10-Q 1 rdn10q03312017.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
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
_______________________________
image00radianlogo0317.jpg
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.)
 
 
 
1601 Market Street, Philadelphia, PA
 
19103
(Address of principal executive offices)
 
(Zip Code)
(215) 231-1000
(Registrant’s telephone number, including area code)
_____________________________________________
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 215,095,131 shares of common stock, $0.001 par value per share, outstanding on May 3, 2017.



TABLE OF CONTENTS
 
 
Page
Number
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 


2



GLOSSARY OF ABBREVIATIONS AND ACRONYMS
The following list defines various abbreviations and acronyms used throughout this report, including the Condensed Consolidated Financial Statements, the Notes to Unaudited Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Term
Definition
2014 Master Policy
Radian Guaranty’s Master Policy that became effective October 1, 2014
2016 Form 10-K
Annual Report on Form 10-K for the year ended December 31, 2016
ABS
Asset-backed securities
Alt-A
Alternative-A loans represent loans for which the underwriting documentation is generally limited as compared to fully documented loans (considered a non-prime loan grade)
AOCI
Accumulated other comprehensive income (loss)
Appeals
Internal Revenue Service Office of Appeals
Available Assets
As defined in the PMIERs, these assets primarily include the liquid assets of a mortgage insurer and its exclusive affiliated reinsurers, and exclude premiums received but not yet earned
BofA Settlement Agreement
The Confidential Settlement Agreement and Release dated September 16, 2014, by and among Radian Guaranty and Countrywide Home Loans, Inc. and Bank of America, N.A., as a successor to BofA Home Loan Servicing f/k/a Countrywide Home Loan Servicing LP, entered into in order to resolve various actual and potential claims or disputes as to mortgage insurance coverage on certain Subject Loans
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 and the loan is no longer 60 days past due
Default to Claim Rate
The assumed rate at which defaulted loans will result in a claim
Deficiency Amount
The assessed tax liabilities, penalties and interest associated with a formal notice of deficiency letter from the IRS
Exchange Act
Securities Exchange Act of 1934, as amended
Fannie Mae
Federal National Mortgage Association
FASB
Financial Accounting Standards Board
FHA
Federal Housing Administration
FHFA
Federal Home Finance Agency
FICO
Fair Isaac Corporation (“FICO”) credit scores used throughout this report, 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
Foreclosure Stage Default
The Stage of Default indicating that the foreclosure sale has been scheduled or held


3



Term
Definition
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
Future Legacy Loans
With respect to the BofA Settlement Agreement, Legacy Loans where a claim decision has been or will be communicated by Radian Guaranty after February 13, 2013
GAAP
Accounting principles generally accepted in the United States of America
Green River Capital
Green River Capital LLC, a wholly-owned subsidiary of Clayton
GSEs
Government-Sponsored Enterprises (Fannie Mae and Freddie Mac)
HARP
Home Affordable Refinance Program
IBNR
Losses incurred but not reported
IIF
Insurance in force is equal to the aggregate unpaid principal balances of the underlying loans
Insureds
Insured parties with respect to the BofA Settlement Agreement, consisting of Countrywide Home Loans, Inc. and Bank of America, N.A., as a successor to BofA Home Loan Servicing f/k/a Countrywide Home Loans Servicing LP
IRS
Internal Revenue Service
JCT
Congressional Joint Committee on Taxation
LAE
Loss adjustment expenses, which include the cost of investigating and adjusting losses and paying claims
Legacy Loans
With respect to the BofA Settlement Agreement, loans that were originated or acquired by an Insured and were insured by Radian Guaranty prior to January 1, 2009, excluding such loans that were refinanced under HARP 2 (the FHFA’s extension of and enhancements to the HARP program)
Legacy Portfolio
Mortgage insurance written during the poor underwriting years of 2005 through 2008, together with business written prior to 2005
Loss Mitigation Activity/Activities
Activities such as Rescissions, Claim Denials, Claim Curtailments and cancellations
LTV
Loan-to-value ratio which is 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, collectively
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 Insurers Model Act
Monthly and Other
Insurance policies where premiums are paid on a monthly or other installment basis, excluding Single Premium Policies
Monthly Premium Policies
Insurance policies where premiums are paid on a monthly installment basis
Mortgage Insurance
Radian’s Mortgage Insurance business segment, which provides credit-related insurance coverage, principally through private mortgage insurance, to mortgage lending institutions
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, calculated on a tax basis


4



Term
Definition
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)
Persistency Rate
The percentage of insurance in force 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
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
Post-legacy
The time period subsequent to 2008
Prior Master Policy
Radian Guaranty’s master insurance policy in effect prior to the effective date of its 2014 Master Policy
QSR Transactions
The quota share reinsurance agreements entered into with a third-party reinsurance provider in the second and fourth quarters of 2012, collectively
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 Group
Radian Group Inc., the registrant
Radian Guaranty
Radian Guaranty Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
Radian Reinsurance
Radian Reinsurance Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
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
RIF
Risk in force for primary insurance 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
S&P
Standard & Poor’s Financial Services LLC
SAPP
Statutory accounting principles and practices include 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
Second-lien
Second-lien mortgage loan
Senior Notes due 2017
Our 9.000% unsecured senior notes due June 2017 ($195.5 million principal amount)


5



Term
Definition
Senior Notes due 2019
Our 5.500% unsecured senior notes due June 2019 ($300 million principal amount)
Senior Notes due 2020
Our 5.250% unsecured senior notes due June 2020 ($350 million principal amount)
Senior Notes due 2021
Our 7.000% unsecured senior notes due March 2021 ($350 million principal amount)
Services
Radian’s Services business segment, which provides mortgage- and real estate-related products and services to the mortgage finance market
Servicing Only Loans
With respect to the BofA Settlement Agreement, loans other than Legacy Loans that were or are serviced by the Insureds and were 90 days or more past due as of July 31, 2014, or if servicing has been transferred to a servicer other than the Insureds, 90 days or more past due as of the transfer date
SFR
Single family rental
Single Premium Policy/Policies
Insurance policies where premiums are paid in a single payment and 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 after the loans have been originated)
Single Premium QSR Transaction
Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in the first quarter of 2016
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
Subject Loans
Loans covered under the BofA Settlement Agreement, comprising Legacy Loans and Servicing Only Loans
Surplus Note
An intercompany 0.000% surplus note due December 31, 2025 ($325 million principal amount), issued by Radian Guaranty to Radian Group in December 2015 and repaid by Radian Guaranty on June 30, 2016
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 - Real Estate Settlement Procedures Act of 1974 (“RESPA”) Integrated Disclosure
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




6



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. 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 general economic and political conditions, including unemployment rates, interest rates and changes in housing and mortgage credit markets, that impact the size of the insurable market, the credit performance of our insured portfolio, and the business opportunities in our Services business;
changes in the way customers, investors, regulators or legislators perceive the performance and financial strength of private mortgage insurers;
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;
our ability to successfully execute and implement our capital plans 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 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, including the GSEs’ interpretation and application of the PMIERs to our mortgage insurance business;
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 policies;
competition in our mortgage insurance business, including price competition and competition from the FHA, VA and other forms of credit enhancement;
the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) on the financial services industry in general, and on our businesses in particular;
the adoption of new laws and regulations, or changes in existing laws and regulations (including the Dodd-Frank Act), or the way they are interpreted or applied;
the outcome of legal and regulatory 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;


7



the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including deficiencies assessed by the IRS resulting from its examination of our 2000 through 2007 tax years, which we are currently contesting;
the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance business;
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;
changes in GAAP or SAPP rules and guidance, or their interpretation;
our ability to attract and retain key employees;
legal and other limitations on dividends and other amounts we may receive from our subsidiaries; and
the possibility that we may need to impair the carrying value of goodwill established in connection with our acquisition of Clayton.
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 of our 2016 Form 10-K, and in our subsequent quarterly and other 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.


