Radian Reports Second Quarter 2013 Financial Results

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.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, July 24, 2013, at 10:00 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 800-230-1074 inside the U.S., or 612-234-9959 for international callers, using passcode 297533 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 297533.

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, 2013
Exhibit D: Segment Information Quarter Ended June 30, 2012
Exhibit E: Segment Information Six Months Ended June 30, 2013
Exhibit F: Segment Information Six Months Ended June 30, 2012
Exhibit G: Financial Guaranty Supplemental Information
Exhibit H: Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit I: Mortgage Insurance Supplemental Information
Insurance in Force and Risk in Force by Product
Exhibit J: Mortgage Insurance Supplemental Information
Risk in Force by FICO, LTV and Policy Year
Exhibit K: Mortgage Insurance Supplemental Information
Pool and Other Risk in Force, Risk-to-Capital
Exhibit L: Mortgage Insurance Supplemental Information
Claims, Reserves and Reserve per Default
Exhibit M: Mortgage Insurance Supplemental Information
Default Statistics
Exhibit N: Mortgage Insurance Supplemental Information
Captives, QSR and Persistency
 

   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Exhibit A
 
Quarter Ended Six Months Ended
June 30, June 30,

(In thousands, except per-share data)
2013   2012 2013   2012
 
Revenues:
Net premiums written - insurance $ 251,229   $ 181,932   $ 458,414   $ 259,610  
 
Net premiums earned - insurance $ 213,124 $ 186,779 $ 405,712 $ 354,144
Net investment income 27,615 30,877 54,488 65,590
Net (losses) gains on investments (130,254 ) 26,419 (135,759 ) 93,878
Change in fair value of derivative instruments 86,535 (33,124 ) (81,135 ) (105,881 )
Net gains (losses) on other financial instruments 1,188 (61,862 ) (4,487 ) (79,714 )
Gain on sale of affiliate 7,708 7,708
Other income 2,234   1,395   4,005   2,835  
Total revenues 200,442   158,192   242,824   338,560  
 
Expenses:
Provision for losses 140,291 210,868 272,350 477,022
Change in reserve for premium deficiency 1,251 559 622 539
Policy acquisition costs 10,006 10,805 27,201 38,851
Other operating expenses 60,981 40,193 141,081 90,347
Interest expense 19,420   12,581   35,301   26,729  
Total expenses 231,949   275,006   476,555   633,488  
 
Equity in net (loss) income of affiliates   (2 ) 1   (13 )
 
Pretax loss (31,507 ) (116,816 ) (233,730 ) (294,941 )
Income tax provision (benefit) 1,665   2,443   (13,058 ) (6,450 )
 
Net loss $ (33,172 ) $ (119,259 ) $ (220,672 ) $ (288,491 )
 

Diluted net loss per share
$ (0.19 ) $ (0.90 ) $ (1.40 ) $ (2.18 )
 
 

 

Weighted average shares outstanding (in thousands)
171,783   132,346   158,180   132,350  
 

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,

(In thousands, except per-share data)
2013 2012
 
Assets:
Cash and investments $ 5,366,633 $ 5,208,199
Deferred policy acquisition costs 70,427 88,202
Deferred income taxes, net 17,902
Reinsurance recoverables 65,750 89,204
Derivative assets 9,379 13,609
Other assets 523,909   503,986  
Total assets $ 6,054,000   $ 5,903,200  
 
Liabilities and stockholders’ equity:
Unearned premiums $ 712,706 $ 648,682
Reserve for losses and loss adjustment expenses 2,716,490 3,149,936
Reserve for premium deficiency 4,308 3,685
Long-term debt 913,952 663,571
VIE debt 106,767 108,858
Derivative liabilities 350,576 266,873
Other liabilities 346,335   325,270  
Total liabilities 5,151,134   5,166,875  
 
Common stock 191 151
Additional paid-in capital 1,454,122 1,075,320
Retained deficit (575,913 ) (355,241 )
Accumulated other comprehensive income 24,466   16,095  
Total common stockholders’ equity 902,866   736,325  
Total liabilities and stockholders’ equity $ 6,054,000   $ 5,903,200  
 
Book value per share $ 5.22 $ 5.51

     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended June 30, 2013
Exhibit C
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 251,159   $ 70   $ 251,229  
 
