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Reinsurance | 3 Months Ended
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Mar. 31, 2024
Reinsurance Disclosures [Abstract] |
Reinsurance | Reinsurance In 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 XOL Program. The amount of credit that we receive under the PMIERs financial requirements for our third-party reinsurance transactions is subject to approval and regular review 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 March 31, |  |  |  | Three Months Ended March 31,
(In thousands) |  |  |  |  |  | 2024 |  | 2023 |  |  |  |  |  | 2024 |  | 2023
Direct |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage insurance |  |  |  |  |  | $ | 250,435 |  |  | $ | 242,784 |  |  |  |  |  |  | $ | 260,707 |  |  | $ | 256,527 |
Title insurance |  |  |  |  |  | 1,948 |  |  | 1,888 |  |  |  |  |  |  | 1,948 |  |  | 1,888 |
Total direct |  |  |  |  |  | 252,383 |  |  | 244,672 |  |  |  |  |  |  | 262,655 |  |  | 258,415 |
Ceded |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage insurance (1) |  |  |  |  |  | (18,558) |  |  | (13,364) |  |  |  |  |  |  | (26,708) |  |  | (25,077) |
Title insurance |  |  |  |  |  | (90) |  |  | (100) |  |  |  |  |  |  | (90) |  |  | (100) |
Total ceded (1) |  |  |  |  |  | (18,648) |  |  | (13,464) |  |  |  |  |  |  | (26,798) |  |  | (25,177) |
Total net premiums |  |  |  |  |  | $ | 233,735 |  |  | $ | 231,208 |  |  |  |  |  |  | $ | 235,857 |  |  | $ | 233,238 |
(1)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.
Other reinsurance impacts
|  |  |  | Three Months Ended March 31,
(In thousands) |  |  |  |  |  | 2024 |  | 2023
Ceding commissions earned (1) |  |  |  |  |  | $ | 6,113 |  |  | $ | 5,251 |
Ceded losses (2) |  |  |  |  |  | 2,195 |  |  | (1,166) |
(1)Ceding commissions earned are related to mortgage insurance and are included as an offset to expenses primarily in other operating expenses in our condensed consolidated statements of operations. Deferred ceding commissions of $18 million and $20 million are included in other liabilities on our condensed consolidated balance sheets at March 31, 2024, and December 31, 2023, respectively. (2)Ceded losses are primarily related to mortgage insurance. QSR Program 2023 and 2022 QSR Agreements Radian Guaranty entered into each of the 2023 and 2022 QSR Agreements with panels of third-party reinsurance providers to cede a contractual quota share percentage 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 for the 2023 QSR Agreement on ceded RIF equal to $3.0 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 agreements 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. Radian Guaranty may discontinue ceding new policies under the 2023 QSR Agreement at the end of any calendar quarter. 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 percentage 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, with RIF ceded as of the dates indicated.
QSR Program (1)
|  | 2023 QSR Agreement |  | 2022 QSR Agreement |  | 2020 Single Premium QSR Agreement |  | 2018 Single Premium QSR Agreement |  | 2016 Single Premium QSR Agreement
NIW policy dates |  | Jul 1, 2023- Jun 30, 2024 |  | Jan 1, 2022- Jun 30, 2023 |  | Jan 1, 2020- Dec 31, 2021 |  | Jan 1, 2018- Dec 31, 2019 |  | Jan 1, 2012- Dec 31, 2017
Effective date |  | Jul 1, 2023 |  | Jul 1, 2022 |  | Jan 1, 2020 |  | Jan 1, 2018 |  | Jan 1, 2016
Scheduled termination date |  | Jun 30, 2034 |  | Jun 30, 2033 |  | Dec 31, 2031 |  | Dec 31, 2029 |  | Dec 31, 2027
Optional termination date (2) |  | Jul 1, 2027 |  | Jul 1, 2026 |  | Jan 1, 2024 |  | Jan 1, 2022 |  | Jan 1, 2020
Quota share % |  | 22.5% |  | 20% |  | 65% |  | 65% |  | 18% - 57%
Ceding commission % |  | 20% |  | 20% |  | 25% |  | 25% |  | 25%
Profit commission % |  | Up to 55% |  | Up to 59% |  | Up to 56% |  | Up to 56% |  | Up to 55%
(In millions) |  | March 31, 2024
RIF ceded |  | $ | 1,987 |  |  | $ | 4,378 |  |  | $ | 1,729 |  |  | $ | 716 |  |  | $ | 952 |
(In millions) |  | December 31, 2023
RIF ceded |  | $ | 1,366 |  |  | $ | 4,454 |  |  | $ | 1,783 |  |  | $ | 739 |  |  | $ | 982 |
(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. XOL Program Mortgage Insurance-linked Notes Radian Guaranty has entered into fully collateralized reinsurance arrangements with the Eagle Re Issuers, 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 mortgage 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 mortgage insurance-linked notes falls below 10% of the initial coverage level or principal balance, depending on the transaction, of the related mortgage 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 mortgage insurance-linked notes transaction agreements. Any remaining mortgage insurance-linked notes issued by Eagle Re 2020-1 Ltd. were paid in full in March 2024, with no material impact to the Company. As a result, as of March 31, 2024, Eagle Re 2020-1 Ltd. is no longer providing reinsurance coverage to Radian Guaranty. Traditional Reinsurance For the respective coverage periods under traditional XOL reinsurance agreements, Radian Guaranty retains the first-loss layer of aggregate losses, as well as any losses in excess of the outstanding reinsurance coverage amounts. The reinsurers provide second layer coverage up to the outstanding coverage amounts. The 2023 XOL Agreement is scheduled to terminate September 30, 2033. Radian Guaranty has the option, based upon certain conditions, to terminate the agreement as of September 30, 2028, or at the end of any calendar quarter thereafter, which would result in Radian Guaranty reassuming the related RIF. In the event Radian Guaranty does not exercise its right to terminate the agreement on September 30, 2028, the monthly premium rate will increase from the original monthly premium. The following tables set forth additional details regarding the XOL Program, with RIF, remaining coverage and first layer retention as of the dates indicated.