8



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Radian Group Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($ in thousands, except per-share amounts)
March 31,
2017
 
December 31,
2016
 
 
 
 
Assets
 
 
 
Investments (Note 5)
 
 
 
Fixed-maturities available for sale—at fair value (amortized cost $2,941,528 and $2,856,468)
$
2,937,415

 
$
2,838,512

Equity securities available for sale—at fair value (cost $1,330 and $1,330)
1,330

 
1,330

Trading securities—at fair value
811,313

 
879,862

Short-term investments—at fair value
686,685

 
741,531

Other invested assets
973

 
1,195

Total investments
4,437,716

 
4,462,430

Cash
73,701

 
52,149

Restricted cash
12,689

 
9,665

Accounts and notes receivable
73,794

 
77,631

Deferred income taxes, net (Note 9)
369,209

 
411,798

Goodwill and other intangible assets, net (Note 6)
273,068

 
276,228

Prepaid reinsurance premium
230,148

 
229,438

Other assets (Note 8)
357,435

 
343,835

Total assets
$
5,827,760

 
$
5,863,174

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Unearned premiums
$
684,797

 
$
681,222

Reserve for losses and loss adjustment expense (“LAE”) (Note 10)
726,169

 
760,269

Long-term debt (Note 11)
1,008,777

 
1,069,537

Reinsurance funds withheld
167,427

 
158,001

Other liabilities
319,282

 
321,859

Total liabilities
2,906,452

 
2,990,888

Commitments and contingencies (Note 12)

 

Equity component of currently redeemable convertible senior notes (Note 11)
883

 

Stockholders’ equity
 
 
 
Common stock: par value $.001 per share; 485,000,000 shares authorized at March 31, 2017 and December 31, 2016; 232,663,818 and 232,091,921 shares issued at March 31, 2017 and December 31, 2016, respectively; 215,090,781 and 214,521,079 shares outstanding at March 31, 2017 and December 31, 2016, respectively
233

 
232

Treasury stock, at cost: 17,573,037 and 17,570,842 shares at March 31, 2017 and December 31, 2016, respectively
(893,372
)
 
(893,332
)
Additional paid-in capital
2,743,594

 
2,779,891

Retained earnings
1,073,333

 
997,890

Accumulated other comprehensive income (loss) (“AOCI”) (Note 14)
(3,363
)
 
(12,395
)
Total stockholders’ equity
2,920,425

 
2,872,286

Total liabilities and stockholders’ equity
$
5,827,760

 
$
5,863,174


See Notes to Unaudited Condensed Consolidated Financial Statements.


9



Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
Three Months Ended
March 31,
(In thousands, except per-share amounts)
2017

2016
Revenues:
 
 
 
Net premiums earned—insurance
$
221,800


$
220,950

Services revenue
38,027


32,849

Net investment income
31,032

 
27,201

Net gains (losses) on investments and other financial instruments
(2,851
)
 
31,286

Other income
746

 
666

Total revenues
288,754

 
312,952

Expenses:
 
 
 
Provision for losses
46,913

 
42,991

Policy acquisition costs
6,729

 
6,389

Cost of services
28,375

 
23,550

Other operating expenses
68,377

 
57,188

Interest expense
15,938

 
21,534

Loss on induced conversion and debt extinguishment (Note 11)
4,456

 
55,570

Amortization and impairment of intangible assets
3,296


3,328

Total expenses
174,084

 
210,550

Pretax income
114,670


102,402

Income tax provision
38,198

 
36,153

Net income
$
76,472


$
66,249

 
 
 
 
Net income per share:
 
 
 
Basic
$
0.36

 
$
0.33

Diluted
$
0.34

 
$
0.29

 
 
 


Weighted-average number of common shares outstanding—basic
214,925

 
203,706

Weighted-average number of common and common equivalent shares outstanding—diluted
221,497

 
239,707

 
 
 
 
Dividends per share
$
0.0025

 
$
0.0025












See Notes to Unaudited Condensed Consolidated Financial Statements.


10



Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016
 
 
 
 
Net income
$
76,472

 
$
66,249

Other comprehensive income (loss), net of tax (Note 14):
 
 
 
Unrealized gains (losses) on investments:
 
 
 
Unrealized holding gains (losses) arising during the period
7,367

 
39,374

Less: Reclassification adjustment for net gains (losses) included in net income
(1,631
)
 
(2,157
)
Net unrealized gains (losses) on investments
8,998

 
41,531

Net foreign currency translation adjustments
34

 
(85
)
Net actuarial gains (losses)

 
(178
)
Other comprehensive income (loss), net of tax
9,032

 
41,268

Comprehensive income
$
85,504

 
$
107,517
































See Notes to Unaudited Condensed Consolidated Financial Statements.


11



Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY (UNAUDITED)
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Common Stock
 
 
 
Balance, beginning of period
$
232

 
$
224

Impact of extinguishment of Convertible Senior Notes due 2017 and 2019 (Note 11)

 
17

Issuance of common stock under incentive and benefit plans
1

 

Shares repurchased under share repurchase program (Note 13)

 
(9
)
Balance, end of period
233

 
232

 
 
 
 
Treasury Stock
 
 
 
Balance, beginning of period
(893,332
)
 
(893,176
)
Repurchases of common stock under incentive plans
(40
)
 

Balance, end of period
(893,372
)
 
(893,176
)
 
 
 
 
Additional Paid-in Capital
 
 
 
Balance, beginning of period
2,779,891

 
2,716,618

Issuance of common stock under incentive and benefit plans
3,548

 
659

Share-based compensation
3,222

 
4,612

Impact of extinguishment of Convertible Senior Notes due 2017 and 2019 (Note 11)
(42,940
)
 
151,639

Cumulative effect of adoption of the accounting standard update for share-based payment transactions
756

 

Change in equity component of currently redeemable convertible senior notes
(883
)
 

Shares repurchased under share repurchase program (Note 13)

 
(100,179
)
Balance, end of period
2,743,594

 
2,773,349

 
 
 
 
Retained Earnings
 
 
 
Balance, beginning of period
997,890

 
691,742

Net income
76,472

 
66,249

Dividends declared
(538
)
 
(789
)
Cumulative effect of adoption of the accounting standard update for share-based payment transactions, net of tax
(491
)
 

Balance, end of period
1,073,333

 
757,202

 
 
 
 
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
 
 
 
Balance, beginning of period
(12,395
)
 
(18,477
)
Net foreign currency translation adjustment, net of tax
34

 
(85
)
Net unrealized gains (losses) on investments, net of tax
8,998

 
41,531

Net actuarial gains (losses)

 
(178
)
Balance, end of period
(3,363
)
 
22,791

 
 
 
 
Total Stockholders’ Equity
$
2,920,425

 
$
2,660,398


See Notes to Unaudited Condensed Consolidated Financial Statements.


