Radian Group Earnings 2018-12-31

RDN 10K Annual Report

Balance Sheet	Income Statement	Cash Flow

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

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

____________________________

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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Name of each exchange on which registered
Common Stock, $.001 par value per share	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

____________________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):



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

As of June 30, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $3,449,403,478 based on the closing sale price as reported on the New York Stock Exchange. Excluded from this amount is the value of all shares beneficially owned by executive officers and directors of the registrant. These exclusions should not be deemed to constitute a representation or acknowledgment that any such individual is, in fact, an affiliate of the registrant or that there are not other persons or entities who may be deemed to be affiliates of the registrant.

The number of shares of common stock, $.001 par value per share, of the registrant outstanding on February 25, 2019 was 213,657,506 shares.

_______________________________

DOCUMENTS INCORPORATED BY REFERENCE



	Form 10-K Reference Document
Definitive Proxy Statement for the Registrant’s 2019 Annual Meeting of Stockholders	Part III (Items 10 through 14)



TABLE OF CONTENTS
			Page Number
		Glossary of Abbreviations and Acronyms	3
		Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions	8

PART I	Item 1	Business	10
		General	10
		Mortgage Insurance	15
		Mortgage Insurance Business Overview	15
		Mortgage Insurance Portfolio	18
		Defaults and Claims	21
		Claims Management	22
		Customers	25
		Competition	25
		Services	27
		Acquisition of Clayton and Other Acquisitions	27
		Services Business Overview	27
		Customers	29
		Competition	29
		Enterprise Sales and Marketing	30
		Customer Support	30
		Sale of Financial Guaranty Business	30
		Investment Policy and Portfolio	30
		Enterprise Risk Management	33
		Regulation	38
		Employees	50
	Item 1A	Risk Factors	50
	Item 1B	Unresolved Staff Comments	65
	Item 2	Properties	65
	Item 3	Legal Proceedings	66
	Item 4	Mine Safety Disclosures	67

PART II	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	68
	Item 6	Selected Financial Data	69
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	71
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	130
	Item 8	Financial Statements and Supplementary Data	133
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	208
	Item 9A	Controls and Procedures	208
	Item 9B	Other Information	208

PART III	Item 10	Directors, Executive Officers and Corporate Governance	209
	Item 11	Executive Compensation	209
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	209
	Item 13	Certain Relationships and Related Transactions, and Director Independence	210
	Item 14	Principal Accountant Fees and Services	210

PART IV	Item 15	Exhibits and Financial Statement Schedules	210
	Item 16	Form 10-K Summary	210

INDEX TO EXHIBITS			211
SIGNATURES			219
INDEX TO FINANCIAL STATEMENT SCHEDULES			221

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GLOSSARY OF ABBREVIATIONS AND ACRONYMS

The following list defines various abbreviations and acronyms used throughout this report, including the Business Section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements, the Notes to Consolidated Financial Statements and the Financial Statement Schedules.



Term	Definition
1995 Equity Plan	The Radian Group Inc. 1995 Equity Compensation Plan
2008 Equity Plan	The Radian Group Inc. 2008 Equity Compensation Plan
2014 Equity Plan	The Radian Group Inc. 2014 Equity Compensation Plan, which was amended and restated as the Radian Group Inc. Equity Compensation Plan on May 10, 2017
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)
Amended and Restated Equity Compensation Plan	The Radian Group Inc. Equity Compensation Plan, which amended and restated the 2014 Equity Plan and was approved by our stockholders on May 10, 2017
Amended and Restated Radian Group Inc. ESPP	The Radian Group Inc. Employee Stock Purchase Plan, as approved by our stockholders on May 9, 2018
Assured	Assured Guaranty Corp., a subsidiary of Assured Guaranty Ltd.
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
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 Holdings LLC, a Delaware domiciled indirect non-insurance subsidiary of Radian Group
CMBS	Commercial mortgage-backed securities
Convertible Senior Notes due 2017	Our 3.000% convertible unsecured senior notes due November 2017 ($450 million original principal amount)
Convertible Senior Notes due 2019	Our 2.250% convertible unsecured senior notes due March 2019 ($400 million original principal amount)
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

