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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2002

OR

For the transition period from              to             

Commission file number 1-11356

RADIAN GROUP INC.

(Exact name of registrant as specified in its charter)

(215) 564-6600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: YES x  NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YES x  NO ¨

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $4,631,620,000 as of June 28, 2002, which amount excludes the value of all shares beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) by officers and directors of the registrant (however this does not constitute a representation or acknowledgment that any such individuals is an affiliate of the registrant).

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 93,679,801 shares of Common Stock, $.001 par value, outstanding on March 18, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424 (b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on the Company’s beliefs, assumptions, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which the Company operates. Words such as “anticipate,” “intend,” “may,” “expect,” “believe,” “should,” “plan,” “will” and “estimate” help identify forward-looking statements. The following are some of the factors that could cause actual outcomes to differ materially from the matters expressed or implied in the Company’s forward-looking statements. Readers are also directed to other risks discussed in documents filed by the Company with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the Company’s forward-looking statements, which speak only as of their respective dates.

All capitalized terms used but not defined below are as defined in Part I, Item 1—“Business” of this report.

Because many of the mortgage loans the Company insures are sold to Fannie Mae and Freddie Mac, changes in their business practices could significantly reduce the Company’s revenues.

Because the beneficiaries of the majority of the Company’s mortgage insurance policies are Fannie Mae and Freddie Mac, their business practices have a significant influence on the Company as well as on the mortgage insurance industry in general. Changes in their practices could reduce the number of policies they purchase that are insured by the Company and consequently reduce the Company’s revenues. Subject to certain minimum requirements, some of their programs require less insurance coverage than they historically have required. Fannie Mae and Freddie Mac have the ability to further reduce coverage requirements, which could cause a reduction in the demand for mortgage insurance and cause the Company’s premium revenues to decline.

In addition, new risk-based capital rules promulgated by the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, may provide incentives for Fannie Mae and Freddie Mac to purchase loans that are insured by mortgage insurance companies rated “AAA” rather than “AA.” These rules could impair the ability of the Company’s subsidiaries, Radian Guaranty and Amerin Guaranty, which are both rated “AA,” to compete with “AAA”-rated companies. Currently there are two “AAA”-rated mortgage insurance companies. The rules will not be fully phased-in for several more years. If Fannie Mae and Freddie Mac choose to purchase mortgage insurance from “AAA”-rated companies instead of the Company, the Company’s revenues would decline.

General economic factors may adversely affect the Company’s loss experience and the demand for mortgage insurance and financial guaranties.

The Company’s business, and the risks associated with the business, tend to be cyclical, and track general economic and market conditions. The Company’s loss experience on the mortgage and financial guaranty insurance it writes could be materially adversely affected by extended national or regional economic recessions, business failures, falling housing values, rising unemployment rates, interest rate changes or volatility, changes in investor perceptions regarding the strength of private mortgage insurers or financial guaranty providers and the policies or guaranties offered by such insurers, investor concern over the credit quality of municipalities and corporations, terrorist attacks, acts of war or combinations of such factors. These events could also materially decrease demand for housing or could reduce the demand for mortgage insurance or financial guaranty insurance. These factors could also cause claims and losses on the policies and guaranties the Company has issued to increase beyond what the Company anticipates. In addition to exposure to general economic factors, financial guaranty insurance exposes us to the specific risks faced by the particular businesses, municipalities or pools of assets covered by the Company’s insurance.

2

Because the Company’s business is concentrated among relatively few major customers, revenues could decline if the Company loses any significant customer.

The Company’s mortgage insurance and financial guaranty businesses are both dependent on a small number of customers. The Company’s top 10 mortgage insurance customers are generally responsible for over 45% of both the Company’s primary new insurance written in a given year and direct primary risk in force, based on the aggregate principal amount of the mortgage loans insured by the Company, multiplied by the coverage percentage. The concentration of business with these customers may increase as a result of mergers or other factors. The Company’s master policies and related lender agreements do not, and by law cannot, require the Company’s mortgage insurance customers to do business with the Company. In addition, in 2002, the Company’s subsidiaries, Radian Reinsurance and Radian Asset Assurance, derived 26.7% of their annual gross premiums from four primary insurers, with one insurer accounting for 10.4% of their annual gross premiums. In addition, one trade credit reinsurer generated 6.2% of the financial guaranty business segment’s 2002 gross premiums.

If the Company were to lose the business of one of its major customers, its revenues would decline and profitability could be materially adversely affected.

Because the Company’s business is concentrated in a few states, its losses could increase materially or its revenues could decline as the result of regional economic factors.

