Company Quick10K Filing
Quick10K
Radian Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$22.68 208 $4,720
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-06-30 Quarter: 2015-06-30
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-06-30 Quarter: 2014-06-30
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-20 Off-BS Arrangement, Other Events, Exhibits
8-K 2019-06-13 Other Events, Exhibits
8-K 2019-06-13 Other Events, Exhibits
8-K 2019-05-15 Officers, Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-12 Officers, Other Events
8-K 2019-04-08 Enter Agreement, Exhibits
8-K 2019-03-19 Officers, Other Events, Exhibits
8-K 2019-03-19 Leave Agreement, Shareholder Rights, Amend Bylaw, Exhibits
8-K 2019-02-08 Earnings, Exhibits
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-14 Officers
8-K 2018-11-06 Other Events
8-K 2018-10-30 Other Events
8-K 2018-10-26 Earnings, Off-BS Arrangement, Exhibits
8-K 2018-08-16 Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-18 Exhibits
8-K 2018-05-15 Officers
8-K 2018-05-09 Officers
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-01 Earnings, Exhibits
CVI CVR Energy 4,410
VRTS Virtus Investment Partners 823
ACOR Acorda Therapeutics 559
EFC Ellington Financial 541
CTG Computer Task Group 64
IGC India Globalization Capital 51
TYHT Shineco 25
RTE Red Trail Energy 0
NFEC NF Energy Saving 0
MLAF Aspect Futuresaccess 0
RDN 2019-03-31
Part I-Financial Information
Item 1. Financial Statements (Unaudited)
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 Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits
EX-31.2 rdn-ex3120190331.htm
EX-32.2 rdn-ex3220190331.htm

Radian Group Earnings 2019-03-31

RDN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

RDN.10Q.03.31.2019
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-11356
_______________________________
image00radianlogo0319.jpg
Radian Group Inc.
(Exact name of registrant as specified in its charter)
_______________________________
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)
(215) 231-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Securities registered pursuant to Section 12(b) of the Act:
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 208,020,528 shares of common stock, $0.001 par value per share, outstanding on May 6, 2019.



 
TABLE OF CONTENTS
 
 
 
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Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 


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Table of Contents

GLOSSARY OF ABBREVIATIONS AND ACRONYMS
The following list defines various abbreviations and acronyms used throughout this report, including the Condensed Consolidated Financial Statements, the Notes to Unaudited Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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
ABS
Asset-backed securities
Alt-A
Alternative-A loans, representing loans for which the underwriting documentation is generally limited as compared to fully documented loans (considered a non-prime loan grade)
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
Back-end
With respect to credit risk transfer programs established by the GSEs, policies written on loans that are already part of an existing GSE portfolio, as contrasted with loans that are to be purchased by the GSEs in the future
Borrower
With respect to our securities lending agreements, the third-party institutions to which we loan certain securities in our investment portfolio for short periods of time
CCF
Conservatorship Capital Framework
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 Holdings LLC, a subsidiary of Radian Group
Clayton Intercompany Note
A $300 million note payable from Radian Mortgage Services Inc. (formerly Clayton Group Holdings Inc.) to Radian Group (with terms consistent with the terms of our Senior Notes due 2019 that were used to fund our purchase of Clayton)
CMBS
Commercial mortgage-backed securities
Cures
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
Eagle Re 2018-1
Eagle Re 2018-1 Ltd., an unaffiliated special purpose reinsurer (a VIE) domiciled in Bermuda
Eagle Re 2019-1
Eagle Re 2019-1 Ltd., an unaffiliated special purpose reinsurer (a VIE) domiciled in Bermuda
EnTitle Direct
EnTitle Direct Group, Inc., a subsidiary of Radian Group, acquired in March 2018
EnTitle Insurance
EnTitle Insurance Company, an Ohio domiciled insurance subsidiary of EnTitle Direct
Excess-of-Loss Program
The credit risk protection obtained by Radian Guaranty in November 2018, including: (i) the excess-of-loss reinsurance agreement with Eagle Re 2018-1, in connection with the issuance by Eagle Re 2018-1 of mortgage insurance-linked notes, and (ii) a separate excess-of-loss reinsurance agreement with a third-party reinsurer. Excess-of-loss reinsurance is a type of reinsurance that indemnifies the ceding company against loss in excess of a specific agreed limit, up to a specified sum. Effective in April 2019, it also includes the new credit risk protection obtained through an excess-of-loss reinsurance agreement with Eagle Re 2019-1.
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)


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Table of Contents

Term
Definition
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
FEMA Designated Area
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
Five Bridges
Five Bridges Advisors, LLC. Radian acquired the assets of Five Bridges in December 2018
Foreclosure Stage Default
The Stage of Default indicating that the foreclosure sale has been scheduled or held
Freddie Mac
Federal Home Loan Mortgage Corporation
Front-end
With respect to credit risk transfer programs established by the GSEs, policies written on loans that are to be purchased by the GSEs in the future, as contrasted with loans that are already part of an existing GSE portfolio
GAAP
Generally accepted accounting principles in the U.S., as amended from time to time
Green River Capital
Green River Capital LLC, a subsidiary of Clayton
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
Independent Settlement Services
Independent Settlement Services, LLC, a subsidiary of Radian Group, acquired in November 2018
IRC
Internal Revenue Code of 1986, as amended
IRS
Internal Revenue Service
IRS Matter
Our dispute with the IRS that we settled and fully resolved in the second quarter of 2018 that was related to the assessed tax liabilities, penalties and interest from the IRS’s examination of our 2000 through 2007 consolidated federal income tax returns.
LAE
Loss adjustment expenses, which include the cost of investigating and adjusting losses and paying claims
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 and the 2014 Master Policy, together
Minimum Required Assets
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
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


