RADIAN GROUP INC (RDN) FY 2024 MD&A

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

The following analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K. Certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report.

Some of the information in this discussion and analysis or included elsewhere in this report, including information with respect to our projections, plans and strategy for our business, are forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions” and in the Risk Factors detailed in Item 1A of this Annual Report on Form 10-K.

Overview of Business Operating Environment

We are a mortgage and real estate company with one reportable business segment—Mortgage Insurance.

Our Mortgage Insurance segment aggregates, manages and distributes U.S. mortgage credit risk for the benefit of mortgage lending institutions and mortgage credit investors, principally through private mortgage insurance on residential first-lien mortgage loans, and also offers other credit risk management solutions, including contract underwriting, to our customers.

Our other immaterial businesses are reported collectively as All Other and include our Mortgage Conduit, Title, Real Estate Services and Real Estate Technology businesses, which provide our existing and new customers with an array of products and services across the residential real estate and mortgage finance industries.

As a mortgage and real estate company, our business results are subject to seasonal fluctuations impacting mortgage and real estate markets, as well as macroeconomic conditions and specific events that impact the housing, housing finance and residential real estate markets and the credit performance of our mortgage insurance portfolio. Among others, and as discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” these factors may include home prices and housing supply, inflationary pressures, interest rate changes, unemployment levels, the volume of mortgage originations and the availability of credit, national and regional economic conditions, legislative and regulatory developments and other events, including macroeconomic stresses and uncertainties resulting from global conflicts and other political and geopolitical events. See “Item 1A. Risk Factors” for a discussion of material risks that could impact our business results.

In recent years, including 2024, our financial performance and results have benefited from generally favorable macroeconomic conditions, including most notably:

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▪
Strong Credit Environment and Housing Market – Our Mortgage Insurance business generally benefits from increases in housing demand, home prices and the volume of home purchases, all of which are influenced by the current market imbalance between a constrained housing supply and strong market demand. The housing shortage combined with strong market demand has resulted in strong home appreciation in recent years, leading to low paid claim volumes and loss severities in our Mortgage Insurance business. Further, the embedded equity borrowers have in their homes as a result of this home price appreciation is a factor that is positively impacting our loan default and Cure trends. Importantly, the strong demographics supporting continued demand from first-time homebuyers are likely to continue to support home prices and drive further growth in purchase originations that is expected to continue to benefit our IIF. The combination of stable and low levels of unemployment and positive home price appreciation has resulted in favorable loss reserve development on prior period defaults, which has positively impacted our financial results in recent periods. See Note 11 of Notes to Consolidated Financial Statements for additional information on our reserve for losses.

▪
Elevated Interest Rates, Resulting in Higher Persistency due to Low Levels of Mortgage Refinancings – Following a period of historically low interest rates, mortgage interest rates rose sharply and significantly in 2022 driven by aggressive monetary policy changes by the U.S. Federal Reserve in an effort to curb rising inflation. Since that time, mortgage interest rates have remained elevated. These macroeconomic conditions have reduced the overall volume of mortgage transactions taking place, which, in turn, has reduced the amount of NIW we are writing. At the same time, the higher interest rate environment has benefited our financial performance through higher Persistency Rates, which has resulted in continued growth in our IIF despite lower NIW, as well as through the recognition of higher net investment income. Although in recent years the inflationary pressures and higher interest rate environment have negatively impacted U.S. housing market affordability and broadly reduced refinance activity, longer-term, we continue to believe that the housing market fundamentals and outlook remain favorable, including demographics supporting growth in the population of first-time homebuyers.

▪
Improvements in Mortgage Finance System and Mortgage Insurance Fundamentals – We believe that mortgage industry fundamentals remain strong and have benefited from improvements to the mortgage and real estate ecosystem since the great financial crisis in 2008, including more stringent underwriting and product standards, higher-quality borrowers with strong credit profiles and strengthened servicing standards and government support to help borrowers stay in their homes. In addition, enhancements in the mortgage insurance industry since the great financial crisis in 2008, including the implementation of strong capital and operating standards under the PMIERs, the implementation of greater risk-based granularity into our pricing methodologies and the increased use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, have increased returns on our NIW, provided capital relief under the PMIERs and have helped position our Mortgage Insurance business to better withstand the negative effects from macroeconomic stresses. While changes in the PMIERs, business practices of the GSEs or the strategic direction of U.S. housing finance set by new government administrations can impact our businesses and financial performance, in recent years the stable and supportive regulatory environment has benefited our results.

The macroeconomic conditions and other factors discussed above influence the size of the overall mortgage origination market, which in turn significantly impacts our mortgage and real estate businesses. Private mortgage insurance penetration of the overall mortgage market further impacts our results and has generally been higher on new mortgages for purchased homes than on the refinance of existing mortgages because average LTVs are typically higher on home purchases, and therefore, these lower down payment loans are more likely to require mortgage insurance. 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. Radian Guaranty’s share of the private mortgage insurance market is also influenced by competition in that market.

