10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 1-11356

Radian Group Inc.

(Exact name of registrant as specified in its charter)

Delaware	23-2691170
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1601 Market Street, Philadelphia, PA	19103
(Address of principal executive offices)	(zip code)

(215) 564-6600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ¨    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 93,896,868 shares of Common Stock, $0.001 par value, outstanding on November 6, 2003.

Radian Group Inc. and Subsidiaries

INDEX

	Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income	4
Condensed Consolidated Statement of Changes in Common Stockholders’ Equity	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures about Market Risk	31
Item 4. Controls and Procedures	32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	33
Item 6. Exhibits and Reports on Form 8-K	33
SIGNATURES	35
EXHIBIT INDEX	36

2

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

Radian Group Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per-share amounts)	September 30 2003			December 31 2002
Assets
Investments
Fixed maturities held to maturity – at amortized cost (fair value $320,391 and $379,643)	$	300,225		$	356,000
Fixed maturities available for sale – at fair value (amortized cost $3,861,586 and $3,332,102)		4,011,486			3,448,926
Trading securities – at fair value (cost $42,047 and $39,261)		40,679			37,619
Equity securities – at fair value (cost $198,596 and $196,766)		208,661			168,517
Short-term investments		233,199			180,919
Other invested assets		3,561			8,346
Total Investments		4,797,811			4,200,327
Cash		47,498			21,969
Investment in affiliates		300,465			259,120
Deferred policy acquisition costs		212,078			183,587
Prepaid federal income taxes		322,711			294,136
Provisional losses recoverable		47,310			48,561
Accrued investment income		53,476			47,762
Accounts and notes receivable		82,869			86,850
Property and equipment, at cost (less accumulated depreciation of $31,386 and $21,703)		68,537			55,580
Other assets		220,639			195,513
	$	6,153,394		$	5,393,405
Liabilities and Stockholders’ Equity
Unearned premiums	$	684,931		$	618,050
Reserve for losses and loss adjustment expenses		669,046			624,577
Long-term and short-term debt		717,347			544,145
Deferred federal income taxes		684,310			570,279
Accounts payable and accrued expenses		274,879			282,919
		3,030,513			2,639,970
Commitments and Contingencies
Common stockholders’ equity
Common stock, par value $.001 per share; 200,000,000 shares authorized; 95,564,634 and 95,134,279 shares issued in 2003 and 2002, respectively		95			95
Treasury stock; 1,929,441 and 1,581,989 shares in 2003 and 2002, respectively		(63,409	)		(51,868	)
Additional paid-in capital		1,249,890			1,238,698
Retained earnings		1,832,950			1,508,138
Accumulated other comprehensive income		103,355			58,372
		3,122,881			2,753,435
	$	6,153,394		$	5,393,405

See notes to unaudited condensed consolidated financial statements.

3

Radian Group Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Quarter Ended September 30						Nine Months Ended September 30
(In thousands, except per-share amounts)	2003			2002			2003			2002
Revenues:
Premiums written:
Direct	$	260,714		$	216,594		$	711,928		$	640,533
Assumed		43,951			35,217			155,732			104,711
Ceded		(19,148	)		(17,197	)		(55,887	)		(48,382	)
Net premiums written		285,517			234,614			811,773			696,862
Increase in unearned premiums		(24,474	)		(25,102	)		(69,589	)		(67,130	)
Premiums earned		261,043			209,512			742,184			629,732
Net investment income		46,365			45,503			140,041			132,741
Equity in net income of affiliates		21,287			12,994			70,034			58,387
Other income		18,489			8,200			48,449			30,448
Total revenues		347,184			276,209			1,000,708			851,308
Expenses:
Provision for losses		100,762			57,923			264,060			172,926
Policy acquisition costs		33,787			24,716			96,172			73,765
Other operating expenses		51,423			39,043			152,429			128,288
Interest expense		9,652			7,177			27,888			21,571
Total expenses		195,624			128,859			540,549			396,550
Gains and losses:
Net gains on dispositions of investments		1,778			5,685			8,627			8,768
Change in fair value of derivative instruments		6,072			(5,090	)		(6,655	)		(14,096	)
Net gains (losses)		7,850			595			1,972			(5,328	)
Pretax income		159,410			147,945			462,131			449,430
Provision for income taxes		45,432			41,384			131,707			130,014
Net income		113,978			106,561			330,424			319,416
Dividends to preferred stockholder		—			3,828			—			5,478
Net income available to common stockholders	$	113,978		$	102,733		$	330,424		$	313,938
Basic net income per share	$	1.22		$	1.08		$	3.54		$	3.32
Diluted net income per share	$	1.20		$	1.07		$	3.50		$	3.27
Average number of common shares outstanding – basic		93,558			94,761			93,431			94,564
Average number of common and common equivalent shares outstanding - diluted		94,886			96,035			94,514			96,101

See notes to unaudited condensed consolidated financial statements.

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Radian Group Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY

(UNAUDITED)

												Accumulated Other Comprehensive Income (Loss)
(In thousands)	Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Foreign Currency Translation Adjustment		Unrealized Holding Gains (Losses)			Total
Balance, January 1, 2003	$	95	$	(51,868	)	$	1,238,698		$	1,508,138		$	233	$	58,139		$	2,753,435
Comprehensive income:
Net income		—		—			—			330,424			—		—			330,424
Unrealized foreign currency translation adjustment, net of tax of $715		—		—			—			—			1,327		—			1,327
Unrealized holding gains arising during period, net of tax of $26,527		—		—			—			—			—		49,264
Less: Reclassification adjustment for net gains included in net income, net of tax of $3,020		—		—			—			—			—		(5,608	)
Net unrealized gain on investments, net of tax of $23,507		—		—			—			—					43,656			43,656
Comprehensive income																		375,407
Issuance of common stock under incentive plans		—		—			13,385			—			—		—			13,385
Treasury stock purchased, net				(11,541	)													(11,541	)
Dividends		—		—			—			(5,612	)		—		—			(5,612	)
Capital issuance costs		—		—			(2,193	)		—			—		—			(2,193	)
Balance, September 30, 2003	$	95	$	(63,409	)	$	1,249,890		$	1,832,950		$	1,560	$	101,795		$	3,122,881

See notes to unaudited condensed consolidated financial statements.

5

Radian Group Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30
(In thousands)	2003			2002
Cash flows from operating activities	$	376,815		$	429,589
Cash flows from investing activities:
Proceeds from sales of fixed maturity investments available for sale		1,040,452			1,376,780
Proceeds from sales of equity securities available for sale		50,762			12,753
Proceeds from redemptions of fixed maturity investments available for sale		186,032			61,068
Proceeds from redemptions of fixed maturity investments held to maturity		59,853			55,492
Purchases of fixed maturity investments available for sale		(1,753,641	)		(2,086,093	)
Purchases of equity securities available for sale		(57,972	)		(108,601	)
Sales (purchases) of short-term investments, net		(52,321	)		87,987
Sales of other invested assets		4,240			3,432
Disposals of property and equipment		468			—
Purchases of property and equipment		(23,460	)		(36,125	)
Investment in affiliates		—			(20,000	)
Proceeds from sales of investment in affiliates		3,395			—
Distributions from affiliates		19,950			20,095
Other		5,663			(4,931	)
Net cash used in investing activities		(516,578	)		(638,143	)
Cash flows from financing activities:
Proceeds from issuance of common stock under incentive plans		13,385			24,839
Issuance of long-term debt		246,254			215,937
Repayment of short-term debt		(75,000	)		—
Redemption of preferred stock		—			(43,003	)
Purchase of treasury stock, net		(11,542	)		(32,117	)
Dividends paid		(5,612	)		(7,813	)
Capital issuance costs		(2,193	)		—
Net cash provided by financing activities		165,292			157,843
Increase/(decrease) in cash		25,529			(50,711	)
Cash, beginning of period		21,969			60,159
Cash, end of period	$	47,498		$	9,448
Supplemental disclosures of cash flow information:
Income taxes paid (received)	$	93,619		$	(2,881	)
Interest paid	$	24,748		$	17,691

See notes to unaudited condensed consolidated financial statements.

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Radian Group Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

1 – Consolidated Financial Statements – Basis of Presentation

The Consolidated Financial Statements included herein, include the accounts of Radian Group Inc. (the “Company” or “Radian”) and its subsidiaries, including its principal mortgage guaranty operating subsidiaries, Radian Guaranty Inc. (“Radian Guaranty”), Amerin Guaranty Corporation (“Amerin Guaranty”) and Radian Insurance Inc. (“Radian Insurance”) (together referred to as “Mortgage Insurance”) and its principal financial guaranty operating subsidiaries, Radian Reinsurance Inc. (“Radian Reinsurance”) and Radian Asset Assurance Inc. (“Radian Asset Assurance”). The Company also has an equity interest in two active credit-based asset businesses, Credit-Based Asset Servicing and Securitization LLC (“C-BASS”) and Sherman Financial Group LLC (“Sherman”). The Company has a 46.0% interest in C-BASS and a 41.5% interest in Sherman. In January 2003, Sherman’s management exercised its right to acquire additional ownership of Sherman reducing the Company’s ownership interest in Sherman from 45.5% to 41.5%. The Company recorded a $1.3 million loss on the transaction.

The Consolidated Financial Statements are presented on the basis of accounting principles generally accepted in the United States of America (“GAAP”). The Company has condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP pursuant to such rules and regulations.

The financial information for the interim periods is unaudited; however, such information reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates.

Basic net income per share is based on the weighted average number of common shares outstanding, while diluted net income per share is based on the weighted average number of common shares outstanding and common share equivalents that would arise from the exercise of stock options. Preferred stock dividends are deducted from net income in the net income per share computation. Diluted shares do not assume the conversion of the Company’s senior convertible debentures. Under the terms of the indenture governing the senior convertible securities, the conditions for holders to be able to convert the debentures to common stock have not been met.

Certain prior period balances have been reclassified to conform to the current period presentation.

2 – Derivative Instruments and Hedging Activities

The Company accounts for derivatives under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted. Transactions that the Company has entered into that are accounted for under SFAS No. 133, as amended, include investments in convertible debt securities classified as trading securities, and selling credit protection in the form of credit default swaps and certain financial guaranty contracts that are considered credit default swaps. Credit default swaps and certain financial guaranty contracts that are accounted for under SFAS No. 133 are part of the Company’s overall business strategy of offering financial guaranty protection to its customers. Currently, none of the derivatives qualify as hedges under SFAS No. 133. Therefore, changes in fair value are included in the periods presented in current earnings in the Condensed Consolidated Statements of Income. Net unrealized losses on credit default swaps and certain other financial guaranty contracts are included in accounts payable and accrued expenses on the Condensed Consolidated Balance Sheets. Settlements under derivative financial guaranty contracts are charged to accounts payable and accrued expenses. In the third quarter of 2003, the Company received $3.4 million as settlement proceeds on one of the derivative financial guaranty contracts.

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A summary of the Company’s derivative information as of and for the periods indicated for 2003 and 2002 is as follows:

Balance Sheet (in millions)	September 30 2003			December 31 2002			September 30 2002
Trading Securities
Amortized cost	$	42.0		$	39.3		$	43.6
Fair value		40.7			37.6			36.9
Derivative Financial Guaranty Contracts
Notional value	$	10,200.0		$	7,300.0		$	5,500.0
Gross unrealized gains	$	65.8		$	52.4		$	53.7
Gross unrealized losses		93.7			69.6			63.0
Net unrealized losses	$	(27.9	)	$	(17.5	)	$	(9.3	)

The components of the change in fair value of derivative instruments is as follows:

Income Statement (in millions)	Three Months Ended September 30						Nine Months Ended September 30
	2003			2002			2003			2002
Trading Securities	$	(.7	)	$	7.2		$	.3		$	.7
Derivative Financial Guaranty Contracts		6.8			(12.3	)		(7.0	)		(14.8	)
Net gains (losses)	$	6.1		$	(5.1	)	$	(6.7	)	$	(14.1	)

The application of SFAS 133, as amended, could result in volatility from period to period in gains and losses as reported on the Company’s consolidated statements of income. These gains and losses result primarily from changes in corporate credit spreads, changes in the credit worthiness of underlying corporate entities, and the equity performance of the entities underlying our convertible investments. The Company is unable to predict the effect this volatility may have on its financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of FASB Statement No. 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement improves financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. This Statement is effective for contracts entered into or modified after June 30, 2003, except for the provisions of this Statement that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 and for hedging relationships designated after June 30, 2003. All provisions have been applied prospectively except for the provisions of this Statement that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003. These provisions are to be applied in accordance with their respective effective dates. The implementation of this Statement did not have a material impact on the Company’s financial statements.