4


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Term
Definition
Monthly Premium Policies
Insurance policies where premiums are paid on a monthly installment basis
Moody’s
Moody’s Investors Service
Mortgage Insurance
Radian’s mortgage insurance business segment, which provides credit-related insurance coverage, principally through private mortgage insurance on residential first-lien mortgage loans, as well as other credit risk management solutions to mortgage lending institutions and mortgage credit investors
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
NAIC
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
PMIERs 1.0
The original PMIERs effective on December 31, 2015
PMIERs 2.0
The revised PMIERs issued by the GSEs on September 27, 2018, which became effective on March 31, 2019
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,” 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
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
Radian Settlement Services
Radian Settlement Services Inc., a subsidiary of Clayton, formerly known as ValuAmerica, Inc.
RBC States
Risk-based capital states, which are those states that currently impose a statutory or regulatory risk-based capital requirement
Red Bell
Red Bell Real Estate, LLC, a subsidiary of Clayton
Reinstatements
Reversals of previous Rescissions, Claim Denials and Claim Curtailments
REMIC
Real Estate Mortgage Investment Conduit
REO
Real estate owned
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


5


Table of Contents

Term
Definition
S&P
Standard & Poor’s Financial Services LLC
SAPP
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 2019
Our 5.500% unsecured senior notes due June 2019 ($300 million original principal amount)
Senior Notes due 2020
Our 5.250% unsecured senior notes due June 2020 ($350 million original principal amount)
Senior Notes due 2021
Our 7.000% unsecured senior notes due March 2021 ($350 million original principal amount)
Senior Notes due 2024
Our 4.500% unsecured senior notes due October 2024 ($450 million original principal amount)
Services
Radian’s Services business segment, which is primarily a fee-for-service business that offers a broad array of mortgage, real estate and title services to market participants across the mortgage and real estate value chain
Single Premium NIW / RIF / IIF
NIW, RIF or IIF, respectively, on Single Premium Policies
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 and the 2018 Single Premium QSR Agreement, together
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 Note
An intercompany 0.000% surplus note issued by Radian Guaranty to Radian Group
Time in Default
The time period from the point a loan reaches default status (based on the month the default occurred) to the current reporting date
U.S.
The United States of America
U.S. Treasury
United States Department of the Treasury
VA
U.S. Department of Veterans Affairs
VIE
Variable interest entity


6


Table of Contents
Glossary

Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions
All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the U.S. Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as “anticipate,” “may,” “will,” “could,” “should,” “would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “seek,” “strategy,” “future,” “likely” or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment where new risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, without limitation:
changes in economic and political conditions that impact the size of the insurable market, the credit performance of our insured portfolio, and our business prospects;
changes in the way customers, investors, ratings agencies, regulators or legislators perceive our performance, financial strength and future prospects;
Radian Guaranty’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the FHFA and by the GSEs to insure loans purchased by the GSEs, including potential future changes to the PMIERs which, among other things, may be impacted by the general economic environment and housing market, as well as the proposed CCF that would establish capital requirements for the GSEs, if the CCF is finalized;
our ability to successfully execute and implement our capital plans, including our risk distribution strategy through the capital markets and reinsurance markets, and to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs;
our ability to successfully execute and implement our business plans and strategies, including plans and strategies to reposition and grow our Services segment as well as plans and strategies that require GSE and/or regulatory approvals and licenses;
our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements;
changes in the charters or business practices of, or rules or regulations imposed by or applicable to, the GSEs, which may include changes in the requirements to remain an approved insurer to the GSEs, the GSEs’ interpretation and application of the PMIERs, as well as changes impacting loans purchased by the GSEs, such as the GSEs’ requirements regarding mortgage credit and loan size and the GSEs’ pricing;
changes in the current housing finance system in the U.S., including the role of the FHA, the GSEs and private mortgage insurers in this system;
any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
a decrease in the Persistency Rates of our mortgage insurance on monthly premium products;
competition in our mortgage insurance business, including price competition and competition from the FHA and VA as well as from other forms of credit enhancement, including GSE sponsored alternatives to traditional mortgage insurance;
the effect of the Dodd-Frank Act on the financial services industry in general, and on our businesses in particular, including future changes to the Qualified Mortgage (QM) loan requirements;
legislative and regulatory activity (or inactivity), including the adoption of (or failure to adopt) new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted or applied;
legal and regulatory claims, assertions, actions, reviews, audits, inquiries and investigations that could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures, increased reserves or have other effects on our business;


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the amount and timing of potential settlements, payments or adjustments associated with federal or other tax examinations;
the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in establishing loss reserves for our mortgage insurance business or to accurately calculate and/or project our Available Assets and Minimum Required Assets under the PMIERs, which will be impacted by, among other things, the size and mix of our IIF, the level of defaults in our portfolio, the level of cash flow generated by our insurance operations and our risk distribution strategies;
volatility in our financial results caused by changes in the fair value of our assets and liabilities, including our investment portfolio;
potential future impairment charges related to our goodwill and other acquired intangible assets;
changes in GAAP or SAPP rules and guidance, or their interpretation;
our ability to attract and retain key employees; and
legal and other limitations on amounts we may receive from our subsidiaries, including dividends or ordinary course distributions under our internal tax- and expense-sharing arrangements.
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, and to subsequent reports filed from time to time with the SEC. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.


