Investments

Available for Sale Securities

Our available for sale securities within our investment portfolio consisted of the following as of the dates indicated:



	December 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	$	69,668	$	69,396		$	96	$	367
State and municipal obligations	156,587		161,722			5,834		699
Corporate bonds and notes	1,869,318		1,894,886			33,620		8,052
RMBS	189,455		187,229			636		2,862
CMBS	451,595		453,394			3,409		1,610
Other ABS	672,715		674,548			2,655		822
Foreign government and agency securities	31,416		32,207			823		33
Total fixed-maturities available for sale	3,440,754		3,473,382		(1)	47,073		14,445
Equity securities available for sale (2)	176,349		176,065		(1)	1,705		1,989
Total debt and equity securities	$	3,617,103	$	3,649,447		$	48,778	$	16,434

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(1)	Includes $14.7 million and $13.2 million of fixed maturities and equity securities, respectively, of securities loaned to third-party Borrowers under securities lending agreements, classified as other assets in our consolidated balance sheets, as further described below.


(2)	Primarily consists of investments in fixed-income and equity exchange-traded funds and publicly-traded business development company equities.



	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

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(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 FHLB.

Gross Unrealized Losses and Related Fair Values of Available for Sale Securities

For securities deemed “available for sale” and that are in an unrealized loss position, the following tables show the gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated. Included in the amounts as of December 31, 2017, are loaned securities under securities lending agreements that are classified as other assets in our condensed consolidated balance sheets, as further described below.



	December 31, 2017
($ in thousands) Description of Securities	Less Than 12 Months					12 Months or Greater					Total
($ in thousands) Description of Securities	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
U.S. government and agency securities	6	$	23,309	$	129	3	$	9,799	$	238	9	$	33,108	$	367
State and municipal obligations	21	65,898		699		—	—		—		21	65,898		699
Corporate bonds and notes	152	672,318		4,601		32	139,105		3,451		184	811,423		8,052
RMBS	8	19,943		204		26	101,812		2,658		34	121,755		2,862
CMBS	35	139,353		1,395		4	3,518		215		39	142,871		1,610
Other ABS	92	260,864		777		7	8,297		45		99	269,161		822
Foreign government and agency securities	5	7,397		33		—	—		—		5	7,397		33
Equity securities	13	149,785		1,989		—	—		—		13	149,785		1,989
Total	332	$	1,338,867	$	9,827	72	$	262,531	$	6,607	404	$	1,601,398	$	16,434



	December 31, 2016
($ in thousands) Description of Securities	Less Than 12 Months					12 Months or Greater					Total
($ in thousands) Description of Securities	# 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

Impairments due to credit deterioration that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security are considered other-than-temporary. Other declines in fair value (for example, due to interest rate changes, sector credit rating changes or company-specific rating changes) that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security also may serve as a basis to conclude that an other-than-temporary impairment has occurred. To the extent we determine that a security is deemed to have had an other-than-temporary impairment, an impairment loss is recognized.

For the year ended December 31, 2017, we recorded other-than-temporary impairment losses in earnings of $1.4 million. These losses comprised $0.4 million due to our intent to sell certain corporate bonds at a loss and $1.0 million due to credit deterioration, which included $0.5 million related to a convertible note of a non-public company issuer included in debt securities and $0.5 million related to a privately-placed equity security. For the year ended December 31, 2016, we recognized an other-than-temporary impairment loss in earnings of $0.5 million due to our intent to sell certain corporate bonds at a loss. For the year ended December 31, 2017 there were no credit-related impairment losses recognized in accumulated other comprehensive income (loss). For the years ended December 31, 2016 and 2015, there were no credit-related impairment losses recognized in earnings or in accumulated other comprehensive income (loss).

Although we had other securities in an unrealized loss position as of December 31, 2017, we did not consider those securities 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 December 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 December 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 December 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:



	December 31,
(In thousands)	2017			2016
Trading securities:
U.S. government and agency securities	$	—		$	33,042
State and municipal obligations	214,841			259,573
Corporate bonds and notes	307,271			453,617
RMBS	29,520			38,214
CMBS	50,561			78,984
Other ABS	—			8,219
Foreign government and agency securities	4,241			8,213
Total	$	606,434	(1)	$	879,862

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(1)	Includes a de minimis amount of loaned securities under securities lending agreements that are classified as other assets in our consolidated balance sheets, as further described below.

