RADIAN GROUP INC

Global economic conditions could adversely affect our business, results of operations or financial condition.

The global economic environment continues to be impacted by: persistent inflationary pressures; changing fiscal or monetary policies; uncertainty concerning the future path of interest rates; the effect of social, economic, and political conditions and geopolitical events; the implementation of tariffs and other protectionist trade policies; and the possibilities of a recession, government shutdowns, debt ceilings and reductions in government funding. Uncertainty and market turmoil has affected, and may in the future affect, among other aspects of our business, the demand for and claims made under our products, the ability of customers, counterparties and others to establish or maintain their relationships with us, our ability to access and efficiently use internal and external capital resources and our investment performance and portfolio.

In periods of economic stress, including sustained inflation, higher interest rates or economic downturns, demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability. Inflationary pressures may also increase claims severity and loss costs, affect our ability to receive the appropriate rate for the risk we insure, and reduce our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew the policies they hold with us. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.

The ongoing global economic uncertainties, evolving market conditions and heightened inflationary and geopolitical risks could have a material adverse effect on our business prospects, results of operations and financial condition.

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.

Defaults can occur due to a variety of life events affecting borrowers of loans insured by our Mortgage Insurance business, including death or illness, divorce or other family problems, unemployment, or other events. These events, particularly unemployment, frequently derive from or are exacerbated by changes in economic conditions. See “Global economic conditions could adversely affect our business, results of operations or financial condition.” In general, challenging economic conditions increase the likelihood that borrowers will not have sufficient income to satisfy their mortgage obligations. As a result, our results are particularly influenced by macroeconomic conditions and specific events that impact the housing finance and real estate markets.

Declining housing values can influence the willingness of borrowers to continue to make mortgage payments despite having the financial resources to do so. A decline in home prices can occur due to deteriorating economic conditions or other factors that reduce the demand for homes. A decline in home values typically makes it more difficult for borrowers to sell or refinance their homes, increasing the likelihood that a default will result in a claim. Declining housing values also may impact the effectiveness of our loss mitigation actions. The amount of the loss we could suffer depends in part on whether the home of a borrower who defaults on a mortgage can be sold for an amount that will cover the unpaid principal balance, interest and the expenses of the sale. Any of these events may have a material adverse effect on our business, results of operations and financial condition.

In our Specialty Insurance business, we could face losses from geopolitical tensions, hostilities, war, terrorism, pandemics, cyberattacks and general political instability, and these or other unanticipated losses could have a material adverse effect on our financial condition and results of operations.

In our Specialty Insurance business, we have exposure to losses, resulting from human-made catastrophes, such as acts of terrorism, political unrest and geopolitical instability, including, but not limited to, events related to Russia’s invasion of Ukraine, the conflict in the Middle East and in many other regions of the world, as well as pandemics and increasing cybersecurity and cyberattack risks. These risks are inherently unpredictable. It is difficult to predict the timing of such events with statistical certainty or estimate the amount of loss any given occurrence will generate.

In certain instances, we specifically insure and reinsure risks resulting from acts of terrorism. Given the unpredictable frequency and severity of terrorism losses, as well as the limited terrorism coverage provided by the reinsurance coverage that our Specialty Insurance business obtains, future losses from acts of terrorism could materially and adversely affect our results of operations, financial condition or liquidity in future periods.

We also insure against risks related to cybersecurity and cyberattacks. Our insureds may be increasingly exposed to cyber-related attacks that result in losses to property (including data and systems), breaches of data, ransom payments and business interruption that are covered by insurance we provide. Geopolitical crises or hostile actions taken by nation states or terrorist organizations may heighten the risk of cyberattacks on companies we insure and on our own operations. In addition, our insurance exposure to cyberattacks includes exposure to ‘silent cyber’ risks, meaning risks and potential losses associated with policies where cyber risk is not specifically included nor excluded in the policies.

In certain cases, we attempt to exclude losses from terrorism, cybersecurity and certain other similar risks from some coverages written by us, however we may not be successful in doing so and there can be no assurance that a court or arbitration panel will not limit enforceability of policy language or otherwise issue a ruling adverse to us. Accordingly, our loss reserves may not be adequate to cover losses if they materialize beyond expectation. Losses from such risks may also be amplified by aggregations across classes, territories or underwriting years. To the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.

Our business is subject to laws and regulations relating to economic trade sanctions and foreign bribery laws, the violation of which could adversely affect our operations.

We operate in the insurance and reinsurance industries and are subject to a broad range of economic and trade sanctions, anti-bribery and corruption, and other financial crime laws and regulations administered or enforced by governmental authorities in the United States, the United Kingdom, the European Union, and the United Nations (collectively, “Compliance Laws”). These include, among others, sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.K. Office of Financial Sanctions Implementation, and applicable anti-bribery, anti-corruption, and similar laws and regulations in various jurisdictions in which we conduct, or in the future may conduct activities.