In addition to the Company’s customer concentration, much of its business is concentrated in relatively few states, which increases its vulnerability to economic downturns in those states. The Company’s principal mortgage insurance subsidiary, Radian Guaranty, has approximately 60% of its primary insurance in force concentrated in 10 states (with the highest percentage in California). The current low mortgage interest rate environment is generating increased refinancing activity (the payoff of an existing mortgage loan combined with the establishment of a new mortgage loan). Because mortgage loans in areas experiencing property value appreciation are less likely to require mortgage insurance at the time of refinancing than are loans in areas experiencing limited or no property value appreciation, the current low mortgage interest rate environment may have the effect of further concentrating the Company’s primary mortgage insurance in force in economically weaker areas. Radian Reinsurance and Radian Asset Assurance also have approximately 40% of their net insurance in force concentrated in six of those same 10 states.

The Company faces the possibility of higher claims as its mortgage insurance policies age.

Historically, most claims under private mortgage insurance policies occur during the third through fifth year after issuance of the policies. Approximately 71% of the Company’s primary risk in force has not yet reached its anticipated highest claim frequency years. If the growth of the Company’s new business were to slow or decline, the Company would expect claims to grow as a percentage of revenues, which would likely adversely affect the Company’s results of operations and financial condition.

If the estimates the Company uses in establishing reserves for its mortgage insurance or financial guaranty business are incorrect, the Company may be required to take charges to income and its ratings may be reduced.

The Company establishes reserves in both its mortgage insurance and financial guaranty businesses to provide for the estimated costs of settling claims. In its mortgage insurance business segment, it does not establish reserves until it is notified that a borrower has failed to make at least two payments when due. Once a payment has been missed, the Company uses historical models based on a variety of loan characteristics, including the status of the loan as reported by the servicer of the loan, economic conditions, and the estimated foreclosure period in the area where a default exists, to help determine the amount of the loss reserve.

3

In its financial guaranty business segment, the Company bases its loss reserves upon its estimates of likely claims and related claims amounts. The Company increases this reserve either when (1) a ceding company provides for losses and loss adjustment expenses or (2) the Company concludes that a default is probable on an insured risk. The amount of the reserve established is based on the Company’s analysis of the individual insured risk.

Setting the loss reserves in both business segments involves significant reliance upon estimates with regard to the likelihood, magnitude and timing of a loss. The models and estimates used to establish loss reserves may not prove to be accurate, especially during an extended economic downturn. There can be no assurance that the Company has correctly estimated the necessary amount of its reserves or that the reserves it establishes will be adequate to cover ultimate losses on incurred defaults.

If the Company’s estimates are inadequate, it may be forced by insurance and other regulators or rating agencies to increase its reserves. Unanticipated increases to its reserves could lead to a reduction in its ratings. A reduction in the Company’s ratings could have a significant negative impact on its ability to attract and retain business.

Some of the Company’s products are riskier than traditional mortgage policies.

The Company generally provides its private mortgage insurance for mortgage products that are at higher risk of default than traditional mortgages. A significant portion of the Company’s mortgage insurance in force consists of insurance either on mortgage loans with loan-to-value ratios (“LTVs”) of more than 90% or on adjustable rate mortgage loans. The LTV is the ratio of the original loan amount to the value of the property. Mortgage loans with LTVs greater than 90% are expected to have default incidence rates substantially higher than those with lower LTVs. Adjustable rate mortgage loans generally have higher default rates than fixed rate loans. In addition, if the Company is required to pay a claim on a higher LTV loan, it is generally more difficult to recover its costs from the underlying property, especially in areas with declining property values.

The Company also offers traditional pool mortgage insurance, which exposes it to different risks from primary mortgage insurance. The Company’s pool mortgage insurance products generally cover all losses in a pool of loans up to the Company’s aggregate exposure limit (generally between 1% and 10% of the initial aggregate loan balance of the entire pool of loans). Under pool insurance, the Company could be required to pay the full amount of every loan in the pool within its insured layer that is in default and upon which a claim is made until the aggregate limit is reached, rather than a percentage of that amount, as is the case in traditional primary mortgage insurance. As of December 31, 2002, $1.7 billion, or 6.2%, of the Company’s risk in force in its mortgage insurance business segment was attributable to pool insurance.

The Company insures some non-prime loans, which are riskier than its general portfolio and which will likely require it to make a higher percentage of claims payouts. These are usually classified as “Alt-A” and “A minus” loans, and enable borrowers with less than normal documentation or with substandard credit histories to obtain mortgages and mortgage insurance. Although the Company has historically limited the insurance of these non-prime loans to those made by lenders with good results and servicing experience in this area, the Company believes that non-prime lending programs represent the largest area for future growth in the mortgage insurance industry, and has increased and expects to continue to increase its insurance written in this area. During 2002, non-prime business accounted for $16.2 billion or 33.1% of Mortgage Insurance’s new primary insurance written (72.8% of which was Alt-A) compared to $14.3 billion or 31.9% in 2001. At December 31, 2002, non-prime insurance in force was $25.6 billion or 23.2% of total primary insurance in force as compared to $18.2 billion or 16.8% of primary insurance in force a year ago.

