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Note 5 - Investments | 9 Months Ended
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Sep. 30, 2017
Investments [Abstract] |
Investments | Investments Available for Sale Securities Our available for sale securities within our investment portfolio consisted of the following as of the dates indicated:
| September 30, 2017
(In thousands) | Amortized Cost |  | Fair Value |  | Gross Unrealized Gains |  | Gross Unrealized Losses
Fixed-maturities available for sale: |  |  |  |  |  |  |
U.S. government and agency securities | $ | 61,287 |  |  | $ | 60,860 |  |  | $ | 187 |  |  | $ | 614 |
State and municipal obligations | 125,485 |  |  | 129,507 |  |  | 4,461 |  |  | 439 |
Corporate bonds and notes | 1,806,796 |  |  | 1,836,316 |  |  | 34,927 |  |  | 5,407 |
RMBS | 176,789 |  |  | 175,408 |  |  | 796 |  |  | 2,177 |
CMBS | 433,916 |  |  | 436,892 |  |  | 4,167 |  |  | 1,191 |
Other ABS | 616,687 |  |  | 618,832 |  |  | 2,627 |  |  | 482 |
Foreign government and agency securities | 31,437 |  |  | 32,392 |  |  | 961 |  |  | 6 |
Total fixed-maturities available for sale (1) | 3,252,397 |  |  | 3,290,207 |  |  | 48,126 |  |  | 10,316 |
Equity securities available for sale (1) (2) | 188,065 |  |  | 188,502 |  |  | 937 |  |  | 500 |
Total debt and equity securities | $ | 3,440,462 |  |  | $ | 3,478,709 |  |  | $ | 49,063 |  |  | $ | 10,816 |
______________________
(1) | Includes loaned securities under securities lending agreements that are classified as other assets in our condensed consolidated balance sheets, as further described below.
(2) | Primarily consists of investments in fixed income and equity exchange-traded funds and publicly-traded business development company equities.
| December 31, 2016
(In thousands) | Amortized Cost |  | Fair Value |  | Gross Unrealized Gains |  | Gross Unrealized Losses
Fixed-maturities available for sale: |  |  |  |  |  |  |
U.S. government and agency securities | $ | 78,931 |  |  | $ | 75,474 |  |  | $ | 2 |  |  | $ | 3,459 |
State and municipal obligations | 66,124 |  |  | 67,171 |  |  | 1,868 |  |  | 821 |
Corporate bonds and notes | 1,463,720 |  |  | 1,455,628 |  |  | 14,320 |  |  | 22,412 |
RMBS | 358,262 |  |  | 350,628 |  |  | 197 |  |  | 7,831 |
CMBS | 429,057 |  |  | 428,289 |  |  | 2,255 |  |  | 3,023 |
Other ABS | 433,603 |  |  | 434,728 |  |  | 2,037 |  |  | 912 |
Foreign government and agency securities | 24,771 |  |  | 24,594 |  |  | 148 |  |  | 325 |
Other investments | 2,000 |  |  | 2,000 |  |  | — |  |  | — |
Total fixed-maturities available for sale | 2,856,468 |  |  | 2,838,512 |  |  | 20,827 |  |  | 38,783 |
Equity securities available for sale (1) | 1,330 |  |  | 1,330 |  |  | — |  |  | — |
Total debt and equity securities | $ | 2,857,798 |  |  | $ | 2,839,842 |  |  | $ | 20,827 |  |  | $ | 38,783 |
______________________
(1) | Primarily consists of investments in Federal Home Loan Bank stock as required in connection with the memberships of Radian Guaranty and Radian Reinsurance in the FHLB.
Gross Unrealized Losses and Fair Value of Available for Sale Securities The following tables show the gross unrealized losses and fair value of our securities deemed “available for sale” aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated. Included in the amounts as of September 30, 2017, are loaned securities under securities lending agreements that are classified as other assets in our condensed consolidated balance sheets, as further described below.