3 – Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and directors and encourages, but does not require, the recognition of compensation expense for the fair value of stock options and other equity instruments granted as compensation to employees and directors. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”), and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. To date, there have been no options issued at a price that was less than the market price at the date of issuance.

8

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.” SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This Statement is effective for financial statements for fiscal years ending after December 15, 2002.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

	Quarter Ended September 30				Nine Months Ended September 30
	2003		2002		2003		2002
Net income, as reported	$	113,978	$	106,561	$	330,424	$	319,416
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		1,995		1,861		5,642		5,577
Pro forma net income	$	111,983	$	104,700	$	324,782	$	313,839
Pro forma net income available to common stockholders	$	111,983	$	100,872	$	324,782	$	308,361
Earnings per share
Basic – as reported	$	1.22	$	1.08	$	3.54	$	3.32
Basic – pro forma	$	1.20	$	1.06	$	3.48	$	3.26
Diluted – as reported	$	1.20	$	1.07	$	3.50	$	3.27
Diluted – pro forma	$	1.18	$	1.05	$	3.44	$	3.21

4 – Investments

The Company is required to group assets in its investment portfolio into one of three categories: held to maturity, available for sale, and trading securities. Fixed maturity securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost. Fixed maturity and equity securities purchased and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses included in earnings. All other investments are classified as available for sale and are reported at fair value, with unrealized gains and losses (net of tax) reported as a separate component of stockholders’ equity as accumulated other comprehensive income. Realized gains and losses are determined on a specific identification method and are included in income. Other invested assets consist of residential mortgage-backed securities and are carried at fair value.

The Company periodically reviews its investment portfolio for declines in fair value below the amortized cost basis that are considered to be other-than-temporary and recognizes any such declines as a charge to earnings if the security has not been sold. In the third quarter of 2003, the Company did not record any additional charges related to declines in fair value considered to be other–than-temporary. For the year-to-date period of 2003, the Company recorded $4.3 million (pre-tax) of charges related to declines in fair value considered to be other—than—temporary. Declines in fair value below the amortized cost basis considered other-than-temporary for individual securities held in the Company’s investment portfolio were not material for other periods presented in this report.

5 – Segment Reporting

The Company has three reportable segments: mortgage insurance, financial guaranty and mortgage services. The mortgage insurance segment provides private mortgage insurance and risk management services to mortgage

9

lending institutions located throughout the United States and globally. Private mortgage insurance primarily protects lenders from default-related losses on residential first mortgage loans made to homebuyers who make downpayments of less than 20% of the purchase price and facilitates the sale of these mortgages in the secondary market. The financial guaranty segment provides credit-related insurance coverage, credit default swaps and certain other financial guaranty contracts to meet the needs of customers in a wide variety of domestic and international markets. For the periods presented in this report, revenues attributable to foreign countries were not material. The Company’s insurance businesses within the financial guaranty segment include the assumption of reinsurance from monoline financial guaranty insurers for both public finance bonds and structured finance obligations. The Company also provides direct financial guaranty insurance for public finance bonds and structured transactions and trade credit reinsurance. The mortgage services segment deals primarily with credit-based servicing and securitization of assets in underserved markets, in particular, the purchase and servicing of and securitization of special assets, including sub-performing/non-performing mortgages, seller financed residential mortgages and delinquent consumer assets. In addition, mortgage services includes the results of RadianExpress.com (“RadianExpress”), an internet-based settlement company that provides real estate information products and services to the first and second lien mortgage industry. The Company’s reportable segments are strategic business units, which are managed separately, as each business requires different marketing and sales expertise. Certain corporate income and expenses have been allocated to the segments.

In the mortgage insurance segment, the highest state concentration of risk is California at 15.3%. At September 30, 2003, California also accounted for 15.5 % of Mortgage Insurance’s total direct primary insurance in force and 8.1% of Mortgage Insurance’s total direct pool risk in force. California accounted for 15.5% of Mortgage Insurance’s direct primary new insurance written in the first nine months of 2003. The largest single customer of Mortgage Insurance (including branches and affiliates of such customer) measured by new insurance written, accounted for 8.4% of new insurance written during the first nine months of 2003 compared to 8.1% for full year 2002 and 12.6% for full year 2001. The amount originated in 2003 includes a large structured transaction for one customer composed of prime mortgage loans originated throughout the United States.

The financial guaranty segment derives a substantial portion of its premiums written from a small number of direct insurers. In the first nine months of 2003, 24.3 % of gross written premiums were derived from two primary insurers compared to 20.6% for the comparable period of 2002. Four primary insurers were responsible for 35.7% of gross written premiums in 2003, compared to 26.8% in 2002. This customer concentration results from a significant concentration of business with the small number of primary financial guaranty insurance companies. Five trade credit insurers were responsible for 12.0% of premiums written in 2003. During the first nine months of 2002, five trade credit insurers were responsible for 11.4% of premiums written.

The Company evaluates performance based on a number of financial measures including net income and return on equity. Summarized financial information concerning the Company’s operating segments as of and for the quarter and the year-to-date periods indicated, is presented in the following tables:

Mortgage Insurance	Quarter Ended September 30				Nine Months Ended September 30
(in thousands)	2003		2002		2003		2002
Net premiums written	$	195,360	$	162,484	$	550,359	$	488,874
Net premiums earned	$	199,787	$	162,139	$	557,537	$	499,051
Net investment income		26,626		27,068		81,208		79,882
Equity in net income of affiliates		—		—		—		—
Other income		10,729		5,570		25,145		13,980
Total revenues		237,142		194,777		663,890		592,913
Provision for losses		82,074		47,081		212,278		139,497
Policy acquisition costs		18,374		17,103		53,297		50,001

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Mortgage Insurance	Quarter Ended September 30						Nine Months Ended September 30
(in thousands)	2003			2002			2003		2002
Other operating expenses		33,846			25,182			96,442		81,236
Interest expense		5,403			4,121			16,065		12,796
Total expenses	$	139,697		$	93,487		$	378,082		283,530
Net gains (losses)		(74	)		(1,374	)		765		(2,305	)
Pretax income		97,371			99,916			286,573		307,078
Income tax provision		26,256			27,045			77,614		84,432
Net income	$	71,115		$	72,871		$	208,959	$	222,646
Total assets	$	3,692,010		$	3,163,479
Deferred policy acquisition costs		76,844			78,287
Reserve for losses and loss adjustment expenses		499,583			479,157
Unearned premiums		104,064			94,624
Equity		1,760,328			1,583,019
Financial Guaranty	Quarter Ended September 30						Nine Months Ended September 30
(in thousands)	2003			2002			2003		2002
Net premiums written	$	90,157		$	72,130		$	261,414	$	207,988
Net premiums earned	$	61,256		$	47,373		$	184,647	$	130,681
Net investment income		19,739			18,388			58,797		52,758
Equity in net income (loss) of affiliates		2,149			(510	)		7,607		(529	)
Other income		251			251			3,010		1,082
Total revenues		83,395			65,502			254,061		183,992
Provision for losses		18,688			10,842			51,782		33,429
Policy acquisition costs		15,413			7,612			42,875		23,764
Other operating expenses		9,635			6,569			27,821		23,061
Interest expense		3,376			2,532			9,477		7,265
Total expenses		47,112			27,555			131,955		87,519
Net gains (losses)		8,664			156			2,838		(5,625	)
Pretax income		44,947			38,103			124,944		90,848
Income tax provision		12,328			10,368			33,846		24,979
Net income	$	32,619		$	27,735		$	91,098	$	65,869
Total assets	$	2,174,838		$	1,838,600
Deferred policy acquisition costs		135,234			101,550
Reserve for losses and loss adjustment expenses		169,463			133,280
Unearned premiums		580,867			482,228
Equity		1,128,447			898,787

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Mortgage Services	Quarter Ended September 30					Nine Months Ended September 30
(in thousands)	2003			2002		2003			2002
Net premiums written		—			—		—			—
Net premiums earned		—			—		—			—
Net investment income	$	—		$	47	$	36		$	101
Equity in net income of affiliates		19,138			13,503		62,427			58,916
Other income		7,509			2,380		20,294			15,386
Total revenues		26,647			15,930		82,757			74,403
Provision for losses		—			—		—			—
Policy acquisition costs		—			—		—			—
Other operating expenses		7,942			7,292		28,166			23,991
Interest expense		873			525		2,346			1,510
Total expenses		8,815			7,817		30,512			25,501
Net gains (losses)		(740	)		1,813		(1,631	)		2,602
Pretax income		17,092			9,926		50,614			51,504
Income tax provision		6,848			3,971		20,247			20,603
Net income	$	10,244		$	5,955	$	30,367		$	30,901
Total assets	$	286,546		$	228,810
Deferred policy acquisition costs		—			—
Reserve for losses and loss adjustment expenses		—			—
Unearned premiums		—			—
Equity		234,106			186,740

The reconciliation of segment net income to consolidated net income is as follows:

Consolidated	Quarter Ended September 30				Nine Months Ended September 30
(in thousands)	2003		2002		2003		2002
Net income:
Mortgage Insurance	$	71,115	$	72,871	$	208,959	$	222,646
Financial Guaranty		32,619		27,735		91,098		65,869
Mortgage Services		10,244		5,955		30,367		30,901
Total	$	113,978	$	106,561	$	330,424	$	319,416

6 – Short-Term and Long-Term Debt

In February 2003, the Company issued, in a private placement, $250 million of unsecured Senior Notes. These notes bear interest at the rate of 5.625% per annum, payable semi-annually on February 15 and August 15. These notes mature in February 2013. The Company has the option to redeem some or all of the notes at any time with not less than 30 days notice. The Company used a portion of the proceeds from the private placement to repay the $75.0 million in principal outstanding of the 6.75% debentures due March 1, 2003 issued by Enhance Financial Services Group Inc. (“EFSG”). The remainder will be used for general corporate purposes. In late July 2003, the Company offered to exchange all of the notes for new notes with terms substantially identical to the terms of the old notes, except that the new notes are registered and have no transfer restrictions, rights to additional interest or registration rights, except in limited circumstances.

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The composition of short-term and long-term debt on the dates indicated was as follows:

($ in thousands)	September 30 2003		December 31 2002
5.625% Senior Notes due 2013	$	248,146	$	—
2.25% Senior Convertible Debentures due 2022		220,000		220,000
7.75% Debentures due 2011		249,201		249,145
6.75% Debentures due 2003		—		75,000
	$	717,347	$	544,145

7 – Redeemable Preferred Stock

On August 15, 2002, the Company redeemed its $4.125 Preferred Stock, par value $.001 per share. Pursuant to the Company’s sinking fund redemption obligation, 72,000 shares were redeemed at $50.00 per share, and the remaining 728,000 shares were redeemed at $54.125 per share. Accrued and unpaid dividends on the shares to the date of redemption were also paid as part of the redemption price. The excess of the amount paid over the carrying value of the preferred stock of $3.0 million was accounted for as a charge to equity and resulted in an approximate $.03 reduction in earnings per share in the period when the redemption occurred.