The Company’s subsidiary, Radian Insurance, writes credit insurance on non-traditional mortgage related assets such as second mortgages and manufactured housing and provides credit enhancement to mortgage related capital market transactions. These types of insurance could have higher claims payouts than traditional mortgage insurance products. The Company has less experience writing these types of insurance.

4

The Company’s subsidiaries also write guaranties involving structured obligations that expose them to a variety of market, credit and political risks beyond those that are specific to the mortgage insurance or financial guaranty businesses. The Company issues guaranties connected with certain asset-backed transactions and securitizations secured by one or a few classes of assets, such as residential mortgages or other consumer assets, utility mortgage bonds and multi-family housing bonds and obligations under credit default swaps, both funded and synthetic. The Company’s subsidiaries, Radian Asset Assurance and Radian Reinsurance, also provide trade credit reinsurance, which protects sellers of goods under certain circumstances against non-payment of the receivables they hold from buyers of those goods. These guaranties expose the Company to the risk of buyer nonpayment, which could be triggered by many factors, including the business failures of buyers. Such guaranties may cover receivables both where the buyer and seller are in the same country as well as cross-border receivables. In the case of cross-border transactions, the Company sometimes grants coverage extending to certain political risks, such as foreign currency controls and expropriation, which could interfere with the payment from the buyer.

If the Company is required to pay claims on its mortgage insurance or financial guaranty products beyond what it has anticipated, then its financial condition and results of operations could be materially adversely affected.

The Company’s delegated underwriting program may subject it to unanticipated claims.

In its mortgage insurance business, the Company permits many of its mortgage lender customers to commit Radian Guaranty to insure loans using pre-established underwriting guidelines. Once a lender is accepted for the delegated underwriting program, the Company generally must insure a loan originated by that lender even if the lender has not followed the specified underwriting guidelines. Even if the Company terminates a lender’s underwriting authority, the Company would remain at risk for any loans previously insured by the lender before such termination. A lender could possibly commit the Company to insure a material number of loans with unacceptable risk profiles before the Company was able to discover the problem and terminate that lender’s delegated underwriting authority. The performance of loans insured through programs of delegated underwriting has not been tested over a period of extended adverse economic conditions. If the specified underwriting guidelines are not properly applied by the Company’s lenders, or if the Company has not properly constructed the guidelines, it could be required to pay a higher number of claims than expected.

The Company may face increased risks connected with its contract underwriting business.

In its mortgage insurance business, the Company underwrites some of its customers’ mortgage loans for secondary market compliance while at the same time assessing certain of the loans for mortgage insurance. The Company’s customers sometimes require the Company to purchase, or issue mortgage insurance on, loans that it has underwritten on the customers’ behalf but on which the Company has made a material mistake. The Company, therefore, assumes some credit risk and interest rate risk if it makes an error.

The Company’s revenues from mortgage insurance are dependent on the annual renewals of policies that may be terminated or not renewed by policyholders.

Most of the Company’s mortgage insurance premiums each year are derived from the renewal of policies that it has written in previous years. Consequently, a decrease in the length of time that its mortgage insurance policies remain in force would cause a decline in its revenues, unless the Company is able to continue to write enough new business to replace the cancelled policies. Recently, the rate of nonrenewal has been increasing. Factors that could cause an increase in non-renewals of the Company’s mortgage insurance policies include falling mortgage interest rates (which leads to increased refinancings and associated cancellations of mortgage insurance), appreciating home values and changes in the mortgage insurance cancellation requirements of mortgage lenders and investors.

5

The Company’s success depends on its ability to assess and manage its underwriting risks.

The Company’s success depends on its ability to accurately assess and manage the risks associated with the business it insures. The Company generally cannot cancel the mortgage insurance or financial guaranty insurance coverage it provides, and, because it generally fixes premium rates for the life of a policy when issued, it cannot adjust renewal premiums. If the risk underlying a particular mortgage insurance or financial guaranty coverage develops more adversely than anticipated, or if national and regional economies undergo unanticipated stress, the Company generally cannot increase premium rates on in-force business or cancel coverage to mitigate the effects of such adverse developments.

The Company’s mortgage insurance and financial guaranty premium rates may not adequately cover future losses. Its mortgage insurance premiums are based upon its expected risk of claims on the insured loan, and take into account the loan’s LTV, loan type, mortgage term, occupancy status and coverage percentage, among other factors. Similarly, the Company’s financial guaranty premiums are based upon its expected risk of claim on the insured obligation, and take into account, among other factors, the rating and creditworthiness of the issuer of the insured obligations, the type of insured obligation, the policy term and the structure of the transaction being insured. In addition, the premium rates take into account expected cancellation rates, operating expenses and reinsurance costs, as well as profit and capital needs and the prices offered by its competitors. Despite the analytical methods employed, the Company’s premiums earned and the associated investment income on the premiums may ultimately prove to be inadequate to compensate for losses it may incur.

