pandemic and allowing borrowers to remain in their homes. In addition to the mortgage payment forbearance relief discussed above in “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” the CARES Act also instituted a temporary foreclosure moratorium on GSE loans. As a result of COVID-19-related relief programs, we anticipate that defaults related to the pandemic, if not cured, could remain in our default loan inventory for a protracted period of time, resulting in higher levels of Claim Severity for those loans that ultimately result in a claim. Higher levels of Claim Severity would increase our incurred losses and could negatively impact our results of operations and financial condition. Our success depends on our ability to assess and manage our underwriting risks; the premiums we charge may not be adequate to compensate us for our liability for losses and the amount of capital we are required to hold against our insured risks. We expect to incur future provisions for losses beyond what we have reserved for in our financial statements. The estimates and expectations we use to establish premium rates are based on assumptions made at the time our insurance is written.Our mortgage insurance premiums are based on, among other items, the amount of capital we are required to hold against our insured risks and our estimates of the long-term risk of claims on insured loans. Our premium rates are established based on performance models that consider a broad range of borrower, loan and property characteristics, as well as capital requirements and market and economic conditions. Our assumptions may ultimately prove to be inaccurate, especially in a period of high market volatility and economic uncertainty as currently exists due to the pandemic. The risk of inaccurate or 74 unreliable data may have an adverse impact on our ability to effectively perform critical business operations, such as servicing, loss management, external reporting or data-driven internal analysis. The premium structure we apply is subject to approval by state regulatory agencies, which can delay or limit our ability to increase our premiums if further filings or approvals are necessary to institute pricing adjustments. If the risk underlying a mortgage loan that we have insured develops more adversely than we anticipated, we generally cannot increase the premium rates on this in-force business, or cancel coverage or elect not to renew coverage, to mitigate the effects of such adverse developments. Similarly, we cannot adjust our premiums if the amount of capital we are required to hold against our insured risks increases from the amount we were required to hold at the time a policy was written. As a result, if we are unable to compensate for or offset the increased capital requirements in other ways, the returns on our business may be lower than we assumed or expected. Our premiums earned and the associated investment income on those premiums may ultimately prove to be inadequate to compensate for the losses that we may incur and may not provide an adequate return on increased capital that may be required. As a result, our results of operations and financial condition could be negatively impacted. Additionally, in accordance with industry practice, we do not establish reserves in our mortgage insurance business until we are notified that a borrower has failed to make at least two monthly payments when due. Because our mortgage insurance reserving does not account for the impact of future losses that we expect to incur with respect to performing (non-defaulted) loans, our obligation for ultimate losses that we expect to incur at any period end is not reflected in our financial statements, except to the extent that a premium deficiency exists. As discussed above in “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” we anticipate that the pandemic may continue to result in a high volume of new defaults, both as a result of payment forbearance programs and otherwise, in future periods. Future new defaults are not currently reflected in our mortgage insurance loss reserves given that we generally are not permitted to establish reserves in anticipation of such defaults. As a result, our loss reserves could increase significantly in future periods if we continue to experience a high volume of new defaults, which would negatively impact our results of operations and financial condition. The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages. As a seller of mortgage credit protection, our results are subject to macroeconomic conditions and specific events that impact the housing finance and real estate markets, including events that impact mortgage originations and the credit performance of our mortgage insurance portfolio. Many of these conditions are beyond our control, including housing prices, unemployment levels, interest rate changes, the availability of credit and other factors that may be derived from national and regional economic conditions. The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains, lowered certain equity market valuations, created periods of significant volatility and disruption in financial markets, required adjustments in the housing finance system and real estate markets and increased unemployment levels. In general, challenging economic conditions such as we are currently experiencing increases the likelihood that borrowers will be unable to satisfy their mortgage obligations. A deteriorating economy can adversely affect housing values, which in turn can influence the willingness of borrowers to continue to make mortgage payments despite having the financial resources to do so. Mortgage defaults can occur due to a variety of specific events affecting borrowers, including death or illness, divorce or other family problems, unemployment, or other events. In addition, factors impacting regional economic conditions, acts of terrorism, war or other severe conflicts, event-specific economic depressions, natural disasters and other catastrophic events such as the COVID-19 pandemic could result in increased defaults due to the