8 – Preferred Securities

In September 2003, Radian Asset Assurance closed on a $150 million “soft capital” facility, pursuant to which it entered into a series of three perpetual put options on its own preferred stock to Radian Asset Securities Inc., (“Radian Asset Securities”) a newly formed affiliate and wholly-owned subsidiary of the Company. Radian Asset Securities in turn entered into a series of three perpetual put options on its own preferred stock (on substantially identical terms to the Radian Asset Assurance preferred stock). The counterparty to the Radian Asset Securities put options are three trusts established by two major investment banks (“the Broker-Dealers”). The trusts were created as a vehicle for providing capital support to Radian Asset Assurance by allowing Radian Asset Assurance to obtain immediate access to additional capital at its sole discretion at any time through the exercise of one or more of the put options and the corresponding exercise of one or more corresponding Radian Asset Securities put options. If the Radian Asset Assurance put options were exercised, Radian Asset Securities, through the Radian Asset Assurance preferred stock thereby acquired by Radian Asset Securities and investors, through their equity investment in the Radian Asset Securities preferred stock, would give Radian Asset Securities and the investors rights to the assets of Radian Asset Assurance of an equity investor in Radian Asset Assurance. Such rights would be subordinate to policyholders’ claims, as well as to claims of general unsecured creditors of Radian Asset Assurance, but ahead of those of the Company, through EFSG, as the owner of the common stock of Radian Asset Assurance. If all the Radian Asset Assurance put options were exercised, Radian Asset Assurance would receive up to $150 million in return for the issuance of its own perpetual preferred stock, the proceeds of which may be used for any purpose including the payment of claims. Dividend payments on the preferred stock will be cumulative only if Radian Asset Assurance pays dividends on its common stock. Each trust will be restricted to holding high quality, short-term commercial paper investments to ensure that it can meet its obligations under the put option. To fund these investments, each trust will issue its own auction market perpetual preferred stock. Each trust is rated “A” by each of S&P and Fitch. The initial costs to issue this facility are recorded as a reduction to additional paid in capital. Ongoing costs of the put premium are charged to other operating expenses.

9 – Recent Accounting Pronouncements

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation also incorporates, without change, the guidance in FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others,” which is being superseded. The initial recognition and initial measurement of provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Interpretation does not apply to the financial guaranty insurance policies issued by the Company. However, the Company has guaranteed the performance of an affiliate under a $25 million revolving credit facility that expires in December 2003. At September 30, 2003 there were no amounts outstanding under this facility.

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In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” The Interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains interest after that date. The implementation of this Interpretation has been deferred until December 15, 2003 and applies to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Several FASB Staff Positions (“FSP’s”) have been finalized and there are several proposed FSP’s issued with regards to this interpretation. Currently, the Company is not the primary beneficiary of a variable interest entity. However, the Company has been a transferor of financial assets considered to be a qualifying special purpose entity (“QSPE”) described in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” These QSPEs are not within the scope of the Interpretation. In management’s opinion, this Interpretation will not have a material effect on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting For Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement amends certain paragraphs of FASB Statements No. 128 and No. 133 and is effective for financial instruments entered into or modified after May 31, 2003. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires an issuer to classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The Company does not believe this Statement will have a material impact on its financial statements.

10 – Other Information

On September 24, 2002, the Company announced that its Board of Directors had authorized the repurchase of up to 2.5 million shares of its common stock on the open market. Shares will be purchased from time to time depending on the market conditions, share price, and other factors. These purchases will be funded from available working capital. At September 30, 2003 and December 31, 2002, 1.9 million shares and 1.4 million shares, respectively, had been purchased under this repurchase program at a total price of approximately $61.2 million and $45.1 million, respectively.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on the Company’s beliefs, assumptions, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which the Company operates. Words such as “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “will” and “estimate” help identify forward-looking statements. The following are some of the factors that could cause actual outcomes to differ materially from the matters expressed or implied in the Company’s forward-looking statements. Readers are also directed to risks discussed in other documents filed by the Company with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the Company’s forward–looking statements, which speak only as of their respective dates.

• changes in the business practices of Fannie Mae and Freddie Mac, the largest purchasers of mortgage loans insured by the Company;

• general economic developments such as extended national or regional economic recessions (or expansions), business failures, material changes in housing values, changes in unemployment rates, interest rate changes or volatility, changes in investor perceptions of the strength of private mortgage insurers or financial guaranty providers, investor concern over the credit quality of municipalities and corporations, and specific risks faced by the particular businesses, municipalities or pools of assets covered by the Company’s insurance;

• the loss of significant customers with whom the Company has a concentration of its mortgage insurance and financial guaranty insurance in force or the addition of new customers;

• economic changes in regions where the Company’s mortgage insurance or financial guaranty risk is more concentrated;

• the Company’s mix of mortgage insurance business could move to a higher percentage of non-prime business, which typically has higher losses associated with it;

• the potential for more severe losses or more frequent losses associated with certain of the Company’s products that are riskier than traditional mortgage insurance and financial guaranty insurance policies, such as insurance on high-LTV, adjustable-rate mortgage and non-prime mortgage loans, credit insurance on non-traditional mortgage related assets such as second mortgages and manufactured housing, credit enhancement of mortgage related capital market transactions, guaranties on certain asset-backed transactions and securitizations, guaranties on obligations under credit default swaps and trade credit reinsurance;

• the potential to be committed to insure a material number of mortgage loans with unacceptable risk profiles through the Company’s delegated underwriting program;

• material changes in persistency rates of the Company’s mortgage insurance policies caused by changes in refinancing activity, appreciating or depreciating home values and changes in the mortgage insurance cancellation requirements of mortgage lenders and investors;

• changes in the ability of the Company to recover amounts paid on defaulted mortgages by taking title to a mortgaged property, due to a failure of housing values to appreciate;

• downgrades of the financial strength ratings assigned by the major rating agencies to any of the Company’s operating subsidiaries at any time, which has occurred in the past;

• changes to mortgage insurance revenues due to intense competition from others such as the Federal Housing Administration and Veterans Administration or other private mortgage insurers, and from alternative products such as “80-10-10 loan” structures used by mortgage lenders or other forms of credit enhancement used by investors;

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• changes to financial guaranty revenues due to changes in competition from other financial guaranty insurers, and from other forms of credit enhancement such as letters of credit, guaranties and credit default swaps provided by foreign and domestic banks and other financial institutions;

• changes in the demand for private mortgage insurance caused by legislative and regulatory changes such as increases in the maximum loan amount that the Federal Housing Administration can insure;

• changes in claims against mortgage insurance products as a result of aging of the Company’s mortgage insurance policies;

• changes in the demand for financial guaranty insurance caused by changes in laws and regulations affecting the municipal, asset-backed debt markets and trade credit reinsurance; and

• changes to the Company’s ability to maintain sufficient reinsurance capacity needed to comply with regulatory, rating agency and internal single-risk retention limits as the Company’s business grows, in a reinsurance market that has recently become more concentrated.

Results of Consolidated Operations

Net income for the third quarter of 2003 was $114.0 million or $1.20 per share compared to $106.6 million or $1.07 per share for the third quarter of 2002. Net income for the first nine months of 2003 was $330.4 million or $3.50 per share, compared to $319.4 million or $3.27 per share for the nine months ended September 30, 2002. The 6.9% increase in net income for the third quarter was primarily a result of growth in the Company’s business volumes. Insurance in force for the mortgage insurance business segment (“Mortgage Insurance”) increased from $109.4 billion at September 30, 2002 to $121.3 billion at September 30, 2003. Total net debt service outstanding on transactions insured by the financial guaranty business segment (“Financial Guaranty”) increased from $103.0 billion at September 30, 2002 to $116.2 billion at September 30, 2003. These increases in business volumes produced increases in written and earned premiums, investment income and other income. Partially offsetting these increases were increases in the provision for losses, policy acquisition costs, operating expenses and interest expense to support the higher business volumes, as further discussed in the last paragraph of this “Results of Consolidated Operations” subsection. Equity in net income of affiliates increased by $8.3 million in the third quarter of 2003 from the $13.0 million recorded in the third quarter of 2002 primarily due to strong results at Credit-Based Asset Servicing and Securitization LLC (“C-BASS”) and Sherman Financial Services Group LLC (“Sherman”).These results tend to vary from period to period due to a portion of C-BASS’s income being generated from sales of mortgage backed securities in the capital markets. Equity in net income of affiliates for the third quarter and year-to-date periods of 2003 includes $2.8 million and $7.4 million, respectively, related to the Company’s investment in Primus Guaranty, Ltd., a Bermuda holding company and parent to Primus Financial Products, LLC. (“Primus”), a company rated “Aaa” by Moody’s Investor Services Inc. and “AAA” by Standard & Poor’s rating service, a division of McGraw-Hill Companies, Inc. (“S&P”) that provides credit risk protection to derivatives dealers and credit portfolio managers on individual investment-grade entities. The Company accounts for the Primus investment under the equity method of accounting. The results of Primus for the third quarter and year-to-date periods of 2002 were immaterial to the Company’s Condensed Consolidated Financial Statements.

Consolidated earned premiums for the third quarter of 2003 were $261.0 million, an increase of $51.5 million or 24.6% from $209.5 million in the third quarter of 2002. Mortgage Insurance contributed $37.6 million of this increase and Financial Guaranty contributed $13.9 million of this increase. Net investment income for the third quarter of 2003 increased to $46.4 million from $45.5 million in the third quarter of 2002. This increase was primarily due to a larger investment portfolio balance as a result of continued positive operating cash flows and the proceeds from the issuance of $250 million of notes in the first quarter of 2003 offset by lower yields on investments. Other income increased to $18.5 million in the third quarter of 2003 from $8.2 million in the same period of 2002, primarily related to increased contract underwriting income in the mortgage insurance segment and revenues from RadianExpress, included in the mortgage services segment. Consolidated earned premiums for the first nine months of 2003 were $742.2 million, up 17.9% from $629.7 million for the same period of 2002. Mortgage Insurance contributed $58.5 million of this increase and Financial Guaranty contributed $54.0 million.

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Net investment income of $140.0 million for the nine months ended September 30, 2003 increased $7.3 million or 5.5% from $132.7 million reported in the comparable period of 2002. Equity in net income of affiliates increased 19.9% from $58.4 million for the first nine months of 2002 to $70.0 million for the same period of 2003. Other income increased 59.2% to $48.4 million for the first nine months of 2003 compared to $30.4 million in the comparable period of 2002.

The provision for losses was $100.8 million for the third quarter of 2003, an increase of $42.9 million or 74.1% from the $57.9 million reported for the third quarter of 2002. Approximately $35.0 million of this was related to Mortgage Insurance to support an increase in claims payments and delinquency rates, and $7.9 million was due to reserve additions at Financial Guaranty. Policy acquisition costs for the third quarter of 2003 were $33.8 million, up from $24.7 million for the third quarter of 2002, primarily due to increased business volumes over the last few years. Other operating expenses of $51.4 million increased $12.4 million or 31.8% from the $39.0 million reported in the third quarter of 2002. This was primarily due to increases in salaries and benefits related to an increase in headcount to support higher volumes, increased professional fees and fees for outside services, increased costs at RadianExpress, and increased depreciation and software costs due to increased capital expenditures in late 2001 and 2002. Interest expense of $9.7 million for the third quarter of 2003 increased from $7.2 million for the third quarter of 2002, as a result of the issuance of $250 million of long-term debt in February 2003. The provision for losses of $264.1 million for the first nine months of 2003 increased $91.2 million or 52.7% from $172.9 million in the same period of 2002. The increase in the provision for losses for the nine month period of 2003 was primarily related to increased claims and delinquency rates in Mortgage Insurance and reserve additions at Financial Guaranty. Policy acquisition costs were $96.2 million for the nine months ended September 30, 2003 compared to $73.8 million for the first nine months of 2002. Other operating expenses were $152.4 million for the first nine months of 2003, a $24.1 million or 18.8% increase from $128.3 million in the same period of 2002. Interest expense of $27.9 million increased from $21.6 million for the first nine months of 2002, due to the increases in levels of long-term debt to support higher business volumes discussed above. The consolidated effective tax rate was 28.5% for the three and nine months ended September 30, 2003, compared to 28.0% and 28.9% for the three and nine month periods of 2002. The tax rate reflects the significant investment in tax-advantaged securities.

Mortgage Insurance – Results of Operations

Net income for the third quarter of 2003 was $71.1 million, down from $72.9 million in the third quarter of 2002. This net decrease was due principally to higher provision for losses and other operating expenses partially offset by higher earned premiums and other income. Primary new insurance written during the third quarter of 2003 was $16.3 billion, a 71.6% increase compared to $9.5 billion for the third quarter of 2002. This increase in primary new insurance written in Mortgage Insurance for the third quarter of 2003 was primarily due to an increase in insurance written both through flow business and structured transactions. During the first nine months of 2003, Mortgage Insurance wrote $17.5 billion or 31.4% of new insurance written through structured transactions as compared to $6.8 billion or 20.3% of new insurance written in the same period of 2002. Of this amount in 2003, $10.7 billion was written in the first three months of the year. The amount originated in the first quarter of 2003 includes a large structured transaction for one customer composed of prime mortgage loans originated throughout the United States. The Company’s participation in the structured transactions market is likely to vary significantly from quarter to quarter as the Company competes with other mortgage insurers as well as capital market executions for these transactions.

