RADIAN GROUP INC - Annual Report: 2019 (Form 10-K)

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•	changes in economic and political conditions that impact the size of the insurable market, the credit performance of our insured portfolio, and our business prospects;

•	changes in the way customers, investors, ratings agencies, regulators or legislators perceive our performance, financial strength and future prospects;

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Radian Guaranty’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the FHFA and by the GSEs to insure loans purchased by the GSEs, including potential future changes to the PMIERs which, among other things, may be impacted by the general economic environment and housing market, as well as the proposed CCF that would establish capital requirements for the GSEs once finalized;

•	our ability to successfully execute and implement our capital plans, including our risk distribution strategy through the capital markets and reinsurance markets, and to maintain sufficient holding company liquidity to meet our liquidity needs;

•	our ability to successfully execute and implement our business plans and strategies, including plans and strategies that require GSE and/or regulatory approvals and various licenses and complex compliance requirements;

•	our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future regulatory requirements, including potential changes to the NAIC Model Act currently under consideration;

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changes in the charters or business practices of, or rules or regulations imposed by or applicable to, the GSEs, which may include changes in the requirements to remain an approved insurer to the GSEs, the GSEs’ interpretation and application of the PMIERs, as well as changes impacting loans purchased by the GSEs, such as whether GSE eligible loans meet the QM loan requirements under applicable law, requirements regarding mortgage credit and loan size and the GSEs’ pricing;

•	changes in the current housing finance system in the U.S., including the role of the FHA, the GSEs and private mortgage insurers in this system;

•	uncertainty from the expected discontinuance of LIBOR and transition to another interest rate benchmark that could cause interest rate volatility and, among other things, impact our investment portfolio, cost of debt and cost of reinsurance through mortgage insurance-linked notes transactions;

•	any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;

•	a decrease in the Persistency Rates of our mortgage insurance on monthly premium products;

•	competition in our mortgage insurance business, including price competition and competition from the FHA and VA as well as from other forms of credit enhancement, including GSE sponsored alternatives to traditional mortgage insurance;

•	the effect of the Dodd-Frank Act on the financial services industry in general, and on our businesses in particular, including future changes to the QM loan requirements which currently are being considered by the CFPB;

•	legislative and regulatory activity (or inactivity), including the adoption of (or failure to adopt) new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted or applied;

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•	legal and regulatory claims, assertions, actions, reviews, audits, inquiries and investigations that could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures, new or increased reserves or have other effects on our business;

•	the amount and timing of potential settlements, payments or adjustments associated with federal or other tax examinations;

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the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in establishing loss reserves for our mortgage insurance business or to accurately calculate and/or project our Available Assets and Minimum Required Assets under the PMIERs, which will be impacted by, among other things, the size and mix of our IIF, the level of defaults in our portfolio, the level of cash flow generated by our insurance operations and our risk distribution strategies;

•	volatility in our financial results caused by changes in the fair value of our assets and liabilities, including our investment portfolio;

•	potential future impairment charges related to our goodwill and other acquired intangible assets;

•	changes in GAAP or SAP rules and guidance, or their interpretation;

•	our ability to attract and retain key employees; and

•	legal and other limitations on amounts we may receive from our subsidiaries, including dividends or ordinary course distributions under our internal tax- and expense-sharing arrangements.

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Item 1.	Business.

•	Wrote $71.3 billion of NIW on a Flow Basis, the highest flow volume in Radian’s 40+ year history

–	Represents a 26% increase over 2018

–	Grew primary IIF by 9%, from $221.4 billion at December 31, 2018 to $240.6 billion at December 31, 2019

•	Earned pretax income of $849.0 million in 2019, an increase of 24% compared to $684.2 million in 2018

•	Grew adjusted pretax operating income to $854.6 million, an increase of 15% compared to $745.5 million for 2018 (1)

•	Improved composition of mortgage insurance portfolio

–	95% of our primary RIF consists of business written after 2008, including loans refinanced under HARP

–	Fully implemented RADAR Rates, our black box pricing framework and digital delivery platform, which expands our risk-based pricing granularity and allows us to more dynamically shape and manage our mortgage insurance portfolio

•	Took steps to optimize our capital and liquidity position

–	Repurchased over 13 million shares of Radian Group’s common stock

–	Added $375 million to Radian Group liquidity as a result of Radian Guaranty’s return of capital to Radian Group in April 2019

–	Reduced our total debt outstanding and improved our debt maturity profile through a series of transactions, which also helped to reduce our debt-to-capital ratio from 22.8% at December 31, 2018 to 18.0% at December 31, 2019

•	Expanded our risk distribution strategy to optimize the amounts and types of capital and risk distribution deployed against insured risk and reduce future loss volatility

–	Radian Guaranty executed the Eagle Re 2019-1 mortgage insurance-linked notes transaction, which provides for up to $562.0 million aggregate excess-of-loss reinsurance coverage for mortgage insurance losses

•	Increased the excess of Available Assets over Minimum Required Assets under PMIERs to $804 million, or 28% more than the Minimum Required Assets under PMIERs

(1)	Adjusted pretax operating income is a non-GAAP measure. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Consolidated—Use of Non-GAAP Financial Measures” for the definition and reconciliation of this measure to the most comparable GAAP measure, pretax income.

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•	Maximize the long-term economic value of our insured portfolio to drive future earnings by writing profitable NIW and effectively maintaining the portfolio’s health, balance and profitability, including by using risk distribution strategies to manage our retained exposure

•	Leverage the strength of our One Radian brand and core competencies and increase our competitive differentiation in order to:

–	Grow our mortgage insurance business in innovative ways

–	Expand our presence in the mortgage and real estate value chain beyond mortgage insurance

–	Maintain strong comprehensive enterprise risk management and risk/return discipline based on sound data and analytics

–	Enhance the quality and performance of our operations and delivery of products and services

•	Manage our capital to build strategic financial flexibility and increase stockholder value

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GSE Credit Risk Transfer. Part of our business strategy includes leveraging our core expertise in credit risk management and expanding our presence in the mortgage finance industry. We participate in credit risk transfer programs developed by Fannie Mae and Freddie Mac as part of their initiative to distribute mortgage credit risk and increase the role of private capital in the mortgage market. Our total RIF under the credit risk transfer transactions was $275.2 million as of December 31, 2019, compared to $196.8 million as of December 31, 2018.