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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)


9



Radian Group Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($ in thousands, except per-share amounts)
March 31,
2019
 
December 31,
2018
 
 
 
 
Assets
 
 
 
Investments (Note 5)
 
 
 
Fixed-maturities available for sale—at fair value (amortized cost $3,875,919 and $4,098,962)
$
3,897,584

 
$
4,021,575

Trading securities—at fair value
383,992

 
469,071

Equity securities—at fair value (cost of $125,153 and $139,377)
125,025

 
130,565

Short-term investments—at fair value (includes $6,233 and $11,699 of reinvested cash collateral held under securities lending agreements)
1,066,110

 
528,403

Other invested assets—at fair value
3,059

 
3,415

Total investments
5,475,770

 
5,153,029

Cash
118,668

 
95,393

Restricted cash
9,086

 
11,609

Accounts and notes receivable
89,237

 
78,652

Deferred income taxes, net (Note 9)
67,697

 
131,643

Goodwill and other acquired intangible assets, net (Note 6)
56,811

 
58,998

Prepaid reinsurance premium
408,622

 
417,628

Other assets (Note 8)
373,678

 
367,700

Total assets
$
6,599,569

 
$
6,314,652

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Unearned premiums
$
720,159

 
$
739,357

Reserve for losses and loss adjustment expense (Note 10)
388,784

 
401,361

Senior notes (Note 11)
1,031,197

 
1,030,348

Reinsurance funds withheld
329,868

 
321,212

Other liabilities (Note 12)
419,470

 
333,659

Total liabilities
2,889,478

 
2,825,937

Commitments and contingencies (Note 13)

 

Stockholders’ equity
 
 
 
Common stock: par value $0.001 per share; 485,000 shares authorized at March 31, 2019 and December 31, 2018; 229,817 and 231,132 shares issued at March 31, 2019 and December 31, 2018, respectively; 212,136 and 213,473 shares outstanding at March 31, 2019 and December 31, 2018, respectively
230

 
231

Treasury stock, at cost: 17,681 and 17,660 shares at March 31, 2019 and December 31, 2018, respectively
(895,321
)
 
(894,870
)
Additional paid-in capital
2,697,724

 
2,724,733

Retained earnings
1,889,964

 
1,719,541

Accumulated other comprehensive income (loss) (Note 15)
17,494

 
(60,920
)
Total stockholders’ equity
3,710,091

 
3,488,715

Total liabilities and stockholders’ equity
$
6,599,569

 
$
6,314,652





See Notes to Unaudited Condensed Consolidated Financial Statements.
Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
Three Months Ended
March 31,
(In thousands, except per-share amounts)
2019

2018
Revenues:
 
 
 
Net premiums earned—insurance
$
263,512


$
242,550

Services revenue
32,753


33,164

Net investment income
43,847

 
33,956

Net gains (losses) on investments and other financial instruments
21,913

 
(18,887
)
Other income
1,604

 
807

Total revenues
363,629

 
291,590

Expenses:
 
 
 
Provision for losses
20,754

 
37,283

Policy acquisition costs
5,893

 
7,117

Cost of services
24,157

 
23,126

Other operating expenses
78,805

 
63,243

Restructuring and other exit costs

 
551

Interest expense
15,697

 
15,080

Amortization and impairment of other acquired intangible assets
2,187


2,748

Total expenses
147,493

 
149,148

Pretax income
216,136


142,442

Income tax provision
45,179

 
27,956

Net income
$
170,957


$
114,486

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.80

 
$
0.53

Diluted
$
0.78

 
$
0.52

 
 
 


Weighted-average number of common shares outstanding—basic
213,537

 
215,967

Weighted-average number of common and common equivalent shares outstanding—diluted
218,343

 
219,883



















See Notes to Unaudited Condensed Consolidated Financial Statements.


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Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
 
 
 
 
Net income
$
170,957

 
$
114,486

Other comprehensive income (loss), net of tax (Note 15):
 
 
 
Unrealized gains (losses) on investments:
 
 
 
Unrealized holding gains (losses) arising during the period
78,023

 
(60,643
)
Less: Reclassification adjustment for net gains (losses) included in net income
(391
)
 
(3,132
)
Net unrealized gains (losses) on investments
78,414

 
(57,511
)
Unrealized foreign currency translation adjustments

 
3

Other comprehensive income (loss), net of tax
78,414

 
(57,508
)
Comprehensive income
$
249,371

 
$
56,978





































See Notes to Unaudited Condensed Consolidated Financial Statements.


