Radian Reports Fourth Quarter And Full Year 2013 Financial Results

Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended December 31, 2013, of $36.4 million, or $0.19 per diluted share, which included $30.6 million of combined net gains from the change in fair value of derivatives and other financial instruments and net losses on investments. This compares to a net loss for the quarter ended December 31, 2012, of $177.3 million, or $1.34 per diluted share, which included $7.4 million of combined net gains from the change in fair value of derivatives and other financial instruments and net gains on investments.

The company has introduced non-GAAP financial measures as performance indicators to facilitate evaluation of its fundamental financial performance. Included in these measures is adjusted pretax operating income which, for the quarter ended December 31, 2013, was $9.1 million, consisting of $1.7 million from the mortgage insurance segment and $7.4 million from the financial guaranty segment. Adjusted diluted net operating income per share for the quarter ended December 31, 2013, was $0.03.

The net loss for the full year 2013 was $197.0 million, or $1.18 per diluted share, which included $186.2 million of combined net losses from the change in fair value of derivatives and other financial instruments and a net loss on investments. This compares to net losses for the full year 2012 of $451.5 million, or $3.41 per diluted share, which included $41.4 million of combined net losses from the change in fair value of derivatives and other financial instruments and net gains on investments. Book value per share at December 31, 2013, was $5.43.

“Radian’s performance in 2013 reflects the solid progress we have made against our top priorities. I am pleased to report that we achieved operating profitability in our mortgage insurance business, and we expect that the size and credit quality of our MI portfolio will fuel improved levels of operating profitability this year,” said Chief Executive Officer S.A. Ibrahim.

Ibrahim continued, “We were successful in writing 27% more new MI business in 2013 than 2012, earning the position as the largest MI company with $161 billion in insurance in force. We also made consistent strides in managing our legacy mortgage insurance and financial guaranty exposure, including a 35% decline in the total number of MI delinquencies and a 29% reduction in our total financial guaranty portfolio from 2012. As we look ahead to 2014, we are encouraged by the improved housing and economic environment that promise new opportunities for Radian.”

CAPITAL AND LIQUIDITY UPDATE

Radian Guaranty’s risk-to-capital ratio was 19.4:1 as of December 31, 2013, which included a contribution of $100 million of capital from Radian Group to Radian Guaranty to support continued growth in the company’s net risk in force. After the $100 million contribution, Radian Group maintains approximately $615 million of currently available liquidity.
  • As of December 31, 2013, Radian Guaranty’s statutory capital was $1,346 million compared to $1,256 million at September 30, 2013, and $926 million a year ago.
  • In 2012, Radian Guaranty entered into two quota share reinsurance agreements with the same third-party reinsurance provider, in order to proactively manage its risk-to-capital position. On April 1, 2013, Radian reduced the amount of new business ceded under these reinsurance agreements on a prospective basis from 20 percent to 5 percent. As of December 31, 2013, a total of $2.6 billion of risk in force had been ceded under those agreements. Radian will have the option to recapture a portion of the ceded risk outstanding on December 31, 2014, and on December 31, 2015.