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The following charts provide a perspective on mortgage origination volumes and private mortgage insurance penetration in recent periods.

Mortgage origination market (1)

Private mortgage insurance penetration of mortgage origination market (1)

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

Although it is difficult to project future volumes, recent industry projections for 2025 estimate total mortgage originations of approximately $2.0 trillion, which would represent an increase in the total annual mortgage origination market of approximately 14% as compared to 2024.

Factoring in our projections of private mortgage insurance penetration in the overall insurable mortgage market, we estimate that the private mortgage insurance market will be slightly larger in 2025 as compared to a reported market of approximately $300 billion in 2024. There is an industry-wide consensus that we should expect a healthy purchase market in 2025 driven by ongoing homebuyer demand and a potential modest decline in interest rates that we expect to benefit affordability for potential homebuyers. A healthy purchase market is a positive for mortgage insurers given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. This outlook also anticipates that a decrease in interest rates would result in an increase in refinance originations in 2025.

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See Note 4 of Notes to Consolidated Financial Statements for additional information about our businesses. See “Key Factors Affecting Our Results” and “Mortgage Insurance Portfolio Metrics” below for additional discussion on specific key drivers that affect our performance.

Key Factors Affecting Our Results

Mortgage Insurance

NIW

Our current business strategy for our Mortgage Insurance business is to write NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio’s health, balance and profitability. 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. See “Overview of Business Operating Environment” above for additional information.

IIF and Persistency

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 our expectations for future Persistency Rates.

The ultimate profitability of our Mortgage Insurance business is affected by the impact of mortgage prepayment speeds on the mix of business we write. The measure for assessing the impact of policy cancellations on our IIF is our Persistency Rate, defined as the percentage of IIF that remains in force over a period of time. Assuming all other factors remain constant, over the life of the policies, prepayment speeds have an inverse impact on IIF and the expected revenue from our Monthly Premium Policies. Slower loan prepayment speeds, demonstrated by a higher Persistency Rate, result in more IIF remaining in place, providing increased revenue from Monthly Premium Policies over time as premium payments continue. Earlier than anticipated loan prepayments, demonstrated by a lower Persistency Rate, reduce IIF and the revenue from our Monthly Premium Policies. Among other factors, prepayment speeds may be affected by changes in interest rates and other macroeconomic factors. A rising interest rate environment generally will reduce refinancing activity and result in lower prepayments, whereas a declining interest rate environment generally will increase the level of refinancing activity and therefore increase prepayments.

In contrast to Monthly Premium Policies, when Single Premium Policies are canceled by the insured because the loan has been paid off or otherwise, we accelerate the recognition of any remaining unearned premiums, net of any refunds that may be owed to the borrower. Although these cancellations reduce IIF, assuming all other factors remain constant, the profitability of our Single Premium business increases when Persistency Rates are lower.

Premiums

The premium rates we charge for our insurance are based on multiple 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.

Our pricing is risk-based and is intended to generally align with the capital requirements under the PMIERs, while also considering pricing trends within the private mortgage insurance industry among other factors. As a result, our pricing is expected to generate relatively consistent returns across the credit spectrum. In developing our pricing strategies, we monitor various competitive and economic factors while seeking to maximize the long-term economic value of our portfolio by balancing credit risk, lender and geographic concentration risk, profitability and volume considerations, and aim to achieve an overall risk-adjusted rate of return on capital given our modeled performance expectations. Our actual portfolio returns will depend on a number of factors, including the success of our pricing strategy, economic conditions, the mix of NIW that we are able to write, our pricing, the amount of reinsurance we use and the level of capital we hold, including amounts that may be in excess of minimum PMIERs financial and statutory capital requirements. See “Item 1. Business—Mortgage Insurance—Pricing—Primary Mortgage Insurance Premiums.”

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Our pricing actions gradually affect our results over time, as existing IIF cancels and is replaced with NIW at current pricing. See “Mortgage Insurance Portfolio Metrics—New Insurance Written” for additional information.

Premiums on our mortgage insurance products are generally paid either on an installment basis, pursuant to Monthly Premium Policies, or in a single payment at the time of loan origination, pursuant to Single Premium Policies. See “Item 1. Business—Mortgage Insurance—Pricing—Primary Mortgage Insurance Premiums.” As discussed above, the ultimate profitability of Single Premium Policies may be higher or lower than expected due to the impact of prepayment speeds. See “IIF and Persistency” above.

Monthly Premium Policies typically provide a level monthly premium for the first 10 years of the policy, followed by a lower level monthly premium thereafter. Generally, a borrower is able to cancel the policy when the LTV reaches 80% of the original value, and the servicer is required to review the policy for automatic cancellation on the date the LTV is scheduled to reach 78% of the original value. As a result, the volume of loans that remain insured after 10 years and would be subject to the premium reset is generally not material in relation to the total loans originated. However, to the extent the volume of loans resetting from year to year varies significantly, the trend in earned premiums may also vary.