The Company’s success is dependent on its ability to manage its investment risks and funds it controls.

The Company’s income from its investment portfolio is one of its primary sources of cash flow to support its operations and claim payments. If its calculations with respect to its policy liabilities are incorrect, or if it improperly structures its investments to meet these liabilities, the Company could have unexpected losses, including losses resulting from forced liquidation of investments before their maturity. The Company’s investments and investment policies and those of its subsidiaries are subject to state insurance laws, and may change depending upon regulatory, economic and market conditions and the existing or anticipated financial condition and operating requirements, including the tax position, of its business segments.

There can be no assurance that the Company’s investment objectives will be achieved. The success of the Company’s investment activity will be affected by general economic conditions, which may adversely affect the markets for interest-rate-sensitive securities, including the extent and timing of investor participation in such markets, the level and volatility of interest rates and, consequently, the value of such fixed income securities. Volatility or illiquidity in the markets in which the Company directly or indirectly holds positions could adversely affect it.

In addition, the Company’s businesses, such as RadianExpress.com, may be responsible for the handling and disbursement of lender funds, which subjects it to the risks that such funds could be misdirected or misappropriated.

If housing values fail to appreciate, the Company’s ability to recover amounts paid on defaulted mortgages may be reduced and its earnings may decrease.

Under its standard mortgage insurance policy, upon default the Company generally has the option of paying an entire loss amount and taking title to a mortgaged property or paying the coverage percentage in full satisfaction of its obligations under the policy. In recent years with a strong housing market, the Company has been able to take advantage of paying the entire loss amount and selling properties quickly. If housing values fail to appreciate, its ability to recover amounts paid on defaulted mortgages may be reduced or delayed, which may decrease its earnings.

6

A downgrade of the ratings of any of the Company’s subsidiaries by any of the rating agencies would adversely affect the Company’s business.

The insurance financial strength ratings assigned by S&P, Moody’s and Fitch to the Company’s subsidiaries may be downgraded by one or more of the rating agencies as a result of changes in the views of the rating agencies or adverse developments in the Company or its subsidiaries’ financial condition or results of operations due to underwriting or investment losses or otherwise. The Company’s subsidiaries have been assigned the following insurance financial strength ratings:

If the financial strength ratings of any of the Company’s mortgage insurance subsidiaries, Radian Guaranty, Radian Insurance or Amerin Guaranty, fall below “Aa3” from Moody’s or “AA” from S&P and Fitch, then national mortgage lenders and a large segment of the mortgage securitization market, including Fannie Mae and Freddie Mac, generally will not purchase mortgages or mortgage-backed securities insured by them. If the financial strength rating of Radian Asset Assurance, one of the Company’s financial guaranty subsidiaries, falls below “AA” from S&P or Fitch, it could have a material adverse effect on its competitive position and its prospects for future financial guaranty insurance opportunities. If the financial strength rating of Radian Reinsurance, another of the Company’s financial guaranty subsidiaries, falls below “AA” from S&P or Fitch, or “Aa2” from Moody’s, the value of the reinsurance offered by Radian Reinsurance to its primary insurers will be substantially reduced and may no longer be of sufficient economic value to its primary insurers for them to continue to cede insurance to Radian Reinsurance at economically viable rates.

Radian Reinsurance and Radian Asset Assurance are also parties to numerous reinsurance agreements with primary insurers which grant the primary insurers the right to recapture all of the business ceded to Radian Reinsurance or Radian Asset Assurance under these agreements if the financial strength rating of Radian Reinsurance or Radian Asset Assurance, as the case may be, is downgraded below the rating levels established in the agreements, and, in some cases, to increase the ceding commissions in order to compensate the primary insurers for the decrease in credit the rating agencies allow the primary insurers for the reinsurance provided by the Company’s financial guaranty subsidiaries.

In October 2002, S&P announced that it had downgraded the financial strength rating of Radian Reinsurance from “AAA” to “AA” (and Fitch placed the “AAA” rating of Radian Reinsurance on negative watch for possible downgrade). As a result of the downgrade by S&P, the primary insurers have the right, as described above, to recapture the financial guaranty reinsurance ceded to Radian Reinsurance, including substantially all of the unearned premium reserves of Radian Reinsurance. As described above, the primary insurers also have the right to increase ceding commissions charged to Radian Reinsurance for cessions, including the right to a cash refund of a portion of the unearned premium reserves previously ceded to Radian Reinsurance reflecting the increased ceding commissions. In addition, the primary insurers may seek amendments to their agreements with Radian Reinsurance to revise ceding commissions or premiums payable or to recapture only a portion of the business ceded to Radian Reinsurance in a given year. Although Radian Reinsurance may be able to offset some of the effects of increased ceding commissions or reduced reinsurance premiums by posting collateral for the benefit of the reinsurers, the S&P downgrade, or the exercise by primary insurers of their rights triggered by the downgrade of Radian Reinsurance, could have a material adverse effect on Radian Reinsurance’s competitive position and/or its prospects for future reinsurance opportunities.

