Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Balance Sheets

Parent Company Only



	December 31,
($ in thousands, except per-share amounts)	2016			2015
Assets
Investments
Fixed-maturities available for sale—at fair value	$	79,336		$	41,176
Equity securities available for sale—at fair value	—			25,510
Trading securities—at fair value	—			5,482
Short-term investments—at fair value	311,418			158,658
Total investments	390,754			230,826
Cash	8,256			3,301
Restricted cash (Note B)	124			124
Investment in subsidiaries, at equity in net assets (Note C)	3,383,089			3,001,846
Accounts and notes receivable (Note D)	305,316			631,636
Other assets (Note E)	166,098			124,983
Total assets	$	4,253,637		$	3,992,716

Liabilities and Stockholders’ Equity
Long-term debt (Note F)	$	1,069,537		$	1,219,454
Federal income taxes—current and deferred	266,289			229,939
Other liabilities	45,525			46,392
Total liabilities	1,381,351			1,495,785

Common stockholders’ equity
Common stock: par value $.001 per share; 485,000,000 shares authorized at December 31, 2016 and 2015; 232,091,921 and 224,432,465 shares issued at December 31, 2016 and 2015, respectively; 214,521,079 and 206,871,768 shares outstanding at December 31, 2016 and 2015, respectively	232			224
Treasury stock, at cost: 17,570,842 and 17,560,697 shares at December 31, 2016 and 2015, respectively	(893,332		)	(893,176		)
Additional paid-in capital	2,779,891			2,716,618
Retained earnings	997,890			691,742
Accumulated other comprehensive income (loss)	(12,395		)	(18,477		)
Total common stockholders’ equity	2,872,286			2,496,931
Total liabilities and stockholders’ equity	$	4,253,637		$	3,992,716

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)	2016			2015			2014
Revenues:
Net investment income	$	20,834		$	17,917		$	9,515
Net gains (losses) on investments and other financial instruments	(150		)	2,975			(2,732		)
Other income	49			—			7
Total revenues	20,733			20,892			6,790
Expenses:
Loss on induced conversion and debt extinguishment	75,075			94,207			—
Interest expense	29,002			55,768			57,366
Total expenses (Note G)	104,077			149,975			57,366
Pretax loss from continuing operations	(83,344		)	(129,083		)	(50,576		)
Income tax provision (benefit)	(8,676		)	(43,854		)	143,912
Equity in net income of affiliates	382,921			371,949			1,172,032
Net income from continuing operations	308,253			286,720			977,544
Income (loss) from discontinued operations, net of taxes	—			204			(18,027		)
Net income	308,253			286,924			959,517
Other comprehensive income (loss), net of tax	6,082			(69,962		)	14,102
Comprehensive income	$	314,335		$	216,962		$	973,619

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)	2016			2015			2014
Net cash provided by (used in) operating activities, continuing operations	$	38,902		$	(128,879	)	$	(27,152	)
Net cash provided by (used in) operating activities, discontinued operations	—			—			(18,027		)
Net cash provided by (used in) operating activities	38,902			(128,879		)	(45,179		)
Cash flows from investing activities:
Proceeds from sales of:
Fixed-maturity investments available for sale	47,058			—			—
Equity securities available for sale	24,992			—			—
Trading securities	30,350			—			—
Proceeds from redemptions of:
Fixed-maturity investments available for sale	49,578			—			—
Trading securities	10,000			—			—
Purchases of :
Fixed-maturity investments available for sale	(137,431		)	(39,667		)	—
Equity securities available for sale	—			(25,545		)	—
Sales, redemptions and (purchases) of :
Short-term investments, net	(40,288		)	473,350			1,372
Other assets, net	239			(688		)	(1,351		)
Capital distributions from subsidiaries and affiliates	15,000			113,784			—
Capital contributions to subsidiaries and affiliates	(1,500		)	(182,307		)	(139,103		)
Acquisition of subsidiaries	(30,443		)	—			—
(Issuance) repayment of note receivable from affiliate (Note D)	201,631			(208,527		)	(300,000		)
Net cash provided by (used in) investing activities	169,186			130,400			(439,082		)
Cash flows from financing activities:
Dividends paid	(2,105		)	(1,996		)	(1,865		)
Issuance of long-term debt, net	343,417			343,334			293,809
Purchases and redemptions of long-term debt	(445,072		)	(156,172		)	(57,223		)
Proceeds from termination of capped calls	—			13,150			—
Issuance of common stock	717			1,285			247,188
Purchase of common shares	(100,188		)	(202,000		)	—
Excess tax benefits from stock-based awards	98			2,228			—
Net cash provided by (used in) financing activities	(203,133		)	(171		)	481,909
Increase (decrease) in cash and restricted cash	4,955			1,350			(2,352		)
Cash and restricted cash, beginning of period	3,425			2,075			4,427
Cash and restricted cash, end of period	$	8,380		$	3,425		$	2,075

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 treatment of restricted cash in the statement of cash flows. See Note 2 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 18 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

We had restricted cash of $0.1 million at both December 31, 2016 and 2015, held as collateral for our insurance trust agreement for our health insurance policy.