| September 30, 2017
($ in thousands) Description of Securities | Less Than 12 Months |  | 12 Months or Greater |  | Total
# of securities |  | Fair Value |  | Unrealized Losses |  | # of securities |  | Fair Value |  | Unrealized Losses |  | # of securities |  | Fair Value |  | Unrealized Losses
U.S. government and agency securities | 8 |  |  | $ | 37,926 |  |  | $ | 604 |  |  | 2 |  |  | $ | 1,580 |  |  | $ | 10 |  |  | 10 |  |  | $ | 39,506 |  |  | $ | 614 |
State and municipal obligations | 17 |  |  | 60,210 |  |  | 439 |  |  | — |  |  | — |  |  | — |  |  | 17 |  |  | 60,210 |  |  | 439 |
Corporate bonds and notes | 108 |  |  | 439,016 |  |  | 5,104 |  |  | 5 |  |  | 11,013 |  |  | 303 |  |  | 113 |  |  | 450,029 |  |  | 5,407 |
RMBS | 29 |  |  | 114,243 |  |  | 1,862 |  |  | 5 |  |  | 14,262 |  |  | 315 |  |  | 34 |  |  | 128,505 |  |  | 2,177 |
CMBS | 30 |  |  | 122,980 |  |  | 1,009 |  |  | 3 |  |  | 1,811 |  |  | 182 |  |  | 33 |  |  | 124,791 |  |  | 1,191 |
Other ABS | 64 |  |  | 174,128 |  |  | 478 |  |  | 1 |  |  | 1,484 |  |  | 4 |  |  | 65 |  |  | 175,612 |  |  | 482 |
Foreign government and agency securities | 2 |  |  | 1,196 |  |  | 6 |  |  | — |  |  | — |  |  | — |  |  | 2 |  |  | 1,196 |  |  | 6 |
Equity securities | 11 |  |  | 79,856 |  |  | 500 |  |  | — |  |  | — |  |  | — |  |  | 11 |  |  | 79,856 |  |  | 500 |
Total | 269 |  |  | $ | 1,029,555 |  |  | $ | 10,002 |  |  | 16 |  |  | $ | 30,150 |  |  | $ | 814 |  |  | 285 |  |  | $ | 1,059,705 |  |  | $ | 10,816 |
| December 31, 2016
($ in thousands) Description of Securities | Less Than 12 Months |  | 12 Months or Greater |  | Total
# of securities |  | Fair Value |  | Unrealized Losses |  | # of securities |  | Fair Value |  | Unrealized Losses |  | # of securities |  | Fair Value |  | Unrealized Losses
U.S. government and agency securities | 7 |  |  | $ | 73,160 |  |  | $ | 3,459 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | 7 |  |  | $ | 73,160 |  |  | $ | 3,459 |
State and municipal obligations | 7 |  |  | 30,901 |  |  | 821 |  |  | — |  |  | — |  |  | — |  |  | 7 |  |  | 30,901 |  |  | 821 |
Corporate bonds and notes | 185 |  |  | 788,876 |  |  | 22,135 |  |  | 2 |  |  | 4,582 |  |  | 277 |  |  | 187 |  |  | 793,458 |  |  | 22,412 |
RMBS | 56 |  |  | 311,031 |  |  | 7,822 |  |  | 1 |  |  | 1,398 |  |  | 9 |  |  | 57 |  |  | 312,429 |  |  | 7,831 |
CMBS | 37 |  |  | 218,170 |  |  | 2,909 |  |  | 2 |  |  | 6,585 |  |  | 114 |  |  | 39 |  |  | 224,755 |  |  | 3,023 |
Other ABS | 58 |  |  | 131,268 |  |  | 470 |  |  | 16 |  |  | 45,886 |  |  | 442 |  |  | 74 |  |  | 177,154 |  |  | 912 |
Foreign government and agency securities | 12 |  |  | 13,034 |  |  | 325 |  |  | — |  |  | — |  |  | — |  |  | 12 |  |  | 13,034 |  |  | 325 |
Total | 362 |  |  | $ | 1,566,440 |  |  | $ | 37,941 |  |  | 21 |  |  | $ | 58,451 |  |  | $ | 842 |  |  | 383 |  |  | $ | 1,624,891 |  |  | $ | 38,783 |
Impairments due to credit deterioration that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security are considered other-than-temporary. Other declines in fair value (for example, due to interest rate changes, sector credit rating changes or company-specific rating changes) that result in a conclusion that the present value of cash flows expected to be collected will not be sufficient to recover the amortized cost basis of the security also may serve as a basis to conclude that an other-than-temporary impairment has occurred. To the extent we determine that a security is deemed to have had an other-than-temporary impairment, an impairment loss is recognized. During the nine months ended September 30, 2017, we recorded other-than-temporary impairment losses in earnings of $1.0 million, including $0.5 million related to a convertible note of a non-public company issuer included in debt securities and $0.5 million related to a privately-placed equity security. We concluded that we would not recover the amortized cost basis of these securities due to credit deterioration. There were no credit-related impairment losses recognized in earnings or in AOCI during the year ended December 31, 2016. Although we held securities in an unrealized loss position as of September 30, 2017, we did not consider those securities to be other-than-temporarily impaired as of such date. For all investment categories, the unrealized losses of 12 months or greater duration as of September 30, 2017 were generally caused by interest rate or credit spread movements since the purchase date, and as such, we expect the present value of cash flows to be collected from these securities to be sufficient to recover the amortized cost basis of these securities. As of September 30, 2017, we did not have the intent to sell any debt securities in an unrealized loss position, and we determined that it is more likely than not that we will not be required to sell the securities before recovery of their cost basis, which may be at maturity; therefore, we did not consider these investments to be other-than-temporarily impaired at September 30, 2017. Trading Securities The trading securities within our investment portfolio, which are recorded at fair value, consisted of the following as of the dates indicated:
(In thousands) | September 30, 2017 |  | December 31, 2016
Trading securities: |  |  |
U.S. government and agency securities | $ | — |  |  | $ | 33,042 |
State and municipal obligations | 214,599 |  |  | 259,573 |
Corporate bonds and notes | 327,306 |  |  | 453,617 |
RMBS | 31,742 |  |  | 38,214 |
CMBS | 58,337 |  |  | 78,984 |
Other ABS | — |  |  | 8,219 |
Foreign government and agency securities | 4,292 |  |  | 8,213 |
Total | $ | 636,276 |  | (1) | $ | 879,862 |
______________________
(1) | Includes loaned securities under securities lending agreements that are classified as other assets in our condensed consolidated balance sheets, as further described below.
For trading securities held at September 30, 2017 and December 31, 2016, we had net unrealized gains associated with those securities of $10.0 million and $16.8 million during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. For the nine months ended September 30, 2017, we did not transfer any securities from the available for sale or trading categories. Securities Lending Agreements During the third quarter of 2017, we commenced participation in a securities lending program whereby we loan certain securities in our investment portfolio to Borrowers for short periods of time. These securities lending agreements are collateralized financing arrangements whereby we transfer securities to third parties through an intermediary in exchange for cash or other securities. In all of our securities lending agreements, the securities we transfer to Borrowers (loaned securities) may be transferred or loaned by the Borrowers; however, we maintain effective control over all loaned securities, including: (i) retaining ownership of the securities; (ii) receiving the related investment or other income; and (iii) having the right to request the return of the loaned securities at any time. Although we report such securities at fair value within other assets on our condensed consolidated balance sheets, the detailed information provided in this Note includes these securities. See Notes 1 and 8 for additional information. Under our securities lending agreements, the Borrower is required to provide to us collateral, consisting of cash or securities, in amounts generally equal to or exceeding (i) 102% of the value of the loaned securities (105% in the case of foreign securities) or (ii) another agreed-upon percentage not less than 100% of the market value of the loaned securities. Any cash collateral we receive may be invested in liquid assets. Under our securities lending agreements, the Borrower generally may return the loaned securities to us at any time, which would require us to return the collateral within the standard settlement period for the loaned securities on the principal exchange or market in which the securities are traded. We manage this liquidity risk associated with cash collateral by regularly monitoring our available sources of cash and collateral to ensure we can meet short-term liquidity demands in both normal and stressed scenarios. We may use our general liquidity resources to meet any potential cash demands when loaned securities are returned to us. The credit risk under these programs is reduced by the amounts of collateral received. On a daily basis, the value of the underlying securities that we have loaned to the Borrowers is compared to the value of cash and securities collateral we received from the Borrowers, and additional cash or securities are requested or returned, as applicable. In addition, we are indemnified against counterparty credit risk by the intermediary. Key components of our securities lending agreements at September 30, 2017 consisted of the following:
(In thousands) | September 30, 2017
Loaned securities: (1) |
Corporate bonds and notes | $ | 33,557 |
Foreign government and agency securities | 120 |
Equity securities | 27,199 |
Total loaned securities, at fair value | $ | 60,876 |
Total loaned securities, at amortized cost | $ | 60,740 |
Securities collateral on deposit from Borrowers (2) | 25,589 |
Reinvested cash collateral, at estimated fair value (3) | 36,782 |
______________________
(1) | Our securities loaned under securities lending agreements are included at fair value within other assets on our condensed consolidated balance sheets. All of our securities lending agreements are classified as overnight and continuous. None of the amounts are subject to offsetting.