12




Radian Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
 
 
(In thousands)
Three Months Ended
March 31,
2017
 
2016
Cash flows from operating activities:
 
 
 
Net cash provided by (used in) operating activities
$
83,932

 
$
38,929

Cash flows from investing activities:
 
 
 
Proceeds from sales of:
 
 
 
Fixed-maturity investments available for sale
253,121

 
111,099

Equity securities available for sale

 
74,868

Trading securities
46,688

 
65,163

Proceeds from redemptions of:
 
 
 
Fixed-maturity investments available for sale
123,683

 
58,856

Trading securities
19,543

 
34,105

Purchases of:
 
 
 
Fixed-maturity investments available for sale
(444,873
)
 
(753,660
)
Sales, redemptions and (purchases) of:
 
 
 
Short-term investments, net
57,923

 
341,365

Other assets and other invested assets, net
222

 
132

Purchases of property and equipment, net
(7,687
)
 
(6,518
)
Acquisitions, net of cash acquired
(86
)
 

Net cash provided by (used in) investing activities
48,534

 
(74,590
)
Cash flows from financing activities:
 
 
 
Dividends paid
(538
)
 
(497
)
Issuance of long-term debt, net

 
344,139

Purchases and redemptions of long-term debt
(110,160
)
 
(192,722
)
Issuance of common stock
2,865

 
24

Purchase of common shares

 
(100,188
)
Excess tax benefits from share-based awards (Note 1)

 
20

Repayment of other borrowings
(81
)
 
(108
)
Net cash provided by (used in) financing activities
(107,914
)
 
50,668

Effect of exchange rate changes on cash and restricted cash
24

 
(1
)
Increase (decrease) in cash and restricted cash
24,576

 
15,006

Cash and restricted cash, beginning of period
61,814

 
59,898

Cash and restricted cash, end of period
$
86,390

 
$
74,904









See Notes to Unaudited Condensed Consolidated Financial Statements.


13



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements




1. Condensed Consolidated Financial Statements—Business Overview and Significant Accounting Policies
Business Overview
We provide mortgage insurance on first-lien mortgage loans, and products and services to the real estate and mortgage finance industries through our two business segments—Mortgage Insurance and Services.
Mortgage Insurance
Our Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance, to mortgage lending institutions nationwide. Private mortgage insurance helps protect mortgage lenders and third-party 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 homes. Private mortgage insurance also facilitates the sale of these low down payment mortgage loans in the secondary mortgage market, most of which are sold to the GSEs.
Our Mortgage Insurance segment currently offers primary mortgage insurance coverage on residential first-lien mortgage loans, which comprised 98.0% of our $48.4 billion total direct RIF as of March 31, 2017. At March 31, 2017, Pool Insurance represented 1.9% of our total direct RIF. We provide our mortgage insurance products and services mainly through our wholly-owned subsidiary, Radian Guaranty.
The GSEs and state insurance regulators impose various capital and financial requirements on our insurance subsidiaries. These include Risk-to-capital, other risk-based capital measures and surplus requirements, as well as the PMIERs financial requirements. Failure to comply with these capital and financial requirements may limit the amount of insurance that our insurance subsidiaries may write. The GSEs and state insurance regulators also possess significant discretion with respect to our insurance subsidiaries and their business. See Note 15 for additional regulatory information.
Private mortgage insurers, including Radian Guaranty, are required to comply with the PMIERs to remain eligible insurers of loans purchased by the GSEs. At March 31, 2017, Radian Guaranty is an approved mortgage insurer under the PMIERs and is in compliance with the PMIERs financial requirements.
The PMIERs are comprehensive, covering virtually all aspects of a private mortgage insurer’s business and operations, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer as well as the approved insurer’s financial condition. The GSEs have a broad range of consent rights to approve various actions of the approved insurer. If Radian Guaranty is unable to satisfy the requirements set forth in the PMIERs, the GSEs could restrict it from conducting certain types of business with them or take actions that may include not purchasing loans insured by Radian Guaranty. See Note 1 of Notes to Consolidated Financial Statements in our 2016 Form 10-K for additional information about the PMIERs.
Services
Our Services segment provides services and solutions to the real estate and mortgage finance industries. Our Services segment provides analytics and outsourced services, including residential loan due diligence and underwriting, valuations, servicing surveillance, title and escrow, and consulting services. We provide these services to buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities as well as other consumer ABS. These services and solutions are provided primarily through Clayton and its subsidiaries, including Green River Capital, Red Bell and ValuAmerica. The primary lines of business in our Services segment include:
loan review, underwriting and due diligence;
real estate valuation and component services that provide outsourcing and technology solutions for the SFR and residential real estate markets, as well as outsourced solutions for appraisal, title and closing services;
surveillance services, including surveillance services for RMBS and other consumer ABS, loan servicer oversight, loan-level servicing compliance reviews and operational reviews of mortgage servicers and originators;
REO management services; and
services for the United Kingdom and European mortgage markets through our EuroRisk operations.


14



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

First Quarter 2017 Developments
During the first quarter of 2017, we settled our obligations on the remaining $68.0 million aggregate principal amount of our Convertible Senior Notes due 2019. The obligations were settled on January 27, 2017 for a cash payment of $110.1 million and resulted in a loss on induced conversion and debt extinguishment of $4.5 million for the three months ended March 31, 2017. As of the settlement date, this transaction resulted in an aggregate decrease of 6.4 million diluted shares for purposes of determining diluted net income per share. See Note 11 for additional information.
Significant Accounting Policies
Basis of Presentation
Our condensed consolidated financial statements include the accounts of Radian Group Inc. and its subsidiaries. We refer to Radian Group Inc. together with its consolidated subsidiaries as “Radian,” the “Company,” “we,” “us” or “our,” unless the context requires otherwise. We generally refer to Radian Group Inc. alone, without its consolidated subsidiaries, as “Radian Group.” Unless otherwise defined in this report, certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report.
Our condensed consolidated financial statements are prepared in accordance with GAAP and include the accounts of all wholly-owned subsidiaries. All intercompany accounts and transactions, and intercompany profits and losses, have been eliminated. We have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP pursuant to the instructions set forth in Article 10 of Regulation S-X of the SEC.
The financial information presented for interim periods is unaudited; however, such information reflects all adjustments that are, in the opinion of management, necessary for the fair statement of the financial position, results of operations, comprehensive income and cash flows for the interim periods presented. Such adjustments are of a normal recurring nature. The year-end condensed balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2016 Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. Certain prior period amounts have been reclassified to conform to current period presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. While the amounts included in our condensed consolidated financial statements include our best estimates and assumptions, actual results may vary materially.
Other Significant Accounting Policies
See Note 2 of Notes to Consolidated Financial Statements in our 2016 Form 10-K for information regarding other significant accounting policies.
Recent Accounting Pronouncements
Accounting Standards Adopted During 2017. In March 2016, the FASB issued an update to the accounting standards for share-based payment transactions, including: (i) accounting for income taxes; (ii) classification of excess tax benefits on the statement of cash flows; (iii) forfeitures; (iv) minimum statutory tax withholding requirements; (v) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes; (vi) the practical expedient for estimating the expected term; and (vii) intrinsic value. Among other things, the update requires: (i) all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement as they occur; (ii) recognition of excess tax benefits, regardless of whether the benefits reduce taxes payable in the current period; and (iii) excess tax benefits to be classified along with other cash flows as an operating activity, rather than separated from other income tax cash flows as a financing activity. This update is effective for public companies for fiscal years beginning after December 15, 2016. Our adoption of this update, effective January 1, 2017, had an immaterial impact on our financial statements at implementation. As a result of implementing this new standard, however, we expect the potential for limited increased volatility in our effective tax rate and net earnings, and possible additional dilution in earnings per share calculations.