7

An increase in the Company’s subsidiaries’ risk-to-capital ratio and/or leverage ratio may prevent them from writing new insurance.

Rating agencies and state insurance regulators impose capital requirements on the Company’s subsidiaries (Radian Guaranty, Amerin Guaranty, Radian Insurance, Radian Reinsurance and Radian Asset Assurance and their respective subsidiaries). These capital requirements include risk-to-capital ratios, leverage ratios and surplus requirements, and limit the amount of insurance that the subsidiaries may write. Moody’s and S&P have also entered into an agreement with Radian Guaranty that obligates Radian Guaranty to maintain at least $30 million of capital in Radian Insurance as a condition of the issuance and maintenance of Radian Insurance’s “Aa3” rating from Moody’s and “AA” rating from S&P and Fitch, respectively. The Company’s subsidiaries have several alternatives available to control their risk-to-capital ratios and leverage ratios, including obtaining capital contributions from the Company, purchasing reinsurance or reducing the amount of new business written. To date, none of the Company’s subsidiaries has had any difficulty in maintaining appropriate risk-to-capital or leverage ratios or been limited in its ability to write new insurance. However, a material reduction in the statutory capital and surplus of a subsidiary, whether resulting from underwriting or investment losses or otherwise, or a disproportionate increase in risk in force, could increase a subsidiary’s risk-to-capital ratio or leverage ratio. This in turn could limit that subsidiary’s ability to write new business or require that subsidiary to reinsure existing business, which then could materially adversely affect the Company’s results of operations and financial condition.

The private mortgage insurance industry is highly competitive and the Company’s revenues could decline as a result of competition.

The United States private mortgage insurance industry is highly dynamic and intensely competitive. The Company’s competitors include:

In addition, there are an increasing number of alternatives to traditional private mortgage insurance, which could reduce the demand for the Company’s insurance products. These include:

Many factors bear on the relative competitive positions of the private mortgage insurance industry and the Company’s other competitors, including price, underwriting criteria, legislative and regulatory initiatives that affect the FHA’s competitive position and the capital adequacy of, and alternative business opportunities for, lending institutions.

If the Company is unsuccessful at meeting the competition in its industry, its revenues may decline.

8

The Company faces significant competition in the financial guaranty industry and its revenues could decline as a result of competition.

The financial guaranty industry is also highly competitive. The principal sources of direct and indirect competition are:

The rating agencies allow credit to a ceding company’s capital requirements and single-risk limits for reinsurance ceded in an amount that is in part determined by the financial strength rating of the reinsurer. Some of the Company’s competitors have greater financial resources and are better capitalized than the Company and/or have been assigned higher ratings by one or more of the major rating agencies. Competition in the financial guaranty reinsurance business is based on many factors, including overall financial strength, pricing, service and evaluation by the rating agencies of financial strength.

Legislation and regulatory changes and interpretations could harm the Company’s business.

Changes in laws and regulations affecting the municipal, asset-backed and trade credit debt markets, as well as other governmental regulations, may subject the Company to additional legal liability or affect the demand for financial guaranty insurance and the demand for the primary insurance and reinsurance that the Company provides.

Increases in the maximum loan amount that the FHA can insure can reduce the demand for private mortgage insurance. This maximum amount has, in general, been increased annually, indexed to Fannie Mae and Freddie Mac limits. In addition, the FHA has streamlined its down-payment formula and reduced the premiums it charges for FHA insurance, making it more competitive with private mortgage insurance in areas with higher home prices. These and other legislative and regulatory changes have caused, and may cause in the future, demand for private mortgage insurance to decrease.

The U.S. Department of Housing and Urban Development (“HUD”) has proposed a rule under the Real Estate Settlement Procedures Act (“RESPA”) to create an exemption from the provisions of RESPA that prohibit the giving of any fee, kickback or thing of value pursuant to any agreement or understanding that real estate settlement services will be referred. The proposed rule would make the exemption available to lenders that, at the time a borrower submits a loan application, give the borrower a firm, guaranteed price for all the settlement services associated with the loan. Mortgage insurance is currently included in the proposed rule as one of these settlement services. HUD is not expected to finalize the rule until the summer of 2003, and the rule would not be effective until a year after it is finalized. If the rule is implemented, the premiums charged for mortgage insurance could be negatively affected.

The Company’s business and its legal liabilities may also be affected by federal or state consumer, lending and insurance laws and regulations. In recent years the Company has also been subject to consumer lawsuits alleging violations of RESPA. If litigation or changes with respect to these laws and regulations are resolved in a way that is unfavorable to the Company, its revenues could decline.

9

Changes in tax laws could reduce the demand or profitability of financial guaranty insurance, which could harm the Company’s business.

