Note 7 - Reinsurance (Notes)

3 Months Ended

Mar. 31, 2013

Reinsurance [Abstract]

Reinsurance [Text Block]

Reinsurance

In our mortgage insurance business, we use reinsurance as a risk management tool to reduce our net RIF and to help manage our regulatory risk-to-capital ratio. We have primarily used reinsurance in our financial guaranty business to the extent necessary in specific transactions to comply with applicable single risk limits. However, in January 2012, as part of a transaction with one of our primary insurers (discussed below), we ceded $1.8 billion of financial guaranty’s direct public finance risk as a means to reduce our net par outstanding. Although the use of reinsurance does not discharge an insurer from its primary liability to the insured, the reinsuring company assumes the related liability under these arrangements. Included in other assets are unearned premiums on risk that we have ceded of $75.0 million and $64.5 million at March 31, 2013 and December 31, 2012, respectively.

The effect of assumed or ceded reinsurance in our mortgage insurance and financial guaranty businesses on net premiums written and earned is as follows:

	Three Months Ended March 31,
(In thousands)	2013			2012
Net premiums written-insurance:
Direct	$	245,467		$	203,753
Assumed	(10,397		)	(87,488		)
Ceded	(27,885		)	(38,587		)
Net premiums written-insurance	$	207,185		$	77,678
Net premiums earned-insurance:
Direct	$	207,940		$	192,016
Assumed	2,211			(10,685		)
Ceded	(17,563		)	(13,966		)
Net premiums earned-insurance	$	192,588		$	167,365

In January 2013, we commuted $822.2 million of financial guaranty net par outstanding as a part of the FGIC Commutation. This transaction reduced our net premiums written by $12.6 million and reduced our net premiums earned by $2.5 million. In January 2012, Radian Asset Assurance entered into a transaction with subsidiaries of Assured Guaranty Ltd. (collectively “Assured”) that included the commutation of $13.8 billion of financial guaranty net par outstanding that Radian Asset Assurance had reinsured from Assured, and the cession of $1.8 billion of direct public finance business to Assured. This transaction reduced our net premiums written by $119.8 million and reduced our net premiums earned by $22.2 million.

During the second quarter of 2012, Radian Guaranty entered into a quota share reinsurance agreement with a third-party reinsurance provider (the “Initial Quota Share Reinsurance Transaction”). Through the Initial Quota Share Reinsurance Transaction, Radian Guaranty agreed to cede to the third party reinsurance provider 20% of its NIW beginning with the business written in the fourth quarter of 2011. As of March 31, 2013, RIF ceded under the Initial Quota Share Reinsurance Transaction was $1.5 billion. Radian Guaranty has the ability, at its option, to recapture two-thirds of the reinsurance ceded as part of this transaction on December 31, 2014, which would result in Radian Guaranty reassuming the related RIF in exchange for a payment of a predefined commutation amount from the reinsurer.

Under the Initial Quota Share Reinsurance Transaction, for the three months ended March 31, 2013, ceded premiums written were $6.1 million and ceded premiums earned were $7.8 million. Ceding commissions under the Initial Quota Share Reinsurance Transaction for the three months ended March 31, 2013 were $1.5 million.

In the fourth quarter of 2012, Radian Guaranty and the same third-party reinsurance provider entered into a second quota share reinsurance agreement (the “Second Quota Share Reinsurance Transaction”). The limitation on ceded risk is $750 million initially and the parties have the ability to mutually increase the amount of ceded risk up to a maximum of $2 billion. As of March 31, 2013, RIF ceded under the Second Quota Share Reinsurance Transaction was $0.9 billion. The agreed upon terms also provide that, effective as of December 31, 2015, Radian Guaranty will have the ability, at its option (the “Commutation Option”), to recapture one-half of the reinsurance ceded with respect to conventional GSE loans, which would result in Radian Guaranty reassuming the related RIF in exchange for a payment of a predefined commutation amount from the reinsurer. Pursuant to the original terms of the Second Quota Share Reinsurance Transaction:

(i) Radian Guaranty agreed to cede to the reinsurer 20% of all premiums and losses incurred with respect to conventional GSE loans and will initially receive a 35% ceding commission; provided, that if we do not exercise our Commutation Option, the ceding commission will be reduced to 30% for the portion of the ceded RIF that was subject to the Commutation Option; and

(ii) Radian Guaranty has the ability to cede 100% of all premiums and losses incurred with respect to non-conventional portfolio loans and will receive a 25% ceding commission. We do not expect the volume of such portfolio loans to be material.

Under the Second Quota Share Reinsurance Transaction, for the three months ended March 31, 2013, ceded premiums written were $16.4 million and ceded premiums earned were $2.8 million. Ceding commissions under the Second Quota Share Reinsurance Transaction for the three months ended March 31, 2013 were $5.8 million. Effective April 1, 2013, Radian Guaranty amended the original terms of the transaction to reduce the percentage of all premiums and losses incurred on new business that will be ceded to the reinsurer under this reinsurance agreement on a prospective basis from 20% to 5% with respect to NIW on conventional GSE loans.