15



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

Accounting Standards Not Yet Adopted. In May 2014, the FASB issued an update to the accounting standard regarding revenue recognition. In accordance with the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This update is not expected to change revenue recognition principles related to our investments and insurance products, which combined represent a significant portion of our total revenues. This update is primarily applicable to revenues from our Services segment. In July 2015, the FASB delayed the effective date for this updated standard for public companies to interim and annual periods beginning after December 15, 2017, and subsequently issued various clarifying updates. Early adoption is permitted. This standard permits the use of the retrospective or cumulative effective transition method. We are currently in the process of categorizing the Services revenues to evaluate the impact to our financial statements and future disclosures as a result of the updates.
In January 2016, the FASB issued an update that makes certain changes to the standard for the accounting of financial instruments. Among other things, the update requires: (i) equity investments to be measured at fair value with changes in fair value recognized in net income; (ii) the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset; and (iv) separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update also eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This update is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted, with the exception of the “own credit” provision. We are currently evaluating the impact to our financial statements and future disclosures as a result of this update, but we do not expect the impact to be material due to our currently insignificant investments in equity securities and our investment strategy.
In February 2016, the FASB issued an update that replaces the existing accounting and disclosure requirements for leases of property, plant and equipment. The update requires lessees to recognize, as of the lease commencement date, assets and liabilities for all leases with lease terms of more than 12 months, which is a change from the current GAAP requirement to recognize only capital leases on the balance sheet. Pursuant to the new standard, the liability initially recognized for the lease obligation is equal to the present value of the lease payments not yet made, discounted over the lease term at the implicit interest rate of the lease, if available, or otherwise at the lessee’s incremental borrowing rate. The lessee is also required to recognize an asset for its right to use the underlying asset for the lease term, based on the liability subject to certain adjustments, such as for initial direct costs. Leases are required to be classified as either operating or finance, with expense on operating leases recorded as a single lease cost on a straight-line basis. For finance leases, interest expense on the lease liability is required to be recognized separately from the straight-line amortization of the right-of-use asset. Quantitative disclosures are required for certain items, including the cost of leases, the weighted-average remaining lease term, the weighted-average discount rate and a maturity analysis of lease liabilities. Additional qualitative disclosures are also required regarding the nature of the leases, such as basis, terms and conditions of: (i) variable interest payments; (ii) extension and termination options; and (iii) residual value guarantees. This update is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted by applying the new guidance as of the beginning of the earliest comparative period presented, using a modified retrospective transition approach with certain optional practical expedients. We are currently evaluating the impact to our financial statements and future disclosures as a result of this update.
In June 2016, the FASB issued an update to the accounting standard regarding the measurement of credit losses on financial instruments. This update requires that financial assets measured at their amortized cost basis be presented at the net (of allowance for credit losses) amount expected to be collected. Credit losses relating to available-for-sale debt securities are to be recorded through an allowance for credit losses, rather than a write-down of the asset, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. This update is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact to our financial statements and future disclosures as a result of this update.


16



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

In October 2016, the FASB issued an update to the accounting standard regarding the accounting for income taxes. This update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update will be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This update is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in the first interim period of the adoption year. We are currently evaluating the impact to our financial statements and future disclosures as a result of this update.
In January 2017, the FASB issued an update to the accounting standard regarding goodwill and other intangibles. This update simplifies the subsequent measurement of goodwill by eliminating step two of the goodwill impairment test. Instead, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any excess of the reporting unit’s carrying amount over the reporting unit’s estimated fair value. The provisions of this update are effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We intend to early adopt this update, effective as of our next quantitative goodwill impairment test.
In March 2017, the FASB issued an update to the accounting standard regarding receivables. The new standard requires certain premiums on purchased callable debt securities to be amortized to the earliest call date. The amortization period for callable debt securities purchased at a discount will not be impacted. The provisions of this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact to our financial statements and future disclosures as a result of this update.

2. Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding, while diluted net income per share is computed by dividing net income attributable to common shareholders by the sum of the weighted-average number of common shares outstanding and the weighted-average number of dilutive potential common shares. Dilutive potential common shares relate to our share-based compensation arrangements and our outstanding convertible senior notes.


17



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

The calculation of basic and diluted net income per share was as follows:
 
Three Months Ended
March 31,
(In thousands, except per-share amounts)
2017
 
2016
Net income—basic
$
76,472

 
$
66,249

Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 
(215
)
 
3,390

Net income—diluted
$
76,257

 
$
69,639

 
 
 
 
Average common shares outstanding—basic
214,925

 
203,706

Dilutive effect of Convertible Senior Notes due 2017 (2) 
701

 

Dilutive effect of Convertible Senior Notes due 2019
1,854

 
33,583

Dilutive effect of share-based compensation arrangements (2) 
4,017

 
2,418

Adjusted average common shares outstanding—diluted
221,497

 
239,707

 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.33

 
 
 
 
Diluted
$
0.34

 
$
0.29

______________________
(1)
As applicable, includes coupon interest, amortization of discount and fees, and other changes in income or loss that would result from the assumed conversion. Due to the January 2017 settlement of our obligations on the remaining Convertible Senior Notes due 2019, a benefit was recorded to adjust estimated accrued expense to actual amounts.
(2)
The following number of shares of our common stock equivalents issued under our share-based compensation arrangements and convertible debt were not included in the calculation of diluted net income per share because they were anti-dilutive:
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016
Shares of common stock equivalents
445

 
709
Shares of Convertible Senior Notes due 2017

 
1,902

3. Segment Reporting
We have two strategic business units that we manage separately—Mortgage Insurance and Services. Adjusted pretax operating income (loss) for each segment represents segment results on a standalone basis; therefore, inter-segment eliminations and reclassifications required for consolidated GAAP presentation have not been reflected.
In the fourth quarter of 2016, we completed an organizational change that resulted in a change to our segment financial reporting structure. Previously, contract underwriting activities on behalf of third parties were reported in either the Mortgage Insurance segment or the Services segment, based on the customer relationship. Management responsibility for this contract underwriting business was moved entirely to the Services segment. This organizational change resulted in the transfer to the Services segment of revenue and expenses for all contract underwriting performed on behalf of third parties. This change aligns with recent changes in personnel reporting lines and management oversight, and is consistent with the way the chief operating decision maker began assessing the performance of the reportable segments in the fourth quarter of 2016. As a result, on a segment basis, Services revenue, cost of services and other operating expenses have increased, with offsetting reductions in Mortgage Insurance other income and other operating expenses. This change has been reflected in our segment operating results. Mortgage Insurance underwriting continues to be reported as an expense in the Mortgage Insurance segment.