Losses

Incurred losses reduce our pretax income and 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 our estimates with respect to the frequency, magnitude and timing of anticipated losses on defaulted loans. 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 “Mortgage Insurance Portfolio Metrics—Insurance and Risk in Force;”

▪
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;

▪
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);

▪
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); and

▪
Our ability to mitigate potential losses through Rescissions, Claim Denials, cancellations and Claim Curtailments on claims submitted to us.

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. The objectives of our risk distribution strategy include: (i) supporting our overall capital plan by reducing our cost of capital, increasing capital efficiency and enhancing our projected returns on capital and (ii) reducing portfolio risk and financial volatility through economic cycles. We have distributed risk through traditional quota share and excess-of-loss reinsurance arrangements, as well as to investors through the capital markets using mortgage insurance-linked notes transactions.

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. In addition, our incurred losses are reduced by any incurred losses ceded in accordance with the reinsurance agreement, which reduces the volatility of our

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provision for losses in certain stressed economic environments, 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 XOL Program accesses reinsurance coverage through traditional excess-of-loss reinsurance arrangements, as well as through the capital markets through the Eagle Re Issuers’ mortgage insurance-linked notes transactions. Our XOL Program reduces our earned premiums, but also reduces our net RIF and PMIERs financial requirements, and potentially our incurred losses, which are allocated in accordance with the structure of the transaction. The Eagle Re Issuers are special purpose VIEs that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance.

See Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance arrangements, including the total assets and liabilities of the Eagle Re Issuers.

Investment Income

Investment income is determined primarily by the investment balances held and the average yield on our overall investment portfolio. Increases in our investment balances and average yields result in higher pretax income and operating cash flows, while declining balances and yields can negatively affect our financial results.

Other Operating Expenses

Our other operating expenses include salaries and other base employee costs, variable and share-based incentive compensation and other general operating expenses, such as fees for professional and consulting services, software, rent and depreciation, among other costs. Employee related expenses are driven by our headcount, which can fluctuate due to the amount of our NIW and IIF, as well as our plans for other business initiatives. Our other operating expenses may also fluctuate due to 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.

These operating expenses are reported net of ceding commissions associated with our QSR Program. As a result, changes to our QSR Program and the amount of our ceded premiums earned also can impact our other operating expenses.

Other Factors

Net Gains (Losses) on Investments and Other Financial Instruments

Net gains (losses) on investments and other financial instruments also may impact our consolidated results in the ordinary course. 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. Realized gains or losses can also be driven by the timing of residential mortgage loan securitizations and other transactions executed by Radian Mortgage Capital.

Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities, as well as changes from residential mortgage loans and hedging activities related to our Mortgage Conduit business. These valuation adjustments may not necessarily result in realized economic gains or losses.

Mortgage Insurance Portfolio Metrics

New Insurance Written

The following table provides selected information for the periods indicated related to our mortgage insurance NIW. For direct Single Premium Policies, NIW includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated).

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(1)
For loans with multiple borrowers, the percentage of NIW by FICO score represents the lowest of the borrowers’ FICO scores at origination.

(2)
LTV at origination.

Insurance and Risk in Force

The primary driver of the future premiums that we expect to earn over time is our IIF, which increases as a result of our NIW and decreases as a result of policy cancellations and amortization.

Historically, there is a close correlation between interest rates and Persistency Rates. Higher interest rate environments generally decrease refinancings, which decrease the cancellation rate of our insurance and positively affect our Persistency Rates. As shown in the table below, our 12-month Persistency Rate at December 31, 2024, decreased slightly as compared to

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the same period in 2023, which we believe is primarily attributable to a slight increase in refinance activity in 2024 compared to 2023.

Following a three-year period of benchmark interest rate increases, the U.S. Federal Reserve reduced benchmark interest rates for the first time in September 2024 and then again in both November and December 2024. While decreases in benchmark interest rates generally reduce longer-term U.S. treasury rates and result in lower mortgage interest rates and a corresponding increase in mortgage refinance transactions, we do not expect these recent interest rate changes to have a significant impact on our Persistency Rate in the near term. As of December 31, 2024, 68% of our IIF had a mortgage note interest rate of 6.0% or less, which remains below the current mortgage interest rates based on reported industry averages. If mortgage rates were to decrease further, however, refinance volumes could increase, which could have a negative impact on our Persistency Rate and the size of our IIF portfolio. See “If the length of time that our mortgage insurance policies remain in force declines, it could result in a decrease in our future revenues” under “Item 1A. Risk Factors” for more information.

The following table provides selected information as of and for the periods indicated related to mortgage insurance IIF and RIF. Throughout this report, unless otherwise noted, RIF is presented on a gross basis and includes the amount ceded under reinsurance. RIF and IIF for direct Single Premium Policies include policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated).

