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Reinsurance | 6 Months Ended
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Jun. 30, 2023
Reinsurance Disclosures [Abstract] |
Reinsurance | ReinsuranceIn our mortgage insurance and title insurance businesses, we use reinsurance as part of our risk distribution strategy, including to manage our capital position and risk profile. The reinsurance arrangements for our mortgage insurance business include p remiums ceded under the QSR Program and the Excess-of-Loss Program. The amount of credit that we receive under the PMIERs financial requirements for our third-party reinsurance transactions is subject to ongoing review and approval by the GSEs. The effect of all of our reinsurance programs on our net income is as follows.
Reinsurance impacts on net premiums written and earned
|  | Net Premiums Written |  | Net Premiums Earned
|  | Three Months Ended June 30, |  | Six Months Ended June 30, |  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  | 2023 |  | 2022
Direct |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage insurance |  | $ | 245,448 |  |  | $ | 243,808 |  |  | $ | 488,232 |  |  | $ | 485,026 |  |  | $ | 256,517 |  |  | $ | 256,830 |  |  | $ | 513,044 |  |  | $ | 515,126 |
Title insurance |  | 2,797 |  |  | 7,117 |  |  | 4,685 |  |  | 16,279 |  |  | 2,797 |  |  | 7,117 |  |  | 4,685 |  |  | 16,279 |
Total direct |  | 248,245 |  |  | 250,925 |  |  | 492,917 |  |  | 501,305 |  |  | 259,314 |  |  | 263,947 |  |  | 517,729 |  |  | 531,405 |
Assumed (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage insurance |  | — |  |  | 1,538 |  |  | — |  |  | 2,870 |  |  | — |  |  | 1,539 |  |  | — |  |  | 2,870 |
Ceded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage insurance (2) |  | (30,909) |  |  | 3,298 |  |  | (44,273) |  |  | 9,108 |  |  | (45,785) |  |  | (11,460) |  |  | (70,862) |  |  | (25,913) |
Title insurance |  | (100) |  |  | (134) |  |  | (200) |  |  | (280) |  |  | (100) |  |  | (134) |  |  | (200) |  |  | (280) |
Total ceded (2) |  | (31,009) |  |  | 3,164 |  |  | (44,473) |  |  | 8,828 |  |  | (45,885) |  |  | (11,594) |  |  | (71,062) |  |  | (26,193) |
Total net premiums |  | $ | 217,236 |  |  | $ | 255,627 |  |  | $ | 448,444 |  |  | $ | 513,003 |  |  | $ | 213,429 |  |  | $ | 253,892 |  |  | $ | 446,667 |  |  | $ | 508,082 |
(1)Represents premiums from our participation in certain credit risk transfer programs. We discontinued our participation in these programs in December 2022 by novating these insurance policies to an unrelated third-party reinsurer. See Note 16 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for additional information. (2)Net of profit commission, which is impacted by the level of ceded losses recoverable, if any, on reinsurance transactions. See Note 11 for additional information on our reserve for losses and reinsurance recoverable. The second quarter of 2023 includes a $21 million increase in ceded premiums related to the tender offers by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. to purchase the mortgage insurance-linked notes issued by such entities. See “Excess of Loss Program” below for additional information.