In the third quarter and year-to-date periods of 2003, the Company wrote $88.2 million and $653.7 million, respectively, of pool insurance risk as compared to $28.1 million and $148.9 million in the same periods of 2002. The majority of this pool risk consisted of prime and Alternative A (“Alt A”) loans.

Mortgage Insurance’s volume in the third quarter and year-to-date periods of 2003 was impacted by lower interest rates that affected the entire mortgage industry. The continued low interest rate environment caused refinancing activity to continue to remain high and contributed to the industry’s significant volume of new insurance written for the third quarter of 2003. Mortgage Insurance’s refinancing activity as a percentage of primary new insurance written was 48% for the third quarter of 2003 as compared to 33% for the same period in 2002. The persistency rate, which is defined as the percentage of insurance in force that remains in effect after a 12 month period, was 46.1% for the twelve months ended September 30, 2003 as compared to 58.8% for the twelve months ended September 30, 2002. This decrease was consistent with the increasing level of refinancing activity, which caused the cancellation rate to increase. The expectation for the end of 2003 and into 2004 is a slowdown in the industry volume of new insurance written and an increase in persistency rates, influenced by slowly rising interest rates.

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Net premiums earned in the third quarter and first nine months of 2003 were $199.8 million and $557.5 million, respectively. These amounts represent increases of 23.3% and 11.7%, respectively, compared to $162.1 million and $499.1 million for the comparable respective periods of 2002. These increases, which were greater than the increase in direct primary insurance in force, reflected a significant increase in non-traditional new insurance volume in Radian Insurance Inc. (“Radian Insurance”) and Amerin Guaranty Corporation (“Amerin Guaranty”), which is not included in primary insurance in force, and a higher percentage of non-prime business. Premiums earned in Radian Insurance and Amerin Guaranty, primarily from financial guaranty insurance on mortgage related assets and second mortgages, were $28.6 million and $67.8 million, respectively, for the three and nine month periods ended September 30, 2003 compared to $8.0 million and $23.9 million, respectively, for the same periods of 2002. As further discussed below, non-prime business has higher premium rates, which are commensurate with the increased level of expected losses associated with the insurance. The insurance in force growth resulting from strong new insurance volume in the third quarter of 2003 was tempered by the decrease in persistency levels. These lower persistency levels will continue to impact premiums earned in future periods. There was an increase in direct primary insurance in force for the first nine months of 10.0%, from $110.3 billion at December 31, 2002 to $121.3 billion at September 30, 2003. Total pool risk in force was $2.4 billion at September 30, 2003 compared to $1.7 billion at December 31, 2002.

The Company insures non-traditional loans, specifically Alt A and A minus loans (collectively, referred to as “non-prime” business). Alt A borrowers have a similar credit profile to the Company’s prime borrowers, but these loans are underwritten with reduced documentation and verification of information. The Company typically charges a higher premium rate for this business due to the reduced documentation, but the Company does not consider this business to be significantly more risky than its prime business, as long as the loans contain credit scores similar to the prime business. The A minus loan programs typically have non-traditional credit standards that are less stringent than standard credit guidelines. To compensate for this additional risk, the Company receives a higher premium for insuring this product that the Company believes is commensurate with the additional default risk. During the third quarter and year-to-date periods of 2003, non-prime business accounted for $4.5 billion and $18.7 billion or 27.8% and 33.6%, respectively, of Mortgage Insurance’s primary new insurance written as compared to $2.9 billion and $10.7 billion or 30.4% and 31.9%, respectively, for the same periods in 2002. Of the $4.5 billion of non-prime business for the third quarter of 2003 and $18.7 billion year-to-date 2003, $3.4 billion and $12.5 billion, respectively, was Alt A.

The Company insures mortgage-related assets in a Pennsylvania domiciled insurer, Radian Insurance. Radian Insurance is rated “AA” by Standard & Poor’s Insurance Rating Service and Fitch Ratings and “Aa3” by Moody’s Investors Service and was formed to write credit insurance and financial guaranty insurance on mortgage-related assets that are not permitted to be insured by monoline mortgage guaranty insurers. Such assets include second mortgages, manufactured housing loans, home equity loans and mortgages with loan-to-value ratios above 100%. Radian Insurance also provides credit enhancement to mortgage related capital market transactions. In October 2001, Radian Insurance entered into a reinsurance agreement with one of its affiliates, Radian Asset Assurance Inc. (“Radian Asset Assurance”), for a substantial part of its business. In 2002, most of the financial guaranty insurance business on mortgage and mortgage related assets was written in Radian Asset Assurance. During 2003, this business has been written in both Radian Asset Assurance and Radian Insurance. Risk in force in Radian Insurance and Amerin Guaranty was $1.0 billion at September 30, 2003 compared to $.5 billion at December 31, 2002.

Mortgage Insurance and other companies in the industry have entered into risk-sharing arrangements with various customers that are designed to allow the customer to participate in the risks and rewards of the mortgage insurance business. One such product is captive reinsurance, in which a mortgage lender sets up a mortgage reinsurance company that assumes part of the risk associated with that lender’s insured book of business. In most cases, the risk assumed by the reinsurance company is an excess layer of aggregate losses that would be penetrated only in a situation of adverse loss development. For the third quarter of 2003, premiums ceded under captive reinsurance arrangements were $18.6 million, or 9.8% of total premiums earned during the period, as compared to $14.0 million, or 8.6% of total premiums earned for the same period of 2002. For the year-to-date period of 2003, premiums ceded under captive reinsurance arrangements were $54.6 million, or 10.0% of total premiums earned during the period, as compared to $38.9 million, or 7.8% of total premiums earned for the same period of 2002. New primary insurance written under captive reinsurance arrangements for the three and nine months ended September 30, 2003 was $6.5 billion and $17.2 billion, respectively, or 40.0% and 30.9%, respectively, of total primary new insurance written for the third quarter and year to date periods of 2003. For 2002 new insurance written under captive insurance arrangements was $2.9 billion and $11.0 billion, respectively, or 30.1% and 32.9%, of total primary new insurance written, for the three and nine months ended September 30, 2002.

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Net investment income for the third quarter of 2003 was $26.6 million, a slight decrease compared to $27.1 million for the same period of 2002. This decrease was a result of lower yields on the overall investment portfolio. The Company has continued to invest some of its net operating cash flow in tax-advantaged securities, primarily municipal bonds, although the Company’s investment policy allows the purchase of various other asset classes, including common stock and convertible securities. The Company’s common equity exposure is restricted to a maximum of 5% of the investment portfolio’s market value, while the investment-grade convertible securities and investment-grade taxable bond exposures are each targeted not to exceed 10%. Net investment income was $81.2 million for the nine months ended September 30, 2003 compared to $79.9 million for the same period of 2002.

The provision for losses was $82.1 million for the three months ended September 30, 2003, an increase of 74.3% compared to $47.1 million for the comparable three months of 2002. This resulted primarily from an increase in claims coupled with higher delinquency (or default) rates. Claims activity is not spread evenly throughout the coverage period of a book of business. Relatively few claims on prime business are received during the first two years following issuance of the policy and on non-prime business during the first year. Historically, claim activity on prime loans has reached its highest level in the third through fifth years after the year of policy origination, and on non-prime loans this level is expected to be reached in the second through fourth years. Approximately 80.9% of the primary risk in force and approximately 41.9% of the pool risk in force at September 30, 2003 had not yet reached its highest claim frequency years. The combined default rate for both primary and pool insurance, excluding second lien insurance coverage, was 2.9% at September 30, 2003, compared to 2.8% at December 31, 2002 and compared to 2.5% at September 30, 2002, and the default rate on the primary business was 4.3% at September 30, 2003 compared to 4.1% at December 31, 2002 and 3.8% at September 30, 2002. A strong economy generally results in better loss experience and a decrease in the overall level of losses. A continued weakening of the economy could negatively impact the Company’s overall default rates, which would result in an increase in the provision for losses.

The total number of defaults increased from 43,773 at December 31, 2002 to 47,035 at September 30, 2003. The average loss reserve per default decreased from $11,073 at the end of 2002 to $10,622 at September 30, 2003. The loss reserve as a percentage of risk in force was 1.7% at December 31, 2002 and 1.6% at September 30, 2003. The non-prime mortgage insurance business has experienced a consistent increase in the number of defaults. Although the default rate on this business is higher than on the prime book of business, it is currently within the Company’s expected range for this type of business, and the higher premium rates charged for the non-prime business are expected to compensate for the increased level of expected losses associated with this business. The number of non-prime loans in default at September 30, 2003 was 17,618, which represented 45.4% of the total primary loans in default, compared to 14,305 non-prime loans in default at December 31, 2002, which represented 40.0% of the total primary loans in default. The default rate on the Alt A business was 4.6% at September 30, 2003 compared to 5.2% at December 31, 2002. The default rate on the A minus and below loans was 10.5% at September 30, 2003, compared to 11.3% at December 31, 2002. It is too early to determine whether ultimate losses on the non-prime business will reflect the assumptions made when the business was originated. The default rate on the prime business was 3.2% at September 30, 2003 and 3.1% at December 31, 2002.

Direct claims paid for the third quarter and year-to-date periods of 2003 were $71.2 million and $192.4 million, respectively, compared to $41.2 million and $117.5 million for the comparable periods of 2002. The severity of loss payments has increased over the past few years due primarily to deeper coverage amounts and larger loan balances. In addition, claims paid in 2003 have been impacted by the rise in delinquencies in 2001 and 2002 that have proceeded to foreclosure. A disproportionately higher incidence of claims in Georgia and Utah is directly related to questionable property value estimates in those states. The Company’s risk management department identified these issues over a year ago and has put into place several property valuation checks and balances to mitigate the risk of these issues recurring. Further, these same techniques are being applied to all mortgage insurance transactions. The Company expects this higher incidence of claims in Georgia and Utah to continue until loans originated in Georgia and Utah prior to the implementation of these preventive measures become sufficiently seasoned. The Company believes that claims in the Midwest and Southeast have been rising and will continue to rise due to the weakening of the industrial sector of the economy. The Company anticipates that overall claim payments will continue to increase through the remainder of 2003 and into 2004.

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The following table provides selected information as of and for the periods indicated for the Mortgage Insurance segment:

	Three Months Ended									Nine Months Ended
($ thousands, unless specified otherwise)	September 30, 2003			June 30, 2003			September 30, 2002			September 30, 2003		September 30, 2002
Provision for losses	$	82,074		$	76,037		$	47,081		$	212,278	$	139,497
Reserve for losses	$	499,583		$	490,579		$	479,157
Primary Insurance:
Prime:
Number of insured loans		663,870			683,734			723,322
Number of loans in default		21,232			20,889			20,427
Percentage of total loans in default		3.20	%		3.06	%		2.82	%
Alt A:
Number of insured loans		128,278			120,943			86,576
Number of loans in default		5,832			5,272			4,767
Percentage of total loans in default		4.55	%		4.36	%		5.51	%
A Minus and below:
Number of insured loans		112,498			112,646			71,929
Number of loans in default		11,768			10,941			8,548
Percentage of loans in default		10.46	%		9.71	%		11.88	%
Total:
Number of insured loans		904,646			917,323			881,827
Number of loans in default		38,832			37,102			33,742
Percentage of total loans in default		4.29	%		4.04	%		3.83	%
Direct claims paid:
Prime	$	32,411		$	32,271		$	20,975		$	88,746	$	65,100
Non-prime
Alt A		15,072			12,091			8,117			35,771		18,733
A Minus and below		19,175			17,169			7,902			50,279		20,832
Seconds		4,561			6,336			4,248			17,602		12,797
Total	$	71,219		$	67,867		$	41,242		$	192,398	$	117,462
Average claim paid	$	27.2		$	27.8		$	25.3		$	26.7	$	26.0
Claims paid:
Georgia	$	7,608		$	7,287		$	3,051		$	19,816	$	9,511
Texas		6,175			4,051			2,229			13,124		6,508
Florida		3,105			3,988			2,578			9,788		6,178
Utah		3,985			3,412			2,627			9,771		7,142
Ohio		3,311			2,623			1,253			8,262		3,865