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Pool Insurance. Prior to 2008, we wrote Pool Insurance on a limited basis. At December 31, 2019, Pool Insurance made up only $313.5 million of our total direct first-lien insurance RIF, as compared to $324.6 million at December 31, 2018. With respect to our Pool Insurance, an aggregate exposure limit, or “stop loss” (usually between 1% and 10%), is generally applied to the initial aggregate loan balance on a group or “pool” of mortgages. In addition, an insured pool of mortgages may contain mortgages that are already covered by primary mortgage insurance. In these transactions, Pool Insurance is secondary to any primary mortgage insurance that exists on mortgages within the pool. Our Pool Insurance policies are privately negotiated and are separate from the Master Policies that we use for our primary mortgage insurance.

•	Non-Traditional Risk. In the past, we provided non-traditional products that included mortgage insurance on second-lien residential mortgage loans and mortgage insurance on an international basis. Our total amount of non-traditional risk was $10.4 million at December 31, 2019, which consisted entirely of second-lien RIF, as compared to $15.2 million at December 31, 2018.

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•	general economic conditions (in particular, interest rates, home prices and unemployment);

•	the age and performance history of the loans insured;

•	the geographic dispersion and other characteristics of the properties securing the insured loans and the condition of local housing markets;

•	the quality of loan underwriting and servicing; and

•	the credit characteristics of the borrower(s) and the characteristics of the loans insured.

(1)	Represents the borrower’s credit score at origination. In circumstances where there is more than one borrower, the lowest of the borrowers’ FICO score is used.

(2)	Average FICO at origination and original average LTV are weighted averages based on the unpaid principal balances of the underlying mortgage loans in our portfolio at December 31, 2019.

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

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(1)	Certain areas within these states were FEMA Designated Areas associated with Hurricanes Harvey and Irma and, as a result, defaults in these states were elevated at December 31, 2017.

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(i)	Approved Sale Option: Pay the claim amount required to make the lender whole (not to exceed our maximum liability), taking into account the net proceeds received by the lender following an approved sale;

(ii)	Acquisition Option: Pay the entire claim amount and acquire title to the property; or

(iii)	Anticipated Loss Option: In certain circumstances, as outlined in our Master Policies, the claim calculation can include the claim amount minus the net proceeds we reasonably anticipate would be generated if the property, in its original condition on the effective insurance commitment date, reasonable wear and tear excepted, were sold to a third party for fair market value.

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a review to determine compliance with applicable loan origination programs and our mortgage insurance policy requirements, including: (i) whether the loan qualified for insurance at the time the certificate of coverage was issued; (ii) whether the insured has satisfied its obligation in meeting all necessary conditions in order for us to pay a claim, including submitting all necessary documentation in connection with the claim (commonly referred to as “claim perfection”); and (iii) whether the loan was appropriately serviced in accordance with the standards set forth in our Master Policies;

•	analysis and prompt processing to ensure that valid claims are paid in an accurate and timely manner;

•	responses to loss mitigation opportunities presented by the insured; and

•	management and disposal of acquired real estate.

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•	a failure to report information to us on a timely basis as required under our Master Policies;

•	a failure to pursue loss mitigation opportunities presented by borrowers, realtors and/or any other interested parties;

•	a failure to pursue loan modifications and/or refinancings through programs available to borrowers or an undue delay in presenting claims to us (including as a result of improper handling of foreclosure proceedings), which increases the interest or other components of a claim we are required to pay; and

•	a failure to initiate and diligently pursue foreclosure or other appropriate proceedings within the timeframe specified in our Master Policies.

•	Arch MI (includes both Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company);

•	Essent Guaranty, Inc.;

•	Genworth Financial, Inc.;

•	Mortgage Guaranty Insurance Corporation; and

•	NMI Holdings, Inc.

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•	Mortgage originators such as mortgage bankers, commercial banks, savings institutions, credit unions and community banks;

•	Aggregators, issuers and investors in RMBS, whole loans, and other mortgage-related debt instruments, including the GSEs, private equity, hedge funds, real estate investment trusts and investment banks;

•	Single family rental (SFR) lenders, warehouse line borrowers and SFR securitization issuers;

•	Mortgage servicers; and

•	Real estate brokers and agents.

•	Real Estate Services - ClearCapital.com, Inc., CoreLogic, Inc., Pro Teck Valuation Intelligence, HouseCanary, Inc., First American Financial Corporation, Black Knight, Inc., VRM Mortgage Services, Fidelity National Financial, Inc., Xome Inc. and ServiceLink

•	Title Services - First American Financial Corporation, Fidelity National Financial, Inc., Stewart Title Guaranty Company, Old Republic Title Insurance Group, Inc., Westcor Land Title Insurance Company and WFG National Title Insurance Company

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•	Our Mortgage sales team is focused on developing new mortgage insurance relationships and is responsible for supporting our existing mortgage insurance relationships.

•	Our Real Estate sales teams are focused on developing new relationships and expanding and supporting existing customer relationship in three areas: title services, asset management services, and valuation services.

•	Our Enterprise Sales team focuses on selling Radian’s products and services across the mortgage and real estate value chain.

•	Our Telesales Team serves customers using any and all of our products and services and is responsible for managing and growing customer relationships and promoting increased customer adoption.

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Our Marketing and Communications Team partners with sales and business leaders to develop products and programs that provide increased opportunities for customers and address targeted segments of the market. We work closely with customers to understand their strategic priorities and business objectives while identifying opportunities that will enhance and complement the customers’ sales and marketing activities.

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Our Customer Service and Training Teams are both experienced and knowledgeable to provide service and educational sessions to our customers. We have designed training programs for our customers to help their employees develop the knowledge and skills to respond to changing market demands. Our learning solutions are provided to customers to promote the role of private mortgage insurance in the marketplace as well as to promote Radian’s specific products and offerings. We offer three options for training: instructor-led classroom sessions, instructor-led webinars and self-directed on-demand learning.

•	Our Risk Management Team offers periodic reviews with customers of their insured mortgage portfolio, including detailed loan performance metrics and servicing portfolio performance.

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(1)	Primarily consists of taxable state and municipal investments.

(1)	Actual maturities may differ as a result of calls before scheduled maturity.

(2)	RMBS, CMBS and other ABS are shown separately, as they are not due at a single maturity date.

(3)	No stated maturity date.

(4)	At December 31, 2019 and December 31, 2018, includes $66.4 million and $27.9 million, respectively, of securities loaned to third-party borrowers under securities lending agreements, classified as other assets in our consolidated balance sheets. See Note 6 of Notes to Consolidated Financial Statements for more information.

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•	Embed and continually reinforce a disciplined, corporate-wide risk culture that utilizes an understanding of risk/return tradeoffs to drive quality decisions, utilizing a disciplined approach designed to achieve long-term, through-the-cycle profitability;

•	Maintain credit, underwriting, pricing and risk/return disciplines based on sound data and analytics and continuous feedback throughout the organization;

•	Proactively monitor origination, portfolio and market trends to identify and mitigate emerging risks;

•	Continually refine analytical and technological capabilities, processes and systems to effectively identify, assess and manage risks; and

•	Develop and leverage tools and capabilities to analyze the risk/return trade-offs of corporate strategy and business decisions in order to inform and optimize capital allocation.

