Radian Group: below book, with a new second engine

Radian's second-quarter GAAP earnings per share fell to $0.87 from $1.11 a year earlier. Its adjusted operating earnings per share rose to $1.14 from $1.11. Both numbers are real; the $39 million gap between them is purchase-accounting and integration cost from an acquisition that closed seven months ago and is still working its way through the books.

Radian built its business over four decades as a straightforward U.S. mortgage insurer: it guarantees a slice of losses on mortgages with small down payments, collects premiums for decades of steady persistency, and generates capital that flows up to the parent company as dividends. On February 2, 2026 it closed the $1.67 billion acquisition of Inigo, a Lloyd's of London specialty insurer, and became something else: a diversified, global, multi-line insurance company with a mortgage engine and a specialty engine running side by side.

At $32.86 on September 28, 2026, the shares trade 18.9% below my triangulated Base value of $40.50, an upside of 23.3%. The Bear value of $29.00 is 11.7% below the price and the Bull value of $50.00 is 52.2% above it. The framework's required margin of safety for a Confidence B score with this much character change is 30%, which puts the maximum buy price at $28.35. The shares would need to fall about 13.7% to get there. Until then this is a hold: a genuinely cheap price on a genuinely higher-quality earnings stream, priced by a market that hasn't yet decided whether to believe the new engine.

Route: SF-03 Insurance, hybrid mortgage-credit and specialty insurer. Economic classification: Standard, high-quality evolving insurer (8/12). Primary method: justified price to book value (residual-income logic). Secondary method: normalized adjusted operating P/E. Values are present fair-value estimates, not 12-month price targets.

What Radian is now

Radian Guaranty, the mortgage insurance subsidiary, remains the core of the business: it insures $284 billion of primary mortgage insurance in force, a record, and has written $16.3 billion of new insurance in the second quarter alone, up 14% year over year. Persistency, the share of policies still in force after a year, ran at an annualized 82% for the quarter. About half the in-force portfolio carries a mortgage rate of 5.5% or lower, which is why persistency stays high: homeowners with cheap fixed-rate mortgages have little reason to refinance and cancel their coverage.

Inigo adds a second, structurally different business. It underwrites property, casualty, financial-lines and other specialty risks through Lloyd's of London, and in its first full quarter inside Radian it produced $267 million of net premiums earned, 53% of the consolidated total, at a 97.7% combined ratio (premiums collected versus claims and expenses paid; under 100% means the underwriting itself was profitable before investment income). The purchase price, net of adjustments, was $1.671 billion: $1.647 billion in cash, plus 646,014 Radian shares issued to Inigo's sellers, valued at $32.90 each on the February 2 closing date. That price is almost exactly today's, which is itself a data point: the stock has gone essentially nowhere since the deal closed, even as book value per share grew 8.5% over the trailing year.

The company also simplified elsewhere this year, selling its Real Estate Services business and agreeing to sell its Title business, both classified as held for sale, part of a stated push to focus the portfolio on insurance.

The latest quarter

The gap between the GAAP and adjusted numbers is the story of the quarter. Adjusted operating income strips out purchase-accounting noise and non-cash intangible amortization from the Inigo deal to show what management considers the run-rate economics; GAAP includes it. Both are legitimate ways to look at the business, but only the adjusted figure is comparable across quarters right now, since the GAAP figure will keep carrying integration costs that shrink over time but aren't yet gone.

Which numbers matter for Radian

For an insurer, free cash flow is the wrong headline metric: book value growth plus dividends, driven by a sustainable return on equity and backed by adequate capital, is the right one. Q2 book value of $36.00 per share and adjusted operating ROE of 12.9% are the anchors.

My normalized estimates for a full cycle, reflecting a business now roughly evenly split between mortgage credit and Lloyd's specialty risk, are Bear $3.80, Base $4.70 and Bull $5.30 of adjusted operating EPS, implying sustainable ROE of roughly 9-10% Bear, 12.5-13.5% Base and 14.5-15.5% Bull. The Base ROE range brackets the actual Q2 print of 12.9% almost exactly, so the central case isn't asking Radian to do better than it already did, only to keep doing it through a full mortgage and insurance cycle.

Shares and capital structure

Shares outstanding were about 133.6 million at quarter end, down slightly despite the 646,014 shares issued to Inigo's sellers, as buybacks more than offset the deal-related issuance. Radian funded the acquisition almost entirely from its own liquidity and excess capital at Radian Guaranty rather than new equity, which is why the share count barely moved.

Holding-company liquidity is worth breaking into its two pieces rather than treating as one number: $412 million of actual cash-level resources, plus $425 million of undrawn revolving-credit capacity, for $837 million combined. The first is spendable today; the second is contingent on drawing the facility. Debt/capital of 19.2%, after $75 million of repayment this quarter, is conservative for an insurance holding company, and management has said it expects to refinance its upcoming 2027 debt maturity at a similar size to the existing facility rather than let leverage drift up.

