Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Balance Sheets

Parent Company Only



	December 31,
(In thousands, except share and per-share amounts)	2015			2014
Assets
Investments
Fixed-maturities available for sale—at fair value	$	41,176		$	—
Equity securities available for sale—at fair value	25,510			—
Trading securities—at fair value	5,482			5,447
Short-term investments—at fair value	158,658			631,934
Total investments	230,826			637,381
Cash	3,301			1,951
Restricted cash (Note B)	124			124
Investment in subsidiaries, at equity in net assets	3,001,846			2,746,915
Accounts and notes receivable (Note G)	631,636			305,856
Other assets (Note H)	124,983			31,394
Assets held for sale (Note A)	—			18,027
Total assets	$	3,992,716		$	3,741,648

Liabilities and Stockholders’ Equity
Long-term debt (Note E)	$	1,219,454		$	1,192,299
Federal income taxes—current and deferred	229,939			262,583
Other liabilities	46,392			96,989
Liabilities held for sale (Note A)	—			18,027
Total liabilities	1,495,785			1,569,898

Equity component of currently redeemable convertible senior notes	—			74,690
Common stockholders’ equity
Common stock: par value $.001 per share; 485,000,000 shares authorized at December 31, 2015 and 2014; 224,432,465 and 208,601,020 shares issued at December 31, 2015 and 2014, respectively; 206,871,768 and 191,053,530 shares outstanding at December 31, 2015 and 2014, respectively	224			209
Treasury stock, at cost: 17,560,697 and 17,547,490 shares at December 31, 2015 and 2014, respectively	(893,176		)	(892,961		)
Additional paid-in capital	2,716,618			2,531,513
Retained earnings	691,742			406,814
Accumulated other comprehensive (loss) income	(18,477		)	51,485
Total common stockholders’ equity	2,496,931			2,097,060
Total liabilities and stockholders’ equity	$	3,992,716		$	3,741,648

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Statements of Operations

Parent Company Only



	Year Ended December 31,
(In thousands)	2015			2014			2013
Revenues:
Net investment income	$	17,917		$	9,515		$	4,300
Net gains (losses) on investments and other financial instruments	2,975			(2,732		)	(6,956		)
Other income	—			7			—
Total revenues	20,892			6,790			(2,656		)
Expenses:
Loss on induced conversion and debt extinguishment	94,207			—			—
Interest expense	55,768			57,366			37,087
Total expenses	149,975			57,366			37,087
Pretax loss from continuing operations	(129,083		)	(50,576		)	(39,743		)
Income tax (benefit) provision	(43,854		)	143,912			9,234
Equity in net income (loss) of affiliates	371,949			1,172,032			(148,008		)
Net income (loss) from continuing operations	286,720			977,544			(196,985		)
Income (loss) from discontinued operations, net of taxes	204			(18,027		)	—
Net income (loss)	286,924			959,517			(196,985		)
Other comprehensive (loss) income, net of tax	(70,227		)	14,161			21,090
Comprehensive income (loss)	$	216,697		$	973,678		$	(175,895	)

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Statements of Cash Flows

Parent Company Only



	Year Ended December 31,
(In thousands)	2015			2014			2013
Net cash (used in) provided by operating activities, continuing operations	$	(128,879	)	$	(27,153	)	$	105,681
Net cash used in operating activities, discontinued operations	—			(18,027		)	—
Net cash (used in) provided by operating activities	(128,879		)	(45,180		)	105,681
Cash flows from investing activities:
Proceeds from redemptions of trading securities	—			—			9,000
Purchases of fixed-maturities available for sale	(39,667		)	—			—
Purchases of equity securities available for sale	(25,545		)	—			—
Sales, redemptions (purchases) of short-term investments, net	473,350			1,372			(496,979		)
Sales of other assets and other invested assets, net	—			—			21,473
Other, net	(688		)	(1,351		)	(647		)
Capital distributions from subsidiaries and affiliates	113,784			—			—
Capital contributions to subsidiaries and affiliates	(182,307		)	(139,103		)	(233,391		)
Issuance of note receivable from affiliate (Note G)	(208,527		)	(300,000		)	—
Net cash provided by (used in) investing activities	130,400			(439,082		)	(700,544		)
Cash flows from financing activities:
Dividends paid	(1,996		)	(1,865		)	(1,632		)
Issuance of long-term debt, net	343,334			293,809			377,783
Purchases and redemptions of long-term debt	(156,172		)	(57,223		)	(79,372		)
Proceeds from termination of capped calls	13,150			—			—
Issuance of common stock	1,285			247,188			299,410
Purchase of shares under ASR	(202,000		)	—			—
Excess tax benefits from stock-based awards	2,228			—			—
Net cash (used in) provided by financing activities	(171		)	481,909			596,189
Increase (decrease) in cash	1,350			(2,353		)	1,326
Cash, beginning of year	1,951			4,304			2,978
Cash, end of year	$	3,301		$	1,951		$	4,304

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”, “we” or “our”) 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. These financial statements should be read in conjunction with our consolidated financial statements and the accompanying notes thereto.