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Radian Guaranty. Radian Guaranty is our primary mortgage insurance company, and is a direct subsidiary of Radian Group. Radian Guaranty is our only mortgage insurance company that is currently eligible to provide first-loss mortgage insurance on GSE loans. It is a monoline insurer, restricted by the laws of certain states to writing first-lien residential mortgage guaranty insurance. Radian Guaranty is authorized to write mortgage guaranty insurance (or in states where there is no specific authorization for mortgage guaranty insurance, the applicable line of insurance under which mortgage guaranty insurance is regulated) in all 50 states, the District of Columbia and Guam.

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Radian Reinsurance. Radian Reinsurance is a direct subsidiary of Radian Group and is a licensed credit insurer. Prior to January 31, 2020, Radian Reinsurance primarily provided reinsurance to Radian Guaranty for loans where the mortgage insurance covered in excess of 25% of the total mortgage. We also use Radian Reinsurance to participate in the credit risk transfer programs developed by Fannie Mae and Freddie Mac, and therefore, Radian Reinsurance provides mortgage credit risk insurance on GSE loans through these programs. See “Mortgage

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•	Radian Insurance. Radian Insurance is a direct subsidiary of Radian Group and insures a small remaining amount of second-lien mortgage loan risk.

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•	the revised GSE Rescission Relief Principles that, among other things, further clarify the circumstances under which mortgage insurers may rescind insurance coverage, and have been incorporated into our 2020 Master Policy that will be effective for applications received on or after March 1, 2020;

•	the changes to the PMIERs under PMIERs 2.0 that became effective on March 31, 2019; and

•	changes to underwriting standards on mortgages they purchase, including for example, the GSEs’ decision to expand credit in 2017 by purchasing a larger portion of loans with debt-to-income ratios greater than 45%.

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•	prevailing mortgage interest rates compared to the mortgage rates on our IIF, which affects the incentive for borrowers to refinance (i.e., lower current interest rates make it more attractive for borrowers to refinance and receive a lower interest rate);

•	applicable policies for mortgage insurance cancellation, along with the current value of the homes underlying the mortgages in our IIF;

•	the credit policies of lenders, which may make it more difficult for homeowners to refinance loans; and

•	economic conditions that can affect a borrower’s decision to pay off a mortgage earlier than required, including the strength of the housing market, which impacts a borrower’s prospects for selling their existing home and finding a suitable and affordable new home.

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•	eligibility requirements for a mortgage insurer to become and remain an approved eligible insurer for the GSEs;

•	underwriting standards on mortgages they purchase, including as a result of the FHFA’s current focus on reducing the GSEs’ risk profile with respect to loans with multiple higher risk characteristics;

•	policies or requirements that may result in a reduction in the number of mortgages they acquire;

•	the national conforming loan limit for mortgages they acquire;

•	the level of mortgage insurance required, including expanding the loans that are eligible for reduced insurance coverage;

•	the terms on which mortgage insurance coverage may be canceled before reaching the cancellation thresholds established by law;

•	the terms required to be included in master policies for the mortgage insurance policies they acquire, including limitations on our ability to mitigate losses on insured mortgages that are in default;

•	the amount of loan level price adjustments (based on risk) or guarantee fees (which may result in a higher cost to borrowers) that the GSEs charge on loans that require mortgage insurance; and

•	the degree of influence that the GSEs have over a mortgage lender’s selection of the mortgage insurer providing coverage.

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•	restrictions on mortgage credit due to changes in lender underwriting standards, capital requirements affecting lenders, regulatory requirements such as the QM designation for mortgage loans, and the health of the private securitization market;

•	mortgage interest rates;

•	the health of the domestic economy generally, as well as specific conditions in regional and local economies;

•	housing affordability;

•	tax laws and policies and their impact on, among other things, deductions for mortgage insurance premiums, mortgage interest payments and real estate taxes;

•	demographic trends, including the rate of household formation;

•	the rate of home price appreciation;

•	government housing policy encouraging loans to first-time homebuyers; and

•	the practices of the GSEs, including the extent to which the guaranty fees, loan level price adjustments (based on risk), credit underwriting guidelines and other business terms provided by the GSEs affect the cost of mortgages and lenders’ willingness to extend credit for low down payment mortgages.

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•	governmental policy, including decreases in the pricing of FHA insurance or changes in the terms of FHA insurance such as the current life-of-loan coverage requirement;

•	a coordinated effort by the FHFA and FHA to increase the FHA’s share of certain high LTV loans currently purchased by the GSEs;

•	changes to the legal requirements (e.g., compliance certifications) for conducting business with the FHA, including those recently implemented, to reduce the perceived risk that lenders will be subject to liability in connection with loans insured by the FHA;

•	changes to the CFPB definition of QM that results in a broader definition of qualified mortgage for FHA eligible loans than GSE eligible loans;

•	capital requirements imposed on the private mortgage insurance industry;

•	the tightening by private mortgage insurers of underwriting guidelines based on credit risk concerns;

•	business changes by the GSEs, including underwriting changes, a reduction in loan limits or increases in the loan level price adjustments (based on risk) charged by the GSEs on loans that require mortgage insurance and changes in the amount of guarantee fees for the loans that they acquire (which may result in higher cost to borrowers); and

•	the perceived operational ease of using FHA insurance compared to the products of private mortgage insurers.

•	structures, such as the IMAGIN and EPMI pilot programs launched in 2018 by Freddie Mac and Fannie Mae, respectively, that are commonly referred to as “investor paid mortgage insurance” in which affiliates of traditional mortgage insurers directly insure the GSEs against loss;

•	lenders and other investors holding mortgages in their portfolio and self-insuring;

•	lenders using pass-through vehicles that take on the risk of loss for loans ultimately sold to the GSEs;

•	structured risk transfer transactions in the capital markets;

•	risk sharing, risk transfer or using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage;

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•	lenders originating mortgages using “piggyback” structures to avoid private mortgage insurance, such as a first-lien mortgage with an 80% LTV and a second mortgage with a 10%, 15% or 20% LTV; and

•	other potential forms of credit enhancement that do not involve private mortgage insurance.

