Radian Group Management Discusses Q2 2012 Results - Earnings Call Transcript

Radian Group (RDN)

Q2 2012 Earnings Call

August 01, 2012 11:00 am ET

Executives

Emily Riley

Sanford A. Ibrahim - Chief Executive Officer and Director

C. Robert Quint - Chief Financial Officer and Executive Vice President

Teresa Bryce Bazemore - President of Radian Guaranty Inc

H. Scott Theobald - Executive Vice President and Chief Risk Officer of Radian Guaranty

Analysts

Jasper Burch - Macquarie Research

Mark C. DeVries - Barclays Capital, Research Division

Douglas Harter - Crédit Suisse AG, Research Division

David Epstein - CRT Capital Group LLC, Research Division

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

Shawn Faurot

Conor Ryan

Bose George - Keefe, Bruyette, & Woods, Inc., Research Division

Jason Stewart - Compass Point Research & Trading, LLC, Research Division

Geoffrey M. Dunn - Dowling & Partners Securities, LLC

Steve Stelmach - FBR Capital Markets & Co., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Radian's Second Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded.

With that being said, I'll turn the conference now to Ms. Emily Riley, Vice President of Investor Relations. Please go ahead.

Emily Riley

Thank you. And welcome to Radian's Second Quarter 2012 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued earlier today and it, as well as the slides that will be referenced during today's call, have been posted to the Investors section of our website at www.radian.biz.

During today's call, you will hear from S.A. Ibrahim, Radian's Chief Executive Officer; and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce Bazemore, President of Radian Guaranty; David Beidler, President of Radian Asset Assurance; Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty; and Derek Brummer, Chief Risk Officer and General Counsel of Radian Asset.

Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the Risk Factors included in our 2011 Form 10-K. These are also available on our website.

Now I would like to turn the call over to S.A.

Sanford A. Ibrahim

Thank you, Emily. And thank you, all, for joining us.

Today, I will first provide brief highlights of our quarterly results then I will focus my remarks on the topics that we believe are most important to you: how we at Radian continue to expand our mortgage insurance franchise and capture our largest share of new high-quality business while effectively mitigating losses in our legacy portfolio, what we're doing to reduce our risk exposure in financial guaranty and provide important capital support for our MI business and how we are managing our capital and positioning Radian for success and a return to profitability. Next, Rob will cover the details of our financials, and then I'll provide a few summary points before we open the call to your questions.

Earlier today, we reported a net loss for the second quarter of $119 million or $0.90 per diluted share. This includes the impact of fair value and other financial instrument losses of $95 million which consisted primarily of the impact from the April commutation of our troubled CDO of ABS transaction and certain TruPs exposure. As you know, commuting these exposures and removing this risk for Radian was a critical achievement that helped us further reduce our financial guaranty risk and preserve our capital. Bob will discuss the accounting implications during his remarks. At June 30, 2012, our book value per share was $6.75.

Radian Guaranty's risk-to-capital ratio remains steady at 21:1 in the second quarter. The maintenance of our risk-to-capital ratio over time has been achieved by the many actions we have taken to manage our risk-to-capital position, including internal and external reinsurance, reductions in commutations of risk exposure and by realizing investment gains. We believe that Radian is positioned to continue writing new high-quality mortgage insurance business uninterrupted well into the future.

Now let me turn to the topics that we believe are top of mind. First, we continue to write more new mortgage insurance business with outstanding credit quality that can generate strong returns. In recent months, we have been capturing the largest share of new mortgage insurance business than ever before in our history in an exceptionally competitive but high-quality market. In the second quarter, we wrote $8.3 billion of new mortgage insurance business and wrote $14.8 million through the end of the second quarter.

We wrote 3x as much as new business as in the first half of 2012 as we did in the first half of last year, and the momentum continued in July with another $3.4 billion of new business written. The business written in the month of July alone is estimated to generate $20 million in after-tax value over its life after adjusting for reinsurance, and perhaps even more if the credit performance is better than expected, as has been the case with our most recent originations.

There's no denying that our sales and customer service teams have hussled [ph]. Their energy and enthusiasm help to set Radian apart as we continue to increase the amount of business we are writing. We have successfully retained our traditionally strong share of business from the nation's largest lenders while steadily increasing our business volume from credit unions, community banks and independent mortgage lenders. In fact, 18% of our NIW in 2012 came from customers new to Radian since last year, and nearly 40% from the approximately 1,100 customers, new to Radian since 2008. Importantly, as of the second quarter, the 2009 and -- through 2012 books grew to more than 35% of our primary risk in force and the most problematic 2006 and '07 books are now down to just under 30%. If the pace of our new business volume continues, we expect that, by mid-2013, our book of business written after 2008 will be larger than the book written in 2008 and prior. We view this shift as a positive factor that differentiates Radian and view it as one of the primary drivers of our expected return to operating profitability in 2013.

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