Report of Examination of Radian Guaranty Inc. Philadelphia ......RDN’s principal activity is...

Examination Warrant Number 13-00766-33790-R1

Report of Examination of

Radian Guaranty Inc. Philadelphia, Pennsylvania

As of December 31, 2013

Radian Guaranty Inc.

TABLE OF CONTENTS Subject Page Salutation .........................................................................................................................................1 Scope of Examination ......................................................................................................................1 History..............................................................................................................................................2 Management and Control: Capitalization .............................................................................................................................2 Stockholder ................................................................................................................................3 Insurance Holding Company System.........................................................................................3 Board of Directors......................................................................................................................8 Committees ................................................................................................................................8 Officers ......................................................................................................................................9 Corporate Records: Minutes ......................................................................................................................................9 Articles of Incorporation ..........................................................................................................10 By-Laws ...................................................................................................................................10 Service and Operating Agreements ...............................................................................................10 Reinsurance Ceded .......................................................................................................................................11 Assumed ...................................................................................................................................13 Territory and Plan of Operation .....................................................................................................13 Significant Operating Ratios and Trends .......................................................................................14 Accounts and Records....................................................................................................................15 Pending Litigation ..........................................................................................................................15 Financial Statements: Comparative Statement of Assets, Liabilities, Surplus and Other Funds ................................17 Comparative Statement of Income ...........................................................................................18 Comparative Statement of Capital and Surplus .......................................................................19 Comparative Statement of Cash Flow .....................................................................................20 Summary of Examination Changes ...............................................................................................21 Notes to Financial Statements: Assets: Investments ..............................................................................................................................21 Liabilities: Loss and Loss Adjustment Expense Reserves .........................................................................22 Contingency Reserve ...............................................................................................................23 Subsequent Events .........................................................................................................................23 Recommendations: Prior Examination ....................................................................................................................24 Current Examination ................................................................................................................24 Conclusion .....................................................................................................................................24

Harrisburg, Pennsylvania February 27, 2015

Honorable Stephen J. Johnson, CPA Deputy Insurance Commissioner Commonwealth of Pennsylvania Insurance Department Harrisburg, Pennsylvania

Dear Sir:

In accordance with instructions contained in Examination Warrant Number 13-00766-33790-R1 dated March 1, 2013, an examination was made of

Radian Guaranty Inc., NAIC Code: 33790 a Pennsylvania domiciled mortgage guaranty insurance company, hereinafter referred to as “RGI” or “Company.” The examination was conducted at RGI’s home office, located at 1601 Market Street, Philadelphia, PA 19103.

A report of this examination is hereby respectfully submitted.

SCOPE OF EXAMINATION RGI was last examined as of December 31, 2008.

This examination covered the five-year period from January 1, 2009 through December 31, 2013, and consisted of a general survey of the Company’s business practices, management and operations, and an evaluation of the Company’s financial condition as of the latter date. Material subsequent events were also reviewed.

Work programs employed in the performance of this examination were designed to comply with the standards promulgated by the Pennsylvania Insurance Department (“Department”) and the National Association of Insurance Commissioners (“NAIC”).

The format of this report is consistent with the current practices of the Department and the examination format prescribed by the NAIC. It is limited to a description of RGI, a discussion of financial items that are of specific regulatory concern, and a disclosure of other significant regulatory information.

For each year during the period under examination, the Certified Public Accounting (“CPA”) firm of PricewaterhouseCoopers LLP (“PwC”) of Philadelphia, Pennsylvania provided an unmodified audit opinion on the Company’s year-end financial statements based on statutory accounting principles. Relevant work performed by PwC, during its annual audit of RGI, was reviewed during the examination and incorporated into the examination work papers.


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The following companies were examined concurrently as part of the multi-state examination:

Company NAIC Code

State of Domicile

Radian Insurance Inc. 20720 PA Radian Mortgage Assurance Inc. 30872 PA Radian Guaranty Reinsurance Inc.* 15909 PA Radian Mortgage Insurance Inc.** 33944 PA Radian Asset Assurance Inc. 36250 NY

* Formerly Commonwealth Mortgage Assurance Company of Texas (re-domesticated from Texas in 2013) ** Re-domesticated from Arizona in 2012

HISTORY RGI was incorporated on September 23, 1976, as Commonwealth Mortgage Assurance

Company (“CMAC”), licensed by the Department on April 12, 1977 and commenced business on April 12, 1977, providing private mortgage insurance to U.S. mortgage lenders. CMAC was renamed Radian Guaranty Inc. in 1999.

The Company is one of the country’s largest residential mortgage insurance companies and is headquartered in Philadelphia, PA. RGI is a stock corporation, entirely owned by Radian Group Inc. (“RDN”), which is publicly held and listed on the NYSE.

RGI is currently authorized to transact those classes of insurance described in 40 P.S. § 382 (c) (7) Credit.

MANAGEMENT AND CONTROL

CAPITALIZATION As of the examination date, December 31, 2013, RGI’s total capital was $1,317,763,931,

consisting of 1,000 capital shares of issued and outstanding common stock with a par value of $2,500 per share amounting to $2,500,000 (par value per share increased from $2,000 to $2,500 in 2010); $1,938,412,278 in paid-in and contributed surplus; and $(623,148,347) in unassigned funds (surplus).

The Company’s minimum capital and minimum surplus requirements for the types of business for which it is licensed, pursuant to 40 P.S. § 386(c), is $750,000 in capital and $375,000 in surplus. RGI met these requirements throughout the examination period.

http://www.answers.com/topic/private-mortgage-insurance


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STOCKHOLDER RGI is a wholly owned subsidiary of RDN. During the examination period, RGI paid no

dividends to RDN.

INSURANCE HOLDING COMPANY SYSTEM During the period under examination, RGI met the requirements for filing an Insurance

Holding Company System Registration Statement, in accordance with 40 P.S. §§ 991.1404(a)(1) and 991.1404(a)(2), to register with the Department by March 31, of each year during the examination period. Forms B and C were filed annually during the examination period.

RDN is named as the ultimate controlling person in the system. The following organizational chart presents the members of the holding company system as of December 31, 2014:


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Radian Guaranty Inc. (“RGI”)(Pennsylvania)

100% owned by RDNNAIC #33790

Radian Clayton Holdings Inc. ("RCH")

(Delaware) 100% owned by RDN

EIN #46-5745522

Radian Insurance Inc. ("RIINC")

(Pennsylvania Ins.) 100% owned by RGI

NAIC #20720

Radian Mortgage Assurance Inc.

(“RMAI”) (Pennsylvania) 100% owned by RGI

NAIC #30872

Radian Mortgage Insurance Inc. (“RMII”)

(Pennsylvania)100% owned by RGI

NAIC #33944

Radian Mortgage Services (Hong Kong) Ltd.

(Hong Kong Corporation)100% owned by RGI

Radian Services LLC(Delaware)

100% owned by RGIEIN #23-1936987

Radian Asset Assurance Inc. (“RAA”) (New York)

100% owned by RGI NAIC #36250

Van American Insurance Agency, Inc.

