Radian Group Inc.

Schedule II—Financial Information of Registrant

Balance Sheets

Parent Company Only



	December 31,
(In thousands, except share and per-share amounts)	2013			2012
Assets
Investments
Trading securities—at fair value	$	5,240		$	99,171
Short-term investments—at fair value	633,178			136,075
Other invested assets	—			16,666
Cash	4,304			2,978
Restricted cash	123			360
Investment in subsidiaries, at equity in net assets	1,419,360			1,234,229
Debt issuance costs	15,741			8,582
Due from affiliates, net	12,283			17,690
Property and equipment, at cost (less accumulated depreciation of $49,632 and $48,786)	1,281			1,344
Other assets	20,985			33,524
Total assets	$	2,112,495		$	1,550,619
Liabilities and Stockholders’ Equity
Accrued interest payable	5,551			3,959
Accrued compensation expense	132,848			46,835
Long-term debt	930,072			663,571
Federal income taxes—current and deferred	98,476			91,895
Other liabilities	5,903			8,034
Total liabilities	1,172,850			814,294
Common stockholders’ equity
Common stock: par value $.001 per share; 485,000,000 and 325,000,000 shares authorized at December 31, 2013 and December 31, 2012; 190,636,972 and 151,131,173 shares issued at December 31, 2013 and 2012, respectively; 173,099,515 and 133,647,216 shares outstanding at December 31, 2013 and 2012, respectively	191			151
Treasury stock, at cost: 17,537,457 and 17,483,957 shares at December 31, 2013 and 2012, respectively	(892,807		)	(892,094		)
Additional paid-in capital	2,347,104			1,967,414
Retained deficit	(552,226		)	(355,241		)
Accumulated other comprehensive income	37,383			16,095
Total common stockholders’ equity	939,645			736,325
Total liabilities and stockholders’ equity	$	2,112,495		$	1,550,619

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Operations

Parent Company Only



	Year Ended December 31,
(In thousands)	2013			2012			2011
Revenues:
Net investment income	$	4,300		$	9,093		$	15,890
Net (losses) gains on investments	(930		)	8,816			24,603
Net (losses) gains on other financial instruments	(6,026		)	9,180			1,085
Other income	—			3			3
Total revenues	(2,656		)	27,092			41,581
Expenses:
Other operating expenses	—			2,690			—
Interest expense	37,087			17,756			16,132
Total expenses	37,087			20,446			16,132
(Loss) income before income taxes	(39,743		)	6,646			25,449
Provision (benefit) for income taxes	9,234			(40,187		)	(201,741		)
Equity in net (loss) income of affiliates	(148,008		)	(498,301		)	74,960
Net (loss) income	$	(196,985	)	$	(451,468	)	$	302,150

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Cash Flows

Parent Company Only



	Year Ended December 31,
(In thousands)	2013			2012			2011
Cash flows from operating activities:
Net (loss) income	$	(196,985	)	$	(451,468	)	$	302,150
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Net losses (gains) on other investments	3,004			(1,821		)	(24,603		)
Losses (gains) on the repurchase of long-term debt	3,952			(16,175		)	—
Equity in undistributed net loss (income) of subsidiaries and affiliates (1)	150,090			505,267			(495,954		)
Increase (decrease) in federal income taxes	6,583			(7,145		)	49,396
Depreciation and other amortization, net	30,286			18,603			17,185
Change in other assets	23,301			(17,708		)	(3,801		)
Change in other liabilities	85,450			25,336			90,895
Net cash provided by (used in) operating activities	105,681			54,889			(64,732		)
Cash flows from investing activities:
Sales/redemptions of trading securities	9,000			153,992			151,840
Purchases of trading securities	—			(3		)	(32,825		)
(Purchases) sales of short-term investments, net	(496,979		)	41,042			156,665
Sales of other assets, net	21,473			8,709			—
Purchases of property and equipment, net	(647		)	(1,124		)	(523		)
Capital contributions to subsidiaries and affiliates (1)	(233,391		)	(100,384		)	(50,587		)
Net cash (used in) provided by investing activities	(700,544		)	102,232			224,570
Cash flows from financing activities:
Dividends paid	(1,632		)	(1,335		)	(1,330		)
Proceeds/payments related to issuance or exchange of debt, net	377,783			—			—
Redemption of long-term debt	(79,372		)	(153,261		)	(160,000		)
Issuance of common stock	299,410			—			—
Net cash provided by (used in) financing activities	596,189			(154,596		)	(161,330		)
Increase (decrease) in cash	1,326			2,525			(1,492		)
Cash, beginning of year	2,978			453			1,945
Cash, end of year	$	4,304		$	2,978		$	453

_______________________


(1)	See Note D.

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Parent Company Only

Supplemental Notes

Note A

The Radian Group Inc. (the “Parent Company”) financial statements represent the stand-alone financial statements of the Parent Company. These financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein, except that the Parent Company uses the equity-method of accounting for its majority owned subsidiaries. Refer to the Parent Company’s consolidated financial statements for additional information.

Certain prior period balances have been reclassified to conform to the current period presentation.

Note B

Included in short-term investments at December 31, 2013 and 2012 is $41.6 million and $55.6 million, respectively, of restricted funds required to support potential tax payments to Radian Asset Assurance under the terms of our current tax-sharing agreement. We also had $0.1 million and $0.4 million at December 31, 2013 and 2012, respectively, of restricted cash held as collateral for our insurance trust agreement for our health insurance policy.