XOL Program
|  | Mortgage Insurance-linked Notes (1) |  | Traditional Reinsurance
(In millions) |  | Eagle Re 2023-1 Ltd. |  | Eagle Re 2021-2 Ltd. |  | Eagle Re 2021-1 Ltd. (2) |  |  |  | 2023 XOL Agreement
Issued |  | October 2023 |  | November 2021 |  | April 2021 |  |  |  | October 2023
NIW policy dates |  | Apr 1, 2022- Dec 31, 2022 |  | Jan 1, 2021- Jul 31, 2021 |  | Aug 1, 2020- Dec 31, 2020 |  |  |  | Oct 1, 2021- Mar 31, 2022
Initial RIF |  | $ | 8,782 |  |  |  | $ | 10,758 |  |  |  | $ | 11,061 |  |  |  |  |  |  | $ | 8,002 |  |
Initial coverage |  | 353 |  |  |  | 484 |  |  |  | 498 |  |  |  |  |  |  | 246 |  |
Initial first layer retention |  | 287 |  |  |  | 242 |  |  |  | 221 |  |  |  |  |  |  | 240 |  |
(In millions) |  | March 31, 2024
RIF |  | $ | 8,525 |  |  |  | $ | 7,309 |  |  |  | $ | 5,922 |  |  |  |  |  |  | $ | 7,581 |  |
Remaining coverage |  | 353 |  |  |  | 328 |  |  |  | 227 |  |  |  |  |  |  | 204 |  |
First layer retention |  | 287 |  |  |  | 242 |  |  |  | 221 |  |  |  |  |  |  | 240 |  |
(In millions) |  | December 31, 2023
RIF |  | $ | 8,659 |  |  |  | $ | 7,651 |  |  |  | $ | 6,227 |  |  |  |  |  |  | $ | 7,814 |  |
Remaining coverage |  | 353 |  |  |  | 355 |  |  |  | 250 |  |  |  |  |  |  | 226 |  |
First layer retention |  | 287 |  |  |  | 242 |  |  |  | 221 |  |  |  |  |  |  | 240 |  |
(1)Excludes Eagle Re 2020-1 Ltd., which as further discussed above, was terminated in March 2024. (2)Radian Group purchased $45 million of Eagle Re 2021-1 Ltd. outstanding principal amounts of the respective mortgage insurance-linked notes issued in connection with that reinsurance transaction. On our condensed consolidated balance sheet at March 31, 2024, 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 2023 Form 10-K for more information on our accounting treatment of VIEs. SOFR is the effective benchmark rate for all of our reinsurance agreements with the Eagle Re Issuers as of March 31, 2024. 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 SOFR, 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 SOFR and the rates on the investments held by the reinsurance trust and (ii) the outstanding amount of reinsurance coverage. 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 2023 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 the dates indicated. 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) |  | March 31, 2024 |  | December 31, 2023
Eagle Re 2023-1 Ltd. |  | $ | 353,077 |  |  | $ | 353,077 |
Eagle Re 2021-2 Ltd. |  | 328,326 |  |  | 354,947 |
Eagle Re 2021-1 Ltd. |  | 227,212 |  |  | 250,268 |
Eagle Re 2020-1 Ltd. |  | — |  |  | 6,617 |
Total |  | $ | 908,615 |  |  | $ | 964,909 |
(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, the third-party reinsurers to Radian Guaranty 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 $281 million as of March 31, 2024, compared to $274 million as of December 31, 2023. 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 2023 Form 10-K for more information about our reinsurance transactions.

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