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
  • New mortgage insurance written (NIW) was $9.3 billion during the quarter, compared to $13.7 billion in the third quarter of 2013 and $11.7 billion in the fourth quarter of 2012. For the full-year 2013, NIW was $47.3 billion, compared to $37.1 billion for the full-year 2012. Radian wrote an additional $2.4 billion in NIW in January 2014, compared to $4.0 billion in January 2013.
    • The Home Affordable Refinance Program (HARP) accounted for $0.9 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $1.8 billion in the third quarter of 2013, and $2.9 billion in the fourth quarter of 2012.
    • Of the $9.3 billion of new business written in the fourth quarter of 2013, 70 percent was written with monthly premiums and 30 percent with single premiums. This compares with 65 percent monthly premium and 35 percent single premium in the fourth quarter of 2012.
    • NIW continued to consist of loans with excellent risk characteristics.
  • The total primary mortgage insurance risk-in-force at year-end 2013 consisted of 71 percent of business written after 2008 and 60 percent excluding HARP volume.
  • The mortgage insurance provision for losses was $144.3 million in the fourth quarter of 2013, compared to $152.0 million in the third quarter of 2013, and $306.9 million in the fourth quarter of 2012.
    • The loss ratio in the fourth quarter for Radian Guaranty was 72.0 percent, compared to 76.0 percent in the third quarter of 2013, and 171.0 percent in the fourth quarter of 2012.
    • Mortgage insurance loss reserves were approximately $2.2 billion as of December 31, 2013, which decreased from $2.3 billion in the third quarter of 2013, and from $3.1 billion a year ago.
    • Primary reserves (excluding IBNR and other reserves) per default were $26,717 as of December 31, 2013. This compares to primary reserves per default of $27,202 as of September 30, 2013, and $26,408 as of December 31, 2012.
  • The total number of primary delinquent loans decreased by 7 percent in the fourth quarter from the third quarter of 2013, and by 35 percent from the fourth quarter of 2012. The total number of primary delinquent loans at December 31, 2013, excludes loans related to the Master Transaction Agreement with Freddie Mac entered into on August 29, 2013. In addition, the total number of primary delinquent loans declined by 3.5 percent in January 2014. Additional details related to the company’s delinquency inventory in January 2014 may be found on Slide 20 of the fourth quarter presentation slides. The primary mortgage insurance delinquency rate decreased to 7.3 percent in the fourth quarter of 2013, compared to 7.8 percent in the third quarter of 2013, and 12.1 percent in the fourth quarter of 2012.
  • Total mortgage insurance claims paid were $283.4 million in the fourth quarter, compared to $519.3 million (which included $254.7 million related to the Freddie Mac Agreement) in the third quarter of 2013 and $263.4 million in the fourth quarter of 2012. Claims paid in the fourth quarter of 2013 exclude $50.0 million of claims processed in the quarter in accordance with the terms of the Freddie Mac Agreement. For the full-year 2013, total claims paid were $1.4 billion, compared to $1.0 billion for the full-year 2012. The company currently expects mortgage insurance net claims paid for the full-year 2014 of $900 million to $1.0 billion.
  • Other operating expenses were $72.5 million in the fourth quarter, compared to $71.0 million in the third quarter and $55.9 million in the fourth quarter of last year. In the quarter, $11.8 million represented long-term incentive compensation, compared to $28.1 million in the third quarter of 2013. The compensation expense in both periods was impacted by an increase in the fair value of cash-settled awards. The component of the fair value change that resulted from the stock price increase was $1.5 million in the fourth quarter of 2013, compared to $16.8 million in the third quarter of 2013. The reduction in long-term incentive compensation in the fourth quarter was fully offset by outside legal and consulting expenses, other year-end compensation expenses, and investments in technology improvements.
  • Radian Asset Assurance Inc. serves as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
    • As of December 31, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $400 million in claims-paying resources.
    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 79 percent to $23.9 billion as of December 31, 2013, including large declines in the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, February 5, 2014, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at Webcasts or at www.radian.biz. The call may also be accessed by dialing 800.230.1085 inside the U.S., or 612.288.0337 for international callers, using passcode 317235 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 317235.

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 Quarterly Results.

NON-GAAP FINANCIAL MEASURES

Radian believes that measures of income excluding certain items (“non-GAAP” measures) facilitate evaluation of the company’s fundamental financial performance and provide relevant and meaningful information to investors about the ongoing operating results of the company. Such measurements are not recognized in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should not be viewed as an alternative to GAAP measures of performance. The measures described below have been established in order to increase transparency for the purpose of evaluating the company’s core operating trends and enable more meaningful comparisons with Radian’s competitors.