Note C

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries corporate income and expense it incurs in the capacity of supporting those subsidiaries, based on either an allocated percentage of time spent or internally allocated capital. Substantially all operating expenses and interest expense, except for discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019, have been allocated to the subsidiaries for 2013, 2012 and 2011. Total operating expenses and interest expense allocated to subsidiaries for 2013, 2012 and 2011, were $140.0 million, $93.2 million and $100.7 million, respectively, and are presented net of reimbursements in the Statements of Operations. Amounts charged to the subsidiaries for operating expenses are based on actual cost, without any mark-up, except for the amounts charged to subsidiaries outside the U.S. for which a reasonable mark-up is charged. The Parent Company considers these charges fair and reasonable. The subsidiaries reimburse the Parent Company for these costs in a timely manner, which has the impact of temporarily improving the cash flows of the Parent Company, if accrued expenses are reimbursed prior to actual payment.

Note D

During 2013, the Parent Company received dividends from its subsidiaries of $7.6 million. The Parent Company did not receive any dividends from its subsidiaries in 2012 and 2011.

During 2013, the Parent Company made total capital contributions of $313.9 million to its subsidiaries. This amount included cash contributions totaling $230 million to Radian Guaranty, a contribution of investments and accrued interest of $80.5 million to RDN Investments, Inc., a cash contribution of $2.9 million to Radian Mortgage Services and a cash contribution of $0.1 million to Radian Mortgage Reinsurance Company. An additional $100 million capital contribution was made by the Parent Company to Radian Guaranty in February 2014. The amount of total capital contributions also includes a cash reimbursement to Radian Guaranty of $0.4 million in interest expense payments made to the Parent Company by RMAI pursuant to the interest expense-sharing arrangement. The Parent Company also received tax payments of $0.5 million from its subsidiaries in 2013 under our tax-sharing agreement.

During 2012, the Parent Company made total capital contributions of $100.4 million to its subsidiaries. This included a cash contribution of $100 million to Radian Guaranty and a $0.1 million cash contribution to Radian Mortgage Reinsurance Company. The amount of total capital contributions also includes the cash reimbursement to Radian Guaranty of $0.3 million in interest expense payments made to the Parent Company by RMAI pursuant to the interest expense sharing arrangement. The Parent Company also received tax payments of $36.8 million from its subsidiaries in 2012 under our tax-sharing agreement.

During 2011, the Parent Company contributed $30 million to Radian Guaranty and $20.1 million to EFSG. During 2011, the Parent Company also made tax payments to its subsidiaries of $67 million under our tax-sharing agreement. In December 2011, the Parent Company contributed its ownership interest in RMAI to Radian Guaranty, which totaled approximately $16.6 million. Also in December 2011, Radian Guaranty sold its ownership interest in EFSG to the Parent Company for approximately $5.7 million.

Note E

During 2012, the Parent Company acquired $170.6 million in aggregate principal amount of its Senior Notes due 2013, primarily as a result of a tender offer for a price of $900 per $1,000 principal amount of these notes. These purchases resulted in a realized gain of $16.2 million, representing the excess of carrying value over the purchase price. The Parent Company repaid the remaining outstanding balance of $79.4 million of its Senior Notes due 2013 upon maturity on February 15, 2013.

During 2013, the Parent Company exchanged $195.5 million of its Senior Notes due 2015 (the “Old Notes”) for a new series of 9.000% Senior Notes due June 2017 (the “New Notes”) for purposes of improving our debt maturity profile. These transactions, which are accounted for as extinguishments of debt, resulted in a loss of $4.0 million, primarily as a result of the requirement to record the New Notes at fair value. Both the Old Notes and the New Notes have covenants customary for securities of this nature, including covenants related to the payments of the notes, reports, compliance certificates and modification of the covenants. Additionally, the indentures governing the Old Notes and New Notes include covenants restricting the Parent Company from encumbering the capital stock of a designated subsidiary (as defined in the respective indentures for the notes) or disposing of any capital stock of any designated subsidiary unless either all of the stock is disposed of or the Parent Company retains more than 80% of the stock. Interest on the New Notes is payable semi-annually on June 15 and December 15 of each year commencing on June 15, 2013.

In March 2013, the Parent Company issued $400 million principal amount of the Convertible Senior Notes due 2019 and received net proceeds of approximately $389.8 million, which was net of underwriting expenses. Interest is payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2013.

In March 2013, the Parent Company sold 39.1 million shares of common stock at a public offering price of $8.00 per share and received net proceeds of approximately $299.4 million.

At December 31, 2013, the maturities of the principal amount of our long-term debt in future years are as follows:



(In thousands)
2015	$	54,499
2017	645,501
Thereafter	400,000
	$	1,100,000

Note F

Net investment income for 2013 declined compared to 2012, primarily due to the continuation of the lower interest rate environment, which resulted in lower market yields for our investments, as well as a reduction in total investment balances. The net investment income for 2012 compared to 2011 declined as a result of a decrease in our investment balances, as well as a shift from higher yielding securities in our investment portfolio to lower yielding investments.

The net losses on investments for 2013 reflect unrealized losses from our trading portfolio offset by gains on the redemption of our Limited Partnership investment. The net gains on investments for 2012 and 2011 reflect gains from the sale of securities in our portfolio.

The net losses on other financial instruments for 2013 reflect losses on the exchange of our Senior Notes due 2017, coupled with unrealized losses on structured settlements. The net gains on other financial instruments for 2012 reflect gains on the repurchase of our Senior Notes due 2013 offset by unrealized losses on structured settlements.

The interest expense reflects discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019, which is not allocated to our subsidiaries. The increase in 2013 compared to 2012 is primarily related to the issuance of $400 million of Convertible Senior Notes due 2019. The interest expense for 2012 and 2011 reflects discount amortization on our long-term debt, which is not allocated to our subsidiaries.