(1)
The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods and may not be indicative of full-year trends.

(2)
For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers’ FICO scores at origination.

(3)
LTV at origination.

At December 31, 2024, 90% of our total Primary Mortgage RIF are Monthly and Other Recurring Premium Policies. Based on the current composition of our mortgage insurance portfolio, with Monthly Premium Policies comprising a larger proportion of our total portfolio than Single Premium Policies, an increase in IIF generally has a corresponding positive impact on premiums earned, while a decrease in IIF generally has a corresponding negative impact on premiums earned. Reductions

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in IIF through cancellations of our insurance policies as a result of prepayments, as well as other insurance policy terminations such as Rescissions of coverage and claims paid, generally have a negative effect on premiums earned over time.

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

Historical loan performance data indicates that credit scores and underwriting quality are key drivers of credit performance, and loan originations after 2008 have consisted primarily of high credit quality loans with significantly better credit performance than loans originated during 2008 and prior periods.

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

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

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

Geographic Dispersion

The following table shows, as of the dates indicated, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 states in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2024).

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The following table shows, as of the dates indicated, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 Core Based Statistical Areas, referred to as “CBSAs,” in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2024).

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

Risk Distribution

We use third-party reinsurance in our Mortgage Insurance business as part of our risk distribution strategy, including to manage our capital position and risk profile.

The impact of these programs on our financial results will vary depending on the level of ceded RIF, as well as the levels of prepayments and incurred losses on the reinsured portfolios, among other factors. See “Key Factors Affecting Our Results—Mortgage Insurance—Risk Distribution” and Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance transactions.

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The table below provides information about the amounts by which Radian Guaranty’s reinsurance programs reduced its Minimum Required Assets as of the dates indicated.

(1)
Consists primarily of the 2022, 2023 and 2024 QSR Agreements, which include both single and monthly premium policies.

See “Results of Operations—Mortgage Insurance—Revenues—Net Premiums Earned” for information about the impact on premiums earned from each of Radian Guaranty’s reinsurance programs.

Results of Operations—Consolidated

Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. Our consolidated operating results for 2024 primarily reflect the financial results and performance of our one reportable segment—Mortgage Insurance. See “Results of Operations—Mortgage Insurance” for the operating results of this business segment.

In addition to the results of our operating segments, pretax income (loss) is also affected by other factors. See “Use of Non-GAAP Financial Measures” below and “Key Factors Affecting Our Results” for more information regarding items that are not included in the operating results of our operating segments.

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The following table highlights selected information related to our consolidated results of operations for the periods indicated.

(1)
See “Use of Non-GAAP Financial Measures” below.

This section of our Annual Report on Form 10-K generally discusses our consolidated results of operations for the years ended December 31, 2024 and 2023, and a year-over-year comparison between 2024 and 2023. Detailed discussions of our consolidated results of operations for the year ended December 31, 2023, as well as the results of operations for our one reportable segment, Mortgage Insurance, for the year ended December 31, 2023, including the year-over-year comparisons between 2023 and 2022, that are not included in this Annual Report on Form 10-K can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 23, 2024.

In the first quarter of 2024, our Chief Executive Officer (Radian’s chief operating decision maker) made certain changes to the way that he organizes and assesses the performance of our operating segments, which resulted in updates to our quantitative and aggregation analyses in accordance with the accounting standard regarding segment reporting. Whereas previously we aggregated our Title, Real Estate Services and Real Estate Technology businesses and reported them as a

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single reportable segment named homegenius, effective for the year ended December 31, 2024, the individual results of operations for these immaterial businesses, as well as the results of our Mortgage Conduit business (our other operating segment that does not meet the reportable quantitative thresholds) is presented in the All Other category, along with certain corporate and other activities. We have not presented separate year-over-year comparisons between 2023 and 2022 for these immaterial businesses in the All Other category because, in management’s judgment, they are not necessary to an understanding of the business.

Revenues

Net Premiums Earned. The increase in net premiums earned for 2024 compared to 2023 is primarily due to growth in IIF and a corresponding increase in direct premiums earned in 2024. For more information, see “Revenues—Net Premiums Earned” under “Results of Operations—Mortgage Insurance.”

Net Investment Income. The increase in net investment income for 2024 compared to 2023 is primarily attributable to higher balances of residential mortgage loans held for sale and short-term investments. See Note 6 of Notes to Consolidated Financial Statements for comparative detail about net investment income. See “Results of Operations—Mortgage Insurance—Revenues—Net Investment Income” and “Results of Operations—All Other” for more information.

Net Gains (Losses) on Investments and Other Financial Instruments. See Note 6 of Notes to Consolidated Financial Statements for additional detail about our net gains (losses) on investments and other financial instruments by investment category.

