# Radian Group Inc: Form 10-Q for the period ended Sep 30, 2023 - Company: [Radian Group Inc](/companies/rdn.md) (CIK 890926) - Form: 10-Q - Filed: 2023-11-03 - Accepted by EDGAR: Nov 3, 2023, 16:12 ET - Period: 2023-09-30 - Accession: 0000890926-23-000058 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/890926/000089092623000058/rdn-20230930.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/890926/000089092623000058/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2023-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2023-07-01 to 2023-09-30 | $313.5m | us-gaap:Revenues | | Revenue | 9 months, 2023-01-01 to 2023-09-30 | $914.6m | us-gaap:Revenues | | Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $24.3m | us-gaap:InterestExpense | | Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $69.1m | us-gaap:InterestExpense | | Income tax | 3 months, 2023-07-01 to 2023-09-30 | $44.4m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2023-01-01 to 2023-09-30 | $127.2m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2023-07-01 to 2023-09-30 | $156.6m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2023-01-01 to 2023-09-30 | $460.4m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.98 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.86 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.99 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.90 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 160,147,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 160,869,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $264.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $111.0m | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $70.0m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2023-09-30 | $55.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Total assets | at 2023-09-30 | $7.38bn | us-gaap:Assets | | Total liabilities | at 2023-09-30 | $3.23bn | us-gaap:Liabilities | | Shareholders' equity | at 2023-09-30 | $4.15bn | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 103,754 characters. The disclosures in this quarterly report are complementary to those made in our 2022 Form 10-K and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report, as well as our audited financial statements, notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2022 Form 10-K. The following analysis of our financial condition and results of operations for the three and nine months ended September 30, 2023, provides information that evaluates our financial condition as of September 30, 2023, compared with December 31, 2022, and our results of operations for the three and nine months ended September 30, 2023, compared to the same periods last year. Certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report. In addition, investors should review the “Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions” herein, and “Item 1A. Risk Factors” in our 2022 Form 10-K for a discussion of those risks and uncertainties that have the potential to adversely affect our business, financial condition, results of operations, cash flows or prospects. Our results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. See “Overview” below and Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. | INDEX TO ITEM 2 | Page | | --- | ---: | | Overview | 40 | | Key Factors Affecting Our Results | 43 | | Mortgage Insurance Portfolio | 43 | | Results of Operations—Consolidated | 46 | | Results of Operations—Mortgage | 51 | | Results of Operations—homegenius | 58 | | Results of Operations—All Other | 60 | | Liquidity and Capital Resources | 60 | | Critical Accounting Estimates | 65 | ### Overview We are a diversified mortgage and real estate business with two reportable business segments—Mortgage and homegenius. Our Mortgage segment aggregates, manages and distributes U.S. mortgage credit risk for the benefit of mortgage lending institutions and mortgage credit investors, principally through private mortgage insurance on residential first-lien mortgage loans, and also provides contract underwriting and other credit risk management solutions to our customers. Our homegenius segment offers an array of title, real estate and real estate technology products and services to consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents. ### Current Operating Environment As a seller of mortgage credit protection and other mortgage and credit risk management solutions and real estate products and services, our business results are subject to macroeconomic conditions and specific events that impact the housing, housing finance and related real estate markets, the credit performance of our mortgage insurance portfolio and our future business opportunities, as well as seasonal fluctuations that specifically affect the mortgage origination and real estate environments. The performance of our Mortgage business is particularly influenced by factors that impact the housing and real estate markets and the ability of borrowers to remain current on their mortgages, such as home prices and housing supply, inflationary pressures, interest rate changes, unemployment levels, mortgage originations and the availability of credit, national and regional economic conditions, legislative and regulatory developments and other events, including macroeconomic stresses and uncertainties resulting from global conflicts and other geopolitical events. Annual inflation in the U.S. reached a 40-year high in 2022. While inflation has moderated in 2023, the U.S. economy continues to experience a high rate of inflation, as well as slower economic growth and the risks of a recession and of higher ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations unemployment rates. Actions taken by the U.S. Federal Reserve to increase interest rates in response to the inflationary trends that started in 2021 resulted in a sharp and significant increase in mortgage interest rates starting in 2022. The U.S. Federal Reserve continued to raise rates in 2023, resulting in mortgage rates more than doubling to over 7% as of September 30, 2023, and additional rate increases are possible. These economic conditions have negatively impacted the U.S. housing market, including broadly reducing refinance activity. In addition, these conditions resulted in decreases in home prices in many markets in 2022 from what had been record highs. More recently, industry data suggest that home prices are again increasing. As further discussed below, we expect that the current economic environment will continue to negatively impact certain aspects of our results for the near future, including lower NIW, lower homegenius revenues and higher mortgage insurance defaults. At the same time, we also expect the higher interest rate environment to continue to benefit us through higher Persistency Rates that will favorably impact our IIF, as well as through the recognition of higher net investment income, as further discussed below. Longer-term, however, we continue to believe that the housing market fundamentals and outlook remain favorable, including demographics supporting growth in the population of first-time homebuyers and a constrained supply of homes available for sale. We wrote NIW of $42.1 billion in the first nine months of 2023, a decrease of 24% compared to our NIW in the first nine months of 2022 due to the reduction in housing market activity resulting from current economic conditions. While the recent increases in mortgage interest rates have significantly reduced refinance demand, they have also resulted in a decrease in policy cancellations, which has increased our Persistency Rate, and in turn contributed to growth in our IIF. Further, in response to the current macroeconomic trends, in our mortgage insurance business we increased pricing in 2022 and 2023. See “Mortgage Insurance Portfolio” for additional details on our NIW and IIF. In 2020, the onset of the COVID-19 pandemic resulted in a significant increase in unemployment and negatively impacted the economy. As a result, we experienced a material increase in new defaults beginning in the second quarter of 2020, substantially all of which related to loans subject to mortgage forbearance programs implemented in response to the COVID-19 pandemic. This increase in new defaults had a negative effect on our results of operations and our reserve for losses for that year. While subsequent trends in Cures have been more favorable than original expectations, resulting in favorable loss reserve development on prior period defaults in 2022 and in the first nine months of 2023, the current macroeconomic environment, as discussed above, and natural seasoning of our growing IIF portfolio, have contributed to a higher level of overall new default activity, including a higher level of new defaults from more recent vintages, and increased the likelihood that we will experience lower levels of Cures in our mortgage insurance portfolio in future periods. The number, timing and duration of new defaults and, in turn, the number of defaults that ultimately result in claims will depend on a variety of factors, including the overall economic environment and on the number and timing of Cures and the net impact on IIF from our Persistency Rate and future NIW. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our reserve for losses. We believe that the range of risk distribution transactions and strategies that we utilize to mitigate credit risk and financial volatility through varying economic cycles has increased our financial strength and flexibility. As of September 30, 2023, 72% of our primary RIF is subject to a form of risk distribution. Including the collateralized reinsurance agreement entered into in connection with the Eagle Re 2023-1 Ltd. insurance-linked notes transaction and the 2023 XOL Agreement that were both entered into in October 2023, as described below under “Recent Company Developments,” 79% of our primary RIF as of September 30, 2023, is subject to a form of risk distribution. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. Our use of risk distribution structures has reduced our required capital and enhanced our projected return on capital, and we expect these structures to provide a level of credit protection in periods of economic stress. See “Mortgage Insurance Portfolio—Risk Distribution” for additional information. The same inflationary pressures and higher interest rate environment discussed above have also negatively impacted our homegenius businesses, due primarily to the rapid decline in industry-wide purchase and refinance volumes. Despite steps taken since the beginning of 2022 to align our workforce to the current and expected needs of the business and reduce our operating expenses, the continued decline in homegenius revenues since the beginning of 2022 has resulted in ongoing losses for that business segment. The sharp increases in interest rates that began in 2022 also materially affected the fair value of our investment portfolio, resulting in unrealized losses on investments in 2022 and 2023. As of September 30, 2023, the fair value of our portfolio continues to be significantly below its amortized cost. As of September 30, 2023, we did not expect to realize a loss for our investments in an unrealized loss position given our intent and ability to hold these investment securities until recovery of their amortized cost basis. While the decrease in the fair value of our investments due to higher market interest rates has negatively affected our comprehensive income and stockholders’ equity in recent periods, this higher interest rate environment has also resulted in the recognition of higher net investment income, which is expected to continue in future periods. See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information about our investments. Despite risks and uncertainties, we believe that the steps we have taken in recent years, including by improving our capital and liquidity positions, enhancing our financial flexibility, implementing greater risk-based granularity into our pricing methodologies and increasing our use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, have helped position the Company to better withstand the negative effects from the macroeconomic stresses discussed above, including those resulting from the high rate of inflation and higher interest rates. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations For a detailed discussion of the risks and uncertainties discussed above, as well as other risks and uncertainties impacting our business, see “Item 1A. Risk Factors” in our 2022 Form 10-K. ### Legislative and Regulatory Developments We are subject to comprehensive regulation by both federal and state regulatory authorities. For a description of significant state and federal regulations and other requirements of the GSEs that are applicable to our businesses, as well as legislative and regulatory developments affecting the housing finance industry, see “Item 1. Business—Regulation” in our 2022 Form 10-K. Except as discussed below, there were no significant regulatory developments impacting our businesses from those discussed in our 2022 Form 10-K. In March 2023, the FHFA announced that the GSEs will enhance their payment deferral policies to allow borrowers who have recently resolved a financial hardship to defer up to six months of mortgage payments. Servicers were required to adopt the new policies by October 1, 2023. Under the enhanced payment deferral policies, servicers must defer certain amounts, including past due principal and interest, as a non-interest bearing balance, due and payable at maturity, sale, refinance or payoff of the mortgage loan. This change extends eligibility for the GSEs’ payment deferral workout beyond the payment deferral option for borrowers transitioning out of a COVID-19 related forbearance plan. On April 10, 2023, President Biden signed legislation terminating the COVID-19 national emergency. As previously disclosed in our 2022 Form 10-K, the termination of the COVID-19 national emergency may be interpreted by the GSEs and others to likewise result in the termination of the requirements under the Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020, to provide COVID-19 related forbearance. On August 9, 2023, the GSEs retired servicing policies related to COVID-19, including COVID-19 related forbearance plan flexibilities, and reverted to the policies as specified in their servicing guides. Retiring COVID-19 servicing-related policies means that a financial hardship due to COVID-19 is no longer an eligible hardship, and COVID-19 workouts, including COVID-19 payment deferrals, must have an evaluation date before November 1, 2024. However, borrowers with short-term hardships will continue to have access to the GSEs’ loss mitigation programs, including forbearance and payment deferrals. As previously disclosed, in October 2022, the FHFA announced that the GSEs will replace their use of Classic FICO credit scores with FICO 10T and VantageScore 4.0 credit scores, which are intended to improve accuracy by capturing additional payment histories for borrowers when available, such as rent, utilities, and telecom payments. The GSEs will require both of the new credit scores, along with credit reports from two, rather than three, of the credit reporting agencies. The implementation timeline for the transition to the new credit scores is expected to be a multi-year effort. The FHFA has released a proposed timeline for implementing the changes that anticipates that most of the transition would be implemented by the end of 2025; however, the ultimate timeline for implementation is still uncertain. On July 27, 2023, the U.S. federal banking agencies published a notice of proposed rulemaking (“NPR”) to implement the remaining elements of the Basel III recommendations that were developed by the international Basel Committee on Banking Supervision in 2009 following the financial crisis. The proposal applies to all banking organizations with $100 billion or more in total consolidated assets and their subsidiary depositary institutions, and covers risk-weighted asset calculations for credit, market, credit valuation adjustment, and operational risks. As proposed, the NPR would adjust risk weights for low downpayment loans that are held in a bank’s portfolio, generally increasing the risk weights for higher LTV loans without taking into account credit enhancement, such as private mortgage insurance, on those loans in determining the risk weighting. Currently, we expect the NPR to have a limited impact on Radian’s mortgage insurance business, as a minimal amount of mortgage loans with mortgage insurance are held in bank portfolios, and most of the loans that Radian Guaranty insures are sold to the GSEs. If the NPR is adopted as proposed, the rule is expected to have a substantial impact on how banks allocate capital and could impact the pricing and availability of financial services and products, among other things. While the outcome of the rulemaking process is currently undetermined, if adopted as proposed, banks subject to the rule may be disincentivized to hold loans in portfolio, which could provide greater opportunities for growth in Radian Mortgage Capital, the Company’s mortgage conduit business. In our 2022 Form 10-K, see “Item 1. Business—Regulation—Basel III” for additional information regarding Basel III. ### Recent Company Developments In October 2023, Radian Guaranty entered into a fully collateralized reinsurance agreement with Eagle Re 2023-1 Ltd., which provides for up to $353 million of aggregate excess-of-loss reinsurance coverage for a portion of the mortgage insurance losses on new defaults on an existing portfolio of eligible policies with RIF of $8.8 billion that were issued between April 1, 2022, and December 31, 2022. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on this new agreement. Also in October 2023, Radian Guaranty executed the 2023 XOL Agreement with a panel of third-party reinsurance providers. This agreement provides for up to $246 million of aggregate excess-of-loss coverage for the mortgage insurance losses on new defaults on an existing portfolio of eligible mortgage insurance policies on new defaults on an existing portfolio of eligible policies with RIF of $8.0 billion that were issued between October 1, 2021, and March 31, 2022. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on this new agreement. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Key Factors Affecting Our Results The key factors affecting our results are discussed in our 2022 Form 10-K. There have been no material changes to these key factors. ### Mortgage Insurance Portfolio ### New Insurance Written We wrote $13.9 billion and $42.1 billion of primary new mortgage insurance in the three and nine months ended September 30, 2023, respectively, compared to $17.6 billion and $55.1 billion of NIW in the three and nine months ended September 30, 2022, respectively. Our NIW decreased by 21% and 24% for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, due primarily to a broad decline in U.S. housing market activity resulting from higher mortgage interest rates. According to industry estimates, total mortgage origination volume was lower for the three and nine months ended September 30, 2023, as compared to the comparable periods in 2022, due to a significant decline in home purchases and mortgage refinance activity. Although it is difficult to project future volumes, recent market projections for 2023 estimate total mortgage originations of approximately $1.6 trillion, which would represent a decline in the total annual mortgage origination market of approximately 32% as compared to 2022, with a private mortgage insurance market of approximately $300 billion. This outlook anticipates a 60% decrease in refinance originations in 2023 as well as a 19% decline in purchase originations, driven by increases in interest rates and declining home sales volume. In “Item 1A. Risk Factors” in our 2022 Form 10-K, see “*A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our homegenius businesses”* for more information. The following table provides selected information for the periods indicated related to our mortgage insurance NIW. For direct Single Premium Policies, NIW includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated). ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations *NIW* *($ in millions)* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | NIW | $13,922 | $17,616 | $42,076 | $55,134 | | Primary risk written | $3,542 | $4,450 | $10,819 | $14,085 | | Average coverage percentage | 25.4% | 25.3% | 25.7% | 25.5% | | NIW by loan purpose | | | | | | Purchases | 98.7% | 98.4% | 98.4% | 95.6% | | Refinances | 1.3% | 1.6% | 1.6% | 4.4% | | NIW by premium type | | | | | | Direct Monthly and Other Recurring Premiums | 96.0% | 95.5% | 95.9% | 95.1% | | Direct single premiums | 4.0% | 4.5% | 4.1% | 4.9% | | NIW by FICO score (1) | | | | | | \>=740 | 67.3% | 63.3% | 65.1% | 59.9% | | 680-739 | 27.4% | 28.5% | 29.2% | 32.3% | | 620-679 | 5.3% | 8.2% | 5.7% | 7.8% | | \<=619 | —% | —% | —% | —% | | NIW by LTV | | | | | | 95.01% and above | 16.5% | 18.3% | 17.4% | 16.8% | | 90.01% to 95.00% | 38.6% | 37.1% | 39.2% | 39.7% | | 85.01% to 90.00% | 30.2% | 28.0% | 29.5% | 28.1% | | 85.00% and below | 14.7% | 16.6% | 13.9% | 15.4% | (1) For loans with multiple borrowers, the percentage of NIW by FICO score represents the lowest of the borrowers’ FICO scores. ### Insurance and Risk in Force *($ in billions)* | IIF by origination vintage (1) Vintage written in: | IIF as of: September 30, 2023 | | December 31, 2022 | | September 30, 2022 | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | 2023 | $40.9 | 15.2% | $— | —% | $— | —% | | 2022 | 61.5 | 22.8 | 65.2 | 25.0 | 53.5 | 20.6 | | 2021 | 68.7 | 25.5 | 77.3 | 29.6 | 79.5 | 30.7 | | 2020 | 47.7 | 17.7 | 57.7 | 22.1 | 61.3 | 23.7 | | 2019 | 15.4 | 5.7 | 17.9 | 6.8 | 18.7 | 7.2 | | 2018 | 7.7 | 2.9 | 9.0 | 3.5 | 9.5 | 3.6 | | 2009 - 2017 | 19.6 | 7.3 | 24.9 | 9.5 | 27.1 | 10.5 | | 2008 & Prior (2) | 8.0 | 2.9 | 9.0 | 3.5 | 9.5 | 3.7 | | Total | $269.5 | 100.0% | $261.0 | 100.0% | $259.1 | 100.0% | (1) Policy years represent the original policy years and have not been adjusted to reflect subsequent refinancing activity under the Home Affordable Refinance Program (“HARP”). (2) Includes loans that were subsequently refinanced under HARP. Our IIF is the primary driver of the future premiums that we expect to earn over time. IIF increased to $269.5 billion at September 30, 2023, from $261.0 billion at December 31, 2022, reflecting the impact of our NIW offset by policy cancellations ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and amortization for the first nine months of 2023. Our IIF at September 30, 2023, increased 4% as compared to the same period last year, reflecting a 7% increase in Monthly Premium Policies in force partially offset by a 12% decline in Single Premium Policies in force. Historically, there is a close correlation between interest rates and Persistency Rates. Higher interest rate environments generally decrease refinancings, which decrease the cancellation rate of our insurance and positively affect our Persistency Rates. As shown in the table below, our 12-month Persistency Rate at September 30, 2023, increased significantly as compared to September 30, 2022. The increase in our Persistency Rate at September 30, 2023, was primarily attributable to decreased refinance activity due to increases in mortgage interest rates, as compared to the same period in the prior year. As of September 30, 2023, 84% of our IIF had a