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Term	Definition
Deficiency Amount	The assessed tax liabilities, penalties and interest associated with a formal Notice of Deficiency from the IRS
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	Eagle Re 2018-1 Ltd., an unaffiliated special purpose reinsurer (a variable interest entity) domiciled in Bermuda
EnTitle Direct	EnTitle Direct Group, Inc., a wholly-owned indirect subsidiary of Radian Group, acquired in March 2018
EnTitle Insurance	EnTitle Insurance Company, a wholly-owned subsidiary of EnTitle Direct
Equity Plans	The 1995 Equity Plan, the 2008 Equity Plan and the Amended and Restated Equity Compensation Plan, together
ERM	Enterprise Risk Management
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, in connection with the issuance by Eagle Re 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.
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
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 is more than one borrower, the FICO score for the primary borrower is utilized
Five Bridges	Five Bridges Advisors, LLC. Radian acquired the assets of Five Bridges in December 2018.
Flow Basis	With respect to mortgage insurance, includes mortgage insurance policies that are written on an individual loan basis as each loan is originated or 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). Among other items, Flow Basis business excludes Pool Insurance, which we originated prior to 2009.
Foreclosure Stage Default	The Stage of Default indicating that the foreclosure sale has been scheduled or held
Freddie Mac	Federal Home Loan Mortgage Corporation
Freddie Mac Agreement	The Master Transaction Agreement between Radian Guaranty and Freddie Mac entered into in August 2013

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Term	Definition
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 wholly-owned subsidiary of Clayton
GSE(s)	Government-Sponsored Enterprises (Fannie Mae and Freddie Mac)
HAMP	Homeowner Affordable Modification Program
HARP	Home Affordable Refinance Program
HPA	Homeowners Protection Act of 1998
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 wholly-owned indirect 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 related to the assessed tax liabilities, penalties and interest from the IRS’s examination of our 2000 through 2007 consolidated federal income tax returns. See Note 10 of Notes to Consolidated Financial Statements for more information.
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 Premiums	Insurance policies where premiums are paid on a monthly or other installment basis, in contrast to Single Premium Policies
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, 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
Notices of Deficiency	Formal letters from the IRS informing the taxpayer of an IRS determination of tax deficiency and appeal rights
OCI	Other comprehensive income (loss)
PDR	Premium deficiency reserve

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Term	Definition
Persistency Rate	The percentage of IIF that remains in force over a period of time
PMIERs	Private Mortgage Insurer Eligibility Requirements effective on December 31, 2015, 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 2.0	Revised PMIERs issued by the GSEs on September 27, 2018, which will become 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, together
Radian	Radian Group Inc. together with its consolidated subsidiaries
Radian Asset Assurance	Radian Asset Assurance Inc., a New York domiciled insurance company that was formerly a subsidiary of Radian Guaranty
Radian Asset Assurance Stock Purchase Agreement	The Stock Purchase Agreement dated December 22, 2014, between Radian Guaranty and Assured to sell Radian Asset Assurance to Assured
Radian Group	Radian Group Inc.
Radian Guaranty	Radian Guaranty Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
Radian Guaranty Reinsurance	Radian Guaranty Reinsurance Inc., a Pennsylvania domiciled insurance subsidiary of Enhance Financial Services Group Inc., a New York domiciled non-insurance subsidiary of Radian Group
Radian Insurance	Radian Insurance Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
Radian Mortgage Assurance	Radian Mortgage Assurance Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
Radian Mortgage Insurance	Radian Mortgage Insurance Inc., a Pennsylvania domiciled 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 wholly-owned subsidiary of Clayton, formerly known as ValuAmerica
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 wholly-owned 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
RESPA	Real Estate Settlement Procedures Act of 1974, as amended
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 minimum ratio of statutory capital calculated relative to the level of net RIF
RMBS	Residential mortgage-backed securities
RSU	Restricted stock unit

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Term	Definition
S&P	Standard & Poor’s Financial Services LLC
SAFE Act	Secure and Fair Enforcement for Mortgage Licensing Act, as amended
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 2017	Our 9.000% unsecured senior notes due June 2017 ($195.5 million original principal amount, of which the remaining outstanding principal was redeemed in August 2016)
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
TCJA	H.R. 1, known as the Tax Cuts and Jobs Act, signed into law on December 22, 2017
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
TRID	Truth in Lending Act - RESPA Integrated Disclosure
U.S.	The United States of America
U.S. Treasury	United States Department of the Treasury
VA	U.S. Department of Veterans Affairs
ValuAmerica	ValuAmerica, Inc., a wholly-owned subsidiary of Clayton, renamed in 2018 to Radian Settlement Services Inc.

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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 PMIERs 2.0 and 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 plans for expanding 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 significant 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;


•	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 QM Rule;


•	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 or have other effects on our business;

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Glossary


•	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, including PMIERs 2.0, 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 results of operations caused by changes in the fair value of our assets and liabilities, including a significant portion of 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 dividends and other amounts we may receive from our subsidiaries.

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, 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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Glossary

______________________________________________________________________________________________________

PART I

Item 1.
Business.