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Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY (UNAUDITED)
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Common Stock
 
 
 
Balance, beginning of period
$
231

 
$
233

Shares repurchased under share repurchase program (Note 14)
(1
)
 

Balance, end of period
230

 
233

 
 
 
 
Treasury Stock
 
 
 
Balance, beginning of period
(894,870
)
 
(893,888
)
Repurchases of common stock under incentive plans
(451
)
 
(303
)
Balance, end of period
(895,321
)
 
(894,191
)
 
 
 
 
Additional Paid-in Capital
 
 
 
Balance, beginning of period
2,724,733

 
2,754,275

Issuance of common stock under incentive and benefit plans
1,069

 
1,433

Share-based compensation
3,695

 
2,528

Shares repurchased under share repurchase program (Note 14)
(31,773
)
 
(10,003
)
Balance, end of period
2,697,724

 
2,748,233

 
 
 
 
Retained Earnings
 
 
 
Balance, beginning of period
1,719,541

 
1,116,333

Net income
170,957

 
114,486

Dividends declared
(534
)
 
(540
)
Cumulative effect of adopting the accounting standard update for financial instruments

 
2,061

Cumulative effect of adopting the accounting standard update for the reclassification of certain tax effects from accumulated other comprehensive income

 
(2,724
)
Balance, end of period
1,889,964

 
1,229,616

 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Balance, beginning of period
(60,920
)
 
23,085

Cumulative effect of adopting the accounting standard update for financial instruments

 
224

Cumulative effect of adopting the accounting standard update for the reclassification of certain tax effects from accumulated other comprehensive income

 
2,724

Net unrealized gains (losses) on investments, net of tax
78,414

 
(57,511
)
Net foreign currency translation adjustment, net of tax

 
3

Balance, end of period
17,494

 
(31,475
)
 
 
 
 
Total Stockholders’ Equity
$
3,710,091

 
$
3,052,416









See Notes to Unaudited Condensed Consolidated Financial Statements.


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Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
 
 
(In thousands)
Three Months Ended
March 31,
2019
 
2018
Cash flows from operating activities:
 
 
 
Net cash provided by (used in) operating activities
$
217,778

 
$
118,447

Cash flows from investing activities:
 
 
 
Proceeds from sales of:
 
 
 
Fixed-maturity investments available for sale
435,709

 
224,597

Trading securities
70,083

 
11,964

Equity securities
33,278

 
55,795

Proceeds from redemptions of:
 
 
 
Fixed-maturity investments available for sale
79,915

 
94,356

Trading securities
23,293

 
17,890

Purchases of:
 
 
 
Fixed-maturity investments available for sale
(275,531
)
 
(482,260
)
Equity securities
(19,767
)
 
(19,994
)
Sales, redemptions and (purchases) of:
 
 
 
Short-term investments, net
(526,013
)
 
(17,217
)
Other assets and other invested assets, net
349

 
92

Purchases of property and equipment, net
(6,659
)
 
(4,702
)
Acquisitions, net of cash acquired

 
(261
)
Net cash provided by (used in) investing activities
(185,343
)
 
(119,740
)
Cash flows from financing activities:
 
 
 
Dividends paid
(534
)
 
(540
)
Issuance of common stock
363

 
663

Purchase of common shares
(31,774
)
 
(10,003
)
Credit facility commitment fees paid
(234
)
 
(185
)
Change in secured borrowings, net (with terms less than 3 months)
21,534

 
38,719

Proceeds from secured borrowings (with terms greater than 3 months)
6,000

 
6,550

Payments of secured borrowings (with terms greater than 3 months)
(7,000
)
 

Repayment of other borrowings
(38
)
 
(50
)
Net cash provided by (used in) financing activities
(11,683
)
 
35,154

Effect of exchange rate changes on cash and restricted cash

 
(1
)
Increase (decrease) in cash and restricted cash
20,752

 
33,860

Cash and restricted cash, beginning of period
107,002

 
96,244

Cash and restricted cash, end of period
$
127,754

 
$
130,104








See Notes to Unaudited Condensed Consolidated Financial Statements.


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Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
______________________________________________________________________________________________________