Adjusted pretax operating income is defined as earnings excluding the impact of certain items that are not viewed as part of the operating performance of the company’s primary activities, or not expected to result in an economic impact equal to the GAAP measure. See Exhibit O or Radian’s website Non-GAAP Financial Measures for a description of these items, as well as a reconciliation of adjusted pretax operating (loss) income to “pretax (loss) income” and adjusted diluted net operating (loss) income per share to “diluted net (loss) income per share.”

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 Financial Reports.
 
Exhibit A: Condensed Consolidated Statements of Income
Exhibit B: Condensed Consolidated Balance Sheets
Exhibit C: Segment Information Quarter Ended December 31, 2013
Exhibit D: Segment Information Quarter Ended December 31, 2012
Exhibit E: Segment Information Year Ended December 31, 2013
Exhibit F: Segment Information Year Ended December 31, 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
Exhibit O: Use of Non-GAAP Financial Measures

GAAP to Non-GAAP Reconciliations
 

 
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Exhibit A
   
Quarter Ended Year Ended
December 31 December 31

(In thousands, except per-share data)
2013   2012 2013   2012
 
Revenues:
Net premiums written - insurance $ 231,561   $ 217,743   $ 940,817   $ 686,630  
 
Net premiums earned - insurance $ 213,198 $ 193,875 $ 830,894 $ 738,982
Net investment income 26,868 23,112 108,088 114,337
Net (losses) gains on investments (6,829 ) 6,351 (149,720 ) 184,888
Net impairment losses recognized in earnings (3 ) (3 ) (3 ) (3 )
Change in fair value of derivative instruments 38,586 2,912 (31,771 ) (144,025 )
Net losses on other financial instruments (1,151 ) (1,815 ) (4,736 ) (82,269 )
Gain on sale of affiliate 7,708
Other income 916   1,627   6,235   5,790  
Total revenues 271,585   226,059   758,987   825,408  
 
Expenses:
Provision for losses 137,610 305,797 567,134 959,171
Change in reserve for premium deficiency (198 ) (1,464 ) (1,901 ) 41
Policy acquisition costs 6,505 10,098 41,664 61,876
Other operating expenses 72,473 55,896 284,528 196,672
Interest expense 19,747   12,583   74,618   51,832  
Total expenses 236,137   382,910   966,043   1,269,592  
 
Equity in net income (loss) of affiliates     1   (13 )
 
Pretax income (loss) 35,448 (156,851 ) (207,055 ) (444,197 )
Income tax (benefit) provision (921 ) 20,451   (10,070 ) 7,271  
 
Net income (loss) $ 36,369   $ (177,302 ) $ (196,985 ) $ (451,468 )
 
Diluted net income (loss) per share $ 0.19   $ (1.34 ) $ (1.18 ) $ (3.41 )
 
 

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
 
December 31 December 31

(In thousands, except per-share data)
2013 2012
 
Assets:
Cash and investments $ 4,977,542 $ 5,208,199
Deferred policy acquisition costs 66,926 88,202
Deferred income taxes, net 17,902
Reinsurance recoverables 46,846 89,204
Derivative assets 16,642 13,609
Other assets 495,833   503,986  
Total assets $ 5,621,691   $ 5,903,200  
 
Liabilities and stockholders' equity:
Unearned premiums $ 768,871 $ 648,682
Reserve for losses and loss adjustment expenses 2,185,421 3,149,936
Reserve for premium deficiency 1,785 3,685
Long-term debt 930,072 663,571
VIE debt 94,645 108,858
Derivative liabilities 307,185 266,873
Other liabilities 394,067   325,270  
Total liabilities 4,682,046   5,166,875  
 
Common stock 191 151
Additional paid-in capital 1,454,297 1,075,320
Retained deficit (552,226 ) (355,241 )
Accumulated other comprehensive income 37,383   16,095  
Total common stockholders’ equity 939,645   736,325  
Total liabilities and stockholders’ equity $ 5,621,691   $ 5,903,200  
 
Book value per share $ 5.43 $ 5.51
 

     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended December 31, 2013
Exhibit C
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance

$
231,754  

$
(193 )

$
231,561  
 
Net premiums earned - insurance

$

200,356

$

12,842

$

213,198
Net investment income 16,379 10,489 26,868
Net losses on investments (2,818 ) (4,011 ) (6,829 )
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments 635 37,951 38,586
Net losses on other financial instruments (869 ) (282 ) (1,151 )
Other income   903     13     916  
Total revenues   214,586     56,999     271,585  
 
Expenses:
Provision for losses 144,270 (6,660 ) 137,610
Change in reserve for premium deficiency (198 ) (198 )
Policy acquisition costs 4,413 2,092 6,505
Other operating expenses 60,294 12,179 72,473
Interest expense   7,175   12,572     19,747  
Total expenses   215,954   20,183     236,137  
 
Pretax (loss) income

$
(1,368 )

$
36,816  

$
35,448
Income tax benefit   (921 )
 
Net income

$
36,369  
 
Cash and investments

$
2,683,467

$
2,294,075

$
4,977,542
Deferred policy acquisition costs 29,741 37,185 66,926
Total assets 3,120,904 2,500,787 5,621,691
Unearned premiums 567,072 201,799 768,871
Reserve for losses and loss adjustment expenses 2,164,353 21,068 2,185,421
VIE Debt 2,845 91,800 94,645
Derivative liabilities 307,185 307,185
 

     
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended December 31, 2012
Exhibit D
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance

$
217,044  

$
699  

$
217,743  
 
Net premiums earned - insurance

$

179,486

$

14,389

$

193,875
Net investment income 12,814 10,298 23,112
Net gains on investments 1,447 4,904 6,351
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments (298 ) 3,210 2,912
Net losses on other financial instruments (864 ) (951 ) (1,815 )
Other income   1,588     39     1,627  
Total revenues   194,173     31,886     226,059  
 
Expenses:
Provision for losses 306,895 (1,098 ) 305,797
Change in reserve for premium deficiency (1,464 ) (1,464 )
Policy acquisition costs 7,469 2,629 10,098
Other operating expenses 44,661 11,235 55,896
Interest expense   2,099     10,484     12,583  
Total expenses   359,660     23,250     382,910  
 
Pretax (loss) income (165,487 ) 8,636 (156,851 )
Income tax provision   12,279     8,172     20,451  
 
Net (loss) income

$
(177,766 )

$
464  

$
(177,302 )
 
Cash and investments

$
3,118,153

$
2,090,046

$
5,208,199
Deferred policy acquisition costs 38,478 49,724 88,202
Total assets 3,575,427 2,327,773 5,903,200
Unearned premiums 382,413 266,269 648,682
Reserve for losses and loss adjustment expenses 3,083,608 66,328 3,149,936
VIE Debt 9,875 98,983 108,858
Derivative liabilities 266,873 266,873
 

       
Radian Group Inc. and Subsidiaries
Segment Information
Year Ended December 31, 2013
Exhibit E
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance

$
950,998  

$
(10,181 ) (1)

$
940,817  
 
Net premiums earned - insurance

$

781,420

$

49,474
(1)

$

830,894
Net investment income 61,615 46,473 108,088
Net losses on investments (93,821 ) (55,899 ) (149,720 )
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments 635 (32,406 ) (31,771 )
Net losses on other financial instruments (2,840 ) (1,896 ) (4,736 )
Other income   6,024     211     6,235  
Total revenues   753,033     5,954     758,987  
 
Expenses:
Provision for losses 564,648 2,486 567,134
Change in reserve for premium deficiency (1,901 ) (1,901 )
Policy acquisition costs 28,485 13,179 41,664
Other operating expenses 236,959 47,569 284,528
Interest expense   17,995     56,623     74,618  
Total expenses   846,186     119,857     966,043  
 
Equity in net income of affiliates       1     1  
 
Pretax loss

$
(93,153 )

$
(113,902 )