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	Three Months Ended									Nine Months Ended
	September 30, 2003			June 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002
Percentage of total claims paid:
Georgia		10.7	%		10.7	%		7.4	%		10.3	%		8.1	%
Texas		8.7			6.0			5.4			6.8			5.5
Florida		4.4			5.9			6.3			5.1			5.3
Utah		5.6			5.0			6.4			5.1			6.1
Ohio		4.6			3.9			3.0			4.3			3.3
Risk in Force: ($ millions)
California	$	4,168		$	4,492		$	4,323
Florida		2,235			2,258			2,020
New York		1,661			1,720			1,613
Texas		1,428			1,460			1,384
Georgia		1,239			1,250			1,171
Total Risk in Force	$	27,187		$	27,815		$	26,181
Percentage of total risk in force:
California		15.3	%		16.1	%		16.5	%
Florida		8.2			8.1			7.7
New York		6.1			6.2			6.2
Texas		5.3			5.2			5.3
Georgia		4.6			4.5			4.5
New insurance written: ($ millions)
Prime	$	11,740		$	11,710		$	6,602		$	36,950		$	22,818
Alt A		3,362			4,070			2,184			12,535			7,968
A Minus and below		1,167			2,346			702			6,185			2,711
Total	$	16,269		$	18,126		$	9,488		$	55,670		$	33,497
Primary risk written ($ millions)	$	3,863		$	4,549		$	2,243		$	13,796		$	8,335
Direct primary insurance in force ($ millions)	$	121,334		$	122,086		$	109,363
Pool Insurance: ($ millions)
Pool risk written ($ millions)	$	88		$	502		$	28		$	654		$	149
GSE pool risk in force ($ millions)	$	1,391		$	1,212		$	1,220
Total pool risk in force ($ millions)	$	2,394		$	2,340		$	1,720
Other Risk in Force ($ millions)	$	961		$	775		$	381

Policy acquisition and other operating expenses were $52.2 million for the third quarter of 2003, an increase of $9.9 million or 23.4% compared to $42.3 million for the same period of 2002. For the nine months ended September 30, 2003, these expenses were $149.7 million, an increase of $18.5 million or 14.1% compared to $131.2 million for the comparable period of 2002. Policy acquisition expenses relate directly to the acquisition of new business, and other operating expenses primarily represent contract underwriting expenses, overhead and administrative costs. Policy acquisition costs were $18.4 million in the third quarter of 2003, a 7.6% increase compared to $17.1 million in the third quarter of 2002. The amortization of expenses is related to the recognition of gross profits over the life of the policies. Much of the amortization in the current year represents costs that were expended in 2002. Other operating expenses for the third quarter of 2003 were $33.8 million, an increase of 34.1%

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compared to $25.2 million for the third quarter of 2002. This reflects an increase in expenses associated with the Company’s technological, administrative and support functions. Contract underwriting expenses for the third quarter of 2003, included in other operating expenses, were $15.1 million as compared to $11.2 million for the same period of 2002, an increase of 34.8%. This $3.9 million increase in contract underwriting expenses during the third quarter of 2003 reflected the higher demand for contract underwriting services as a result of higher volumes of new insurance written. Other income, which primarily includes income related to contract underwriting services, was $10.7 million for the third quarter of 2003 as compared to $5.6 million for the same period of 2002. During the first nine months of 2003, loans underwritten via contract underwriting accounted for 27.0% of applications, 26.0% of insurance commitments, and 22.4% of certificates issued by the Company as compared to 32.0% of applications, 30.0% of commitments and 23.7% of certificates in the first nine months of 2002. Mortgage Insurance utilizes its underwriting skills to provide an outsourced underwriting service to its customers known as contract underwriting. For a fee, Mortgage Insurance underwrites loan files for secondary market compliance while concurrently assessing the file for mortgage insurance, if applicable. Mortgage Insurance gives recourse to its customers on loans it underwrites for secondary market compliance on which it has made a material error, by placing mortgage insurance coverage on the loan, by purchasing the loan, or by indemnifying the customer against future loss associated with the loan. Purchasing the loan would subject the Company to credit risk and interest rate risk. Also, in a rising interest rate environment, the value of loans that Mortgage Insurance is required to purchase could decrease, and consequently, the costs of such purchases could increase. During the first nine months of 2003, less than 1% of all loans were subject to these remedies and the costs associated with these remedies were immaterial.

Interest expense for the third quarter of 2003 was $5.4 million compared to $4.1 million for the third quarter of 2002. This represented the allocation of interest on the long-term debt issued during 2001 and 2002 and the $250 million of notes issued in February 2003. Net losses on dispositions of investments and changes in the fair value of derivative instruments were $0.1 million in the third quarter of 2003 compared to a loss of $1.4 million in the comparable period of 2002. This primarily related to the change in the fair value of derivative instruments, primarily embedded derivatives in convertible debt securities offset by a slight reduction in gains on dispositions.

The effective tax rate for the quarter and year-to-date periods ended September 30, 2003 was 27.0% and 27.1% as compared to 27.1% and 27.5% for the third quarter and the year-to-date periods of 2002. The tax rate reflects the significant investment in tax-advantaged securities.

The U.S. Department of Housing and Urban Development (“HUD”) has proposed a rule under the Real Estate Settlement Procedures Act (“RESPA”) to create an exemption from the provisions of RESPA that prohibit the giving of any fee, kickback or thing of value pursuant to any agreement or understanding that real estate settlement services will be referred. The proposed rule would make the exemption available to lenders that, at the time a borrower submits a loan application, give the borrower a firm, guaranteed price for all settlement services associated with the loan. Mortgage insurance is currently included in the proposed rule as one of these settlement services. HUD is currently considering comments to the proposed rule, and it is not clear when a final rule will be released. If the rule is implemented, the premiums charged for the mortgage insurance could be affected. As the final rule has not yet been issued, management is unable to determine what impact, if any, it will have on the Company.

Financial Guaranty– Results of Operations

The financial guaranty insurance segment operations are conducted through insurance subsidiaries of Enhance Financial Services Group Inc. (“EFSG”) and primarily involve the direct insurance and reinsurance of public finance bonds and asset-backed securities, and other structured financial obligations, including credit default swaps and certain other financial guaranty contracts. Financial guaranty and trade credit reinsurance (which protects sellers of goods under certain circumstances against non-payment of the receivables they hold from the buyers of their goods) is assumed primarily from a limited number of direct insurers. Approximately 35.7% of total gross written premiums for Financial Guaranty were derived from four insurers in the first nine months of 2003. A substantial reduction in the amount of insurance assumed from one or more of these principal clients could have a material adverse affect on Financial Guaranty’s gross written premiums and, potentially, its results of operations. Five trade credit insurers were responsible for 12.0% of premiums written in the first nine months of 2003 compared to 11.4% for the same period of 2002. The Company’s trade credit reinsurance may cover receivables as to which the buyer and seller are in the same country, as well as cross-border receivables. In such cross-border transactions, the Company sometimes provides coverage that extends to certain political risks, such as foreign currency controls and expropriation, which could interfere with the payment by the buyer of the goods that are the subject of the transaction being reinsured by the Company.

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On October 4, 2002, S&P announced that it had downgraded the Insurer Financial Strength rating of Radian Reinsurance Inc. (“Radian Reinsurance”) from “AAA” to “AA.” On April 8, 2003, Fitch Rating Service (“Fitch”) downgraded the Insurer Financial Strength rating of Radian Reinsurance from “AAA” to “AA” and removed it from “negative watch.” Radian Reinsurance and Radian Asset Assurance are parties to numerous reinsurance agreements with primary insurers which grant the primary insurers the right to recapture all of the business ceded to Radian Reinsurance or Radian Asset Assurance under these agreements if the financial strength rating of Radian Reinsurance or Radian Asset Assurance, as the case may be, is downgraded below the rating levels from specified rating agencies established in the agreements, and, in some cases, to increase the commissions in order to compensate the primary insurers for the decrease in credit the rating agencies give the primary insurers for the reinsurance provided by Financial Guaranty.

As a result of the downgrade by S&P, the primary insurers have the right described above to recapture the financial guaranty reinsurance ceded to Radian Reinsurance, including substantially all of the unearned premium reserves of Radian Reinsurance. The primary insurers do not have a similar right with respect to the downgrade by Fitch. As described above, the primary insurers also have the right to increase commissions charged to Radian Reinsurance for cessions, including the right to additional commission related to the unearned premium reserves for reinsurance previously ceded to Radian Reinsurance. Radian Reinsurance has reached agreement with two of the primary insurers whereby such primary insurers have agreed not to exercise their rights with respect to the downgrade of Radian Reinsurance by S&P, without additional cost to Radian Reinsurance and negotiations continue with respect to the other two primary insurers regarding the exercise of their rights.

If the two primary insurers with whom Radian Reinsurance has not reached agreement were to exercise their right to recapture all of the reinsurance assumed by Radian Reinsurance from them, at September 30, 2003, Radian Reinsurance would be required to return approximately $25.9 billion of par in force for which $160.6 million of written premium and $120.4 million of unearned premium reserves exist as of September 30, 2003. Such return of unearned premium would also include a reduction in (i) loss reserves of $8.0 million (ii) policy acquisition costs of $23.3 million and (iii) a positive mark to market adjustment in respect to credit derivative items of $9.5 million for a net pre-tax gain of $.6 million. Such recapture of reinsurance assumed by Radian Reinsurance would potentially release up to $167.4 million of statutory basis contingency reserves making such capital available to be redeployed for additional reinsurance, including reinsurance of obligations primarily insured by Radian Asset Assurance, or other opportunities with possibly higher returns to the Company than the reinsurance business required to be returned to the primary insurers. Since the acquisition of Radian Reinsurance by the Company in February 2001, reinsurance assumed from these two primary companies resulted in $26.2 million of written premium and $22.8 million of earned premium in 2001, $35.1 million of written premium and $38.1 million of earned premium in 2002 and $33.7 million of written premium and $33.7 million of earned premium for the first nine months of 2003. If these two primary insurers were instead to exercise their right to increased commissions, commissions would increase by an average 36.4% with respect to one primary insurer, and by 20.6% with respect to what the other primary insurer currently has the right to charge, and would require additional aggregate commissions of approximately $15.0 million with respect to the current unearned premium reserves, in addition to the $2.2 million Radian Reinsurance has already accrued. If these two primary companies exercised their rights with respect to some but not all of the reinsurance agreements resulting in a recapture of some but not all of the reinsurance assumed by Radian Reinsurance from them, such recapture would result in the return of less par in force, written premium and unearned premium, a smaller reduction in loss reserves and policy acquisition costs, would potentially release less statutory basis contingency reserves, and could result in a material change in the mark to market adjustment and net pre-tax gain (or loss).

Although Radian Reinsurance may be able to offset some of the effects of increased commissions or reduced reinsurance premiums by posting collateral for the benefit of the reinsurers, the S&P downgrade, or the exercise by one or both of these primary insurers of their rights triggered by the downgrade of Radian Reinsurance, could have a material adverse effect on Radian Reinsurance’s competitive position and/or its prospects for future reinsurance opportunities. The Company does not believe that the downgrade of Radian Reinsurance by Fitch will have a material adverse effect on Radian Reinsurance or its competitive position and/or its prospects for future reinsurance opportunities. The Company cannot be certain that the rating agencies will not take further action in the future with respect to Radian Reinsurance’s financial strength ratings which would again trigger these rights of the primary insurers.

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There have been internal discussions regarding, and management has begun taking steps toward, the merger of the financial guaranty reinsurance business of Radian Reinsurance into Radian Asset Assurance (the “Potential Merger”). If the Potential Merger were to occur, it could be consummated as early as the end of 2003. However, a merger between Radian Reinsurance and Radian Asset Assurance has not been fully approved by Radian Asset Assurance’s Board of Directors and Shareholders, or the Board of Directors or Shareholders of Radian Reinsurance. In addition, before the Potential Merger could occur, the transaction and its potential effects on Radian Asset Assurance and Radian Reinsurance would have to be approved by applicable regulatory bodies, including the New York and California Insurance Departments. In connection therewith, Radian Asset Assurance and Radian Reinsurance have requested the requisite approvals. Consequently, there can be no assurance that the Potential Merger will occur.

If the Potential Merger were to occur, the financial guaranty reinsurance business currently conducted by Radian Reinsurance and the direct financial guaranty business currently conducted by Radian Asset Assurance, would be conducted by Radian Asset Assurance as part of one company, which would have greater assets, liabilities, and shareholder’s equity than either Radian Asset Assurance or Radian Reinsurance would have without the Potential Merger.

