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Radian Group Inc. (NYSE: RDN) today reported a net loss for the quarter ended June 30, 2013, of $33.2 million, or $0.19 per diluted share, which included net losses on investments of $130.3 million and combined net gains from the change in fair value of derivatives and other financial instruments of $87.7 million. This compares to a net loss for the quarter ended June 30, 2012, of $119.3 million, or $0.90 per diluted share, which included net gains on investments of $26.4 million and combined net losses from the change in fair value of derivatives and other financial instruments of $95.0 million. Book value per share at June 30, 2013, was $5.22.
“We are pleased with our improved financial results in the quarter and the first half of the year,” said Chief Executive Officer S.A. Ibrahim. “Compared to the second quarter of last year, our new mortgage insurance business written grew 60% and we reduced our inventory of primary delinquent loans by 21%. The loss ratio for our mortgage insurance business was approximately 70% for the second consecutive quarter, and the mortgage insurance loss provision for the first half of 2013 reached its lowest level since the first half of 2007.”
Ibrahim continued, “Also in the second quarter, we achieved an important milestone with our high quality, profitable new business written after 2008 now representing 53% of our primary risk in force, outweighing our legacy mortgage insurance book. This improved composition has helped our mortgage insurance business achieve profitability, absent the impact of fair value gains and losses, for the quarter and six months.”
CAPITAL AND LIQUIDITY UPDATE
Radian Guaranty’s risk-to-capital ratio was 19.7:1 as of June 30, 2013.
The increase in the risk-to-capital ratio from March 31, 2013, was primarily driven by the increase to the company’s net risk in force resulting from strong volume of new, high-quality mortgage insurance business.
In 2012, Radian Guaranty entered into two quota share reinsurance agreements with the same third-party reinsurance provider, in order to proactively manage its risk-to-capital position. On April 1, 2013, Radian reduced the amount of new business ceded to the reinsurer on a prospective basis from 20 percent to 5 percent. As of June 30, 2013, a total of $2.5 billion of risk in force had been ceded under those agreements. On December 31, 2014, and on December 31, 2015, Radian will have the option to recapture a portion of the business that has been reinsured.
As of June, 2013, Radian Guaranty’s statutory capital was $1.2 billion compared to $1.1 billion at March 31, 2013, and $0.9 billion a year ago.
Radian Group maintains approximately $816 million of currently available liquidity.
SECOND QUARTER HIGHLIGHTS
New mortgage insurance written (NIW) grew to $13.4 billion during the quarter, compared to $10.9 billion in the first quarter of 2013 and $8.3 billion in the second quarter of 2012.
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 $2.5 billion in the first quarter of 2013, and $2.4 billion in the second quarter of 2012.
NIW continued to consist of loans with excellent risk characteristics.
The net loss for the second quarter was $33.2 million which included net losses on investments of $130.3 million and combined net gains from the change in fair value of derivatives and other financial instruments of $87.7 million. Included in the net losses on investments were net unrealized losses of $139.1 million, driven by rising interest rates, which reduced the market value of the company’s fixed-income portfolio.
The mortgage insurance provision for losses was $136.4 million in the second quarter of 2013, compared to $132.0 million in the first quarter of 2013, and $208.1 million in the second quarter of 2012. The loss ratio in the second quarter for Radian Guaranty was 68.9 percent, compared to 72.1 percent in the first quarter of 2013, and 121.9 percent in the second quarter of 2012. Mortgage insurance loss reserves were approximately $2.7 billion as of June 30, 2013, which decreased from $2.9 billion in the first quarter of 2013, and from $3.2 billion a year ago. First-lien reserves per primary default were $30,932 as of June 30, 2013, compared to $30,426 as of March 31, 2013, and $28,410 as of June 30, 2012.
The total number of primary delinquent loans decreased by 8 percent in the second quarter from the first quarter of 2013, and by 21 percent from the second quarter of 2012. The primary mortgage insurance delinquency rate decreased to 9.7 percent in the second quarter of 2013, compared to 10.9 percent in the first quarter of 2013, and 13.3 percent in the second quarter of 2012.
Total mortgage insurance claims paid were $326.4 million, compared to $309.9 million in the first quarter of 2013, and $263.4 million in the second quarter of 2012. The company continues to expect mortgage insurance net claims paid of approximately $1.4 billion for the full-year 2013.
$19.0 million of other operating expenses in the second quarter represented long-term incentive compensation, compared to $38.0 million in the first quarter of 2013. The expense in both periods was impacted by an increase in the liability for cash-settled awards, which was driven primarily by an increase in the company’s stock price and represented $7.0 million in the second quarter, compared to $32.3 million in the first quarter of 2013.
Radian Asset Assurance Inc. serves as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
As of June 30, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.4 billion in claims-paying resources.
In July 2013, Radian Asset paid a dividend of $36 million to Radian Guaranty. Since 2008, Radian Asset has paid a total of $420 million in dividends to Radian Guaranty.
Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 76 percent to $27.3 billion as of June 30, 2013, including large declines in the riskier segments of the portfolio.