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.”

CAPITAL AND LIQUIDITY UPDATE
  • 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.

SECOND QUARTER HIGHLIGHTS
  • 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.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, August 1, 2012, at 11:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800-288-8961 inside the U.S., or 612-288-0337 for international callers, using passcode 254001 or by referencing Radian.

A replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two and a half hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800-475-6701 inside the U.S., or 320-365-3844 for international callers, passcode 254001.

In addition to the information provided in the company's earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, will be available on Radian's website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.

ABOUT RADIAN

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. Additional information may be found at www.radian.biz.

Financial Results and Supplemental Information Contents (Unaudited)

For trend information on all schedules, refer to Radian’s quarterly financial statistics at http://www.radian.biz/page?name=FinancialReportsCorporate.
Exhibit A:   Condensed Consolidated Statements of Income
Exhibit B: Condensed Consolidated Balance Sheets
Exhibit C: Segment Information Quarter Ended June 30, 2012
Exhibit D: Segment Information Quarter Ended June 30, 2011
Exhibit E: Segment Information Six Months Ended June 30, 2012
Exhibit F: Segment Information Six Months Ended June 30, 2011
 
Exhibit G: Financial Guaranty Supplemental Information
Exhibit H: Financial Guaranty Supplemental Information
Exhibit G: Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit I: Mortgage Insurance Supplemental Information
NIW by Product, FICO and LTV
Exhibit J: Mortgage Insurance Supplemental Information
Insurance in Force and Risk in Force by Product
Exhibit K: Mortgage Insurance Supplemental Information
Risk in Force by FICO, LTV and Policy Year
Exhibit L: Mortgage Insurance Supplemental Information
Primary, Pool and Other Risk in Force
Exhibit M: Mortgage Insurance Supplemental Information
Claims, Reserves and Reserves per Default
Exhibit N: Mortgage Insurance Supplemental Information
Default Statistics
Exhibit O: Mortgage Insurance Supplemental Information
Net Premiums Written and Earned, Captives and Persistency
   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Exhibit A
 

Quarter EndedJune 30

Six Months EndedJune 30

(In thousands, except per-share data)
2012   2011 2012   2011
 
Revenues:
Net premiums written - insurance $ 181,932   $ 152,778   $ 259,610   $ 335,527  
 
Net premiums earned - insurance $ 186,779 $ 188,934 $ 354,144 $ 391,957
Net investment income 30,877 43,823 65,590 86,063
Net gains on investments 26,419 44,236 93,878 81,671
Net impairment losses recognized in earnings (11 ) (11 )
Change in fair value of derivative instruments (33,124 ) 188,726 (105,881 ) 432,618
Net (losses) gains on other financial instruments (61,862 ) 5,047 (79,714 ) 80,298
Gain on sale of affiliate 7,708 7,708
Other income 1,395   1,196   2,835   2,644  
Total revenues 158,192   471,951   338,560   1,075,240  
 
Expenses:
Provision for losses 210,868 263,566 477,022 690,939
Change in reserve for premium deficiency 559 (3,102 ) 539 (4,485 )
Policy acquisition costs 10,805 14,387 38,851 28,518
Other operating expenses 40,193 45,954 90,347 92,173
Interest expense 12,581   16,079   26,729   33,103  
Total expenses 275,006   336,884   633,488   840,248  
 
Equity in net (loss) income of affiliates (2 )   (13 ) 65  
 
Pretax (loss) income (116,816 ) 135,067 (294,941 ) 235,057
Income tax provision (benefit) 2,443   (2,048 ) (6,450 ) (5,064 )
 
Net (loss) income $ (119,259 ) $ 137,115   $ (288,491 ) $ 240,121  
 
Diluted net (loss) income per share (1) $ (0.90 ) $ 1.03   $ (2.18 ) $ 1.80  
 
                 
(1) Weighted average shares outstanding (in thousands)
     
Weighted average common shares outstanding 132,346 132,185 132,350 132,185
Increase in weighted average shares-common stock equivalents-diluted basis   1,429     1,539  
Weighted average shares outstanding 132,346   133,614   132,350   133,724  
                         

For Trend Information, refer to our Quarterly Financial Statistics on Radian's (RDN) website.
     
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit B
 
June 30 December 31 June 30

(In thousands, except per-share data)
2012 2011 2011
 
Assets:
Cash and investments $ 5,313,983 $ 5,846,168 $ 6,038,529
Deferred policy acquisition costs 99,386 139,906 138,926
Deferred income taxes, net 15,975 15,975 27,531
Reinsurance recoverables 103,143 157,985 179,573
Derivative assets 14,229 17,212 27,266
Other assets 484,814   479,519   516,971
Total assets $ 6,031,530   $ 6,656,765   $ 6,928,796
 
Liabilities and stockholders' equity:
Unearned premiums $ 588,431 $ 637,372 $ 629,813
Reserve for losses and loss adjustment expenses 3,250,280 3,310,902 3,343,624
Reserve for premium deficiency 4,183 3,644 6,251
Long-term debt 666,806 818,584 811,319
VIE debt 107,833 228,240 393,740
Derivative liabilities 219,960 126,006 313,708
Payable for securities purchased 3,767 46,368 48,707
Other liabilities 289,382   303,358   252,324
Total liabilities 5,130,642   5,474,474   5,799,486
 
Common stock 151 151 151
Additional paid-in capital 1,074,683 1,074,513 1,073,703
Retained (deficit) earnings (192,264 ) 96,227 34,861
Accumulated other comprehensive income 18,318   11,400   20,595
Total common stockholders’ equity 900,888   1,182,291   1,129,310
Total liabilities and stockholders’ equity $ 6,031,530   $ 6,656,765   $ 6,928,796
 
Book value per share $ 6.75 $ 8.88 $ 8.48
     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended June 30, 2012
Exhibit C
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 182,518   $ (586 ) $ 181,932  
 
Net premiums earned - insurance $ 170,763 $ 16,016 $ 186,779
Net investment income 17,608 13,269 30,877
Net gains (losses) on investments 26,662 (243 ) 26,419
Net impairment losses recognized in earnings
Change in fair value of derivative instruments (52 ) (33,072 ) (33,124 )
Net gains (losses) on other financial instruments 42 (61,904 ) (61,862 )
Gain on sale of affiliate 7,708 7,708
Other income 1,304   91   1,395  
Total revenues 216,327   (58,135 ) 158,192  
 