General

We are a diversified mortgage and real estate services business. We provide mortgage insurance and products and services to the real estate and mortgage finance industries through our two business segments—Mortgage Insurance and Services. Our Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance, 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. Our Services segment 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. These services include technology and turn-key solutions, which 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. Our mortgage services include transaction management services such as 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 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. We provide our Services offerings primarily through our subsidiaries, including Clayton, Green River Capital, Radian Settlement Services and Red Bell. In 2018, we also acquired the businesses of EnTitle Direct (in March 2018) and Independent Settlement Services (in November 2018), as well as the assets of Five Bridges (in December 2018), to enhance our Services offerings.

Radian Group serves as the holding company for our insurance and other subsidiaries and does not have any operations of its own.

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Glossary

Part I Item 1. Business

______________________________________________________________________________________________________

2018 Highlights. Below are highlights of our key accomplishments that furthered our strategic objectives and contributed to our financial and operating results during 2018.


•	Wrote $56.5 billion of NIW on a Flow Basis, the highest flow volume in Radian’s 40-year history


–	Represents a 5% increase over 2017


–	Grew primary IIF by 10%, from $200.7 billion at December 31, 2017 to $221.4 billion at December 31, 2018


•	Earned pretax income of $684.2 million in 2018, compared to $346.7 million in 2017


•	Grew adjusted pretax operating income to $745.5 million, an increase of 21% compared to $617.2 million for 2017⁽¹⁾


•	Improved composition of mortgage insurance portfolio


–	94% of our primary RIF consists of business written after 2008, including HARP loans


–	Increased risk-based pricing granularity and our volume of higher value products


•	Took steps to optimize our capital and liquidity position


–	Repurchased over 3 million shares of Radian Group’s common stock


–	Added $450 million to Radian Group liquidity as a result of Radian Guaranty’s return of $450 million in capital to Radian Group in December 2018


–	See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Radian Group—Short-Term Liquidity Needs”


•	Expanded our risk distribution strategy to optimize the amounts and types of capital and risk distribution deployed against insured risk in order to: (i) support our overall capital plans; (ii) lower our cost of capital; and (iii) reduce portfolio risk and financial volatility through economic cycles


–	Executed the mortgage insurance industry’s first simultaneous insurance-linked note and excess-of-loss reinsurance placement totaling $455 million


–	See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Other 2018 Developments—Reinsurance”


•	Increased excess of Available Assets over Minimum Required Assets under PMIERs to $567 million, or 19% of Minimum Required Assets


•	Finalized a settlement with the IRS regarding the IRS Matter


•	Launched our new branding to reflect One Radian, beginning the process to unite all of our businesses under one brand


•	Aligned our sales team to provide integrated enterprise solutions to our customers

______________________


(1)	Adjusted pretax operating income is a non-GAAP measure. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Consolidated—Use of Non-GAAP Financial Measures” for the definition and reconciliation of this measure to the most comparable GAAP measure, pretax income.

For additional information regarding these items as well as other factors impacting our business and financial results in 2018, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Glossary

Part I Item 1. Business

______________________________________________________________________________________________________

Business Strategy. Radian’s objectives include driving strong growth, increasing value creation and providing attractive stockholder returns. Consistent with these objectives, our business strategy, as highlighted below, is focused on growing our businesses and diversifying our revenue sources, while at the same time enhancing our operations and developing a one-company market view by integrating our product and services offerings more effectively.


•	Write high-quality and profitable NIW to drive future earnings, in a manner that enhances the long-term economic value of our insured mortgage portfolio


•	Leverage our core competencies and increase our competitive differentiation in order to:


–	Grow our traditional mortgage insurance business in innovative ways


–	Expand our presence in the mortgage and real estate value chain beyond traditional mortgage insurance


–	Enhance our value to customers with increased diversification of services delivered by our integrated team


–	Maintain strong comprehensive enterprise risk management based on sound data and analytics


–	Enhance the quality, efficiency and performance of our operations and delivery of products and services


•	Manage our capital and financial flexibility to optimize stockholder value


•	Drive positive operating leverage by maintaining accretive revenue growth and effective expense management

We utilize various tools to assess the long-term economic value of our portfolio in order to identify opportunities to optimize stockholder value. For our Mortgage Insurance business, we evaluate the long-term economic value of our existing and future insured portfolio by using a measure that incorporates expected lifetime returns for our insurance policies, taking into consideration projected premiums, credit losses, investment income, operating expenses and taxes. These lifetime cash flows are then offset by the estimated cost of required capital, derived from our average cost of capital, to arrive at an estimated long-term economic value of our portfolio. We use this economic value to assist us in evaluating various portfolio strategies.