18



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

We include underwriting-related expenses for mortgage insurance, based on a pro-rata volume of mortgage applications excluding third-party contract underwriting services, in our Mortgage Insurance segment’s other operating expenses before corporate allocations. We include underwriting-related expenses for third-party contract underwriting services, based on a pro-rata volume of mortgage applications, in our Services segment’s cost of services and other operating expenses before corporate allocations, as applicable.
We allocate to our Mortgage Insurance segment: (i) corporate expenses based on an allocated percentage of time spent on the Mortgage Insurance segment; (ii) all interest expense except for interest expense related to the Senior Notes due 2019 that were issued to fund our purchase of Clayton; and (iii) all corporate cash and investments.
We allocate to our Services segment: (i) corporate expenses based on an allocated percentage of time spent on the Services segment and (ii) as noted above, all interest expense related to the Senior Notes due 2019. No material corporate cash or investments are allocated to the Services segment. Inter-segment activities are recorded at market rates for segment reporting and eliminated in consolidation.
Adjusted Pretax Operating Income (Loss)
Our senior management, including our Chief Executive Officer (Radian’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of Radian’s business segments and to allocate resources to the segments. Adjusted pretax operating income (loss) is defined as pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on induced conversion and debt extinguishment; (iii) acquisition-related expenses; (iv) amortization and impairment of intangible assets; and (v) net impairment losses recognized in earnings.
Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in consolidated pretax income (loss). These adjustments, along with the reasons for their treatment, are described below.
(1)
Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading securities. These valuation adjustments may not necessarily result in realized economic gains or losses.
Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
(2)
Loss on induced conversion and debt extinguishment. Gains or losses on early extinguishment of debt and losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
(3)
Acquisition-related expenses. Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
(4)
Amortization and impairment of intangible assets. Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore are excluded from our calculation of adjusted pretax operating income (loss).


19



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

(5)
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).
Summarized operating results for our segments as of and for the periods indicated, are as follows:
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016 (1)
Mortgage Insurance
 
 
 
Net premiums written—insurance (2) 
$
224,665

 
$
26,310

(Increase) decrease in unearned premiums
(2,865
)
 
194,640

Net premiums earned—insurance
221,800

 
220,950

Net investment income
31,032

 
27,201

Other income
746

 
666

Total (3) 
253,578

 
248,817

 
 
 
 
Provision for losses
47,232

 
43,275

Policy acquisition costs
6,729

 
6,389

Other operating expenses before corporate allocations
39,289

 
32,546

Total (4) 
93,250

 
82,210

Adjusted pretax operating income before corporate allocations
160,328

 
166,607

Allocation of corporate operating expenses
14,186

 
9,329

Allocation of interest expense
11,509

 
17,112

Adjusted pretax operating income
$
134,633

 
$
140,166

______________________
(1)
Reflects changes to align our segment reporting structure with recent changes in personnel reporting lines and management oversight related to contract underwriting performed on behalf of third parties. Revenue and expenses for this business are now reflected in the Services segment. As a result, Services revenue, cost of services and other operating expenses have increased, with offsetting reductions in Mortgage Insurance other income and other operating expenses.
(2)
Net of ceded premiums written under the QSR Transactions and the Single Premium QSR Transaction. See Note 7 for additional information.
(3)
Excludes net losses on investments and other financial instruments of $2.9 million for the three months ended March 31, 2017, and net gains on investments and other financial instruments of $31.3 million for the three months ended March 31, 2016, not included in adjusted pretax operating income.
(4)
Includes inter-segment expenses as follows:
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016
Inter-segment expenses
$
2,062

 
$
1,599









20



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

        
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016 (1)
Services
 
 
 
Services revenue (2) 
$
40,089

 
$
34,448

 
 
 
 
Cost of services
28,690

 
23,854

Other operating expenses before corporate allocations
12,604

 
14,368

Total
41,294

 
38,222

Adjusted pretax operating income (loss) before corporate allocations
(1,205
)
 
(3,774
)
Allocation of corporate operating expenses
3,718

 
1,751

Allocation of interest expense
4,429

 
4,422

Adjusted pretax operating income (loss)
$
(9,352
)

$
(9,947
)
______________________
(1)
Reflects changes to align our segment reporting structure with recent changes in personnel reporting lines and management oversight related to contract underwriting performed on behalf of third parties. Revenue and expenses for this business are now reflected in the Services segment. As a result, Services revenue, cost of services and other operating expenses have increased, with offsetting reductions in Mortgage Insurance other income and other operating expenses.
(2)
Includes inter-segment revenues as follows:
        
 
Three Months Ended
March 31,
(In thousands)
2017
 
2016
Inter-segment revenues
$
2,062

 
$
1,599


Selected balance sheet information for our segments, as of the periods indicated, is as follows:
 
At March 31, 2017
(In thousands)
Mortgage Insurance
 
Services
 
Total
Total assets
$
5,475,502

 
$
352,258

 
$
5,827,760

 
At December 31, 2016
(In thousands)
Mortgage Insurance
 
Services
 
Total
Total assets
$
5,506,338

 
$
356,836

 
$
5,863,174





21



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

The reconciliation of adjusted pretax operating income to consolidated pretax income is as follows:
 
Three Months Ended
March 31,
(In thousands)
2017

2016
Adjusted pretax operating income (loss):
 
 
 
Mortgage Insurance (1) 
$
134,633

 
$
140,166

Services (1) 
(9,352
)
 
(9,947
)
Total adjusted pretax operating income
125,281

 
130,219

 
 
 
 
Net gains (losses) on investments and other financial instruments
(2,851
)
 
31,286

Loss on induced conversion and debt extinguishment
(4,456
)
 
(55,570
)
Acquisition-related expenses (2) 
(8
)
 
(205
)
Amortization and impairment of intangible assets
(3,296
)
 
(3,328
)
Consolidated pretax income
$
114,670

 
$
102,402

______________________
(1)
Includes inter-segment expenses and revenues as listed in the notes to the preceding tables.
(2)
Acquisition-related expenses represent expenses incurred to effect the acquisition of a business, net of adjustments to accruals previously recorded for acquisition expenses.
On a consolidated basis, “adjusted pretax operating income” is a measure not determined in accordance with GAAP. Total adjusted pretax operating income is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP pretax income. Our definition of adjusted pretax operating income may not be comparable to similarly-named measures reported by other companies.

4. Fair Value of Financial Instruments
Available for sale securities, trading securities and certain other assets are recorded at fair value. All changes in the fair value of trading securities and certain other assets are included in our condensed consolidated statements of operations. All changes in the fair value of available for sale securities are recorded in AOCI. There were no significant changes to our fair value methodologies during the three months ended March 31, 2017.
In accordance with GAAP, we established a three-level valuation hierarchy for disclosure of fair value measurements based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the measurement in its entirety. The three levels of the fair value hierarchy are defined below:
Level I
—    Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level II
—    Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and
Level III
—    Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.
The level of market activity used to determine the fair value hierarchy is based on the availability of observable inputs market participants would use to price an asset or a liability, including market value price observations. We provide a qualitative description of the valuation techniques and inputs used for recurring and non-recurring fair value measurements in our audited financial statements and notes thereto included in our 2016 Form 10-K. For a complete understanding of the valuation techniques and inputs used as of March 31, 2017, these unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2016 Form 10-K.