Expenses:
Provision for losses 208,078 2,790 210,868
Change in reserve for premium deficiency 559 559
Policy acquisition costs 7,890 2,915 10,805
Other operating expenses 31,272 8,921 40,193
Interest expense 1,723   10,858   12,581  
Total expenses 249,522   25,484   275,006  
 
Equity in net loss of affiliates   (2 ) (2 )
 
Pretax loss (33,195 ) (83,621 ) (116,816 )
Income tax (benefit) provision (10,209 ) 12,652   2,443  
 
Net loss $ (22,986 ) $ (96,273 ) $ (119,259 )
 
Cash and investments $ 3,176,027 $ 2,137,956 $ 5,313,983
Deferred policy acquisition costs 44,240 55,146 99,386
Total assets 3,388,524 2,643,006 6,031,530
Unearned premiums 290,880 297,551 588,431
Reserve for losses and loss adjustment expenses 3,155,343 94,937 3,250,280
VIE debt 7,500 100,333 107,833
Derivative liabilities 219,960 219,960
     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended June 30, 2011
Exhibit D
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 164,194   $ (11,416 ) $ 152,778  
 
Net premiums earned - insurance $ 164,325 $ 24,609 $ 188,934
Net investment income 24,853 18,970 43,823
Net gains on investments 27,425 16,811 44,236
Net impairment losses recognized in earnings (11 ) (11 )
Change in fair value of derivative instruments 258 188,468 188,726
Net (losses) gains on other financial instruments (631 ) 5,678 5,047
Other income 1,124   72   1,196  
Total revenues 217,343   254,608   471,951  
 
Expenses:
Provision for losses 269,992 (6,426 ) 263,566
Change in reserve for premium deficiency (3,102 ) (3,102 )
Policy acquisition costs 8,601 5,786 14,387
Other operating expenses 33,913 12,041 45,954
Interest expense 146   15,933   16,079  
Total expenses 309,550   27,334   336,884  
 
Equity in net income of affiliates      
 
Pretax (loss) income (92,207 ) 227,274 135,067
Income tax provision (benefit) 5,374   (7,422 ) (2,048 )
 
Net (loss) income $ (97,581 ) $ 234,696   $ 137,115  
 
Cash and investments $ 3,334,789 $ 2,703,740 $ 6,038,529
Deferred policy acquisition costs 44,509 94,417 138,926
Total assets 3,688,720 3,240,076 6,928,796
Unearned premiums 191,737 438,076 629,813
Reserve for losses and loss adjustment expenses 3,268,582 75,042 3,343,624
VIE debt 56,239 337,501 393,740
Derivative liabilities 313,708 313,708
     
Radian Group Inc. and Subsidiaries
Segment Information
Six Months Ended June 30, 2012
Exhibit E
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 379,371   $ (119,761 ) $ 259,610  
 
Net premiums earned - insurance $ 344,214 $ 9,930 $ 354,144
Net investment income 35,619 29,971 65,590
Net gains on investments 58,840 35,038 93,878
Net impairment losses recognized in earnings
Change in fair value of derivative instruments (31 ) (105,850 ) (105,881 )
Net losses on other financial instruments (667 ) (79,047 ) (79,714 )
Gain on sale of affiliate 7,708 7,708
Other income 2,648   187   2,835  
Total revenues 440,623   (102,063 ) 338,560  
 
Expenses:
Provision for losses 442,807 34,215 477,022
Change in reserve for premium deficiency 539 539
Policy acquisition costs 16,536 22,315 38,851
Other operating expenses 67,537 22,810 90,347
Interest expense 3,445   23,284   26,729  
Total expenses 530,864   102,624   633,488  
 
Equity in net loss of affiliates   (13 ) (13 )
 
Pretax loss (90,241 ) (204,700 ) (294,941 )
Income tax (benefit) provision (22,008 ) 15,558   (6,450 )
 
Net loss $ (68,233 ) $ (220,258 ) $ (288,491 )
     
Radian Group Inc. and Subsidiaries
Segment Information
Six Months Ended June 30, 2011
Exhibit F
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 345,040   $ (9,513 ) $ 335,527  
 
Net premiums earned - insurance $ 350,459 $ 41,498 $ 391,957
Net investment income 51,686 34,377 86,063
Net gains on investments 45,187 36,484 81,671
Net impairment losses recognized in earnings (11 ) (11 )
Change in fair value of derivative instruments (136 ) 432,754 432,618
Net gains on other financial instruments 1,835 78,463 80,298
Other income 2,524   120   2,644  
Total revenues 451,544   623,696   1,075,240  
 
Expenses:
Provision for losses 683,965 6,974 690,939
Change in reserve for premium deficiency (4,485 ) (4,485 )
Policy acquisition costs 18,817 9,701 28,518
Other operating expenses 68,050 24,123 92,173
Interest expense 9,935   23,168   33,103  
Total expenses 776,282   63,966   840,248  
 
Equity in net income of affiliates   65   65  
 
Pretax (loss) income (324,738 ) 559,795 235,057
Income tax provision (benefit) 8,875   (13,939 ) (5,064 )
 
Net (loss) income $ (333,613 ) $ 573,734   $ 240,121  
   
Radian Group Inc. and Subsidiaries
Financial Guaranty Supplemental Information
Exhibit G
 
Quarter Ended Six Months Ended
June 30 June 30

(In thousands)
2012   2011 2012   2011
 
Net Premiums Earned:

Public finance direct
$ 14,147 $ 11,580 $ 24,360 $ 19,416
Public finance reinsurance 822 8,262 5,592 16,066
Structured direct 246 941 628 1,382
Structured reinsurance 803 955 1,616 1,764
Trade credit reinsurance (2 ) 42   (2 ) 41
Net Premiums Earned - insurance 16,016 21,780 32,194 38,669
Impact of commutations and reinsurance   2,829   (22,264 ) 2,829
Total Net Premiums Earned - insurance $ 16,016   $ 24,609   $ 9,930   $ 41,498
 
Refundings included in earned premium $ 10,483   $ 9,300   $ 18,707   $ 14,131
 
Net premiums earned - derivatives (1) $ 7,224   $ 10,473   $ 15,872   $ 21,356
 
Claims paid $ (6,720 ) (2) $ 3,430   $ 2,280   $ 3,696
 
(1) Included in change in fair value of derivative instruments.
(2) Reduction due to salvage recovery on a prior claim.
 