Note C

During 2016, the Parent Company made total capital contributions of $2.5 million to its subsidiaries. This amount included a cash contribution of $1.5 million to RDN Investments, Inc. and a $1.0 million contribution of marketable securities to Clayton Group Holdings Inc. In addition, during 2016, the Parent Company purchased Radian Insurance, Radian Mortgage Insurance and RMAI from Radian Guaranty for $19.0 million, $2.8 million and $8.6 million, respectively. The purchase price of each subsidiary represented its total statutory capital and surplus as of September 30, 2016.

During 2016, the Parent Company received dividends from its subsidiaries totaling $40.4 million in cash and marketable securities. This amount included cash of $15.0 million from Enhance Financial Services Group Inc. and marketable securities from RDN Investments, Inc. of $25.4 million. In addition, the Parent Company received a dividend from Radian MI Services Inc. of its full investment in Radian Investor Surety Inc., which was valued at $5.0 million at the date of transfer. The Parent Company also received tax payments of $51.2 million from its subsidiaries under our tax sharing agreement.

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., Clayton Group 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 ($98.7 million in cash and $116.5 million in marketable securities) from RDN Investments, Inc., to partially fund the acquisition of a Surplus Note from Radian Guaranty (see Note D 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.

Note D

Accounts and notes receivable included a $300 million note receivable from Clayton Group Holdings Inc. as of December 31, 2016 and 2015. 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. See Note E for additional information.

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 ($208.5 million in cash and $116.5 million in marketable securities) to Radian Guaranty in exchange for a Surplus Note issued by Radian Guaranty. On June 30, 2016, Radian Guaranty transferred $325 million ($201.6 million in cash and $123.4 million in marketable securities) in repayment of the outstanding Surplus Note. See Note 19 of Notes to Consolidated Financial Statements for additional information related to the Surplus Note.

Note E

Other assets increased as of December 31, 2016, compared to December 31, 2015, primarily as a result of an increase in the intercompany receivable balance related to the reimbursement of the Parent Company’s allocated expenses by all of its subsidiaries, including related to the $300 million note receivable from Clayton Group Holdings Inc. (See Notes D and G for additional information). In particular, the Services segment has not generated sufficient cash flow to reimburse the Parent Company for its direct and allocated operating expenses and interest expense, which contributed $31.2 million to the increase during 2016. Other assets also includes an $89 million deposit with the IRS. See Note 10 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 F

During 2016, 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 12 and 14 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, 2016, the maturities of the principal amount of our long-term debt in future years are as follows:



(In thousands)
2017	$	22,233
2019	368,024
2020	350,000
2021	350,000
Total	$	1,090,257

In November 2016, the Parent Company announced its intent to exercise its redemption option for the remaining Convertible Senior Notes due 2019, of which $68.0 million aggregate principal was outstanding at December 31, 2016. The redemption was settled on January 27, 2017. See Note 21 of Notes to Consolidated Financial Statements for additional information.

Note G

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries expenses it incurs in the capacity of supporting those subsidiaries, including operating expenses, which are allocated based on a percentage of time spent, and interest expense, which is allocated based on relative capital. These expenses are presented net of allocations in the Statements of Operations. 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 2016, 2015 and 2014.

Amounts allocated to the subsidiaries for expenses are based on actual cost, without any mark-up. The Parent Company considers these charges fair and reasonable. The subsidiaries generally 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. See Note E for additional information.

The following table shows the components of our Parent Company expenses that have been allocated to our subsidiaries for the periods indicated:



	Year Ended December 31,
(in thousands)	2016		2015		2014
Allocated operating expenses	$	56,446	$	53,738	$	59,434
Allocated interest expenses	52,092		35,300		33,098
Total allocated expenses	$	108,538	$	89,038	$	92,532

Note H

Net investment income increased in 2016 compared to 2015, primarily due to an increase in the Parent Company’s investment portfolio during the year.

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 directly to our subsidiaries. The reduction in interest expense in 2016 was primarily attributable to lower expense following the induced conversion and extinguishment of $30.1 million of our remaining Convertible Senior Notes due 2017 and $322.0 million of our Convertible Senior Notes due 2019 during the year.

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 $8.6 million of statutory policyholders’ surplus and no RIF exposure as of December 31, 2016.

•

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: (i) audited financial statements for the insurance subsidiary participating in these transactions or (ii) 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 $110.2 million of aggregate remaining credit exposure as of December 31, 2016.

•

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 E for additional information.