1. Condensed Consolidated Financial Statements—Business Overview, Recent Developments and Significant Accounting Policies
Business Overview
We are a diversified mortgage and real estate services business, providing both credit-related insurance coverage and other credit risk management solutions, as well as a broad array of mortgage, real estate and title services. We have two reportable business segments—Mortgage Insurance and Services.
Mortgage Insurance
Our Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance on residential first-lien mortgage loans, as well as other credit risk management solutions, to mortgage lending institutions and mortgage credit investors. We provide our mortgage insurance products and services mainly through our wholly-owned subsidiary, Radian Guaranty. Private mortgage insurance plays an important role in the U.S. housing finance system because it promotes affordable home ownership and helps protect mortgage lenders, investors and other beneficiaries by mitigating default-related losses on residential mortgage loans. Generally, these loans are made to home buyers who make down payments of less than 20% of the purchase price for their home or, in the case of refinancings, have less than 20% equity in their home. Private mortgage insurance also facilitates the sale of these low down payment loans in the secondary mortgage market, most of which are currently sold to the GSEs. Our total direct primary mortgage insurance RIF was $57.4 billion as of March 31, 2019.
The GSEs and state insurance regulators impose various capital and financial requirements on our insurance subsidiaries. These include Risk-to-capital, other risk-based capital measures and surplus requirements, as well as the PMIERs financial requirements discussed below. Failure to comply with these capital and financial requirements may limit the amount of insurance that our mortgage insurance subsidiaries may write or prohibit our mortgage insurance subsidiaries from writing insurance altogether. The GSEs and state insurance regulators also possess significant discretion with respect to our mortgage insurance subsidiaries and all aspects of their business. See Note 16 for additional regulatory information.
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. At March 31, 2019, Radian Guaranty is an approved mortgage insurer under the PMIERs and is in compliance with the current PMIERs financial requirements. The PMIERs financial requirements require that a mortgage insurer’s Available Assets meet or exceed its Minimum Required Assets. The GSEs may amend the PMIERs at any time, and they have broad discretion to interpret the requirements, which could impact the calculation of Radian Guaranty’s Available Assets and/or Minimum Required Assets.
The PMIERs are comprehensive, covering virtually all aspects of the business and operations of a private mortgage insurer, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer, as well as the approved insurer’s financial condition. In addition, the GSEs have a broad range of consent rights under the PMIERs and require private mortgage insurers to obtain the prior consent of the GSEs before taking certain actions, which may include entering into various intercompany agreements and commuting or reinsuring risk, among others. 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.
From time to time, we enter into reinsurance transactions as a component of our long-term risk distribution strategy to manage our capital position and risk profile, which includes managing Radian Guaranty’s capital position under the PMIERs financial requirements. The credit that we receive under the PMIERs financial requirements for these transactions is subject to initial and ongoing review by the GSEs.
Services
Our Services segment is primarily a fee-for-service business that offers a broad array of services to market participants across the mortgage and real estate value chain. These services comprise mortgage services, real estate services and title services, including technology and turn-key solutions, that provide information and other resources used to originate, evaluate, acquire, securitize, service and monitor residential real estate and loans secured by residential real estate. These services are primarily provided to mortgage lenders, financial institutions, investors and government entities. In addition, we provide title insurance to mortgage lenders as well as directly to borrowers.


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Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


Our mortgage services help loan originators and investors evaluate, acquire, surveil and securitize mortgages. These services include loan review, RMBS securitization and distressed asset reviews, review and valuation services related to single family rental properties, servicer and loan surveillance and underwriting. Our real estate services help lenders, investors and real estate agents evaluate, manage, monitor and sell properties. These real estate services include software as a service solutions and platforms, as well as managed services, such as REO asset management, real estate valuation services and real estate brokerage services. Our title services provide a comprehensive suite of title insurance products, title settlement services and both traditional and digital closing services.
2019 Developments
Capital and Liquidity Actions. On March 20, 2019, Radian Group’s board of directors approved a $150 million increase in authorization for the Company’s existing share repurchase plan, bringing the total authorization to repurchase shares up to $250 million, excluding commissions. During the three months ended March 31, 2019, the Company purchased 1,546,674 shares at an average price of $20.54 per share, including commissions. At March 31, 2019, purchase authority of up to $218.2 million remained available under this program, which expires on July 31, 2020. Subsequent to March 31, 2019, we purchased 4,131,329 shares of our common stock under this program at an average price of $21.94 per share, including commissions. See Note 14 for additional details on our share repurchase program.
In April 2019, the Pennsylvania Insurance Department approved a $375 million distribution of capital from Radian Guaranty to Radian Group, which was paid on April 30, 2019 in the form of cash and marketable securities. See Note 16 for a discussion of this distribution of capital.
Reinsurance. In April 2019, Radian Guaranty entered into a fully collateralized reinsurance agreement with Eagle Re 2019-1. Eagle Re 2019-1 is a VIE and is not a subsidiary or affiliate of Radian Guaranty. This reinsurance agreement provides for up to $562.0 million of aggregate excess-of-loss reinsurance coverage for the mortgage insurance losses on new defaults on an existing portfolio of eligible Recurring Premium Policies issued between January 1, 2018 and December 31, 2018, with an initial RIF of $10.7 billion. Eagle Re 2019-1 financed its coverage by issuing mortgage insurance-linked notes in an aggregate amount of $562.0 million to eligible third-party capital markets investors in an unregistered private offering. See Note 7 for additional details on our reinsurance programs.
Significant Accounting Policies
Basis of Presentation
Our condensed consolidated financial statements are prepared in accordance with GAAP and include the accounts of Radian Group Inc. and its subsidiaries. All intercompany accounts and transactions, and intercompany profits and losses, have been eliminated. We have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP pursuant to the instructions set forth in Article 10 of Regulation S-X of the SEC.
We refer to Radian Group Inc. together with its consolidated subsidiaries as “Radian,” the “Company,” “we,” “us” or “our,” unless the context requires otherwise. We generally refer to Radian Group Inc. alone, without its consolidated subsidiaries, as “Radian Group.” Unless otherwise defined in this report, certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report.
The financial information presented for interim periods is unaudited; however, such information reflects all adjustments that are, in the opinion of management, necessary for the fair statement of the financial position, results of operations, comprehensive income and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2018 Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. While the amounts