The impact of the Assured Transaction for the Six Months Ended June 30, 2012, was as follows:
 
(In millions)

Statement of Operations
Decrease in premiums written $ (119.8 )
Decrease in premiums earned $ (22.2 )
Increase in change in fair value of derivative instruments—gain 1.4
Gain on sale of affiliate 7.7
Increase in amortization of policy acquisition costs (15.7 )
Decrease in pre-tax income $ (28.8 )
 

Balance Sheet
Decrease in:
Cash $ 93.6
Deferred policy acquisition costs 26.2
Accounts and notes receivable 1.1
Derivative assets 0.6
Unearned premiums 71.6
Derivative liabilities 2.1
Increase in other assets 19.1
Radian Group Inc. and Subsidiaries      
Financial Guaranty Supplemental Information
Exhibit H
 
June 30 December 31 June 30

($ in thousands, except ratios)
2012 2011 2011
 

Statutory Information:
 
Capital and surplus $ 1,153,339 $ 974,874 $ 1,002,337
Contingency reserve 288,145   421,406   414,462
Qualified statutory capital 1,441,484 1,396,280 1,416,799
 
Unearned premium reserve 288,142 448,669 486,589
Loss and loss expense reserve (47,532 ) 161,287   80,378
Total statutory policyholders' reserves 1,682,094 2,006,236 1,983,766
 
Present value of installment premiums 112,824   148,641   171,397
Total statutory claims paying resources $ 1,794,918   $ 2,154,877   $ 2,155,163
 
Net debt service outstanding $ 51,128,082   $ 88,202,630   $ 95,107,674
 
Capital leverage ratio (1) 35 63 67
Claims paying leverage ratio (2) 28 41 44
 
Net par outstanding by product:
Public finance direct $ 10,709,855 $ 13,838,427 $ 15,084,460
Public finance reinsurance 5,658,564 19,097,057 20,548,760
Structured direct 24,267,242 34,760,869 37,351,096
Structured reinsurance 830,121   1,492,859   1,703,261
Total (3) $ 41,465,782   (4) $ 69,189,212   $ 74,687,577
 

(1)
 

The capital leverage ratio is derived by dividing net debt service outstanding by qualified statutory capital.

(2)

The claims paying leverage ratio is derived by dividing net debt service outstanding by total statutory claims paying resources.

(3)

Included in public finance net par outstanding is $1.0 billion, $1.4 billion and $1.8 billion at June 30, 2012, December 31, 2011, and June 30, 2011, respectively, for legally defeased bond issues where our financial guaranty policy has not been extinguished but cash or securities have been deposited in an escrow account for the benefit of bondholders.

(4)

Reductions in par caused by the following: $15.6 billion in connection with the Assured Transaction, $9.4 billion in connection with the CDO terminations, and $1.2 billion in connection with the Commutation Transactions.
 
Radian Group Inc. and Subsidiaries  
Mortgage Insurance Supplemental Information
Exhibit I
 
Quarter Ended Six Months Ended
June 30 June 30
2012   2011 2012   2011

($ in millions)
$ % $ % $ % $ %

Primary new insurance written
Prime $ 8,330 99.9 % $ 2,280 100.0 % $ 14,790 99.9 % $ 4,863 99.9 %
Alt-A 1 1
A minus and below 4   0.1 %     9   0.1 % 3   0.1 %
Total Flow $ 8,335   100.0 % $ 2,280   100.0 % $ 14,800   100.0 % $ 4,866   100.0 %
 

Total primary new insurance written by FICO score
>=740 $ 6,326 75.9 % $ 1,846 81.0 % $ 11,246 76.0 % $ 3,927 80.7 %
680-739 1,816 21.8 % 434 19.0 % 3,216 21.7 % 936 19.2 %
620-679 193   2.3 %     338   2.3 % 3   0.1 %
Total Flow $ 8,335   100.0 % $ 2,280   100.0 % $ 14,800   100.0 % $ 4,866   100.0 %
 

Percentage of primary new insurance written
Monthly premiums 67 % 63 % 66 % 65 %
Single premiums 33 % 37 % 34 % 35 %
Refinances 34 % 23 % 39 % 38 %
LTV
95.01% and above 1.3 % 1.4 % 1.5 % 1.3 %
90.01% to 95.00% 42.6 % 35.5 % 40.9 % 33.1 %
ARMS
Less than 5 years 0.1 % 0.1 % 0.1 % 0.1 %
5 years and longer 2.5 % 6.9 % 2.5 % 5.8 %
 
Radian Group Inc. and Subsidiaries  
Mortgage Insurance Supplemental Information
Exhibit J
 
June 30 June 30
2012 2011

($ in millions)
$   % $   %

Primary insurance in force
   
Flow $ 118,420 90.8 % $ 111,510 89.1 %
Structured 11,991     9.2 % 13,600     10.9 %
Total Primary $ 130,411     100.0 % $ 125,110     100.0 %
 
Prime $ 112,112 86.0 % $ 103,860 83.0 %
Alt-A 11,383 8.7 % 13,318 10.7 %
A minus and below 6,916     5.3 % 7,932     6.3 %
Total Primary $ 130,411     100.0 % $ 125,110     100.0 %
 

Primary risk in force
Flow $ 29,200 91.8 % $ 27,448 90.4 %
Structured 2,609     8.2 % 2,913     9.6 %
Total Primary $ 31,809     100.0 % $ 30,361     100.0 %
 
Flow
Prime $ 25,951 88.9 % $ 23,637 86.1 %
Alt-A 2,022 6.9 % 2,374 8.7 %
A minus and below 1,227     4.2 % 1,437     5.2 %
Total Flow $ 29,200     100.0 % $ 27,448     100.0 %
 
Structured
Prime $ 1,520 58.2 % $ 1,702 58.4 %
Alt-A 589 22.6 % 665 22.8 %
A minus and below 500     19.2 % 546     18.8 %
Total Structured $ 2,609     100.0 % $ 2,913     100.0 %
 