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•	legislation, administrative or regulatory action impacting the charters or business practices of the GSEs;

•	reform of the U.S. housing finance system;

•	legislation and regulation impacting the FHA and its competitive position versus private mortgage insurers;

•	state insurance laws and regulations that address, among other items, licensing of companies to transact business, claims handling, reinsurance requirements, premium rates, policy forms offered to customers and requirements for Risk-to-capital, minimum policyholder positions, reserves (including contingency reserves), surplus, reinsurance and payment of dividends;

•	the application of state, federal or private sector programs aimed at supporting borrowers and the housing market;

•	the application of RESPA, the FCRA and other laws to our businesses;

•	new federal standards and oversight for mortgage insurers, including as a result of the recommendation of the Federal Insurance Office of the U.S. Department of the Treasury that federal standards and oversight for mortgage insurers be developed and implemented;

•	the implementation of new regulations under, or the potential repeal or amendment of provisions of, the Dodd-Frank Act, including future changes in the QM Rule and QM loan requirements as are currently being contemplated by the CFPB; and

•	the implementation in the U.S. of the Basel III capital adequacy guidelines.

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•	the use of capital and potential diversion of other resources, such as the diversion of management’s attention from our core businesses and potential disruption of those businesses;

•	the assumption of liabilities in connection with any strategic investment, including any acquired business;

•	our ability to comply with additional regulatory requirements associated with new products, services, lines of business, or other business or strategic initiatives;

•	our ability to successfully integrate or develop the operations of any new business initiative or acquisition;

•	the possibility that any new business initiatives may be disruptive to our existing customer relationships;

•	the possibility that we may fail to realize the anticipated benefits of an acquisition or other strategic investment or initiative, including expected synergies, cost savings, or sales or growth opportunities, within the anticipated timeframe or at all; and

•	the possibility that we may fail to achieve forecasted results for a strategic investment, acquisition or other initiative that could result in lower or negative earnings contribution and/or impairment charges associated with intangible assets acquired.

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Our Services revenue is dependent on a limited number of large customers that represent a significant proportion of our Services total revenues. The loss or reduction of business from one or more of these significant customers could adversely affect our revenues and results of operations. In addition, Radian Guaranty does business with many of these significant customers. In the event of a dispute between a significant customer and either of our business segments, the overall customer relationship for Radian could be negatively impacted.

•	Due to the transactional nature of our business, our Services segment revenues are subject to fluctuation from period to period and are difficult to predict.

•	The services we offer through our Services business are influenced by the level of overall activity in the mortgage, real estate and mortgage finance markets generally. If real estate transaction volumes decline, we could experience less demand for our real estate and title services.

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Red Bell is a licensed real estate brokerage and provides real estate brokerage services in all 50 states and the District of Columbia. As a licensed real estate brokerage, Red Bell receives residential real estate information from various multiple listing services (“MLS”). Red Bell receives this information, which it uses in its business to broker real estate transactions and provide valuation products and services, pursuant to the terms of agreements with the MLS providers. If these agreements were to terminate or Red Bell otherwise were to lose access to this information, it could negatively impact Red Bell’s ability to conduct its business and our future real estate strategies.

•	By their nature, title claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims

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Item 1B.	Unresolved Staff Comments.

Item 2.	Properties.

Item 3.	Legal Proceedings.

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Item 4.	Mine Safety Disclosures.

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Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(1)	Includes 4,029 shares tendered by employees as payment of taxes withheld on the vesting of certain restricted stock awards granted under the Company’s equity compensation plans.

(2)

On August 14, 2019, Radian Group’s board of directors approved a share repurchase program authorizing the Company to spend up to $200 million to repurchase Radian Group common stock. Pursuant to this authorization, during the three months ended December 31, 2019, the Company purchased 1,090,875 shares at an average price of $22.93 per share, including commissions. On February 13, 2020, Radian Group’s board of directors authorized a $275 million increase in this program, bringing the total authorization to repurchase shares up to $475 million, excluding commissions. This share repurchase program expires on August 31, 2021. As of February 25, 2020, purchase authority of up to $359.2 million remained available under this program. See Note 14 of Notes to Consolidated Financial Statements for additional information.

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Item 6.	Selected Financial Data.

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(1)	Diluted net income per share and average share information calculated in accordance with the accounting standard regarding earnings per share. See Note 3 of Notes to Consolidated Financial Statements.

(2)	Includes Senior Notes and Convertible Senior Notes.

(3)	Calculated using amounts determined under GAAP, using provision for losses to calculate the loss ratio and policy acquisition costs and other operating expenses of our Mortgage Insurance segment to calculate the expense ratio, as percentages of net premiums earned—insurance.

(4)

Based on loan level detail for the fourth quarter of each year shown. The Persistency Rate on a quarterly, annualized basis may be impacted by seasonality or other factors, and may not be indicative of full-year trends. In Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, see “Key Factors Affecting Our Results—Mortgage Insurance—IIF; Persistency Rate; Mix of Business” and “Results of Operations—Mortgage Insurance—NIW, IIF, RIF” for additional information about the Persistency Rate.

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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IIF; Persistency Rate; Mix of Business. Our IIF is one of the primary drivers of our future premiums that we expect to earn over time. Although not reflected in the current period financial statements, nor in our reported book value, we expect our IIF to generate substantial earnings in future periods, due to the high credit quality of our current mortgage insurance portfolio and expected Persistency Rate over multiple years.

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NIW; Origination Market; Penetration Rate. NIW increases our IIF and our premiums written and earned. NIW is affected by the overall size of the mortgage origination market, the penetration percentage of private mortgage insurance into the overall mortgage origination market and our market share of the private mortgage insurance market. The overall mortgage origination market is influenced by macroeconomic factors such as household formation, household composition, home affordability, interest rates, housing markets in general, credit availability and the impact of various legislative and regulatory actions that may influence the housing and mortgage finance industries. The penetration percentage of private mortgage insurance is mainly influenced by: (i) the competitiveness of private mortgage insurance for GSE conforming loans compared to FHA and VA insured loans and (ii) the relative percentage of mortgage originations that are for purchased homes versus refinances. We

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◦	the mortgage origination volume from home purchases and refinancings;

◦	private mortgage insurance penetration as a percentage of the mortgage origination market; and

◦	the composition of the insured mortgage market between private mortgage insurance and FHA insurance.

(1)	Based on actual dollars generated in the credit enhanced market, as reported by the U.S. Department of Housing and Urban Development and industry publicly reported 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.

