Note 15 - Statutory Information (Note)

6 Months Ended

Jun. 30, 2020

SEC Schedule, 12-16, Insurance Companies, Supplementary Insurance Information [Abstract]

State insurance regulations include various capital requirements and dividend restrictions based on our insurance subsidiaries’ statutory financial position and results of operations, as described below. As of June 30, 2020, the amount of restricted net assets held by our consolidated insurance subsidiaries (which represents our equity investment in those insurance subsidiaries) totaled $3.8 billion of our consolidated net assets.

Under state insurance regulations, our mortgage insurance subsidiaries are required to maintain minimum surplus levels. In certain RBC States, mortgage insurers licensed in those states must also satisfy a Statutory RBC Requirement that is a

minimum ratio of statutory capital relative to the level of net RIF, or Risk-to-capital. Other RBC States require mortgage insurers licensed in those states to satisfy a MPP Requirement that is calculated on both risk and surplus levels. Our mortgage insurance subsidiaries were in compliance with the Statutory RBC Requirements or MPP Requirements, to the extent applicable, in each of the RBC States as of June 30, 2020.

In addition, in order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. At June 30, 2020, Radian Guaranty is an approved mortgage insurer under the PMIERs and is in compliance with the current PMIERs financial requirements. Under the PMIERs there are increased financial requirements for loans in default, including as a result of natural disasters and pandemics. As a result, increases in defaults related to the COVID-19 pandemic have subjected Radian Guaranty to an increase in Minimum Required Assets under the PMIERs, and therefore, could impact our compliance with the PMIERs or further negatively impact our results of operations. However, as further described below, the PMIERs apply a multiplier that reduces the Minimum Required Asset factor for loans that have become non-performing as a result of a “FEMA Declared Major Disaster” event, including as a result of participation in a forbearance program, because those loans generally have a higher likelihood of curing following the conclusion of the event. For these defaults, the PMIERs apply the Disaster Related Capital Charge, which is a 0.30 multiplier to the factor that normally would be applied to such default, effectively reducing the required asset amount by 70 percent, unless the resulting Minimum Required Asset amount after applying the Disaster Related Capital Charge would be less than the Minimum Required Asset amount for the loan if it was performing, in which case the Minimum Required Asset amount would equal the performing level amount. The GSEs recently issued guidelines that, among other things, temporarily amend the PMIERs effective June 30, 2020, primarily to recognize the COVID-19 pandemic as a nationwide FEMA Declared Major Disaster, and therefore, the Disaster Related Capital Charge is to be applied nationwide to all COVID-19 Defaulted Loans. See Note 1 for discussion about the elevated risks and uncertainties associated with the COVID-19 pandemic and Note 18 of Notes to Consolidated Financial Statements in our 2019 Form 10-K for additional information regarding the PMIERs.

Radian Guaranty’s Risk-to-capital calculation appears in the table below. For purposes of the Risk-to-capital requirements imposed by certain states, statutory capital is defined as the sum of statutory policyholders’ surplus plus statutory contingency reserves.


	June 30, 2020		December 31, 2019
($ in millions)
RIF, net (1)	$	46,879.1	$	44,076.7

Common stock and paid-in capital	$	1,041.0	$	1,041.0
Surplus Note	300.0		100.0
Unassigned earnings (deficit)	(861.3)		(503.3)
Statutory policyholders’ surplus	479.7		637.7
Contingency reserve	3,051.1		2,607.8
Statutory capital	$	3,530.8	$	3,245.5

Risk-to-capital	13.3:1		13.6:1

______________________

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

Radian Guaranty’s statutory capital increased by $285.3 million in the first six months of 2020, primarily due to Radian Guaranty’s statutory net income of $103.2 million during this period and the impact of the additional surplus note issued in January 2020, as described below. The net decrease in Radian Guaranty’s Risk-to-capital in the first six months of 2020 was primarily due to an increase in overall statutory capital, partially offset by a net increase in RIF. Radian Guaranty’s net RIF increased during the first half of the year primarily due to the termination of the intercompany reinsurance agreement, as described below, and strong NIW, offset by a reduction in persistency on prior vintages due to the high level of refinancing activity in the first six months of 2020. Due to Radian Guaranty’s negative unassigned surplus position, no dividends or other ordinary distributions can be paid in 2020.

In January 2020, in connection with the termination of an intercompany reinsurance agreement between Radian Reinsurance and Radian Guaranty, Radian Reinsurance transferred $6.0 billion in RIF to Radian Guaranty and released substantially all of its contingency reserves to unassigned surplus. In turn, Radian Guaranty established equivalent contingency

reserves with a corresponding decrease to its unassigned surplus. As part of these actions, the Pennsylvania Insurance Department approved a $465 million return of capital from Radian Reinsurance to Radian Group as well as the transfer of $200 million of cash and marketable securities from Radian Group to Radian Guaranty in exchange for a surplus note. This intercompany surplus note has a 3% interest rate and a stated maturity of January 31, 2030. The surplus note may be redeemed at any time upon 30 days prior notice, subject to a request by Radian Guaranty for the approval of the Pennsylvania Insurance Department.

For a description of our compliance with statutory and other regulations for our mortgage insurance and title insurance businesses, including statutory capital requirements and divided restrictions, see Note 18 of Notes to Consolidated Financial Statements in our 2019 Form 10-K.

^[1]

[1]	Excludes risk ceded through all reinsurance programs (including with affiliates, if any) and RIF on defaulted loans.