Net income for the third quarter of 2003 was $32.6 million, a $4.9 million or 17.7% increase from $27.7 million for the same period of 2002. This increase resulted from increases in earned premiums as a result of continued business growth, net gains from changes in fair value of derivatives, investment income, and equity in net income of affiliates, partially offset by an increase in the provision for losses, policy acquisition costs, and other operating expenses. Net premiums written and earned for the third quarter of 2003 were $90.2 million and $61.3 million, respectively, compared to $72.1 million and $47.4 million, respectively, for the third quarter of 2002. Included in net premiums written and earned for the third quarter of 2003 were $18.2 million and $11.9 million, respectively, of credit enhancement fees on derivative financial guaranty contracts, compared to $16.1 million and $6.8 million, respectively, for net premiums written and earned in the same period of 2002. Net income for the nine months ended September 30, 2003 was $91.1 million compared to $65.9 million for the same period of 2002. Net premiums written and earned for the nine month period of 2003 were $261.4 million and $184.6 million, respectively, compared to $208.0 million and $130.7 million, respectively, for the comparable periods of 2002. During the first nine months of 2003, Financial Guaranty originated $6.3 billion of par in the public finance area, including $1.2 billion in the healthcare sector, $1.2 billion in the transportation sector, $1.2 billion in general obligations and $868 million in the utilities sector. In the structured finance area, Financial Guaranty originated $8.3 billion of par for the nine months ended September 30, 2003, primarily in the form of guarantees on collateralized debt obligations and asset-backed securities. In the year-to-date period of 2002, Financial Guaranty originated $3.9 billion of par in the public finance area, including $800 million in the healthcare sector, $500 million in the higher education sector, $500 million in the utilities sector and $1.0 billion in general obligations. Financial Guaranty also originated $7.6 billion of par in the structured finance area in the year-to-date period of 2002, primarily in the form of guarantees on collateralized debt obligations and asset-backed securities.

In July 2003, the State of California Department of Insurance issued Radian Asset Assurance a Certificate of Authority to write financial guaranty insurance in California. As a result, the Company believes that Radian Asset Assurance will have additional opportunities to write financial guaranty insurance, particularly on public finance obligations, which could favorably increase Radian Asset Assurance’s net premiums written in the public finance direct area for the remainder of 2003 and beyond, and subsequently increase Radian Asset Assurance’s net premiums earned as such premium written becomes earned over the life of the obligations insured.

In August 2003, the Financial Services Authority of the United Kingdom granted permission under Part IV of the Financial Services & Markets Act 2000 for Radian Asset Assurance Limited (“RAAL”), a subsidiary of Radian Asset Assurance, to conduct an insurance business in the United Kingdom. As a result of this additional authority, through RAAL, the Company will have additional opportunities to write financial guaranty insurance in the United Kingdom and, subject to compliance with the European passport rules, throughout the European Union, which could increase Radian Asset Assurance’s net premiums written (on a consolidated basis) for the remainder of 2003 and beyond, and subsequently increase its net premiums earned (on a consolidated basis), as such premium written becomes earned over the life of the obligations insured.

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The following table shows the breakdown of premiums written and earned for each period:

	Quarter Ended September 30				Nine Months Ended September 30
	2003		2002		2003		2002
	(in thousands)				(in thousands)
Net premiums written:
Public finance direct	$	21,570	$	12,907	$	43,118	$	43,447
Public finance reinsurance		19,380		11,035		66,930		34,229
Structured direct		24,743		21,907		62,445		51,591
Structured reinsurance		10,749		13,188		38,481		44,158
Trade credit		13,715		13,093		50,440		34,563
Total net premiums written	$	90,157	$	72,130	$	261,414	$	207,988
	Quarter Ended September 30				Nine Months Ended September 30
	2003		2002		2003		2002
Net premiums earned:
Public finance direct	$	4,799	$	3,947	$	13,074	$	10,780
Public finance reinsurance		13,802		9,894		37,655		28,399
Structured direct		17,119		12,020		55,593		27,519
Structured reinsurance		11,282		13,639		36,631		41,244
Trade credit		14,254		7,873		41,694		22,739
Total net premiums earned	$	61,256	$	47,373	$	184,647	$	130,681

Included in net premiums earned for the third quarter and year-to-date periods of 2003 were refundings of $1.4 million and $6.3 million, respectively, compared to $0.9 million and $4.8 million for the same periods of 2002.

The following schedule depicts the expected amortization of the unearned premium for the existing Financial Guaranty portfolio, assuming no advance refundings and without taking into account the possible impact of renegotiations with the primaries, as of September 30, 2003. The estimated impact on Total Premium Earnings of the renegotiations with the primaries, is $270 million, including approximately $34 million for 2004. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay financial guaranty obligations. Unearned premium amounts are net of prepaid reinsurance.

($ millions)	Ending Net Unearned Premiums		Unearned Premium Amortization		Future Installments		Total Premium Earnings
2003	$	544.5	$	34.9	$	19.6	$	54.5
2004		471.6		72.9		98.4		171.3
2005		421.5		50.1		88.2		138.3
2006		375.5		46.0		77.6		123.6
2007		335.0		40.5		59.9		100.4
2003-2007		335.0		244.4		343.7		588.1
2008-2012		195.1		139.9		109.8		249.7
2013-2017		99.2		95.9		54.6		150.5
2018-2022		39.7		59.5		37.6		97.1
After 2022		0.0		39.7		44.6		84.3
Total			$	579.4	$	590.3	$	1,169.7

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The following table shows the breakdown of claims paid and incurred losses for each period:

	Quarter Ended September 30				Nine Months Ended September 30
	2003		2002		2003		2002
Claims Paid:
Trade Credit	$	7,274	$	3,903	$	15,595	$	11,062
Financial Guaranty		4,708		1,408		6,530		12,771
Total	$	11,982	$	5,311	$	22,125	$	23,833
Incurred Losses:
Trade Credit	$	9,440	$	5,733	$	23,538	$	22,597
Financial Guaranty		9,248		5,109		28,244		10,832
Total	$	18,688	$	10,842	$	51,782	$	33,429

Net investment income was $19.7 million and $58.8 million for the third quarter and year-to-date periods of 2003, respectively, compared to $18.4 million and $52.8 million, respectively, for the similar periods of 2002. Equity in net income of affiliates for the third quarter and year-to-date periods of 2003 includes $2.8 million and $7.4 million, respectively, related to the Company’s investment in Primus. The Company accounts for the Primus investment under the equity method of accounting. The Company cannot predict whether the results for Primus will be as favorable in the future as they were for 2003. The results of Primus for the third quarter and year-to-date periods of 2002 were immaterial to the Company’s Condensed Consolidated Financial Statements. The provision for losses was $18.7 million for the third quarter of 2003 compared to $10.8 million for the third quarter of 2002 and the year-to-date 2003 provision was $51.8 million compared to $33.4 million in the year-to-date period of 2002. The provision represented 30.5% and 28.0% of net premiums earned for the third quarter and year-to-date periods of 2003, respectively, compared to 22.9% and 25.6%, respectively, for the same periods of 2002. Financial Guaranty paid one large claim totaling $9.0 million in the year-to-date period of 2002. The remaining claims of $22.1 million and $14.8 million for the year to date periods of 2003 and 2002, respectively, relate primarily to trade credit insurance. Policy acquisition and other operating expenses were $25.0 million and $70.7 million for the three and nine month periods ended September 30, 2003, respectively, compared to $14.2 million and $46.8 million, respectively, for the three and nine month periods ended September 30, 2002. This resulted in an expense ratio of 40.9% and 38.3% for the third quarter and year-to-date periods of 2003, respectively, compared to 29.9% and 35.8%, respectively, for the same 2002 periods. Included in policy acquisition and other operating expenses for the third quarter and year-to-date periods of 2003 were $1.3 million and $4.8 million, respectively, of origination costs related to derivative financial guaranty contracts. Interest expense for the third quarter of 2003 was $3.4 million compared to $2.5 million in the third quarter of 2002. For the year-to-date periods of 2003 and 2002, interest expense was $9.5 million and $7.3 million, respectively. All periods include interest allocated on the Company’s debt financing. Net gains (losses) on dispositions of investments and changes in the fair value of derivative instruments was $8.7 million and $2.8 million for the third quarter and year-to-date periods of 2003, respectively, compared to $0.2 million and $(5.6) million, respectively, for the comparable 2002 periods. In the third quarter of 2003, Financial Guaranty received $3.4 million as settlement proceeds for one of its derivative financial guaranty contracts. There were no such settlements in 2002.

The effective tax rate was 27.4% and 27.1% for the three and nine months ended September 30, 2003, respectively, compared to 27.2% and 27.5%, respectively, for the three and nine months ended September 30, 2002. The tax rate reflects the significant investment in tax-advantaged securities.

Mortgage Services – Results of Operations

The mortgage services results include the operations of RadianExpress.com Inc. (“RadianExpress”) and the asset-based business conducted through EFSG’s minority owned subsidiaries, C-BASS and Sherman. The Company owns a 46% interest in C-BASS and a 41.5% interest in Sherman. Effective January 1, 2003, Sherman’s management exercised its right to acquire additional ownership of Sherman, reducing the Company’s ownership interest in Sherman from 45.5% to 41.5%. The Company recorded a $1.3 million loss on this transaction. C-BASS is engaged in the purchasing, servicing, and/or securitizing of special assets, including sub-performing/non-performing and seller-financed residential mortgages, real estate and subordinated residential mortgage-based securities. Sherman’s business focuses on purchasing and servicing delinquent, primarily unsecured consumer assets.

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Net income for the third quarter and year-to-date periods of 2003 was $10.2 million and $30.4 million, respectively, compared to $6.0 million and $30.9 million for the same periods of 2002. Equity in net income of affiliates (pre-tax) was $19.1 million for the third quarter of 2003 compared to $13.5 million for the comparable period of 2002. For the year-to-date periods of 2003 and 2002, equity in net income of affiliates (pre-tax) was $62.4 million and $58.9 million, respectively. C-BASS accounted for $12.3 million (pre-tax) of the total income from affiliates in the third quarter of 2003 and $43.4 million (pre-tax) of the year-to-date 2003 amount. These results tend to vary from period to period due to a portion of C-BASS’s income being generated from sales of mortgage-backed securities in the capital markets. These markets can be volatile, subject to change in interest rates, the credit environment and liquidity.

RadianExpress recorded $5.6 million of other income and $6.4 million of operating expenses for the third quarter of 2003 compared to $1.7 million and $4.6 million, respectively, for the third quarter of 2002. Year-to-date 2003, RadianExpress had revenues of $16.1 million and expenses of $20.3 million, compared to $13.2 million and $17.2 million, respectively, in the year-to-date period of 2002. Included in operating expenses for the year-to-date period of 2003 is a provision for uncollectible accounts of $2.3 million. RadianExpress processed approximately 78,000 applications during the third quarter of 2003 and 217,000 applications year-to-date 2003. In the third quarter and year-to-date periods of 2002, RadianExpress processed approximately 49,000 and 275,000 applications, respectively. In June 2002, the Company received a cease and desist order from the State of California in connection with the offering of its Radian Lien Protection product, which it appealed. On January 6, 2003, the Company received a decision from an administrative law judge in California sustaining the cease and desist order, which was subject to the approval of the California Commissioner of Insurance. In July 2003, after initially rejecting the proposed opinion of the administrative law judge and reopening the matter, the California Commissioner of Insurance affirmed the cease and desist order. The Company has appealed the Commissioner’s decision to the California state court system, and is supporting a bill under consideration by the California legislature that would clarify that a mortgage insurer can offer a lien protection product of the type the Company seeks to offer. The cease and desist order has not had a material impact on the Company’s overall operations, but it has significantly reduced the potential for increased revenues of RadianExpress, the Radian entity through which Radian Lien Protection sales would be processed. The Company has contained operating expenses in RadianExpress as a result of the effect on business caused by the cease and desist order, and is reviewing alternative business propositions and strategies for RadianExpress. The Company continues to evaluate goodwill for impairment in accordance with SFAS No. 142.