Other reinsurance impacts
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Ceding commissions earned (1) |  | $ | 5,052 |  |  | $ | 3,424 |  |  | $ | 10,303 |  |  | $ | 8,558 |
Ceded losses (2) |  | (1,218) |  |  | (15,093) |  |  | (2,384) |  |  | (27,860) |
(1)Ceding commissions earned are primarily related to mortgage insurance and are included as an offset to expenses primarily in other operating expenses on our condensed consolidated statements of operations. Deferred ceding commissions of $23 million and $27 million are included in other liabilities on our condensed consolidated balance sheets at June 30, 2023, and December 31, 2022, respectively. (2)Primarily all related to mortgage insurance. QSR Program 2022 QSR Agreement In the third quarter of 2022, Radian Guaranty entered into the 2022 QSR Agreement with a panel of third-party reinsurance providers to cede a contractual quota share percent of certain of our NIW, which includes both Recurring Premium Policies and Single Premium Policies (as set forth in the table below), subject to certain conditions, including a limitation on ceded RIF equal to $8.5 billion over the term of the agreement. Radian Guaranty receives a ceding commission for ceded premiums earned pursuant to these transactions. Radian Guaranty is also entitled to receive a profit commission quarterly, subject to a final annual re-calculation, provided that the loss ratio on the loans covered under the agreement generally remains below the applicable prescribed thresholds. Losses on the ceded risk up to these thresholds reduce Radian Guaranty’s profit commission on a dollar-for-dollar basis. As of July 1, 2023, Radian Guaranty is no longer ceding NIW under the 2022 QSR Agreement. Single Premium QSR Program Radian Guaranty entered into each of the 2016 Single Premium QSR Agreement, 2018 Single Premium QSR Agreement and 2020 Single Premium QSR Agreement with panels of third-party reinsurers to cede a contractual quota share percent of our Single Premium NIW as of the effective date of each agreement (as set forth in the table below), subject to certain conditions. Radian Guaranty receives a ceding commission for ceded premiums written pursuant to these transactions. Radian Guaranty also receives a profit commission annually, provided that the loss ratio on the loans covered under the agreement generally remains below the applicable prescribed thresholds. Losses on the ceded risk up to these thresholds reduce Radian Guaranty’s profit commission on a dollar-for-dollar basis. As of January 1, 2022, Radian Guaranty is no longer ceding NIW under the Single Premium QSR Program. The following table sets forth additional details regarding the QSR Program as of June 30, 2023.
QSR Program (1)
|  | 2022 QSR Agreement |  | 2020 Single Premium QSR Agreement |  | 2018 Single Premium QSR Agreement |  | 2016 Single Premium QSR Agreement
NIW policy dates |  | Jan 1, 2022- June 30, 2023 |  | Jan 1, 2020- Dec 31, 2021 |  | Jan 1, 2018- Dec 31, 2019 |  | Jan 1, 2012- Dec 31, 2017
Effective date |  | July 1, 2022 |  | January 1, 2020 |  | January 1, 2018 |  | January 1, 2016
Scheduled termination date |  | June 30, 2033 |  | December 31, 2031 |  | December 31, 2029 |  | December 31, 2027
Optional termination date (2) |  | July 1, 2026 |  | January 1, 2024 |  | January 1, 2022 |  | January 1, 2020
Quota share % |  | 20% |  | 65% |  | 65% |  | 18% - 57%
Ceding commission % |  | 20% |  | 25% |  | 25% |  | 25%
Profit commission % |  | Up to 59% |  | Up to 56% |  | Up to 56% |  | Up to 55%
(In millions) |  | As of June 30, 2023
RIF ceded |  | $ | 4,611 |  |  | $ | 1,881 |  |  | $ | 791 |  |  | $ | 1,065 |
(In millions) |  | As of December 31, 2022
RIF ceded |  | $ | 3,307 |  |  | $ | 1,993 |  |  | $ | 876 |  |  | $ | 1,207 |
(1)Excludes the 2012 QSR Agreements, for which RIF ceded is no longer material. (2)Radian Guaranty has the option, based on certain conditions and subject to a termination fee, to terminate any of the agreements at the end of any calendar quarter on or after the applicable optional termination date. If Radian Guaranty exercises this option in the future, it would result in Radian Guaranty reassuming the related RIF in exchange for a net payment to the reinsurers calculated in accordance with the terms of the applicable agreement. Radian Guaranty also may terminate any of the agreements prior to the scheduled termination date under certain circumstances, including if one or both of the GSEs no longer grant full PMIERs credit for the reinsurance. 2023 QSR Agreement In July 2023, Radian Guaranty executed the 2023 QSR Agreement with a panel of third-party reinsurance providers. Under the 2023 QSR Agreement, starting July 1, 2023, we expect to cede 22.5% of policies issued by Radian Guaranty between July 1, 2023, and June 30, 2024, subject to certain conditions including a limitation on ceded RIF of $3.0 billion over the term of the agreement. Radian Guaranty will receive a 20% ceding commission for ceded premiums earned pursuant to this transaction. Radian Guaranty will also receive an annual profit commission based on the performance of the loans subject to the agreement during each calendar year, provided that the loss ratio on the subject loans is below 55% for that calendar year. Radian Guaranty may discontinue ceding new policies under the agreement at the end of any calendar quarter. The