Expenses

Provision for Losses. The change in the provision for losses for 2024 compared to 2023 is primarily driven by a reduction in favorable development on prior year defaults and an increase in current year new primary defaults, which impacted our mortgage insurance reserves. See “Results of Operations—Mortgage Insurance—Expenses—Provision for Losses” for more information.

Other Operating Expenses. The slight increase in other operating expenses for 2024 compared to 2023 is primarily due to impairments of other long-lived assets and other non-operating expenses of $23 million in 2024 as compared to $13 million in 2023. These items were mostly offset by: (i) a decrease in other general operating expenses and (ii) an increase in ceding commissions. For more information, see “Results of Operations—Mortgage Insurance—Expenses—Other Operating Expenses” and “Results of Operations—All Other.”

Interest Expense. The increase in interest expense for 2024, as compared to 2023, is primarily due to: (i) an increase in secured borrowings under our mortgage loan financing facilities and (ii) the net impact of the March 2024 issuance and redemption of the Senior Notes due 2029 and Senior Notes due 2025, respectively, including the impact of a $4 million loss on extinguishment of debt related to the redemption of the Senior Notes due 2025. See Note 12 of Notes to Consolidated Financial Statements for additional detail about our interest expense.

Income Tax Provision

Our 2024 effective tax rate was 21.6%, generally consistent with the federal statutory rate of 21%. State income taxes and certain permanent book-to-tax adjustments were the primary drivers of minor differences in the effective tax rate compared to the federal statutory rate. See Note 10 of Notes to Consolidated Financial Statements for a reconciliation of our provision for income taxes.

Use of Non-GAAP Financial Measures

In addition to the traditional GAAP financial measures, we have presented “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity,” which are non-GAAP financial measures for the consolidated company, among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way our business performance is evaluated by both management and by our board of directors. These measures have been established in order to increase transparency for the purposes of evaluating our operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis, adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and

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adjusted net operating return on equity are non-GAAP financial measures, for the reasons discussed above we believe these measures aid in understanding the underlying performance of our operations.

Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity are not measures of overall profitability, and therefore should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share or return on equity. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly named measures reported by other companies.

Our senior management, including our Chief Executive Officer (Radian’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of our business segments and to allocate resources to the segments.

Adjusted pretax operating income (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments, except for those investments and other financial instruments attributable to our Mortgage Conduit business; (ii) amortization and impairment of goodwill and other acquired intangible assets; and (iii) impairment of other long-lived assets and other non-operating items, if any, such as gains (losses) from the sale of lines of business, acquisition-related income and expenses and gains (losses) on extinguishment of debt.

Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in pretax income (loss). These adjustments, along with the reasons for their treatment, are described in Note 4 of Notes to Consolidated Financial Statements.

The following table provides a reconciliation of consolidated pretax income to our non-GAAP financial measure for the consolidated Company of adjusted pretax operating income.

(1)
Excludes net gains (losses) on investments and other financial instruments that are attributable to our Mortgage Conduit business, which are included in adjusted pretax operating income (loss).

(2)
Related primarily to impairments of other long-lived assets that are included in other operating expenses on the consolidated statements of operations. See Note 4 of Notes to Consolidated Financial Statements.

(3)
Total adjusted pretax operating income on a consolidated basis consists of adjusted pretax operating income (loss) for our Mortgage Insurance segment and All Other activities, as further detailed in Note 4 of Notes to Consolidated Financial Statements.

Adjusted diluted net operating income (loss) per share is calculated by dividing adjusted pretax operating income (loss) attributable to common stockholders, net of taxes computed using the Company’s statutory tax rate, by the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table provides a reconciliation of diluted net income (loss) per share to our non-GAAP financial measure for the consolidated Company of adjusted diluted net operating income (loss) per share.

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(1)
Calculated using the Company’s federal statutory tax rate of 21%.

Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company’s statutory tax rate, by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented. The following table provides a reconciliation of return on equity to our non-GAAP financial measure for the consolidated Company of adjusted net operating return on equity.

(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%.

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

Results of Operations—Mortgage Insurance

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

(1)
Our senior management uses adjusted pretax operating income as our primary measure to evaluate the fundamental financial performance of our business segments. See Note 4 of Notes to Consolidated Financial Statements for more information.

Revenues

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

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The table below provides additional information about the components of mortgage insurance net premiums earned for the periods indicated, including the effects of our reinsurance programs.

(1)
Includes the impact of related profit commissions.

(2)
Represents the profit commission on the Single Premium QSR Program and 2022, 2023 and 2024 QSR Agreements, excluding the impact of Single Premium Policy cancellations.

(3)
Calculated by dividing direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF.

(4)
Calculated by dividing direct premiums earned, including assumed revenue, by average primary IIF.

(5)
Calculated by dividing net premiums earned by average primary IIF. The calculation for all periods presented incorporates the impact of profit commission adjustments related to our reinsurance programs. See Note 8 of Notes to Consolidated Financial Statements for further information.