Net premiums earned - insurance $ 197,952 $ 15,172 $ 213,124
Net investment income 15,266 12,349 27,615
Net losses on investments (83,386 ) (46,868 ) (130,254 )
Change in fair value of derivative instruments 86,535 86,535
Net gains on other financial instruments 74 1,114 1,188
Other income 2,159   75   2,234  
Total revenues 132,065   68,377   200,442  
 
Expenses:
Provision for losses 136,410 3,881 140,291
Change in reserve for premium deficiency 1,251 1,251
Policy acquisition costs 6,501 3,505 10,006
Other operating expenses 51,295 9,686 60,981
Interest expense 3,704   15,716   19,420  
Total expenses 199,161   32,788   231,949  
 
Pretax (loss) income $ (67,096 ) $ 35,589   $ (31,507 )
Income tax provision 1,665  
 
Net loss $ (33,172 )
 
Cash and investments $ 2,962,997 $ 2,403,636 $ 5,366,633
Deferred policy acquisition costs 29,138 41,289 70,427
Total assets 3,431,444 2,622,556 6,054,000
Unearned premiums 483,303 229,403 712,706
Reserve for losses and loss adjustment expenses 2,690,861 25,629 2,716,490
VIE debt 10,963 95,804 106,767
Derivative liabilities 350,576 350,576

     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended June 30, 2012
Exhibit D
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 182,518   $ (586 ) (1) $ 181,932  
 
Net premiums earned - insurance $ 170,763 $ 16,016 (1) $ 186,779
Net investment income 17,608 13,269 30,877
Net gains (losses) on investments 26,662 (243 ) 26,419
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
 

(1) Reflects the impact of the commutation of reinsurance business.

     
Radian Group Inc. and Subsidiaries
Segment Information
Six Months Ended June 30, 2013
Exhibit E
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 468,445   $ (10,031 ) (1) $ 458,414  
 
Net premiums earned - insurance $ 380,944 $ 24,768 (1) $ 405,712
Net investment income 30,368 24,120 54,488
Net losses on investments (86,623 ) (49,136 ) (135,759 )
Change in fair value of derivative instruments (81,135 ) (81,135 )
Net losses on other financial instruments (1,803 ) (2,684 ) (4,487 )
Other income 3,871   134   4,005  
Total revenues 326,757   (83,933 ) 242,824  
 
Expenses:
Provision for losses 268,366 3,984 272,350
Change in reserve for premium deficiency 622 622
Policy acquisition costs 18,233 8,968 27,201
Other operating expenses 117,075 24,006 141,081
Interest expense 6,373   28,928   35,301  
Total expenses 410,669   65,886   476,555  
 
Equity in net income of affiliates   1   1  
 
Pretax loss $ (83,912 ) $ (149,818 ) $ (233,730 )
Income tax benefit (13,058 )
 
Net loss $ (220,672 )
 

(1) Reflects the impact of the commutation of reinsurance business.

     
Radian Group Inc. and Subsidiaries
Segment Information
Six Months Ended June 30, 2012
Exhibit F
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 379,371   $ (119,761 ) (1) $ 259,610  
 
Net premiums earned - insurance $ 344,214 $ 9,930 (1) $ 354,144
Net investment income 35,619 29,971 65,590
Net gains on investments 58,840 35,038 93,878
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 )
 

(1) Reflects the impact of the commutation of reinsurance business.

   

Radian Group Inc. and Subsidiaries

Financial Guaranty Supplemental Information

Exhibit G
 
Quarter Ended Six Months Ended
June 30, June 30,

(In thousands)
2013   2012 2013   2012
 
Net Premiums Earned:
Total Premiums Earned - insurance $ 15,172 $ 16,016 $ 27,215 $ 32,194
Impact of commutations and reinsurance     (2,447 ) (22,264 )
Net Premiums Earned - insurance $ 15,172   $ 16,016   $ 24,768   $ 9,930  
 
Refundings included in earned premium $ 10,288   $ 10,483   $ 15,041   $ 18,707  
 
Net premiums earned - derivatives (1) $ 4,857   $ 7,224   $ 9,849   $ 15,872  
 
Claims paid $ 2,825   $ (6,720 ) (3) $ 44,683   (2) $ 2,280  
   
June 30, December 31,

($ in thousands, except ratios)
2013 2012
 

Statutory Information:
 