impact of such events on the ability of borrowers to satisfy their mortgage obligations and the value of affected homes. Further, as discussed above under “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” payment forbearance programs available as a result of COVID-19 may continue to result in an elevated level of new defaults. Due to these factors, among others, we expect the COVID-19 pandemic may continue to have a negative impact on the credit performance of our mortgage insurance portfolio, including potential further increases in defaults and losses. The pandemic’s effect on the number of new defaults and level of losses will depend, among other factors, on the pandemic’s scope, severity and duration, its resulting impact on the economy including unemployment levels and housing prices, and the ability of current and any future government programs to provide economic and individual relief, all of which will likely have an impact on borrowers’ ability to remain current on their mortgage payments, and if they have entered into forbearance or other relief programs, to resume making payments upon the expiration of the forbearance period. The expanded unemployment benefits provided under the CARES Act expired July 31, 2020 and, while there has been ongoing congressional debate regarding extension of such benefits, it is unclear if and to what extent the benefits may be continued. Unfavorable macroeconomic developments, including the current ongoing economic uncertainty related to the COVID-19 pandemic and the other factors cited above, may continue to have a material negative impact on our results of operations and a material negative impact on our financial condition. 75 Changes in the charters, business practices, or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses. Our current business model is highly dependent on the GSEs as the GSEs are the primary beneficiaries of most of our mortgage insurance policies. The GSEs’ federal charters generally require credit enhancement for low down payment mortgage loans (i.e., a loan amount that exceeds 80% of a home’s value) in order for such loans to be eligible for purchase by them. Lenders generally have used private mortgage insurance to satisfy this credit enhancement requirement. As a result, low down payment mortgages purchased by the GSEs generally are insured with private mortgage insurance. In order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. The GSEs’ business practices may be impacted by their results of operations, by administrative policy decisions such as supporting the housing finance system during times of stress as is currently occurring as a result of the COVID-19 pandemic, as well as by legislative or regulatory changes, including the CARES Act. Since September 2008, the GSEs have been operating under the conservatorship of the FHFA. Changes in the business practices of the GSEs, which can be implemented by the GSEs acting independently or through their conservator, the FHFA, could negatively impact our businesses and financial performance, including changes to: ■eligibility requirements for a mortgage insurer to become and remain an approved eligible insurer for the GSEs; ■underwriting standards on mortgages they purchase, including as a result of the FHFA’s more recent focus on reducing the GSEs’ risk profile with respect to loans with multiple higher risk characteristics; ■policies or requirements that may result in a reduction in the number of mortgages they acquire; ■the national conforming loan limit for mortgages they acquire; ■the level of mortgage insurance required, including expanding the loans that are eligible for reduced insurance coverage; ■the terms on which mortgage insurance coverage may be canceled before reaching the cancellation thresholds established by law; ■the terms required to be included in master policies for the mortgage insurance policies they acquire, including limitations on our ability to mitigate losses on insured mortgages that are in default; ■the amount of loan level price adjustments (based on risk) or guarantee fees (which may result in a higher cost to borrowers) that the GSEs charge on loans that require mortgage insurance; and ■the degree of influence that the GSEs have over a mortgage lender’s selection of the mortgage insurer providing coverage. In addition, as discussed above under “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” the GSEs’ business practices have changed in response to the COVID-19 pandemic, with the primary objectives of supporting borrowers impacted by the pandemic and protecting the ongoing functioning of the housing finance system. For example, in response to the pandemic, the FHFA and the GSEs have temporarily suspended all foreclosures and evictions; temporarily instituted mortgage forbearance; temporarily streamlined the appraisal, employment verification, and loan closing processes to address frictions in the mortgage origination process created by social distancing and stay-at-home orders; agreed to purchase loans in forbearance subject to significantly increased loan level price adjustments; announced a four-month limit on servicer advance obligations for loans in forbearance; adopted the COVID-19 Amendment to the PMIERs effective June 30, 2020; and provided that loans in COVID-19 forbearance will remain in mortgage-backed securities pools for at least the duration of the forbearance. The significant impact of the COVID-19 pandemic on housing markets and the housing finance system is wide-ranging and unprecedented in scope. As the situation continues to evolve, the actions or potential inactions of the FHFA and GSEs in response to COVID-19 are likely to continue to have a significant impact on the overall functioning of the housing finance system. Because traditional mortgage insurance is an important component of this system and because our businesses depend on the health of the housing finance system and housing markets in particular, these actions have impacted, and may continue to impact our business operations and performance. The FHFA has called for the GSEs