A key element of our business strategy is to use our Services segment to diversify our business and revenue streams by increasing our participation in multiple facets of the residential real estate and mortgage finance markets. In 2017, we undertook a strategic review of our Services business and made several decisions with respect to the business strategy that are designed to reposition this business to drive future growth and profitability. Following this strategic review, we committed to a restructuring plan and are focusing our efforts on offering mortgage, real estate and title services that we believe will satisfy demand in the market, diversify our revenue sources, strengthen our existing mortgage insurance customer relationships, attract new customers and differentiate us from our mortgage insurance peers. See “Services—Services Business Overview.”

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Through the combination of our Mortgage Insurance and Services business segments, our broad array of capabilities within the primary stages of the mortgage value chain are illustrated below.

Corporate Background. Radian Group has been incorporated as a business corporation under the laws of the State of Delaware since 1991. Our principal executive offices are located at 1500 Market Street, Philadelphia, Pennsylvania 19102, and our telephone number is (215) 231-1000.

Additional Information. Our website address is www.radian.biz. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. In addition, our guidelines of corporate governance, code of business conduct and ethics (which includes the code of ethics applicable to our chief executive officer, principal financial officer and principal accounting officer) and the governing charters for each standing committee of Radian Group’s board of directors are available free of charge on our website, as well as in print, to any stockholder upon request.

The public may read materials we file with the SEC, including reports, proxy and information statements, and other information, on the Internet site maintained by the SEC. The address of that site is www.sec.gov.

The above references to our website and the SEC’s website do not constitute incorporation by reference of the information contained on the websites and such information should not be considered part of this document.

Operating Environment

As a seller of mortgage credit protection and other credit risk management solutions, as well as a provider of mortgage, real estate and title services, the demand for our products and services is largely driven by the macroeconomic environment generally, and more specifically by the health of the housing, mortgage finance and related real estate markets.

Mortgage Insurance. Our mortgage insurance business is impacted by specific macroeconomic conditions and events that impact the mortgage origination environment and the credit performance of our portfolio of insured loans. The improvement in macroeconomic conditions since the financial crisis of 2007-2008, together with tighter credit requirements on new loans and an improvement in loan servicing, has contributed to the positive credit trends in our mortgage insurance portfolio, including a

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lower level of new defaults and higher cure rates. Although this more restrictive credit environment has improved overall credit quality, it also has made it more challenging for many first-time home buyers to finance a home. In response, lenders and the GSEs recently have expanded their mortgage lending products, including to accommodate higher LTVs and debt-to-income ratios to address first-time home buyer demand and affordability considerations.

Among other factors, private mortgage insurance industry volumes are impacted by total mortgage origination volumes and the mix between mortgage originations that are for purchased homes versus refinancings of existing mortgages. Generally, mortgage insurance penetration in the overall insurable mortgage market has been three to five times higher for purchase originations than for refinancings. As a result, despite an overall reduction in mortgage origination volume in 2018 compared to 2017 due to reduced refinancings, the private mortgage insurance market was larger in 2018 compared to 2017. Industry forecasts for 2019 project a mortgage origination market comparable to the market in 2018; however, purchase loan volume is expected to continue to increase, which is a favorable trend for private mortgage insurance. Given our expected mortgage insurance penetration rates, we expect the private mortgage insurance market in 2019 to be comparable to 2018. Based on industry forecasts and our projections, we currently expect our NIW for 2019 to be in the range of $50 billion.

The environment for private mortgage insurers is highly competitive. We compete with other private mortgage insurers primarily on the basis of price, underwriting guidelines, overall service, customer relationships, perceived financial strength and reputation. In addition to other private mortgage insurers, we compete with governmental agencies, principally the FHA and the VA. See “Mortgage Insurance—Competition.”

Services. The macroeconomic conditions and other events that impact the housing, mortgage finance and related real estate markets also affect the demand for our mortgage, real estate and title services offered through our Services business segment. Sales volume in our Services business varies based on the overall activity in the housing and mortgage finance markets and the health of related industries. While non-GSE or “private label” securitization remains limited compared to the pre-financial crisis market, this market continued to expand in 2018 due to larger institutions re-entering the market, suggesting increased potential growth in 2019. Similarly, the single-family rental market continued to experience strong demand in 2018, driven in part by early refinance activity in the rising interest rate environment, as well as a GSE program that drove volume, but was later suspended at the end of 2018. While regulatory demands on mortgage market participants continue to be significant following the financial crisis, regulatory enforcement actions on mortgage industry participants have been less frequent, reducing the demand for our servicing quality control services as target customers form alternative strategies on how best to manage risk in the current and projected environment. Post-financial crisis, REO inventory levels also continue to decline due to lower delinquencies and foreclosure activity, reducing demand for our REO asset management services. Further, as the mortgage market continues to develop post-financial crisis, alternatives for managing costs have become more critical to the overall value proposition for market participants. As a result, we have observed increasing market trends towards use of non-appraisal valuation alternatives, which we expect will continue to grow. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Overview—Business Strategy.” We believe that the combination of our mortgage insurance business with our unique set of diversified mortgage, real estate and title services provides us with an opportunity to become increasingly more relevant to our customers and that this combination serves as a competitive differentiator for us compared to other private mortgage insurance companies.