Capital and surplus $ 1,241,146 $ 1,144,112
Contingency reserve 247,988   300,138  
Qualified statutory capital 1,489,134 1,444,250
 
Unearned premium reserve 216,582 256,920
Loss and loss expense reserve (170,538 ) (53,441 )
Total statutory policyholders’ reserves 1,535,178 1,647,729
 
Present value of installment premiums 101,481   114,292  
Total statutory claims paying resources $ 1,636,659   $ 1,762,021  
 
Net debt service outstanding $ 34,603,058   $ 42,526,289  
 
Capital leverage ratio (4) 23 29
Claims paying leverage ratio (5) 21 24
 
Net par outstanding by product:
Public finance direct $ 9,066,976 $ 9,796,131
Public finance reinsurance 4,352,058 5,542,217
Structured direct 13,249,796 17,615,383
Structured reinsurance 600,810   787,758  
Total (6) $ 27,269,640   $ 33,741,489  
 

(1)

Included in change in fair value of derivative instruments.

(2)

Primarily related to commutation of reinsurance business.

(3)

Reduction primarily due to salvage recovery on a prior claim.

(4)

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

(5)

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

(6)

Included in public finance net par outstanding is $1.0 billion at both June 30, 2013 and December 31, 2012, 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.

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit H
 
Quarter Ended Six Months Ended
June 30, June 30,
2013   2012 2013   2012

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

Primary new insurance written
       
Prime $ 13,376 100.0 % $ 8,330 99.9 % $ 24,281 100.0 % $ 14,790 99.9 %
Alt-A and A minus and below 1       5     0.1   2       10     0.1  
Total Flow $ 13,377     100.0 % $ 8,335     100.0 % $ 24,283     100.0 % $ 14,800     100.0 %
 

Total primary new insurance written by FICO score
>=740 $ 9,666 72.3 % $ 6,326 75.9 % $ 17,876 73.6 % $ 11,246 76.0 %
680-739 3,256 24.3 1,816 21.8 5,654 23.3 3,216 21.7
620-679 455     3.4   193     2.3   753     3.1   338     2.3  
Total Flow $ 13,377     100.0 % $ 8,335     100.0 % $ 24,283     100.0 % $ 14,800     100.0 %
 

Percentage of primary new insurance written
Monthly premiums 67 % 67 % 66 % 66 %
Single premiums 33 % 33 % 34 % 34 %
 

Refinances
34 % 34 % 40 % 39 %

LTV
95.01% and above 2.3 % 1.3 % 2.1 % 1.5 %
90.01% to 95.00% 44.8 % 42.6 % 42.5 % 40.9 %
85.01% to 90.00% 37.5 % 41.4 % 38.3 % 41.5 %
85.00% and below 15.4 % 14.7 % 17.1 % 16.1 %

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit I
 
June 30, June 30,
2013 2012

($ in millions)
$   % $   %

Primary insurance in force
   
Flow $ 140,776 93.0 % $ 118,420 90.8 %
Structured 10,596     7.0   11,991     9.2  
Total Primary $ 151,372     100.0 % $ 130,411     100.0 %
 
Prime $ 135,818 89.7 % $ 112,112 86.0 %
Alt-A 9,557 6.3 11,383 8.7
A minus and below 5,997     4.0   6,916     5.3  
Total Primary $ 151,372     100.0 % $ 130,411     100.0 %

 

Primary risk in force
Flow $ 34,842 93.7 % $ 29,200 91.8 %
Structured 2,355     6.3   2,609     8.2  
Total Primary $ 37,197     100.0 % $ 31,809     100.0 %
 
Flow
Prime $ 32,099 92.1 % $ 25,951 88.9 %
Alt-A 1,696 4.9 2,022 6.9
A minus and below 1,047     3.0   1,227     4.2  
Total Flow $ 34,842     100.0 % $ 29,200     100.0 %
 
Structured
Prime $ 1,385 58.8 % $ 1,520 58.2 %
Alt-A 515 21.9 589 22.6
A minus and below 455     19.3   500     19.2  
Total Structured $ 2,355     100.0 % $ 2,609     100.0 %
 