(2) | Securities collateral on deposit with us from Borrowers may not be transferred or re-pledged unless the Borrower is in default, and is therefore not reflected in our condensed consolidated financial statements.
(3) | All cash collateral received has been reinvested in accordance with the securities lending and collateral agreements and is included in short-term investments. Amounts payable on the return of cash collateral under securities lending agreements are included within other liabilities on our condensed consolidated balance sheets.
There were no securities lending transactions outstanding at December 31, 2016. Net Gains (Losses) on Investments and Other Financial Instruments Net realized and unrealized gains (losses) on investments and other financial instruments consisted of:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In thousands) | 2017 |  | 2016 |  | 2017 |  | 2016
Net realized gains (losses): |  |  |  |  |  |  |
Fixed-maturities available for sale | $ | 137 |  |  | $ | 5,685 |  |  | $ | (3,552 | ) |  | $ | 3,703 |
Equity securities available for sale | 33 |  |  | — |  |  | 418 |  |  | (170 | )
Trading securities | (223 | ) |  | 1,524 |  |  | (6,266 | ) |  | (295 | )
Short-term investments | 14 |  |  | 38 |  |  | (18 | ) |  | (1 | )
Other invested assets | — |  |  | 631 |  |  | — |  |  | 631 |
Other gains (losses) | 7 |  |  | 15 |  |  | 25 |  |  | 33 |
Net realized gains (losses) on investments | (32 | ) |  | 7,893 |  |  | (9,393 | ) |  | 3,901 |
Other-than-temporary impairment losses | — |  |  | — |  |  | (1,000 | ) |  | — |
Unrealized gains (losses) on trading securities | 2,353 |  |  | (47 | ) |  | 14,517 |  |  | 62,862 |
Total net gains (losses) on investments | 2,321 |  |  | 7,846 |  |  | 4,124 |  |  | 66,763 |
Net gains (losses) on other financial instruments | 159 |  |  | (135 | ) |  | 836 |  |  | 2,761 |
Net gains (losses) on investments and other financial instruments | $ | 2,480 |  |  | $ | 7,711 |  |  | $ | 4,960 |  |  | $ | 69,524 |
Contractual Maturities The contractual maturities of fixed-maturity investments were as follows:
| September 30, 2017
| Available for Sale
(In thousands) | Amortized Cost |  | Fair Value
Due in one year or less (1) | $ | 41,767 |  |  | $ | 41,780 |
Due after one year through five years (1) | 687,822 |  |  | 694,932 |
Due after five years through 10 years (1) | 965,360 |  |  | 974,600 |
Due after 10 years (1) | 330,056 |  |  | 347,763 |
RMBS (2) | 176,789 |  |  | 175,408 |
CMBS (2) | 433,916 |  |  | 436,892 |
Other ABS (2) | 616,687 |  |  | 618,832 |
Total (3) | $ | 3,252,397 |  |  | $ | 3,290,207 |
______________________
(1) | Actual maturities may differ as a result of calls before scheduled maturity.
(2) | RMBS, CMBS and Other ABS are shown separately, as they are not due at a single maturity date.
(3) | Includes securities loaned under securities lending agreements.
Other At December 31, 2016, Radian Guaranty had $63.9 million in a collateral account invested in and classified as part of our trading securities and pledged to cover Loss Mitigation Activity on the loans subject to the Freddie Mac Agreement. During the third quarter of 2017, the scheduled final settlement date under the Freddie Mac Agreement occurred. As of September 30, 2017, the remaining balance of $5.5 million in the collateral account was invested in and classified as short-term investments and pledged to cover Loss Mitigation Activity and pending claims activity already in process but not yet finalized. See Note 10 for additional information.

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