Total
Prime $ 27,471 86.4 % $ 25,339 83.5 %
Alt-A 2,611 8.2 % 3,039 10.0 %
A minus and below 1,727     5.4 % 1,983     6.5 %
Total Primary $ 31,809     100.0 % $ 30,361     100.0 %
 
Radian Group Inc. and Subsidiaries  
Mortgage Insurance Supplemental Information
Exhibit K
 
June 30 June 30
2012 2011

($ in millions)
$   % $   %

Total primary risk in force by FICO score
   
Flow
>=740 $ 13,868 47.5 % $ 11,196 40.8 %
680-739 9,265 31.7 % 9,327 34.0 %
620-679 5,162 17.7 % 5,865 21.4 %
<=619 905     3.1 % 1,060     3.8 %
Total Flow $ 29,200     100.0 % $ 27,448     100.0 %
 
Structured
>=740 $ 690 26.4 % $ 776 26.6 %
680-739 757 29.0 % 848 29.1 %
620-679 698 26.8 % 781 26.8 %
<=619 464     17.8 % 508     17.5 %
Total Structured $ 2,609     100.0 % $ 2,913     100.0 %
 
Total
>=740 $ 14,558 45.8 % $ 11,972 39.4 %
680-739 10,022 31.5 % 10,175 33.5 %
620-679 5,860 18.4 % 6,646 21.9 %
<=619 1,369     4.3 % 1,568     5.2 %
Total Primary $ 31,809     100.0 % $ 30,361     100.0 %
 

Total primary risk in force by LTV
85.00% and below $ 2,936 9.2 % $ 2,753 9.1 %
85.01% to 90.00% 12,265 38.6 % 11,722 38.6 %
90.01% to 95.00% 11,648 36.6 % 10,268 33.8 %
95.01% and above 4,960     15.6 % 5,618     18.5 %
Total $ 31,809     100.0 % $ 30,361     100.0 %
 

Total primary risk in force by policy year
2005 and prior $ 6,250 19.7 % $ 7,519 24.7 %
2006 2,944 9.3 % 3,396 11.2 %
2007 6,471 20.3 % 7,435 24.5 %
2008 4,870 15.3 % 5,549 18.3 %
2009 2,362 7.4 % 2,915 9.6 %
2010 2,035 6.4 % 2,419 8.0 %
2011 3,352 10.5 % 1,128 3.7 %
2012 3,525     11.1 %      
Total $ 31,809     100.0 % $ 30,361     100.0 %
 
Primary risk in force on defaulted loans $ 4,628   $ 5,326  
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit L
     
 
    June 30     June 30
2012 2011

($ in millions)
$     % $     %
       

Percentage of primary risk in force
Refinances 32 % 31 %
ARMS
Less than 5 years 4 % 5 %
5 years and longer 6 % 7 %
 

Pool risk in force
Prime $ 1,471 76.8 % $ 1,676 75.6 %
Alt-A 113 5.9 % 132 6.0 %
A minus and below   331       17.3 %   408       18.4 %
Total $ 1,915       100.0 % $ 2,216       100.0 %
 

Total pool risk in force by policy year
2005 and prior $ 1,722 89.9 % $ 1,894 85.5 %
2006 85 4.4 % 131 5.9 %
2007 93 4.9 % 154 6.9 %
2008   15       0.8 %   37       1.7 %
Total pool risk in force $ 1,915       100.0 % $ 2,216       100.0 %
 

Other risk in force
Second-lien
1st loss $ 91 $ 109
2nd loss 25 33
NIMS 14 59
1st loss-Hong Kong primary mortgage insurance   49     89  
Total other risk in force $ 179   $ 290  
 
Risk to capital ratio-Radian Guaranty only 21.0:1

(1)

 

 
19.8:1
 
(1) Preliminary
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit M
 
 
    Quarter Ended     Six Months Ended
June 30 June 30

($ in thousands)
2012     2011 2012     2011
 
Net claims paid
Prime $ 170,351 $ 256,020 $ 297,452 $ 464,215
Alt-A 40,261 88,140 76,912 163,270
A minus and below   31,112     52,794     57,192     97,379  
Total primary claims paid 241,724 396,954 431,556 724,864
Pool 20,374 58,341 45,300 92,699
Second-lien and other   1,349     3,736     4,932     6,619  
Subtotal 263,447 459,031 481,788 824,182
Impact of first-lien terminations 38,198 38,198
Impact of captive terminations (1,166 ) (148 ) (1,166 )
Impact of second-lien terminations       16,550         16,550  
Total $ 263,447   $ 512,613   $ 481,640   $ 877,764  
 
Average claim paid (1)
Prime $ 47.1 $ 49.9 $ 48.6 $ 49.0
Alt-A 56.4 62.0 57.8 60.9
A minus and below 36.0 40.8 38.0 39.0
Total primary average claims paid 46.6 50.6 47.6 49.5
Pool 65.9 80.2 66.9 75.7
Second-lien and other 24.5 27.7 26.2 28.9
Total $ 47.4 $ 52.7 $ 48.5 $ 51.2
 
Average primary claim paid (2) (3) $ 49.2 $ 55.3 $ 50.4 $ 54.8
Average total claim paid (2) (3) $ 49.9 $ 56.9 $ 51.0 $ 56.0
 
Loss ratio - GAAP basis 121.9 % 164.3 % 128.6 % 195.2 %
Expense ratio - GAAP basis   22.9 %   25.9 %   24.4 %   24.8 %
  144.8 %   190.2 %   153.0 %   220.0 %
 
Reserve for losses by category
Prime $ 1,740,492 $ 1,635,206
Alt-A 597,570 652,577
A minus and below 361,104 374,647
Reinsurance recoverable (4)   97,845     160,664  
Total primary reserves 2,797,011 2,823,094
Pool insurance   348,288     436,948  
Total 1st lien reserves 3,145,299 3,260,042
Second lien 9,970 8,522
Other   74     18  
Total reserves $ 3,155,343   $ 3,268,582  
 
1st lien reserve per default (5)
Primary reserve per primary default $ 28,410 $ 25,334
Pool reserve per pool default (6) 18,012 16,795
Total 1st lien reserve per default 26,704 23,718
 
 

(1)

Calculated net of reinsurance recoveries and without giving effect to the impact of first-lien, second-lien and captive terminations.