(South Carolina)100% owned by RAA

EIN #20-3759337

Clayton Holdings LLC ("CHL")

(Delaware)100% owned by RCH

EIN #20-2660764

Clayton Fixed Income Services LLC(Delaware)

100% owned by CHLEIN #84-1399420

Clayton Holdings UK, Ltd. ("CHUK")

(United Kingdom)100% owned by CHL

Clayton Services LLC ("CS")

(Delaware)100% owned by CHL

EIN #75-3161447

Clayton Euro Risk, Ltd.(United Kingdom)

100% owned by CHUK

Clayton Support Services LLC(Delaware)

100% owned by CSEIN #45-3560069

First Madison Services LLC ("FMS")

(Delaware)100% owned by CSEIN #75-3161450

Green River Capital, LLC ("GRC")(Delaware)

100% owned by FMSEIN #45-3933740

GR Financial, LLC(Utah)

100% owned by GRC

EIN #20-5639099

Enhance Financial Services Group Inc. ("EFSG") (New York)

100% owned by RDNEIN #13-3333448

AE Global Holdings, LLC

(Delaware)50% owned by EFSGEIN #: 36-4746928

EFS – AGIC Master Business Trust

(Delaware )EFSG 100% beneficiary

EIN # 13-3333448

Lottery Receivables(Delaware)

100% owned by EFSG

EIN # 13-4080669

Radian Guaranty Reinsurance Inc.

("RGRI") (Pennsylvania)

100% Owned by EFSG

NAIC #15909

Residual Interest Investments LP

(Delaware)99.2% owned by RGRI0.8% owned by ERFC

EIN # 75-2511700

Radian MI Services Inc. (“RMIS”)

(Pennsylvania)100% owned by RDN

EIN#27-3727012

Radian Advisors LLC(Pennsylvania)

100% owned by RMIS

EIN #46-4212549

Radian Insurance Services LLC

(Pennsylvania)100% owned by

RMISEIN #27-3727116

Radian Investor Surety Inc. (“RISI”)

(Pennsylvania)100% owned by

RMISNAIC #15546

Radian Mortgage Reinsurance Co. (Vermont)

100% owned by RDNNAIC #11472

RDN Investments, Inc. (Delaware)

100% owned by RDNEIN #46-2447576

Radian Group Inc. (“RDN”)(Delaware)

EIN #23-2691170 NAIC Group #00766

Enhance C-BASS Residual Finance

Corporation (“ERFC”)(Delaware)

100% owned by RGRIEIN # 13-4053333


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Key members of the holding company system include the following entities that are briefly described below:

RADIAN GROUP INC. Radian Group Inc. is publicly held and listed on the New York Stock Exchange. RDN

began in 1992 when CMAC Investment Corporation was spun off through an initial public offering by Reliance Group Holdings. A principal subsidiary was Commonwealth Mortgage Assurance Company (see below). In 1999, CMAC Investment Corporation merged with Amerin Corporation, both holding companies of mortgage insurance companies, with Amerin Guaranty Corporation the principal insurance subsidiary of Amerin Corporation. The surviving holding company was CMAC Investment Corporation, which subsequently changed its name to Radian Group Inc. and is the ultimate parent of the holding company system.

RDN’s principal activity is providing credit enhancement, primarily through first-lien residential mortgage insurance. Although RDN’s subsidiary, Radian Asset Assurance Inc., discontinued writing new financial guaranty business in 2008, it continues to provide financial guaranty insurance on the existing portfolio consisting primarily of public finance and structured finance insured transactions.

RADIAN GUARANTY INC. (formerly Commonwealth Mortgage Assurance Company)

RGI has provided mortgage insurance on both a flow and a structured basis and has offered pool insurance on a limited basis. RGI wrote the pool insurance in the form of credit enhancement on residential mortgage loans underlying residential mortgage-backed securities, whole loan sales, and other structured transactions. It also wrote modified pool insurance, which differs from standard pool insurance in that it included an exposure limit on each individual loan, as well as a stop-loss feature for the entire pool of loans. RGI’s current business focus is traditional first-lien primary mortgage insurance written on a flow basis.

A mortgage insurance policy is issued to a lender to protect against losses arising from a borrower’s monetary default. RGI’s principal customers are mortgage originators such as mortgage bankers, mortgage brokers, commercial banks and savings institutions.

The residential real estate market boomed at the beginning of the 21st century, due to available credit promoted by the Federal government, and strong demand for “dependable” and “safe” investment income products. The mortgage insurance industry grew and profited substantially until 2007. At that point, a real estate market correction occurred, apparently because real estate prices had escalated to unsustainable levels. As a result, poorly qualified borrowers began to default and many lenders reduced the capital traditionally available for home mortgages. Home sales and prices declined, especially for purchases requiring private mortgage insurance. This resulted in sharply decreasing revenues for RGI, while the defaults increased required loss reserves and settlement payouts.

http://www.answers.com/topic/reliance-group-holdings-inc


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ENHANCE FINANCIAL SERVICES GROUP INC. Enhance Financial Services Group Inc. (“EFSG”) was founded in 1985. On February 28,

2001, RDN purchased 100% of Enhance Financial Services Group Inc. for $540 million of its stock. On April 4, 2003, RGI purchased a 10.5% interest for $100 million cash. In December of 2011, RGI sold its 10.5% ownership interest of EFSG back to RDN for $5,692,610 which represented the fair value of RGI’s ownership in EFSG. EFSG provides insurance services through its subsidiaries. Its insurance business includes issuance of direct financial guaranties of smaller municipal debt obligations, trade credit reinsurance, and other structured transactions.

RADIAN INSURANCE INC. Radian Insurance Inc. (“RII”), domiciled in Pennsylvania and 100% owned by RGI,

wrote mortgage and financial guaranty insurance on both a direct and an assumed basis offering non-traditional mortgage insurance and credit enhancements on mortgage assets. Currently, RII is not writing new business and is effectively in a runoff mode.

RII also insured a portion of RGI’s business under a reinsurance agreement dated December 30, 1993, and RGI assumed certain Australian reinsurance treaties from RII in 2008.

RADIAN SERVICES LLC Radian Services LLC is 100% owned by RGI. Pursuant to a March 3, 1983 Property

Disposal Agreement with RGI, Radian Services LLC purchases, maintains, and disposes of real estate and certain other assets acquired in the settlement of claims. It also purchases, services and settles loans acquired in the loss mitigation process. Financing of each acquisition is provided by RGI and is repaid at the time of disposal or settlement.

RADIAN ASSET ASSURANCE, INC. Radian Asset Assurance Inc. (“RAA”), domiciled in New York and 100% owned by

RGI, was in the financial guaranty business, insuring and reinsuring state and municipal bonds and providing direct financial guarantees of smaller debt obligations. RAA operated in the U.S. and Puerto Rico; its UK-based subsidiaries, Radian Asset Assurance Limited and Radian Financial Products Limited, provided financial guaranty products in Europe. Since RAA was heavily involved in insuring collateralized debt obligations and asset-backed securities, its ratings were downgraded in 2008 and it ceased writing new financial guaranty business. It has no current plans to recommence writing new business and is engaged solely in reducing its existing exposures through commutations, in order to maximize capital for the mortgage insurance business.