Regulatory Environment

Our subsidiaries are subject to comprehensive regulations and other requirements. State insurance regulators impose various capital requirements on our mortgage insurance subsidiaries, including Risk-to-capital, other risk-based capital measures and surplus requirements. In addition, the GSEs, as the largest purchasers of conventional mortgage loans and therefore the primary beneficiaries of most of our mortgage insurance, impose eligibility requirements, or PMIERs, that private mortgage insurers must satisfy to be approved to insure loans purchased by the GSEs. The PMIERs aim to ensure that approved insurers will possess the financial and operational capacity to serve as strong counterparties to the GSEs throughout various market conditions. The PMIERs are comprehensive, covering virtually all aspects of the business and operations of a private mortgage insurer. The PMIERs financial requirements require that a mortgage insurer’s Available Assets meet or exceed its Minimum Required Assets. Radian Guaranty currently is an approved mortgage insurer under the PMIERs and is in compliance with the PMIERs financial requirements. See “Regulation.”

Changes in the charters or business practices of the GSEs, including the GSEs’ interpretation and application of the PMIERs, can have a significant impact on our business. On September 27, 2018, the GSEs updated their eligibility requirements by issuing PMIERs 2.0, which will become effective on March 31, 2019. Radian expects to comply with PMIERs 2.0 and to maintain a significant excess of Available Assets over Minimum Required Assets (PMIERs “cushion”) as of the effective date. If applied as of December 31, 2018, the changes under PMIERs 2.0 would not have resulted in a material change in Radian Guaranty’s Minimum Required Assets, but would have reduced Radian Guaranty’s Available Assets and therefore

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would have reduced Radian Guaranty’s PMIERs cushion. The reduction in Radian Guaranty’s Available Assets is primarily due to the elimination in PMIERS 2.0 of any credit for future premiums for insurance policies written prior to and including 2008, which is permitted under the current PMIERs. We expect the GSEs to continue to update the PMIERs periodically in the future, including potentially if and when the CCF is finalized. See “Regulation” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Radian Group—Short-Term Liquidity Needs—Capital Support for Subsidiaries.”

Mortgage Insurance

Mortgage Insurance Business Overview

Overview

Our Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance, as well as other credit risk management solutions, to mortgage lending institutions and mortgage credit investors. 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 loans in the secondary mortgage market, most of which are currently sold to the GSEs.

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage Insurance.”

Mortgage Insurance Products

Primary Mortgage Insurance. Primary mortgage insurance provides protection against mortgage defaults at a specified coverage percentage. When there is a valid claim under primary mortgage insurance, the maximum liability is determined by multiplying the claim amount, which consists of the unpaid loan principal, plus past due interest and certain expenses associated with the default, by the coverage percentage. Claims may be settled for the maximum liability or for other amounts. See “—Claims Management” below.

We mainly provide primary mortgage insurance on an individual loan basis as each mortgage is originated, but we also can provide primary mortgage insurance on individual loans in an aggregate group of mortgages after they have been originated. We primarily write insurance in a “first loss” position, where we are responsible for the first losses incurred on an insured loan subject to a policy limit. See “—Mortgage Insurance Portfolio—Mortgage Loan Characteristics.”

The terms of our primary mortgage insurance coverage are set forth in a master insurance policy that we enter into with each of our customers. Our Master Policies are filed in each of the jurisdictions in which we conduct business. Among other things, our Master Policies set forth the terms and conditions of our mortgage insurance coverage, including: loan eligibility requirements; premium payment requirements; coverage term; provisions for policy administration, servicing standards and requirements; exclusions or reductions in coverage; claims payment and settlement procedures; and dispute resolution procedures. Although the mortgage insurance we write protects the lenders from a portion of losses resulting from loan defaults, it does not provide protection against property loss or physical damage. Among other exclusions, our Master Policies contain an exclusion against physical damage, including damage caused by hurricanes or other natural disasters. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Operating Environment—Hurricanes.”

We wrote $56.5 billion and $53.9 billion of first-lien primary mortgage insurance in 2018 and 2017, respectively. Substantially all of our primary mortgage insurance written during 2018 and 2017 was written on a Flow Basis. The combination of our NIW and a higher Persistency Rate resulted in an increase in IIF, from $200.7 billion at December 31, 2017 to $221.4 billion at December 31, 2018. Our total direct primary mortgage insurance RIF was $56.7 billion at December 31, 2018, compared to $51.3 billion at December 31, 2017.

