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Radian Reports Second Quarter 2012 Financial Results

Radian Group Inc. (NYSE: RDN) today reported a net loss for the quarter ended June 30, 2012, of $119.3 million, or $0.90 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $95.0 million. This compares to net income of $137.1 million, or $1.03 per diluted share, which included combined gains from the change in fair value of derivatives and other financial instruments of $193.8 million, for the prior-year quarter. Book value per share at June 30, 2012, was $6.75.

“We remain steadfast in executing against our strategy and on managing what we can control in this challenging macroeconomic environment,” said Chief Executive Officer S.A. Ibrahim. “Our success in growing our MI business and managing our capital is evident, as we tripled Radian’s volume of new business and leveraged the capital support of our financial guaranty business to maintain a competitive risk-to-capital ratio of 21.0 to 1.”

Ibrahim continued, “We are encouraged by the continued improvement in our legacy MI portfolio as our number of delinquent loans decline steadily. The improving composition of our overall MI book helps position Radian for future success and a return to profitability.”

  • Radian Guaranty’s risk-to-capital ratio was 21.0:1 as of June 30, 2012, compared to 20.6:1 as of March 31, 2012, and 21.5:1 as of December 31, 2011.
    • The slight change in the risk-to-capital ratio from March 31, 2012, was primarily driven by the increase to the company’s net risk in force resulting from increased volume of new, high-quality mortgage insurance business.
    • Earlier this year, Radian Guaranty entered a quota share reinsurance arrangement to proactively manage its mortgage insurance risk-to-capital position. Radian ceded 20 percent of its new mortgage insurance written beginning with the fourth quarter of 2011, which benefited its risk-to-capital position in the second quarter and represented $922 million of ceded risk in force as of June 30, 2012.
    • As of June 30, 2012, Radian Guaranty had $923.5 million of statutory capital, compared to $919.9 million in the first quarter of 2012 and $1.0 billion in the prior-year quarter.
  • Radian Group maintains approximately $340 million of currently available liquidity. Since the end of the first quarter, the company has purchased an additional $24 million of its debt maturing in February 2013 at a discount to face value. There is currently $80 million of remaining debt outstanding and due in February 2013.
  • In the event that Radian Guaranty exceeds the risk-based capital requirements imposed by certain states, the company has the ability to continue writing new mortgage insurance business in those states through a combination of state-specific waivers or similar relief and by writing business in its subsidiary, Radian Mortgage Assurance Inc. (RMAI), which has been approved by Fannie Mae and Freddie Mac as an eligible mortgage insurer.

  • New mortgage insurance written (NIW) grew to $8.3 billion during the quarter, compared to $6.5 billion in the first quarter of 2012 and $2.3 billion in the prior-year quarter.
    • The product mix of Radian’s NIW has continued the recent shift to an increased level of monthly premium business. Of the $8.3 billion in new business written in the second quarter, 67 percent was written with monthly premiums and 33 percent with single premiums. This compares to a mix of 64 percent monthly premiums and 36 percent single premiums in the first quarter of 2012, and 57 percent monthly premiums and 43 percent single premiums in the fourth quarter of 2011.
    • The Home Affordable Refinance Program (HARP) accounted for $2.4 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $929.9 million in the first quarter of 2012 and $553.7 in the second quarter of 2011.
    • NIW continued to consist of loans with excellent risk characteristics.
    • In addition, Radian wrote approximately $3.4 billion in NIW in July 2012.
  • The net loss for the second quarter was $119.3 million, which included combined losses from the change in fair value of derivatives and other financial instruments of $95.0 million. The largest component of the combined losses of $95 million was a $108 million loss recorded on the April commutation of Radian Asset Assurance’s large CDO of ABS and certain TruPs CDO exposures further explained below. In addition, the quarter’s results included investment gains and a reduced level of operating losses compared to recent prior periods. Results for the second quarter of 2011 included a pre-tax gain recognized on derivatives and other financial instruments of $193.8 million, resulting mainly from a widening of Radian’s credit spread that significantly reduced the fair value of the company’s derivative liabilities.
  • The mortgage insurance provision for losses was $208.1 million in the second quarter of 2012, compared to $234.7 million in the first quarter and $270.0 million in the prior-year period. Mortgage insurance loss reserves were approximately $3.2 billion as of June 30, 2012, which was flat to the first quarter and down slightly from $3.3 billion a year ago. First-lien reserves per primary default increased to $28,410 as of June 30, 2012, compared to $27,833 as of March 31, 2012, and $25,334 as of June 30, 2011.
  • The total number of primary delinquent loans decreased by 4 percent in the second quarter from the first quarter of 2012, and by 12 percent from the second quarter of 2011. The primary mortgage insurance delinquency rate decreased to 13.3 percent in the second quarter of 2012, compared to 14.1 percent in the first quarter and 15.2 percent in the second quarter of 2011.
  • Total mortgage insurance claims paid were $263.4 million, compared to $218.2 million in the first quarter and $512.6 million in the second quarter of 2011. The company continues to expect mortgage insurance net claims paid of approximately $1.1 billion for the full-year 2012.
  • Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
    • As previously disclosed, Radian Asset paid an ordinary dividend of $54.0 million to Radian Guaranty in July 2012. Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $40 million in 2013.
    • As of June 30, 2012, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $600 million in claims-paying resources.
    • On April 11, 2012, as previously disclosed, Radian Asset successfully executed a commutation of its distressed CDO of ABS transaction. The company expected to pay claims for substantially all of the $450.2 million of net par outstanding on this transaction. Radian Asset also commuted its credit protection on six directly insured TruPs CDO transactions, representing $699.0 million of net par outstanding. In consideration for these commutations, Radian Asset paid $210.0 million, a significant portion of which has been deposited with a limited purpose vehicle to cover potential future losses on the terminated TruPs bonds. As previously reported, the fair value liability on the transactions prior to the commutations was impacted by Radian’s credit spread, therefore the company recognized a $108 million GAAP loss on these transactions in the second quarter, as anticipated.
    • As previously reported, Radian Asset released $55 million of contingency reserves in May, which benefited Radian Guaranty’s statutory capital position in the second quarter.
    • Radian Asset completed the sale of Municipal and Infrastructure Assurance Corporation (MIAC) in the second quarter for a gain of $7.7 million.
    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 64 percent to $41.5 billion as of June 30, 2012, including large declines in the riskier segments of the portfolio.


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