(2)

Calculated without giving effect to the impact of terminations of captive reinsurance and first- and second-lien transactions.

(3)

Before reinsurance recoveries.

(4)

Represents ceded losses on captive transactions and Smart Home.

(5)

Calculated as total reserves divided by total defaults.

(6)

If calculated before giving effect to deductibles and stop losses in pool transactions, the pool reserve per default at June 30, 2012 and 2011, would be $27,949 and $28,277, respectively.
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit N
 
 
    June 30     December 31     June 30
2012 2011 2011

Default Statistics
Primary Insurance:
 
Flow

Prime
Number of insured loans 588,335 569,190 564,839
Number of loans in default 57,961 65,238 64,143
Percentage of loans in default 9.85 % 11.46 % 11.36 %
 

Alt-A
Number of insured loans 40,976 44,355 47,491
Number of loans in default 13,001 14,481 15,329
Percentage of loans in default 31.73 % 32.65 % 32.28 %
 

A minus and below
Number of insured loans 37,755 40,884 43,597
Number of loans in default 11,688 13,560 14,098
Percentage of loans in default 30.96 % 33.17 % 32.34 %
 

Total Flow
Number of insured loans 667,066 654,429 655,927
Number of loans in default 82,650 93,279 93,570
Percentage of loans in default 12.39 % 14.25 % 14.27 %
 
Structured

Prime
Number of insured loans 39,278 41,248 43,429
Number of loans in default 5,608 6,308 6,248
Percentage of loans in default 14.28 % 15.29 % 14.39 %
 

Alt-A
Number of insured loans 17,435 18,484 19,600
Number of loans in default 5,053 5,563 5,930
Percentage of loans in default 28.98 % 30.10 % 30.26 %
 

A minus and below
Number of insured loans 14,816 15,477 16,159
Number of loans in default 5,139 5,711 5,686
Percentage of loans in default 34.69 % 36.90 % 35.19 %
 
Total Structured
Number of insured loans 71,529 75,209 79,188
Number of loans in default 15,800 17,582 17,864
Percentage of loans in default 22.09 % 23.38 % 22.56 %
 
Total Primary Insurance

Prime
Number of insured loans 627,613 610,438 608,268
Number of loans in default 63,569 71,546 70,391
Percentage of loans in default 10.13 % 11.72 % 11.57 %
 

Alt-A
Number of insured loans 58,411 62,839 67,091
Number of loans in default 18,054 20,044 21,259
Percentage of loans in default 30.91 % 31.90 % 31.69 %
 

A minus and below
Number of insured loans 52,571 56,361 59,756
Number of loans in default 16,827 19,271 19,784
Percentage of loans in default 32.01 % 34.19 % 33.11 %
 
Total Primary
Number of insured loans 738,595 729,638 735,115
Number of loans in default 98,450 110,861 111,434
Percentage of loans in default 13.33 % 15.19 % 15.16 %
 
Pool insurance
Number of loans in default 19,336 21,685 26,016
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit O
 
 
    Quarter Ended     Six Months Ended
June 30 June 30

($ in thousands)
2012     2011 2012     2011
 

Net Premiums Written
Primary and Pool Insurance $ 181,996 $ 163,556 $ 378,317 $ 343,813
Second-lien 482 592 993 1,212
International   40     46     61     15  
Total Net Premiums Written - Insurance $ 182,518   $ 164,194   $ 379,371   $ 345,040  
 

Net Premiums Earned
Primary and Pool Insurance $ 169,898 $ 162,388 $ 342,379 $ 345,857
Second-lien 482 592 993 1,212
International   383     1,345     842     3,390  
Total Net Premiums Earned - Insurance $ 170,763   $ 164,325   $ 344,214   $ 350,459  
 

1st Lien Captives
Premiums ceded to captives $ 6,289 $ 7,266 $ 12,718 $ 14,853
% of total premiums 3.5 % 4.2 % 3.6 % 4.1 %
IIF included in captives (1) 8.9 % 9.9 %
RIF included in captives (1) 7.7 % 9.7 %
 

Quota Share Reinsurance ("QSR")
QSR ceded premiums written $ 25,477
% of premiums written 12.0 %
QSR ceded premiums earned $ 3,098
% of premiums earned 1.7 %
RIF included in QSR (2) $ 922,497
Ceding commissions $ 6,369
 
Persistency (twelve months ended June 30) 83.9 % 82.5 %
 
 

(1)

Radian reinsures the middle layer risk positions, while retaining a significant portion of the total risk comprising the first loss and most remote risk positions.

(2)

Included in primary risk in force.
 

FORWARD-LOOKING STATEMENTS

All statements in this press release that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as “anticipate,” “may,” “will,” “could,” “should,” “would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking information. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including:

  • Losses in our mortgage insurance and financial guaranty businesses have reduced Radian Guaranty's statutory surplus and increased Radian Guaranty's risk-to-capital ratio; additional losses in these businesses, without a corresponding increase in new capital or capital relief, would further negatively impact this ratio, which could limit Radian Guaranty's ability to write new insurance and increase restrictions and requirements placed on Radian Guaranty.We and our insurance subsidiaries are subject to comprehensive, detailed regulation by the insurance departments in the various states where our insurance subsidiaries are licensed to transact business. These regulations are principally designed for the protection of our insured policyholders rather than for the benefit of investors. Insurance laws vary from state to state, but generally grant broad supervisory powers to state agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including the power to revoke or restrict an insurance company's ability to write new business.The GSEs and state insurance regulators impose various capital requirements on our insurance subsidiaries. These include risk-to-capital ratios, risk-based capital measures and surplus requirements that potentially limit the amount of insurance that each of our insurance subsidiaries may write. The GSEs and our insurance regulators possess significant discretion with respect to our insurance subsidiaries. Our failure to maintain adequate levels of capital, among other things, could lead to intervention by the various insurance regulatory authorities, which could materially and adversely affect our business, business prospects and financial condition.Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a minimum amount of statutory capital relative to the level of risk in force, or "risk-to-capital." Sixteen states (the risk-based capital or “RBC States”) currently impose a statutory or regulatory risk-based capital requirement (the “Statutory RBC Requirement”), the most common of which (imposed by 11 of the RBC States) is a requirement that a mortgage insurer's risk-to-capital ratio may not exceed 25 to 1. Unless an RBC State grants a waiver or other form of relief, if a mortgage insurer is not in compliance with the Statutory RBC Requirement of an RBC State, it may be prohibited from writing new mortgage insurance business in that state. Radian Guaranty's domiciliary state, Pennsylvania, is not one of the RBC States. For the full year 2011 and for the six months ended June 30, 2012, the RBC States accounted for approximately 50.5% and 54.8%, respectively, of Radian Guaranty's total primary new insurance written.As a result of ongoing incurred losses, Radian Guaranty's risk-to-capital ratio has increased to 21.0 to 1 as of June 30, 2012. Based on our current projections, Radian Guaranty's risk-to-capital ratio is expected to continue to increase and, absent any further capital contributions from Radian Group or other forms of capital relief such as reinsurance, is expected to exceed 25 to 1 in 2012. The ultimate amount of losses and the timing of these losses will depend, in part, on general economic conditions and other factors, including the health of credit markets, home prices and unemployment rates, all of which are difficult to predict and beyond our control.Our mortgage insurance incurred losses are driven primarily by new mortgage insurance defaults and adverse development in the assumptions used to determine our loss reserves. Establishing loss reserves in our businesses requires significant judgment by management with respect to the likelihood, magnitude and timing of anticipated losses. This judgment has been made more difficult in the current period of prolonged economic uncertainty. Our estimate of the percentage of defaults that ultimately will result in a paid claim (the “default to claim rate”) is a significant assumption in our reserving methodology. Our assumed aggregate weighted average default to claim rate (which incorporates the expected impact of rescissions and denials) was approximately 43% for the year ended December 31, 2011, and was 46% as of June 30, 2012. Assuming all other factors remain constant, for each 1% increase in our aggregate weighted average default to claim rate as of June 30, 2012, incurred losses would increase by approximately $58 million. Radian Guaranty's statutory capital would be reduced by the after-tax impact of these incurred losses. Our level of incurred losses is also dependent on our estimate of anticipated rescissions and denials, including our estimate of the number of successful challenges to previously rescinded policies or claim denials, among other assumptions. If the actual losses we ultimately realize are in excess of the loss estimates we use in establishing loss reserves, we may be required to take unexpected charges to income, which could adversely affect our statutory capital position and further increase Radian Guaranty's risk-to-capital ratio.If Radian Guaranty is not in compliance with the applicable Statutory RBC Requirement in any RBC State, it may be prohibited from writing new business in that state until it is back in compliance or it receives a waiver of or similar relief from the requirement from the applicable state insurance regulator, as discussed in more detail below. In those states that do not have a Statutory RBC Requirement, it is not clear what actions the applicable state regulators would take if a mortgage insurer fails to meet the Statutory RBC Requirement established by another state. Accordingly, if Radian Guaranty fails to meet the Statutory RBC Requirement in one or more states, it could be required to suspend writing business in some or all of the states in which it does business. In addition, the GSEs and our mortgage lending customers may decide not to conduct new business with Radian Guaranty (or may reduce current business levels) or impose restrictions on Radian Guaranty while its risk-to-capital ratio remained at elevated levels. The franchise value of our mortgage insurance business would likely be significantly diminished if we were prohibited from writing new business or restricted in the amount of new business we could write in one or more states.Radian Guaranty's risk-to-capital position also is dependent on the performance of our financial guaranty portfolio. During the third quarter of 2008, we contributed our ownership interest in Radian Asset Assurance to Radian Guaranty. While this reorganization provided Radian Guaranty with substantial regulatory capital and dividends, it also makes the capital adequacy of our mortgage insurance business dependent, to a significant degree, on the successful run-off of our financial guaranty business. Any decrease in the capital support from our financial guaranty business would therefore have a negative impact on Radian Guaranty's risk-to-capital position and its ability to remain in compliance with the Statutory RBC Requirements. If the performance of our financial guaranty portfolio deteriorates materially, including if we are required to establish (or significantly increase) one or more significant statutory reserves on defaulted obligations that we insure, or if we make net commutation payments to terminate insured financial guaranty obligations in excess of the then established statutory reserves for such obligations, the statutory capital of Radian Guaranty also would be negatively impacted.We actively manage Radian Guaranty's risk-to-capital position in various ways, including: (1) through reinsurance arrangements; (2) by seeking opportunities to reduce our risk exposure through commutations or other negotiated transactions; (3) by contributing additional capital from Radian Group to our mortgage insurance subsidiaries; and (4) by monetizing gains in our investment portfolio through open market sales of securities. Radian Group had unrestricted cash and liquid investments of approximately $352.6 million as of June 30, 2012. We used an additional $11.5 million of our available liquidity in July and August 2012 to purchase $11.7 million in principal amount of our 2013 Notes. Our remaining available liquidity may be used to further support Radian Guaranty's risk-to-capital position. Depending on the extent of our future incurred losses, the amount of capital contributions required for Radian Guaranty to remain in compliance with the Statutory RBC Requirements could be substantial and could exceed amounts maintained at Radian Group.Our ability to continue to reduce Radian Guaranty's risk through affiliated reinsurance arrangements may be limited. These arrangements are subject to regulation by state insurance regulators who could decide to limit, or require the termination of, such arrangements. In addition, certain of these affiliated reinsurance companies currently are operating at or near minimum capital levels and have required, and may continue to require, additional capital contributions from Radian Group in the future. One of these affiliated insurance companies, which provides reinsurance to Radian Guaranty for coverage in excess of 25% of certain loans insured by Radian Guaranty, is a sister company of Radian Guaranty, and therefore, any contributions to this insurer would not be consolidated with Radian Guaranty's capital for purposes of calculating