mortgage note interest rate of 6.0% or less. Given the increase in market mortgage interest rates, which, based on reported industry averages, now exceed that level, we would expect a continued positive impact on our Persistency Rates. Throughout this report, unless otherwise noted, RIF is presented on a gross basis and includes the amount ceded under reinsurance. RIF and IIF for direct Single Premium Policies include policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated). The following table provides selected information as of and for the periods indicated related to mortgage insurance IIF and RIF. *IIF and RIF* *($ in millions)* | | September 30, 2023 | December 31, 2022 | September 30, 2022 | | --- | ---: | ---: | ---: | | Primary IIF | $269,511 | $260,994 | $259,121 | | Primary RIF | $69,298 | $66,094 | $65,288 | | Average coverage percentage | 25.7% | 25.3% | 25.2% | | Persistency Rate (12 months ended) | 83.6% | 79.6% | 75.9% | | Persistency Rate (quarterly, annualized) (1) | 84.2% | 84.1% | 81.6% | | Primary RIF by premium type | | | | | Direct Monthly and Other Recurring Premiums | 88.6% | 87.1% | 86.4% | | Direct single premiums | 11.4% | 12.9% | 13.6% | | Primary RIF by FICO score (2) | | | | | \>=740 | 58.2% | 57.4% | 57.5% | | 680-739 | 34.0% | 34.6% | 34.5% | | 620-679 | 7.4% | 7.6% | 7.6% | | \<=619 | 0.4% | 0.4% | 0.4% | | Primary RIF by LTV | | | | | 95.01% and above | 18.4% | 17.1% | 16.8% | | 90.01% to 95.00% | 48.2% | 48.4% | 48.4% | | 85.01% to 90.00% | 27.0% | 27.2% | 27.2% | | 85.00% and below | 6.4% | 7.3% | 7.6% | (1) The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods, and may not be indicative of full-year trends. (2) For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers’ FICO scores. ### Risk Distribution We use third-party reinsurance in our mortgage insurance business as part of our risk distribution strategy, including to manage our capital position and risk profile. When we enter into a reinsurance agreement, the reinsurer receives a premium and, in exchange, insures an agreed-upon portion of incurred losses. While these arrangements have the impact of reducing ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations our earned premiums, they also reduce our required capital and are expected to increase our return on required capital for the related policies. The impact of these programs on our financial results will vary depending on the level of ceded RIF, as well as the levels of prepayments and incurred losses on the reinsured portfolios, among other factors. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage—Risk Distribution” in our 2022 Form 10-K and Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements in this report for more information about our reinsurance transactions. The table below provides information about the amounts by which Radian Guaranty’s reinsurance programs reduced its Minimum Required Assets as of the dates indicated. *PMIERs benefit from risk distribution* *($ in thousands)* | PMIERs impact - reduction in Minimum Required Assets | September 30, 2023 | December 31, 2022 | September 30, 2022 | | --- | ---: | ---: | ---: | | Excess-of-Loss Program (1) | $465,794 | $665,617 | $732,895 | | 2022 QSR Agreement | 324,384 | 233,532 | 189,408 | | Single Premium QSR Program | 198,448 | 231,339 | 243,911 | | 2023 QSR Agreement | 48,896 | — | — | | 2012 QSR Agreements | 6,288 | 8,357 | 9,310 | | Total PMIERs impact | $1,043,810 | $1,138,845 | $1,175,524 | | Percentage of gross Minimum Required Assets | 20.3% | 22.9% | 24.0% | (1) The tender offers in the second quarter of 2023 conducted by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. had no effect on the benefit to Minimum Required Assets. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for more information on these tender offers and related impacts. See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Net Premiums Earned”* for information about the impact on premiums earned from each of Radian Guaranty’s reinsurance programs. ### Results of Operations—Consolidated ### Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022 Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. Our consolidated operating results for the three and nine months ended September 30, 2023, and September 30, 2022, primarily reflect the financial results and performance of our two business segments—Mortgage and homegenius. See “Results of Operations—Mortgage” and “Results of Operations—homegenius” for the operating results of these business segments for the three and nine months ended September 30, 2023, compared to the same periods in 2022. In addition to the results of our operating segments, pretax income (loss) is also affected by those factors described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results” in our 2022 Form 10-K. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table summarizes our consolidated results of operations for the periods indicated. *Summary results of operations - Consolidated* *($ in thousands, except per-share amounts)* | Revenues | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net premiums earned | $240,262 | $240,222 | $40 | $686,929 | $748,304 | $(61,375) | | Services revenue | 10,892 | 20,146 | (9,254) | 33,673 | 76,775 | (43,102) | | Net investment income | 68,825 | 51,414 | 17,411 | 192,228 | 136,567 | 55,661 | | Net gains (losses) on investments and other financial instruments | (8,555) | (16,252) | 7,697 | (3,206) | (87,578) | 84,372 | | Other income | 2,109 | 659 | 1,450 | 4,942 | 1,934 | 3,008 | | Total revenues | 313,533 | 296,189 | 17,344 | 914,566 | 876,002 | 38,564 | | **Expenses** | | | | | | | | Provision for losses | (8,135) | (96,964) | (88,829) | (46,696) | (294,640) | (247,944) | | Policy acquisition costs | 6,920 | 5,442 | (1,478) | 18,431 | 17,987 | (444) | | Cost of services | 8,886 | 18,717 | 9,831 | 29,541 | 66,230 | 36,689 | | Other operating expenses | 79,206 | 91,327 | 12,121 | 252,360 | 271,363 | 19,003 | | Interest expense | 24,302 | 21,183 | (3,119) | 69,148 | 62,860 | (6,288) | | Amortization of other acquired intangible assets | 1,371 | 1,023 | (348) | 4,112 | 2,721 | (1,391) | | Total expenses | 112,550 | 40,728 | (71,822) | 326,896 | 126,521 | (200,375) | | Pretax income | 200,983 | 255,461 | (54,478) | 587,670 | 749,481 | (161,811) | | Income tax provision | 44,401 | 57,181 | 12,780 | 127,244 | 168,877 | 41,633 | | Net income | $156,582 | $198,280 | $(41,698) | $460,426 | $580,604 | $(120,178) | | Diluted net income per share | $0.98 | $1.20 | $(0.22) | $2.86 | $3.34 | $(0.48) | | Return on equity | 15.0% | 20.7% | (5.7)% | 15.2% | 19.4% | (4.2)% | | **Non-GAAP Financial Measures (1)** | | | | | | | | Adjusted pretax operating income | $210,455 | $272,720 | $(62,265) | $594,693 | $839,701 | $(245,008) | | Adjusted diluted net operating income per share | $1.04 | $1.31 | $(0.27) | $2.92 | $3.82 | $(0.90) | | Adjusted net operating return on equity | 16.0% | 22.5% | (6.5)% | 15.5% | 22.1% | (6.6)% | (1) See “Use of Non-GAAP Financial Measures” below. ### Revenues ***Net Premiums Earned.*** Net premiums earned was flat for the three months ended September 30, 2023, as compared to the same period in 2022. The decrease in net premiums earned for the nine months ended September 30, 2023, as compared to the same period in 2022, reflects a decrease in net premiums earned in both our mortgage insurance and title insurance businesses in 2023. The decrease in net premiums earned in our mortgage insurance business for the nine months ended September 30, 2023, was driven primarily by an increase in ceded premiums earned under our reinsurance arrangements. See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Net Premiums Earned”* and “Results of Operations—homegenius—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Net Premiums Earned”* for more information. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ***Services Revenue.*** Services revenue for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily driven by the general market decline in mortgage origination volume as well as other market and macroeconomic conditions, as further described in “Overview—Current Operating Environment.” See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Services Revenue”* and “Results of Operations—homegenius—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Services Revenue”* for more information. ***Net Investment Income.*** The increase in net investment income for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, is primarily attributable to higher market interest rates. See “Overview—Current Operating Environment” and “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Revenues—*Net Investment Income”* for more information. ***Net Gains (Losses) on Investments and Other Financial Instruments.*** The favorable change in net gains (losses) on investments and other financial instruments for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, is primarily due to: (i) the general positive movement in equity markets in 2023, compared to 2022, and (ii) moderate increases in market interest rates in the three and nine months ended September 30, 2023, compared to the sharp rise in market interest rates in the same periods in 2022, as further discussed in “Overview—Current Operating Environment.” See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional detail about net gains (losses) on investments and other financial instruments by investment category. ### Expenses ***Provision for Losses.*** The reduced benefit of the provision for losses for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, is primarily driven by a reduction in favorable development on prior period defaults, which impacted our mortgage insurance reserves. See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Expenses—*Provision for Losses”* for more information. ***Cost of Services.*** Cost of services for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily driven by the decrease in services revenue, as discussed above. See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Expenses—*Cost of Services”* and “Results of Operations—homegenius—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Expenses—*Cost of Services”* for more information. ***Other Operating Expenses.*** The decrease in other operating expenses for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, is primarily due to decreases in operating expenses in both our Mortgage and homegenius segments. See “Results of Operations—Mortgage—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Expenses—*Other Operating Expenses”* and “Results of Operations—homegenius—Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022—Expenses—*Other Operating Expenses”* for more information. ***Interest Expense.*** The increase in interest expense for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, primarily reflects increases in: (i) the average balances outstanding of our mortgage loan financing facilities; (ii) the average interest rates on our FHLB advances; and (iii) the interest rates associated with our securities lending program. See Notes 6 and 12 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about loaned securities and borrowings, respectively. ### Income Tax Provision Variations in our effective tax rates, combined with differences in pretax income, were the drivers of the changes in our income tax provision between periods. Our effective tax rates for the three and nine months ended September 30, 2023, was 22.1% and 21.7%, respectively, as compared to 22.4% and 22.5% for the three and nine months ended September 30, 2022, respectively. Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year and reflects the impact of discrete tax effects in the period in which they occur. For the three and nine months ended September 30, 2023 and 2022, our effective tax rates did not differ materially from the statutory federal corporate tax rate of 21%. ### Use of Non-GAAP Financial Measures In addition to traditional GAAP financial measures, we have presented “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity,” which are non-GAAP financial measures for the consolidated company, among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way our business performance is evaluated by both management and by our board of directors. These measures have been established in order to increase transparency for the ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations purposes of evaluating our operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity are non-GAAP financial measures, for the reasons discussed above we believe these measures aid in understanding the underlying performance of our operations. Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity are not measures of overall profitability, and therefore should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share or return on equity. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly-named measures reported by other companies. 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 the Company’s business segments and to allocate resources to the segments. For detailed information regarding items excluded from adjusted pretax operating income (loss) and the reasons for their treatment, see Note 4 of Notes to Consolidated Financial Statements and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Consolidated—Use of Non-GAAP Financial Measures,” each in our 2022 Form 10-K. Adjusted pretax operating income (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments, except for certain investments and other financial instruments attributable to our reportable segments and All Other activities; (ii) amortization and impairment of goodwill and other acquired intangible assets; and (iii) impairment of other long-lived assets and other non-operating items, if any, such as gains (losses) from the sale of lines of business, acquisition-related income and expenses and gains (losses) on extinguishment of debt. The following table provides a reconciliation of consolidated pretax income to our non-GAAP financial measure for the consolidated Company of adjusted pretax operating income. *Reconciliation of consolidated pretax income to consolidated adjusted pretax operating income* *(In thousands)* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Consolidated pretax income | $200,983 | $255,461 | $587,670 | $749,481 | | Less: income (expense) items | | | | | | Net gains (losses) on investments and other financial instruments (1) | (8,838) | (16,252) | (3,664) | (87,578) | | Amortization of other acquired intangible assets | (1,371) | (1,023) | (4,112) | (2,721) | | Impairment of other long-lived assets and other non-operating items | 737 | 16 | 753 | 79 | | Total adjusted pretax operating income (2) | $210,455 | $272,720 | $594,693 | $839,701 | (1) Excludes certain net gains (losses), if any, on investments and other financial instruments that are attributable to specific operating segments and therefore included in adjusted pretax operating income (loss). (2) Total adjusted pretax operating income on a consolidated basis consists of adjusted pretax operating income (loss) for our Mortgage segment, homegenius segment and All Other activities, as further detailed in Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Adjusted diluted net operating income (loss) per share is calculated by dividing adjusted pretax operating income (loss) attributable to common stockholders, net of taxes computed using the Company’s statutory tax rate, by the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table provides a reconciliation of diluted net income (loss) per share to our non-GAAP financial measure for the consolidated Company of adjusted diluted net operating income (loss) per share. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations *Reconciliation of diluted net income per share to adjusted diluted net operating income per share* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Diluted net income per share | $0.98 | $1.20 | $2.86 | $3.34 | | Less: per-share impact of reconciling income (expense) items | | | | | | Net gains (losses) on investments and other financial instruments | (0.06) | (0.10) | (0.02) | (0.50) | | Amortization of other acquired intangible assets | (0.01) | (0.01) | (0.03) | (0.02) | | Impairment of other long-lived assets and other non-operating items | 0.01 | — | — | — | | Income tax (provision) benefit on reconciling income (expense) items (1) | 0.01 | 0.02 | 0.01 | 0.11 | | Difference between statutory and effective tax rates | (0.01) | (0.02) | (0.02) | (0.07) | | Per-share impact of reconciling income (expense) items | (0.06) | (0.11) | (0.06) | (0.48) | | Adjusted diluted net operating income per share (1) | $1.04 | $1.31 | $2.92 | $3.82 | (1) Calculated using the Company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included. Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company’s statutory tax rate, by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented. The following table provides a reconciliation of return on equity to our non-GAAP financial measure for the consolidated Company of adjusted net operating return on equity. *Reconciliation of return on equity to adjusted net operating return on equity* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Return on equity (1) | 15.0% | 20.7% | 15.2% | 19.4% | | Less: impact of reconciling income (expense) items (2) | | | | | | Net gains (losses) on investments and other financial instruments | (0.9) | (1.7) | (0.1) | (2.9) | | Amortization of other acquired intangible assets | (0.2) | (0.1) | (0.2) | (0.1) | | Impairment of other long-lived assets and other non-operating items | 0.1 | — | — | — | | Income tax (provision) benefit on reconciling income (expense) items (3) | 0.2 | 0.4 | 0.1 | 0.6 | | Difference between statutory and effective tax rates | (0.2) | (0.4) | (0.1) | (0.3) | | Impact of reconciling income (expense) items | (1.0) | (1.8) | (0.3) | (2.7) | | Adjusted net operating return on equity (3) | 16.0% | 22.5% | 15.5% | 22.1% | (1) Calculated by dividing annualized net income by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented. (2) Annualized, as a percentage of average stockholders’ equity. (3) Calculated using the Company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Results of Operations—Mortgage ### Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022 The following table summarizes our Mortgage segment’s results of operations for the periods indicated. *Summary results of operations - Mortgage* *(In thousands)* | Revenues | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net premiums written | $235,169 | $235,076 | $93 | $679,128 | $732,081 | $(52,953) | | (Increase) decrease in unearned premiums | 1,632 | 121 | 1,511 | (145) | (4,801) | 4,656 | | Net premiums earned | 236,801 | 235,197 | 1,604 | 678,983 | 727,280 | (48,297) | | Services revenue | 266 | 405 | (139) | 886 | 7,062 | (6,176) | | Net investment income | 50,345 | 44,842 | 5,503 | 145,397 | 119,056 | 26,341 | | Other income | 1,237 | 589 | 648 | 4,070 | 1,864 | 2,206 | | Total revenues | 288,649 | 281,033 | 7,616 | 829,336 | 855,262 | (25,926) | | **Expenses** | | | | | | | | Provision for losses | (8,257) | (97,493) | (89,236) | (46,744) | (295,865) | (249,121) | | Policy acquisition costs | 6,920 | 5,442 | (1,478) | 18,431 | 17,987 | (444) | | Cost of services | 172 | 373 | 201 | 556 | 5,716 | 5,160 | | Other operating expenses | 48,520 | 55,853 | 7,333 | 159,245 | 174,528 | 15,283 | | Interest expense | 22,693 | 21,183 | (1,510) | 67,062 | 62,860 | (4,202) | | Total expenses | 70,048 | (14,642) | (84,690) | 198,550 | (34,774) | (233,324) | | Adjusted pretax operating income (1) | $218,601 | $295,675 | $(77,074) | $630,786 | $890,036 | $(259,250) | (1) Our senior management uses adjusted pretax operating income as our primary measure to evaluate the fundamental financial performance of our business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for more information. ### Revenues ***Net Premiums Earned.*** Net premiums earned was flat for the three months ended September 30, 2023, as compared to the same period in 2022. Net premiums earned decreased for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to: (i) a decrease in the profit commission retained by the Company as a result of less favorable reserve development in the nine months ended September 30, 2023, as compared to the same period in 2022; (ii) an increase in ceded premiums earned under the 2022 QSR Agreement, which began ceding a portion of NIW in the third quarter of 2022; and (iii) a decrease in the benefit, net of reinsurance, from Single Premium Policy cancellations due to lower refinance activity. These impacts were partially offset by an increase in direct premiums earned, excluding revenue from cancellations, which benefited the nine months ended September 30, 2023, as compared to the same period in 2022, due primarily to higher IIF. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The table below provides additional information about the components of mortgage insurance net premiums earned for the periods indicated, including the effects of our reinsurance programs. *(In thousands, except as otherwise indicated)* | Net premiums earned Direct | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Premiums earned, excluding revenue from cancellations | $254,903 | $250,140 | $4,763 | $758,606 | $743,676 | $14,930 | | Single Premium Policy cancellations | 3,304 | 6,705 | (3,401) | 12,645 | 28,295 | (15,650) | | Direct | 258,207 | 256,845 | 1,362 | 771,251 | 771,971 | (720) | | Assumed (1) | — | 1,211 | (1,211) | — | 4,081 | (4,081) | | Ceded | | | | | | | | Premiums earned, excluding revenue from cancellations (2) | (32,363) | (38,879) | 6,516 | (125,805) | (94,783) | (31,022) | | Single Premium Policy cancellations (3) | (873) | (1,844) | 971 | (3,459) | (8,001) | 4,542 | | Profit commission—other (4) | 11,830 | 17,864 | (6,034) | 36,996 | 54,012 | (17,016) | | Ceded premiums, net of profit commission | (21,406) | (22,859) | 1,453 | (92,268) | (48,772) | (43,496) | | Total net premiums earned | $236,801 | $235,197 | $1,604 | $678,983 | $727,280 | $(48,297) | | | | | | 3.0 | 3.0 | | | In force portfolio premium yield (in basis points) (5) | 38.0 | 39.2 | (1.2) | 38.1 | 39.5 | (1.4) | | Direct premium yield (in basis points) (6) | 38.5 | 40.2 | (1.7) | 38.8 | 41.0 | (2.2) | | Net premium yield (in basis points) (7) | 35.3 | 36.7 | (1.4) | 34.1 | 38.4 | (4.3) | | Average primary IIF (in billions) (8) | $268.2 | $256.7 | $11.5 | $265.3 | $252.5 | $12.8 | (1) Includes premiums earned from our participation in certain credit risk transfer programs. In December 2022, we novated this insured risk to an unrelated third-party reinsurer, which assumed all rights, interests, liabilities and obligations related to our participation in these programs on a prospective basis. See Note 16 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for more information about this novation. (2) The nine months ended September 30, 2023, include the impact of tender offers by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. to purchase the mortgage insurance-linked notes that supported their reinsurance agreements with Radian Guaranty. As a result of these tender offers, Radian Guaranty incurred additional ceded premiums earned during the second quarter of 2023 of $21 million, consisting of $16 million related to the cost of tender premiums and associated expenses and $5 million related to the acceleration of deferred costs from the original executions of these transactions. (3) Includes the impact of related profit commissions. (4) Represents the profit commission from the Single Premium QSR Program, 2022 QSR Agreement and 2023 QSR Agreement, excluding the impact of Single Premium Policy cancellations. (5) Calculated by dividing annualized direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF. (6) Calculated by dividing annualized direct premiums earned, including assumed revenue, by average primary IIF. (7) Calculated by dividing annualized net premiums earned by average primary IIF. The calculation for all periods presented incorporates the impact of profit commission adjustments related to our reinsurance programs. (8) The average of beginning and ending balances of primary IIF, for each period presented. The level of mortgage prepayments affects the revenue ultimately produced by our mortgage insurance business and is influenced by the mix of business we write. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage—IIF and Related Drivers” in our 2022 Form 10-K for more information. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table provides information related to the impact of our reinsurance transactions on premiums earned. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about our reinsurance programs. *Ceded premiums earned* *($ in thousands)* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Excess-of-Loss Program (1) | $9,040 | $22,184 | $61,882 | $59,064 | | 2022 QSR Agreement | 7,987 | 3,694 | 21,959 | 3,694 | | Single Premium QSR Program (2) | 3,344 | (3,465) | 6,726 | (15,493) | | 2023 QSR Agreement | 768 | — | 768 | — | | Other | 267 | 446 | 933 | 1,507 | | Total ceded premiums earned (3) | $21,406 | $22,859 | $92,268 | $48,772 | | Percentage of total direct and assumed premiums earned | 8.3% | 8.6% | 12.0% | 6.1% | (1) Ceded premiums earned for the three and nine months ended September 30, 2023, includes the impact from a decrease in outstanding reinsurance under our Excess-of-Loss Program as compared to the same prior year periods. This decline was partially offset in the nine months ended September 30, 2023, by the impact of tender offers that were completed in the second quarter of 2023, by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. to purchase the mortgage insurance-linked notes that supported their reinsurance agreements with Radian Guaranty. As a result of these tender offers, Radian Guaranty incurred additional ceded premiums earned during the second quarter of 2023 of $21 million, consisting of $16 million related to the cost of tender premiums and associated expenses and $5 million related to the acceleration of deferred costs from the original executions of these transactions. (2) Includes the increase in the profit commission retained by the Company due to favorable reserve development, including a significant impact in the three and nine months ended September 30, 2022. See “Expenses—*Provision for Losses”* below for additional information on the favorable reserve development. (3) Does not include the benefit from ceding commissions from the reinsurance agreements in our QSR Program, which is primarily included in other operating expenses on the condensed consolidated statements of operations. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. ***Services Revenue.*** Services revenue for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, in part due to a decrease in demand for our contract underwriting services as a result of the general market decline in mortgage origination volume. In addition, the termination of a contract with a large fulfillment customer in the second quarter of 2022 contributed to the decline in services revenue for the nine months ended September 30, 2023, compared to the same period in 2022. For more information on recent macroeconomic stresses see “Overview—Current Operating Environment.” ***Net Investment Income.*** Increasing yields from higher interest rates were the primary driver of the increases in net investment income for the three and nine months ended September 30, 2023, as compared to the same periods in 2022. The following table provides information related to our mortgage subsidiaries’ investment balances and investment yields for the periods indicated. *Investment balances and yields* *($ in thousands)* | | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Investment income | $51,578 | $46,406 | $5,172 | $149,258 | $123,627 | $25,631 | | Investment expenses | (1,233) | (1,564) | 331 | (3,861) | (4,571) | 710 | | Net investment income | $50,345 | $44,842 | $5,503 | $145,397 | $119,056 | $26,341 | | Average investments (1) | $5,333,104 | $5,613,010 | $(279,906) | $5,329,118 | $5,729,948 | $(400,830) | | Average investment yield (2) | 3.8% | 3.2% | 0.6% | 3.6% | 2.8% | 0.8% | (1) The average of the beginning and ending amortized cost, for each period presented, of investments held by our mortgage subsidiaries. (2) Calculated by dividing annualized net investment income by average investments balance. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Expenses ***Provision for Losses.*** The following table details the financial impact of the significant components of our provision for losses for the periods indicated. *($ in thousands, except reserve per new default)* | Provision for losses | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Current period defaults (1) | $46,630 | $39,191 | $(7,439) | $130,740 | $115,159 | $(15,581) | | Prior period defaults (2) | (54,887) | (136,684) | (81,797) | (177,484) | (411,024) | (233,540) | | Total provision for losses | $(8,257) | $(97,493) | $(89,236) | $(46,744) | $(295,865) | $(249,121) | | Loss ratio (3) | (3.5)% | (41.5)% | (38.0)% | (6.9)% | (40.7)% | (33.8)% | | Reserve per new default (4) | $4,180 | $4,082 | $(98) | $4,143 | $4,265 | $122 | (1) Related to defaulted loans with the most recent default notice dated in the period indicated. For example, if a loan had defaulted in a prior period, but then subsequently cured and later re-defaulted in the current period, the default would be considered a current period default. (2) Related to defaulted loans with a default notice dated in a period earlier than the period indicated, which have been continuously in default since that time. (3) Provision for losses as a percentage of net premiums earned. See “Revenues—*Net Premiums Earned”* above for additional information on the changes in net premiums earned. (4) Calculated by dividing provision for losses for new defaults, net of reinsurance, by new primary defaults for each period. Current period new primary defaults increased by 16% and 17% for the three and nine months ended September 30, 2023, respectively, as shown below, consistent with the natural seasoning of the portfolio given the increase in our IIF in recent years. Our gross Default to Claim Rate assumption for new primary defaults was 8.0% at both September 30, 2023 and 2022, as we continue to closely monitor the trends in Cures and claims paid for our default inventory, while also weighing the risks and uncertainties associated with the current economic environment. Our provision for losses during the three and nine months ended September 30, 2023, and the same periods in 2022, was positively impacted by favorable reserve development on prior period defaults, primarily as a result of more favorable trends in Cures than originally estimated. These Cures have been due primarily to favorable outcomes resulting from mortgage forbearance programs implemented in response to the COVID-19 pandemic as well as positive trends in home price appreciation, which has also contributed to a higher rate of claims that result in no ultimate loss and that are withdrawn by servicers as a result. These favorable observed trends resulted in reductions in our Default to Claim Rate and other reserve adjustments for prior year default notices. The benefit from this favorable development on prior period defaults was lower in the nine months ended September 30, 2023, as compared to the same period in 2022, due primarily to the reduction in the beginning primary default inventory between the two periods. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements herein for additional information, as well as Notes 1 and 11 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” in our 2022 Form 10-K. Our primary default rate as a percentage of total insured loans at September 30, 2023, was 2.0% compared to 2.2% at December 31, 2022. The following table shows a rollforward of our primary loans in default. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations *Rollforward of primary loans in default* | | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Beginning default inventory | 19,880 | 21,861 | 21,913 | 29,061 | | New defaults | 11,156 | 9,601 | 31,555 | 27,003 | | Cures | (10,467) | (10,222) | (32,671) | (34,563) | | Claims paid | (111) | (141) | (282) | (352) | | Rescissions and Claim Denials (1) | (52) | (22) | (109) | (72) | | Ending default inventory | 20,406 | 21,077 | 20,406 | 21,077 | (1) Net of any previous Rescissions and Claim Denials that were reinstated during the period. Such reinstated Rescissions and Claim Denials may ultimately result in a paid claim. The following tables show additional information about our primary loans in default as of the dates indicated. *Primary loans in default - additional information* *($ in thousands)* | Missed payments | September 30, 2023 Total #% | | Foreclosure Stage Defaulted Loans #% | Cure % During the 3rd Quarter | Reserve for Losses $% | % of Reserve | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Three payments or less | 9,874 | 48.4% | 24 | 37.1% | $86,896 | 25.3% | | Four to eleven payments | 6,438 | 31.5 | 235 | 31.3 | 115,640 | 33.7 | | Twelve payments or more | 3,748 | 18.4 | 761 | 17.9 | 122,657 | 35.7 | | Pending claims | 346 | 1.7 | N/A | 27.0 | 18,143 | 5.3 | | Total | 20,406 | 100.0% | 1,020 | | 343,336 | 100.0% | | LAE | | | | | 8,632 | | | IBNR | | | | | 1,373 | | | Total primary reserve (1) | | | | | $353,341 | | *($ in thousands)* | Missed payments | December 31, 2022 Total #% | | Foreclosure Stage Defaulted Loans #% | Cure % During the 4th Quarter | Reserve for Losses $% | % of Reserve | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Three payments or less | 9,584 | 43.7% | 8 | 35.5% | $77,987 | 19.5% | | Four to eleven payments | 6,842 | 31.2 | 189 | 27.4 | 114,537 | 28.7 | | Twelve payments or more | 5,158 | 23.6 | 750 | 22.9 | 190,148 | 47.7 | | Pending claims | 329 | 1.5 | N/A | 23.5 | 16,202 | 4.1 | | Total | 21,913 | 100.0% | 947 | | 398,874 | 100.0% | | LAE | | | | | 10,041 | | | IBNR | | | | | 2,128 | | | Total primary reserve (1) | | | | | $411,043 | | N/A – Not applicable (1) Excludes pool and other reserves. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. We develop our Default to Claim Rate estimates based primarily on models that use a variety of loan characteristics to determine the likelihood that a default will reach claim status. Our aggregate weighted average net Default to Claim Rate assumption for our primary loans used in estimating our reserve for losses, which is net of estimated Claim Denials and ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Rescissions, was approximately 27% and 30% as of September 30, 2023, and December 31, 2022, respectively. See Note 11 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for additional details about our Default to Claim Rate assumptions. Although expected claims are included in our reserve for losses, the timing of claims paid is subject to fluctuation from quarter to quarter based on the rate that defaults cure and other factors, including the impact of foreclosure moratoriums (as described in “Item 1. Business—Mortgage—Defaults and Claims” in our 2022 Form 10-K) that make the timing of paid claims difficult to predict. The following table shows net claims paid by product and the average claim paid by product for the periods indicated. *Claims paid* *(In thousands)* | Net claims paid (1) | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Primary | $4,325 | $3,606 | $10,802 | $12,418 | | Pool and other | 413 | (420) | 114 | (1,231) | | Subtotal | 4,738 | 3,186 | 10,916 | 11,187 | | Impact of commutations and settlements | — | 1,317 | — | 1,317 | | Total net claims paid | $4,738 | $4,503 | $10,916 | $12,504 | | Total average net primary claim paid (1) (2) | $37.6 | $45.1 | $36.0 | $42.5 | | Average direct primary claim paid (2) (3) | $38.7 | $45.2 | $37.2 | $42.9 | (1) Net of reinsurance recoveries. (2) Calculated excluding the impact of: (i) commutations and settlements; (ii) claims settled without payment; and (iii) claims that were submitted and subsequently withdrawn by the servicer. (3) Before reinsurance recoveries. For additional information about our reserve for losses, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our 2022 Form 10-K. ***Cost of Services.