agreement is scheduled to terminate June 30, 2034. Radian Guaranty has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of July 1, 2027, or at the end of any calendar quarter thereafter, which would result in Radian Guaranty reassuming the related RIF in exchange for a net payment to the reinsurers calculated in accordance with the terms of the agreement. Radian Guaranty also may terminate this agreement prior to the scheduled termination date under certain circumstances, including if one or both of the GSEs no longer grant full PMIERs credit for the reinsurance. Excess-of-Loss Program Radian Guaranty has entered into six fully collateralized reinsurance arrangements with the Eagle Re Issuers of which four remain active as of June 30, 2023, following the results of the tender offers by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd., as described below. For the respective coverage periods, Radian Guaranty retains the first-loss layer of aggregate losses, as well as any losses in excess of the outstanding reinsurance coverage amounts. The Eagle Re Issuers provide second layer coverage up to the outstanding coverage amounts. For each of these reinsurance arrangements, the Eagle Re Issuers financed their coverage by issuing mortgage insurance-linked notes to eligible capital markets investors in unregistered private offerings. The aggregate excess-of-loss reinsurance coverage for these arrangements decreases over the maturity period of the mortgage insurance-linked notes (either a 10-year or 12.5-year period depending on the transaction) as the principal balances of the underlying covered mortgages decrease and as any claims are paid by the applicable Eagle Re Issuer or the mortgage insurance is canceled. Radian Guaranty has rights to terminate the reinsurance agreements upon the occurrence of certain events, including an optional call feature that provides Radian Guaranty the right to terminate the transaction on or after the optional call date (5 or 7 years after the issuance of the insurance-linked notes depending on the transaction) and a right to exercise an optional clean-up call if the outstanding principal amount of the related insurance-linked notes falls below 10% of the initial principal balance of the related insurance-linked notes. Under each of the reinsurance agreements, the outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained and will stop amortizing if certain thresholds, or triggers, are reached, including a delinquency trigger event based on an elevated level of delinquencies as defined in the related insurance-linked notes transaction agreements. The insurance-linked notes issued by Eagle Re 2018-1 Ltd. are currently subject to a delinquency trigger event, which was first reported to the insurance-linked note investors on June 25, 2020. For the insurance-linked notes that are subject to a delinquency trigger event, both the amortization of the outstanding reinsurance coverage amount pursuant to our reinsurance arrangements with Eagle Re 2018-1 Ltd. and the amortization of the principal amount of the related insurance-linked notes issued by Eagle Re 2018-1 Ltd. have been suspended and will continue to be suspended during the pendency of the trigger event. In September 2022, Radian Guaranty exercised its optional clean-up call right to terminate Radian Guaranty’s excess-of-loss reinsurance agreement with Eagle Re 2020-2 Ltd. In connection with the termination of Radian Guaranty’s excess-of-loss reinsurance agreement with Eagle Re 2020-2 Ltd., the insurance-linked notes issued by Eagle Re 2020-2 Ltd. were redeemed in full with a distribution of remaining collateral assets. Given the diminished PMIERs capital benefit and risk mitigation values that Radian Guaranty was receiving from the reinsurance agreements, in June 2023 Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. conducted tender offers to purchase the mortgage insurance-linked notes that supported their reinsurance agreements with Radian Guaranty. As of June 30, 2023, $455 million and $332 million of the original principal amount of the Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. mortgage insurance-linked notes, respectively, had been validly tendered, representing 100% of the Eagle Re 2019-1 Ltd. mortgage insurance-linked notes and 82% of the Eagle Re 2020-1 Ltd. mortgage insurance-linked notes. The corresponding portion of the reinsurance agreements supported by the tendered notes were terminated. As a result of these tender offers, Radian Guaranty incurred additional ceded premiums earned during the second quarter of 2023 of $21 million, consisting of $16 million related to the cost of tender premiums and associated expenses and $5 million related to the acceleration of deferred costs from the original executions of these transactions. Based on current projections and expectations, Radian Guaranty expects to save approximately $58 million of future ceded premiums over time as a result of these tenders, including a full recovery of the $21 million of the upfront one-time costs noted above within one year. In addition, as a result of these tender offers, Radian Guaranty reestablished certain contingency reserves related to Eagle Re 2019-1 Ltd. See Note 16 for additional detail on this impact. The following tables set forth additional details regarding the Excess-of-Loss Program as of June 30, 2023.