•	Premiums. The premium rates we charge for our insurance are based on a number of borrower, loan and property characteristics. The mortgage insurance industry is highly competitive and private mortgage insurers compete with each other and with the FHA and VA with respect to price and other factors. We expect price competition to

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Losses. Incurred losses represent the estimated future claim payments on newly defaulted insured loans as well as any change in our claim estimates for existing defaults, including changes in the estimates we use to determine our expected losses, and estimates with respect to the frequency, magnitude and timing of anticipated losses on defaulted loans. Other factors influencing incurred losses include:

◦	The mix of credit characteristics in our total direct RIF (e.g., loans with higher risk characteristics, or loans with layered risk that combine multiple higher-risk attributes within the same loan, generally result in more delinquencies and claims). See “Results of Operations—Mortgage Insurance—NIW, IIF, RIF.”

◦	The average loan size (relatively higher priced properties with larger average loan amounts may result in higher incurred losses).

◦	The percentage of coverage on insured loans (higher percentages of insurance coverage generally correlate with higher incurred losses) and the presence of structural mitigants such as deductibles or stop losses.

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Changes in housing values (declines in housing values generally make it more difficult for borrowers to sell a home to avoid default or for the property to be sold to mitigate a claim, and also may negatively affect a borrower’s willingness to continue to make mortgage payments when the home value is less than the mortgage balance; conversely, increases in housing values tend to reduce the level of defaults as well as make it more likely that foreclosures will result in the loan being satisfied).

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The distribution of claims over the life cycle of a portfolio (historically, claims are relatively low during the first two years after a loan is originated and then increase over a period of several years before declining; however, several factors can impact and change this cycle, including the economic environment, the quality of the underwriting of the loan, characteristics of the mortgage loan, the credit profile of the borrower, housing prices and unemployment rates).

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Our ability to mitigate potential losses through Rescissions, Claim Denials, cancellations and Claim Curtailments on claims submitted to us. These actions all reduce our incurred losses. However, if these Loss Mitigation Activities are successfully challenged at rates that are higher than expected or we agree to settle disputes related to our Loss Mitigation Activities, our incurred losses will increase. We may enter into specific agreements that govern activities such as claims decisions, claim payments, Loss Mitigation Activities and insurance coverage. As our portfolio originated prior to and including 2008 has become a smaller percentage of our overall insured portfolio, there has been a decrease in the amount of Loss Mitigation Activity with respect to the claims we receive, and we expect this trend to continue, particularly given the limitations on our Loss Mitigation Activities imposed in the 2014 Master Policy and the additional clarifications that will be effective under our new 2020 Master Policy. See Note 2 of Notes to Consolidated Financial Statements for additional information on Loss Mitigation Activities and “Item 1A. Risk Factors—Our Loss Mitigation Activity is not expected to mitigate mortgage insurance losses to the same extent as in prior years; Loss Mitigation Activity could continue to negatively impact our customer relationships.”

•	Other Operating Expenses. Our other operating expenses are affected by the amount of our NIW, as well as the amount of IIF. Our other operating expenses may also be affected by the impact of performance on our incentive compensation programs, as a result of our pay-for-performance approach to compensation that is based on the level of achievement of both short-term and long-term goals.

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Risk Distribution. We use third-party reinsurance in our mortgage insurance business to manage capital and risk in an effort to optimize the amounts and types of capital and risk distribution deployed against insured risk. See “—IIF; Persistency Rate; Mix of Business” above. Currently, we distribute risk in our mortgage insurance portfolio through quota share and excess-of-loss reinsurance programs. When we enter into a quota share reinsurance agreement, the reinsurer receives a premium and, in exchange, agrees to insure an agreed upon portion of incurred losses. These arrangements reduce our earned premiums but also reduce our net RIF, which provides capital relief, including under the PMIERs financial requirements. Our incurred losses are reduced by any incurred losses ceded in accordance with the reinsurance agreement, and we often receive ceding commissions from the reinsurer as part of the transaction, which, in turn, reduce our reported operating expenses and policy acquisition costs. Our Excess-of-Loss Program accesses the capital markets (through a VIE funded by mortgage insurance-linked notes), as well as the reinsurance markets directly (through separate excess-of-loss reinsurance with a third-party reinsurer). Our Excess-of-Loss Program reduces our net RIF and our incurred losses are reduced by any incurred losses allocated in accordance with the structure of the transaction. While these reinsurance arrangements have the impact of reducing our earned premiums, they also provide capital relief, including under the PMIERs financial requirements. See Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance arrangements.

•	Investment Income. Investment income is determined primarily by the investment balances held and the average yield on our overall investment portfolio.

•

Services Revenue. Our Services segment is dependent upon overall activity in the mortgage, real estate and mortgage finance markets, as well as the overall health of the related industries. Due, in part, to the transactional nature of the business, revenues for our Services segment are subject to fluctuations from period to period, including seasonal fluctuations that reflect the activities in these markets. Sales volume is also affected by the number of competing companies and alternative products offered in the market. We believe the diversity of

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•

Cost of Services. Our cost of services is primarily affected by our level of services revenue. Our cost of services primarily consists of employee compensation and related payroll benefits and to a lesser extent, other costs of providing services such as travel and related expenses incurred in providing client services, costs paid to outside vendors, data acquisition costs and other compensation-related expenses to maintain software application platforms that directly support our businesses. The level of these costs may fluctuate if market rates of compensation change, or if there is decreased availability or a loss of qualified employees.

•

Premiums. We earn net premiums on title insurance, effective with our acquisition of Radian Title Insurance in the first quarter of 2018. By adding the capabilities of this subsidiary to the title and settlement services that we already were offering through our existing title agency, Radian Settlement Services, we expanded the geographic reach of our title services and are positioned to provide title insurance and settlement services to our customers across the country.

•

Operating Expenses. Our operating expenses primarily consist of salaries and benefits not classified as cost of services because they are related to employees, such as sales and corporate employees, who are not directly involved in providing client services. Operating expenses also include other selling, general and administrative expenses, depreciation, and allocations of corporate general and administrative expenses.

•

Net Gains (Losses) on Investments and Other Financial Instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or, effective with our implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.

•	Loss on Extinguishment of Debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions.

•

Impairment of Goodwill or Other Acquired Intangible Assets. The periodic review of goodwill and other acquired intangible assets for potential impairment may impact consolidated results. Our goodwill and other acquired intangible assets is based on management’s assumptions, which are inherently subject to risks and uncertainties. See Note 7 of Notes to Consolidated Financial Statements for additional information.

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(1)	Relates primarily to the Mortgage Insurance segment. See “Results of Operations—Mortgage Insurance” for more information.

(2)	Relates to our Services segment. See “Results of Operations—Services” for more information.

(3)	See “—Use of Non-GAAP Financial Measures” below.

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(1)

Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.

(2)

Loss on extinguishment of debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends.

(3)

Amortization and impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. We do not view these charges as part of the operating performance of our primary activities.

