Radian Group Inc.

Schedule II—Financial Information of Registrant

Parent Company Only

Supplemental Notes

Note A

The Radian Group Inc. (the “Parent Company”, “we” or “our”) financial statements represent the stand-alone financial statements of the Parent Company. These financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein, except that the Parent Company uses the equity-method of accounting for its majority-owned subsidiaries. These financial statements should be read in conjunction with our consolidated financial statements and the accompanying notes thereto.

Certain prior period amounts have been reclassified to conform to current period presentation, including the adoption of an update to the accounting standard for the treatment of restricted cash in the statement of cash flows. See Note 2 of Notes to Consolidated Financial Statements for additional information.

On April 1, 2015, Radian Guaranty completed the sale of Radian Asset Assurance pursuant to the Radian Asset Assurance Stock Purchase Agreement. See Note 18 of Notes to Consolidated Financial Statements for additional information related to discontinued operations.

As a result of our adoption on January 1, 2017 of the update issued by the FASB related to the accounting standards for share-based payment transactions, excess tax benefits are now classified along with other cash flows as an operating activity, rather than separated from other income tax cash flows as a financing activity.

Note B

We had restricted cash of $0.1 million at December 31, 2016 held as collateral for our insurance trust agreement for our health insurance policy. We had no restricted cash at December 31, 2017.

Note C

During 2017, the Parent Company made total capital contributions of $521.0 million to its subsidiaries. This amount included a $175.0 million contribution to Radian Reinsurance, consisting of $21.4 million of cash and $153.6 million of marketable securities, and a $0.2 million cash contribution to Radian Mortgage Assurance. The Parent Company also made a $3.1 million capital contribution to Enhance Financial Services Group Inc. in lieu of receiving tax payments due under our tax sharing agreement. We also effectively contributed $342.7 million to Clayton Group Holdings Inc. to reflect the impairment of our $300 million intercompany note receivable and $42.7 million of interest receivable on the intercompany note as of December 31, 2017.

During 2017, the Parent Company received a $175.0 million dividend from Radian Guaranty, which included $21.4 million of cash and $153.6 million of marketable securities, all of which was subsequently contributed to Radian Reinsurance. In addition, the Parent Company liquidated three of its subsidiaries and received liquidating dividends totaling $26.5 million. This amount reflected liquidating dividends from Radian Mortgage Insurance, Radian Mortgage Reinsurance Company and RDN Investments, Inc. of $24.9 million, $1.0 million and $0.6 million, respectively, and included cash dividends of $2.7 million, $0.6 million and $0.5 million, respectively, and the distribution of deferred and current tax recoverables of $22.2 million, $0.4 million and $0.1 million, respectively. The Parent Company also received tax payments of $50.7 million from its subsidiaries under our tax sharing agreement.

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

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

During 2015, the Parent Company made total capital contributions of $398.3 million to its subsidiaries. This amount included a cash contribution of $100.0 million to Radian Guaranty, contributions of cash ($50.0 million) and marketable securities ($216.0 million) totaling $266.0 million to Radian Reinsurance, and cash contributions of $20.0 million, $12.1 million and $0.2 million to Radian Mortgage Guaranty Inc., Clayton Group Holdings Inc., and Radian Mortgage Reinsurance Company, respectively.

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

Note D

Accounts and notes receivable included a $300 million note receivable from Clayton Group Holdings Inc. as of December 31, 2017 and 2016. This represents the original principal amount related to the Senior Notes due 2019, which funded the acquisition of Clayton in June 2014. Interest on the note is payable semi-annually on June 1 and December 1. The interest payment represents coupon interest plus issuance costs (amortized on a straight line basis over the term of the note). The principal is due on June 1, 2019 although, in the event of non-payment, the note terms reflect that the note remains outstanding and continues to accrue interest at the coupon rate. The Services segment has not generated sufficient cash flow to reimburse the Parent Company for its share of its direct and allocated operating expenses and interest expense, and we do not expect that the Services segment will be able to bring its reimbursement obligations current in the foreseeable future as relates to the intercompany note. Therefore, we have recorded an allowance against the outstanding balance of the $300 million note receivable at December 31, 2017.