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Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


included in our condensed consolidated financial statements include our best estimates and assumptions, actual results may vary materially.
Other Significant Accounting Policies
See Note 2 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for information regarding other significant accounting policies. There have been no significant changes in our significant accounting policies from those discussed in our 2018 Form 10-K, other than described below in “—Leases” and “—Recent Accounting Pronouncements—Accounting Standards Adopted During 2019.
Leases
We determine if an arrangement includes a lease at inception. A right of use asset and lease liability is recognized for operating leases and is included in other assets and other liabilities, respectively, in our condensed consolidated balance sheet at March 31, 2019. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Right of use assets are recognized net of any payments made or received from the lessor. In determining the net present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date or as of our date of adoption, January 1, 2019.
Lease expense is recognized on a straight-line basis over the expected lease term. For lease agreements entered into after the adoption of this accounting standard that include lease and non-lease components, such components are generally not accounted for separately. For our building leases, as a result of us having elected to adopt the package of practical expedients permitted under the transition guidance, we account for the lease and non-lease components, such as common area maintenance charges, as a single lease component. We have elected the short-term exemption for contracts with lease terms of 12 months or less. Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance.
Our lease agreements primarily relate to operating leases for office space we use in our operations. Certain of our leases include renewal options and/or termination options that we did not consider in the determination of the right-of-use asset or the lease liability as we did not consider it reasonably certain that we would exercise such options. Our lease agreements do not contain any variable lease payments, material residual value guarantees or material restrictive covenants. We do not have material sublease agreements. As of March 31, 2019, there were no leases which had not yet commenced but that create significant rights and obligations for us. See Note 12 for more information about our lease agreements.
Recent Accounting Pronouncements
Accounting Standards Adopted During 2019. In February 2016, the FASB issued an update that replaces the existing accounting and disclosure requirements for leases of property, plant and equipment, which requires lessees to recognize, as of the lease commencement date, assets and liabilities for all leases with lease terms of more than 12 months. Leases are required to be classified as either operating or finance, with expense on operating leases recorded as a single lease cost on a straight-line basis. For finance leases, interest expense on the lease liability is required to be recognized separately from the straight-line amortization of the right-of-use asset.
We elected the optional transition method, which requires the recognition of a cumulative-effect adjustment as of the beginning of the period of adoption, and we also elected the practical expedients for transitioning existing leases to the new standard as of the effective date. As a result of applying the practical expedients: (i) we did not reassess expired or existing contracts to determine if they contain additional leases; (ii) we did not reassess the lease classification for expired and existing leases; and (iii) we did not reassess initial direct costs for existing leases. Our adoption of this update, effective January 1, 2019, resulted in our recording an increase in other liabilities of $73.5 million, and a corresponding increase in other assets. The increase to other assets was partially offset by an adjustment for unamortized allowances and incentives of $24.1 million, resulting in a right of use asset of $49.4 million. The increase in other liabilities represents a discounted lease liability from operating leases, primarily for our various facilities, which represents the present value of these future lease payments discounted at our incremental borrowing rate. Additionally, we expanded our financial statement disclosures as required by the amendments. Our adoption of this standard did not impact our stockholders’ equity, results of operations or liquidity. See above for a discussion of our accounting policy regarding leases and Note 12.
In March 2017, the FASB issued an update to the accounting standard regarding receivables. The new standard requires certain premiums on purchased callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount will not be impacted. The provisions of this update are effective for fiscal years


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Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this update did not have a material effect on our financial statements and disclosures.
Accounting Standards Not Yet Adopted. In June 2016, the FASB issued an update to the accounting standard regarding the measurement of credit losses on financial instruments. This update requires that financial assets measured at their amortized cost basis be presented at the net amount expected to be collected. Credit losses relating to available-for-sale debt securities are to be recorded through an allowance for credit losses, rather than a write-down of the asset, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. This update is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This update is not applicable to credit losses associated with our mortgage insurance policies. We are currently evaluating the impact on our financial statements and future disclosures as a result of this update.
In August 2018, the FASB issued an update to the accounting standard regarding long-duration insurance contracts. The new standard: (i) requires that assumptions used to measure the liability for future policy benefits be reviewed at least annually; (ii) defines and simplifies the measurement of market risk benefits; (iii) simplifies the amortization of deferred acquisition costs; and (iv) enhances the required disclosures about long-duration contracts. This update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of the adoption of this update and do not expect it to have a material effect on our financial statements and disclosures.
In August 2018, the FASB issued an update to the accounting standard regarding the capitalization of implementation costs for activities performed in a cloud computing arrangement that is a service contract. The new standard aligns the accounting for implementation costs of hosting arrangements that are service contracts with the accounting for capitalizing internal-use software. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the potential impact of the adoption of this update and do not expect it to have a material effect on our financial statements and disclosures.
In April 2019, the FASB issued an update to the accounting standards regarding financial instruments and derivatives and hedging, which clarifies the accounting treatment for the measurement of credit losses and provides further clarification on previously issued updates. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are currently in the process of evaluating the new standard.
2. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding, while diluted net income per share is computed by dividing net income attributable to common stockholders by the sum of the weighted-average number of common shares outstanding and the weighted-average number of dilutive potential common shares. Dilutive potential common shares relate to our share-based compensation arrangements.