Other Mortgage Insurance Products. We also have other mortgage insurance products that had RIF of $0.5 billion at December 31, 2018, as described below:


•	GSE Credit Risk Transfer. Part of our business strategy includes leveraging our core expertise in credit risk management and expanding our presence in the mortgage finance industry. We are currently participating in Front-end and Back-end credit risk transfer programs developed by Fannie Mae and Freddie Mac as part of their

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initiative to distribute mortgage credit risk and increase the role of private capital in the mortgage market. As of December 31, 2018, the total RIF under the Front-end and Back-end credit risk transfer transactions was $196.8 million. We will only experience claims under these Front-end and Back-end credit risk transfer transactions if the borrower’s equity, any existing primary mortgage insurance (if applicable) and the GSEs’ retained risk are depleted. In participating in these GSE transactions, we assume incremental risk (beyond that which we typically cover in our traditional mortgage insurance business) associated with the risk of defaults caused by physical damage, including natural disasters such as hurricanes and wildfires, which is not covered by the underlying primary mortgage insurance. We regularly evaluate this risk, including the geographic diversity of the loans included in these transactions and our remote risk position, in assessing our participation in these transactions. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Business Strategy.”

•

Pool Insurance. Prior to 2008, we wrote Pool Insurance on a limited basis. At December 31, 2018, Pool Insurance made up only $324.6 million of our total direct first-lien insurance RIF, as compared to $339.0 million at December 31, 2017. With respect to our Pool Insurance, an aggregate exposure limit, or “stop loss” (usually between 1% and 10%), is generally applied to the initial aggregate loan balance on a group or “pool” of mortgages. In addition, an insured pool of mortgages may contain mortgages that are already covered by primary mortgage insurance. In these transactions, Pool Insurance is secondary to any primary mortgage insurance that exists on mortgages within the pool. Our Pool Insurance policies are privately negotiated and are separate from the Master Policies that we use for our primary mortgage insurance.

•

Non-Traditional Risk. In the past, we provided other forms of credit enhancement on residential mortgage assets. Our non-traditional products included mortgage insurance on second-lien mortgage loans and we also provided mortgage insurance on an international basis. As of December 31, 2018, we have terminated all of our international mortgage insurance. Our total amount of non-traditional risk was $15.2 million at December 31, 2018, which consisted entirely of second-lien RIF, as compared to $24.4 million at December 31, 2017.

Premium Rates

Primary Mortgage Insurance. A premium rate is determined when insurance coverage is requested on a mortgage, which is generally near the time of loan origination. Premiums for our mortgage insurance products are established based on performance models that consider a broad range of borrower, loan and property characteristics as well as current and projected market and economic conditions. Our premium rates are generally subject to regulation, and in most states where our insurance subsidiaries are licensed, our premiums must be filed, and in some cases approved, before their use. See “Regulation—State Regulation—State Insurance Regulation.”

We establish our premium levels to be competitive within the mortgage insurance industry and to achieve an overall risk-adjusted rate of return on capital given our modeled performance expectations. Our actual returns may differ from our expectations based on changing market conditions and other factors. Among other factors, we set our premium rates based on assumptions about policy performance, including, without limitation, our expectations and assumptions about: (i) the likelihood of default; (ii) how long the policy will remain in place; (iii) the costs of acquiring and maintaining the insurance; (iv) taxes; and (v) the capital that is required to support the insurance. Our performance assumptions for claim frequency and policy life are developed based on data regarding our own historical experience, as well as data generated from independent, third-party sources.

Premiums on our mortgage insurance products are generally paid either on a monthly installment basis (“Monthly Premiums”) or in a single payment (“Single Premiums”) generally paid at the time of loan origination. There are also alternative products (“Other Premiums”) where premiums may be paid on an annual installment basis or as a combination of up-front premium at origination plus a monthly installment. In addition, Other Premiums may be paid after loan origination or may include a refundable component. Some programs, subject to certain conditions, provide coverage for the life of the loan while others terminate when certain criteria are met. There are many factors that influence the types of premiums we receive, including: (i) the percentage of mortgage originations derived from refinancing transactions versus new home purchases; (ii) the customers with whom we do business (e.g., mix of Single Premium Policies and policies with Monthly and Other Premiums varies by customer); and (iii) the relative premium levels we and our competitors set for the various forms of premiums offered.