22



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

The following is a list of assets that are measured at fair value by hierarchy level as of March 31, 2017:
(In thousands)
Level I
 
Level II
 
Level III
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
Investment Portfolio:
 
 
 
 
 
 
 
U.S. government and agency securities
$
267,524

 
$
4,906

 
$

 
$
272,430

State and municipal obligations

 
341,197

 

 
341,197

Money market instruments
384,225

 

 

 
384,225

Corporate bonds and notes

 
2,115,001

 

 
2,115,001

RMBS

 
309,460

 

 
309,460

CMBS

 
473,505

 

 
473,505

Other ABS

 
488,340

 

 
488,340

Foreign government and agency securities

 
38,035

 

 
38,035

Equity securities

 
830

 
500

 
1,330

Other investments (1) 

 
12,720

 
500

 
13,220

Total Investments at Fair Value (2) 
651,749

 
3,783,994

 
1,000

 
4,436,743

Total Assets at Fair Value
$
651,749

 
$
3,783,994

 
$
1,000

 
$
4,436,743

______________________
(1)
Comprising short-term certificates of deposit and commercial paper, included within Level II, and convertible notes of non-reporting issuers, included within Level III.
(2)
Does not include certain other invested assets ($1.0 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.
The following is a list of assets that are measured at fair value by hierarchy level as of December 31, 2016:
(In thousands)
Level I
 
Level II
 
Level III
 
Total
Assets at Fair Value
 
 
 
 
 
 
 
Investment Portfolio:
 
 
 
 
 
 
 
U.S. government and agency securities
$
237,479

 
$

 
$

 
$
237,479

State and municipal obligations

 
358,536

 

 
358,536

Money market instruments
431,472

 

 

 
431,472

Corporate bonds and notes

 
2,024,205

 

 
2,024,205

RMBS

 
388,842

 

 
388,842

CMBS

 
507,273

 

 
507,273

Other ABS

 
450,128

 

 
450,128

Foreign government and agency securities

 
32,807

 

 
32,807

Equity securities

 
830

 
500

 
1,330

Other investments (1) 

 
28,663

 
500

 
29,163

Total Investments at Fair Value (2) 
668,951

 
3,791,284

 
1,000

 
4,461,235

Total Assets at Fair Value
$
668,951

 
$
3,791,284

 
$
1,000

 
$
4,461,235

______________________
(1)
Comprising short-term certificates of deposit and commercial paper, included within Level II, and convertible notes of non-reporting issuers, included within Level III.
(2)
Does not include certain other invested assets ($1.2 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.


23



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

At both March 31, 2017 and December 31, 2016, total Level III assets of $1.0 million accounted for less than 0.1% of total assets measured at fair value. Within other investments is a Level III investment which was purchased during the three months ended June 30, 2016, and there were no related gains or losses recorded during the three months ended March 31, 2017 or the year ended December 31, 2016. Within equity securities is a Level III investment that was purchased during the three months ended June 30, 2015, and there were no related gains or losses recorded during the three months ended March 31, 2017 or the year ended December 31, 2016. There were no Level III liabilities at March 31, 2017 or December 31, 2016.
There were no transfers between Level I and Level II for the three months ended March 31, 2017 and 2016. There were also no transfers involving Level III assets or liabilities for the three months ended March 31, 2017 and 2016.
Other Fair Value Disclosure
The carrying value and estimated fair value of other selected assets and liabilities not carried at fair value on our condensed consolidated balance sheets were as follows as of the dates indicated:
 
March 31, 2017
 
December 31, 2016
(In thousands)
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Assets:
 
 
 
 
 
 
 
Other invested assets
$
973

 
$
3,751

 
$
1,195

 
$
3,789

Liabilities:
 
 
 
 
 
 
 
Long-term debt
1,008,777

 
1,104,711

 
1,069,537

 
1,214,471


5. Investments
Available for Sale Securities
Our available for sale securities within our investment portfolio consisted of the following as of the dates indicated:
 
March 31, 2017
(In thousands)
Amortized
Cost
 
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Fixed-maturities available for sale:
 
 
 
 
 
 
 
U.S. government and agency securities
$
128,347

 
$
125,466

 
$
279

 
$
3,160

State and municipal obligations
67,600

 
69,284

 
2,316

 
632

Corporate bonds and notes
1,555,516

 
1,556,643

 
17,823

 
16,696

RMBS
278,710

 
273,549

 
445

 
5,606

CMBS
402,847

 
402,525

 
2,248

 
2,570

Other ABS
477,251

 
478,099

 
1,945

 
1,097

Foreign government and agency securities
29,257

 
29,849

 
645

 
53

Other investments
2,000

 
2,000

 

 

Total fixed-maturities available for sale
2,941,528

 
2,937,415

 
25,701

 
29,814

Equity securities available for sale (1) 
1,330

 
1,330

 

 

Total debt and equity securities
$
2,942,858

 
$
2,938,745

 
$
25,701

 
$
29,814

______________________
(1)
Primarily consists of investments in Federal Home Loan Bank stock as required in connection with the memberships of Radian Guaranty and Radian Reinsurance in the Federal Home Loan Bank of Pittsburgh.



24



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

 
December 31, 2016
(In thousands)
Amortized
Cost
 
Fair Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Fixed-maturities available for sale:
 
 
 
 
 
 
 
U.S. government and agency securities
$
78,931

 
$
75,474

 
$
2

 
$
3,459

State and municipal obligations
66,124

 
67,171

 
1,868

 
821

Corporate bonds and notes
1,463,720

 
1,455,628

 
14,320

 
22,412

RMBS
358,262

 
350,628

 
197

 
7,831

CMBS
429,057

 
428,289

 
2,255

 
3,023

Other ABS
433,603

 
434,728

 
2,037

 
912

Foreign government and agency securities
24,771

 
24,594

 
148

 
325

Other investments
2,000

 
2,000

 

 

Total fixed-maturities available for sale
2,856,468

 
2,838,512

 
20,827

 
38,783

Equity securities available for sale (1) 
1,330

 
1,330

 

 

Total debt and equity securities
$
2,857,798

 
$
2,839,842

 
$
20,827

 
$
38,783

______________________
(1)
Primarily consists of investments in Federal Home Loan Bank stock as required in connection with the memberships of Radian Guaranty and Radian Reinsurance in the Federal Home Loan Bank of Pittsburgh.
Gross Unrealized Losses and Fair Value of Available for Sale Securities
The following tables show the gross unrealized losses and fair value of our securities deemed “available for sale” aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated:
 
March 31, 2017
($ in thousands) Description of Securities
Less Than 12 Months
 
12 Months or Greater
 
Total
# of
securities
 
Fair Value
 
Unrealized
Losses
 
# of
securities
 
Fair Value
 
Unrealized
Losses
 
# of
securities
 
Fair Value
 
Unrealized
Losses
U.S. government and agency securities
9

 
$
74,457

 
$
3,160

 

 
$

 
$

 
9

 
$
74,457

 
$
3,160

State and municipal obligations
5

 
19,981

 
632

 

 

 