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(4)	Impairment of other long-lived assets and other non-operating items. Includes activities that we do not view to be indicative of our fundamental operating activities, such as: (i) gains (losses) from the sale of lines of business and (ii) acquisition-related expenses.

(1)

The amount for the year ended December 31, 2019 primarily relates to impairments of other long-lived assets and is included in other operating expenses on the consolidated statement of operations. The amounts for the years ended December 31, 2018 and December 31, 2017 are included within restructuring and other exit costs on the consolidated statements of operations, except for $1.6 million in 2018 related to the impairment of other long-lived assets, included in other operating expenses.

(2)	Total adjusted pretax operating income on a consolidated basis consists of adjusted pretax operating income (loss) for our

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(1)	Calculated using the Company’s federal statutory tax rates of 21% for 2019 and 2018 and 35% for 2017. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.

(2)

For 2018, includes $0.34 of tax benefit related to the settlement of the IRS Matter, which includes both the impact of the settlement with the IRS as well as the reversal of certain related previously accrued state and local tax liabilities. All of the 2017 amount represents additional tax expense related to the remeasurement of our net deferred tax assets as a result of the TCJA enacted in December 2017.

(1)	Calculated by dividing net income by average stockholders’ equity.

(2)	As a percentage of average stockholders’ equity.

(3)	Calculated using the Company’s federal statutory tax rates of 21% for 2019 and 2018 and 35% for 2017. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.

(4)

The difference in 2018 includes the tax benefit related to the settlement of the IRS Matter, which includes both the impact of the settlement with the IRS as well as the reversal of certain related previously accrued state and local tax liabilities. All of the 2017 amount represents additional tax expense related to the remeasurement of our net deferred tax assets as a result of the TCJA enacted in December 2017.

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(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.

(2)	Includes allocation of corporate operating expenses of $104.1 million, $80.1 million and $55.4 million for 2019, 2018 and 2017, respectively.

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

(2)	Adjusted to reflect subsequent refinancing activity under HARP, this percentage would decrease to 4.7%, 6.0%, and 8.4% as of December 31, 2019, December 31, 2018 and December 31, 2017, respectively.

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

(2)	Radian’s stochastic modeling, used for pricing, indicates an approximate 20% through-the-cycle loss ratio on newly originated mortgage insurance business.

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(1)	Lender-paid Single Premium Policies have higher Minimum Required Assets under the PMIERs as compared to borrower-paid Single Premium Policies. See “Item 1. Business—Regulation—GSE Requirements—PMIERs—Private Mortgage Insurer Eligibility Requirements” for additional information.

(2)	For loans with multiple borrowers, the percentage of primary NIW by FICO score represents the lowest of the borrowers’ FICO scores. Data for 2018 and 2017 had previously been presented based on the FICO score of the primary borrower and have been restated to reflect the lowest of the borrowers’ FICO scores.

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(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)	Calculated by dividing net premiums earned by average primary IIF. For 2019, includes a 1.4 basis point increase resulting from the impact of the cumulative adjustments in 2019 related to an update to the amortization rates used to

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(3)	Lender-paid Single Premium Policies have higher Minimum Required Assets under the PMIERs as compared to borrower-paid Single Premium Policies.

(4)	For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers’ FICO scores. Data for 2018 and 2017 had previously been presented based on the FICO score of the primary borrower and have been restated to reflect the lowest of the borrowers’ FICO scores.

(1)	Includes premiums earned from our participation in certain credit risk transfer programs.

(2)	Includes the impact of related profit commissions.

(3)	The amounts represent the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations.

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(1)	Does not include ceded premiums earned related to our captive reinsurance arrangements or the benefit from ceding commissions on our Single Premium QSR Programs, which are included in other operating expenses on the consolidated statement of operations. See Note 8 of Notes to Consolidated Financial Statements for additional information.

(1)	Excludes the impact of intercompany reinsurance and captive reinsurance arrangements.

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(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.

(1)	Includes those charged to a deductible or captive reinsurance arrangements, as well as commutations.

(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.

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(1)	Net of reinsurance recoveries.

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(2)	Includes payments to commute mortgage insurance coverage on certain performing and non-performing loans. For 2019 and 2017, includes payments that, as expected, were made in connection with the settlement of the Freddie Mac Agreement, as well as payments to commute mortgage insurance coverage on certain performing and non-performing loans on which we had Pool Insurance risk.

(3)	Calculated without giving effect to the impact of captive reinsurance terminations and other commutations.

(4)	Before reinsurance recoveries.

(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 Consolidated Financial Statements.

(2)	Includes allocation of corporate operating expenses of $16.9 million, $12.0 million and $14.3 million for 2019, 2018 and 2017, respectively.

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(1)	Includes contractual principal and related interest for $450 million of Senior Notes due 2024 and $450 million of Senior Notes due 2027, both of which may be redeemed in whole or in part at any time prior to maturity.

(2)	Includes $3.8 million for operating leases that were divested as part of the sale of Clayton.

(3)	Includes our reserve for losses and LAE which reflects the application of accounting policies described below in “Critical Accounting Policies—Reserve for Losses and LAE.” The payments due by period are based on management’s estimates and assume that all of the loss reserves included in the table will result in claim payments, net of expected recoveries.

(4)	Excludes approximately $38.5 million in potential additional liabilities associated with uncertain tax positions as of December 31, 2019. The timing or magnitude of any potential payments is unknown.

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•	repayment at maturity of $158.6 million aggregate principal amount of our Senior Notes due 2019;

•	the issuance of $450 million aggregate principal amount of Senior Notes due 2027; and

•	tender offers and the subsequent redemptions that together resulted in the repayment of the remaining aggregate principal amounts of $234.1 million and $197.7 million of our Senior Notes due 2020 and 2021, respectively.

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(1)	Represents Radian Group’s liquidity, net of the $35 million minimum liquidity requirement under the unsecured revolving credit facility.

(2)	Represents Radian Guaranty’s excess of Available Assets over its Minimum Required Assets, calculated in accordance with the PMIERs financial requirements in effect at each date shown. PMIERs 1.0 was in effect for December 31, 2017 and December 31, 2018; PMIERs 2.0 was in effect for December 31, 2019.

(3)	Percentages represent the values shown as a percentage of Minimum Required Assets under the applicable PMIERs financial requirements in effect for the dates shown.

•	the termination of the intercompany reinsurance agreement between Radian Guaranty and Radian Reinsurance;

•	a $465 million return of capital from Radian Reinsurance to Radian Group as an Extraordinary Distribution; and

•	the transfer of $200 million of cash and marketable securities from Radian Group to Radian Guaranty in exchange for a surplus note in the same amount.

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(1)	Based on the October 17, 2019 update, Moody’s outlook for Radian Group and Radian Guaranty currently is Stable.

