Ibrahim continued, “We were successful in writing 27% more new MI business in 2013 than 2012, earning the position as the largest MI company with $161 billion in insurance in force. We also made consistent strides in managing our legacy mortgage insurance and financial guaranty exposure, including a 35% decline in the total number of MI delinquencies and a 29% reduction in our total financial guaranty portfolio from 2012. As we look ahead to 2014, we are encouraged by the improved housing and economic environment that promise new opportunities for Radian.”
CAPITAL AND LIQUIDITY UPDATE
Radian Guaranty’s risk-to-capital ratio was 19.4:1 as of December 31, 2013, which included a contribution of $100 million of capital from Radian Group to Radian Guaranty to support continued growth in the company’s net risk in force. After the $100 million contribution, Radian Group maintains approximately $615 million of currently available liquidity.
- As of December 31, 2013, Radian Guaranty’s statutory capital was $1,346 million compared to $1,256 million at September 30, 2013, and $926 million a year ago.
- 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 under these reinsurance agreements on a prospective basis from 20 percent to 5 percent. As of December 31, 2013, a total of $2.6 billion of risk in force had been ceded under those agreements. Radian will have the option to recapture a portion of the ceded risk outstanding on December 31, 2014, and on December 31, 2015.
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
- New mortgage insurance written (NIW) was $9.3 billion during the quarter, compared to $13.7 billion in the third quarter of 2013 and $11.7 billion in the fourth quarter of 2012. For the full-year 2013, NIW was $47.3 billion, compared to $37.1 billion for the full-year 2012. Radian wrote an additional $2.4 billion in NIW in January 2014, compared to $4.0 billion in January 2013.
- The Home Affordable Refinance Program (HARP) accounted for $0.9 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $1.8 billion in the third quarter of 2013, and $2.9 billion in the fourth quarter of 2012.
- Of the $9.3 billion of new business written in the fourth quarter of 2013, 70 percent was written with monthly premiums and 30 percent with single premiums. This compares with 65 percent monthly premium and 35 percent single premium in the fourth quarter of 2012.
- NIW continued to consist of loans with excellent risk characteristics.
- The total primary mortgage insurance risk-in-force at year-end 2013 consisted of 71 percent of business written after 2008 and 60 percent excluding HARP volume.
- The mortgage insurance provision for losses was $144.3 million in the fourth quarter of 2013, compared to $152.0 million in the third quarter of 2013, and $306.9 million in the fourth quarter of 2012.
- The loss ratio in the fourth quarter for Radian Guaranty was 72.0 percent, compared to 76.0 percent in the third quarter of 2013, and 171.0 percent in the fourth quarter of 2012.
- Mortgage insurance loss reserves were approximately $2.2 billion as of December 31, 2013, which decreased from $2.3 billion in the third quarter of 2013, and from $3.1 billion a year ago.
- Primary reserves (excluding IBNR and other reserves) per default were $26,717 as of December 31, 2013. This compares to primary reserves per default of $27,202 as of September 30, 2013, and $26,408 as of December 31, 2012.
- The total number of primary delinquent loans decreased by 7 percent in the fourth quarter from the third quarter of 2013, and by 35 percent from the fourth quarter of 2012. The total number of primary delinquent loans at December 31, 2013, excludes loans related to the Master Transaction Agreement with Freddie Mac entered into on August 29, 2013. In addition, the total number of primary delinquent loans declined by 3.5 percent in January 2014. Additional details related to the company’s delinquency inventory in January 2014 may be found on Slide 20 of the fourth quarter presentation slides. The primary mortgage insurance delinquency rate decreased to 7.3 percent in the fourth quarter of 2013, compared to 7.8 percent in the third quarter of 2013, and 12.1 percent in the fourth quarter of 2012.
- Total mortgage insurance claims paid were $283.4 million in the fourth quarter, compared to $519.3 million (which included $254.7 million related to the Freddie Mac Agreement) in the third quarter of 2013 and $263.4 million in the fourth quarter of 2012. Claims paid in the fourth quarter of 2013 exclude $50.0 million of claims processed in the quarter in accordance with the terms of the Freddie Mac Agreement. For the full-year 2013, total claims paid were $1.4 billion, compared to $1.0 billion for the full-year 2012. The company currently expects mortgage insurance net claims paid for the full-year 2014 of $900 million to $1.0 billion.
- Other operating expenses were $72.5 million in the fourth quarter, compared to $71.0 million in the third quarter and $55.9 million in the fourth quarter of last year. In the quarter, $11.8 million represented long-term incentive compensation, compared to $28.1 million in the third quarter of 2013. The compensation expense in both periods was impacted by an increase in the fair value of cash-settled awards. The component of the fair value change that resulted from the stock price increase was $1.5 million in the fourth quarter of 2013, compared to $16.8 million in the third quarter of 2013. The reduction in long-term incentive compensation in the fourth quarter was fully offset by outside legal and consulting expenses, other year-end compensation expenses, and investments in technology improvements.
- 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 December 31, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $400 million in claims-paying resources.
- Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 79 percent to $23.9 billion as of December 31, 2013, including large declines in the riskier segments of the portfolio.