Any material change in the U.S. tax treatment of municipal securities, or the imposition of a “flat tax” or a national sales tax in lieu of the current federal income tax structure in the United States, or a change in the treatment of dividends could adversely affect the market for municipal obligations and, consequently, reduce the demand for financial guaranty insurance and reinsurance of such obligations. An elimination of the federal income tax on dividends has recently been proposed by President Bush. If this proposal is enacted, the market for municipal bonds may be harmed and the Company’s revenues from the writing of financial guaranty insurance may be reduced.

The Company’s growth may be restricted if it is unable to obtain reinsurance.

The Company’s ability to maintain reinsurance capacity is important to its growth strategy for its financial guaranty business. In order to comply with regulatory, rating agency and internal single risk retention limits as the Company’s business grows, it will need access to sufficient reinsurance capacity to underwrite transactions. The market for reinsurance has recently become more concentrated. If the Company were to become unable to obtain sufficient reinsurance, this could have an adverse impact on its ability to issue new policies.

The performance of the Company’s strategic investments could harm its financial results.

At December 31, 2002, the Company had investments in affiliates of $259.1 million. The performance of its strategic investments in affiliates could be harmed by:

In addition, the Company’s ability to engage in additional strategic investments is subject to the availability of capital and maintenance of the Company’s financial strength ratings by rating agencies.

The Company may not be able to effectively manage its growth.

The Company seeks to expand its business internationally and into new markets. The Company’s expansion into new markets presents it with different risks, business analyses and management challenges. The Company may not be able to effectively manage new operations or successfully integrate them into its existing operations.

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Part I

Item 1.    Business

General

Radian Group Inc. (the “Company”) provides, through its subsidiaries and affiliates, insurance and mortgage services to financial institutions in the United States of America and globally. The principal business segments of the Company are mortgage insurance, financial guaranty and mortgage services. The following table shows the percentage contributions to total revenues and net income of these businesses for 2002:

For selected financial information about each segment, see Note 1 of the Notes to Consolidated Financial Statements under the caption “Segment Reporting”. The Consolidated Financial Statements and the Notes to Consolidated Financial Statements are incorporated by reference into this report from the 2002 Annual Report to Stockholders and included as an exhibit to this report.

The Company’s strategic objective is to be a diversified global credit enhancement and mortgage services company focused on returns on allocated equity. The key components of this strategy are:

The Company began conducting business as an independent company upon its spin-off from Commonwealth Land Title Insurance Company and initial public offering on November 6, 1992, as CMAC Investment Corporation. On June 9, 1999, the Company merged with Amerin Corporation and was renamed Radian Group Inc. As further described below, on February 28, 2001, the Company acquired Enhance Financial Services Group Inc., a provider of financial guaranty insurance and reinsurance. The Company is incorporated in Delaware.

Mortgage Insurance Business

The Company provides, through its wholly-owned subsidiaries, Radian Guaranty Inc., Amerin Guaranty Corporation and Radian Insurance Inc. (individually referred to as “Radian Guaranty”, “Amerin Guaranty,” and “Radian Insurance” and together referred to as “Mortgage Insurance”), private mortgage insurance and risk management services to mortgage lending institutions located throughout the United States. Private mortgage insurance protects mortgage lenders from default-related losses on residential first mortgage loans made primarily to home buyers who make down payments of less than 20% of the home’s purchase price. Private mortgage insurance also facilitates the sale of such mortgage loans in the secondary mortgage market, principally to Freddie Mac and Fannie Mae (Government Sponsored Enterprises, “GSEs”). Radian Guaranty is restricted to providing insurance on residential first mortgage loans only. Beginning October 1, 2001, Amerin Guaranty was licensed to write second mortgage insurance. Mortgage Insurance offers two principal types of private mortgage insurance coverage, primary and pool. At December 31, 2002, primary insurance made up 93.8% of total risk in force and pool insurance made up 6.2% of total risk in force on first lien mortgages. During the third quarter of

11

2000, the Company commenced operations in Radian Insurance, a subsidiary of Radian Guaranty that writes credit insurance and financial guaranty insurance on non-traditional mortgage related assets, such as second mortgages and manufactured housing loans, and provides credit enhancement to mortgage related capital market transactions. The risk in force in Radian Insurance was $0.5 billion at December 31, 2002, which represented less than 1% of the Company’s business.

Primary Insurance

Primary insurance provides mortgage default protection on individual loans at a specified coverage percentage, which is applied to the unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure (collectively, the “claim amount”). The Company’s obligation to an insured lender in respect of a claim is determined by applying the appropriate coverage percentage to the claim amount. The Company’s “risk” on each insured loan is the unpaid loan principal multiplied by the coverage percentage. A large percentage of the Company’s current business is written with 30% coverage on loans with a loan-to-value ratio (“LTV”) between 90.01% and 95% (“95s”) and 25% coverage on loans with an LTV between 85.01% and 90% (“90s”). As of December 31, 2002, approximately 25% of the Company’s primary insurance in force outstanding had such coverages. In January 1999, Fannie Mae announced a program that allows for lower levels of required mortgage insurance for certain low down payment loans approved through its “Desktop Underwriter” automated underwriting system. In March 1999, Freddie Mac announced a similar program for loans approved through its “Loan Prospector” automated underwriting system. Through the end of 2002, a minimal amount of insurance was written in these programs. For more information on these developments, see “Other Direct Regulation—Freddie Mac and Fannie Mae” below.