 
5

 
19,981

 
632

Corporate bonds and notes
150

 
620,609

 
16,360

 
2

 
4,471

 
336

 
152

 
625,080

 
16,696

RMBS
54

 
217,577

 
5,541

 
3

 
7,308

 
65

 
57

 
224,885

 
5,606

CMBS
38

 
186,354

 
2,519

 
3

 
9,924

 
51

 
41

 
196,278

 
2,570

Other ABS
75

 
186,578

 
949

 
5

 
21,978

 
148

 
80

 
208,556

 
1,097

Foreign government and agency securities
4

 
4,321

 
53

 

 

 

 
4

 
4,321

 
53

Total
335

 
$
1,309,877

 
$
29,214

 
13

 
$
43,681

 
$
600

 
348

 
$
1,353,558

 
$
29,814




25



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

 
December 31, 2016
($ in thousands) Description of Securities
Less Than 12 Months
 
12 Months or Greater
 
Total
# of
securities
 
Fair Value
 
Unrealized
Losses
 
# of
securities
 
Fair Value
 
Unrealized
Losses
 
# of
securities
 
Fair Value
 
Unrealized
Losses
U.S. government and agency securities
7

 
$
73,160

 
$
3,459

 

 
$

 
$

 
7

 
$
73,160

 
$
3,459

State and municipal obligations
7

 
30,901

 
821

 

 

 

 
7

 
30,901

 
821

Corporate bonds and notes
185

 
788,876

 
22,135

 
2

 
4,582

 
277

 
187

 
793,458

 
22,412

RMBS
56

 
311,031

 
7,822

 
1

 
1,398

 
9

 
57

 
312,429

 
7,831

CMBS
37

 
218,170

 
2,909

 
2

 
6,585

 
114

 
39

 
224,755

 
3,023

Other ABS
58

 
131,268

 
470

 
16

 
45,886

 
442

 
74

 
177,154

 
912

Foreign government and agency securities
12

 
13,034

 
325

 

 

 

 
12

 
13,034

 
325

Total
362

 
$
1,566,440

 
$
37,941

 
21

 
$
58,451

 
$
842

 
383

 
$
1,624,891

 
$
38,783

During the three months ended March 31, 2017 and the year ended December 31, 2016, we did not recognize in earnings any impairment losses related to credit deterioration.
Although we held securities in an unrealized loss position as of March 31, 2017, we did not consider them to be other-than-temporarily impaired as of such date. For all investment categories, the unrealized losses of 12 months or greater duration as of March 31, 2017 were generally caused by interest rate or credit spread movements since the purchase date, and as such, we expect the present value of cash flows to be collected from these securities to be sufficient to recover the amortized cost basis of these securities. As of March 31, 2017, we did not have the intent to sell any debt securities in an unrealized loss position, and we determined that it is more likely than not that we will not be required to sell the securities before recovery of their cost basis, which may be at maturity; therefore, we did not consider these investments to be other-than-temporarily impaired at March 31, 2017.
Trading Securities
The trading securities within our investment portfolio, which are recorded at fair value, consisted of the following as of the dates indicated:
(In thousands)
March 31,
2017
 
December 31,
2016
Trading securities:
 
 
 
U.S. government and agency securities
$
33,006

 
$
33,042

State and municipal obligations
235,864

 
259,573

Corporate bonds and notes
420,633

 
453,617

RMBS
35,911

 
38,214

CMBS
70,980

 
78,984

Other ABS
6,733

 
8,219

Foreign government and agency securities
8,186

 
8,213

Total
$
811,313

 
$
879,862

For trading securities held at March 31, 2017 and December 31, 2016, we had net unrealized gains associated with those securities of $3.5 million and $16.8 million during the three months ended March 31, 2017 and the year ended December 31, 2016, respectively.


26



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

For the three months ended March 31, 2017, we did not transfer any securities from the available for sale or trading categories.
Net Gains (Losses) on Investments and Other Financial Instruments
Net realized and unrealized gains (losses) on investments and other financial instruments consisted of:
 
Three Months Ended March 31,
(In thousands)
2017
 
2016
Net realized gains (losses):
 
 
 
Fixed-maturities available for sale
$
(2,509
)
 
$
(3,148
)
Equity securities available for sale

 
(170
)
Trading securities
(5,694
)
 
(2,240
)
Short-term investments
6

 
(39
)
Other gains (losses)
18

 
18

Net realized gains (losses) on investments
(8,179
)
 
(5,579
)
Unrealized gains (losses) on trading securities
5,226

 
35,231

Total net gains (losses) on investments
(2,953
)
 
29,652

Net gains (losses) on other financial instruments
102

 
1,634

Net gains (losses) on investments and other financial instruments
$
(2,851
)
 
$
31,286

Contractual Maturities
The contractual maturities of fixed-maturity investments were as follows:
 
March 31, 2017
 
Available for Sale
(In thousands)
Amortized
Cost
 
Fair
Value
Due in one year or less (1) 
$
65,472

 
$
65,502

Due after one year through five years (1) 
411,562

 
414,006

Due after five years through 10 years (1) 
905,821

 
901,736

Due after 10 years (1) 
399,864

 
401,998

RMBS (2) 
278,710

 
273,549

CMBS (2) 
402,848

 
402,525

Other ABS (2) 
477,251

 
478,099

Total
$
2,941,528

 
$
2,937,415

______________________
(1)
Actual maturities may differ as a result of calls before scheduled maturity.
(2)
RMBS, CMBS and Other ABS are shown separately, as they are not due at a single maturity date.
Other
At March 31, 2017 and December 31, 2016, Radian Guaranty had $64.3 million and $63.9 million, respectively, in a collateral account pursuant to the Freddie Mac Agreement. This collateral account, which contains investments primarily invested in and classified as part of our trading securities, is pledged to cover Loss Mitigation Activity on the loans subject to the Freddie Mac Agreement. See Note 10 for additional information.


27



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

6. Goodwill and Other Intangible Assets, Net
All of our goodwill and other intangible assets relate to our Services segment. The following table shows the changes in the carrying amount of goodwill for the year-to-date periods ended March 31, 2017 and December 31, 2016:
(In thousands)
Goodwill
 
Accumulated Impairment Losses
 
Net
Balance at December 31, 2015
$
197,265

 
$
(2,095
)
 
$
195,170

Goodwill acquired

 

 

Impairment losses

 

 

Balance at December 31, 2016
197,265

 
(2,095
)
 
195,170

Goodwill acquired
126

 

 
126

Impairment losses

 

 

Balance at March 31, 2017
$
197,391

 
$
(2,095
)
 
