Schedule II Financial Information of Registrant

12 Months Ended

Dec. 31, 2018

Condensed Financial Statements Parent Only [Abstract]

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

Condensed Balance Sheet

Parent Company Only

	December 31,
(In thousands, except per-share amounts)	2018			2017
Assets
Investments
Fixed-maturities available for sale—at fair value	$	321,401		$	10,785
Trading securities—at fair value	56,011			—
Equity securities—at fair value	29,375			—
Short-term investments—at fair value	238,185			83,356
Total investments	644,972			94,141
Cash	32,352			13,173
Investment in subsidiaries, at equity in net assets (Note B)	3,927,268			3,764,865
Accounts and notes receivable (Note C)	101,072			103,561
Federal income taxes recoverable, net—current	49,381			35,741
Other assets (Note D)	58,993			166,051
Total assets	$	4,814,038		$	4,177,532
Liabilities and Stockholders’ Equity
Senior Notes (Note E)	$	1,030,348		$	1,027,074
Federal income taxes—deferred	243,341			97,067
Other liabilities	51,634			53,353
Total liabilities	1,325,323			1,177,494
Common stockholders’ equity
Common stock: par value $.001 per share; 485,000 shares authorized at December 31, 2018 and 2017; 231,132 and 233,417 shares issued at December 31, 2018 and 2017, respectively; 213,473 and 215,814 shares outstanding at December 31, 2018 and 2017, respectively	231			233
Treasury stock, at cost: 17,660 and 17,603 shares at December 31, 2018 and 2017, respectively	(894,870		)	(893,888		)
Additional paid-in capital	2,724,733			2,754,275
Retained earnings	1,719,541			1,116,333
Accumulated other comprehensive income (loss)	(60,920		)	23,085
Total common stockholders’ equity	3,488,715			3,000,038
Total liabilities and stockholders’ equity	$	4,814,038		$	4,177,532

See Supplemental Notes.Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Statements of Operations

Parent Company Only

	Year Ended December 31,
(In thousands)	2018			2017			2016
Revenues:
Net investment income	$	21,294		$	22,528		$	20,834
Net gains (losses) on investments and other financial instruments	(470		)	(328		)	(150		)
Other income	—			80			49
Total revenues	20,824			22,280			20,733
Expenses:
Loss on induced conversion and debt extinguishment	—			51,469			75,075
Interest expense	17,805			18,033			29,002
Total expenses (Note F)	17,805			69,502			104,077
Pretax gain (loss) from continuing operations	3,019			(47,222		)	(83,344		)
Income tax benefit	(3,319		)	(141,437		)	(8,676		)
Equity in net income of affiliates	599,673			26,873			382,921
Net income	606,011			121,088			308,253
Other comprehensive income (loss), net of tax	(86,953		)	35,480			6,082
Comprehensive income	$	519,058		$	156,568		$	314,335

See Supplemental Notes.Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Statements of Cash Flows

Parent Company Only

	Year Ended December 31,
(In thousands)	2018			2017			2016
Net cash provided by (used in) operating activities	254,698			(23,654		)	38,902
Cash flows from investing activities:
Proceeds from sales of:
Fixed-maturity investments available for sale	6,779			58,007			47,058
Trading securities	—			—			30,350
Equity securities	—			—			24,992
Proceeds from redemptions of:
Fixed-maturity investments available for sale	12,391			60,414			49,578
Trading securities	—			—			10,000
Purchases of:
Fixed-maturity investments available for sale	(37,552		)	(134,456		)	(137,431		)
Sales, redemptions and (purchases) of :
Short-term investments, net	(131,164		)	210,529			(40,288		)
Other assets, net	(3,317		)	(1,107		)	239
Capital distributions from subsidiaries	—			924			15,000
Capital contributions to subsidiaries	(30,338		)	(21,643		)	(1,500		)
Acquisition of subsidiaries	—			—			(30,443		)
(Issuance) repayment of note receivable from affiliate (Note C)	—			(44		)	201,631
Net cash provided by (used in) investing activities	(183,201		)	172,624			169,186
Cash flows from financing activities:
Dividends paid	(2,140		)	(2,154		)	(2,105		)
Issuance of senior notes, net	—			442,163			343,417
Purchases and redemptions of senior notes	—			(593,527		)	(445,072		)
Proceeds from termination of capped calls	—			4,208			—
Issuance of common stock	1,385			7,132			717
Purchases of common shares	(50,053		)	(6		)	(100,188		)
Credit facility commitment fees paid	(1,510		)	(1,993		)	—
Excess tax benefits from stock-based awards (Note A)	—			—			98
Net cash provided by (used in) financing activities	(52,318		)	(144,177		)	(203,133		)
Increase (decrease) in cash and restricted cash	19,179			4,793			4,955
Cash and restricted cash, beginning of period	13,173			8,380			3,425
Cash and restricted cash, end of period	$	32,352		$	13,173		$	8,380

See Supplemental Notes.Radian Group Inc.