Excess-of-Loss Program
(In millions) |  | Eagle Re 2021-2 Ltd. |  | Eagle Re 2021-1 Ltd. (1) |  | Eagle Re 2020-1 Ltd. |  | Eagle Re 2019-1 Ltd. |  | Eagle Re 2018-1 Ltd. (1)
Issued |  | November 2021 |  | April 2021 |  | February 2020 |  | April 2019 |  | November 2018
NIW policy dates |  | Jan 1, 2021- Jul 31, 2021 |  | Aug 1, 2020- Dec 31, 2020 |  | Jan 1, 2019- Sep 30, 2019 |  | Jan 1, 2018- Dec 31, 2018 |  | Jan 1, 2017- Dec 31, 2017
Initial RIF |  | $ | 10,758 |  |  |  | $ | 11,061 |  |  |  | $ | 9,866 |  |  |  | $ | 10,705 |  |  |  | $ | 9,109 |  |
Initial coverage |  | 484 |  |  |  | 498 |  |  |  | 488 |  |  |  | 562 |  |  |  | 434 |  |
Initial first layer retention |  | 242 |  |  |  | 221 |  |  |  | 202 |  |  |  | 268 |  |  |  | 205 |  |
(In millions) |  | As of June 30, 2023
RIF |  | $ | 8,443 |  |  |  | $ | 6,914 |  |  |  | $ | 2,206 |  |  |  | $ | — |  |  |  | $ | 1,341 |  |
Remaining coverage |  | 417 |  |  |  | 302 |  |  |  | 29 |  |  |  | — |  |  |  | 276 |  |
First layer retention |  | 242 |  |  |  | 221 |  |  |  | 202 |  |  |  | — |  |  |  | 200 |  |
(In millions) |  | As of December 31, 2022
RIF |  | $ | 9,150 |  |  |  | $ | 7,758 |  |  |  | $ | 2,401 |  |  |  | $ | 1,769 |  |  |  | $ | 1,509 |  |
Remaining coverage |  | 472 |  |  |  | 366 |  |  |  | 368 |  |  |  | 385 |  |  |  | 276 |  |
First layer retention |  | 242 |  |  |  | 221 |  |  |  | 202 |  |  |  | 263 |  |  |  | 200 |  |
(1)Radian Group purchased $45 million of Eagle Re 2021-1 Ltd. and $3 million of Eagle Re 2018-1 Ltd. outstanding principal amounts of the respective mortgage insurance-linked notes issued in connection with these reinsurance transactions. On our condensed consolidated balance sheet at June 30, 2023, these notes are included either in fixed-maturities available for sale or, if included in our securities lending program, in other assets. See Notes 5 and 6 for additional information. The Eagle Re Issuers are not subsidiaries or affiliates of Radian Guaranty. Based on the accounting guidance that addresses VIEs, we have not consolidated any of the assets and liabilities of the Eagle Re Issuers in our financial statements, because Radian does not have: (i) the power to direct the activities that most significantly affect the Eagle Re Issuers’ economic performances or (ii) the obligation to absorb losses or the right to receive benefits from the Eagle Re Issuers that potentially could be significant to the Eagle Re Issuers. See Note 2 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for more information on our accounting treatment of VIEs. The reinsurance premium due to the Eagle Re Issuers is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of a period by a coupon rate, which is the sum of one-month LIBOR or SOFR, as applicable, plus a contractual risk margin, and then subtracting actual investment income collected on the assets in the reinsurance trust during the preceding month. As a result, the premiums we pay will vary based on: (i) the spread between LIBOR or SOFR, as provided in each applicable reinsurance agreement, and the rates on the investments held by the reinsurance trust and (ii) the outstanding amount of reinsurance coverage. SOFR is the effective benchmark rate for the majority of our reinsurance agreements with the Eagle Re Issuers as of June 30, 2023. In connection with the discontinuation of LIBOR effective June 30, 2023, the other remaining reinsurance agreements that are subject to LIBOR have been transitioned to SOFR effective for the third quarter of 2023. As the reinsurance premium will vary based on changes in these