Total
Prime $ 33,484 90.0 % $ 27,471 86.4 %
Alt-A 2,211 6.0 2,611 8.2
A minus and below 1,502     4.0   1,727     5.4  
Total Primary $ 37,197     100.0 % $ 31,809     100.0 %

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit J
 
June 30, June 30,
2013 2012

($ in millions)
$   % $   %

Total primary risk in force by FICO score
   
Flow
>=740 $ 19,120 54.9 % $ 13,868 47.5 %
680-739 10,258 29.4 9,265 31.7
620-679 4,700 13.5 5,162 17.7
<=619 764     2.2   905     3.1  
Total Flow $ 34,842     100.0 % $ 29,200     100.0 %
 
Structured
>=740 $ 632 26.8 % $ 690 26.4 %
680-739 678 28.8 757 29.0
620-679 623 26.5 698 26.8
<=619 422     17.9   464     17.8  
Total Structured $ 2,355     100.0 % $ 2,609     100.0 %
 
Total
>=740 $ 19,752 53.1 % $ 14,558 45.8 %
680-739 10,936 29.4 10,022 31.5
620-679 5,323 14.3 5,860 18.4
<=619 1,186     3.2   1,369     4.3  
Total Primary $ 37,197     100.0 % $ 31,809     100.0 %
 

Total primary risk in force by LTV
95.01% and above $ 4,349 11.7 % $ 4,960 15.6 %
90.01% to 95.00% 15,154 40.8 11,648 36.6
85.01% to 90.00% 13,996 37.6 12,265 38.6
85.00% and below 3,698     9.9   2,936     9.2  
Total $ 37,197     100.0 % $ 31,809     100.0 %
 

Total primary risk in force by policy year
2005 and prior $ 5,073 13.6 % $ 6,250 19.7 %
2006 2,526 6.8 2,944 9.3
2007 5,650 15.2 6,471 20.3
2008 4,277 11.5 4,870 15.3
2009 1,706 4.6 2,362 7.4
2010 1,433 3.8 2,035 6.4
2011 2,549 6.9 3,352 10.5
2012 8,157 21.9 3,525 11.1
2013 5,826     15.7        
Total $ 37,197     100.0 % $ 31,809     100.0 %
 
Primary risk in force on defaulted loans $ 3,624   $ 4,628  

     

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit K
 
June 30, June 30,
2013 2012

($ in millions)
$   % $   %
 

Pool risk in force
Prime $ 1,346 77.5 % $ 1,471 76.8 %
Alt-A 90 5.2 113 5.9
A minus and below 301     17.3   331     17.3  
Total $ 1,737     100.0 % $ 1,915     100.0 %
 

Total pool risk in force by policy year
2005 and prior $ 1,599 92.1 % $ 1,722 89.9 %

 2006
58 3.3 85 4.4

 2007
75 4.3 93 4.9

 2008
5     0.3   15     0.8  
Total pool risk in force $ 1,737     100.0 % $ 1,915     100.0 %
 

Other risk in force
Second-lien
1st loss $ 71 $ 91
2nd loss 11 25
NIMS 14 14
1st loss-Hong Kong primary mortgage insurance 29   49  
Total other risk in force $ 125   $ 179  
 
Risk to capital ratio-Radian Guaranty only 19.7:1

(1)

 
21.0:1
Risk to capital ratio-Mortgage Insurance combined 25.9:1

(1)

 
28.4:1
 
(1) Preliminary
 

     
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit L
 
Quarter Ended Six Months Ended
June 30, June 30,

($ in thousands)
2013   2012 2013   2012
 
Net claims paid
Prime $ 217,878 $ 170,351 $ 418,395 $ 297,452
Alt-A 46,059 40,261 95,150 76,912
A minus and below 33,213   31,112   60,699   57,192  
Total primary claims paid 297,150 241,724 574,244 431,556
Pool 28,610 20,374 59,559 45,300
Second-lien and other 614   1,349   2,498   4,932  
Subtotal 326,374 263,447 636,301 481,788
Impact of captive terminations       (148 )
Total $ 326,374   $ 263,447   $ 636,301   $ 481,640  
 
Average claim paid (1)
Prime $ 46.0 $ 47.1 $ 47.4 $ 48.6
Alt-A 52.5 56.4 56.1 57.8
A minus and below 34.1 36.0 35.6 38.0
Total primary average claims paid 45.1 46.6 46.9 47.6
Pool 74.9 65.9 74.2 66.9
Second-lien and other 11.8 24.5 18.2 26.2
Total $ 46.5 $ 47.4 $ 48.3 $ 48.5
 