(6)
The average of beginning and ending balances of primary IIF, for each period presented.

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

The level of mortgage prepayments affects the revenue ultimately produced by our Mortgage Insurance business and is influenced by the mix of business we write. See “Key Factors Affecting Our Results—Mortgage Insurance—IIF and Persistency” for more information.

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The following table provides information related to the impact of our reinsurance transactions on premiums earned. See Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance programs.

(1)
Consists primarily of the 2022, 2023 and 2024 QSR Agreements.

(2)
Includes the impact of changes in the profit commission retained by the Company due to changes in loss reserves. See “Expenses—Provision for Losses” below for additional information on our favorable reserve development, particularly in 2022.

(3)
Does not include the benefit from ceding commissions from the reinsurance agreements in our QSR Program, which is primarily included in other operating expenses on the consolidated statements of operations. See Note 8 of Notes to Consolidated Financial Statements for additional information.

Net Investment Income. Increasing yields from higher interest rates and higher investment balances were the primary driver of the increases in net investment income for 2024 compared to 2023.

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

(1)
The average of the beginning and ending amortized cost, for each period presented, of investments held by our Mortgage Insurance subsidiaries.

(2)
Calculated by dividing net investment income by average investments balance.

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

Expenses

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

(1)
Related to defaulted loans with a most recent default notice dated in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.

(2)
Related to defaulted loans with a default notice dated in a year earlier than the year indicated, which have been continuously in default since that time.

(3)
Provision for losses as a percentage of net premiums earned. See “Revenues—Net Premiums Earned” above for additional information on the changes in net premiums earned.

(4)
Calculated by dividing provision for losses for new defaults, net of reinsurance, by the number of new primary defaults for each period.

Current year new primary defaults increased by 15% for 2024, as compared to 2023, consistent with the natural seasoning of the portfolio given the increase in our IIF in recent years. Our gross Default to Claim Rate assumption for new primary defaults was 7.5% at December 31, 2024, compared to 8.0% at December 31, 2023. We continue to closely monitor the trends in Cures and claims paid for our default inventory, while also weighing the risks and uncertainties associated with the current economic environment.

Our provision for losses during 2024, 2023 and 2022 was positively impacted by favorable reserve development on prior year defaults, primarily as a result of more favorable trends in Cures than originally estimated. These Cures have been due primarily to favorable outcomes resulting from positive trends in home price appreciation, which has also contributed to a higher rate of claims that result in no ultimate loss and that are withdrawn by servicers as a result. These favorable observed trends resulted in reductions in our Default to Claim Rate and other reserve adjustments for prior year default notices. See Note 11 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” for additional information.

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

(1)
Includes submitted claims that resolved without a claim payment.

(2)
Net of any previous Rescission and Claim Denials that were reinstated during the period. Such reinstated Rescissions and Claim Denials may ultimately result in a paid claim.

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

The following tables show additional information about our primary loans in default as of the dates indicated.

N/A – Not applicable

(1)
Excludes pool and other reserves. See Note 11 of Notes to Consolidated Financial Statements for additional information.

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

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

Although expected claims are included in our reserve for losses, the timing of claims paid is subject to fluctuation from quarter to quarter, based on the rate that defaults cure and other factors, including the impact of foreclosure moratoriums (as further described in “Item 1. Business—Mortgage Insurance—Defaults and Claims”), which make the timing of paid claims difficult to predict.

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

The following table shows net claims paid by product and the average claim paid by product for the periods indicated.

(1)
Net of reinsurance recoveries.

(2)
Includes payments to commute mortgage insurance coverage on certain performing and non-performing loans.

(3)
Calculated excluding the impact of: (i) LAE; (ii) commutations and settlements; and (iii) claims resolved without payment, including claims subsequently withdrawn by the servicer.

(4)
Before reinsurance recoveries.

Hurricanes Helene and Milton made landfall in September and October 2024, respectively, causing extensive property damage in Florida and certain other states, as well as other general disruptions including power outages and flooding. Although the Primary Mortgage Insurance we write protects lenders from a portion of losses resulting from mortgage defaults, it generally does not provide protection against property loss or physical damage, including damage caused by hurricanes or other severe weather events or natural disasters. As expected, new defaults from the affected areas increased in the fourth quarter of 2024. Absent a prolonged negative impact on the local economies in these areas, as of December 31, 2024, we do not expect to incur any material losses due to current or future defaults in FEMA Designated Areas related to these hurricanes.

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

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

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

(1)
See Note 4 of Notes to Consolidated Financial Statements for more information about our allocation of corporate operating expenses.

(2)
Operating expenses (which consist of policy acquisition costs and other operating expenses, as well as allocated corporate operating expenses), expressed as a percentage of net premiums earned. See “Revenues—Net Premiums Earned” above for additional information on the changes in net premiums earned.

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Results of Operations—All Other

The following table summarizes our results of operations for our All Other activities for the periods indicated.

(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.