Schedule II—Financial Information of Registrant

Parent Company Only

Supplemental Notes

Note A

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

Note B

During 2018, the Parent Company made total capital contributions of $98.1 million to its subsidiaries. This amount included a $30.3 million cash contribution to Radian Title Services Inc., part of which was used to acquire EnTitle Direct in March 2018, and a $1.7 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 $66.1 million to Clayton Group Holdings Inc. to reflect the impairment of the interest receivable on our intercompany note that was recorded during 2018 of $17.8 million and the outstanding intercompany receivable balance of $48.3 million representing the services segment’s share of unreimbursed direct and allocated costs.

During 2018, the Parent Company received a $450.0 million distribution from Radian Guaranty, which included $55.4 million of cash and $394.6 million of marketable securities. Under the cumulative earnings approach, we considered this distribution to be a return on investment and classified as operating cash flow. The Parent Company also received tax payments of $229.6 million from its subsidiaries under our tax sharing agreement.

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 distribution 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.

Note C

Accounts and notes receivable included a $300 million note receivable from Clayton Group Holdings Inc. as of December 31, 2018 and 2017. 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. Therefore, we have recorded an allowance against the outstanding balance of the $300 million note receivable at December 31, 2018 and 2017.

Accounts and notes receivable also included, as of December 31, 2018 and 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 D

Other assets decreased as of December 31, 2018, compared to December 31, 2017, by $107.1 million, primarily as a result of the settlement of the Company’s dispute related to the IRS Matter and the Company’s utilization of its $88.6 million of “qualified deposits” with the U.S. Treasury to settle its $31 million obligation to the IRS. In 2019, the Company expects the IRS to refund the remaining $58 million that was previously on deposit. Also contributing to this decrease was a $28.7 million net decrease in the intercompany receivable balance primarily related to the Services segment (See Notes C and F for additional information), offset by increases in other assets. As disclosed above in Note C, the Services segment has not generated sufficient cash flow to reimburse the Parent Company for its share of a portion of its direct and all of its allocated operating expenses and interest expense related to the $300 million note receivable. Therefore, at December 31, 2018 and 2017, we recorded an allowance of $60.5 million and $42.7 million, respectively, against the outstanding balance of the interest receivable. During 2018, the intercompany receivable balance reflected an increase in the balance due related to the Services segment’s share of direct and allocated operating expenses of $13.0 million and $8.5 million, which was advanced to the Services segment and used for the acquisition of Independent Settlement Services and Five Bridges in the fourth quarter of 2018. At December 31, 2018, we recorded an allowance of $48.3 million against the entire outstanding intercompany receivable balance from Clayton Group Holdings Inc., which represented the Services segments’ share of unreimbursed direct and allocated operating expenses.

Note E

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 15 of Notes to Consolidated Financial Statements for additional information on our loss on induced conversion and debt extinguishment, senior notes and capital stock.

At December 31, 2018, the maturities of the principal amount of our senior notes 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 F

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 the forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on certain subsidiaries, 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 senior notes, have been allocated to the subsidiaries for 2018, 2017 and 2016.

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 D 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)	2018		2017		2016
Allocated operating expenses	$	94,815	$	72,764	$	56,446
Allocated interest expenses	42,195		44,686		52,092
Total allocated expenses	$	137,010	$	117,450	$	108,538

Interest expense was relatively unchanged in 2018 as compared to 2017. Interest expense during 2017 and 2016 reflected the discount amortization on our senior notes, 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 as compared to 2016 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 G

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, 2018.

• 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 $87.8 million of aggregate remaining credit exposure as of December 31, 2018.

•

Radian Group and Radian Guaranty Reinsurance are parties to an Assumption and Indemnification Agreement with regard to obligations under our tax-sharing arrangements. Pursuant to this agreement, Radian Group is required to assume certain obligations that arise as a result of our tax-sharing arrangement.