For trading securities held as of December 31 of each respective year, we had net unrealized gains of $8.8 million during 2017, compared to net unrealized gains of $16.8 million during 2016 and net unrealized losses of $25.2 million during 2015.

Securities Lending Agreements

During the third quarter of 2017, we commenced participation in a securities lending program whereby we loan certain securities in our investment portfolio to Borrowers for short periods of time. These securities lending agreements are collateralized financing arrangements whereby we transfer securities to third parties through an intermediary in exchange for cash or other securities. In all of our securities lending agreements, the securities we transfer to Borrowers (loaned securities) may be transferred or loaned by the Borrowers; however, we maintain effective control over all loaned securities, including: (i) retaining ownership of the securities; (ii) receiving the related investment or other income; and (iii) having the right to request the return of the loaned securities at any time. Although we report such securities at fair value within other assets on our consolidated balance sheets, the detailed information provided in this Note includes these securities. See Notes 2 and 9 for additional information.

Under our securities lending agreements, the Borrower is required to provide to us collateral, consisting of cash or securities, in amounts generally equal to or exceeding (i) 102% of the value of the loaned securities (105% in the case of foreign securities) or (ii) another agreed-upon percentage not less than 100% of the market value of the loaned securities. Any cash collateral we receive may be invested in liquid assets.

The Borrower generally may return the loaned securities to us at any time, which would require us to return the collateral within the standard settlement period for the loaned securities on the principal exchange or market in which the securities are traded. We manage this liquidity risk associated with cash collateral by maintaining the cash collateral in a short-term money-market fund with daily availability. The credit risk under these programs is reduced by the amounts of collateral received. On a daily basis, the value of the underlying securities that we have loaned to the Borrowers is compared to the value of cash and securities collateral we received from the Borrowers, and additional cash or securities are requested or returned, as applicable. In addition, we are indemnified against counterparty credit risk by the intermediary.

Key components of our securities lending agreements at December 31, 2017, consisted of the following:



(In thousands)	December 31, 2017
Loaned securities: (1)
Corporate bonds and notes	$	13,862
Foreign government and agency securities	867
Equity securities	13,235
Total loaned securities, at fair value	$	27,964

Total loaned securities, at amortized cost	$	27,846
Securities collateral on deposit from Borrowers (2)	9,342
Reinvested cash collateral, at estimated fair value (3)	19,357

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(1)	Our securities loaned under securities lending agreements are included at fair value within other assets on our consolidated balance sheets. All of our securities lending agreements are classified as overnight and revolving. None of the amounts are subject to offsetting.


(2)	Securities collateral on deposit with us from Borrowers may not be transferred or re-pledged unless the Borrower is in default, and is therefore not reflected in our consolidated financial statements.


(3)	All cash collateral received has been reinvested in accordance with the securities lending agreements and is included in short-term investments. Amounts payable on the return of cash collateral under securities lending agreements are included within other liabilities on our consolidated balance sheets.

There were no securities lending transactions outstanding at December 31, 2016.

Net Investment Income

Net investment income consisted of:



	Year Ended December 31,
(In thousands)	2017			2016			2015
Investment income:
Fixed-maturities	$	122,890		$	115,880		$	81,127
Equity securities	4,318			86			4,539
Short-term investments	5,453			3,086			745
Other	987			1,161			600
Gross investment income	133,648			120,213			87,011
Investment expenses	(6,400		)	(6,747		)	(5,474		)
Net investment income	$	127,248		$	113,466		$	81,537

Net Gains (Losses) on Investments and Other Financial Instruments

Net realized and unrealized gains (losses), including impairment losses, on investments and other financial instruments consisted of:



	Year Ended December 31,
(In thousands)	2017			2016			2015
Net realized gains (losses) on investments:
Fixed-maturities available for sale (1)	$	(3,014	)	$	4,160		$	(1,176	)
Equities available for sale (2)	368			(170		)	69,150			(3)
Trading securities	(5,995		)	(237		)	(9,231		)
Short-term investments	(16		)	(135		)	(24		)
Other invested assets	22			631			3,267
Other gains (losses)	32			64			110
Net realized gains (losses) on investments	(8,603		)	4,313			62,096
Other-than-temporary impairment losses	(1,420		)	(526		)	—
Unrealized gains (losses) on trading securities	13,230			27,217			(27,015		)
Total net gains (losses) on investments	3,207			31,004			35,081
Net gains (losses) on other financial instruments	414			(253		)	612
Net gains (losses) on investments and other financial instruments	$	3,621		$	30,751		$	35,693

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(1)Components of net realized gains (losses) on fixed-maturities available for sale include:



	Year Ended December 31,
(In thousands)	2017			2016			2015
Gross investment gains from sales and redemptions	$	6,052		$	10,326		$	64
Gross investment losses from sales and redemptions	(9,066		)	(6,166		)	(1,240		)


(2)	Net realized gains (losses) on equities available for sale is equal to the gross amount of gains and losses, respectively, realized for those periods.


(3)	During the second quarter of 2015, we sold equity securities in our portfolio and reinvested the proceeds in assets that qualify as PMIERs-compliant Available Assets, recognizing pretax gains of $69.2 million.

Change in Unrealized Gains (Losses) Recorded in Accumulated Other Comprehensive Income (Loss)

The change in unrealized gains (losses) recorded in accumulated other comprehensive income (loss) consisted of the following:



	Year Ended December 31,
(In thousands)	2017			2016			2015
Fixed-maturities:
Unrealized holding gains (losses) arising during the period, net of tax	$	32,147		$	8,822		$	(24,246	)
Less reclassification adjustment for net gains (losses) included in net income (loss), net of tax	(2,556		)	2,361			(764		)
Net unrealized gains (losses) on investments, net of tax	$	34,703		$	6,461		$	(23,482	)

Equities:
Unrealized holding gains (losses) arising during the period, net of tax	$	(244	)	$	(40	)	$	1,673
Less reclassification adjustment for net gains (losses) included in net income (loss), net of tax	(86		)	(110		)	44,947
Net unrealized gains (losses) on investments, net of tax	$	(158	)	$	70		$	(43,274	)

Contractual Maturities

The contractual maturities of fixed-maturity investments available for sale are as follows:



	December 31, 2017
(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	36,688	$	36,645
Due after one year through five years (1)	705,484		705,958
Due after five years through ten years (1)	1,023,844		1,029,896
Due after ten years (1)	360,973		385,712
RMBS (2)	189,455		187,229
CMBS (2)	451,595		453,394
Other ABS (2)	672,715		674,548
Total (3)	$	3,440,754	$	3,473,382

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(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.


(3)	Includes securities loaned under securities lending agreements.

Other

As of December 31, 2017 and 2016, our investment portfolio included no securities of countries that have obligations that have been under particular stress due to economic uncertainty, potential restructuring and ratings downgrades.

For the years ended December 31, 2017, 2016 and 2015, we did not sell or transfer any fixed-maturity investments classified as held to maturity. For the years ended December 31, 2017, 2016 and 2015, we did not transfer any securities from the available for sale or trading categories.

As of December 31, 2017, we did not have any investment in any person (including affiliates thereof) that exceeded 10% of our total stockholders’ equity.

Securities on deposit with various state insurance commissioners amounted to $11.8 million and $10.8 million at December 31, 2017 and 2016, respectively.

At December 31, 2016, Radian Guaranty had $63.9 million in a collateral account invested in and classified as part of our trading securities and pledged to cover Loss Mitigation Activity on the loans subject to the Freddie Mac Agreement. During the third quarter of 2017, the scheduled final settlement date under the Freddie Mac Agreement occurred. As of December 31, 2017, the remaining balance of $5.6 million in the collateral account was invested in and classified as short-term investments and pledged to cover Loss Mitigation Activity and pending claims activity already in process but not yet finalized. See Note 11 for additional information.