Other

A wholly-owned subsidiary of EFSG, Singer Asset Finance Company L.L.C. (“Singer”), which had been engaged in the purchase, servicing, and securitization of assets including state lottery awards and structured settlement payments, is currently operating on a run-off basis. Its operations consist of servicing the prior originations of non-consolidated special purpose vehicles and the results of these subsidiaries are not material to the financial results of the Company. At September 30, 2003, the Company has approximately $473 million and $460 million of non-consolidated assets and liabilities, respectively, associated with Singer special purpose vehicles. The Company’s investment in these special purpose vehicles is $13 million at September 30, 2003. In May 2003, the Company restructured and combined approximately $80 million of assets of one of the special purpose vehicles into another special purpose vehicle. This transaction did not have a significant effect on the Company’s operations. In August 2002, the Company sold substantially all of the assets of a related subsidiary, Enhance Consumer Services LLC (“ECS”), which had been engaged in the purchase, servicing and securitization of viatical settlements, to an independent third party for an aggregate purchase price of $8.4 million, which approximated the carrying value.

Another insurance subsidiary, Van-American Insurance Company, Inc., is engaged on a run-off basis in reclamation bonds for the coal mining industry and surety bonds covering closure and post-closure obligations of landfill operators. Such business is not expected to be material to the financial results of the Company.

At September 30, 2003, the Company, through its ownership of EFSG, owned an indirect 36.5% equity interest in EIC Corporation Ltd. (“Exporters”), an insurance holding company that, through its wholly-owned insurance subsidiary licensed in Bermuda, insures primarily foreign trade receivables for multinational companies. Financial Guaranty provides significant reinsurance capacity to this joint venture on a quota-share, surplus share and excess-of-loss basis. The Company’s exposure at September 30, 2003 was approximately $368 million or 0.3% of net debt service outstanding.

27

Liquidity and Capital Resources

The Company’s sources of funds consist primarily of premiums and investment income. Funds are applied primarily to the payment of the Company’s claims and operating expenses.

Cash flows from operating activities for the nine months ended September 30, 2003 were $376.8 million as compared to $429.6 million for the same period of 2002. This decrease was primarily due to an increase in taxes paid along with an increase in claims paid and operating expenses. Positive cash flows are invested pending future payments of claims and other expenses; excess cash flow needs, if any, are funded through sales of short-term investments and other investment portfolio securities.

Stockholders’ equity was $3.1 billion at September 30, 2003, compared to $2.8 billion December 31, 2002. This increase resulted from net income of $330.4 million, proceeds from the issuance of common stock of $13.4 million and an increase in the market value of securities available for sale of $43.7 million, net of tax, offset by dividends of $5.6 million and the purchase of approximately 0.5 million additional shares of the Company’s common stock pursuant to the repurchase program described below, net of treasury stock re-issuances, for approximately $11.5 million.

On September 24, 2002, the Company announced that its board of directors had authorized the repurchase of up to 2.5 million shares of its common stock on the open market. Shares will be purchased from time to time depending on the market conditions, share price, and other factors. These purchases will be funded from available working capital. At September 30, 2003, approximately 1.9 million shares had been repurchased under this program at a cost of approximately $61.2 million.

On October 4, 2002, S&P lowered the Insurer Financial Strength rating of Radian Reinsurance to “AA” from “AAA,” and on April 8, 2003, Fitch lowered the Insurer Financial Strength rating of Radian Reinsurance to “AA”as further described above, under “Financial Guaranty – Results of Operations.”

At September 30, 2003, the Company and its subsidiaries had plans to continue investing in significant information technology and infrastructure upgrades over the next two years at an estimated total cost of $40 million to $50 million. The Company moved its Data Center to Dayton, Ohio during the second quarter, and is now in full service. Cash flows from operations are being used to fund these expenditures, which are intended to benefit all of the Company’s business segments.

The Company owns a 46% interest in C-BASS. The Company has not made any capital contributions to C-BASS since the Company acquired its interest in C-BASS in connection with the acquisition of EFSG in February 2001. C-BASS paid $7.5 million of dividends to the Company during the first nine months of 2003 and paid $20.1 million during all of 2002.

The Company owns a 41.5% interest in Sherman. In January 2003 Sherman’s management exercised its right to acquire additional ownership of Sherman reducing the Company’s ownership interest in Sherman from 45.5% to 41.5%. The Company received $3.4 million in cash for the 4% interest, recording a $1.3 million loss on the transaction. The Company has not made any capital contributions to Sherman in the first nine months of 2003 or 2002. In December 2002, the Company guaranteed payment of up to $25.0 million of a revolving credit facility issued to Sherman that expires in December 2003. There were no amounts outstanding under this facility as of September 30, 2003. Sherman paid $12.5 million of dividends to the Company during the first nine months of 2003. Sherman did not pay any dividends during 2002.

In January 2002, the Company sold $220 million of Senior Convertible Debentures. Approximately $125 million of the proceeds from the offering were used to increase capital at Radian Asset Assurance. The remaining proceeds were used to redeem the Company’s preferred stock in August 2002, to buy back the Company’s common stock, as described above, and for other general corporate purposes. The debentures bear interest at the rate of 2.25% per year and interest is payable semi-annually on January 1 and July 1, beginning July 1, 2002. The Company will also pay contingent interest on specified semi-annual periods, if the sale price of its common stock for a specified period of time is less than 60% of the conversion price. The debentures are convertible, at the purchaser’s option, into shares of common stock at prices and on dates specified in the offering memorandum. At that time, the shares become common shares for the purposes of calculating earnings per share. The Company may redeem all or some of the debentures on or after January 1, 2005.

28

From February 2002 until May 2003, the Company maintained a $50 million Senior Revolving Credit Facility to be used for working capital and general corporate purposes. There were no drawdowns on this facility. The Company plans to replace this with a $250 million facility in the fourth quarter of 2003.

In March 2002, the Company made a $20 million investment in Primus. In connection with the capitalization and Triple A rating of Primus, Radian Reinsurance had provided Primus with an excess of loss insurance policy, which expired March 30, 2003.

In February 2003, the Company issued $250 million of unsecured Senior Notes in a private placement. These notes bear interest at the rate of 5.625% per year, payable semi-annually on February 15 and August 15, beginning August 15, 2003. These notes mature in February 2013. The Company has the option to redeem some or all of the notes at any time with not less than 30 days notice. The Company used a portion of the proceeds from the private placement to repay the $75.0 million in principal on the 6.75% debentures due March 1, 2003 that EFSG had issued. The remainder will be used for general corporate purposes. In late July 2003, the Company offered to exchange all of the notes for new notes with terms substantially identical to the terms of the old notes, except that the new notes are registered and have no transfer restrictions, rights to additional interest or registration rights, except in limited circumstances.

In September 2003, Radian Asset Assurance closed on a $150 million “soft capital” facility, pursuant to which it entered into a series of three perpetual put options on its own preferred stock to Radian Asset Securities Inc., a newly formed affiliate and wholly-owned subsidiary of the Company (“Radian Asset Securities”). Radian Asset Securities in turn entered into a series of three perpetual put options on its own preferred stock (on substantially identical terms to the Radian Asset Assurance preferred stock). The counterparty to the Radian Asset Securities put options are three trusts established by two major investment banks (“the Broker-Dealers”). The trusts were created as a vehicle for providing capital support to Radian Asset Assurance by allowing Radian Asset Assurance to obtain immediate access to additional capital at its sole discretion at any time through the exercise of one or more of the put options and the corresponding exercise of one or more corresponding Radian Asset Securities put options. If the Radian Asset Assurance put options were exercised, Radian Asset Securities, through the Radian Asset Assurance preferred stock thereby acquired by Radian Asset Securities and investors, through their equity investment in the Radian Asset Securities preferred stock, would give Radian Asset Securities and the investors rights to the assets of Radian Asset Assurance of an equity investor in Radian Asset Assurance. Such rights would be subordinate to policyholders’ claims, as well as to claims of general unsecured creditors of Radian Asset Assurance, but ahead of those of the Company, through EFSG, as the owner of the common stock of Radian Asset Assurance. If all the Radian Asset Assurance put options were exercised, Radian Asset Assurance would receive up to $150 million in return for the issuance of its own perpetual preferred stock, the proceeds of which may be used for any purpose including the payment of claims. Dividend payments on the preferred stock will be cumulative only if Radian Asset Assurance pays dividends on its common stock. Each trust will be restricted to holding high quality, short-term commercial paper investments to ensure that it can meet its obligations under the put option. To fund these investments, each trust will issue its own auction market perpetual preferred stock. Each trust is rated “A” by each of S&P and Fitch.

The Company believes that all of its insurance subsidiaries will have sufficient funds to satisfy their claims payments and operating expenses and to pay dividends to the Company for at least the next 12 months. The Company also believes that it will be able to satisfy its long-term (more than 12 months) liquidity needs with cash flow from Mortgage Insurance and Financial Guaranty. As a holding company, the Company conducts its principal operations through Mortgage Insurance and Financial Guaranty. In connection with obtaining approval from the New York Insurance Department for the change of control of EFSG when the Company acquired EFSG, EFSG agreed not to declare or pay dividends for a period of two years following consummation of the acquisition. The agreement for Radian Reinsurance and Radian Asset Assurance to refrain from paying dividends to the Company expired on February 28, 2003. Based on the Company’s current intention to pay quarterly common stock dividends of approximately $0.02 per share, the Company will require approximately $1.9 million for the remainder of 2003 to pay the dividends on the outstanding shares of common stock. The Company currently has cash of $ 47.5 million. The Company will also require approximately $38 million annually to pay the debt service on its long-term financing. The Company believes that it has the resources to meet these cash requirements for the next 12 months. There are regulatory and contractual limitations on the payment of dividends and other distributions from the Company’s insurance subsidiaries. The Company does not believe that any of these restrictions will prevent the payment by its subsidiaries or the Company of any necessary dividends or distributions in the foreseeable future.

29

The Company’s insurance subsidiaries have the ability to allocate capital resources within certain guidelines by making direct investments. In April 2003, Radian Guaranty invested $100 million in EFSG, for an approximate 11% ownership interest. This amount was subsequently contributed by EFSG to Radian Asset Assurance to support growth in the direct financial guaranty business.

Critical Accounting Policies

Critical accounting policies comprise those policies that require the Company’s most difficult, subjective, and complex judgments. These policies require estimates of matters that are inherently uncertain. The accounting policies that the Company believes meet the criteria of critical accounting policies are described below.

Reserve for Losses and Loss Adjustment Expenses (“LAE”)

The Company establishes reserves to provide for the estimated costs of settling claims in both the mortgage insurance and financial guaranty businesses.

In the mortgage insurance business, the incurred loss process is initiated by a borrower’s missed payment. The Company uses historical models based on a variety of loan characteristics, including the status of the loan as reported by the servicer of the loan, the economic conditions, and the estimated foreclosure period in the area where the default exists to help determine the appropriate loss reserve at any point in time. As the delinquency proceeds toward foreclosure, there is more certainty around these estimates as a result of the aged status of the delinquent loan and adjustments are made to loss reserves to reflect this updated information. With respect to delinquent loans that are in an early stage of delinquency, considerable judgment is exercised as to the adequacy of reserve levels. The Company relies on its historical models and makes adjustments to its estimates based on current economic conditions and recent trend information. These adjustments in estimates for delinquent loans in the early stage of delinquency are more judgmental in nature than for loans that are in the later stage of delinquency. If a default cures, the reserve for that loan is removed from the reserve for losses and LAE. This curing process causes an appearance of a reduction in reserves from prior years. The Company also reserves for defaults that have occurred but have not been reported using historical information on defaults not reported on a timely basis by lending institutions. The estimates are continually reviewed and, as adjustments to these liabilities become necessary, such adjustments are reflected in current operations.

The process for establishing financial guaranty loss reserves is similar; however, the remote probability of losses and the dearth of historical losses in this business make it more difficult to estimate the appropriate loss reserve. Reserves are established for both specific and non-specific losses. Insured obligations are monitored by the Company or the primary insurers over the life of the policy. When the insured obligation’s performance deteriorates significantly below underwriting expectations, or if the circumstances dictate, the related transaction is more actively monitored, which may include communication with the borrower, site inspection, or the engagement of a third party consultant. If the transaction continues to deteriorate to a point where a default is reasonably probable, based on all the facts and circumstances then known and estimable, the Company will establish a specific loss reserve that represents the present value of the amount of the claim Financial Guaranty expects that it will ultimately have to pay. Financial Guaranty has a regular case reserve committee meeting where experts in the risk management and surveillance area provide input to the finance area before any case reserves are determined, and the surveillance team actively monitors any problem deals and notifies the committee if a change in the loss reserve is necessary. Financial Guaranty establishes a reserve based on the present value of the estimated loss, including expenses associated with the settlement of the loss that Financial Guaranty expects that it will ultimately have to pay.

