Investments

Available for Sale Securities

Our available for sale securities within our investment portfolio consisted of the following as of the dates indicated:



	March 31, 2018
(In thousands)	Amortized Cost		Fair Value			Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities available for sale:
U.S. government and agency securities	$	65,278	$	63,656	(1)	$	—	$	1,622
State and municipal obligations	157,176		159,329			3,882		1,729
Corporate bonds and notes	1,910,482		1,881,117			10,525		39,890
RMBS	233,144		228,040		(2)	128		5,232
CMBS	476,601		470,834			1,085		6,852
Other ABS	736,967		736,518			1,819		2,268
Foreign government and agency securities	32,412		32,396			257		273
Total fixed-maturities available for sale	$	3,612,060	$	3,571,890	(3)	$	17,696	$	57,866

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(1)	Includes securities with a fair value of $4.8 million serving as collateral for FHLB advances.


(2)	Includes securities with a fair value of $23.3 million serving as collateral for FHLB advances.


(3)	Includes $17.2 million of fixed maturity securities loaned to third-party Borrowers under securities lending agreements, classified as other assets in our condensed consolidated balance sheets, as further described below.



	December 31, 2017
(In thousands)	Amortized Cost		Fair Value			Gross Unrealized Gains		Gross Unrealized Losses
Fixed-maturities available for sale:
U.S. government and agency securities	$	69,667	$	69,396		$	96	$	367
State and municipal obligations	156,587		161,722			5,834		699
Corporate bonds and notes	1,869,318		1,894,886			33,620		8,052
RMBS	189,455		187,229			636		2,862
CMBS	451,595		453,394			3,409		1,610
Other ABS	672,715		674,548			2,655		822
Foreign government and agency securities	31,417		32,207			823		33
Total fixed-maturities available for sale	3,440,754		3,473,382		(1)	47,073		14,445
Equity securities available for sale (2)	176,349		176,065		(1)	1,705		1,989
Total debt and equity securities	$	3,617,103	$	3,649,447		$	48,778	$	16,434

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(1)	Includes $14.7 million of fixed maturity securities and $13.2 million of equity securities loaned to third-party Borrowers under securities lending agreements, 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.

Gross Unrealized Losses and Fair Value of Available for Sale Securities

For securities deemed “available for sale” and that are in an unrealized loss position, the following tables show the gross unrealized losses and fair values, 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 March 31, 2018 and December 31, 2017, are loaned securities under securities lending agreements that are classified as other assets in our condensed consolidated balance sheets, as further described below.



	March 31, 2018
($ in thousands) Description of Securities	Less Than 12 Months					12 Months or Greater					Total
($ in thousands) Description of Securities	# 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	$	41,246	$	1,116	3	$	9,520	$	506	10	$	50,766	$	1,622
State and municipal obligations	28	79,897		1,729		—	—		—		28	79,897		1,729
Corporate bonds and notes	344	1,348,488		32,623		28	127,265		7,267		372	1,475,753		39,890
RMBS	20	112,041		1,606		27	79,087		3,626		47	191,128		5,232
CMBS	67	375,353		6,592		5	2,814		260		72	378,167		6,852
Other ABS	127	439,883		2,228		5	4,649		40		132	444,532		2,268
Foreign government and agency securities	19	20,800		273		—	—		—		19	20,800		273
Total	612	$	2,417,708	$	46,167	68	$	223,335	$	11,699	680	$	2,641,043	$	57,866



	December 31, 2017
($ in thousands) Description of Securities	Less Than 12 Months					12 Months or Greater					Total
($ in thousands) Description of Securities	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
U.S. government and agency securities	6	$	23,309	$	129	3	$	9,799	$	238	9	$	33,108	$	367
State and municipal obligations	21	65,898		699		—	—		—		21	65,898		699
Corporate bonds and notes	152	672,318		4,601		32	139,105		3,451		184	811,423		8,052
RMBS	8	19,943		204		26	101,812		2,658		34	121,755		2,862
CMBS	35	139,353		1,395		4	3,518		215		39	142,871		1,610
Other ABS	92	260,864		777		7	8,297		45		99	269,161		822
Foreign government and agency securities	5	7,397		33		—	—		—		5	7,397		33
Equity securities	13	149,785		1,989		—	—		—		13	149,785		1,989
Total	332	$	1,338,867	$	9,827	72	$	262,531	$	6,607	404	$	1,601,398	$	16,434

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 three months ended March 31, 2018, we recorded other-than-temporary impairment losses in earnings of $0.9 million due to our intent to sell certain corporate and state and municipal bonds at a loss. For the year ended December 31, 2017, we recorded other-than-temporary impairment losses in earnings of $1.4 million. These losses comprised $0.4 million recorded due to our intent to sell certain corporate bonds at a loss and $1.0 million recorded due to credit deterioration, which included $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. There were no credit-related impairment losses recognized in accumulated other comprehensive income (loss) during the three months ended March 31, 2018 or year ended December 31, 2017.