to transfer a meaningful portion of credit risk, known as a “credit risk transfer,” to the private sector. This mandate builds upon the goals set in each of the last four years for the GSEs to increase the role of private capital by experimenting with different forms of transactions and structures. We continue to participate in these credit risk transfer programs developed by the GSEs. Additional information about these programs may be found in “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform” and “Item 1. Business—Mortgage Insurance—Mortgage Insurance Business Overview—Mortgage Insurance Products—Other Mortgage Insurance Products—GSE Credit Risk Transfer” in our 2019 Form 10-K. 76 The GSEs have in the past and may in the future pursue new products and activities in pursuit of their business strategies, subject to providing the FHFA with notice of these proposed activities and obtaining prior approval from the FHFA before offering these proposed products in accordance with the Housing and Economic Recovery Act of 2008. The FHFA recently released for comment a proposed rule regarding the process for how it will consider and approve new GSE activities and products. Among other things, the proposed rule would redefine criteria for determining what constitutes a new activity that requires prior notice to the FHFA and for determining whether the activity constitutes a “new product” that merits public notice and comment, describing a new product as “any new activity that FHFA determines merits public notice and comment on matters of compliance with the applicable sections of a [GSE’s] authorizing statute, safety and soundness, or public interest.” It is difficult to predict what types of new products and activities may be proposed in the future and, if applicable, whether they may be approved by the FHFA. If any existing or future credit risk transfer transactions and structures were to displace primary loan level or standard levels of mortgage insurance, the amount of insurance we write may be reduced, which could negatively impact our franchise value, results of operations and financial condition. As a result, the impact of any credit risk transfer products and transactions or other structures implemented by the GSEs is uncertain and hard to predict. For example, in 2018 Freddie Mac and Fannie Mae announced the launch of pilot programs, IMAGIN and EPMI, respectively, as alternative ways for lenders to obtain credit enhancement and sell loans with LTVs greater than 80% to the GSEs. These investor-paid mortgage insurance programs, in which insurance is acquired directly by each GSE, have many of the same features as private mortgage insurance and represent an alternative to traditional private mortgage insurance products that are provided to individual lenders. Participants in IMAGIN and EPMI are not subject to compliance with the PMIERs, which may create a competitive disadvantage for private mortgage insurers if these pilot programs are expanded. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform” in our 2019 Form 10-K. How the private mortgage insurance industry performs though the COVID-19 pandemic, including the resiliency of the industry’s capital position under the PMIERs, could impact the perception of the industry and traditional mortgage insurance execution as the predominant form of first-loss credit protection, which could influence future debates regarding alternative forms of mortgage insurance execution. Since the FHFA was appointed as conservator of the GSEs, there has been a wide range of legislative proposals to reform the U.S. housing finance market, including proposals for GSE reform ranging from nearly complete privatization and elimination of the role of the GSEs to a system that combines a federal role with private capital. In September 2019, the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development (“HUD”) released the Treasury Plan and the HUD Plan to reform the housing finance market, and with respect to the Treasury Plan, to release the GSEs from conservatorship after certain conditions were met. Leadership at the FHFA and HUD have stated that they plan to use the Plans to guide the direction and activities of the GSEs and FHA. With the Plans serving as a roadmap, we expect HUD and FHFA will continue to take actions to shape the role of the FHA and GSEs in the housing finance market and to prepare the GSEs to exit conservatorship. In particular, the FHFA has stated a desire to reduce the GSEs’ exposure to loans with multiple higher risk characteristics in light of the fact that the GSEs currently maintain limited capital positions to support such risk. Following the onset of the COVID-19 pandemic, FHFA leadership has indicated that it remains committed to its path of recapitalizing the GSEs and releasing them from conservatorship. However, with the recent contraction of secondary market execution outside of government supported execution such as the GSEs and FHA and the FHFA’s commitment to continuing to support the housing financial system through the COVID-19 pandemic, the near-term priorities of the FHFA and GSEs remain uncertain and it is unclear if and to what extent the FHFA will continue to advance its reform objectives. As a result, it is difficult to predict when, whether or how the Treasury Plan and HUD Plan may be implemented and what impact actions taken in furtherance of these plans could have on our business, financial condition and results of operations. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform” in our 2019 Form 10-K. As part of its priority to recapitalize the GSEs, the FHFA is seeking to finalize capital requirements for the GSEs. In May 2020, the FHFA issued for comment a re-proposed ECF for the GSEs, which among other things, would: (i) significantly increase the capital requirements of the GSEs; (ii) decrease the capital credit provided to the GSEs by credit risk transfer transactions; and (iii) reduce the overall capital relief extended to the GSEs for loans with private mortgage insurance. The comment period for the re-proposed ECF concluded on August 31, 2020, and we understand the FHFA is currently reviewing these comments and considering proposed changes to the re-proposed ECF. We believe the FHFA is committed to finalizing the ECF in the near term, although the ultimate form and timing of the final rule is uncertain. If the ECF is finalized in its proposed form, the GSEs could be required to increase pricing to produce an acceptable level of returns. In particular, should the FHFA continue to prioritize release of the GSEs from conservatorship, this likely will require them to seek additional capital from private investors. An increase in GSE pricing could make alternatives to the GSEs such as selling loans to the FHA or private securitization market more attractive, which could reduce the GSEs’ market position and reduce the number of loans available for private mortgage insurance. If and when the ECF is finalized, we anticipate that the GSEs will seek to amend the PMIERs financial requirements to align with the final form of the ECF. It remains uncertain when and how the PMIERs will be aligned with the ECF, which as re-proposed, is structured similarly to capital requirements imposed on banks and not insurance companies; however, the changes could include: (i) an increase in the level of Radian Guaranty’s required capital and (ii) a decrease in the amount of PMIERs credit that Radian Guaranty receives for existing or future reinsurance or insurance-linked notes transactions. 77 The future structure of the residential housing finance system remains uncertain, including whether comprehensive housing reform legislation will be adopted and, if so, what form it may ultimately take. It is difficult to predict the impact of any changes on our business. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform” in our 2019 Form 10-K. Although we believe that traditional private mortgage insurance will continue to play an important role in any future housing finance structure, developments in the practices of the GSEs, including potentially new federal legislation that reduces the level of private mortgage insurance coverage used by the GSEs as credit enhancement, or even eliminates the requirement, may diminish the franchise value of our mortgage insurance business and materially and adversely affect our business prospects, results of operations and financial condition. A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our Real Estate business. The amount of new mortgage insurance business we write and real estate transactions we support depends, among other things, on a steady flow of low down payment mortgages that benefit from our mortgage insurance and the volume of real estate transactions that require our services. The volume of mortgage originations is impacted by a number of factors, including: ■restrictions on mortgage credit due to changes in lender underwriting standards, capital requirements affecting lenders, regulatory requirements such as the QM designation for mortgage loans, and the health of the private securitization market; ■mortgage interest rates; ■the health of the domestic economy generally, as well as specific conditions in regional and local economies; ■housing affordability; ■tax laws and policies and their impact on, among other things, deductions for mortgage insurance premiums, mortgage interest payments and real estate taxes; ■demographic trends, including the rate of household formation; ■the rate of home price appreciation; ■government housing policy encouraging loans to first-time homebuyers; and ■the practices of the GSEs, including the extent to which the guaranty fees, loan level price adjustments (based on risk), credit underwriting guidelines and other business terms provided by the GSEs affect the cost of mortgages and lenders’ willingness to extend credit for low down payment mortgages. To date, the housing and real estate markets have been able to withstand the impacts of the COVID-19 pandemic, with markets generally supported by low interest rates, favorable demographics supporting growth in the population of first-time homebuyers and a relatively constrained supply of homes available for sale. However, the ongoing economic impact of the pandemic remains uncertain and unfavorable developments with respect to unemployment, consumer confidence and underwriting standards, as well as the implementation of public and private sector initiatives to reduce the transmission of COVID-19, such as the imposition of restrictions on business activities, could affect the number of new mortgages available for us to insure and real estate transactions available for our services, including as real estate markets confront challenges in the mortgage origination and home sale process created by social distancing and stay-at-home orders. In June 2020, the CFPB issued for comment a proposed definition of qualified mortgage, or QM (“New QM Definition”) that would replace the 43% debt-to-income ratio limit from the current definition of a QM (“Current QM Definition”) with a new pricing-based loan definition such that QM status is achieved only if the loan is priced at no greater than 2% above the Average Prime Offer Rate (“APOR”). The New QM Definition also provides that loans priced at or less than 1.5% above APOR would be provided with legal protection from lawsuits that allege that a lender failed to verify a borrower’s ability to repay the loan (a “safe harbor”), while QM loans priced above the safe harbor threshold would receive a “rebuttable presumption” that the loans met the ability to repay standard. The New QM Definition is intended to replace the current “QM Patch,” which effectively provides that loans eligible for purchase by the GSEs are deemed QM loans regardless of whether they exceed the 43% debt-to-income ratio limitation that exists in the Current QM Definition. On August 18, 2020, the CFPB issued a new proposal to create a new category of QMs (Seasoned QMs) for first-lien, fixed-rate loans that meet certain performance requirements over a 36-month seasoning period and are held in the lender’s portfolio until the end of