Certain prior period amounts have been reclassified to conform to current period presentation, including the adoption of an update to the accounting standard for the presentation of debt issuance costs in financial statements. See Notes 2 and 11 of Notes to Consolidated Financial Statements for additional information.

On April 1, 2015, Radian Guaranty completed the sale of Radian Asset Assurance pursuant to the Radian Asset Assurance Stock Purchase Agreement. See Note 3 of Notes to Consolidated Financial Statements for additional information related to discontinued operations.

Under our current tax-sharing agreement between the Parent Company and its subsidiaries, we are required to refund to each subsidiary any amount that the subsidiary could utilize through existing carryback provisions of the Internal Revenue Code had such subsidiary filed its federal tax return on a separate company basis. Pursuant to this, we had paid Radian Asset Assurance for losses and foreign tax credits it had generated, and Radian Group had recorded the DTA for the related consolidated carryforward on its balance sheet. However, the Internal Revenue Code consolidation provisions do not allocate consolidated carryovers based on tax-sharing agreements, but rather on an allocation to all subsidiaries that generated the carryforward. Upon a stock sale of a subsidiary, any consolidated attributes allocated to a subsidiary under these regulations transfer to the subsidiary and are no longer part of the consolidated carryforward. As such, for the year ended December 31, 2014, the Parent Company classified the DTAs pertaining to Radian Asset Assurance’s foreign tax credit and allocated NOL as assets held for sale and recorded a related loss from discontinued operations. These DTAs were transferred to Assured upon completion of the sale of Radian Asset Assurance in 2015.

Note B

Included in short-term investments at December 31, 2014 is $45.1 million of restricted funds that had been required to support potential tax payments to Radian Asset Assurance under the terms of our current tax-sharing agreement. The restrictions on such funds were released upon the sale of Radian Asset Assurance in 2015. We also had $0.1 million at both December 31, 2015 and 2014, 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 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 2015, 2014 and 2013. Total operating expenses and interest expense allocated to subsidiaries for 2015, 2014 and 2013 were $84.7 million, $92.5 million and $140.0 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. 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 2015, the Parent Company made total capital contributions of $398.3 million to its subsidiaries. This amount included a cash contribution of $100.0 million to Radian Guaranty, contributions of cash ($50.0 million) and marketable securities ($216.0 million) totaling $266.0 million to Radian Reinsurance, and cash contributions of $20.0 million, $12.1 million and $0.2 million to Radian Mortgage Guaranty Inc., Radian Clayton Holdings Inc., and Radian Mortgage Reinsurance Company, respectively.

During 2015, the Parent Company received dividends from its subsidiaries totaling $446.2 million in cash and marketable securities. This amount included marketable securities of $216.0 million from Enhance Financial Services Group Inc. and cash of $15.0 million from Radian MI Services Inc., which were used to partially fund the creation of Radian Reinsurance as part of an approved reorganization of our mortgage insurance subsidiaries. In addition, the Parent Company received a total of $215.2 million in cash ($98.7 million) and marketable securities ($116.5 million) from RDN Investments, Inc., to partially fund the acquisition of a Surplus Note from Radian Guaranty (see Note G for additional information). The Parent Company also received tax payments of $16.0 million from its subsidiaries in 2015 under our tax-sharing agreement.

During 2014, the Parent Company made total capital contributions of $139.1 million to its subsidiaries. This amount included cash contributions of $100 million to Radian Guaranty, $20 million to Radian MI Services Inc., $19 million to Radian Clayton Holdings Inc. and $0.1 million to Radian Mortgage Reinsurance Company. The Parent Company did not receive any dividends from its subsidiaries in 2014. The Parent Company did receive tax payments of $8.8 million from its subsidiaries in 2014 under our tax-sharing agreement.

During 2013, the Parent Company made total capital contributions of $313.9 million to its subsidiaries. This amount included cash contributions totaling $230.4 million to Radian Guaranty, a contribution of marketable securities and accrued interest of $80.5 million to RDN Investments, Inc., a cash contribution of $2.9 million to Radian MI Services Inc. and a cash contribution of $0.1 million to Radian Mortgage Reinsurance Company. 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. During 2013, the Parent Company received dividends from its subsidiaries of $7.6 million. The Parent Company also received tax payments of $0.5 million from its subsidiaries in 2013 under our tax-sharing agreement.