Average primary claim paid (2) (3) $ 47.2 $ 49.2 $ 49.2 $ 50.4
Average total claim paid (2) (3) $ 48.5 $ 49.9 $ 50.4 $ 51.0
 
Loss ratio - GAAP basis 68.9 % 121.9 % 70.4 % 128.6 %
Expense ratio - GAAP basis 29.2 % 22.9 % 35.5 % 24.4 %
98.1 % 144.8 % 105.9 % 153.0 %
 
Reserve for losses by category
Prime $ 1,521,888 $ 1,740,492
Alt-A 522,396 597,570
A minus and below 317,964 361,104
Reinsurance recoverable (4) 58,427   97,845  
Total primary reserves 2,420,675 2,797,011
Pool insurance 265,114   348,288  
Total 1st lien reserves 2,685,789 3,145,299
Second lien and other 5,072   10,044  
Total reserves $ 2,690,861   $ 3,155,343  
 

1st lien reserve per default (5)
Primary reserve per primary default $ 30,932 $ 28,410
Primary reserve per default excluding IBNR 27,293 26,157

Pool reserve per pool default (6)

17,428
18,012
Total 1st lien reserve per default

28,735
26,704
 

(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, Smart Home and quota share reinsurance transactions.

(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, 2013 and 2012, would be $29,846 and $27,949, respectively.
 

           
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit M
 
June 30, December 31, June 30,
2013 2012 2012

Default Statistics
Primary Insurance:
 
Flow

Prime
Number of insured loans 675,246 630,094 588,335
Number of loans in default 45,899 55,483 57,961
Percentage of loans in default 6.80 % 8.81 % 9.85 %
 

Alt-A
Number of insured loans 34,589 37,754 40,976
Number of loans in default 10,024 11,798 13,001
Percentage of loans in default 28.98 % 31.25 % 31.73 %
 

A minus and below
Number of insured loans 32,204 35,150 37,755
Number of loans in default 9,240 11,211 11,688
Percentage of loans in default 28.69 % 31.89 % 30.96 %
 
Total Flow
Number of insured loans 742,039 702,998 667,066
Number of loans in default 65,163 78,492 82,650
Percentage of loans in default 8.78 % 11.17 % 12.39 %
 
Structured

Prime
Number of insured loans 35,796 37,528 39,278
Number of loans in default 4,676 5,371 5,608
Percentage of loans in default 13.06 % 14.31 % 14.28 %

 

Alt-A
Number of insured loans 15,156 16,315 17,435
Number of loans in default 3,707 4,207 5,053
Percentage of loans in default 24.46 % 25.79 % 28.98 %
 

A minus and below
Number of insured loans 13,476 14,157 14,816
Number of loans in default 4,711 5,099 5,139
Percentage of loans in default 34.96 % 36.02 % 34.69 %
 
Total Structured
Number of insured loans 64,428 68,000 71,529
Number of loans in default 13,094 14,677 15,800
Percentage of loans in default 20.32 % 21.58 % 22.09 %
 
Total Primary Insurance

Prime
Number of insured loans 711,042 667,622 627,613
Number of loans in default 50,575 60,854 63,569
Percentage of loans in default 7.11 % 9.12 % 10.13 %
 

Alt-A
Number of insured loans 49,745 54,069 58,411
Number of loans in default 13,731 16,005 18,054
Percentage of loans in default 27.60 % 29.60 % 30.91 %
 

A minus and below
Number of insured loans 45,680 49,307 52,571
Number of loans in default 13,951 16,310 16,827
Percentage of loans in default 30.54 % 33.08 % 32.01 %
 
Total Primary
Number of insured loans 806,467 770,998 738,595
Number of loans in default 78,257 93,169 98,450
Percentage of loans in default 9.70 % 12.08 % 13.33 %
 