*** Cost of services for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily due to the decrease in services revenue, as discussed above. Our cost of services is primarily affected by our level of services revenue. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ***Other Operating Expenses.*** The decrease in other operating expenses for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, is primarily related to reductions in headcount and other expense savings actions implemented for the segment during the past year. The following table shows additional information about Mortgage other operating expenses, for the periods indicated. *($ in thousands)* | Other operating expenses Direct | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Salaries and other base employee expenses | $9,877 | $13,275 | $3,398 | $31,946 | $37,059 | $5,113 | | Variable and share-based incentive compensation | 4,465 | 3,550 | (915) | 13,018 | 13,220 | 202 | | Other general operating expenses | 7,587 | 10,843 | 3,256 | 25,232 | 33,411 | 8,179 | | Ceding commissions | (5,153) | (4,273) | 880 | (14,605) | (11,066) | 3,539 | | Total direct | 16,776 | 23,395 | 6,619 | 55,591 | 72,624 | 17,033 | | Allocated (1) | | | | | | | | Salaries and other base employee expenses | 10,425 | 10,549 | 124 | 33,703 | $33,374 | (329) | | Variable and share-based incentive compensation | 9,184 | 6,636 | (2,548) | 27,405 | 25,187 | (2,218) | | Other general operating expenses | 12,135 | 15,273 | 3,138 | 42,546 | 43,343 | 797 | | Total allocated | 31,744 | 32,458 | 714 | 103,654 | 101,904 | (1,750) | | Total other operating expenses | $48,520 | $55,853 | $7,333 | $159,245 | $174,528 | $15,283 | | Expense ratio (2) | 23.4% | 26.1% | 2.7% | 26.2% | 26.5% | 0.3% | (1) See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about our allocation of corporate operating expenses. (2) Operating expenses (which consist of policy acquisition costs and other operating expenses, as well as allocated corporate operating expenses), expressed as a percentage of net premiums earned. See “Revenues—*Net Premiums Earned”* above for additional information on the changes in net premiums earned. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Results of Operations—homegenius ### Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022 The following table summarizes our homegenius segment’s results of operations for the periods indicated. As discussed in “Overview—Current Operating Environment,” the macroeconomic stresses beginning in the second quarter of 2022 have continued to adversely affect our homegenius business, including in particular a decrease in our title revenues due to the rapid decline in industrywide refinance volumes. We expect this trend to continue to impact the results of our homegenius segment in at least the near-term based on current market conditions and our expectation that overall refinance volumes will remain low. *Summary results of operations - homegenius* *(In thousands)* | Revenues | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net premiums earned | $3,461 | $5,025 | $(1,564) | $7,946 | $21,024 | $(13,078) | | Services revenue | 10,723 | 19,812 | (9,089) | 33,083 | 69,951 | (36,868) | | Net investment income | 523 | 246 | 277 | 1,445 | 363 | 1,082 | | Total revenues | 14,707 | 25,083 | (10,376) | 42,474 | 91,338 | (48,864) | | **Expenses** | | | | | | | | Provision for losses | 122 | 435 | 313 | 48 | 1,225 | 1,177 | | Cost of services | 8,714 | 18,344 | 9,630 | 28,985 | 60,514 | 31,529 | | Other operating expenses | 26,803 | 31,840 | 5,037 | 81,835 | 86,331 | 4,496 | | Total expenses | 35,639 | 50,619 | 14,980 | 110,868 | 148,070 | 37,202 | | Adjusted pretax operating income (loss) (1) | $(20,932) | $(25,536) | $4,604 | $(68,394) | $(56,732) | $(11,662) | (1) Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of our business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. ### Revenues ***Net Premiums Earned.*** Net premiums earned for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily due to a decrease in new title policies written in our title insurance business given the decline in industrywide refinance volumes. ***Services Revenue.*** Services revenue for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily due to a decrease in real estate and title services revenue resulting from the recent macroeconomic stresses, as described above. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for the disaggregation of services revenue by revenue type. ### Expenses ***Cost of Services.*** Cost of services for the three and nine months ended September 30, 2023, decreased as compared to the same periods in 2022, primarily due to the decrease in services revenue. Our cost of services is primarily affected by our level of services revenue and the number of employees providing those services. As further discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Current Operating Environment” in our 2022 Form 10-K, the number of employees was reduced for the three and nine months ended September 30, 2023, as compared to the same periods in 2022, as a result of the steps taken in 2022 to better align our workforce with the current and expected needs of our business. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ***Other Operating Expenses.*** The following table shows additional information about homegenius other operating expenses. Included in the results for the nine months ended September 30, 2023, are severance expenses of $1.9 million related to additional reductions in headcount in response to the ongoing challenging macroeconomic environment for the homegenius segment’s products and services, compared to $0.8 million of severance expenses for the nine months ended September 30, 2022. In addition, other general operating expenses were reduced in the three and nine months ended September 30, 2023, as a result of additional expense saving actions implemented in 2023. *Other operating expenses* *(In thousands)* | Direct | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Salaries and other base employee expenses | $10,214 | $11,572 | $1,358 | $32,080 | $30,461 | $(1,619) | | Variable and share-based incentive compensation | 3,582 | 3,312 | (270) | 10,253 | 10,721 | 468 | | Other general operating expenses | 7,036 | 9,549 | 2,513 | 22,109 | 23,846 | 1,737 | | Title agent commissions | 1,730 | 1,850 | 120 | 3,540 | 4,748 | 1,208 | | Total direct | 22,562 | 26,283 | 3,721 | 67,982 | 69,776 | 1,794 | | Allocated (1) | | | | | | | | Salaries and other base employee expenses | 1,405 | 1,831 | 426 | 4,535 | 5,504 | 969 | | Variable and share-based incentive compensation | 1,252 | 1,117 | (135) | 3,731 | 4,006 | 275 | | Other general operating expenses | 1,584 | 2,609 | 1,025 | 5,587 | 7,045 | 1,458 | | Total allocated | 4,241 | 5,557 | 1,316 | 13,853 | 16,555 | 2,702 | | Total other operating expenses | $26,803 | $31,840 | $5,037 | $81,835 | $86,331 | $4,496 | (1) See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about our allocation of corporate operating expenses. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Results of Operations—All Other ### Three and Nine Months Ended September 30, 2023, Compared to Three and Nine Months Ended September 30, 2022 The following table summarizes our All Other results of operations for the periods indicated. *Summary results of operations - All Other* *(In thousands)* | Revenues | Three Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | Nine Months Ended September 30, 2023 | 2022 | Change Favorable (Unfavorable) 2023 vs. 2022 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net investment income | $17,957 | $6,326 | $11,631 | $45,386 | $17,148 | $28,238 | | Net gains (losses) on investments and other financial instruments | 283 | — | 283 | 458 | — | 458 | | Other income | 9 | 70 | (61) | 13 | 70 | (57) | | Total revenues | 18,249 | 6,396 | 11,853 | 45,857 | 17,218 | 28,639 | | **Expenses** | | | | | | | | Other operating expenses | 3,854 | 3,815 | (39) | 11,470 | 10,821 | (649) | | Interest expense | 1,609 | — | (1,609) | 2,086 | — | (2,086) | | Total expenses | 5,463 | 3,815 | (1,648) | 13,556 | 10,821 | (2,735) | | Adjusted pretax operating income (1) | $12,786 | $2,581 | $10,205 | $32,301 | $6,397 | $25,904 | (1) Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of our business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Our All Other results include income from investments held at Radian Group, which have benefited from rising interest rates over the past year as well as from rising balances resulting from distributions by Radian Guaranty. All Other also includes the financial results of Radian Mortgage Capital. In light of current market conditions, Radian Mortgage Capital has continued to take a cautious approach. As of September 30, 2023, Radian Mortgage Capital owned $138 million of mortgage loans held for sale. Radian Mortgage Capital has not yet completed any securitizations and is currently focused on distributing the loans it acquires through whole loan sales. See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our mortgage loans held for sale. ### Liquidity and Capital Resources ### Consolidated Cash Flows The following table summarizes our consolidated cash flows from operating, investing and financing activities. *Summary cash flows - Consolidated* *(In thousands)* | Net cash provided by (used in): | Nine Months Ended September 30, 2023 | 2022 | | --- | ---: | ---: | | Operating activities | $264,476 | $282,148 | | Investing activities | (189,445) | 48,556 | | Financing activities | (74,797) | (427,516) | | Increase (decrease) in cash and restricted cash | $234 | $(96,812) | 60 ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ***Operating Activities.*** Our most significant source of operating cash flows is from premiums received from our mortgage insurance policies, while our most significant uses of operating cash flows are typically for our operating expenses and claims paid on our mortgage insurance policies. Cash provided by operating activities decreased for the nine months ended September 30, 2023, as compared to the same period in 2022, due primarily to increases in net purchases of mortgage loans held for sale in 2023, partially offset by lower payments for operating expenses and lower purchases of U.S. Mortgage Guaranty Tax and Loss Bonds. ***Investing Activities.*** Net cash used by investing activities increased for the nine months ended September 30, 2023, as compared to cash provided by investing activities in the same period in 2022, primarily as a result of an increase in purchases, net of sales and redemptions, of short-term investments and a decrease in proceeds from sales and redemptions of fixed-maturity investments available for sale and proceeds from redemptions of trading securities, partially offset by a decrease in purchases of fixed-maturity investments available for sale. ***Financing Activities.