RADIAN GROUP INC

The following table summarizes our Mortgage Insurance segment’s results of operations for the periods indicated.

(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.

Net Premiums Earned. Net premiums earned increased for the nine months ended September 30, 2024, as compared to the same period in 2023, primarily due to: (i) an increase in direct premiums earned in 2024, due primarily to higher IIF, and (ii) increased ceded premiums earned associated with the tender offers by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. in the second quarter of 2023 to purchase the mortgage insurance-linked notes that supported their reinsurance agreements with Radian Guaranty.

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.

(1)

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.

(2)

Includes the impact of related profit commissions.

(3)

Represents the profit commission from the Single Premium QSR Program, 2022 QSR Agreement, 2023 QSR Agreement and 2024 QSR Agreement, excluding the impact of Single Premium Policy cancellations.

(4)

Calculated by dividing annualized direct premiums earned, excluding revenue from cancellations, by average primary IIF.

(5)

Calculated by dividing annualized direct premiums earned, by average primary IIF.

(6)

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.

(7)

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 Insurance—IIF and Related Drivers” in our 2023 Form 10-K for more information.

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.

(1)

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.

(2)

Consists primarily of the 2022, 2023 and 2024 QSR Agreements.

(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 in our condensed consolidated statements of operations. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

Net Investment Income. Higher investment balances was the primary driver of the increases in net investment income for the three and nine months ended September 30, 2024, as compared to the same periods in 2023.

The following table provides information related to our Mortgage Insurance subsidiaries’ investment balances and investment yields for the periods indicated.

(1)

The average of the beginning and ending amortized cost, for each period presented, of investments held by our Mortgage Insurance subsidiaries.

(2)

Calculated by dividing annualized net investment income by average investments balance.

Expenses

Provision for Losses. The following table details the financial impact of the significant components of our provision for losses for the periods indicated.

(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 23% and 16% for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, as shown below, which is 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, 2024 and 2023, 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, 2024, and the same periods in 2023, 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 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, including our Claim Severity assumptions in 2024.

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 2023 Form 10-K.

Our primary default rate as a percentage of total insured loans at September 30, 2024, was 2.3% compared to 2.2% at December 31, 2023. The following table shows a rollforward of our primary loans in default.

(1)

Includes submitted claims that resolved without a claim payment.

(2)

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.

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 Rescissions, was 25% as of both September 30, 2024, and December 31, 2023, respectively. See Note 11 of Notes to Consolidated Financial Statements in our 2023 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 Insurance—Defaults and Claims” in our 2023 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.

(1)

Net of reinsurance recoveries.

(2)

Includes payments to commute mortgage insurance coverage on certain performing and non-performing loans.

(3)

Calculated excluding the impact of: (i) LAE; (ii) commutations and settlements; and (iii) claims resolved without payment, including claims subsequently withdrawn by the servicer.

(4)

Before reinsurance recoveries.

Hurricanes Helene and Milton made landfall in September and October 2024, respectively, causing extensive property damage in Florida and certain other states, as well as other general disruptions including power outages and flooding. Although the Primary Mortgage Insurance we write protects lenders from a portion of losses resulting from mortgage defaults, it generally does not provide protection against property loss or physical damage, including damage caused by hurricanes or other severe weather events or natural disasters. As a result, while we expect new defaults from the affected areas to increase in the fourth quarter of 2024, absent a prolonged negative impact on the local economies in these areas, as of September 30, 2024, we do not expect to incur any material losses due to current or future defaults in FEMA Designated Areas related to these hurricanes.

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 2023 Form 10-K.

Other Operating Expenses. The increase in other operating expenses for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, is primarily due to an increase in variable and share-based compensation expense and severance related expense, partially offset by a reduction in general operating expenses related to expense savings actions implemented during the past year, as well as an increase in the benefit from ceding commissions under Radian Guaranty’s QSR Program.

Share-based compensation expense for the nine months ended September 30, 2024, includes $8 million of costs recognized on RSUs granted to retirement eligible grantees during the second quarter of 2024, as compared to $3 million for the same periods in 2023. Because no further service is required from retirement eligible grantees to satisfy vesting conditions for their awards, we recognize the full compensation costs as of the grant date for retirement eligible grantees. See Note 17 of Notes to Consolidated Financial Statements in our 2023 Form 10-K for additional information about our share-based compensation programs.

The following table shows additional information about other operating expenses for our Mortgage Insurance segment, for the periods indicated.

(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.