RADIAN MORTGAGE INSURANCE INC. Radian Mortgage Insurance Inc. (“RMII”) is a Pennsylvania-domiciled insurance

company which is 100% owned by RGI and licensed to write business in Pennsylvania and Arizona.


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RMII was originally organized and incorporated as State Mortgage Insurance Company (“SMIC”) under the laws of the State of Arizona on June 4, 1987. It received its initial Certificate of Authority to transact business as a property and casualty insurance company on December 1, 1987. Since then the following key changes occurred:

• On May 22, 1990, SMIC changed its name to Commonwealth Mortgage Assurance Company of Arizona, and subsequently changed its name to Radian Mortgage Insurance Inc. in July 2003.

• On December 3, 1992, the common shares of the Company’s ultimate parent Radian Group Inc. (formerly known as CMAC Investment Corporation) were sold to the public in an initial public offering. The Arizona Department of Insurance ("ADOI") approved the acquisition on May 12, 1993.

• On July 22, 2003, the Company adopted its present name, Radian Mortgage Insurance Inc.

• On November 5, 2012, the Redomestication Application filed by RMII, seeking approval to redomesticate from the State of Arizona to the Commonwealth of Pennsylvania was approved by the Department.

RADIAN GUARANTY REINSURANCE INC. Radian Guaranty Reinsurance Inc. (“RGRI”) was incorporated on October 29, 1993, in

the State of Texas, as a capital stock mortgage guaranty company. Effective August 15, 2013, RGRI became a Pennsylvania domiciled insurance company. The Department issued a new Certificate of Authority to RGRI indicating its line of authority and the fact that it is a domestic stock insurance company. RGRI’s name was changed from Commonwealth Mortgage Assurance Company of Texas to Radian Guaranty Reinsurance Inc. effective November 19, 2013.

RGRI’s business is concentrated on the assumption of mortgage guaranty policies from its affiliate, Radian Guaranty Inc., and RGRI does not produce any direct written business.

RADIAN MORTGAGE ASSURANCE INC. Radian Mortgage Assurance Inc. (“RMAI”) is domiciled and licensed in Pennsylvania as

a stock casualty insurance company authorized to carry on the business of credit insurance, which includes the authority to write mortgage guaranty insurance. It is a monoline insurer restricted to writing only residential mortgage guaranty insurance. In addition to Pennsylvania, RMAI is authorized to write mortgage guaranty insurance (or in states where there is no specific authorization for mortgage guaranty insurance, the applicable line of insurance under which mortgage guaranty insurance is regulated), in each of the other 49 states and the District of Columbia, other than Rhode Island where it operates under an industrial insured exemption. RMAI is not currently writing mortgage guaranty insurance. RMAI is a direct subsidiary of RGI.


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BOARD OF DIRECTORS Management of RGI is vested in its Board of Directors (“Board”), which was comprised

of the following members as of the examination date, December 31, 2013:

Name and Address Principal Occupation Richard Ian Altman Chief Operating Officer Bala Cynwyd, PA Radian Guaranty Inc. Teresa Bryce Bazemore President Penn Valley, PA Radian Guaranty Inc. Zoe Liakopoulos Devaney SVP Operations Titusville, NJ Radian Guaranty Inc. Timothy White Hunter General Counsel Philadelphia, PA Radian Guaranty Inc. Brien Joseph McMahon Chief Franchise Officer Randolph, NJ Radian Group Inc. Sanford Alexander Ibrahim Chief Executive Officer Philadelphia, PA Radian Group Inc. Carl Robert Quint Chief Financial Officer Rydal, PA Radian Group Inc. The composition of the Board meets the independence requirements of P.S. §

991.1405(c)(3)(i) and the Board meets the minimum number of members requirement (i.e. 7 members) of 15 Pa. C.S. § 3131 throughout the period under examination. All directors are elected at the annual meeting of the shareholder. Each director holds office for one year or until his successor is elected and qualified.

RGI has a conflict of interest policy in place. The policy covers directors, officers and employees. A copy of the policy is provided to each director, officer and management employee. Disclosure questionnaires are signed annually by officers, directors and key employees.

COMMITTEES RGI’s Board did not appoint any committees. RGI achieves compliance with the Board

committee membership requirements of 40 P.S. § 991.1405(c)(3)(ii), (4) and (4.1) through 40 P.S. § 991.1405(c)(5), which states: “The provisions of paragraphs (3), (4) and (4.1) shall not apply to a domestic insurer if the person controlling such insurer is an insurer, an attorney in fact for a reciprocal exchange, a mutual insurance holding company or a publicly held corporation having a board of directors and committees thereof which already meet the requirements of paragraphs (3), (4) and (4.1)”. The RDN Board appointed an Audit Committee, Finance & Investment Committee, Compensation & Human Resources (“HR”) Committee, Credit Committee, and Governance Committee, which perform the functions delineated in 40 P.S. § 991.1405(c)(4) and (4.1) on behalf of RGI.

The Directors and/or Officers were assigned to serve on the following RDN standing committees as listed below as of December 31, 2013:


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Audit Committee Finance & Investment Committee David C. Carney (Chairperson) Lisa W. Hess (Chairperson) Lisa W. Hess Stephan T. Hopkins Gregory V. Serio Gaetano J. Muzio Noel J. Spielgel Noel J. Spielgel Compensation & HR Committee Governance Committee Howard B. Culang David C. Carney Stephan T. Hopkins (Chairperson) Howard B. Culang Brian D. Montgomery Stephan T. Hopkins Gaetano J. Muzio Jan Nicholson (Chairperson) Credit Committee David C. Carney Howard B. Culang (Chairperson) Jan Nicholson Gregory V. Serio Noel J. Spielgel

OFFICERS As of the examination date, December 31, 2013, the following officers were appointed

and serving in accordance with RGI’s By-laws: Name Title Sanford Alexander Ibrahim Chief Executive Officer Teresa Bryce Bazemore President Richard Ian Altman Executive Vice President and Chief Operating Officer Derrick Brummer Executive Vice President and Chief Risk Officer Lawrence Delgatto Executive Vice President and Chief Information Officer Brien Joseph McMahon Executive Vice President and Chief Franchise Officer Carl Robert Quint Executive Vice President and Chief Financial Officer H. Scott Theobald Executive Vice President, Lender and Structured Products

CORPORATE RECORDS

MINUTES A compliance review of corporate minutes revealed the following:

• The Annual Meetings of RGI’s stockholder was held in compliance with its By-laws.

• The stockholder elects directors at such meetings in compliance with the By-laws.

• The stockholder ratified the prior year’s actions of the officers and directors.


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• Quorums were present at all directors’ meetings.

• RGI’s investment and reinsurance transactions are approved by the Board.

• All directors attend Board meetings regularly.

ARTICLES OF INCORPORATION During the examination period, the Articles of Incorporation were amended in March

2010 to reflect an increase in the par value of a share of common stock from $2,000 to $2,500 per share.