*** For the nine months ended September 30, 2023, our primary financing activities impacting cash included: (i) payment of dividends and (ii) repurchases of our common stock. The decreases in these amounts were partially offset by an increase in secured borrowings, primarily to help fund the increase in net purchases of mortgage loans held for sale. See Notes 12 and 14 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our borrowings and share repurchases, respectively. See “Item 1. Financial Statements (Unaudited)—Condensed Consolidated Statements of Cash Flows (Unaudited)” for additional information. ### Liquidity Analysis—Holding Company Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. At September 30, 2023, Radian Group had available, either directly or through unregulated subsidiaries, unrestricted cash and liquid investments of $1.0 billion. Available liquidity at September 30, 2023, excludes certain additional cash and liquid investments that have been advanced to Radian Group from its subsidiaries to pay for corporate expenses and interest payments. Total liquidity, which includes our undrawn $275 million unsecured revolving credit facility, as described below, was $1.3 billion as of September 30, 2023. During the nine months ended September 30, 2023, Radian Group’s available liquidity increased by $101 million, due primarily to a $100 million ordinary dividend received from Radian Guaranty in each of the first three quarters of 2023, partially offset by payments for dividends and share repurchases, as described below. In addition to available cash and marketable securities, Radian Group’s principal sources of cash to fund future liquidity needs include: (i) payments made to Radian Group by its subsidiaries under expense- and tax-sharing arrangements; (ii) net investment income earned on its cash and marketable securities; and (iii) to the extent available, dividends or other distributions from its subsidiaries. Radian Group has in place a $275 million unsecured revolving credit facility with a syndicate of bank lenders. Subject to certain limitations, borrowings under the credit facility may be used for working capital and general corporate purposes, including, without limitation, capital contributions to our insurance subsidiaries as well as growth initiatives. At September 30, 2023, the full $275 million remains undrawn and available under the facility. See Note 12 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for additional information on the unsecured revolving credit facility. In connection with our mortgage conduit initiative, in 2022, Radian Mortgage Capital entered into the Master Repurchase Agreements. At that time, Radian Group entered into two separate Parent Guarantees to guaranty the obligations under the Master Repurchase Agreements. Under these Parent Guarantees, Radian Group is subject to negative and affirmative covenants customary for this type of financing transaction, including compliance with financial covenants that are generally consistent with the comparable covenants in the Company’s revolving credit facility. See Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. In addition to financing the acquisition of mortgage loan assets under the Master Repurchase Agreements, Radian Mortgage Capital may fund such purchases directly using capital contributed from Radian Group. We expect Radian Group’s principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; (iii) the payment of quarterly dividends on our common stock, which are currently $0.225 per share, and which remain subject to approval by our board of directors and our ongoing assessment of our financial condition and potential needs related to the execution and implementation of our business plans and strategies; (iv) the potential continued repurchases of shares of our common stock pursuant to share repurchase authorizations, as described below; and (v) investments to support our business strategy, including capital contributions to our subsidiaries. Liquidity demands may also include potential payments pursuant to the Parent Guarantees. In addition to our ongoing short-term liquidity needs discussed above, our most significant need for liquidity beyond the next 12 months is the repayment of $1.4 billion aggregate principal amount of our senior debt due in future years. See “Capitalization—Holding Company” below for details of our debt maturity profile. Radian Group’s liquidity demands for the next 12 months or in future periods could also include: (i) early repurchases or redemptions of portions of our debt obligations and ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (ii) additional investments to support our business strategy, including additional capital contributions to its subsidiaries. For additional information about related risks and uncertainties, see “*Our sources of liquidity may be insufficient to fund our obligations”* and “*Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity”* under “Item 1A. Risk Factors” in our 2022 Form 10-K. See also “Overview—Current Operating Environment” herein for further information. We believe that Radian Group has sufficient current sources of liquidity to fund its obligations. If we otherwise decide to increase our liquidity position, Radian Group may seek additional capital, including by incurring additional debt, issuing additional equity, or selling assets, which we may not be able to do on favorable terms, if at all. ***Share Repurchases.*** During the nine months ended September 30, 2023, the Company repurchased 2.8 million shares of Radian Group common stock under programs authorized by Radian Group’s board of directors, at a total cost of $70 million, including commissions. See Note 14 of Notes to Unaudited Condensed Consolidated Financial Statements for additional details on our share repurchase programs. ***Dividends and Dividend Equivalents.*** In February 2023, Radian Group’s board of directors authorized an increase to the Company’s quarterly dividend from $0.20 to $0.225 per share. Based on our current outstanding shares of common stock and restricted stock units, we expect to require approximately $140 million in the aggregate to pay dividends and dividend equivalents for the next 12 months. So long as no default or event of default exists under our revolving credit facility or the Parent Guarantees, Radian Group is not subject to any legal or contractual limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. See Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements for additional details. The declaration and payment of future quarterly dividends remains subject to the board of directors’ discretion and determination. ***Corporate Expenses and Interest Expense.*** Radian Group has expense-sharing arrangements in place with its principal operating subsidiaries that require those subsidiaries to pay their allocated share of certain holding-company-level expenses, including interest payments on Radian Group’s outstanding debt obligations. Corporate expenses and interest expense on Radian Group’s debt obligations allocated under these arrangements during the nine months ended September 30, 2023, of $122 million and $63 million, respectively, were substantially all reimbursed by its subsidiaries. We expect substantially all of our holding company expenses to continue to be reimbursed by our subsidiaries under our expense-sharing arrangements. The expense-sharing arrangements between Radian Group and its mortgage insurance subsidiaries, as amended, have been approved by the Pennsylvania Insurance Department, but such approval may be modified or revoked at any time. ***Taxes.*** Pursuant to our tax-sharing agreements, our operating subsidiaries pay Radian Group an amount equal to any federal income tax the subsidiary would have paid on a standalone basis if they were not part of our consolidated tax return. As a result, from time to time, under the provisions of our tax-sharing agreements, Radian Group may pay to or receive from its operating subsidiaries amounts that differ from Radian Group’s consolidated federal tax payment obligation. Radian Group received $23 million of tax-sharing agreement payments from its subsidiaries during the nine months ended September 30, 2023. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ### Capitalization—Holding Company The following table presents our holding company capital structure. *Capital structure* *(In thousands, except per-share amounts and ratios)* | Debt | September 30, 2023 | December 31, 2022 | | --- | ---: | ---: | | Senior Notes due 2024 | $450,000 | $450,000 | | Senior Notes due 2025 | 525,000 | 525,000 | | Senior Notes due 2027 | 450,000 | 450,000 | | Deferred debt costs on senior notes | (8,313) | (11,496) | | Revolving credit facility | — | — | | Total | 1,416,687 | 1,413,504 | | Stockholders’ equity | 4,152,899 | 3,919,327 | | Total capitalization | $5,569,586 | $5,332,831 | | Holding company debt-to-capital ratio (1) | 25.4% | 26.5% | | Shares outstanding | 155,582 | 157,056 | | Book value per share | $26.69 | $24.95 | (1) Calculated as carrying value of senior notes, which were issued and are owed by our holding company, divided by carrying value of senior notes and stockholders’ equity. This holding company ratio does not include the effects of amounts owed by our subsidiaries related to secured borrowings. Stockholders’ equity increased by $234 million from December 31, 2022, to September 30, 2023. The net increase in stockholders’ equity for the nine months ended September 30, 2023, resulted primarily from our net income of $460 million, partially offset by dividends of $111 million, share repurchases of $70 million and a net increase in unrealized losses on investment securities of $64 million as a result of increases in market interest rates during the period. As of September 30, 2023, we did not expect to realize a loss for our investments in an unrealized loss position given our intent and ability to hold these investment securities until recovery of their amortized cost basis. The increase in book value per share from $24.95 at December 31, 2022, to $26.69 at September 30, 2023, is primarily due to an increase of $2.93 per share attributable to our net income for the nine months ended September 30, 2023, partially offset by: (i) a decrease of $0.71 per share attributable to dividends and dividend equivalents and (ii) a decrease of $0.41 per share due to a net increase in unrealized losses in our available for sale securities, recorded in accumulated other comprehensive income. We regularly evaluate opportunities, based on market conditions, to finance our operations by accessing the capital markets or entering into other types of financing arrangements with institutional and other lenders. We also regularly consider various measures to improve our capital and liquidity positions, as well as to strengthen our balance sheet, improve Radian Group’s debt maturity profile and maintain adequate liquidity for our operations. Among other things, these measures may include borrowing agreements or arrangements, such as securities or other master repurchase agreements and revolving credit facilities. In the past we have repurchased and exchanged, prior to maturity, some of our outstanding debt, and in the future, we may from time to time seek to redeem, repurchase or exchange for other securities, or otherwise restructure or refinance some or all of our outstanding debt prior to maturity in the open market through other public or private transactions, including pursuant to one or more tender offers or through any combination of the foregoing, as circumstances may allow. The timing or amount of any potential transactions will depend on a number of factors, including market opportunities and our views regarding our capital and liquidity positions and potential future needs. There can be no assurance that any such transactions will be completed on favorable terms, or at all. ### Mortgage Historically, one of the primary demands for liquidity in our Mortgage business is the payment of claims, net of reinsurance, including from commutations and settlements. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for information on our mortgage insurance reserve for losses and LAE, which represents our best estimate for the costs of settling future claims on currently defaulted mortgage loans. Other principal demands for liquidity in our Mortgage business include: (i) expenses (including those allocated from Radian Group); (ii) repayments of FHLB advances; and (iii) taxes, including potential additional purchases of U.S. Mortgage Guaranty Tax and Loss Bonds. See Notes ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10 and 16 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for additional information related to these non-interest bearing instruments. In addition to the foregoing liquidity demands, other payments have included, and in the future could include, distributions from Radian Guaranty to Radian Group, including returns of capital or recurring ordinary dividends, as discussed below. The principal sources of liquidity in our Mortgage business currently include insurance premiums, net investment income and cash flows from: (i) investment sales and maturities; (ii) FHLB advances; and (iii) if necessary, capital contributions from Radian Group. We believe that the operating cash flows generated by each of our mortgage subsidiaries will provide these subsidiaries with the funds necessary to satisfy their needs for the foreseeable future. As of September 30, 2023, our mortgage insurance subsidiaries maintained claims paying resources of $6.0 billion on a statutory basis, which consist of contingency reserves, statutory policyholders’ surplus, premiums received but not yet earned and loss reserves. In addition, our reinsurance programs are designed to provide additional claims-paying resources during times of economic stress and elevated losses. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. Radian Guaranty’s Risk-to-capital as of September 30, 2023, was 10.6 to 1. Radian Guaranty is not expected to need additional capital to satisfy state insurance regulatory requirements in their current form. At September 30, 2023, Radian Guaranty had statutory policyholders’ surplus of $674 million. This balance includes a $697 million benefit from U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury, which mortgage guaranty insurers such as Radian Guaranty may purchase in order to be eligible for a tax deduction, subject to certain limitations, related to amounts required to be set aside in statutory contingency reserves. See Note 16 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” in our 2022 Form 10-K for more information. Radian Guaranty currently is an approved mortgage insurer under the PMIERs. Private mortgage insurers, including Radian Guaranty, are required to comply with the PMIERs to remain approved insurers of loans purchased by the GSEs. At September 30, 2023, Radian Guaranty’s Available Assets under the PMIERs financial requirements totaled $5.8 billion, resulting in a PMIERs Cushion of $1.7 billion, or 41%, over its Minimum Required Assets. Those amounts compare to Available Assets of $5.6 billion and a PMIERs cushion of $1.7 billion, or 45%, at December 31, 2022. Our PMIERs Cushion as of September 30, 2023, includes the benefit from our reinsurance agreements through that date. In October 2023, Radian Guaranty entered into a fully collateralized reinsurance agreement with Eagle Re 2023-1 Ltd. that will reduce Radian Guaranty’s net RIF by $353 million, and is expected to reduce capital required to be held at Radian Guaranty by reducing the PMIERs Minimum Required Assets by substantially the same amount. Also in October 2023, Radian Guaranty entered into the 2023 XOL Agreement with a panel of third-party reinsurance providers that will reduce Radian Guaranty’s net RIF by $246 million, and is expected to reduce capital required to be held at Radian Guaranty by reducing the PMIERs Minimum Required Assets by substantially the same amount. After consideration of these transactions, Radian Guaranty’s excess of Available Assets over its Minimum Required Assets under PMIERs, as of September 30, 2023, would have increased from $1.7 billion to $2.2 billion, or from 41% to 63%. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on these new agreements. Our PMIERs Cushion at September 30, 2023, also includes a benefit from the current broad-based application of the Disaster Related Capital Charge that has reduced the total amount of Minimum Required Assets that Radian Guaranty otherwise would have been required to hold against pandemic-related defaults by approximately $135 million and $200 million as of September 30, 2023, and December 31, 2022, respectively, taking into consideration our risk distribution structures in effect as of those dates. The application of the Disaster Related Capital Charge has reduced Radian Guaranty’s PMIERs Minimum Required Assets, but we expect this benefit will continue to diminish over time. See “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility” and “*Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity”* under “Item 1A. Risk Factors” in our 2022 Form 10-K for more information about the Disaster Related Capital Charge. Despite holding assets above the minimum statutory capital thresholds and PMIERs financial requirements, the ability of Radian’s mortgage insurance subsidiaries to pay dividends on their common stock is restricted by certain provisions of the insurance laws of Pennsylvania, their state of domicile. Under Pennsylvania’s insurance laws, ordinary dividends and other distributions may only be paid out of an insurer’s positive unassigned surplus unless the Pennsylvania Insurance Department approves the payment of dividends or other distributions from another source. Aided by the positive impacts of its merger with Radian Reinsurance in December 2022, Radian Guaranty had positive unassigned surplus of $258 million as of December 31, 2022, providing Radian Guaranty with the ability to pay ordinary dividends beginning in the first quarter of 2023, subject to the preceding year’s statutory net income and other limitations under Pennsylvania’s insurance laws. As a result, Radian Guaranty paid an ordinary dividend of $100 million to Radian Group in each of the first three quarters of 2023 and maintains the ability to pay additional ordinary dividends during the remainder of 2023. Subsequent to the payment of these dividends, as of September 30, 2023, Radian Guaranty had positive unassigned surplus of $174 million. See Note 16 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for additional information on our statutory dividend restrictions and contingency reserve requirements. ### Table of Contents Glossary Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Radian Guaranty is a member of the FHLB. As a member, it may borrow from the FHLB, subject to certain conditions, which include requirements to post collateral and to maintain a minimum investment in FHLB stock. Advances from the FHLB may be used to provide low-cost, supplemental liquidity for various purposes, including to fund incremental investments. Radian’s current strategy includes using FHLB advances as financing for general cash management and liquidity purposes. As of September 30, 2023, there were $120 million of FHLB advances outstanding. See Note 12 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. ### homegenius As of September 30, 2023, our homegenius segment maintained cash and liquid investments totaling $59 million, including $45 million held by Radian Title Insurance. Title insurance companies, including Radian Title Insurance, are subject to comprehensive state regulations, including minimum net worth requirements. Radian Title Insurance was in compliance with all of its minimum net worth requirements at September 30, 2023. In the event the cash flows from operations of the homegenius segment are not adequate to fund all of its needs, including the regulatory capital needs of Radian Title Insurance, Radian Group may provide additional funds to the homegenius segment in the form of an intercompany note or other capital contribution, and if needed for Radian Title Insurance, subject to the approval of the Ohio Department of Insurance. Additional capital support may also be required for potential investments in new business initiatives to support our strategy of growing our businesses. During the nine months ended September 30, 2023, Radian Group contributed $80 million in capital support to its homegenius subsidiaries. Liquidity levels may fluctuate depending on the levels and contractual timing of our invoicing and the payment practices of our homegenius clients, in combination with the timing of our homegenius segment’s payments for employee compensation and to external vendors. The amount, if any, and timing of the homegenius segment’s dividend paying capacity will depend primarily on the amount of excess cash flow generated by the segment. ### Ratings We believe that ratings independently assigned by third-party statistical rating organizations often are considered by others in assessing our credit strength and the financial strength of our primary insurance subsidiaries. Radian Group, Radian Guaranty and Radian Title Insurance are currently assigned the financial strength ratings set forth in the chart below, which are provided for informational purposes only and are subject to change. See “*The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company”* under “Item 1A. Risk Factors” in our 2022 Form 10-K. *Ratings* | | | | | | | --- | --- | --- | --- | --- | | **Subsidiary** | **Moody’s (1)** | **S&P (1)** | **Fitch (1)** | **Demotech** | | Radian Group | Baa3 | BB+ | BBB- | N/A | | Radian Guaranty | A3 | BBB+ | A- | N/A | | Radian Title Insurance | N/A | N/A | N/A | A | (1) Moody’s, S&P and Fitch each currently rate the outlook for both Radian Group and Radian Guaranty as Stable. ### Critical Accounting Estimates As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2022 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company’s consolidated financial position, earnings, cash flows or disclosures. ## Market risk As filed, 765 characters. Market risk represents the potential for loss due to adverse changes in the value of financial instruments as a result of changes in market conditions. Examples of market risk include changes in interest rates, credit spreads, foreign currency exchange rates and equity prices. We regularly analyze our exposure to interest-rate risk and credit-spread risk and have determined that the fair value of our investments is materially exposed to changes in both interest rates and credit spreads. See “*Our success depends, in part, on our ability to manage risks in our investment portfolio”* under “Item 1A. Risk Factors” in our 2022 Form 10-K. Our market risk exposures at September 30, 2023, have not materially changed from those identified in our 2022 Form 10-K. ## Controls and procedures As filed, 1,672 characters. ### Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2023, pursuant to Rule 15d-15(b) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. ### Changes in Internal Control Over Financial Reporting During the three-month period ended September 30, 2023, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Filed Nov 3, 2023. Source: SEC EDGAR, the filing index for accession 0000890926-23-000058. Last ingested by Listed: Nov 6, 2026, 19:58 ET. No prices; not investment advice.