Primary valuation: justified price to book value

The justified P/BV formula estimates what multiple of book a stock deserves from its own return profile: (ROE - g) / (CoE - g), where g is long-run growth and CoE is the cost of equity. At a Base sustainable ROE of 13%, growth of 3% and a cost of equity of 11.5%, that's (13% - 3%) / (11.5% - 3%) = 1.18x. Applied to the $36.00 book value, the unadjusted formula gives about $42.35. I apply a modest discount for integration and model risk given the short post-Inigo track record, bringing the primary Base to $41.50.

Secondary valuation: normalized adjusted operating P/E

These are low multiples for an insurer generating double-digit ROE, deliberately, because Radian's economic character changed materially eight months ago and doesn't yet have a multi-year track record to earn a richer one. The secondary Base is $39.95.

Historical multiples as context

At $32.86 the shares trade at 0.91x Q2 book value and about 7.0x Base normalized EPS, both low for a profitable insurer. Pre-2026 history is an imperfect guide, because the company it describes, a pure U.S. mortgage insurer, isn't quite the company that exists today. I give this comparison no formal weight in the triangulation; it supports the general idea that Radian is statistically cheap, not a specific fair-value estimate.

Valuation triangulation

The raw weighted average is $40.90; I round that down to $40.50 as a deliberate, small extra conservatism given the acquisition's short track record, rather than presenting false precision. The two methods themselves differ by only 3.9%, well under the 20% warning threshold, which says a residual-income framework and a normalized earnings multiple are landing in the same place independently.

What is the market already pricing in?

At $32.86 and a book value of $36.00, the market is pricing 0.91x book. Working backward through the justified-P/BV formula at the same 3% growth and 11.5% cost-of-equity assumptions, that multiple implies a sustainable ROE of roughly 10.7%, about 2.2 points below the 12.9% Radian actually reported in the second quarter. So the market isn't pricing a healthy, growing insurer; it's pricing one whose returns fade back toward the low end of my Bear range once Inigo's early results are fully tested by a real underwriting cycle, or once mortgage credit normalizes from currently benign levels. Given the stock has barely moved since the acquisition closed at almost this same price in February, that skepticism looks more like "wait and see" than an active bet against the deal.

Bear, base and bull scenarios

I assign no probabilities to the scenarios. Notice that the Bear case, at $29.00, sits only 11.7% below today's price: this isn't a name where the downside case implies a collapse, it's one where even a meaningfully worse outcome than today's results doesn't move the stock all that far, because it's already priced with real skepticism.

How the buy price is set

For a Confidence B score, the framework's base margin of safety is 25% to 35%. The character change from a single-line mortgage insurer to a diversified specialty platform, with only two quarters of consolidated Inigo results, pushes this toward the top of that range: 30%. Applied to the $40.50 Base, the maximum buy price is $28.35. That figure sits below even the $29.00 Bear case, which is unusual and worth naming directly: a purchase at or under the buy threshold would be priced below what the framework considers the pessimistic scenario for the business, not just below the central estimate. The shares would need to fall about 13.7% from $32.86 to get there.

Dividend

The quarterly dividend is $0.255, or $1.02 a year, a yield of 3.1% at $32.86. Against Base normalized adjusted operating EPS of $4.70, the payout ratio is about 22%, comfortably covered. Radian estimates it needs roughly $136 million to fund twelve months of dividends at the current rate; Radian Guaranty alone is expected to send $650 million up to the parent in 2026. The dividend is a modest part of the total return case here, subordinate to book-value growth and buybacks, but it isn't under any visible strain.

Reasons to own RDN

• Price below book value. 0.91x book for a business earning a double-digit ROE is a real discount, not just a statistical one.
• A record, high-quality mortgage book. $284 billion of insurance in force, 82% persistency, and roughly half the portfolio locked into mortgage rates that give homeowners little reason to refinance away.
• Genuine diversification. Specialty premiums are already 53% of the consolidated total, spreading Radian's earnings beyond U.S. housing-credit cycles.
• Capital generation and returns. $650 million of expected 2026 dividends from Radian Guaranty to the parent, $127 million of buybacks in the first half, and a share count that fell despite acquisition-related issuance.
• Early Specialty underwriting discipline. A 97.7% combined ratio in Inigo's first full consolidated quarter is a profitable start, not a promise yet to be tested.

What could go wrong?

• Thesis breaker: Inigo underperforms. If the Lloyd's business fails to earn an adequate return on the $1.67 billion purchase price, through weak underwriting, reserve development or integration costs that don't fade, the diversification thesis breaks.
• Mortgage-credit deterioration. A rise in unemployment or a fall in home prices would pressure the core mortgage book, which still generates the majority of Radian's earnings.
• Specialty reserve and catastrophe risk. Property, casualty and financial-lines underwriting at Lloyd's carries loss-development and catastrophe exposure that Radian's legacy mortgage business never had.
• Purchase-accounting complexity. The $39 million gap between GAAP and adjusted EPS this quarter shows how much noise the acquisition still adds; a real deterioration could hide inside that noise for a while before it's obvious.
• Only two quarters of combined results. Confidence is explicitly capped until Inigo shows how it performs through a fuller cycle.

