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 Consolidated Financial Statements for more information.

Revenues

Net Premiums Earned. Net premiums earned increased for 2024 compared to 2023, primarily due to an increase in direct premiums earned resulting from higher IIF. As further discussed in “Overview of Business Operating Environment” above, in 2025 our IIF is expected to continue to benefit from a slightly larger mortgage origination market as compared to 2024.

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)

Includes the impact of related profit commissions.

(2)

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

(3)

Calculated by dividing direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF.

(4)

Calculated by dividing direct premiums earned, including assumed revenue, by average primary IIF.

(5)

Calculated by dividing 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. See Note 8 of Notes to Consolidated Financial Statements for further information.

(6)

The average of beginning and ending balances of primary IIF, for each period presented.

Our in force portfolio premium yield was stable for 2024, as compared to 2023. Based on current NIW pricing and the impact of higher Persistency Rates we have been experiencing, we currently expect our in force portfolio premium yield in 2025 to remain stable; however, due to the potential impacts of Single Premium Policy cancellations and reinsurance, among other things, the net premium yield may continue to fluctuate from period to period.

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 “Key Factors Affecting Our Results—Mortgage Insurance—IIF and Persistency” 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 Consolidated Financial Statements for more information about our reinsurance programs.

(1)

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

(2)

Includes the impact of changes in the profit commission retained by the Company due to changes in loss reserves. See “Expenses—Provision for Losses” below for additional information on our favorable reserve development, particularly in 2022.

(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 consolidated statements of operations. See Note 8 of Notes to Consolidated Financial Statements for additional information.

Net Investment Income. Increasing yields from higher interest rates and higher investment balances were the primary driver of the increases in net investment income for 2024 compared to 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 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 a most recent default notice dated in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.

(2)

Related to defaulted loans with a default notice dated in a year earlier than the year 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 the number of new primary defaults for each period.

Current year new primary defaults increased by 15% for 2024, as compared to 2023, 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 7.5% at December 31, 2024, compared to 8.0% at December 31, 2023. 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 2024, 2023 and 2022 was positively impacted by favorable reserve development on prior year 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. See Note 11 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” for additional information.

Our primary default rate at December 31, 2024, was 2.4% compared to 2.2% at December 31, 2023. The following table shows a rollforward of the number of our primary loans in default.

(1)

Includes submitted claims that resolved without a claim payment.

(2)

Net of any previous Rescission 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 Consolidated Financial Statements for additional information.

We develop our Default to Claim Rate estimates on defaulted loans based on models that use a variety of loan characteristics to determine the likelihood that a default will reach claim status. See Note 11 of Notes to Consolidated Financial Statements for additional details about our Default to Claim Rate assumptions.

Our aggregate weighted-average net Default to Claim Rate assumption for our primary defaulted loans used in estimating our reserve for losses, which is net of estimated Claim Denials and Rescissions, was 23% and 25%, at December 31, 2024 and 2023, respectively. This decrease was primarily due to a shift in the mix of defaults as of December 31, 2024, given the larger proportion of more recent defaults and loans with fewer missed payments, as well as reduced claim rate assumptions for prior period defaults due to more favorable trends in Cures than originally estimated. See Note 11 of Notes to Consolidated Financial Statements for information regarding our reserve for losses and a reconciliation of our Mortgage Insurance segment’s beginning and ending reserves for losses and LAE.

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 further described in “Item 1. Business—Mortgage Insurance—Defaults and Claims”), which 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 expected, new defaults from the affected areas increased in the fourth quarter of 2024. Absent a prolonged negative impact on the local economies in these areas, as of December 31, 2024, we do not expect to incur any material losses due to current or future defaults in FEMA Designated Areas related to these hurricanes.

Other Operating Expenses. The decrease in other operating expenses for 2024, as compared to 2023, is primarily related to: (i) an increase in ceding commissions under Radian Guaranty’s QSR Program and (ii) a reduction in other general operating expenses related to expense savings actions implemented for the segment during the past year. These items were partially offset by: (i) an increase in severance related expenses, incurred primarily in the first half of the year and (ii) an increase in performance-based variable compensation in 2024.

The following tables show additional information about other operating expenses for our Mortgage Insurance segment for the periods indicated.

(1)

See Note 4 of Notes to 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.