RADIAN GROUP INC

New Insurance Written

A key component of our current business strategy is to write NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio’s health, balance and profitability. Consistent with this objective, we wrote $52.7 billion of primary new mortgage insurance in 2023, compared to $68.0 billion of NIW in 2022. Our NIW decreased by 22% in 2023 as compared to 2022, due to a broad decline in U.S. housing market activity primarily resulting from higher mortgage interest rates, partially offset by an increase in our market share in 2023.

Among other factors, private mortgage insurance industry volumes are impacted by total mortgage origination volumes and the mix between mortgage originations that are for home purchases versus refinancings of existing mortgages. Historically, the penetration rate for private mortgage insurance generally has been three to five times higher for purchase transactions than for refinancings. However, with significant home price appreciation in recent years, penetration on purchase transactions has increased while penetration on refinancings has decreased, and the penetration rate for private mortgage insurance has shifted to 10 to 14 times higher for purchase transactions than for refinancings.

The following charts provide a historical perspective on certain key market drivers, including:

■the mortgage origination volume from home purchases and refinancings; and

■private mortgage insurance penetration as a percentage of the mortgage origination market.

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Mortgage origination market (1)

Private mortgage insurance penetration of mortgage origination market (1)

(1)Based on actual dollars generated in the credit enhanced market as reported by HUD and publicly reported industry information. Mortgage originations are based upon the average of originations reported by the Mortgage Bankers Association, Freddie Mac and Fannie Mae in their most recent published industry reports.

(2)Excluding originations under HARP.

According to industry estimates, total mortgage origination volume was significantly lower in 2023 as compared to 2022 due to a significant decline in mortgage refinance activity and a smaller decline in home purchases. Although it is difficult to project future volumes, recent industry projections for 2024 estimate total mortgage originations of approximately $2.0 trillion, which would represent an increase in the total annual mortgage origination market of approximately 27% as compared to 2023.

Factoring in our projections of private mortgage insurance penetration in the overall insurable mortgage market, we estimate that the private mortgage insurance market will be between $300 billion and $350 billion in 2024 as compared to a reported market of approximately $285 billion in 2023. There is an industry-wide consensus that we should expect a healthy purchase market in 2024 driven by ongoing homebuyer demand and an expected decline in interest rates, which is a positive for mortgage insurers given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. This outlook also anticipates an increase in refinance originations in 2024 resulting from reduced interest rates.

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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).

(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

(1)Policy years represent the original policy years and have not been adjusted to reflect subsequent refinancing activity under HARP.

(2)Includes loans that were subsequently refinanced under HARP.

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Our IIF is the primary driver of the future premiums that we expect to earn over time. IIF increased to $270.0 billion at December 31, 2023, from $261.0 billion at December 31, 2022, reflecting the impact of our NIW offset by policy cancellations and amortization. Our IIF at December 31, 2023, increased 3% as compared to the same period last year, reflecting a 6% increase in Monthly Premium Policies in force partially offset by a 10% 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 December 31, 2023, increased as compared to the same period in 2022. The increase in our Persistency Rate in 2023 was primarily attributable to decreased refinance activity due to increases in mortgage interest rates, as compared to the prior year. As of December 31, 2023, 81% of our IIF had a mortgage note interest rate of 6.0% or less and 69% of our IIF had a mortgage note rate of 5.0% or less. Given the increase in market mortgage interest rates, which, based on reported industry averages, now exceed these levels, we would expect a continued positive impact on our Persistency Rates. If refinance volume increases, we would expect the Persistency Rate for our portfolio to decrease, reducing the size of our IIF portfolio. See “Item 1A. Risk Factors” for more information.

As discussed above, our earnings in future periods are subject to elevated risks and uncertainties related to macroeconomic conditions and specific events that impact the housing finance and real estate markets, including housing prices, inflationary pressures, unemployment levels, interest rate changes and the availability of credit. For additional information, in “Item 1A. Risk Factors,” see “The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages.”

While these risks and uncertainties are elevated in the near-term, we continue to believe that the long-term housing market fundamentals and outlook remain positive, including demographics supporting growth in the population of first-time homebuyers and a relatively constrained supply of homes available for sale. In addition, historical loan performance data indicates that credit scores and underwriting quality are key drivers of credit performance, and loan originations after 2008 have consisted primarily of high credit quality loans with significantly better credit performance than loans originated during 2008 and prior periods.

The following table illustrates the trends of our cumulative incurred loss ratios by year of origination and development year.

(1)Represents inception-to-date losses incurred as a percentage of net premiums earned.

(2)Losses incurred in 2021 and 2020 across all vintages were elevated due to the impact of the COVID-19 pandemic.

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).

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The following table provides selected information as of and for the periods indicated related to mortgage insurance IIF and RIF.

(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.

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The following table shows our direct Primary Mortgage Insurance RIF by year of origination and selected information related to that risk as of the dates indicated.

Geographic Dispersion

The following table shows, as of the dates indicated, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 states in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2023).

The following table shows, as of the dates indicated, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 Core Based Statistical Areas, referred to as “CBSAs,” in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2023).

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(1)CBSAs are metropolitan areas and may include a portion of adjoining states as noted above.

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 reduce 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 “Key Factors Affecting Our Results—Mortgage Insurance—Risk Distribution” and Note 8 of Notes to Consolidated Financial Statements 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.

(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 Consolidated Financial Statements for more information on these tender offers and related impacts.

(2)Consists primarily of 2022 and 2023 QSR Agreements, which include both single and monthly premium policies.