BY-LAWS There were no amendments made to RGI’s By-laws during the examination period.

SERVICE AND OPERATING AGREEMENTS RGI is party to the following material service and operating agreements listed below. All

of these agreements meet the requirements contained in 40 P.S. § 991.1405(a).

EXPENSE ALLOCATION AND SERVICES AGREEMENTS RGI entered into an Expense Allocation and Services Agreement with RDN in the first

quarter of 2003, which was amended on March 13, 2009. This agreement provides for the use of RDN facilities and services by RGI. RDN’s costs are allocated on the basis of RGI’s percentage of total consolidated GAAP capital. Expenses, which benefit multiple parties, are allocated on the basis of time studies or “another fair and equitable basis.” Direct expenses are charged to the benefitting parties and interest expense is allocated on the basis of the various companies’ relative capital.

On July 19, 2010, RGI entered into an Expense Allocation and Services Agreement with RAA. RGI will make available to RAA such services as are reasonably required by RAA for the operation of its business, including, but not limited to: accounting; record keeping; management services, and administrative services. RAA will be charged its pro-rata share of the costs incurred for the various departments utilized. Such costs shall include, without limitation, salaries, related employee benefits, net interest expense associated with treasury activities, allocated overhead, and the fees and charges of independent outside consultants and advisors.

MANAGEMENT AGREEMENTS RGI has individual management services agreements with some of its subsidiaries:

Radian Mortgage Services (Hong Kong) Ltd., RII, Radian Services LLC, RMAI, RMII, and RGRI, whereby it provides a variety of accounting, finance, data processing, legal services, claims-handling services, and in some cases, office space. These agreements are billed by calendar quarters, and the billings are based on costs incurred or an allocation based on usage.


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NET WORTH AND LIQUIDITY SUPPORT AGREEMENT In October of 2000, RGI and RII entered into a Net Worth and Liquidity Maintenance

Agreement. The agreement provides that RGI will cause RII at all times to have Tangible Net Worth of at least $30 million. Additionally, RGI will cause RII at all times to have sufficient liquidity to meet its current obligations and to maintain a maximum Operating Leverage Ratio of 20. Under the terms of agreement, it may be terminated at any time by either party giving written notice of such termination.

TAX ALLOCATION AGREEMENT RGI has a written Tax Allocation Agreement with RDN. The agreement sets forth the

manner in which the total combined federal income tax is allocated to each entity that is a party to the consolidation. The method of allocation is based upon separate return calculation with current credit for Net Operating Losses being utilized on the consolidated return of RDN.

INTERCOMPANY TRANSFER AGREEMENT RGI entered into an Intercompany Transfer Agreement with RDN, RMII, RII, RMAI and

RGRI on September 20, 2010. The purpose of the agreement was to help facilitate sales of investment grade securities among the group of companies noted above.

OFFICE RENTAL AGREEMENT RGI and its subsidiaries entered into a service agreement with RDN effective February

29, 2000, under which the RDN provides office space to RGI. In return, RGI and its subsidiaries make all lease payments for the space and retain a portion of the expense, passing the remainder through to RDN.

REINSURANCE

CEDED The Company has several agreements with related companies which are designed to cap

its risk to 25% of each insured party’s indebtedness or limit the total loss for all claims during the year (Excess of loss). The related companies included RMII, RGRI, and RII. During 2013, the Company ceded premiums written of $135 million and premiums earned of $119 million under these agreements as compared to $118 million and $109 million during 2012, respectively. During 2013, unpaid losses, loss adjustment expenses, and unearned premiums ceded to those companies amounted to $307 million, $6 million, and $43 million, respectively. During 2012, the comparable cessions were $445 million, $7 million, and $26 million, respectively.

RGI has several types of reinsurance arrangements with a variety of unaffiliated entities. The first type of unaffiliated reinsurance is the captive reinsurer program. Captives are customarily established by customer lending institutions who participate in a portion of the


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mortgage insurance on their own loans, sharing in the premiums and the risks. Participation is generally on an excess layer of the aggregate losses, and the layers were not previously penetrated until the recent real estate market downturn. Each captive secures potential recoveries by establishing a trust account equal to 10% of the risk assumed (plus loss reserves and unearned premium reserves), with RGI as the beneficiary who is authorized to initiate disbursements for loss settlements. Those trusts were generally the layers that were penetrated by the recent real estate market downturn. However, since the fourth quarter of 2007, ceded losses recoverable have mounted steadily. It is now considered probable that the recoverable may exceed the assets in some trust accounts, but total recorded recoverables are limited to the trust account balances.

Each captive has a separate contract covering its participation terms and inception dates. However, all contracts are restricted to business originally underwritten by affiliates of the captive and may be terminated by either party. As of December 31, 2013, 29 captive arrangements were in run-off status.

The Company ceded the following earned premiums and losses recoverable to captives (in millions):

Calendar Ceded % of First-Lien Ceded Losses Year Premiums Premiums Earned Recoverable 2012 $23.4 3.8 $76.3 2013 $17.9 2.6 $36.6

The Company was also a party to “Smart Home” reinsurance arrangements. These arrangements transferred risk from the Company’s portfolio to investors in the capital markets. The last of the “Smart Home” reinsurance arrangements matured in May of 2013. The ceded premiums, losses, and risk in force are as follows (in millions):

Calendar Ceded Ceded Risk in Notes Year Premiums Losses Force Outstanding 2012 $0.4 $46.8 $379 $143.4 2013 $0.3 $2.8 $0 $0

RGI also conducted risk/revenue sharing arrangements with Government Sponsored Enterprises (“GSE”) whereby the primary coverage on certain loans is recast into primary and pool insurance and the Company’s overall exposure is reduced in return for a payment to the GSEs. Ceded premiums written and earned were $3.8 million for the year ended December 31, 2013 and $4.3 million for the year ended December 31, 2012. Ceded premiums (written and earned) are expected to continue to decline based on the Company’s predictions.

Effective April, 1 2012, RGI entered into a quota-share reinsurance agreement with Arch Reinsurance Limited in order to proactively manage its mortgage insurance risk-to-capital position. Under this agreement, beginning with loans originated in the fourth quarter of 2011, RGI has ceded 20% of its new insurance written and associated risk in force for any loan not previously ceded to RII under the Excess of Loss Reinsurance agreement entered into in December 2011.


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In December 2012, RGI entered into a second quota-share reinsurance agreement with Arch Reinsurance Limited, which provides for additional reinsurance for the Company’s new insurance written, as further described below. The limitation on ceded risk was $750,000 initially and the parties have the ability to mutually increase the amount of ceded risk up to a maximum of $2,000,000. In April 2013, the parties mutually agreed to increase the amount ceded under this agreement to $1,250,000. RGI has the option effective December 31, 2015 to commute one-half of the reinsurance ceded with respect to conventional GSE loans, which would result in the Company reassuming the related risk in force in exchange for a payment of a predefined commutation amount for the reinsurer.