Although we held securities in an unrealized loss position as of March 31, 2018, 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 March 31, 2018 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 March 31, 2018, 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 March 31, 2018.

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)	March 31, 2018		December 31, 2017
Trading securities:
State and municipal obligations	$	203,188	$	214,841
Corporate bonds and notes	280,323		307,271
RMBS	26,084		29,520
CMBS	49,634		50,561
Foreign government and agency securities	4,180		4,241
Total (1)	$	563,409	$	606,434

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(1)	Includes a de minimis amount of loaned securities under securities lending agreements that are classified as other assets in our consolidated balance sheets, as further described below.

For trading securities held at March 31, 2018, we had net unrealized losses associated with those securities of $11.4 million during the three months ended March 31, 2018, compared to net unrealized gains of $3.5 million for the three months ended March 31, 2017. For equity securities held at March 31, 2018, we had net losses of $1.8 million during the three months ended March 31, 2018. Prior to the implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, the unrealized losses associated with equity securities were classified in accumulated other comprehensive income.

For the three months ended March 31, 2018, 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 in our condensed consolidated balance sheets, the detailed information regarding investments provided in this Note includes these securities.

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.

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 maintaining the cash collateral in a short-term money-market fund with daily availability. 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 March 31, 2018 and December 31, 2017 consisted of the following:



(In thousands)	March 31, 2018		December 31, 2017
Loaned securities (1):
U.S. government and agency securities	$	975	$	—
Corporate bonds and notes	15,508		13,862
Foreign government and agency securities	904		867
Equity securities	27,009		13,235
Total loaned securities, at fair value	$	44,396	$	27,964

Total loaned securities, at amortized cost	$	45,266	$	27,846
Securities collateral on deposit from Borrowers (2)	6,345		9,342
Reinvested cash collateral, at estimated fair value (3)	39,077		19,357

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(1)	Our securities loaned under securities lending agreements are reported at fair value within other assets in our condensed consolidated balance sheets. All of our securities lending agreements are classified as overnight and revolving. 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 agreements and is included in short-term investments in our condensed consolidated balance sheets. Amounts payable on the return of cash collateral under securities lending agreements are included within other liabilities in our condensed consolidated balance sheets.

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 March 31,
(In thousands)	2018			2017
Net realized gains (losses):
Fixed-maturities available for sale	$	(3,120	)	$	(2,509	)
Equity securities	142			—
Trading securities	(538		)	(5,694		)
Short-term investments	—			6
Other invested assets	62			—
Other gains (losses)	12			18
Net realized gains (losses) on investments	(3,442		)	(8,179		)
Other-than-temporary impairment losses	(844		)	—
Unrealized gains (losses) on investment securities (1)	(12,804		)	5,226
Total net gains (losses) on investments	(17,090		)	(2,953		)
Net gains (losses) on other financial instruments	(1,797		)	102
Net gains (losses) on investments and other financial instruments	$	(18,887	)	$	(2,851	)

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(1)

These amounts include unrealized gains (losses) on investment securities other than securities available for sale. For the three months ended March 31, 2017, the amount excludes the net change in unrealized gains and losses on equity securities. Prior to the implementation of the update to the standard for the accounting of financial instruments effective January 1, 2018, the unrealized losses associated with equity securities were classified in accumulated other comprehensive income.

Contractual Maturities

The contractual maturities of fixed-maturity investments available for sale were as follows:



	March 31, 2018
	Available for Sale
(In thousands)	Amortized Cost		Fair Value
Due in one year or less (1)	$	35,241	$	35,146
Due after one year through five years (1)	745,894		735,622
Due after five years through 10 years (1)	1,016,043		989,756
Due after 10 years (1)	368,170		375,974
RMBS (2)	233,144		228,040
CMBS (2)	476,601		470,834
Other ABS (2)	736,967		736,518
Total (3)	$	3,612,060	$	3,571,890

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(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 March 31, 2018, Radian had an aggregate amount of $28.1 million of U.S. government and agency securities and RMBS, classified as fixed-maturities available for sale within our investment securities portfolio, serving as collateral for our FHLB advances. There were no FHLB advances outstanding at December 31, 2017. See Note 12 for additional information.

Securities on deposit with various state insurance commissioners amounted to $14.9 million and $11.8 million at March 31, 2018 and December 31, 2017, respectively.