Mortgage insurance premiums can be funded through a number of methods, and while the coverage remains for the benefit of the insured or third-party beneficiary, the premiums may be paid by the borrower or by the lender. Borrower-paid mortgage insurance premiums are generally paid either through separate escrowed amounts or financed as a component of the mortgage loan amount. Lender-paid mortgage insurance premiums are paid by the lender and are typically passed through to

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the borrower in the form of additional origination fees or a higher interest rate on the mortgage note. Our Monthly and Other Premiums are generally established as either: (i) a fixed percentage of the loan’s amortizing balance over the life of the policy or (ii) as a fixed percentage of the initial loan balance for a set period of time (typically 10 years), after which the premium declines to a lower fixed percentage for the remaining life of the policy.

The impact of market conditions on our returns will vary based on, among other factors, whether the insurance is borrower-paid or lender-paid, and whether the payments are made monthly or in a single premium payment at the time of origination. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage Insurance—Premiums.” A change in capital requirements on insured loans can also affect our returns. See “Regulation—GSE Requirements—PMIERs—Private Mortgage Insurer Eligibility Requirements.”

As the mortgage insurance industry migrates away from a predominantly rate-card-based pricing model, various pricing methodologies are being deployed with differing degrees of risk-based granularity, which may also lead to an increased frequency of pricing changes. We currently use proprietary risk and customer analytics, as well as a digital pricing delivery platform, to deliver loan level pricing electronically to our customers, including Radian’s RADAR Rates as further discussed below. Our pricing options vary in the level of granularity and we deliver them to our customers based on their business needs and loan origination process. In January 2019, we broadly introduced RADAR Rates as our newest pricing option that is powered by Radian’s proprietary RADAR risk model and analyzes credit risk inputs to customize a rate quote to a borrower’s individual risk profile, loan attributes and property characteristics. Our strategy is to consistently apply an approach to pricing that is customer-centric, flexible and customizable based on a lender’s loan origination process, as well as balanced with our own objectives for managing the risk and return profile of our insured portfolio.

GSE Credit Risk Transfer Transactions. Credit risk transfer premium rates are established through a sealed-bid auction process in which potential insurers/reinsurers provide their desired allocation of the offering(s) at a specified premium rate. Radian evaluates each transaction and determines its bid based on performance models that consider a broad range of borrower, loan and property characteristics as well as market and forecasted future economic conditions. The GSEs set a uniform premium based on an assessment of the bids received and, based on their desired counterparty exposure, assign allocations to insurers/reinsurers.

Underwriting

Mortgage loan applications are underwritten to determine whether they are eligible for our mortgage insurance. We perform this function directly or, alternatively, we delegate to our insured lenders the ability to underwrite the mortgage loans based on compliance with our underwriting guidelines.

Delegated Underwriting. Through our delegated underwriting program we approve insured lenders to underwrite mortgage loan applications based on our mortgage insurance underwriting guidelines. Each lender participating in the delegated underwriting program must be approved by our risk management group. Utilization of our delegated underwriting program enables us to meet lenders’ demands for immediate insurance coverage and increases the efficiency of the underwriting process. We use quality control sampling and performance monitoring to manage the risks associated with delegated underwriting. Under the terms of the program, we have certain rights to rescind coverage if there has been a deviation from our underwriting guidelines. For a discussion of these limited Rescission rights, see “—Claims Management—Rescissions.” As of December 31, 2018, 63% of our total first-lien IIF had been originated on a delegated basis, compared to 66% as of December 31, 2017.

Non-Delegated Underwriting. In addition to our delegated underwriting program, insured lenders may also submit mortgage loan applications to us and we will perform the mortgage insurance underwriting. In general, we are less likely to exercise our Rescission rights with respect to underwriting errors related to loans that we underwrite for mortgage insurance. As a result, following a period of high Rescissions after the financial crisis, many lenders have chosen to have us perform the mortgage insurance underwriting on a non-delegated basis. Given the professional resources we need to maintain to underwrite mortgage loans, an increase in non-delegated underwriting demand generally increases our operating costs to support this program.

Contract Underwriting. We also provide third party contract underwriting services to our mortgage insurance customers through our Services segment. See “Services—Services Business Overview—Services Offered—Mortgage Services.” During 2018, mortgage loans underwritten through contract underwriting accounted for 3.8% of insurance certificates issued on a Flow Basis, as compared to 5.4% in 2017.

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Mortgage Insurance Portfolio

Direct Risk in Force

Exposure in our mortgage insurance business is measured by RIF, which for primary insurance is equal to the underlying loan unpaid principal balance multiplied by our insurance coverage percentage.

Our total direct primary mortgage insurance RIF was $56.7 billion at December 31, 2018. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Mortgage Insurance—NIW, IIF, RIF” for additional information about the composition of our primary RIF. See “—Mortgage Insurance Business Overview—Mortgage Insurance Products” for additional information regarding other mortgage insurance RIF.