RGI will cede 100% of the premiums and losses for non-conventional portfolio loans to the reinsurer. RGI will cede 20% of the premium and losses for conventional portfolio loans to the reinsurer; however, if RGI elects Partial Commutations, the quota share percentage for conventional portfolio loans shall be 10% effective on and after the Partial Commutation date.

The ceding commission for non-conventional portfolio loans shall be 25% throughout the term of this agreement. The ceding commission for conventional portfolio loans shall be 35%; however, if RGI does not elect Partial Commutation, the ceding commission for the portion subject to the Partial Commutation option shall be 30% as of the Partial Commutation date. The ceding commission for the portion of conventional portfolio loans not subject to the Partial Commutation option shall remain at 35%

The Company does not expect the volume of such portfolio loans to be material. In April 2013, RGI and Arch Reinsurance Limited agreed to modify the terms of the agreement such that the Company will ceded only 5% of all premiums and losses incurred with respect to conventional GSE loans for all business originated beginning April 1, 2013

All of the above contracts contained appropriate insolvency and arbitration clauses and were found to properly transfer risk.

RGI does not engage any reinsurance intermediary.

ASSUMED During the beginning of the examination period, the Company had assumed business

from three unaffiliated Australian mortgage insurers. All activity with the Australian insurers was settled up during 2010. The only assumed business that the Company is currently writing comes from the State of New York Mortgage Insurance Agency (“SONYMA”). SONMYA is a New York government agency that provides affordable homeownership to low and moderate-income New Yorkers.

TERRITORY AND PLAN OF OPERATION RGI operates internationally and nationally with licenses in all 50 states, the District of

Columbia, and Guam. Its highest concentration of risk is in California and Florida. It also has some directly and indirectly-owned subsidiaries in Hong Kong, the United Kingdom (“U.K.”) and Mauritius.


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The Company writes only mortgage guaranty insurance. Its customers consist of mortgage originators, including mortgage bankers and brokers, commercial banks and savings institutions. The premiums for mortgage guaranty insurance are generally paid by the customers of the mortgage originators, the borrowers.

RGI’s sales and marketing efforts are supported by field sales staff, operating in three divisions and supervised by area sales managers. In addition, the Company has dedicated staff for national accounts.

Total 2013 direct premium writings by state and company are as follows:

As reflected in the table above, California represents the largest writings for RGI amongst all of the states at 14.2% with the next largest state’s writings, Texas, representing only 6.5%.

SIGNIFICANT OPERATING RATIOS AND TRENDS The underwriting ratios summarized below are on an earned/incurred basis, and

encompass the five-year period covered by this examination.

Premiums earned 3,149,643,659$ 100.0 %Losses incurred 4,551,627,790$ 144.5 %Loss expenses incurred 211,754,762 6.7 %Other underwriting expenses incurred 929,930,840 29.5 %Net underwriting gain or (loss) (2,543,669,733) (80.7)%Totals 3,149,643,659$ 100.0 %


Radian Guaranty

Reinsurance Inc

Radian Insurance

Inc.

Radian Mortgage

Assurance inc.

Radian Mortgage

Insurance Inc. TotalsCalifornia 146,368,647$ $ 0 $ 0 $ 0 $ 0 146,368,647$ Texas 67,456,312 0 0 0 0 67,456,312 Florida 66,970,593 0 0 0 0 66,970,593 Illinois 55,894,515 0 0 0 0 55,894,515 Georgia 43,717,225 0 0 0 0 43,717,225 New Jersey 42,089,547 0 0 0 0 42,089,547 New York 37,830,635 0 0 0 0 37,830,635 Pennsylvania 35,278,383 0 2,490,003 0 0 37,768,386 Virginia 35,746,187 0 0 0 0 35,746,187 Ohio 31,308,381 0 0 0 0 31,308,381 All other states & alien OT 468,123,870 0 48,784 0 0 468,172,654 Totals 1,030,784,295$ $ 0 2,538,787$ $ 0 $ 0 1,033,323,082$


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The Company reported the following net underwriting, investment and other gains or losses during the period under examination:

ACCOUNTS AND RECORDS RGI’s accounting, investments, policies and claim records are automated and maintained

at its Home Office and at its data center in Dayton, Ohio. The examination team reviewed the Company’s information technology (“IT”) controls based on the NAIC’s Exhibit C, Evaluation of Controls in IT. It was concluded that the Company’s IT controls were operating effectively for the year ended December 31, 2013.

PENDING LITIGATION RGI is involved in certain litigation arising in the normal course of its business. RGI is

contesting the allegations of the complaints 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 financial position or results of operations.

RGI has been named a defendant in a number of putative class action lawsuits alleging that its captive reinsurance agreements violate the federal Real Estate Settlement Procedures Act (“RESPA”). RGI believes the claims are without merit and intends to vigorously defend them.

RGI is not able to estimate the reasonably possible range of loss for these matters because the proceedings are still in a very preliminary stage and there is uncertainty as to the likelihood of a class being certified or the ultimate size of a class.

In addition to the private lawsuits mentioned above, RGI and other mortgage insurers have been subject to inquiries from the Minnesota Department of Commerce (“MNDOC”) and the Office of the Inspector General of the U.S. Department of Housing and Urban Development (“HUD”), requesting information relating to captive reinsurance. The Dodd-Frank Act amended RESPA and transferred the authority to implement and enforce RESPA from HUD to the Consumer Financial Protection Bureau (“CFPB”).

2013 2012 2011 2010 2009Admitted assets 3,657,543,100$ 3,872,046,445$ 3,821,807,122$ 4,313,650,425$ 4,216,743,432$ Liabilities 2,339,779,169$ 2,945,906,068$ 2,978,628,869$ 3,017,945,503$ 3,475,388,623$ Surplus as regards policyholders 1,317,763,931$ 926,140,377$ 843,178,253$ 1,295,704,922$ 741,354,809$ Gross premium written 1,030,831,291$ 889,767,572$ 752,449,927$ 787,828,550$ 782,390,092$ Net premium written 814,386,632$ 686,782,615$ 631,678,125$ 620,780,686$ 559,670,267$ Underwriting gain/(loss) (120,811,181)$ (360,761,096)$ (704,059,875)$ (842,439,288)$ (515,598,293)$ Investment gain/(loss) 92,667,125$ 159,952,249$ 121,685,284$ 207,555,412$ 230,026,223$ Other gain/(loss) (9,037)$ (18,314)$ (6,510)$ (182,417)$ (189,944)$ Net income (23,817,192)$ (175,875,214)$ (545,119,517)$ (535,167,287)$ (211,802,835)$


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In January 2012, RGI and other mortgage insurers received a request for information and documents from the CFPB relating to captive reinsurance arrangements, and in June 2012, RGI and other mortgage insurers received a Civil Investigative Demand from the CFPB as part of its investigation to determine whether mortgage lenders and private mortgage insurance providers engaged in acts or practices in violation of the Dodd-Frank Act, RESPA and the Consumer Financial Protection Act. On April 4, 2013, RGI reached a settlement with the CFPB, which was approved by the U.S. District Court for the Southern District of Florida on April 9, 2013. The settlement concludes the investigation with respect to RGI without the CFPB making any findings of wrongdoing. As part of the settlement, RGI agreed not to enter into new captive reinsurance arrangements for a period of ten years and to pay a civil penalty of $3.75 million. RGI has not entered into any new captive reinsurance arrangements since 2007.