rates, we concluded that the reinsurance agreements contain embedded derivatives, which we have accounted for separately as freestanding derivatives and recorded in other assets or other liabilities on our condensed consolidated balance sheets. Changes in the fair value of these embedded derivatives are recorded in net gains (losses) on investments and other financial instruments in our condensed consolidated statements of operations. See Note 5 herein and Note 5 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for more information on our fair value measurements of financial instruments, including our embedded derivatives. In the event an Eagle Re Issuer is unable to meet its future obligations to us, if any, our insurance subsidiaries would be liable to make claims payments to our policyholders. In the event that all of the assets in the reinsurance trust (consisting of U.S. government money market funds, cash or U.S. Treasury securities) become worthless and the Eagle Re Issuer is unable to make its payments to us, our maximum potential loss would be the amount of mortgage insurance claim payments for losses on the insured policies, net of the aggregate reinsurance payments already received, up to the full aggregate excess-of-loss reinsurance coverage amount. In the same scenario, the related embedded derivative would no longer have value. The Eagle Re Issuers represent our only VIEs as of June 30, 2023, and December 31, 2022. The following table presents the total assets and liabilities of the Eagle Re Issuers as of the dates indicated.
Total VIE assets and liabilities of Eagle Re Issuers (1)
(In thousands) |  | June 30, 2023 |  | December 31, 2022
Eagle Re 2021-2 Ltd. |  | $ | 416,744 |  |  | $ | 471,942 |
Eagle Re 2021-1 Ltd. |  | 302,269 |  |  | 366,169 |
Eagle Re 2018-1 Ltd. |  | 275,718 |  |  | 275,718 |
Eagle Re 2020-1 Ltd. |  | 28,777 |  |  | 368,378 |
Eagle Re 2019-1 Ltd. |  | — |  |  | 384,602 |
Total |  | $ | 1,023,508 |  |  | $ | 1,866,809 |
(1)Assets held by the Eagle Re Issuers are required to be invested in U.S. government money market funds, cash or U.S. Treasury securities. Liabilities of the Eagle Re Issuers consist of their mortgage insurance-linked notes, as described above. Assets and liabilities are equal to each other for each of the Eagle Re Issuers. Other Collateral Although we use reinsurance as one of our risk management tools, reinsurance does not relieve us of our obligations to our policyholders. In the event the reinsurers are unable to meet their obligations to us, our insurance subsidiaries would be liable for any defaulted amounts. However, consistent with the PMIERs reinsurer counterparty collateral requirements, Radian Guaranty’s reinsurers have established trusts to help secure our potential cash r ecoveries. In addition to the total VIE assets of the Eagle Re Issuers discussed above, th e amount held in reinsurance trusts was $186 million as of June 30, 2023, compared to $175 million as of December 31, 2022. In addition, primarily for the Single Premium QSR Program, Radian Guaranty holds amounts related to ceded premiums written to collateralize the reinsurers’ obligations, which is reported in reinsurance funds withheld on our condensed consolidated balance sheets. Any loss recoveries and profit commissions paid to Radian Guaranty related to the Single Premium QSR Program are expected to be realized from this account. See Note 8 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for more information about our reinsurance transactions.

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