We analyze our mortgage insurance portfolio in a number of ways to identify any concentrations or imbalances in risk dispersion. We believe that, among other factors, the credit performance of our mortgage insurance portfolio is affected significantly by:


•	general economic conditions (in particular, interest rates, home prices and unemployment);


•	the age and performance history of the loans insured;


•	the geographic dispersion and other characteristics of the properties securing the insured loans and the condition of local housing markets;


•	the quality of underwriting at loan origination; and


•	the credit characteristics of the borrower and the characteristics of the loans insured.

Direct Primary RIF by Year of Policy Origination and Persistency

The following table shows our direct primary mortgage insurance RIF by year of origination and selected information related to that risk as of December 31, 2018:



	December 31, 2018
($ in millions)	RIF		Number of Defaults		Delinquency Rate		Percentage of Reserve for Losses		Average FICO (1) at Origination (2)	Original Average LTV (2)
2008 and prior	$	5,749	13,095		8.8	%	70.3	%	698	89.9	%
2009	199		156		3.1		0.7		752	88.5
2010	170		67		1.7		0.3		765	91.7
2011	465		141		1.4		0.6		763	91.9
2012	2,094		457		1.1		1.8		763	91.8
2013	3,504		892		1.4		3.7		758	92.2
2014	3,464		1,174		1.8		4.7		747	92.3
2015	5,806		1,366		1.3		5.9		749	92.0
2016	9,544		1,649		1.0		6.1		750	91.8
2017	11,958		1,586		0.8		4.9		748	92.3
2018	13,775		510		0.2		1.0		746	92.5
Total	$	56,728	21,093	(3)			100.0	%

______________________


(1)	Represents the borrower’s credit score at origination. In circumstances where there is more than one borrower, the FICO score for the primary borrower is utilized.


(2)	Average FICO at origination and original average LTV are weighted averages based on the unpaid principal balances of the underlying mortgage loans in our portfolio at December 31, 2018.


(3)	Includes 2,627 defaults at December 31, 2018 in the FEMA Designated Areas associated with Hurricanes Harvey and Irma, both of which occurred during the third quarter of 2017. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Mortgage Insurance—NIW, IIF, RIF—Provision for Losses.”

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The amount of time that our insurance certificates remain in force, which is affected by loan repayments and terminations of our insurance, has a significant impact on our revenues and our results of operations. Our Persistency Rate is one key measure for assessing the impact that insurance terminations resulting in certificate cancellations have on our IIF. Because our insurance premiums are earned over time, higher Persistency Rates on Monthly Premium Policies increase the premiums we receive and generally result in increased profitability and returns. Conversely, assuming all other factors remain constant, higher Persistency Rates on Single Premium business lower the overall returns from our insured portfolio, as the premium revenue for our Single Premium Policies is the same regardless of the actual life of the insurance policy and we are required to maintain regulatory capital and Available Assets supporting the insurance for the life of the policy. The Persistency Rate of our primary mortgage insurance was 83.1% at December 31, 2018, compared to 81.1% at December 31, 2017. Historically, there is a close correlation between interest rates and Persistency Rates. Lower interest rate environments generally increase refinancings that result in the cancellation of our insurance. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Mortgage Insurance—NIW, IIF, RIF” for the details regarding our Persistency Rates.

A higher Persistency Rate results in our IIF remaining in place for a longer period of time. Our IIF is one of the primary drivers of future premiums that we expect to earn over time. We expect our IIF to generate substantial income in future periods, due to the high credit quality of our current mortgage insurance portfolio and our expected Persistency Rate 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” for more information.

Geographic Dispersion

The following table shows, as of December 31, 2018 and 2017, the percentage of our direct primary mortgage insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 states in the U.S. (as measured by our direct primary mortgage insurance RIF as of December 31, 2018):



	December 31,
	2018				2017
Top Ten States	RIF		Reserve for Losses		RIF		Reserve for Losses
California	12.3	%	7.1	%	12.4	%	6.7	%
Texas	8.9		6.6	<

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$22.79	214	$4,870

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	2019-04-12	Officers, Other Events
8-K	2019-04-08	Enter Agreement, Exhibits
8-K	2019-03-19	Leave Agreement, Shareholder Rights, Amend Bylaw, Exhibits
8-K	2019-03-19	Officers, Other Events, 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

KSS	Kohl's	11,500
BHC	Bausch	8,440
RNR	Renaissancere Holdings	6,520
ERI	Eldorado Resorts	3,840
RCKT	Rocket Pharmaceuticals	840
ORC	Orchid Island Capital	333
FNCB	FNCB Bancorp	158
BW	Babcock & Wilcox Enterprises	51
SMRT	Stein Mart	44
SDON	Sandston	0

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