$
(207,055 )
Income tax benefit   (10,070 )
 
Net loss

$
(196,985 )
 

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

     
Radian Group Inc. and Subsidiaries
Segment Information
Year Ended December 31, 2012
Exhibit F
 
Mortgage Financial

(In thousands)
Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 806,305   $ (119,675 ) $ 686,630  
 
Net premiums earned - insurance $ 702,385 $ 36,597 $ 738,982
Net investment income 63,191 51,146 114,337
Net gains on investments 103,666 81,222 184,888
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments (330 ) (143,695 ) (144,025 )
Net losses on other financial instruments (3,491 ) (78,778 ) (82,269 )
Gain on sale of affiliate 7,708 7,708
Other income 5,516   274   5,790  
Total revenues 870,937   (45,529 ) 825,408  
 
Expenses:
Provision for losses 921,507 37,664 959,171
Change in reserve for premium deficiency 41 41
Policy acquisition costs 34,131 27,745 61,876
Other operating expenses 152,448 44,224 196,672
Interest expense 7,454   44,378   51,832  
Total expenses 1,115,581   154,011   1,269,592  
 
Equity in net loss of affiliates   (13 ) (13 )
 
Pretax loss (244,644 ) (199,553 ) (444,197 )
Income tax (benefit) provision (30,045 ) 37,316   7,271  
 
Net loss $ (214,599 ) $ (236,869 ) $ (451,468 )
 

 
Radian Group Inc. and Subsidiaries
Financial Guaranty Supplemental Information
Exhibit G
   
Quarter Ended Year Ended
December 31 December 31

(In thousands)
2013   2012 2013     2012
 
Total Premiums Earned - insurance $ 12,842 $ 14,389 $ 51,921 $ 58,861
Impact of commutations and reinsurance     (2,447 ) (22,264 )
Net Premiums Earned - insurance $ 12,842   $ 14,389   $ 49,474   $ 36,597  
 
Refundings included in earned premium $ 8,573   $ 7,956   $ 30,593   $ 33,985  
 
Net premiums earned - derivatives (1) $ 3,879   $ 5,652   $ 17,898   $ 28,693  
 
Claims paid $ 4,365   $ 5,465   $ 47,745   (2) $ 34,338  
 

   
December 31, December 31,

($ in thousands, except ratios)
2013 2012
 

Statutory Information:
 
Capital and surplus $ 1,198,034 $ 1,144,112
Contingency reserve 263,963   300,138  
Qualified statutory capital 1,461,997 1,444,250
 
Unearned premium reserve 195,303 256,920
Loss and loss expense reserve (180,168 )

(53,441

)
Total statutory policyholders' reserves 1,477,132 1,647,729
 
Present value of installment premiums 90,852   114,292  
Total statutory claims paying resources $ 1,567,984   $ 1,762,021  
 
Net debt service outstanding $ 30,778,401   $ 42,526,289  
 
Capital leverage ratio (3) 21 29
Claims paying leverage ratio (4) 20 24
 
Net par outstanding by product:
Public finance direct $ 8,051,124 $ 9,796,131
Public finance reinsurance 4,383,643 5,542,217
Structured direct 10,872,379 17,615,383
Structured reinsurance 547,733   787,758  
Total (5) $ 23,854,879   $ 33,741,489  
 

(1)
 

Included in change in fair value of derivative instruments.

(2)

Primarily related to commutation of reinsurance business.