Management execution

Management closed a transformative acquisition without diluting the share count, kept mortgage underwriting performing well through the transition, raised Radian Guaranty's dividend guidance to the parent, continued buying back stock, paid down holding-company debt, and simplified the portfolio by selling non-core businesses. The unproven part is management's own claim that Inigo will deliver mid-teens EPS accretion and roughly 200 basis points of ROE accretion; the first two quarters are consistent with that promise but don't yet prove it over a full cycle. Assessment: 16/20, good. The next test is whether Specialty's 97.7% combined ratio holds up outside a benign start.

Stock Analyza scorecard

The score is close to Quality territory, and the justified-P/BV engine used here already reflects that quality directly through the ROE input, rather than needing a separate growth premium. Business quality is 72/100: franchise and underwriting moat 15/20, return versus cost of capital 14/20, balance sheet 11/15, earnings and reserve quality 10/15, growth runway 10/15, management 8/10, governance and alignment 4/5. The mortgage franchise's persistency and scale are the foundation; the limited post-Inigo history is the main thing holding the score back from higher.

Confidence score

Company filings are detailed and current, and the mortgage business itself is highly predictable. Accounting transparency is marked down because purchase-accounting adjustments will keep distorting GAAP results for several more quarters, and scenario dispersion reflects the genuine range of outcomes a young acquisition can produce.

What I would watch from here

Review with the third-quarter report, expected around early November, which should show a fuller run of Inigo results and any update on the 2027 debt refinancing.

The three most important thesis breakers

1. Adjusted operating ROE falling and staying below 10%.
2. Adverse reserve development at Specialty, meaning Inigo's underwriting proves worse than reported.
3. Material mortgage-credit deterioration from unemployment or home-price stress.

Adversarial review

Unlike some other analyses in this series, the first draft's core arithmetic reconciled cleanly end to end: the justified-P/BV formula, the triangulation weighting, and every checksum in the exec summary matched. Checking it against Radian's second-quarter earnings release and Form 10-Q mainly turned up detail worth adding, not errors worth fixing.

None of this changes the Base value, which stays at $40.50, or the Hold/Watchlist verdict. It sharpens the picture: capital generation from the mortgage side is if anything running ahead of what the first draft captured, and Specialty's early underwriting has a real, favorable number behind it rather than just management's characterization.

The strongest counter-thesis, for the bulls: a mortgage insurer earning 12.9% ROE, trading below book, that just added a second profitable underwriting engine without diluting shareholders, is priced like the market doesn't believe any of it will last. If Specialty's combined ratio holds near the high 90s and mortgage credit stays benign, a re-rating toward book value alone would be a large move from here. The strongest counter-thesis, for the bears: insurers that expand into unfamiliar lines through acquisition have a long history of discovering reserve problems years after the deal closes, well after the "successful integration" narrative has taken hold, and $1.67 billion is a large bet to get wrong. Both are reasonable; the 30% margin of safety, and a maximum buy price that sits below even the Bear case, are the framework's way of not needing to choose between them before buying.

Audit flags: the Bear/Base/Bull adjusted-EPS figures and the sustainable-ROE ranges behind the primary valuation are analytical estimates, not company guidance. The justified-P/BV formula is sensitive to the cost-of-equity assumption, which is itself a judgment call. Purchase accounting for Inigo remains preliminary and could still see measurement-period adjustments. No unresolved arithmetic error remains. The publication gate status is PASS WITH WARNING, reflecting the short post-acquisition track record rather than any data problem.

Final verdict: hold at $32.86, watchlist for new money below $28.35

Radian is a rare combination: a stock trading below book value while earning a double-digit return on that book, with a real, profitable second business line added without diluting shareholders. The market's skepticism isn't irrational, an acquisition this size into unfamiliar underwriting territory deserves to earn its multiple rather than be given one. But the price already reflects a good deal of that caution, which is why even the framework's own Bear case sits close to today's price.

Verdict: WATCHLIST at $32.86. Triangulated Base value $40.50, upside 23.3%, Confidence B (19/25). Required margin of safety 30%, maximum buy price $28.35.

The case improves if Specialty's combined ratio holds through more of an underwriting cycle, if mortgage credit stays benign through the next few quarters, or if the price falls into the buy zone with the fundamentals intact.

Sources

Primary sources include Radian Group's second-quarter 2026 earnings release and Form 10-Q for the quarter ended June 30, 2026, its Form 8-K on the completed Inigo acquisition, its 2025 Form 10-K, and its second-quarter earnings call. Market-price context is drawn from multiple public quote sources consistent with the stock's trading range on September 28, 2026.

The reference market price is $32.86, described as the September 28, 2026 close. Balance sheet and capital figures are as of June 30, 2026. Normalized adjusted operating EPS, sustainable ROE assumptions and scenario values are analytical estimates, not company guidance.