Mortgage insurer Radian Group Inc. (RDN) is selling its municipal bond insurance subsidiary and commuting a $12.9 billion portfolio of loans it reinsures to raise $100 million in capital.

Chief Executive S.A. Ibrahim said this deal will make “great strikes toward improving our capital position and further preserving our holding company’s liquidity.”

The Philadelphia-based company signed a deal with subsidiaries of Assured Guaranty Ltd. (AGO) to commute a $12.9 billion portfolio it reinsures for the muni bond insurer. A commutation generally allows a reinsurer to end obligations to another insurer by paying a lump sum that effectively ends the reinsurer’s future insurance liabilities on the assets. In this case, Radian Group is shifting its insurance obligations back to Assured Guaranty.

An additional $91 million will be raised through the sale of Radian’s muni bond insurance unit — Municipal and Infrastructure Assurance Corp. Assured Guaranty will acquire the business line as part of a three-part deal it signed with Radian.

“By reducing our financial guaranty net par outstanding by 21%, we are strengthening Radian Asset’s statutory capital position,” Ibrahim said. “This transaction with Assured Guaranty is the product of a strong relationship that continues to provide mutual benefit.”

In addition, Radian will cede $1.8 billion of its public finance business, the mortgage insurer said.

The deal is expected to benefit Radian’s mortgage insurance business, which is trying to raise capital when anemic home lending is drying up new business activity. At the end of 2011, Radian was seeking waivers on capital requirements in multiple states.

The insurer, like other companies in the segment, is focusing on driving new revenue through new business growth and doing so amid regulatory uncertainty and when homebuying is still fundamentally weak.

Write to Kerri Panchuk.