Pool insurance
Number of loans in default

15,212
18,147 19,336
 

     
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit N
 
Quarter Ended Six Months Ended
June 30, June 30,

($ in thousands)
2013   2012 2013   2012
 

1st Lien Captives
Premiums ceded to captives $ 4,787 $ 6,289 $ 9,939 $ 12,718
% of total premiums 2.2 % 3.5 % 2.4 % 3.6 %
IIF included in captives (1) 5.2 % 8.9 %
RIF included in captives (1) 5.0 % 7.7 %
 

Initial Quota Share Reinsurance ("QSR") Transaction
QSR ceded premiums written $ 5,900 $ 25,477 $ 12,022 $ 25,477
% of premiums written 2.2 % 12.0 % 2.3 % 12.0 %
QSR ceded premiums earned $ 7,662 $ 3,098 $ 15,495 $ 3,098
% of premiums earned 3.6 % 1.7 % 3.8 % 1.7 %
Ceding commissions $ 1,475 $ 6,369 $ 3,005 $ 6,369
RIF included in QSR (2) $ 1,421,096 $ 922,497
 

Second QSR Transaction
QSR ceded premiums written $ 7,580 $ 24,020
% of premiums written 2.8 % 4.7 %
QSR ceded premiums earned $ 4,283 $ 7,121
% of premiums earned 2.0 % 1.7 %
Ceding commissions $ 2,653 $ 8,407
RIF included in QSR (2) $ 1,046,041
 
Persistency (twelve months ended June 30) 80.3 % 83.9 %
 

(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 statement. These statements speak only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. 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:
  • changes in general economic and political conditions, including high unemployment rates and weakness in the U.S. housing and mortgage credit markets, a significant downturn in the U.S. or global economies, 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, legislative activity or inactivity or 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 the fact that 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 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;
  • a reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, and general reduced housing demand in the U.S., which may be exacerbated by regulations impacting home mortgage originations, including requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);
  • our ability to maintain an adequate risk-to-capital position, minimum policyholder position and other surplus requirements for Radian Guaranty Inc. (“Radian Guaranty”), our principal mortgage insurance subsidiary, and an adequate minimum policyholder position and surplus for those insurance subsidiaries that provide reinsurance to Radian Guaranty;
  • our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
  • a more rapid than expected decrease in the current elevated levels of mortgage insurance rescissions and claim denials, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in net rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials, or by the government-sponsored entities (“GSEs”) intervening in or otherwise limiting our loss mitigation practices, including settlements of disputes regarding loss mitigation activities;
  • the negative impact that our loss mitigation activities may have on our relationships with our customers and potential customers, including the potential loss of current or future business and the heightened risk of disputes and litigation;
  • the need, in the event that we are unsuccessful in defending our loss mitigation activities, to increase our loss reserves for, and reassume risk on, rescinded or cancelled loans or denied claims, and to pay additional claims, including amounts previously curtailed;
  • any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
  • adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and which remain in our insured portfolio) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
  • a decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income on our monthly premium policies and could decrease the profitability of our mortgage insurance business;
  • heightened competition for our mortgage insurance business from others such as the FHA, the U.S. Department of Veterans Affairs and other private mortgage insurers, including in particular, those that have been assigned higher ratings than we have, that may have access to greater amounts of capital than we do, that are less dependent on capital support from their subsidiaries than we are or that are new entrants to the industry, and therefore, are not burdened by legacy obligations;
  • changes in requirements to remain an eligible insurer to the GSEs (expected to be released by the end of 2013 and implemented following a transition period), which may include more stringent risk-to-capital ratio requirements, higher capital requirements for loans insured prior to 2009 and a limitation on the amount of capital credit available for subsidiaries, including capital attributable to our financial guaranty business;
  • changes in the charters or business practices of, or rules or regulations applicable to, the GSEs;
  • 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 effect or 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 whether and to what extent loans with private mortgage insurance may be considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions;
  • the application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations (including in particular investigations and litigation relating to captive reinsurance arrangements under the Real Estate Settlement Practices Act of 1974); and (ii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) otherwise impacting our existing businesses;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including adjustments proposed by the IRS resulting from the examination of our 2000 through 2007 tax years;
  • 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 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 by variable accounting for certain of our performance-based long-term compensation awards;
  • our ability to realize some or all of 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 generally accepted in the United States of America or statutory accounting principles, rules and guidance, or their interpretation; 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, 2012, and subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we filed this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements made in this report to reflect new information or future events or for any other reason.

Copyright Business Wire 2010