During the high-claim years that followed the most recent economic downturn, captive arrangements have proven to represent a critical component of RGI’s loss mitigation strategy, effectively serving as designed to protect RGI’s capital position during a period of stressed losses. As of December 31, 2013, RGI had received total cash reinsurance recoveries from these captive reinsurance arrangements of approximately $800 million. In August 2013, RGI and other mortgage insurers received a draft Consent Order from MNDOC, containing proposed conditions and unspecified penalties, to resolve its outstanding inquiries related to captive reinsurance arrangements involving mortgage insurance in Minnesota. RGI continues to cooperate with MNDOC and is engaged in active discussions with them with respect to their inquiries, including various alternatives for resolving this matter. RGI cannot predict the outcome of this matter or whether additional actions or proceedings may be brought against RGI.

A legal representation letter was obtained from the Company’s General Counsel. Other than those already described above, no material legal issues affecting the Company were presented in the letter.

FINANCIAL STATEMENTS The financial condition of the Company, as of December 31, 2013, and the results of its

operations for the five-year period under examination, is reflected in the following statements:

Comparative Statement of Assets, Liabilities, Surplus and Other Funds; Comparative Statement of Income; Comparative Statement of Capital and Surplus; and Comparative Statement of Cash Flow


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Comparative Statement of Assets, Liabilities, Surplus and Other Funds As of December 31,

2013 2012 2011 2010 2009Bonds 1,545,326,116$ 1,809,504,561$ 1,834,013,199$ 1,950,906,956$ 1,904,558,705$ Preferred stocks 17,101,728 28,057,289 24,885,581 33,660,119 20,436,759 Common stocks 1,693,303,406 1,612,367,650 1,335,544,896 1,466,998,437 1,553,829,934 Cash, cash equivalents, and short-term investments 124,328,711 236,827,446 310,317,282 564,575,897 386,747,584 Other invested assets 106,648,715 115,091,601 110,608,535 104,706,675 91,569,661 Receivables for securities 0 230,031 6,575,219 160,196 868,086 Subtotals, cash and invested assets 3,486,708,676 3,802,078,578 3,621,944,712 4,121,008,280 3,958,010,729 Investment income due and accrued 13,274,580 14,993,558 12,821,475 16,565,003 15,333,514 Premiums and agents' balances due 33,217,566 37,270,126 36,749,464 41,549,496 52,747,744 Amounts recoverable from reinsurers 22,934,419 15,774,520 46,074,422 40,036,038 18,248,607 Current federal and foreign income tax recoverable and interest thereon 0 0 508,444 76,912,125 80,393,761 Net deferred tax asset 0 0 0 0 43,753,497 Electronic data processing equipment and software 3,812,228 652,883 857,830 1,241,055 1,628,700 Receivables from parent, subsidiaries and affiliates 94,034,322 238,604 102,160,248 362,442 986,971 Aggregate write-ins for other-than-invested assets 3,561,309 1,038,176 690,527 15,975,986 45,639,909 Totals 3,657,543,100$ 3,872,046,445$ 3,821,807,122$ 4,313,650,425$ 4,216,743,432$

Losses 1,757,339,254$ 2,476,113,598$ 2,532,974,913$ 2,613,673,752$ 2,291,257,532$ Loss adjustment expenses 56,448,239 71,536,091 81,988,250 80,614,473 59,910,551 Commissions payable; contingent commissions and other similar charges 3,541,260 4,871,407 6,606,159 6,985,965 8,099,651 Other expenses 51,467,840 75,533,274 84,276,085 79,772,574 76,031,846 Taxes, licenses and fees 7,326,864 6,986,054 3,577,237 5,386,867 4,348,203 Current federal and foreign income taxes 186,463 657,471 0 0 0 Unearned premiums 417,388,730 280,632,138 213,044,058 172,509,632 193,486,482 Ceded reinsurance premiums payable (net of ceding commissions) 16,297,969 19,112,566 13,765,723 11,280,336 17,587,228 Amounts withheld or retained by company for account of others 636,318 592,399 476,921 380,096 19,653,769 Provision for reinsurance 0 363,009 533,520 568,650 3,229,945 Payable to parent, subsidiaries and affiliates 942,573 9,225,391 10,497,045 23,451,727 29,767,434 Payable for securities 0 282,670 30,888,958 3,697,174 1,478,404 Aggregate write-ins for liabilities 28,203,659 0 0 19,624,257 770,537,578 Total liabilities 2,339,779,169 2,945,906,068 2,978,628,869 3,017,945,503 3,475,388,623 Common capital stock 2,500,000 2,500,000 2,500,000 2,500,000 2,000,000 Gross paid in and contributed surplus 1,938,412,278 1,608,663,579 1,608,339,378 1,461,766,635 1,140,266,631 Unassigned funds (surplus) (623,148,347) (685,023,202) (767,661,125) (168,561,713) (400,911,822) Surplus as regards policyholders 1,317,763,931 926,140,377 843,178,253 1,295,704,922 741,354,809 Totals 3,657,543,100$ 3,872,046,445$ 3,821,807,122$ 4,313,650,425$ 4,216,743,432$


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Comparative Statement of Income For the Year Ended December 31,

Underwriting Income 2013 2012 2011 2010 2009Premiums earned 677,630,040$ 619,194,535$ 591,143,699$ 641,757,536$ 619,917,849$ Deductions: Losses incurred 525,011,038 798,853,136 1,072,279,826 1,233,027,753 922,456,037 Loss expenses incurred 27,955,132 26,039,173 49,678,532 63,379,475 44,702,450 Other underwriting expenses incurred 245,475,051 155,063,322 173,245,216 187,789,596 168,357,655 Total underwriting deductions 798,441,221 979,955,631 1,295,203,574 1,484,196,824 1,135,516,142 Net underwriting gain or (loss) (120,811,181) (360,761,096) (704,059,875) (842,439,288) (515,598,293)

Investment IncomeNet investment income earned 82,044,347 103,778,475 119,753,925 158,338,442 192,617,583 Net realized capital gains or (losses) 10,622,778 56,173,774 1,931,359 49,216,970 37,408,640 Net investment gain or (loss) 92,667,125 159,952,249 121,685,284 207,555,412 230,026,223

Other IncomeAggregate write-ins for miscellaneous income (9,037) (18,314) (6,510) (182,417) (189,944) Total other income (9,037) (18,314) (6,510) (182,417) (189,944) Net income before dividends to policyholders and before federal and foreign income taxes (28,153,093) (200,827,161) (582,381,101) (635,066,293) (285,762,014) Federal and foreign income taxes incurred (4,335,901) (24,951,947) (37,261,584) (99,899,006) (73,959,179) Net income (23,817,192)$ (175,875,214)$ (545,119,517)$ (535,167,287)$ (211,802,835)$