(2)	Based on the September 30, 2019 update, S&P’s outlook for Radian Group, Radian Guaranty and Radian Reinsurance is currently Stable.

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•	the extent and the duration of the decline in value;

•	the reasons for the decline in value (e.g., credit event, interest-related or market fluctuations); and

•	the financial position, access to capital and near term prospects of the issuer, including the current and future impact of any specific events.

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Item 8.	Financial Statements and Supplementary Data.

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•	the extent and the duration of the decline in value;

•	the reasons for the decline in value (e.g., credit event, interest-related or market fluctuations); and

•	the financial position, access to capital and near term prospects of the issuer, including the current and future impact of any specific events.

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Level I	—    Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level II	—    Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and

Level III	—    Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.

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(1)	The following number of shares of our common stock equivalents issued under our share-based compensation arrangements were not included in the calculation of diluted net income per share because they were anti-dilutive:

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(1)

Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.

(2)

Loss on extinguishment of debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends.

(3)

Amortization and impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. We do not view these charges as part of the operating performance of our primary activities.

(4)	Impairment of other long-lived assets and other non-operating items. Includes activities that we do not view to be indicative of our fundamental operating activities, such as: (i) gains (losses) from the sale of lines of business and (ii) acquisition-related expenses.

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(1)	Includes inter-segment revenues as reflected in the tables below.

(1)	Includes additional depreciation expense of $1.6 million, $0.2 million and $1.8 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.

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(1)	Includes additional depreciation expense of $0.5 million, $0.1 million and $0.6 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.

(1)	Includes additional depreciation expense of $0.2 million, $0.1 million and $0.3 million allocated to Mortgage Insurance, Services and Reportable Segment Total, respectively.

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(1)	Includes $48.4 million, $50.8 million and $46.1 million for the years ended December 31, 2019, 2018 and 2017, respectively, related to Clayton, which was sold in January 2020.

(1)	Excludes $10.5 million and $3.9 million of accounts receivable and unbilled receivables, respectively, that are related to Clayton and classified as held-for-sale.

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(1)	Comprising short-term certificates of deposit and commercial paper.

(2)	Does not include other invested assets of $2.6 million that are primarily invested in limited partnership investments valued using the net asset value as a practical expedient and $1.5 million invested in a private convertible promissory note.

(3)	Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our consolidated balance sheets. See Note 6 for more information.

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(1)	Comprising short-term certificates of deposit and commercial paper.

(2)	Does not include other invested assets of $3.4 million that are primarily invested in limited partnerships valued using the net asset value as a practical expedient.

(3)	Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our consolidated balance sheets. See Note 6 for more information.

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(2)

These amounts include unrealized gains (losses) on investment securities other than securities available for sale. For 2017, the unrealized gains (losses) on investments exclude the net change in unrealized gains and losses on equity securities. Prior to the implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, the unrealized gains (losses) associated with equity securities were classified in accumulated other comprehensive income.

(1)	Prior to the implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, the unrealized gains (losses) associated with equity securities were classified in accumulated other comprehensive income.

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(1)	Prior to our implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, the unrealized losses associated with equity securities were classified in accumulated other comprehensive income. Effective January 1, 2018, we measure our equity investments at fair value, with changes in fair value recognized in net income.

(1)	Actual maturities may differ as a result of calls before scheduled maturity.

(2)	RMBS, CMBS, and Other ABS are shown separately, as they are not due at a single maturity date.

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(1)	Excludes total gross carrying amount and accumulated amortization (including impairment) related to Clayton of $60.9 million and $57.2 million, respectively, which were reclassified to assets held-for-sale and included in other assets on our consolidated balance sheets at December 31, 2019.

(2)	Includes accumulated impairment charges of $15.8 million as of December 31, 2018, which were related entirely to Clayton.

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(1)	Includes premiums earned from our participation in certain credit risk transfer programs.

(2)	Net of profit commission.

(3)	Deferred ceding commissions of $74.8 million and $91.4 million are included in other liabilities on our consolidated balance sheets at December 31, 2019 and 2018, respectively.

•	20% of its existing performing Single Premium Policies written between January 1, 2012 and March 31, 2013;

•	35% of its existing performing Single Premium Policies written between April 1, 2013 and December 31, 2015; and

•	35% of its Single Premium NIW from January 1, 2016 to December 31, 2017.

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(1)	Excludes a separate excess-of-loss reinsurance agreement entered into by Radian Guaranty that initially provided up to $21.4 million of coverage.

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(1)	Assets held by the Eagle Re Issuers are required to be invested in U.S. government money market funds, cash or U.S. Treasury securities. Liabilities of Eagle Re Issuers consist of their mortgage insurance-linked notes, as described above.

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(1)	Internal-use software, at cost, has been reduced by accumulated amortization of $73.5 million and $60.3 million at December 31, 2019 and 2018, respectively, as well as $3.8 million of impairment charges in 2019 and $5.1 million of impairment charges in 2018. Amortization expense was $13.0 million, $11.4 million and $10.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(2)	Represents right-of-use assets recognized as a result of our adoption, as of January 1, 2019, of the new accounting and

(3)	Property and equipment at cost, less accumulated depreciation of $68.4 million and $62.9 million at December 31, 2019 and 2018, respectively. Depreciation expense was $7.8 million, $8.0 million and $6.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

(4)	Related to the sale of Clayton. See Notes 4 and 7 for additional information on assets held for sale. Liabilities held for sale at December 31, 2019 are included in other liabilities on our consolidated balance sheets.

(5)	During the year ended December 31, 2019, current federal income tax receivable was reduced by our receipt of the remaining $57.2 million refund from amounts on deposit with the IRS related to the settlement of the IRS Matter.

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(1)	Primarily comprises first lien primary case reserves of $339.8 million and $361.7 million at December 31, 2019 and 2018, respectively.

(2)	A majority of this amount is subject to reinsurance, with the related reinsurance recoverables reported in other assets in our consolidated balance sheet, and relates to Radian Title Insurance. For all periods presented, total incurred losses and paid claims for Radian Title Insurance were not material.

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(1)	Related to ceded losses recoverable, if any, on reinsurance transactions. See Note 8 for additional information.

(2)	Related to underlying 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. For 2017, includes payments made on pool commutations, in some cases for loans not previously in default.

(3)	Includes the payment of $54.8 million made in connection with the scheduled final settlement of the Freddie Mac Agreement in the third quarter of 2017.

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(1)	A 3% Default to Claim Rate assumption was assigned to the new primary defaults from FEMA Designated Areas associated with Hurricanes Harvey and Irma that were reported subsequent to those two natural disasters in 2017 and through February 2018.