Note E

During 2015, the Parent Company successfully completed a series of transactions to strengthen its capital position, including reducing its overall cost of capital and improving the maturity profile of its debt. See Notes 11 and 18 of Notes to Consolidated Financial Statements for additional information on our loss on induced conversion and debt extinguishment, long-term debt and capital stock.

At December 31, 2015, the maturities of the principal amount of our long-term debt in future years are as follows:



(In thousands)
2017	$	247,871
2019	689,992
2020	350,000
	$	1,287,863

Note F

Net investment income increased in 2015 compared to 2014 primarily due to a full year of interest earned on a note receivable from Radian Clayton Holdings Inc., which totaled $17.7 million in net investment income for the year ended December 31, 2015 (see Note G for additional information). Net investment income increased in 2014 compared to 2013 primarily due to $8.9 million of interest earned on that note receivable for part of the year, offset by lower market yields for our investments during 2014.

Interest expense reflects the discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019 and the Senior Notes due 2019, which are not allocated to our subsidiaries. The reduction in interest expense in 2015 was primarily attributable to lower expense following the induced conversion and extinguishment of substantially all of our Convertible Senior Notes due 2017, partially offset by interest expense related to our Senior Notes due 2020, issued in 2015, and a full year of interest expense attributable to the Senior Notes due 2019 that were issued in 2014.

The issuance of the Senior Notes due 2019 and a full year of interest expense and discount amortization attributable to the Convertible Senior Notes due 2019 were the primary reasons for the increase in interest expense in 2014.

Note G

Accounts and notes receivable included a $300 million note receivable from Radian Clayton Holdings Inc. as of December 31, 2015 and 2014. This represents the principal amount related to the Senior Notes due 2019, which funded the acquisition of Clayton in June 2014. Interest on the note is payable semi-annually on June 1 and December 1, beginning December 1, 2014. The interest payment represents coupon interest plus issuance costs (amortized on a straight line basis over the term of the note). The principal is due on June 1, 2019.

Accounts and notes receivable also included, as of December 31, 2015, a $325 million Surplus Note from Radian Guaranty. In December 2015, the Parent Company transferred $325 million of cash ($208.5 million) and marketable securities ($116.5 million) to Radian Guaranty in exchange for a Surplus Note issued by Radian Guaranty. See Note 14 of Notes to Consolidated Financial Statements for additional information related to the terms of this Surplus Note.

Note H

Other assets increased as of December 31, 2015, compared to December 31, 2014, primarily as a result of the transfer of an $89 million deposit with the IRS to the Parent Company from RGRI, in exchange for cash. See Note 13 of Notes to Consolidated Financial Statements for additional information related to this “qualified deposit” and the status of the examination by the IRS of our 2000 through 2007 consolidated federal income tax returns.

Note I

We and certain of our subsidiaries have entered into the following intercompany guarantees:


•	Radian Group and RMAI are parties to a guaranty agreement, which provides that Radian Group will make sufficient funds available to RMAI to ensure that RMAI has a minimum of $5 million of statutory policyholders’ surplus every calendar quarter. RMAI had $8.1 million of statutory policyholders’ surplus and no RIF exposure as of December 31, 2015.

•

Radian Group and Radian Mortgage Insurance, a subsidiary of Radian Guaranty, are parties to a guaranty agreement in which Radian Group has agreed for the benefit of Radian Mortgage Insurance’s creditors to make funds available on demand for the full and complete payment of all due but unpaid liabilities. Radian Mortgage Insurance had $2.8 million of statutory policyholders’ surplus at December 31, 2015.

•

To allow our mortgage insurance customers to comply with applicable securities regulations for issuers of ABS (including MBS), we have been required, depending on the amount of credit enhancement we were providing, to provide: (1) audited financial statements for the insurance subsidiary participating in these transactions; or (2) a full and unconditional holding-company level guarantee for our insurance subsidiaries’ obligations in such transactions. Radian Group has guaranteed two Structured Transactions for Radian Guaranty with approximately $119.2 million of aggregate remaining credit exposure as of December 31, 2015.

•

Radian Group and RGRI are parties to an Assumption and Indemnification Agreement with regard to RGRI’s portion of the Deficiency Amounts relating to the IRS litigation. This indemnification agreement was made in lieu of an immediate capital contribution to RGRI that otherwise would have been required for RGRI to maintain its minimum statutory policyholders’ surplus requirements in light of the remeasurement as of December 31, 2011 of uncertain tax positions related to the portfolio of REMIC residual interests. See Note H for additional information.