(3)

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

(4)

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

(5)

Included in public finance net par outstanding is $0.9 billion and $1.0 billion at December 31, 2013 and December 31, 2012, 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.
 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit H
   
Quarter Ended Year Ended
December 31 December 31
2013   2012 2013   2012
($ in millions) $   % $   % $   % $   %

Primary new insurance written
       
Prime $ 9,252 100.0 % $ 11,657 99.9 % $ 47,251 100.0 % $ 37,041 99.9 %
Alt -A and A minus and below       6     0.1   4       20     0.1  
Total Flow $ 9,252     100.0 % $ 11,663     100.0 % $ 47,255     100.0 % $ 37,061     100.0 %
 

Total primary new insurance written by FICO score
>=740 $ 6,082 65.7 % $ 8,838 75.8 % $ 33,466 70.8 % $ 28,151 75.9 %
680-739 2,675 28.9 2,519 21.6 11,971 25.3 7,994 21.6
620-679 495     5.4   306     2.6   1,818     3.9   916     2.5  
Total Flow $ 9,252     100.0 % $ 11,663     100.0 % $ 47,255     100.0 % $ 37,061     100.0 %

 

Percentage of primary new insurance written
Monthly premiums 70 % 65 % 68 % 65 %
Single premiums 30 % 35 % 32 % 35 %
 
Refinances 17 % 44 % 30 % 40 %
LTV
95.01% and above 3.4 % 1.5 % 2.6 % 1.4 %
90.01% to 95.00% 48.7 % 40.5 % 45.4 % 41.2 %
85.01% to 90.00% 36.0 % 40.5 % 37.3 % 41.0 %
85.00% and below 11.9 % 17.5 % 14.7 % 16.4 %
 

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit I
 
December 31 December 31
2013 2012

($ in millions)
$   % $   %

Primary insurance in force (1)
   
Flow $ 151,383 93.9 % $ 129,079 92.0 %
Structured 9,857     6.1   11,284     8.0  
Total Primary $ 161,240     100.0 % $ 140,363     100.0 %
 
Prime $ 147,072 91.2 % $ 123,437 87.9 %
Alt-A 8,634 5.4 10,447 7.5
A minus and below 5,534     3.4   6,479     4.6  
Total Primary $ 161,240     100.0 % $ 140,363     100.0 %
 

Primary risk in force (1)
Flow $ 37,792 94.4 % $ 31,891 92.8 %
Structured 2,225     5.6   2,481     7.2  
Total Primary $ 40,017     100.0 % $ 34,372     100.0 %
 
Flow
Prime $ 35,294 93.4 % $ 28,898 90.6 %
Alt-A 1,541 4.1 1,852 5.8
A minus and below 957     2.5   1,141     3.6  
Total Flow $ 37,792     100.0 % $ 31,891     100.0 %
 
Structured
Prime $ 1,319 59.3 % $ 1,450 58.5 %
Alt-A 476 21.4 552 22.2
A minus and below 430     19.3   479     19.3  
Total Structured $ 2,225     100.0 % $ 2,481     100.0 %
 
Total
Prime $ 36,613 91.5 % $ 30,348 88.3 %
Alt-A 2,017 5.0 2,404 7.0
A minus and below 1,387     3.5   1,620     4.7  
Total Primary $ 40,017     100.0 % $ 34,372     100.0 %
 

(1) Includes amounts related to the Freddie Mac Agreement.
 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit J
   
December 31 December 31
2013 2012

($ in millions)
$     % $   %

Total primary risk in force by FICO score
   
Flow
>=740 $ 21,525 57.0 % $ 16,448 51.6 %
680-739 11,019 29.2 9,686 30.4
620-679 4,555 12.0 4,918 15.4
<=619 693       1.8   839     2.6  
Total Flow $ 37,792       100.0 % $ 31,891     100.0 %
 
Structured
>=740 $ 602 27.0 % $ 661 26.6 %
680-739 640 28.8 716 28.9
620-679 585 26.3 661 26.6
<=619 398       17.9   443     17.9  
Total Structured $ 2,225       100.0 % $ 2,481     100.0 %
 
Total
>=740 $ 22,127 55.3 % $ 17,109 49.8 %
680-739 11,659 29.1 10,402 30.3
620-679 5,140 12.9 5,579 16.2
<=619 1,091       2.7   1,282     3.7  
Total Primary $ 40,017       100.0 % $ 34,372     100.0 %
 