(2)

Represents the weighted average Default to Claim Rate for all defaults not in foreclosure stage that have been in default for up to five years, including new defaults. The estimated Default to Claim Rates applied to defaults within this population vary by Time in Default, and range from the Default to Claim Rates on new defaults shown above, up to 55.6%, 57.4% and 62.0% for more aged defaults in this category as of December 31, 2019, 2018, and 2017, respectively.

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(1)	Represents reserves as of December 31, 2019 related to IBNR liabilities.

(2)

Represents total number of new default notices received in each calendar year as compiled monthly based on reports received from loan servicers. As reflected in our Default to Claim Rate assumptions, a significant portion of reported defaults generally do not result in a claim. In certain instances, a defaulted loan may cure, and then re-default in a later period. Consistent with our reserving practice, each new event of default is treated as a unique occurrence and therefore certain loans that cure and re-default may be included as a reported default in multiple periods.

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(1)	Calculated as follows:

(1)	Excludes Services reserve for losses and LAE of $3.5 million.

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(1)	Operating lease right-of-use assets and liabilities of $2.6 million and $3.8 million, respectively, are classified as held for sale and are excluded from the amounts in this disclosure.

(2)	Classified in other assets in our consolidated balance sheets. See Note 9.

(3)	Classified in other liabilities in our consolidated balance sheets.

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(1)	Compensation cost is generally recognized over the periods that an employee provides service in exchange for the award. For purposes of calculating compensation cost recognized, we generally consider awards effectively vested (and we recognize the full compensation costs) when grantees become retirement eligible.

(1)	The final amount of RSUs distributed depends on the level of performance achieved along with each employee’s continued service through the vest date, which could result in changes in vested RSUs.

(2)	For performance-based RSUs, amount represents the probable outcome at grant date.

(3)	Represents an adjustment to the number of unvested performance-based RSUs due to changes during the period in our estimated payouts, which can range from 0 to 200% of target depending on results over the applicable performance periods.

(4)	Represents amounts vested during the year, which can include both original shares granted and the impact of performance adjustments.

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(1)	Based on the market price of $25.16 at December 31, 2019.

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•	allows for the immediate eligibility of new hire participation and provides for the automatic enrollment of eligible employees;

•	provides for the immediate vesting of matching contributions (including existing unvested matching contributions attributable to prior periods) and the elimination of all restrictions (other than Radian Group’s Insider Trading Policy) on a participant’s ability to diversify his/her position in matching contributions; and

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•	permits Radian Group to make discretionary, pro rata (based on eligible pay) cash allocations to each eligible participant’s account, with vesting upon completion of three years of service with us.

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(1)	Included in net gains (losses) on investments and other financial instruments in our consolidated statements of operations.

(2)	Included in restructuring and other exit costs in our consolidated statements of operations.

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(1)	Excludes risk ceded through all reinsurance programs (including with affiliates) and RIF on defaulted loans.

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(1)	Diluted net income per share is computed independently for each period presented. Consequently, the sum of the quarters may not equal the total net income per share for the year.

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Item 9A.	Controls and Procedures.

Item 9B.	Other Information.

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Item 10.	Directors, Executive Officers and Corporate Governance.

Item 11.	Executive Compensation.

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(1)	The table does not include information for equity compensation plans assumed by us in mergers, under which we do not grant additional awards.

(2)	These plans consist of our 1995 Equity Plan, 2008 Equity Plan, the Amended and Restated Equity Compensation Plan and our Amended and Restated Radian Group Inc. ESPP.

(3)

Represents 175,791 shares of phantom stock issued under our 1995 Equity Plan, 496,152 non-qualified stock options and 760,426 RSUs issued under our 2008 Equity Plan, and 485,395 non-qualified stock options and 3,484,319 RSUs issued under our Amended and Restated Equity Compensation Plan. Of the RSUs included herein, 2,375,005 are performance-based stock-settled RSUs that could potentially pay out between 0% and 200% of this represented target.

(4)	The shares of phantom stock and RSUs were granted at full value, and therefore, have a weighted-average exercise price of $0. Excluding shares of phantom stock and RSUs from this calculation, the weighted-average exercise price of outstanding non-qualified stock options was $10.05 at December 31, 2019.

(5)

Includes 6,266,017 shares available for issuance under our Amended and Restated Equity Compensation Plan, and 1,941,791 shares available for issuance under our Amended and Restated Radian Group Inc. ESPP, in each case as of December 31, 2019. In January 2020, we issued 39,332 shares from the shares available for issuance under our Amended and Restated Radian Group Inc. ESPP. As a result, 1,902,459 shares currently remain available for issuance under the Amended and Restated Radian Group Inc. ESPP.

Item 13.	Certain Relationships and Related Transactions, and Director Independence.

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Item 14.	Principal Accountant Fees and Services.

Item 15.	Exhibits and Financial Statement Schedules.

1.	Financial Statements—See the “Index to Consolidated Financial Statements” included in Item 8 of this report for a list of the financial statements filed as part of this report.

Item 16.	Form 10-K Summary.

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*	Filed herewith.

**	Furnished herewith.

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(1)	Includes cash collateral held under securities lending agreements of $25.6 million that is reinvested in money market instruments.

(2)	Includes $24.0 million of fixed maturity securities available for sale, $27.5 million of equity securities and $14.9 million of short-term securities loaned under securities lending agreements that are classified as other assets in our consolidated balance sheets.

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(1)	Includes cash distributions received from subsidiaries of $26.6 million, $55.4 million and $24.3 million in 2019, 2018 and 2017, respectively. Excludes non-cash distributions received from subsidiaries of $362.4 million, $394.6 million and $197.3 million in 2019, 2018 and 2017, respectively.

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•

Radian Group and Radian Mortgage Assurance are parties to a guaranty agreement, which provides that Radian Group will make sufficient funds available to Radian Mortgage Assurance to ensure that Radian Mortgage Assurance has a minimum of $5.0 million of statutory policyholders’ surplus every calendar quarter. Radian Mortgage Assurance had $8.8 million of statutory policyholders’ surplus and no RIF exposure as of December 31, 2019.

•	To allow our mortgage insurance customers to comply with applicable securities regulations for issuers of ABS (including mortgage-backed securities), Radian Group has guaranteed two structured transactions for Radian Guaranty with $79.3 million of aggregate remaining credit exposure as of December 31, 2019.

•	Radian Group and Radian Guaranty Reinsurance are parties to an Assumption and Indemnification Agreement with regard to obligations under our tax-sharing arrangements. Pursuant to this agreement, Radian Group is required to assume certain obligations that arise as a result of our tax-sharing arrangement.

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