Under the Company’s master policy, upon a default, the Company has the option of paying the entire claim amount and taking title to the mortgage property (at which time it is typically sold quickly), or paying the coverage percentage in full satisfaction of its obligations under the insurance written. In 2002, the entire claim amount was paid in approximately 2% of filed claims because of the expected economic advantage associated with that choice in those cases. This percentage is lower than in 2001. Good economic conditions experienced over the past few years have kept property values generally strong, but housing values may not remain as strong in the future.

Pool Insurance

Pool insurance differs from primary insurance in that the exposure on pool insurance is not limited to a specific coverage percentage on each individual loan in the pool. There is an aggregate exposure limit (“stop loss”) on a “pool” of loans that is generally between 1% and 10% of the initial aggregate loan balance. Because of lack of exposure limits on individual loans and the generally lower premium rates associated with pool insurance, the rating agency capital requirements for this product are more restrictive than primary insurance. Modified pool insurance has the stop loss-like feature of pool insurance, but also has exposure limits on each individual loan.

The Company offers pool insurance on a selective basis, as a credit enhancement to mortgage loans included in mortgage-backed securities or in whole loan sales, and in certain other structured transactions. Since 1996, the Company has offered pool insurance on mortgage products sold to Freddie Mac and Fannie Mae by the Company’s primary insurance customers (such pool insurance, “GSE Pool”). This pool insurance has a very low stop loss, generally 1.0% to 1.5%, and the insured pools contain loans with and without primary mortgage insurance. Loans without primary insurance have an LTV of 80.0% or below. Premium rates on this business are significantly lower than primary mortgage insurance rates, and the expected profitability on this business is lower than that of primary insurance. During 2002, the Company had pool risk written of $174 million or 1.4% of the Company’s total risk written, compared to $255 million in 2001 and $188 million in 2000. The Company expects Mortgage Insurance to continue to write a limited amount of pool insurance in 2003, and will continue to write other forms of pool or modified pool insurance as market opportunities arise.

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Structured Transactions

The Company, from time to time, engages in structured transactions that may include primary insurance, pool insurance or some combination thereof. A structured transaction generally involves insuring a large group of seasoned or unseasoned loans or issuing a commitment to insure new loan originations under negotiated terms. Some structured transactions contain a risk-sharing component under which the insured or a third party assumes a first-loss position or shares in losses in some other manner. Opportunities for structured transactions have increased during the last three years and this trend is expected to continue, but the Company competes with other mortgage insurers as well as capital market executions such as senior/subordinated security structures to obtain such business. Most structured transactions involve non-traditional mortgage or mortgage related assets such as higher loan balance “jumbo,” Alternative A (“Alt-A”) or A minus mortgages. Alt-A or A minus mortgages are known as the Company’s “nonprime” business. Competition for this business is generally based upon price and is also based on the percentage of a given pool of loans that the Company is willing to insure. In 2002, the Company wrote $11.8 billion of primary insurance in structured transactions, which represented 24% of primary new insurance written.

Revenue Sharing Products

The Company, like other mortgage insurers, offers financial products to its mortgage lending customers that are designed to allow the customers to participate in the risks and rewards of the mortgage insurance business. The most common product is captive reinsurance, in which a lender sets up a reinsurance company that assumes part of the risk associated with that lender’s insured book of business. In most cases, the risk assumed by the reinsurer is an excess layer of aggregate losses that would be penetrated only in a situation of adverse loss development. The Company had approximately 40 active captive reinsurance agreements in place at December 31, 2002 and could enter into several new agreements or modify existing agreements in 2003, some with large national lenders. Premiums ceded to captive reinsurance companies in 2002 were $57.1 million, representing 8.3% of total direct mortgage insurance premiums earned, as compared to $52.8 million, or 8.4% of total premiums earned in 2001. Primary insurance written in 2002 that had captive reinsurance associated with it was $17.0 billion, or 34.8% of the Company’s total primary insurance written as compared to $14.7 billion or 32.9% in 2001. During 2000, Freddie Mac issued standards for captive reinsurance through its mortgage insurance eligibility requirements. Additionally, a task force consisting of lenders, mortgage insurers and accounting firms has been set up to study risk transfer and the appropriate accounting treatment for captive reinsurance.

In addition to captive reinsurance, the Company has entered into revenue sharing arrangements with the GSEs whereby the primary insurance coverage amount on certain loans is recast and the overall risk to the Company is reduced in return for a payment made to the GSEs. Premiums ceded under such programs in 2002 were not significant.