Total primary risk in force by LTV
95.01% and above $ 4,171 10.4 % $ 4,643 13.5 %
90.01% to 95.00% 17,239 43.1 13,303 38.7
85.01% to 90.00% 14,750 36.9 13,134 38.2
85.00% and below 3,857       9.6   3,292     9.6  
Total $ 40,017       100.0 % $ 34,372     100.0 %
 

Total primary risk in force by policy year
2005 and prior $ 4,461 11.1 % $ 5,657 16.5 %
2006 2,326 5.8 2,735 8.0
2007 5,247 13.1 6,059 17.6
2008 3,950 9.9 4,582 13.3
2009 1,448 3.6 2,021 5.9
2010 1,206 3.0 1,726 5.0
2011 2,263 5.7 2,956 8.6
2012 7,710 19.3 8,636 25.1
2013 11,406       28.5        
Total $ 40,017       100.0 % $ 34,372     100.0 %
 
Primary risk in force on defaulted loans $ 2,786

(1)

 
$ 4,320
 

(1) Excludes risk related to loans subject to the Freddie Mac Agreement.
 

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit K
 
December 31 December 31
($ in millions) 2013 2012
$       % $   %

Pool risk in force
     
Prime $ 1,252 78.1 % $ 1,411 76.9 %
Alt-A 74 4.6 104 5.7
A minus and below   278         17.3     319   17.4  
Total $ 1,604         100.0 % $ 1,834   100.0 %
 

Total pool risk in force by policy year

2005 and prior
$ 1,503 93.7 % $ 1,663 90.7 %

   2006
31 1.9 76 4.1

   2007
68 4.2 85 4.6

   2008
  2         0.2     10   0.6  
Total pool risk in force $ 1,604         100.0 % $ 1,834   100.0 %
 

Other risk in force
Second-lien
1st loss $ 56 $ 81
2nd loss 17 13
NIMS 5 14
1st loss-Hong Kong primary mortgage insurance   19     40
Total other risk in force $ 97   $ 148
 
Risk to capital ratio-Radian Guaranty only

19.4

:1

(1)

 

 
20.8:1
Risk to capital ratio-Mortgage Insurance combined

23.9

:1

(1)

 

 
29.9:1
 
(1) Preliminary
 

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit L
 
Quarter Ended Year Ended
December 31 December 31

($ in thousands)
2013   2012 2013   2012
 
Net claims paid
Prime $ 192,014 $ 171,727 $ 770,500 $ 638,820
Alt-A 42,222 43,806 183,846 165,776
A minus and below 26,286   26,982   111,828   112,216  
Total primary claims paid 260,522 242,515 1,066,174 916,812
Pool 22,451 20,360 115,192 92,206
Second-lien and other 417   555   2,995   8,598  
Subtotal 283,390 263,430 1,184,361 1,017,616
Impact of Freddie Mac Agreement 254,667
Impact of captive terminations       (148 )
Total $ 283,390   $ 263,430   $ 1,439,028   $ 1,017,468  
 
Average claim paid (1)
Prime $ 47.7 $ 48.0 $ 47.4 $ 48.6
Alt-A 56.4 56.3 56.3 57.9
A minus and below 37.8 36.7 37.0 37.7
Total primary average claims paid 47.6 47.6 47.3 47.8
Pool 54.2 73.0 65.6 67.9
Second-lien and other 13.0 11.1 15.9 25.1
Total $ 47.9 $ 48.6 $ 48.4 $ 48.7
 
Average primary claim paid (2) (3) $ 50.0 $ 50.0 $ 49.6 $ 50.4
Average total claim paid (2) (3) $ 50.1 $ 50.8 $ 50.5 $ 51.1
 
Loss ratio - GAAP basis 72.0 % 171.0 % 72.3 % 131.2 %
Expense ratio - GAAP basis 32.3 % 29.0 % 34.0 % 26.6 %
104.3 % 200.0 % 106.3 % 157.8 %
 