the seasoning period. The comment periods for these proposals have concluded, and we understand the CFPB is currently considering these comments in finalizing the New QM Definition. On October 20, 2020, the CFPB issued a final rule extending the QM Patch until the New QM Definition becomes effective. The Dodd-Frank Act also granted the FHA, U.S. Department of Veterans Affairs (“VA”) and the U.S. Department of Agriculture flexibility to establish their own definitions of qualified mortgages for their insurance guaranty programs. Both the FHA and VA have created their own definition of qualified mortgages that differ from both the CFPB’s definition and the current underwriting and product guidelines of the GSEs that are subject to the QM Patch. For example, the FHA’s QM safe harbor definition currently applies to loans priced at or less than APOR plus the sum of 115 basis points and the FHA’s annual mortgage 78 insurance premium rate, which is effectively broader than the APOR plus 1.5% safe harbor pricing metric currently being proposed by the CFPB as a replacement to the QM Patch. As a result, these alternate definitions of QM may be more favorable to lenders and mortgage holders than the New QM Definition that would apply to the GSEs upon termination of the QM Patch, which could drive business to these agencies and have a negative impact on our mortgage insurance business. If the overall volume of new mortgage originations declines, we could experience a reduced opportunity to write new insurance business and conduct our real estate services and likely will be subject to increased competition, which could negatively affect our business prospects, results of operations and financial condition. If the estimates we use in establishing loss reserves are incorrect, we may be required to take unexpected charges to income, which could adversely affect our results of operations. We establish loss reserves in our mortgage insurance business to provide for the estimated cost of future claims on defaulted loans. Setting our loss reserves requires significant judgment by management with respect to the likelihood, magnitude and timing of each potential loss, including an estimate of the impact of our Loss Mitigation Activities with respect to defaulted loans. The models, assumptions and estimates we use to establish loss reserves may not prove to be accurate, especially in the event of an extended economic downturn or a period of extreme market volatility and uncertainty such as we are currently experiencing due to the COVID-19 pandemic. Because of this, claims paid may be substantially different than our loss reserves and these reserves may be insufficient to satisfy the full amount of claims that we ultimately have to pay. Changes to our estimates could adversely impact our results of operations and financial condition. As discussed above in “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” we experienced a material increase in new defaults following the onset of the pandemic and we anticipate that the pandemic may continue to result in a high volume of new defaults, both as a result of payment forbearance programs and otherwise. Future new defaults are not currently reflected in our mortgage insurance loss reserves given that we generally are not permitted to establish reserves in anticipation of such defaults. As a result, our loss reserves could increase significantly in future periods if we continue to experience a high volume of new defaults, which would negatively impact our results of operations and financial condition. In response to the pandemic, numerous federal and state governmental and regulatory agencies have instituted borrower relief programs, including payment and foreclosure forbearance, with the objective of supporting borrowers through the economic turmoil resulting from the pandemic and allowing borrowers to remain in their homes. In addition to the mortgage payment forbearance relief discussed above in “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” the CARES Act also instituted a temporary foreclosure moratorium on GSE loans. As a result of COVID-19-related relief programs, we anticipate that defaults related to the pandemic, if not cured, could remain in our default loan inventory for a protracted period of time, resulting in a higher likelihood of claim for loans in default for an extended period of time and higher levels of Claim Severity for those loans that ultimately result in a claim. A portion of the defaulted loans in our portfolio originated in the years prior to and including 2008 have been in default for an extended period of time. While these loans are generally assigned a higher loss reserve based on our belief that they are more likely to result in a claim, we also assume, based on historical trends, that a significant portion of these loans will cure or otherwise not result in a claim. Given the significant period of time that these loans have been in default, it is possible that the ultimate cure rate for these defaulted loans will be less than our current estimates of Cures for this inventory of defaults, due to the negative impacts of the COVID-19 pandemic or otherwise. If our loss reserve estimates are inadequate, we may be required to increase our reserves, which could have a material adverse effect on our results of operations and financial condition The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company. Radian Guaranty has been assigned a rating of Baa1 by Moody’s, a rating of BBB+ by S&P and a rating of A- by Fitch. While Radian Guaranty’s financial strength ratings currently are investment grade, certain of these ratings are below the ratings assigned to certain other private mortgage insurers. We do not believe our ratings have had a material adverse effect on our relationships with existing customers. However, if financial strength ratings become a more prominent consideration for lenders, we may be competitively disadvantaged by customers choosing to do business with private mortgage insurers that have higher financial strength ratings. In addition, the