Given the global nature of the insurance and reinsurance markets, our activities may involve multiple jurisdictions and counterparties, including in regions subject to heightened sanctions or financial crime risk. Compliance Laws are complex, frequently evolving, and may be subject to differing or conflicting interpretations across jurisdictions and there can be no assurance that violations will not occur. Any failure, or alleged failure, to comply with applicable Compliance Laws could result in significant civil or criminal penalties, regulatory enforcement actions, contractual limitations, increased supervisory requirements, reputational harm, and restrictions on the Company’s ability to underwrite business, pay claims, or otherwise conduct its operations.

Our success depends, in part, on our ability to manage risks in our investment portfolio.

Our investment portfolio is an important source of revenue and is the primary source of claims paying resources for our insurance subsidiaries. Our investment strategy is focused on prudent risk management with key objectives of achieving a sufficient return for our risk appetite, through a diversified portfolio, with a focus on preserving capital and liquidity. Our investment strategy is affected by factors beyond our control, such as general macroeconomic conditions, geopolitical events, domestic political conditions and tax policies, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and credit spreads and, consequently, the value of our fixed income securities and the level of our net investment income.

In addition, our investment strategy is developed taking into consideration applicable investment restrictions, limitations and conditions imposed on investments held by our regulated entities, and in particular, state limitations and PMIERs rules applicable to Radian Guaranty, as well as Lloyd’s requirements and PRA and solvency limitations and rules applicable to Inigo.

For the significant portion of our investment portfolio held by Radian Guaranty, we generally are limited to investing in investment grade fixed income investments with yields that reflect their lower credit risk profile so that we receive favorable treatment under insurance regulatory requirements and full credit as Available Assets under the PMIERs. The investments maintained by our Specialty Insurance business are broadly split between two types, Funds at Lloyd’s (“FAL”) and Premium Trust Funds. While some Premium Trust Funds offer a level of investment flexibility, they are generally limited to investment grade fixed income securities similar to our Mortgage Insurance business, whereas FAL provides some opportunity to hold high yield fixed income securities, equities and illiquid assets if within permitted ranges. In addition, tailoring the investment strategy for our investment portfolio to ensure regulatory, PMIERs and Lloyd’s compliance may restrict our ability to pursue opportunities and optimize returns in this investment portfolio, and future changes to these regulations, the PMIERs or Lloyd’s requirements could negatively impact our investment strategy.

Volatility or lack of liquidity in the markets in which we invest has at times reduced the market value of some of our investments, including as a result of disruption in the financial markets such as occurred following the onset of the COVID-19 pandemic, and more recently, inflationary and interest rate trends along with actual or perceived instability in the financial services industry.

The value of our investment portfolio is subject to market risk and may be adversely affected by other factors outside of our control, such as ratings downgrades, bankruptcies and credit spreads widening, any of which may cause unrealized or realized losses. When the credit environment deteriorates, the risk of impairments of our investments increases. Disruption and volatility in the financial markets, including sharp increases in market interest rates such as we experienced in 2022 and 2023 or a prolonged period of lower-than-expected investment yields that adversely impacts our revenues, could also have a material adverse effect on our liquidity, financial condition and results of operations. See “Our reported earnings, stockholders’ equity and book value per share are subject to fluctuations based on changes in our investments that require us to adjust their fair market value.” In addition, to the extent that inflationary pressures in different geographies lead to currency fluctuations, we may also experience increased volatility on foreign exchange gains and losses. Although we seek to employ investment strategies that are not correlated with our insurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.

Many of our investment securities are issued by the U.S. government and government agencies and sponsored entities. As a result of uncertain political conditions in the U.S., potential political instability or the perceived inability of the U.S. government to legislate on matters in a timely fashion, there is the threat that potential future U.S. federal government shutdowns or the possibility of the U.S. federal government defaulting on its obligations due to debt ceiling limitations or other issues could pose general credit and liquidity risks for investments in financial instruments issued or guaranteed by the U.S. federal government. Any potential downgrades by rating agencies in long-term U.S. sovereign credit ratings, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions worldwide. Additionally, following our recent acquisition of Inigo, we now write business on a worldwide basis, and our results of operations may be affected by foreign exchange rate fluctuations and our financial results could be adversely affected.

In addition, we structure the maturities of investments in our investment portfolio to satisfy our expected liabilities, including policyholder claims. If we underestimate our future claim payments or other liabilities or improperly structure our investments to meet these liabilities, we could have unexpected losses resulting from the forced liquidation of investments before their maturity, which could adversely affect our results of operations.

Climate change and natural catastrophes could adversely affect our businesses, results of operations and financial condition.