Reserves for losses and LAE for Financial Guaranty’s other lines of business, primarily trade credit reinsurance, are based on reports and individual loss estimates received from ceding companies, net of anticipated estimated recoveries under salvage and subrogation rights. In addition, a reserve is included for losses and LAE incurred but not reported on trade credit reinsurance.

Setting the loss reserves in both business segments involves significant reliance upon estimates with regard to the likelihood, magnitude and timing of a loss. The models and estimates the Company uses to establish loss reserves may not prove to be accurate, especially during an extended economic downturn. There can be no assurance that the Company has correctly estimated the necessary amount of reserves or that the reserves established will be adequate to cover ultimate losses on incurred defaults.

30

If the Company’s estimates are inadequate, it may be forced by insurance and other regulators or rating agencies to increase its reserves. Unanticipated increases to its reserves could lead to a reduction in the Company’s and its subsidiaries’ ratings. Such a reduction in ratings could have a significant negative impact on the Company’s ability to attract and retain business.

Derivative Instruments and Hedging Activity

The Company accounts for derivatives under SFAS No. 133, as amended and interpreted. The two areas where gains and losses on derivative contracts are recognized are in the convertible debt securities contained in the Company’s investment portfolio and in certain financial guaranty contracts. The value of the derivative position of convertible debt securities is calculated by the Company’s outside convertible debt portfolio manager by determining the value of the readily ascertainable comparable debt securities and assigning a value to the equity (derivative) portion by subtracting the value of the comparable debt security from the total value of the convertible instrument. Changes in such values from period to period represent the gains and losses recorded. The gains and losses on derivative financial guaranty contracts are derived from internally generated models. The estimated fair value amounts have been determined by the Company using market information, to the extent available, and appropriate valuation methodologies. Significant differences may exist with respect to the available market information and assumptions used to determine gains and losses on derivative financial guaranty contracts. Considerable judgment is required to interpret available market data to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of amounts the Company could realize in a current market exchange due to the lack of a liquid market. The use of different market assumptions and/or estimation methodologies may have an effect on the estimated fair value amounts.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

During the first nine months of 2003, the Company experienced an increase in the fair market value of the available for sale portfolio, which resulted in an increase in the net unrealized gain (net of tax) on the investment portfolio of $43.7 million. The accumulated net unrealized gain (net of tax) at September 30, 2003 was $101.8 million compared to $58.1 million at December 31, 2002. This increase in value was primarily a result of changes in market interest rates and not a result of changes in the composition of the Company’s investment portfolio.

A summary of the Company’s derivative information as of and for the periods indicated for 2003 and 2002 is as follows:

Balance Sheet (in millions)	September 30 2003			December 31 2002			September 30 2002
Trading Securities
Amortized cost	$	42.0		$	39.3		$	43.6
Fair value		40.7			37.6			36.9
Derivative Financial Guaranty Contracts
Notional value	$	10,200.0		$	7,300.0		$	5,500.0
Gross unrealized gains	$	65.8		$	52.4		$	53.7
Gross unrealized losses		93.7			69.6			63.0
Net unrealized losses	$	(27.9	)	$	(17.5	)	$	(9.3	)

The components of the change in fair value of derivative instruments is as follows:

Income Statement (in millions)	Three Months Ended September 30						Nine Months Ended September 30
	2003			2002			2003			2002
Trading Securities	$	(.7	)	$	7.2		$	.3		$	.7
Derivative Financial Guaranty Contracts		6.8			(12.3	)		(7.0	)		(14.8	)
Net gains (losses)	$	6.1		$	(5.1	)	$	(6.7	)	$	(14.1	)

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In the third quarter of 2003, the Company received $3.4 million as settlement proceeds on one of its derivative financial guaranty contracts.

ITEM 4. Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in ensuring that the information required to be disclosed by the Company in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported on a timely basis.

There has been no change in the Company’s internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

There have been no material developments in legal proceedings involving the Company or its subsidiaries since those reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

The Company is involved in certain litigation arising in the normal course of its business. The Company is contesting the allegations in each such pending action and believes, based on current knowledge and after consultation with counsel, that the outcome of such litigation will not have a material adverse effect on the Company’s consolidated financial position and results of operations.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.	Exhibit Name
10.1	Purchase Agreement, among Market Street Custodial Trust I, Market Street Custodial Trust II, Market Street Custodial Trust III, the Registrant, Radian Asset Securities Inc., Lehman Brothers Inc., and Bear Stearns & Co. Inc. (1) (Exhibit 99.1)
10.2	Put Option Agreement between Radian Asset Assurance Inc. (“RAA”) and Radian Securities Inc. (“RASI”) relating to Series A Perpetual Preferred Shares. (1) (Exhibit 99.2)
10.3	Put Option Agreement between RASI and Market Street Custodial Trust I relating to Series A Perpetual Preferred Shares. (1) (Exhibit 99.3)
10.4	Put Option Agreement between RAA and RASI relating to Series B Perpetual Preferred Shares. (1) (Exhibit 99.4)
10.5	Put Option Agreement between RASI and Market Street Custodial Trust II relating to Series B Perpetual Preferred Shares. (1) (Exhibit 99.5)
10.6	Put Option Agreement between RAA and RASI relating to Series C Perpetual Preferred Shares. (1) (Exhibit 99.6)
10.7	Put Option Agreement between RASI and Market Street Custodial Trust III relating to Series C Perpetual Preferred Shares. (1) (Exhibit 99.7)
*11	Statement re: Computation of Per Share Earnings
*31	Rule 13a-14(a) Certifications.
*32	Section 1350 Certifications.

* Filed herewith

(1) Incorporated by reference to the exhibit identified in parentheses, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 11, 2003.

(b) Reports on Form 8-K

Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 16, 2003 reporting the Registrant’s issuance of a press release announcing its results for the quarter ended June 30, 2003.

33

Current Report on Form 8-K filed with the SEC on August 11, 2003 reporting the Registrant’s posting on its website of quarterly operating supplements for the fourth quarter of 2002 and the first quarter of 2003 of each of Radian Asset Assurance Inc. and Radian Reinsurance Inc.

Current Report on Form 8-K files with the SEC on August 19, 2003 reporting the Registrant’s posting on its website of Annual Statements for the year ended December 31, 2002 of each of Radian Guaranty Inc., Radian Insurance Inc., Radian Asset Assurance Inc., and Radian Reinsurance Inc.

Current Report on Form 8-K filed with the SEC on September 3, 2003 reporting the launch of a $150 million “Soft Capital” facility (the “Transaction”) by Radian Asset Assurance Inc.

Current Reporting on Form 8-K filed with the SEC on September 11, 2003 reporting the closing of the Transaction.

Current Report on Form 8-K filed with the SEC on September 12, 2003 reporting the Registrant’s posting on its website of quarterly operating supplements for the second quarter of 2003 of each of Radian Asset Assurance Inc. and Radian Reinsurance Inc.

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Radian Group Inc.
Date: November 12, 2003	/s/ C. Robert Quint
	C. Robert Quint
	Executive Vice President and Chief Financial Officer
	/s/ John J. Calamari
	John J. Calamari
	Senior Vice President and Corporate Controller

35

EXHIBIT INDEX

Exhibit No.	Exhibit Name
10.8	Purchase Agreement, among Market Street Custodial Trust I, Market Street Custodial Trust II, Market Street Custodial Trust III, the Registrant, Radian Asset Securities Inc., Lehman Brothers Inc., and Bear Stearns & Co. Inc. (1) (Exhibit 99.1)
10.9	Put Option Agreement between Radian Asset Assurance Inc. (“RAA”) and Radian Securities Inc. (“RASI”) relating to Series A Perpetual Preferred Shares. (1) (Exhibit 99.2)
10.10	Put Option Agreement between RASI and Market Street Custodial Trust I relating to Series A Perpetual Preferred Shares. (1) (Exhibit 99.3)
10.11	Put Option Agreement between RAA and RASI relating to Series B Perpetual Preferred Shares. (1) (Exhibit 99.4)
10.12	Put Option Agreement between RASI and Market Street Custodial Trust II relating to Series B Perpetual Preferred Shares. (1) (Exhibit 99.5)
10.13	Put Option Agreement between RAA and RASI relating to Series C Perpetual Preferred Shares. (1) (Exhibit 99.6)
10.14	Put Option Agreement between RASI and Market Street Custodial Trust III relating to Series C Perpetual Preferred Shares. (1) (Exhibit 99.7)
*11	Statement re: Computation of Per Share Earnings
*31	Rule 13a-14(a) Certifications.
*32	Section 1350 Certifications.

* Filed herewith

(1) Incorporated by reference to the exhibit identified in parentheses, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 11, 2003.

(b) Reports on Form 8-K

Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on July 16, 2003 reporting the Registrant’s issuance of a press release announcing its results for the quarter ended June 30, 2003.

Current Report on Form 8-K filed with the SEC on August 11, 2003 reporting the Registrant’s posting on its website of quarterly operating supplements for the fourth quarter of 2002 and the first quarter of 2003 of each of Radian Asset Assurance Inc. and Radian Reinsurance Inc.

Current Report on Form 8-K files with the SEC on August 19, 2003 reporting the Registrant’s posting on its website of Annual Statements for the year ended December 31, 2002 of each of Radian Guaranty Inc., Radian Insurance Inc., Radian Asset Assurance Inc., and Radian Reinsurance Inc.

Current Report on Form 8-K filed with the SEC on September 3, 2003 reporting the launch of a $150 million “Soft Capital” facility (the “Transaction”) by Radian Asset Assurance Inc.

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Current Reporting on Form 8-K filed with the SEC on September 11, 2003 reporting the closing of the Transaction.

Current Report on Form 8-K filed with the SEC on September 12, 2003 reporting the Registrant’s posting on its website of quarterly operating supplements for the second quarter of 2003 of each of Radian Asset Assurance Inc. and Radian Reinsurance Inc.

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EX-11

EXHIBIT 11

Radian Group Inc.

Schedule of Net Income Per Share

	Quarter Ended September 30,					Nine Months Ended September 30,
(In thousands, except per-share amounts and market prices)	2003		2002			2003		2002
Net income	$	113,978	$	106,561		$	330,424	$	319,416
Preferred stock dividend adjustment		—		(825	)		—		(2,475	)
Premium paid to redeem preferred stock		—		(3,003	)		—		(3,003	)
Adjusted net income	$	113,978	$	102,733		$	330,424	$	313,938
Average diluted stock options outstanding		5,334.8		5,058.7			5,500.3		5,218.1
Average exercise price per share	$	29.58	$	22.13		$	29.37	$	25.52
Average market price per share - diluted basis	$	44.81	$	41.25		$	39.46	$	46.28
Average common shares outstanding		93,558		94,761			93,431		94,564
Increase in shares due to exercise of options – diluted basis		1,328		1,274			1,083		1,537
Adjusted shares outstanding – diluted		94,886		96,035			94,514		96,101
Net income per share – basic	$	1.22	$	1.08		$	3.54	$	3.32
Net income per share – diluted	$	1.20	$	1.07		$	3.50	$	3.27

EX-31

EXHIBIT 31

CERTIFICATIONS

I, Frank P. Filipps, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2003 of Radian Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003	/s/ Frank P. Filipps
	Frank P. Filipps
	Chief Executive Officer

I, C. Robert Quint, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2003 of Radian Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2003	/s/ C. Robert Quint
	C. Robert Quint
	Chief Financial Officer

EX-32

EXHIBIT 32

Section 1350 Certifications

I, Frank P. Filipps, Chief Executive Officer of Radian Group Inc., and I, C. Robert Quint, Chief Financial Officer of Radian Group Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Periodic Report”), which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Radian Group Inc.

This certificate is being furnished solely for purposes of Section 906 and is not being filed as part of the Periodic Report.

Dated: November 12, 2003	/s/ Frank P. Filipps
	Frank P. Filipps
	/s/ C. Robert Quint
	C. Robert Quint