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Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


The calculation of basic and diluted net income per share was as follows:
 
Three Months Ended
March 31,
(In thousands, except per-share amounts)
2019
 
2018
Net income—basic and diluted
$
170,957

 
$
114,486

 
 
 
 
Average common shares outstanding—basic
213,537

 
215,967

Dilutive effect of share-based compensation arrangements (1) 
4,806

 
3,916

Adjusted average common shares outstanding—diluted
218,343

 
219,883

 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.80

 
$
0.53

 
 
 
 
Diluted
$
0.78

 
$
0.52

______________________
(1)
The following number of shares of our common stock equivalents issued under our share-based compensation arrangements were not included in the calculation of diluted net income per share because they were anti-dilutive:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Shares of common stock equivalents
169

 
170


3. Segment Reporting
We have two strategic business units that we manage separately—Mortgage Insurance and Services. Adjusted pretax operating income (loss) for each segment represents segment results on a standalone basis; therefore, inter-segment eliminations and reclassifications required for consolidated GAAP presentation have not been reflected.
We allocate to our Mortgage Insurance segment: (i) corporate expenses based on the segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on the segment; (ii) except as described below, all interest expense; and (iii) all corporate cash and investments. Prior to January 1, 2019, interest expense related to the Clayton Intercompany Note was allocated to our Services segment. Effective January 1, 2019, Radian Group recapitalized the Services segment with a capital contribution that enabled the Services segment to repay the intercompany note and its accumulated allocated interest expense associated with the note, and effective as of the same date, all interest expense is allocated to our Mortgage Insurance segment.
We allocate to our Services segment: (i) corporate expenses based on the segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on the segment and (ii) until January 1, 2019, the allocated interest expense related to the intercompany note as described above. No corporate cash or investments are allocated to the Services segment. Inter-segment activities are recorded at market rates for segment reporting and eliminated in consolidation.
Contract underwriting activities are reported within our Services segment. We include underwriting-related expenses for mortgage insurance, based on a pro-rata volume of mortgage applications excluding third-party contract underwriting services, in our Mortgage Insurance segment’s other operating expenses before corporate allocations. We include underwriting-related expenses for third-party contract underwriting services, based on a pro-rata volume of mortgage applications, in our Services segment’s cost of services and other operating expenses before corporate allocations, as applicable.
With the exception of goodwill and other acquired intangible assets that relate to our Services segment, which are reviewed as part of our annual goodwill impairment assessment, we do not manage assets by segment.
Adjusted Pretax Operating Income (Loss)
Our senior management, including our Chief Executive Officer (Radian’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of Radian’s business segments and to allocate resources to the segments. Adjusted pretax operating income (loss) is defined as pretax income (loss) from continuing operations excluding the effects of net gains (losses) on investments and other financial


18


Table of Contents
Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


instruments, loss on induced conversion and debt extinguishment, acquisition-related expenses, amortization or impairment of goodwill and other acquired intangible assets, and net impairment losses recognized in earnings and infrequent or unusual non-operating items.
Although adjusted pretax operating income excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in pretax income. These adjustments, along with the reasons for their treatment, are described below.
(1)
Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.
Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses and changes in fair value of other financial instruments. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
(2)
Loss on induced conversion and debt extinguishment. Gains or losses on early extinguishment of debt and losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
(3)
Acquisition-related expenses. Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis, we do not view acquisition-related expenses as a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
(4)
Amortization or impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore are excluded from our calculation of adjusted pretax operating income (loss).
(5)
Net impairment losses recognized in earnings and infrequent or unusual non-operating items. The recognition of net impairment losses on investments and the impairment of other long-lived assets can vary significantly in both amount and frequency, depending on market credit cycles and other factors. Infrequent and unusual non-operating items reflect activities that we do not view to be indicative of our fundamental operating activities. Therefore, whenever such income or loss items occur, we exclude them from our calculation of adjusted pretax operating income (loss).


19


Table of Contents
Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


Summarized operating results for our segments for the periods indicated, are as follows:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Mortgage Insurance
 
 
 
Net premiums written—insurance (1) 
$
251,586

 
$
237,980

(Increase) decrease in unearned premiums
10,192

 
4,570

Net premiums earned—insurance
261,778

 
242,550

Net investment income
43,665

 
33,956

Other income
1,196

 
807

Total (2) 
306,639


277,313

 
 
 
 
Provision for losses
20,844

 
37,391

Policy acquisition costs
5,893

 
7,117

Other operating expenses before corporate allocations
30,410

 
31,888

Total (3) 
57,147

 
76,396

Adjusted pretax operating income before corporate allocations
249,492

 
200,917

Allocation of corporate operating expenses
25,625

 
18,577

Allocation of interest expense
15,697

 
10,629

Adjusted pretax operating income
$
208,170

 
$
171,711


______________________
(1)
Net of ceded premiums written under our reinsurance programs. See Note 7 for additional information.
(2)
Excludes net gains on investments and other financial instruments of $21.9 million for the three months ended March 31, 2019, and net losses on investments and other financial instruments of $18.9 million for the three months ended March 31, 2018, not included in adjusted pretax operating income.
(3)Includes inter-segment expenses as follows:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Inter-segment expenses
$
970

 
$
1,002




20


Table of Contents
Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Services
 
 
 
Net premiums earned—insurance (1) 
$
1,734

 
$

Services revenue (2) 
33,723

 
34,166

Net investment income (1) 
182

 

Other income (1) 
408

 

Total (2) 
36,047

 
34,166

 
 
 
 
Provision for losses (1) 
(18
)
 