Our businesses, results of operations and financial performance could be adversely impacted by climate change and natural catastrophes, including extreme weather events. Natural disasters include events such as hurricanes, floods, wildfires, tsunamis, windstorms, earthquakes, hailstorms, tornadoes, explosions, severe winter weather, fires, droughts and other natural disasters. Climate change may increase the frequency and severity of natural disasters and drive other ecologically related changes such as rising sea waters.

Our Mortgage Insurance business is exposed to risks associated with extreme weather events and natural disasters, especially if these occurrences negatively impact the housing markets and broader economy. Additionally, natural disasters and extreme weather events, which can be exacerbated by climate change, can negatively affect regional economies in ways that impact home values or unemployment in affected areas, and therefore, the credit performance of the mortgages we insure and our other investments in mortgage assets. In addition, the inability of a borrower to obtain hazard and/or flood insurance, or the increased cost of such insurance, could lead to an increase in delinquencies or a decrease in home prices in the affected areas. If we were to attempt to limit our new insurance written in affected areas, lenders may choose not to do business with us. Natural disasters could also lead to increased reinsurance rates or reduced availability of reinsurance. This may cause us to retain more risk than we otherwise would retain and could negatively affect our compliance with financial requirements.

With respect to our Specialty Insurance business, the occurrence of a natural disaster can result in catastrophe losses that could have a material adverse effect on our business, financial condition and results of operations. The extent of losses from catastrophes is a function of both the frequency and severity of the insured events and the total amount of insured exposure in the areas affected. Climate change is likely to expose us to an increased frequency and/or severity of weather-related losses, and there is a risk that our pricing of these risks or our management of the associated aggregations does not appropriately allow for changes in climate. Any increased frequency and severity of extreme weather events, including hurricanes or convective storms (which are difficult to model with current tools), beyond expectations could have a material adverse effect on our ability to predict, quantify, reinsure and manage catastrophe risk and may materially increase our losses resulting from such catastrophes. The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable and actual losses from such events have varied materially from original estimated losses. As a result, our estimated exposures could be materially different than our actual results.

Our Specialty Insurance business also may be impacted indirectly in instances where businesses it insures are impacted by catastrophes that are not insured events but, as a consequence of the catastrophe on their business, they are unable or unwilling to continue paying premiums on our other product offerings.

In addition, the financial condition and operating performance of our Specialty Insurance business may be impacted by changes arising from climate change transition, which is the transition to a lower-carbon economy, and by the performance of strategies we put in place to manage this transition. For example, we may also be exposed to liability risks related to losses or damages suffered by our insureds from physical or transitional climate change risks, such as losses stemming from climate-related litigation in liability lines. Additionally, there is a risk that certain elements of our business cease to be viable as a result of climate change transition risks, which relate to losses driven by policy, legal, technological and market changes intended to address climate risks and which include changes in consumer behavior, shareholder preferences and any additional regulatory and legislative requirements. As a result, over the longer term, climate change and related climate change transitions may have an impact on the economic viability of certain lines of business if suitable adjustments in price and coverage cannot be achieved.

Governments, regulators, legislators and influential non-governmental organizations continue to focus on enacting laws, regulations and other requirements relating to climate change. We might be directly or indirectly impacted by these changing laws, regulations and public policy debates, which are difficult to predict and quantify and may have an adverse impact on our business. Legislative and regulatory initiatives and court decisions following major catastrophes could force expansion of certain insurance coverages for catastrophe claims or otherwise adversely impact our business. Additionally, changes in regulations or policies relating to climate change or our own strategic decisions implemented as a result of our assessment of the impact of climate change on our business may result in an increase in the cost of doing business, or a decrease in premiums in certain lines of business.

Climate change and the frequency, severity, duration and geography of severe weather events, other natural disasters and ecological-related changes are inherently uncertain, and we cannot predict the ultimate impact these events may have on our business, results of operations and financial condition.

Our reported earnings, stockholders’ equity and book value per share are subject to fluctuations based on changes in our investments that require us to adjust their fair market value.

We hold investments in trading securities, equity securities, residential mortgage loans held for sale and short-term investments that we carry at fair value. Because the changes in fair value of these financial instruments are reflected on our statements of operations each period, they affect our reported earnings and can create earnings volatility. In addition, we increase or decrease our stockholders’ equity by the amount of change in the unrealized gain or loss (the difference between the fair value and the amortized cost) of our available for sale securities portfolio, net of related tax, under the category of accumulated other comprehensive income (loss). As a result, a decline in the fair value of our available for sale portfolio may result in a decline in reported stockholders’ equity, as well as book value per common share. Among other factors, interest rate changes, market volatility and declines in the value of underlying collateral will impact the value of our investments, including our residential mortgage loan exposure, potentially resulting in unrealized losses that could negatively impact our results of operations and stockholders’ equity. If we experience unrealized losses, these negative impacts will occur even though the securities are not sold. Also, in the event there are credit loss-related impairments, the credit loss component and subsequent recoveries, if any, are recognized in earnings.