Radian Guaranty's risk-to-capital position. In addition, we must obtain prior approval from the GSEs to enter into new, or to modify existing, reinsurance arrangements. If we are limited in, or prohibited from, using reinsurance arrangements to reduce Radian Guaranty's risk, it would adversely affect Radian Guaranty's risk-to-capital position. In order to maximize our financial flexibility, we have applied for waivers or similar relief for Radian Guaranty in each of the RBC States. Of the 16 RBC states, New York does not possess the regulatory authority to grant waivers and Iowa, Kansas and Ohio have declined to grant waivers to Radian Guaranty. In addition, Oregon has indicated that it will not consider our waiver application until such time that Radian Guaranty has exceeded its Statutory RBC Requirement. Of the remaining 11 RBC States, Radian Guaranty has received waivers or similar relief from the following ten states: Illinois, Kentucky, Wisconsin, Arizona, Missouri, and New Jersey, North Carolina, California, Florida and Texas. Radian Guaranty has one remaining application that is pending in Idaho. There can be no assurance: (1) that Radian Guaranty will be granted a waiver in the remaining RBC State; (2) that for any waiver granted, such regulator will not revoke or terminate the waiver, which the regulator generally has the authority to do at any time; (3) that for any waiver granted, it will be renewed or extended after its original expiration date, which in the case of certain waivers is December 31, 2012; or (4) regarding what, if any, requirements may be imposed as a condition to such waivers or their renewal or extension, and whether we will be able to comply with any such conditions.In addition to filing for waivers in the RBC States, we intend to write new first-lien mortgage insurance business in Radian Mortgage Assurance, in any RBC State that does not permit Radian Guaranty to continue writing insurance while it is out of compliance with applicable Statutory RBC Requirements. Radian Mortgage Assurance is a wholly-owned subsidiary of Radian Guaranty and is licensed to write mortgage insurance in each of the fifty states. In February 2012, Radian Mortgage Assurance received approvals from the GSEs to write new mortgage insurance business in any RBC State where Radian Guaranty would be prohibited from writing new business if it were not in compliance with the state's Statutory RBC Requirement without a waiver or other similar relief. These approvals are temporary (the Fannie Mae approval expires on December 31, 2013, while the Freddie Mac approval expires on December 31, 2012) and are conditioned upon our compliance with a broad range of conditions and restrictions, including without limitation, minimum capital and liquidity requirements, a maximum risk-to-capital ratio of 20 to 1 for Radian Mortgage Assurance, restrictions on the payment of dividends and requirements governing the manner in which Radian Guaranty and Radian Mortgage Assurance conduct affiliate transactions. Under the GSE approvals, Radian Group is also required to contribute $50 million of additional capital to Radian Mortgage Assurance if Radian Guaranty’s risk-to-capital ratio exceeds applicable Statutory RBC Requirements. There can be no assurance that: (1) we will be able to comply with the conditions imposed by the GSEs’ approval for Radian Mortgage Assurance; (2) that the GSEs will not revoke or terminate their approvals, which they generally have the authority to do at any time; (3) that the approvals will be renewed or extended after their original expiration date; or (4) regarding what, if any, additional requirements could be imposed as a condition to such on-going approvals, including their renewal or extension.It is also possible that if Radian Guaranty were not able to comply with the Statutory RBC Requirements of one or more states, the insurance regulatory authorities in states other than the RBC States could prevent Radian Guaranty from continuing to write new business in such states. If this were to occur, we would need to seek approval from the GSEs to expand the scope of their approvals to allow Radian Mortgage Assurance to write business in states other than the RBC States.Our existing capital resources may not be sufficient to successfully manage Radian Guaranty's risk-to-capital ratio. Our ability to use waivers and Radian Mortgage Assurance to allow Radian Guaranty to continue to write business with a risk-to-capital position that is not in compliance with the Statutory RBC Requirements is subject to conditions that we may be unable to satisfy. As a result, even if we are successful in implementing this strategy, additional capital contributions could be necessary, which we may not have the ability to provide. Further, regardless of the waivers and the GSEs approval of Radian Mortgage Assurance, we may choose to use our existing capital at Radian Group to maintain compliance with the Statutory RBC Requirements. Depending on the extent of our future incurred losses along with other factors, the amount of capital contributions that may be required to maintain compliance with the Statutory RBC Requirements could be significant and could exceed all of our remaining available capital. In the event we contribute a significant amount of Radian Group's available capital to Radian Guaranty and Radian Mortgage Assurance, our financial flexibility would be significantly reduced, making it more difficult for Radian Group to meet its obligations in the future, including future principal payments on our outstanding debt.
  • We are subject to the risk of private litigation and regulatory proceedings.We currently are a party to material litigation, as discussed in “Part II—Other Information—Item 1. Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2012, and are subject to certain regulatory proceedings. The cost to defend these actions and the ultimate resolution of these matters could have a material adverse impact on our financial results, financial condition, and on the trading price of our common stock. There can be no assurance that additional lawsuits, regulatory proceedings and other matters will not arise.Recently, we have been named as a defendant in a number of putative class action lawsuits alleging, among other things, that our captive reinsurance agreements violate the Real Estate Practices Act of 1974 (“RESPA”). In addition to these private lawsuits, we and other mortgage insurers have been subject to inquiries from the Minnesota Department of Commerce and the Office of the Inspector General of HUD, requesting information relating to captive reinsurance. The Dodd-Frank Act amended RESPA and transferred the authority to implement and enforce the statute from HUD to the Consumer Financial Protection Bureau (“CFPB”). In January 2012, we and other mortgage insurers received a request for information and documents from the CFPB relating to captive reinsurance arrangements, and in June 2012, we and other mortgage insurers received a Civil Investigative Demand (“CID”) from the CFPB as part of its investigation to determine whether mortgage lenders and private mortgage insurance providers engaged in acts or practices in violation of the Dodd Frank Act, RESPA and the Consumer Financial Protection Act. We are cooperating with the CFPB in its investigation and are in active discussions with the CFPB with respect to our response to the CID. Various regulators, including the CFPB, state insurance commissioners or state attorneys general may bring actions or proceedings regarding our compliance with RESPA or other laws applicable to our mortgage insurance business. We cannot predict whether additional actions or proceedings will be brought against us or the outcome of any such actions or proceedings.We face an increasing number of challenges from certain of our lender customers regarding our insurance rescissions and claim denials. These discussions, if not resolved, could result in arbitration or judicial proceedings.There has been increased litigation in our industry relating to rescissions and denials. On August 1, 2011, we filed a lawsuit against Quicken in the United States District Court for the Eastern District of Pennsylvania, seeking a declaratory judgment that we properly rescinded mortgage insurance coverage under our Master Policy and delegated underwriting endorsement for approximately 140 home mortgage loans originated by Quicken based upon deficiencies and improprieties in the underwriting process. We cannot predict whether additional actions may be brought against us and the outcome of the Quicken litigation or other additional actions. Because the Quicken litigation relates to mortgage insurance policy terms and practices that are widely used in the mortgage insurance industry, the outcome of this litigation or other litigation in our industry relating to rescissions may impact us. If this litigation results in a change in mortgage insurance policy terms and practices that are widely used by the mortgage insurance industry, including by us, or if we engage in further material litigation with any customer and, as a result, the customer limits the amount of business they conduct with us or terminates our business relationship altogether, it could have a negative impact on our business and results of operations.