Our All Other results include income from investments held at Radian Group, which have benefited from rising interest rates over the past year as well as from rising balances resulting from distributions by Radian Guaranty.

All Other also includes the financial results of our other immaterial operating segments, comprising our Mortgage Conduit, Title, Real Estate Services and Real Estate Technology businesses. In particular, Radian Mortgage Capital contributed to the increase in net investment income, net losses on investments and other financial instruments and interest expense during 2024, as our residential mortgage loan and securitization activities increased.

Liquidity and Capital Resources

Consolidated Cash Flows

The following table summarizes our consolidated cash flows from operating, investing and financing activities.

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

Operating Activities. Our most significant source of operating cash flows is from premiums received from our mortgage insurance policies, while our most significant uses of operating cash flows have typically been for our operating expenses, taxes and claims paid on our mortgage insurance policies. In addition, our operating activities also include Radian Mortgage Capital’s purchases, sales and principal payments related to residential mortgage loans held for sale, which can fluctuate from period to period. The increase in cash used in operating activities in 2024, as compared to cash provided by operating activities in 2023 or 2022, is primarily due to increases in net purchases of residential mortgage loans held for sale, which increased from $31 million in 2023 to $1.3 billion in 2024.

Investing Activities. Net cash provided by investing activities increased for 2024, as compared to cash used in investing activities in 2023. This increase was primarily from sales and redemptions, net of purchases, of short-term investments and fixed-maturities available for sale, which helped to fund certain of our financing activities described below.

Financing Activities. For 2024, our primary financing activities impacting cash included proceeds from the issuance of securitized nonrecourse debt as well as an increase in secured borrowings, primarily related to funding from mortgage loan financing facilities. These increases were partially offset by: (i) net changes in our senior notes; (ii) repurchases of our common stock; and (iii) payment of dividends. See Notes 12 and 14 of Notes to Consolidated Financial Statements for additional information regarding our borrowings and share repurchases, respectively.

See “Item 8. Financial Statements and Supplementary Data—Consolidated Statements of Cash Flows” for additional information.

Investment Portfolio

At December 31, 2024 and 2023, the following tables include $139 million and $204 million, respectively, of securities loaned to third-party borrowers under securities lending agreements, which are classified as other assets in our consolidated balance sheets. See Note 6 of Notes to Consolidated Financial Statements for more information about our investment portfolio, including our securities lending agreements.

The composition of our investment portfolio, other than our retained interests in Radian Mortgage Capital’s mortgage loan securitizations, is presented below as a percentage of overall fair value as of the dates indicated. See Note 7 of Notes to Consolidated Financial Statements for more information on our Radian Mortgage Capital securitizations.

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

(2)
Includes mortgage insurance-linked notes purchased by Radian Group in connection with the XOL Program. See Note 8 of Notes to Consolidated Financial Statements for more information.

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

The following table shows the scheduled maturities of the securities held in our investment portfolio as of the dates indicated.

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

(2)
Includes RMBS, CMBS, CLO, Other ABS, mortgage insurance-linked notes and residential mortgage loans, which are not due at a single maturity date.

(3)
No stated maturity date.

The following table provides the ratings of our investment portfolio, from a nationally recognized statistical ratings organization, presented as a percentage of overall fair value, as of the dates indicated.

(1)
Primarily consists of residential mortgage loans and equity securities.

Liquidity Analysis—Holding Company

Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. At December 31, 2024, Radian Group had available, either directly or through unregulated subsidiaries, unrestricted cash and liquid investments of $885 million. Total liquidity, which includes our undrawn $275 million unsecured revolving credit facility, as described below, was $1.2 billion as of December 31, 2024.

During 2024, Radian Group’s available liquidity decreased by $107 million, due to the net impact of the redemption of the Senior Notes due 2025 and 2024 and the issuance of the Senior Notes due 2029, plus payments for dividends and share repurchases, as described below, partially offset by $675 million in ordinary dividends received from Radian Guaranty.

In addition to available cash and marketable securities, including net investment income earned on such investments, Radian Group’s principal sources of cash to fund future liquidity needs include: (i) payments made to Radian Group by its subsidiaries under expense- and tax-sharing arrangements and (ii) to the extent available, dividends or other distributions from its subsidiaries.

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Radian Group has in place a $275 million unsecured revolving credit facility with a syndicate of bank lenders. The revolving credit facility matures in December 2026, although under certain conditions Radian Group may be required to offer to repay any outstanding amounts and terminate lender commitments earlier than the maturity date. Subject to certain limitations, borrowings under the credit facility may be used for working capital and general corporate purposes, including, without limitation, capital contributions to our insurance and other subsidiaries as well as growth initiatives. At December 31, 2024, the full $275 million remains undrawn and available under the facility. See Note 12 of Notes to Consolidated Financial Statements for additional information on the unsecured revolving credit facility.