current PMIERs do not include a specific ratings requirement with respect to eligibility, but if this were to change in the future, we may become subject to a ratings requirement in order to retain our eligibility status under the PMIERs. The GSEs currently consider financial strength ratings, among other items, to determine the amount of collateral that an insurer must post when participating in the credit risk transfer transactions currently being conducted by the GSEs. As a result, the returns that we are able to achieve when participating in these transactions are dependent, in part, on our financial strength ratings. We currently use Radian Reinsurance to participate in the GSEs’ credit risk transfer transactions. Radian Reinsurance 79 has been assigned a rating of BBB+ by S&P. Market participants with higher ratings than us are assigned lower collateral requirements by the GSEs for these transactions and generally have a lower cost of capital, which may give them a competitive advantage, including the ability to price more aggressively for these transactions. We believe that financial strength ratings remain a significant consideration for participants seeking to secure credit enhancement in the non-GSE mortgage market, which includes most non-QM loans. While this market has remained limited since the financial crisis and has further contracted as a result of COVID-19, we view this market as an area of potential long-term future growth, which could be further accelerated by proposed changes to the QM rule currently under consideration by the CFPB, and our ability to successfully participate in this market could depend on our ability to secure higher ratings for our mortgage insurance subsidiaries. In addition, if legislative or regulatory changes were to alter the current state of the housing finance industry such that the GSEs no longer operate in their current capacity, we may be forced to compete in a new marketplace in which financial strength ratings may play a greater role. The rating agencies continually review the financial strength ratings assigned to Radian Group and its mortgage insurance subsidiaries, and the ratings are subject to change. The COVID-19 pandemic and its impact on our financial results and condition, could cause one or more of the rating agencies to downgrade the ratings assigned to Radian Group and its mortgage insurance subsidiaries. Currently, S&P and Fitch have assigned a negative outlook for the financial strength ratings assigned to our mortgage insurance subsidiaries and Radian Group senior debt. Downgrades to the ratings of our mortgage insurance subsidiaries and Radian Group could adversely affect our cost of funds, liquidity, access to capital markets and competitive position. If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our mortgage insurance subsidiaries, the franchise value and future prospects for our mortgage insurance business could be negatively affected. Our success depends, in part, on our ability to manage risks in our investment portfolio. Our investment portfolio is an important source of revenue and is our primary source of claims paying resources. Although our investment portfolio consists primarily of highly-rated fixed income investments, our investment strategy 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, the level and volatility of interest rates and credit spreads and, consequently, the value of our fixed income securities, and as such, we may not achieve our investment objectives. Volatility or lack of liquidity in the markets in which we invest has at times reduced, and we expect that it will continue to reduce, the market value of some of our investments as a result of the disruption in the financial markets due to the COVID-19 pandemic. In addition, if the credit environment experiences additional deterioration, the risk of impairments of our investments could increase. LIBOR, U.S. Treasury yields and credit spreads have declined, which could further lower investment yields. If the financial markets experience additional disruption and volatility as a result of the COVID-19 pandemic or otherwise, it could have a material adverse effect on our liquidity, financial condition and results of operations. Interest rates and investment yields on our investments continue to be low compared to historical averages, which has reduced the investment income we generate. For the significant portion of our investment portfolio held by our insurance subsidiaries, to receive favorable treatment under insurance regulatory requirements and full asset credit under the PMIERs, we generally are limited to investing in investment grade fixed income investments that are unlikely to increase our investment yields. Because we depend on our investments as a source of revenue, a prolonged period of lower than expected investment yields would have an adverse impact on our revenues and could potentially adversely affect our results of operations. Further, future updates to the Model Act or PMIERs could restrict our investment choices, which could negatively impact our investment strategy. In addition, we structure our investment portfolio to satisfy our expected liabilities, including claim payments in our mortgage insurance business. If we underestimate our liabilities or improperly structure our investments to meet these liabilities, as a result of COVID-19 or otherwise, we could have unexpected losses resulting from the forced liquidation of investments before their maturity, which could adversely affect our results of operations. Item 2. Unregistered Sales of Equity Securities and Use of Issuance of Unregistered Securities During the three and nine months ended September 30, 80 Issuer Purchases of Equity Securities The following table provides information about purchases of Radian Group common stock by us (and our affiliated purchasers) during the three months ended September 30,
Item 6. Exhibits
______________________ * Filed herewith. ** Furnished herewith. 81 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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