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Note 4 - Segment Reporting Level 1 (Notes)
 12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block] Segment Reporting
We have two strategic business segments 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. Inter-segment activities are recorded at market rates for segment reporting and eliminated in consolidation.
We allocate to our Mortgage Insurance segment: (i) corporate expenses based on the segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on the segment; (ii) except as described below for periods prior to January 1, 2019, all interest expense; and (iii) all net investment income from corporate cash and investments. Effective January 1, 2019, Radian Group recapitalized the Services segment with a capital contribution that enabled the Services segment to repay the Clayton Intercompany Note and its accumulated allocated interest expense associated with the note, and thereafter, all interest expense is allocated to our Mortgage Insurance segment.
We allocate to our Services segment: (i) corporate expenses based on the segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on the segment and (ii) until January 1, 2019, the allocated interest expense related to the Clayton Intercompany Note as described above.
With the exception of goodwill and other acquired intangible assets that relate to our Services segment, which are reviewed as part of our annual goodwill impairment assessment, we do not manage assets by segment.
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) from continuing operations excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as gains (losses) from the sale of lines of business and acquisition-related expenses.
Although adjusted pretax operating income 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 pretax income. 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 gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity 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 and changes in fair value of other financial instruments. We do not view them to be indicative of our fundamental operating activities.
(2)
Loss on extinguishment of debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our 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.
(3)
Amortization and impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. We do not view these charges as part of the operating performance of our primary activities.
(4)
Impairment of other long-lived assets and other non-operating items. Includes activities that we do not view to be indicative of our fundamental operating activities, such as: (i) gains (losses) from the sale of lines of business and (ii) acquisition-related expenses.
The reconciliation of adjusted pretax operating income (loss) for our reportable segments to consolidated pretax income is as follows:
 
December 31,
(In thousands)
2019
 
2018
 
2017
Adjusted pretax operating income (loss):
 
 
 
 
 
Mortgage insurance
$
868,898

 
$
772,614

 
$
651,015

Services (1) 
(14,263
)
 
(27,119
)
 
(33,840
)
Net gains (losses) on investments and other financial instruments
51,719

 
(42,476
)
 
3,621

Loss on extinguishment of debt
(22,738
)
 
—

 
(51,469
)
Impairment of goodwill
(4,828
)
 
—

 
(184,374
)
Amortization and impairment of other acquired intangible assets
(22,288
)
 
(12,429
)
 
(27,671
)
Impairment of other long-lived assets and other non-operating items
(7,507
)
 
(6,404
)
 
(10,545
)
Consolidated pretax income
$
848,993

 
$
684,186

 
$
346,737

______________________
(1)
Includes inter-segment revenues as reflected in the tables below.
Revenue and Other Segment Information
The following tables reconcile reportable segment revenues to consolidated revenues and summarize interest expense, depreciation expense, allocation of corporate operating expenses and adjusted pretax operating income for our reportable segments as follows:
 
December 31, 2019
(In thousands)
Mortgage Insurance
 
Services
 
Reportable Segment Total
 
Inter-segment
 
Adjustments
 
Consolidated Total
Premiums earned
$
1,134,214

 
$
11,135

 
$
1,145,349

 
$
—

 
$
—

 
$
1,145,349

Services revenue
—

 
158,629

 
158,629

 
(4,033
)
 
—

 
154,596

Net investment income
171,116

 
680

 
171,796

 
—

 
—

 
171,796

Other income
3,495

 
—

 
3,495

 
—

 
—

 
3,495

Add: Net gains (losses) on investments and other financial instruments
—

 
—

 
—

 
—

 
51,719

 
51,719

Total revenues
$
1,308,825

 
$
170,444

 
$
1,479,269

 
$
(4,033
)
 
$
51,719

 
$
1,526,955

 
 
 
 
 
 
 
 
 
 
 
 
Other segment information:
 
 
 
 
 
 
 
 
 
 


Interest expense
$
56,310

 
$
—

 
$
56,310

 
 
 
 
 


Depreciation
15,317

 
3,684

 
19,001

 
 
 
 
 


Allocation of corporate operating expenses (1) 
104,078

 
16,943

 
121,021

 
 
 
 
 


______________________
(1)
Includes additional depreciation expense of $1.6 million, $0.2 million and $1.8 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.