In connection with our Mortgage Conduit business, Radian Mortgage Capital has entered into three Master Repurchase Agreements. As of December 31, 2024, Radian Group has entered into three separate Parent Guarantees to guaranty the obligations under the Master Repurchase Agreements. Under these Parent Guarantees, Radian Group is subject to negative and affirmative covenants customary for this type of financing transaction, including compliance with financial covenants that are generally consistent with the comparable covenants in the Company’s revolving credit facility. See Note 12 of Notes to Consolidated Financial Statements for additional information. Radian Mortgage Capital plans to continue to make use of this type of financing arrangement in the future, which may include extending the termination dates of the Master Repurchase Agreements, increasing the amount available for borrowing thereunder, and entering into agreements with additional lenders. In addition to financing the acquisition of mortgage loan assets under the Master Repurchase Agreements, Radian Mortgage Capital may fund such purchases directly using capital contributed from Radian Group.

We expect Radian Group’s principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; (iii) the payment of quarterly dividends on our common stock, which were $0.245 per share in 2024 and subsequently increased to $0.255 per share for the first quarterly dividend in 2025, and which remain subject to approval by our board of directors and our ongoing assessment of our financial condition and potential needs related to the execution and implementation of our business plans and strategies; (iv) the potential continued repurchases of shares of our common stock pursuant to share repurchase authorizations, as described below; and (v) investments to support our business strategy, including capital contributions to our subsidiaries.

In addition to our ongoing short-term liquidity needs discussed above, our most significant need for liquidity beyond the next 12 months is the repayment of $1.1 billion aggregate principal amount of our senior debt due in future years. See “Capitalization—Holding Company” below for details of our debt maturity profile.

Radian Group’s liquidity demands for the next 12 months or in future periods could also include: (i) early repurchases or redemptions of portions of our debt obligations and (ii) potential payments pursuant to the Parent Guarantees.

For additional information about related risks and uncertainties, see “Item 1A. Risk Factors,” including “Our sources of liquidity may be insufficient to fund our obligations.” and “Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.” See also “Overview of Business Operating Environment” above and Note 1 of Notes to Consolidated Financial Statements for further information.

In addition to Radian Group’s existing sources of liquidity to fund its obligations, we may decide to seek additional capital, including by incurring additional debt, issuing additional equity, or selling assets, which we may not be able to do on favorable terms, if at all.

Share Repurchases. During 2024 and 2023, the Company repurchased 7.0 million shares and 5.3 million shares of Radian Group common stock, respectively, under programs authorized by Radian Group’s board of directors, at a total cost of $224 million and $133 million, respectively, including commissions. See Note 14 of Notes to Consolidated Financial Statements for additional details on our share repurchase programs.

Dividends and Dividend Equivalents. Throughout 2024 and 2023, our quarterly dividend was $0.245 and $0.225 per share, respectively. In February 2025, Radian Group’s board of directors authorized an increase to our quarterly dividend from $0.245 to $0.255 per share. Based on our outstanding shares of common stock and our current dividend level, which our board of directors may change as discussed above, we would require approximately $151 million in the aggregate to pay dividends for the next 12 months, plus an incremental amount for dividend equivalents that will fluctuate based on final shares vested under our performance-based RSU programs. So long as no default or event of default exists under our revolving credit facility or the Parent Guarantees, Radian Group is not subject to any legal or contractual limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware corporation law provides that dividends are only payable out of a corporation’s capital surplus or (subject to certain limitations) recent net profits. As of December 31, 2024, our capital surplus was $4 billion, representing our dividend limitation under Delaware law.

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The declaration and payment of future quarterly dividends remains subject to the board of directors’ discretion and determination.

Corporate Expenses and Interest Expense. Radian Group has expense-sharing arrangements in place with its principal operating subsidiaries that require those subsidiaries to pay their allocated share of certain holding-company-level expenses, including interest payments on Radian Group’s outstanding debt obligations. Corporate expenses and interest expense on Radian Group’s debt obligations allocated under these arrangements during 2024 of $169 million and $81 million, respectively, were substantially all reimbursed by its subsidiaries. We expect substantially all of our holding company expenses to continue to be reimbursed by our subsidiaries under our expense-sharing arrangements. The expense-sharing arrangements between Radian Group and its mortgage insurance subsidiaries, as amended, have been approved by the Pennsylvania Insurance Department, but such approval may be modified or revoked at any time.

Taxes. Pursuant to our tax-sharing agreements, our operating subsidiaries pay Radian Group an amount equal to any federal income tax the subsidiary would have paid on a standalone basis if they were not part of our consolidated tax return. As a result, from time to time, under the provisions of our tax-sharing agreements, Radian Group may pay to or receive from its operating subsidiaries amounts that differ from Radian Group’s consolidated federal tax payment obligation. During 2024, Radian Group received $1 million of tax-sharing agreement payments from its subsidiaries.

Capitalization—Holding Company

The following table presents our holding company capital structure.