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Comparative Statement of Capital and Surplus For the Year Ended December 31,

2013 2012 2011 2010 2009Surplus as regards policyholders, December 31, prior year 926,140,377$ 843,178,253$ 1,295,704,922$ 741,354,809$ 397,598,980$ Net income (23,817,192) (175,875,214) (545,119,517) (535,167,287) (211,802,835) Net unrealized capital gains or (losses) 99,326,507 249,154,979 (75,619,233) 38,660,655 110,176,690 Change in net unrealized foreign exchange capital gain (loss) (4,602) 58,851 (473,135) 190,607 1,297,281 Change in net deferred income tax 17,599,041 6,393,637 (17,534,339) (515,069,848) (69,162,861) Change in nonadmitted assets (8,776,906) 2,735,159 19,697,329 490,655,830 72,095,319 Change in provision for reinsurance 363,009 170,511 35,130 2,661,295 1,074,823 Capital changes: Paid in 0 0 0 500,000 0 Surplus adjustments: Paid in 330,414,814 324,201 146,572,743 321,500,000 163 Aggregate write-ins for gains and losses in surplus (23,481,117) 0 19,914,353 750,418,862 440,077,249 Change in surplus as regards policyholders for the year 391,623,554 82,962,124 (452,526,669) 554,350,114 343,755,829 Surplus as regards policyholders, December 31, current year $ 1,317,763,931 926,140,377$ 843,178,253$ 1,295,704,922$ 741,354,809$


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Comparative Statement of Cash Flow For the Year Ended December 31,

2013 2012 2011 2010 2009Cash from Operations

Premiums collected net of reinsurance 815,624,019$ 691,608,498$ 638,965,194$ 625,670,649$ 292,491,716$ Net investment income 105,854,521 127,332,193 142,965,637 171,081,269 202,163,173 Miscellaneous income (9,033) (18,314) (6,510) (182,415) (189,944) Total 921,469,507 818,922,377 781,924,321 796,569,503 494,464,945 Benefit and loss related payments 1,293,988,263 861,905,882 1,207,321,804 975,074,516 662,922,241 Commissions, expenses paid and aggregate write-ins for deductions 271,370,462 162,132,069 170,641,044 184,618,350 122,036,246 Federal and foreign income taxes paid (recovered) 0 0 (77,043,062) (81,867,190) (9,310,123) Total deductions 1,565,358,725 1,024,037,951 1,300,919,786 1,077,825,676 775,648,364 Net cash from operations (643,889,218) (205,115,574) (518,995,465) (281,256,173) (281,183,419)

Cash from Investments Proceeds from investments sold, matured or repaid: Bonds 368,853,953 3,077,505,281 3,417,414,703 2,811,319,619 4,012,092,526 Stocks 50,979,359 72,600,743 98,223,941 267,298,968 40,718,674 Real estate 1,042,160 1,337,383 1,512,171 8,374,407 0 Other invested assets 16,411,413 5,532,246 3,669,886 5,090,208 1,056,565 Net gains (losses) on cash; cash equivalents and short- term investments 6,688 80,414 108,622 (5,685) 0 Miscellaneous proceeds 265,506 0 21,307,265 801,864 10,167,808 Total investment proceeds 437,559,079 3,157,056,067 3,542,236,588 3,092,879,381 4,064,035,573 Cost of investments acquired (long-term only): Bonds 123,794,146 3,006,892,259 3,268,427,524 2,799,995,130 3,729,105,296 Stocks 3,055,751 91,553,669 26,908,998 127,086,253 50,127,183 Real estate 1,042,160 1,337,383 1,512,171 8,374,407 0 Other invested assets 4,603,476 4,365,198 7,130,479 14,858,526 6,623,746 Miscellaneous applications 0 24,247,381 0 0 0 Total investments acquired 132,495,533 3,128,395,890 3,303,979,172 2,950,314,316 3,785,856,225 Net cash from investments 305,063,546 28,660,177 238,257,416 142,565,065 278,179,348

Cash from Financing and Miscellaneous ServicesOther cash provided (applied): Capital and paid in surplus, less treasury stock 230,414,814 100,324,201 30,000,000 322,000,000 0 Other cash provided (applied) (4,087,877) 2,641,360 (3,520,566) (5,480,578) (42,226,025) Net cash from financing and miscellaneous sources 226,326,937 102,965,561 26,479,434 316,519,422 (42,226,025)

Reconciliation of cash and short-term investmentsNet change in cash and short-term investments (112,498,735) (73,489,836) (254,258,615) 177,828,314 (45,230,096) Cash and shor-term investments Beginning of year 236,827,446 310,317,282 564,575,897 386,747,584 431,977,679 End of year 124,328,711$ 236,827,446$ 310,317,282$ 564,575,897$ 386,747,584$


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SUMMARY OF EXAMINATION CHANGES There were no examination changes to the preceding financial statements as filed with

regulatory authorities over the review period.

NOTES TO FINANCIAL STATEMENTS

ASSETS

INVESTMENTS As of December 31, 2013, RGI’s invested assets were distributed as follows:

Amount PercentageBonds 1,545,326,116$ 44.3 %Preferred stocks 17,101,728 0.5 %Common stocks 1,693,303,406 48.6 %Cash 3,929,411 0.1 %Short-term investments 120,399,300 3.5 %Other invested assets 106,648,715 3.0 %Totals 3,486,708,676$ 100.0 %

RGI’s bond and short-term investment portfolio had the following quality and maturity

profiles:

NAIC Designation Amount Percentage1 - highest quality 1,361,682,891$ 81.7 %2 - high quality 304,042,525 18.3 %Totals 1,665,725,416$ 100.0 %

Years to Maturity Amount Percentage1 year or less 191,391,975$ 11.5 %2 to 5 years 366,454,731 22.0 %6 to 10 years 587,374,074 35.3 %11 to 20 years 99,039,968 5.9 %over 20 years 421,464,668 25.3 %Totals 1,665,725,416$ 100.0 %

Investment management is provided under written agreements with various external

advisors.


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The approximate $1.5 billion of bond investments were all high (18.3%) or highest (81.7%) quality issues. The total bonds consisted of approximately $58.4 million in U.S. State and Municipal bonds, $565 million in U.S. Treasury and GSE bonds, $605 million in Corporate bonds and $316 million in various Commercial Mortgage-Backed and Miscellaneous Securities.

Cash and short term investments amounted to approximately $120 million of issues maturing within one year and approximately $4 million of cash, for a net total of approximately $124 million.

Preferred stock consisted of approximately $12 million in financial issues and the remaining $5 million was in several industrial preferred.

Other Invested Assets consisted of approximately $78 million in company-owned life insurance and $29 million in various limited partnerships.

Common stocks consisted of affiliated company shares totaling approximately $1.5 billion (91%), approximately $128 million of mutual funds (8 %) and approximately $20 million (1%) of various unaffiliated shares; all totaling to approximately $1.7 billion. The affiliated company investment was comprised of RAA (approximately $1.2 billion), RII (approximately $231 million), RMII (approximately $98 million), and RMAI (approximately $18 million). All are valued on an equity basis, in accordance with NAIC’s Statement of Statutory Accounting Principles (“SSAP”) No. 97.