Accounts and notes receivable also included, as of December 31, 2017, a $100 million Surplus Note from Radian Guaranty. In December 2017, the Parent Company transferred $100 million of primarily marketable securities and a small amount of cash to Radian Guaranty in exchange for a Surplus Note issued by Radian Guaranty. See Note 19 of Notes to Consolidated Financial Statements for additional information related to the Surplus Note.

Note E

Other assets remained relatively unchanged as of December 31, 2017, compared to December 31, 2016, primarily as a result of a small net decrease in the intercompany receivable balance related to the reimbursement from the Services segment (See Notes D and G for additional information), offset by increases in other assets. In particular, as disclosed above in Note D, the Services segment has not generated sufficient cash flow to reimburse the Parent Company for its share of its direct and allocated operating expenses and interest expense related to the $300 million note receivable. Therefore, at December 31, 2017, we recorded an allowance of $42.7 million against the outstanding balance of the interest receivable. Offsetting the interest receivable allowance was an increase in the balance due related to the Services segment’s share of direct and allocated operating expenses of $39.9 million. Other assets also includes an $88.6 million deposit with the IRS. See Note 10 of Notes to Consolidated Financial Statements for additional information related to this “qualified deposit” and the status of the IRS Matter.

Note F

During 2017, the Parent Company successfully completed a series of transactions to strengthen its capital position, including reducing its overall cost of capital and improving the maturity profile of its debt. See Notes 12 and 14 of Notes to Consolidated Financial Statements for additional information on our loss on induced conversion and debt extinguishment, long-term debt and capital stock.

At December 31, 2017, the maturities of the principal amount of our long-term debt in future years are as follows:



(In thousands)
2019	$	158,623
2020	234,126
2021	197,661
2024	450,000
Total	$	1,040,410

Note G

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries expenses it incurs in the capacity of supporting those subsidiaries, including operating expenses, which are allocated based on a percentage of time spent, and interest expense, which is allocated based on relative capital. These expenses are presented net of allocations in the Statements of Operations. Substantially all operating expenses and most of our interest expense, except for discount amortization on our long-term debt, have been allocated to the subsidiaries for 2017, 2016 and 2015.

Amounts allocated to the subsidiaries for expenses are based on actual cost, without any mark-up. The Parent Company considers these charges fair and reasonable. The subsidiaries generally reimburse the Parent Company for these costs in a timely manner, which has the impact of temporarily improving the cash flows of the Parent Company, if accrued expenses are reimbursed prior to actual payment. See Note E for additional information.

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



	Year Ended December 31,
(in thousands)	2017		2016		2015
Allocated operating expenses	$	72,764	$	56,446	$	53,738
Allocated interest expenses	44,686		52,092		35,300
Total allocated expenses	$	117,450	$	108,538	$	89,038

Note H

Net investment income increased in 2017 compared to 2016, primarily due to an increase in the average of the Parent Company’s investment portfolio invested in higher yielding bonds during the year.

Interest expense reflects the discount amortization on our long-term debt, as well as coupon interest attributable to the Convertible Senior Notes due 2019 and the Senior Notes due 2019. The reduction in interest expense in 2017 was primarily attributable to lower expense following the induced conversion and extinguishment of $21.6 million of our remaining Convertible Senior Notes due 2017 in the second quarter of 2017 and the redemption of the remaining $68.0 million of our Convertible Senior Notes due 2019 during January 2017.

Note I

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

•

Radian Group and Radian Mortgage Assurance are parties to a guaranty agreement, which provides that Radian Group will make sufficient funds available to Radian Mortgage Assurance to ensure that Radian Mortgage Assurance has a minimum of $5 million of statutory policyholders’ surplus every calendar quarter. Radian Mortgage Assurance had $8.7 million of statutory policyholders’ surplus and no RIF exposure as of December 31, 2017.

•

To allow our mortgage insurance customers to comply with applicable securities regulations for issuers of ABS (including mortgage-backed securities), we have been required, depending on the amount of credit enhancement we were providing, to provide: (i) audited financial statements for the insurance subsidiary participating in these transactions or (ii) a full and unconditional holding-company level guarantee for our insurance subsidiaries’ obligations in such transactions. Radian Group has guaranteed two structured transactions for Radian Guaranty with approximately $97.8 million of aggregate remaining credit exposure as of December 31, 2017.

•

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