 
December 31, 2018
(In thousands)
Mortgage Insurance
 
Services
 
Reportable Segment Total
 
Inter-segment
 
Adjustments
 
Consolidated Total
Premiums earned
$
1,006,721

 
$
7,286

 
$
1,014,007

 
$
—

 
$
—

 
$
1,014,007

Services revenue
—

 
148,217

 
148,217

 
(3,245
)
 
—

 
144,972

Net investment income
152,102

 
373

 
152,475

 
—

 
—

 
152,475

Other income
2,794

 
1,234

 
4,028

 
—

 
—

 
4,028

Add: Net gains (losses) on investments and other financial instruments
—

 
—

 
—

 
—

 
(42,476
)
 
(42,476
)
Total revenues
$
1,161,617

 
$
157,110

 
$
1,318,727

 
$
(3,245
)
 
$
(42,476
)
 
$
1,273,006

 
 
 
 
 
 
 
 
 
 
 
 
Other segment information:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
$
43,685

 
$
17,805

 
$
61,490

 
 
 
 
 
 
Depreciation
15,229

 
3,563

 
18,792

 
 
 
 
 
 
Allocation of corporate operating expenses (1) 
80,134

 
11,974

 
92,108

 
 
 
 
 
 
______________________
(1)
Includes additional depreciation expense of $0.5 million, $0.1 million and $0.6 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.
 
December 31, 2017
(In thousands)
Mortgage Insurance
 
Services
 
Reportable Segment Total
 
Inter-segment
 
Adjustments
 
Consolidated Total
Premiums earned
$
932,773

 
$
—

 
$
932,773

 
$
—

 
$
—

 
$
932,773

Services revenue
—

 
161,833

 
161,833

 
(6,730
)
 
—

 
155,103

Net investment income
127,248

 
—

 
127,248

 
—

 
—

 
127,248

Other income
2,886

 
—

 
2,886

 
—

 
—

 
2,886

Add: Net gains (losses) on investments and other financial instruments
—

 
—

 
—

 
—

 
3,621

 
3,621

Total revenues
$
1,062,907

 
$
161,833

 
$
1,224,740

 
$
(6,730
)
 
$
3,621

 
$
1,221,631

 
 
 
 
 
 
 
 
 
 
 
 
Other segment information:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
$
45,016

 
$
17,745

 
$
62,761

 
 
 
 
 
 
Depreciation
13,315

 
3,758

 
17,073

 
 
 
 
 
 
Allocation of corporate operating expenses (1) 
55,441

 
14,319

 
69,760

 
 
 
 
 
 
______________________
(1)
Includes additional depreciation expense of $0.2 million, $0.1 million and $0.3 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.
The table below represents the disaggregation of services revenues by revenue type:
 
Year Ended December 31,
(In thousands)
2019
 
2018
 
2017
Services revenue
 
 
 
 
 
Mortgage Services (1) 
$
74,007

 
$
76,050

 
$
77,121

Real Estate Services
64,945

 
60,059

 
54,649

Title Services
15,644

 
8,863

 
23,333

Total services revenue
$
154,596

 
$
144,972

 
$
155,103

______________________
(1)
Includes $48.4 million, $50.8 million and $46.1 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to Clayton, which was sold in January 2020.
Our Services segment revenues are recognized over time and measured each period based on the progress to date as services are performed and made available to customers. Our contracts with customers, including payment terms, are generally short-term in nature; therefore, any impact related to timing is immaterial. Revenue recognized related to services made available to customers and billed is reflected in accounts and notes receivable. Revenue recognized related to services performed and not yet billed is recorded in unbilled receivables and reflected in other assets. We have no material bad-debt expense. The following represents balances related to service revenue contracts as of the dates indicated:
(In thousands)
December 31, 2019 (1)
 
December 31, 2018
Accounts receivable
$
10,773

 
$
15,461

Unbilled receivables
13,772

 
19,917

Deferred revenues
1,784

 
3,204

______________________
(1)
Excludes $10.5 million and $3.9 million of accounts receivable and unbilled receivables, respectively, that are related to Clayton and classified as held-for-sale.
There was no single customer that accounted for more than 10% of NIW or more than 10% of our consolidated revenues (excluding net gains (losses) on investments and other financial instruments) in 2019, 2018 or 2017.