Note 16 - Statutory Information

3 Months Ended

Mar. 31, 2019

SEC Schedule, 12-16, Insurance Companies, Supplementary Insurance Information [Abstract]

We prepare our statutory financial statements in accordance with the accounting practices required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries. Required SAPP are established by a variety of NAIC publications, as well as state laws, regulations and general administrative rules. In addition, insurance departments have the right to permit other specific practices that may deviate from prescribed practices. As of March 31, 2019, we did not have any prescribed or permitted statutory accounting practices for our mortgage insurance subsidiaries that resulted in reported statutory surplus or risk-based capital being different from what would have been reported had NAIC statutory accounting practices been followed.

State insurance regulations include various capital requirements and dividend restrictions based on our insurance subsidiaries’ statutory financial position and results of operations, as described below. Our failure to maintain adequate levels of capital could lead to intervention by the various insurance regulatory authorities, which could materially and adversely affect our business, business prospects and financial condition. As of March 31, 2019, the amount of restricted net assets held by our consolidated insurance subsidiaries (which represents our equity investment in those insurance subsidiaries) totaled $3.9 billion of our consolidated net assets.

Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a minimum ratio of statutory capital relative to the level of net RIF, or Risk-to-capital. There are 16 RBC States that currently impose a Statutory RBC Requirement. The most common Statutory RBC Requirement is that a mortgage insurer’s Risk-to-capital may not exceed 25 to 1. In certain of the RBC States, a mortgage insurer must satisfy a MPP Requirement. The statutory capital requirements for the non-RBC States are de minimis (ranging from $1 million to $5 million); however, the insurance laws of these states generally grant broad supervisory powers to state agencies or officials to enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including the power to revoke or restrict an insurance company’s ability to write new business. Unless an RBC State grants a waiver or other form of relief, if a mortgage insurer, such as Radian Guaranty, is not in compliance with the Statutory RBC Requirement of that state, the mortgage insurer may be prohibited from writing new mortgage insurance business in that state. Radian Guaranty’s domiciliary state, Pennsylvania, is not one of the RBC States.

Radian Guaranty was in compliance with the Statutory RBC Requirements or MPP Requirements, as applicable, in each of the RBC States as of March 31, 2019. The NAIC is in the process of developing a new Model Act for mortgage insurers, which is expected to include, among other items, new capital adequacy requirements for mortgage insurers. In May 2016, a working group of state regulators released an exposure draft of this Model Act. The process for developing this framework is ongoing. While the outcome and timing of this process are uncertain, the new Model Act, if and when finalized by the NAIC, has the potential to increase capital requirements in those states that adopt the Model Act. However, we continue to believe the changes to the Model Act will not result in financial requirements that require greater capital than the level currently required under the PMIERs financial requirements. See Note 1 herein and Note 1 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for information regarding the PMIERs, which set requirements for private mortgage insurers to remain approved insurers of loans purchased by the GSEs.

Radian Guaranty’s Risk-to-capital calculation appears in the table below. For purposes of the Risk-to-capital requirements imposed by certain states, statutory capital is defined as the sum of statutory policyholders’ surplus plus statutory contingency reserves.



	March 31, 2019			December 31, 2018
($ in millions)
RIF, net (1)	$	41,283.5		$	40,711.3

Common stock and paid-in capital	$	1,416.0		$	1,416.0
Surplus Note	100.0			100.0
Unassigned earnings (deficit)	(651.1		)	(701.9		)
Statutory policyholders’ surplus	864.9			814.1
Contingency reserve	2,224.5			2,109.9
Statutory capital	$	3,089.4		$	2,924.0

Risk-to-capital	13.4:1			13.9:1

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(1)	Excludes risk ceded through all reinsurance programs (including with affiliates) and RIF on defaulted loans.

Radian Guaranty’s statutory capital increased by $165.4 million in the first three months of 2019, primarily due to Radian Guaranty’s statutory net income of $165.1 million during this period. The net decrease in Radian Guaranty’s Risk-to-capital in the first three months of 2019 was primarily due to the increase in overall statutory capital, partially offset by an increase in RIF.

The Risk-to-capital ratio for our combined mortgage insurance operations was 12.4 to 1 as of March 31, 2019, compared to 12.8 to 1 as of December 31, 2018.

In April 2019, the Pennsylvania Insurance Department approved a $375 million distribution of capital from Radian Guaranty to Radian Group, which was paid on April 30, 2019 in the form of cash and marketable securities. This transfer was approved by the Pennsylvania Insurance Department as an Extraordinary Distribution and will result in a $375 million decrease in Radian Guaranty’s statutory policyholders’ surplus.

EnTitle Insurance

EnTitle Insurance’s statutory policyholders’ surplus and statutory net loss were $26.1 million and $0.4 million, respectively, as of and for the three months ended March 31, 2019.

Through EnTitle Insurance, we maintain escrow deposits as a service to our customers. Amounts held in escrow and excluded from assets and liabilities in our condensed consolidated balance sheets totaled $2.4 million and $4.7 million as of March 31, 2019 and December 31, 2018, respectively. These amounts were held at third-party financial institutions and not considered assets of the Company. Should one or more of the financial institutions at which escrow deposits are maintained fail, there is no guarantee that we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise. In the event of any such failure, we could be held liable for the disposition of these funds owned by third parties.