Radian Insurance Inc.

Radian Insurance was reorganized and rated in September 2000 to write credit insurance and financial guaranty insurance on mortgage-related assets that are not permitted to be insured by monoline mortgage guaranty insurers. Such assets include second mortgages, manufactured housing loans, home equity loans and mortgages with LTVs above 100%. Radian Insurance also provides credit enhancement to mortgage related capital market transactions. The Company believes that there are many opportunities to take advantage of its expertise in credit underwriting and evaluation of asset performance to write business that it is precluded from writing in its monoline mortgage guaranty companies, Radian Guaranty and Amerin Guaranty. Radian Insurance obtained a “AA” rating from Standard & Poor’s Insurance Rating Service (“S&P”) and Fitch Ratings (“Fitch”), and a “Aa3” rating from Moody’s Investors Service (“Moody’s”), based on a prudent business plan and a Net Worth and Liquidity Maintenance Agreement with Radian Guaranty, which obligates Radian Guaranty to maintain at least $30 million of capital in Radian Insurance. The insurance structures typically used in Radian Insurance are pool insurance or modified pool insurance that can have a reserve or first loss position in front of

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Radian Insurance’s layer of risk. In addition to the Net Worth and Liquidity Maintenance Agreement, the Company intends to capitalize Radian Insurance at all times in an amount that would support the existing risk in force. In October 2001, a substantial part of the business written in Radian Insurance was reinsured by Radian Asset Assurance. Because most of the Company’s financial guaranty business on mortgage-related assets is written in Radian Asset Assurance and most of the Company’s second mortgage insurance is written in Amerin Guaranty, the business written by Radian Insurance was reduced in 2002.

Financial Guaranty Business

On February 28, 2001, the Company acquired the financial guaranty and other businesses of Enhance Financial Services Group Inc. (“EFSG”), a New York based insurance holding company that primarily insures and reinsures credit-based risks, at a purchase price of approximately $581.5 million. The Company has retained EFSG as its financial guaranty insurance holding company, and conducts the financial guaranty business primarily through two insurance subsidiaries, Radian Asset Assurance Inc. (“Radian Asset Assurance”, formerly Asset Guaranty Insurance Company) and Radian Reinsurance Inc. (“Radian Reinsurance”, formerly Enhance Reinsurance Company). Radian Asset Assurance and Radian Reinsurance are collectively referred to in this report as “Financial Guaranty.” In addition, as part of the acquisition, Radian acquired an interest in two active credit-based asset businesses: Credit-Based Asset Servicing and Securitization LLC (“C-BASS”) and Sherman Financial Services Group LLC (“Sherman”). Several smaller businesses acquired with EFSG are either in run-off or have been terminated.

Financial guaranty insurance provides an unconditional and irrevocable guaranty to the holder of a debt obligation of full and timely payment of principal and interest. In the event of a default under the obligation, the insurer has recourse against the issuer and/or any related collateral (which is a component of many insured asset-backed obligations and other structured debt but is not typically a component of municipal obligations) for amounts paid under the terms of the policy. Payments under the insurance policy may not be accelerated by the holder of the debt obligation. Absent payment in full at the option of the insurer, in the event of a default under an insured obligation, the holder continues to receive payments of principal and interest on schedule, as if no default had occurred. Each subsequent purchaser of the obligation generally receives the benefit of such guaranty. Certain financial guaranty business is done by providing an unconditional and irrevocable guaranty of a counterparty’s obligations under a credit default swap in which Financial Guaranty assumes credit risk primarily on portfolios of corporate credits, although portfolios may include asset-backed securities, mortgages or other assets. Such transactions may require immediate settlement of a credit event and are accounted for as derivatives per Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

The issuer of the obligation pays the premium for financial guaranty insurance either in full at the inception of the policy or in installments on an annual basis or quarterly basis. Premium rates are typically calculated as a percentage of either the principal amount of the debt or total exposure (principal and interest). Rate setting reflects such factors as the credit strength of the issuer, type of issue, sources of income, type and amount of collateral pledged, restrictive covenants, maturity and competition from other insurers.

Premiums are generally non-refundable and are earned in proportion to the level of amortization of insured principal over the contract period or over the period that the coverage is provided. This long and relatively predictable earnings pattern is characteristic of the financial guaranty insurance industry and, along with a conservative investment policy, provides a relatively stable source of future revenues to financial guaranty insurers and reinsurers such as Financial Guaranty.

The primary financial guaranty insurance market currently consists of: municipal bond insurance; structured finance business including insurance on collateralized debt obligations, asset-backed securities, and credit default swaps and certain other financial guaranty contracts; and trade credit reinsurance. The following table

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summarizes the net premiums written and earned for the indicated Financial Guaranty lines of business for 2002 and 2001 (from the date of acquisition of EFSG by the Company):