$
195,296

Goodwill is an asset representing the estimated future economic benefits arising from the assets we have acquired that were not individually identified and separately recognized, and includes the value of the discounted expected future cash flows, the workforce, expected synergies with our other affiliates and other unidentifiable intangible assets. Goodwill is deemed to have an indefinite useful life and is subject to review for impairment annually, or more frequently, whenever circumstances indicate potential impairment. Events that could result in an interim assessment of goodwill impairment and/or a potential impairment loss include, but are not limited to: (i) significant under-performance relative to historical or projected future operating results; (ii) significant changes in the strategy for the Services segment; (iii) significant negative industry or economic trends; and (iv) a decline in market capitalization below book value attributable to the Services segment. The value of goodwill is primarily supported by revenue projections, which are primarily driven by projected transaction volume and margins. Management regularly updates certain assumptions related to our projections, including the likelihood of achieving the assumed potential revenues from new initiatives and business strategies, and if these or other items have a significant negative impact on the reporting unit’s projections we may perform additional analysis to determine whether an impairment charge is needed. Lower earnings over sustained periods also can lead to impairment of goodwill, which could result in a charge to earnings.
We conducted our most recent annual goodwill impairment analysis in the fourth quarter of 2016. For purposes of performing our annual goodwill impairment tests, we concluded that the Services segment constitutes one reporting unit to which all of our recorded goodwill is related. As part of this annual goodwill impairment assessment, we estimated the fair value of the reporting unit using primarily an income approach and, to a lesser extent, a market approach. The key factor in our fair value analysis was forecasted future cash flows, which were less than originally had been expected at the acquisition dates. Given that the current goodwill impairment analysis relies significantly on our achieving high growth rates in our projected future cash flows, failure to meet those projections may result in an impairment in a future period.
In our annual goodwill analysis in the fourth quarter of 2016, we considered both positive and negative factors and concluded that, after considering all of the factors and evidence available, there was no impairment of goodwill as of December 31, 2016. The goodwill impairment test is a two-step process as required by the accounting standard related to intangible assets. Step one compares a reporting unit’s estimated fair value to its carrying value. If the carrying amount exceeds the estimated fair value, the second step must be completed to measure the amount of the reporting unit’s goodwill impairment loss, if any. At December 31, 2016, the estimated fair value of the Services reporting unit exceeded our carrying amount.
We performed a qualitative assessment in the first quarter of 2017, and considered factors such as: (i) the decline in and timing of revenues during the first quarter of 2017 (as compared to the forecasted amounts for the same period); (ii) the low gross margin results during the first quarter of 2017 (as compared to the forecasted growth in margins); (iii) the recent improvements in revenue and gross margins throughout 2016; and (iv) our recent annual goodwill impairment test and conclusion that the estimated fair value of the Services reporting unit exceeded our carrying amount. Based on our qualitative assessment in the first quarter of 2017, we concluded that it is not “more likely than not” that the fair value of the Services reporting unit is less than its carrying amount as of March 31, 2017. We monitor the performance of the Services segment each quarter, including through our annual impairment assessment planned for the fourth quarter of 2017. For our next quantitative impairment assessment, we intend to adopt the January 2017 FASB update to the accounting standard regarding goodwill and other intangibles. See Note 1—“Accounting Standards Not Yet Adopted for more information.


28



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

The following is a summary of the gross and net carrying amounts and accumulated amortization of our other intangible assets as of the periods indicated:
 
March 31, 2017
(In thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Client relationships
$
83,329

 
$
(21,952
)
 
$
61,377

Technology
15,250

 
(6,125
)
 
9,125

Trade name and trademarks
8,340

 
(2,346
)
 
5,994

Client backlog
6,680

 
(5,427
)
 
1,253

Non-competition agreements
185

 
(162
)
 
23

Total
$
113,784

 
$
(36,012
)
 
$
77,772

 
 
 
 
 
 
 
December 31, 2016
(In thousands)
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Client relationships
$
83,316

 
$
(19,696
)
 
$
63,620

Technology
15,250

 
(5,497
)
 
9,753

Trade name and trademarks
8,340

 
(2,125
)
 
6,215

Client backlog
6,680

 
(5,235
)
 
1,445

Non-competition agreements
185

 
(160
)
 
25

Total
$
113,771

 
$
(32,713
)
 
$
81,058

The estimated aggregate amortization expense for the remainder of 2017 and thereafter is as follows (in thousands):
2017
$
9,351

2018
12,054

2019
10,795

2020
9,186

2021
7,376

2022
6,533

Thereafter
22,477

Total
$
77,772

Generally, for tax purposes, substantially all of our goodwill and other intangible assets are deductible and will be amortized over a period of 15 years from acquisition.



29



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

7. Reinsurance
The effect of reinsurance on net premiums written and earned is as follows:
 
Three Months Ended
March 31,
(In thousands)
2017

2016
Net premiums written—insurance:
 
 
 
Direct
$
239,645

 
$
233,926

Ceded (1) 
(14,980
)
 
(207,616
)
Net premiums written—insurance
$
224,665

 
$
26,310

Net premiums earned—insurance:
 
 
 
Direct
$
236,062

 
$
240,330

Assumed
7

 
9

Ceded (1) 
(14,269
)
 
(19,389
)
Net premiums earned—insurance
$
221,800

 
$
220,950

______________________
(1)
Net of profit commission.
In 2012, Radian Guaranty entered into the QSR Transactions with a third-party reinsurance provider. Radian Guaranty has ceded the maximum amount permitted under the QSR Transactions; therefore, Radian Guaranty is no longer ceding NIW under these transactions. RIF ceded under the QSR Transactions was $1.5 billion and $2.0 billion as of March 31, 2017 and 2016, respectively.
In the first quarter of 2016, in order to proactively manage the risk and return profile of Radian Guaranty’s insured portfolio and manage its position under the PMIERs financial requirements in a cost-effective manner, Radian Guaranty entered into the Single Premium QSR Transaction with a panel of third-party reinsurers. RIF ceded under the Single Premium QSR Transaction was $3.9 billion and $3.3 billion as of March 31, 2017 and 2016, respectively. See Note 8 of Notes to Consolidated Financial Statements in our 2016 Form 10-K for more information about our reinsurance transactions.
The following tables show the amounts related to the QSR Transactions and the Single Premium QSR Transaction for the periods indicated:
 
QSR Transactions
 
 
Three Months Ended
March 31,
 
(In thousands)
2017
 
2016
 
Ceded premiums written (1) 
$
5,457

 
$
7,962

 
Ceded premiums earned (1) 
7,834

 
11,325

 
Ceding commissions written
1,559

 
2,270

 
Ceding commissions earned (3) 
3,894

 
4,446

 
Ceded losses
570

 
541

 
Single Premium QSR Transaction
 
Three Months Ended
March 31,
 
2017
 
2016
 
$
8,960

 
$
197,593

(2)
5,859

 
5,994

 
3,712

 
50,932

 
2,937

 
3,032

 
573

 
536

 
______________________
(1)
Net of profit commission.
(2)
Includes ceded premiums for policies written in prior periods. See Note 8 of Notes to Consolidated Financial Statements in our 2016 Form 10-K.
(3)
Includes amounts reported in policy acquisition costs and other operating expenses.




30



Radian Group Inc.

Notes to Unaudited Condensed Consolidated Financial Statements — (Continued)
 

8. Other Assets
The following table shows the components of other assets as of the dates indicated:
(In thousands) 
March 31,
2017
 
December 31,
2016
Deposit with the IRS (Note 9)
$
88,557

 
$
88,557

Corporate-owned life insurance
83,865

 
83,248

Property and equipment (1) (2) 
74,241

 
70,665

Accrued investment income
30,381

 
29,255

Deferred policy acquisition costs
13,724

 
14,127

Reinsurance recoverables
7,849

 
7,368

Other
58,818

 
50,615

Total other assets
$
357,435

 
$
343,835

______________________