RGI has a written investment policy as required by the 40 P.S. § 653b(b). The investment policy is reviewed and approved on an annual basis by the Board. As of December 31, 2013, the Company was found to be following its investment policy.

The Company had a custodial agreement with Northern Trust Company, effective July 1, 2005. However, the custodial agreement did not include certain language as required by 31 Pa. Code § 148a.3. Before the end of fieldwork, the Company revised its custodial agreement with Northern Trust Company effective February 13, 2014 and the agreement is now in compliance with 31 Pa. § 148a.3.

LIABILITIES

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES The Company reported reserves of $1,757,339,254 for loss and $56,448,239 for loss

adjustment expense (“LAE”) on the December 31, 2013 Annual Statement. The Company’s reserving methodology has been consistently followed since the prior examination.

For the years under examination, the Board appointed two different independent qualified actuaries to provide the Statement of Actuarial Opinion (“Opinion”) on the Company’s loss and LAE reserve amounts carried on the balance sheet at each respective year-end date as follows:

December 31, Actuary Firm

2009 Marc Oberholtzer, FCAS, MAAA PwC

2010-2013 Michael Schmitz, FCAS, MAAA Milliman, Inc.


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The Group change in actuary was made during 2010 in response to Pennsylvania’s Model Audit Rule, which does not permit actuarial and auditing services to be provided by the same firm. There were no disagreements, either resolved, or unresolved, related to the content of the Opinion on matters of required disclosures, scope, date, procedure or data quality with the change in actuary. For each year in the examination period, the appointed actuary concluded that reserves make a reasonable provision for all unpaid loss and LAE obligations of the Company.

In order for the examination team to gain an adequate comfort level with the reserve estimates, the Department engaged the actuarial examination services of Risk and Regulatory Consulting, LLC (“RRC”) of Farmington, Connecticut to perform a risk-focused review of the Company’s loss and LAE reserves, the forecasting and reserving models, and pricing and underwriting activities in conjunction with this examination. In the course of their work, RRC actuarial examiners relied upon the underlying financial and risk-focused procedures performed by the financial examiners, the Company’s Internal Audit Department, and the work of the Company’s CPA firm.

Based upon the procedures performed, the RRC actuaries determined that the Company’s loss and LAE reserves fall within a reasonable range. The Department has accepted the appointed actuary’s statement that reserves “Make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements” such that the carried reserves are acceptable for the purposes of this examination.

CONTINGENCY RESERVE RGI reported a contingency reserve of $23,019,362 as of December 31, 2013. The

amount is accepted as reported. SSAP No. 58, paragraph 22 requires mortgage guaranty providers to put up a reserve to protect policyholders against loss during periods of extreme economic contraction. The annual addition to the liability shall equal 50% of the earned premium from mortgage guaranty insurance contracts and shall be maintained for ten years regardless of coverage period for which premiums were paid. The reserve can be released in any year in which actual incurred losses exceed 35% of the corresponding earned premium.

SUBSEQUENT EVENTS

SALE OF RADIAN ASSET ASSURANCE On December 23, 2014, RGI announced that it entered into a Stock Purchase Agreement

to sell 100% of the issued and outstanding shares of Radian Asset Assurance Inc. (“RAA”), the Company’s financial guaranty insurance subsidiary domiciled in New York, to Assured Guaranty Corp. (“AGC”), a subsidiary of Assured Guaranty Ltd. (NYSE: AGO). Under the agreement, AGC will pay $810 million in cash to acquire RAA. As of September 30, 2014, RAA had an insured portfolio of $19.4 billion of net par and the acquisition would bring AGC’s total net par outstanding to $68.3 billion. RAA has approximately $1.3 billion of statutory capital. AGC currently estimates the transaction will increase its statutory capital by $425 million to


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$475 million. RGI expects to complete the sale of RAA in the first half of 2015, subject to satisfaction of customary closing conditions including regulatory approvals.

CARL ROBERT QUINT RETIREMENT On December 15, 2014, RDN announced that Carl Robert Quint, Executive Vice

President and Chief Financial Officer, will retire at the end of 2014 after nearly 25 years with the Company. On January 1, 2015, J. Franklin Hall assumed the role of Executive Vice President and Chief Financial Officer of RDN. In order to ensure a smooth transition, Mr. Quint will serve as Executive Vice President of Finance through March 31, 2015, and then assume a consulting role through the end of 2015.

CLAYTON HOLDINGS ACQUISITION On July 1, 2014, RDN announced the completion of the acquisition of Clayton Holdings

LLC. RDN paid aggregate cash consideration of $305 million, subject to customary purchase price adjustments, to purchase all of the outstanding equity interests in Clayton and to repay Clayton's outstanding debt. Clayton provides outsourced mortgage solutions and is widely recognized as a leader in its industry. The acquisition will complement Radian’s existing mortgage-related products and services. This transaction is consistent with RDN growth and diversification strategy to pursue alternatives for providing mortgage risk-related products and services to the mortgage finance market. Clayton is headquartered in Shelton, Connecticut and employs approximately 700 people. As part of RDN, they will focus on serving their clients and growing their business, as well as exploring additional opportunities to offer new and existing services to RDN’s established customer base.

RECOMMENDATIONS

PRIOR EXAMINATION The prior examination report contained the following recommendation:

1. It is recommended that the Company comply with the requirements of 40 P.S. §991.1405(a)(2) and report all required transactions on a timely basis in the future.

The Company complied with this recommendation.

CURRENT EXAMINATION No recommendations are being made as a result of the current examination.

CONCLUSION As a result of this examination, the financial condition of Radian Guaranty Inc., as of

December 31, 2013, was determined to be as follows:


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Amount PercentageAdmitted assets 3,657,543,100$ 100.0 %

Liabilities 2,339,779,169$ 64.0 %Surplus as regards policyholders 1,317,763,931 36.0 %Total liabilities and surplus 3,657,543,100$ 100.0 %

Since the previous examination, made as of December 31, 2008, RGI’s assets decreased by $594,642,465, its liabilities decreased by $1,514,807,416 and its surplus increased by $920,164,951.


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This examination was conducted by Dean Cross, CFE, CPA, Amber Kinney, CFE, CPA, Glenn LeGault, CFE, CPA and William Michael, CFE, CIA, CPCU, ARe, with the latter in charge.

·~·~~.te B. Szady,

~t~#,::{OM~~m~:l'. f:minations -£1~ona~a~il(l

6MJ:~tpU William Michael, CFE, CIA, CPCU, ARe Examiner-in-Charge

The CFE desigruil ion hos been conferred by an organization not atliliated wirh the federal or any state government. However the CFE designation is the only designation recognized by 1he NAIC

for the purposes of directing statutory Assoc-iation examinations of insurance companies.

Report of Examination of Radian Guaranty Inc. Philadelphia ......RDN’s principal activity is...

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