Other risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements include the following:
  • changes in general economic and political conditions, including high unemployment rates and continued weakness in the U.S. housing and mortgage credit markets, the U.S. economy reentering a recessionary period, a significant downturn in the global economy, a lack of meaningful liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, each of which may be accelerated or intensified by, among other things, further actual or threatened downgrades of U.S. credit ratings;
  • changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers or financial guaranty providers, in particular in light of developments in the private mortgage insurance and financial guaranty industries in which certain of our former competitors have ceased writing new insurance business and have been placed under supervision or receivership by insurance regulators;
  • catastrophic events or economic changes in geographic regions, including governments and municipalities, where our mortgage insurance exposure is more concentrated or where we have financial guaranty exposure;
  • our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs, including in particular, the repayment of our long-term debt and additional capital contributions that may be required to support our mortgage insurance business;
  • a further reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, general reduced housing demand in the U.S., potential risk retention requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and potential increases in capital requirements for banks and bank holding companies for mortgage loans under proposed interagency rules to implement Basel III ;
  • our ability to maintain an adequate risk-to-capital position and surplus requirements in our mortgage insurance business, including if necessary, our ability to write new mortgage insurance while maintaining a capital position that is in excess of risk-based capital limitations imposed in certain states, either through waivers of these limitations or through use of another mortgage insurance subsidiary, and the possibility that state regulators could pursue regulatory actions or proceedings, including possible supervisory or receivership actions, against Radian Guaranty, in the event Radian Guaranty's risk-to-capital position exceeds levels that are acceptable to such regulators;
  • our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
  • the ability of our primary insurance customers in our financial guaranty reinsurance business to provide appropriate surveillance and to mitigate losses adequately with respect to our assumed insurance portfolio;
  • a more rapid than expected decrease in the level of insurance rescissions and claim denials from the current elevated levels, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials, or caused by the government-sponsored entities ("GSEs") intervening in mortgage insurers' loss mitigation practices, including settlements of disputes;
  • the negative impact our insurance rescissions and claim denials or claim curtailments may have on our relationships with customers and potential customers, including the potential loss of business and the heightened risk of disputes and litigation;
  • the need, in the event that we are unsuccessful in defending our rescissions or denials, to increase our loss reserves for, and reassume risk on, rescinded or denied loans, and to pay additional claims;
  • any disruption in the servicing of mortgages covered by our insurance policies and poor servicer performance;
  • adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and currently insure) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
  • a decrease in persistency rates of our mortgage insurance policies, which has the effect of reducing our premium incomes without a corresponding decrease in incurred losses;
  • an increase in the risk profile of our existing mortgage insurance portfolio due to the refinancing of existing mortgage loans for only the most qualified borrowers in the current mortgage and housing market;
  • changes in the criteria for assigning credit or similar ratings, further downgrades or threatened downgrades of, or other ratings actions with respect to, our credit ratings or the ratings assigned to any of our rated insurance subsidiaries at any time, including in particular, the credit ratings of Radian Group Inc. ("Radian Group") and the financial strength ratings assigned to Radian Guaranty Inc. ("Radian Guaranty");
  • heightened competition for our mortgage insurance business from others such as the Federal Housing Administration (the "FHA"), the Department of Veterans Affairs ("VA") and other private mortgage insurers (in particular, the FHA and those private mortgage insurers that have been assigned higher ratings than us from the major rating agencies, that may have access to greater amounts of capital than we do, or new entrants to the industry that are not burdened by legacy obligations);
  • changes in the charters or business practices of, or rules or regulations applicable to, Federal National Mortgage Association ("Fannie Mae") and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to remain an eligible provider to both Fannie Mae and Freddie Mac;
  • changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in scope;
  • the effect of the Dodd-Frank Act on the financial services industry in general and on our mortgage insurance and financial guaranty businesses in particular, including (1) whether and to what extent loans with mortgage insurance are considered "qualified residential mortgages" for purposes of the Dodd-Frank Act securitization provisions or "qualified mortgages" for purposes of the ability to repay provisions of the Dodd-Frank Act, and the possibility that the ultimate definitions of "qualified residential mortgages" and "qualified mortgages" could reduce the size of the mortgage market and potentially reduce the number of insurable loans; and (2) the possibility that our financial guaranty business could be subject to additional registration, reporting, capital and margin requirements, including potentially, the posting of collateral for certain existing derivative contracts;
  • the application of existing federal or state consumer, lending, insurance, tax, securities and other applicable laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the outcome of existing, or the possibility of additional, lawsuits or investigations; and (ii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting our use of (or increasing requirements for) additional capital and the products we may offer, (c) affecting the form in which we execute credit protection, or (d) impacting our existing financial guaranty portfolio;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations;
  • the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses or premium deficiencies for our mortgage insurance business, or to estimate accurately the fair value amounts of derivative instruments in determining gains and losses on these instruments;
  • volatility in our earnings caused by changes in the fair value of our assets and liabilities carried at fair value, including our derivative instruments, and our need to reevaluate the possibility of a premium deficiency in our mortgage insurance business on a quarterly basis;
  • our ability to realize the tax benefits associated with our gross deferred tax assets, which will depend on our ability to generate sufficient sustainable taxable income in future periods;
  • changes in accounting principles, rules and guidance, or their interpretation, from the Securities and Exchange Commission or the Financial Accounting Standards Board; and
  • legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

Copyright Business Wire 2010

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