Cost of services
24,559

 
23,270

Other operating expenses before corporate allocations
13,435

 
10,744

Restructuring and other exit costs

 
525

Total
37,976

 
34,539

Adjusted pretax operating income (loss) before corporate allocations
(1,929
)

(373
)
Allocation of corporate operating expenses
4,171

 
2,784

Allocation of interest expense

(3)
4,451

Adjusted pretax operating income (loss)
$
(6,100
)

$
(7,608
)

______________________
(1)
Results from inclusion of the operations of EnTitle Direct, a national title insurance and settlement services company, acquired in March 2018.
(2)Includes inter-segment revenues as follows:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Inter-segment revenues
$
970

 
$
1,002


(3)
Effective January 1, 2019, the Clayton Intercompany Note was repaid using proceeds from an additional capital contribution from Radian Group. As a result of the intercompany note repayment, the Services segment no longer incurs interest expense on the intercompany note.


21


Table of Contents
Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


The reconciliation of adjusted pretax operating income to consolidated pretax income is as follows:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Adjusted pretax operating income (loss):
 
 
 
Mortgage Insurance (1) 
$
208,170

 
$
171,711

Services (1) 
(6,100
)
 
(7,608
)
Total adjusted pretax operating income
202,070

 
164,103

 
 
 
 
Net gains (losses) on investments and other financial instruments
21,913

 
(18,887
)
Acquisition-related expenses (2) 
(233
)
 

Amortization and impairment of other acquired intangible assets
(2,187
)
 
(2,748
)
Impairment of other long-lived assets and infrequent or unusual non-operating items (3) 
(5,427
)
 
(26
)
Consolidated pretax income
$
216,136

 
$
142,442

______________________
(1)
Includes inter-segment expenses and revenues as listed in the notes to the preceding tables.
(2)
Acquisition-related expenses represent expenses incurred to effect the acquisition of a business, net of adjustments to accruals previously recorded for acquisition expenses.
(3)
The amount for the three months ended March 31, 2019 is included in other operating expenses on the condensed consolidated statement of operations and primarily relates to impairments of other long-lived assets. The amount for the three months ended March 31, 2018 is included within restructuring and other exit costs on the condensed consolidated statement of operations.
On a consolidated basis, “adjusted pretax operating income” is a measure not determined in accordance with GAAP. Total adjusted pretax operating income is not a measure of total profitability, and therefore should not be considered in isolation or viewed as a substitute for GAAP pretax income. Our definition of adjusted pretax operating income may not be comparable to similarly-named measures reported by other companies.
Revenue Recognition—Services
The accounting standard on revenue from contracts with customers is primarily applicable to revenues from our Services segment and is not applicable to our investments and insurance products, which represent the majority of our revenue. See Notes 1 and 2 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for additional information regarding our accounting policies and the services we offer.
The table below represents the disaggregation of Services revenues by revenue type:
 
Three Months Ended
March 31,
(In thousands)
2019
 
2018
Services segment revenue
 
 
 
Mortgage Services
$
16,063

 
$
17,498

Real Estate Services
15,836

 
14,394

Title Services
2,232

 
2,274

Total (1) 
$
34,131

 
$
34,166

______________________
(1)
Includes inter-segment revenues of $1.0 million for each of the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, amounts exclude a total of $1.9 million, comprised of Services segment net premiums earned—insurance and net investment income, as both are excluded from the scope of the revenue recognition standard.
Our Services segment revenues, other than net premiums earned—insurance and net investment income, are recognized over time and measured each period based on the progress to date as services are performed and made available to customers.


22


Table of Contents
Glossary
Radian Group Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
______________________________________________________________________________________________________


Our contracts with customers, including payment terms, are generally short-term in nature; therefore, any impact related to timing is immaterial. Revenue recognized related to services made available to customers and billed is reflected in accounts and notes receivable. Revenue recognized related to services performed and not yet billed is recorded in unbilled receivables and reflected in other assets. Deferred revenue represents advance payments received from customers in advance of revenue recognition. We have no material bad-debt expense. The following represents balances related to Services contracts as of the dates indicated:
(In thousands)
March 31, 2019
 
December 31, 2018
Accounts Receivable - Services Contracts
$
13,241

 
$
15,461

Unbilled Receivables - Services Contracts
22,967

 
19,917

Deferred Revenues - Services Contracts
3,044

 
3,204


Revenue expected to be recognized in any future period related to remaining performance obligations, such as contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.
4. Fair Value of Financial Instruments
We provide a qualitative description of the valuation techniques and inputs used for recurring and non-recurring fair value measurements in our audited financial statements and notes thereto included in our 2018 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2018 Form 10-K.
The following is a list of assets that are measured at fair value by hierarchy level as of March 31, 2019:
(In thousands)
Level I
 
Level II
 
Total
 
Assets at Fair Value
 
 
 
 
 
 
Investment Portfolio:
 
 
 
 
 
 
U.S. government and agency securities
$
178,908

 
$
33,610

 
$
212,518

 
State and municipal obligations

 
233,827

 
233,827

 
Money market instruments
174,541

 

 
174,541

 
Corporate bonds and notes

 
2,485,463

 
2,485,463

 
RMBS

 
368,495

 
368,495

 
CMBS

 
549,986

 
549,986

 
Other ABS

 
675,477

 
675,477

 
Equity securities
136,107

 
4,998<