Standard & Poor's Announces Radian Group Inc. and Mortgage Insurance Subsidiaries Ratings Affirmed.

NEW YORK -- On Sept. 7, 2004, Standard & Poor's Ratings Services affirmed its 'A' counterparty credit rating on Radian Group Inc. (NYSE:RDN) and its 'AA' counterparty credit and financial strength ratings on three of RDN's mortgage insurance (MI) subsidiaries: Radian Guaranty Inc. (RGI), Radian Insurance Inc. (RII), and Amerin Guaranty Corp. (Amerin). At the same time, Standard & Poor's affirmed its 'A' counterparty credit and financial strength ratings on RDN's other mortgage insurer, Radian Mortgage Insurance Inc. (RMII). Subsequently, Standard & Poor's withdrew the ratings on RMII at the company's request.

The outlook on RDN remains negative, and the outlook on RGI, RII, and Amerin remains stable.

The ratings on RDN are based on its diversification, with very strong operations in mortgage insurance and financial guaranty. In addition, synergies between financial guaranty and mortgage insurance support the company's strategy of being a credit-enhancement provider, emphasizing capital-markets transactions and the core MI business. RDN also has very strong capitalization in both its MI and financial guaranty segments, very strong earnings, and financial leverage and interest coverage that are strengths for the rating. RDN's potential earnings volatility, higher-risk profile because of expansion into Alt-A and A- mortgage insurance segments, and risk-management considerations on the financial guaranty side are negative rating factors. A recent significant loss on a single manufactured housing transaction was symptomatic of some weakness in risk management and controls, and this issue is receiving the highest priority by RDN's chairman, who is committed to substantially upgrading this function.

The ratings on RDN's mortgage insurers are based on their strong market position, very strong earnings, innovative product development, good diversification, and very strong capitalization. Partially offsetting these positive factors are the declining terms of trade in the flow market because of competition from lenders as well as the companies' higher-than-average risk profile.

RDN has a substantial, well-established position in the U.S. MI market, with an almost 20% share of new insurance written in the first half of 2004. The MI segment is especially strong in the flow market for prime-quality loans and the Alt-A market, which encompasses reduced-documentation loans that are often obtained on a structured-transaction basis. The MI segment has a record of consistently very strong to extremely strong earnings, though recently the ROR has fallen from recent highs. Growth in nonprime business, such as Alt-A and A-, has increased potential earnings volatility because of the higher risk and untested nature of some of the new products.

The ratings on Amerin are based on a cross guaranty from RGI, and the ratings on RII are based on a strong net worth and liquidity maintenance agreement from RGI. (The ratings on RDN's financial guaranty operations were affirmed earlier this year.)

Outlook

Standard & Poor's believes the MI segment's earnings will remain strong, with an ROR of about 45% in 2004 and 2005, which is comparable with 2003 results but less than the exceptional results of 2000-2002. Refinancing volume is expected to continue its decline, which should improve the expense ratio as portfolio turnover and contract underwriting expenses decline. The loss ratio is expected to rise moderately before stabilizing in 2005 at about 50%. The large volume of recently originated loans entering their peak loss years will drive rising losses but should be partially offset by recent improvements in the U.S. economy and by a recent downward move in delinquency rates for the prime book of business.

Delinquencies in the Alt-A, A-, and sub-prime books of business continued to rise through the first half of 2004, and the untested and uncertain long-term performance of this business introduces potential volatility, though these segments are expected to remain profitable. Returns on capital are expected to be 14%-16% in 2004 and 2005.

RDN's consolidated results of operations in 2004 and 2005 should be strong, with no major changes from 2003. All of the rated operating companies are expected to maintain capitalization supportive of the ratings, with excess capital deployed for new business or returned to shareholders to maximize shareholder value. The organization's strong operating results have supported balance-sheet strength, with leverage ratios and interest coverage ratios more than strong enough for the rating, and this situation is expected to continue in 2004 and 2005. The negative outlook on the holding company is driven by Standard & Poor's concerns over risk management and controls in the financial guaranty segment, and Standard & Poor's expects the company to take additional corrective actions in the near term in addition to some actions already put in place.

Ratings List

Radian Group Inc.
 Counterparty credit rating                      A/Negative/--
 Senior unsecured debt rating                    A

Radian's Mortgage Insurance Operating Companies

Radian Guaranty Inc.
Amerin Guaranty Corp.
 Counterparty credit rating                     AA/Stable/--
 Financial strength rating                      AA/Stable

Radian Insurance Inc.
 Financial strength rating                      AA/Stable

                                     TO          FROM

Radian Mortgage Insurance Inc.
 Counterparty credit rating          NR          A/Stable/--
 Financial strength rating           NR          A/Stable

Radian's Financial Guaranty Operating Companies

Radian Asset Assurance Inc.
Radian Asset Assurance Ltd.
 Counterparty credit rating                     AA/Negative/--
 Financial strength rating                      AA/Negative

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search.