Reserve for losses by category
Prime $ 937,307 $ 1,508,140
Alt-A 384,841 490,728
A minus and below 215,545 314,068
IBNR and other 347,698 289,032
LAE 51,245 64,252
Reinsurance recoverable (4) 38,363   83,238  
Total primary reserves 1,974,999   2,749,458  
Pool insurance 169,682 281,937
IBNR and other 8,938 34,000
LAE 5,439   7,466  
Total pool reserves 184,059   323,403  
Total 1st lien reserves 2,159,058   3,072,861  
Second lien and other 5,295   10,747  
Total reserves $ 2,164,353   $ 3,083,608  
 
1st lien reserve per default (5)
Primary reserve per primary default excluding IBNR and other 26,717 26,408
Pool reserve per pool default excluding IBNR and other 14,690 15,948
 

(1)
 

Calculated net of reinsurance recoveries and without giving effect to the impact of the Freddie Mac Agreement and captive terminations.

(2)

Calculated without giving effect to the impact of the Freddie Mac Agreement and captive terminations.

(3)

Before reinsurance recoveries.

(4)

Represents ceded losses on captive transactions, Smart Home and quota share reinsurance transactions.

(5)

If calculated before giving effect to deductibles and stop losses in pool transactions, this would be $24,640 and $28,125 at December 31, 2013 and 2012, respectively.
 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit M
   
December 31 December 31
2013 2012

Default Statistics
Primary Insurance:
 

Prime
Number of insured loans 741,554 667,622
Number of loans in default 37,932 60,854
Percentage of loans in default 5.12 % 9.12 %
 

Alt-A
Number of insured loans 44,905 54,069
Number of loans in default 11,209 16,005
Percentage of loans in default 24.96 % 29.60 %
 

A minus and below
Number of insured loans 40,930 49,307
Number of loans in default 11,768 16,310
Percentage of loans in default 28.75 % 33.08 %
 
Total Primary
Number of insured loans 839,249 (1) 770,998
Number of loans in default 60,909 (2) 93,169
Percentage of loans in default 7.26 % 12.08 %
 
Pool insurance
Number of loans in default 11,921 18,147
 

(1)
 

Includes 11,860 insured loans subject to the Freddie Mac Agreement.

(2)

Excludes 7,221 loans subject to the Freddie Mac Agreement that are in default at December 31, 2013, as we no longer have claims exposure on these loans.
 

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit N
 

Quarter EndedDecember 31

Year EndedDecember 31

($ in thousands)
2013   2012 2013   2012
 

1st Lien Captives
Premiums ceded to captives $ 3,801 $ 5,371 $ 17,901 $ 23,416
% of total premiums 1.8 % 2.8 % 2.1 % 3.2 %
IIF included in captives (1) 4.0 % 6.5 %
RIF included in captives (1) 3.8 % 6.3 %
 

Initial Quota Share Reinsurance ("QSR") Transaction
QSR ceded premiums written $ 5,474 $ 10,296 $ 23,047 $ 52,151
% of premiums written 2.2 % 4.3 % 2.2 % 5.9 %
QSR ceded premiums earned $ 7,035 $ 7,700 $ 29,746 $ 16,088
% of premiums earned 3.2 % 4.0 % 3.5 % 2.2 %
Ceding commissions $ 1,369 $ 2,574 $ 5,762 $ 13,038
RIF included in QSR (2) $ 1,329,544 $ 1,525,840
 

Second QSR Transaction
QSR ceded premiums written $ 7,972 $ 9,648 $ 40,225 $ 9,648
% of premiums written 3.2 % 4.0 % 3.9 % 1.1 %
QSR ceded premiums earned $ 6,137 $ 504 $ 18,356 $ 504
% of premiums earned 2.8 % 0.3 % 2.2 % 0.1 %
Ceding commissions $ 2,790 $ 3,377 $ 14,079 $ 3,377
RIF included in QSR (2) $ 1,298,631 $ 368,429
 
Persistency (twelve months ended December 31) 81.1 % 81.8 %
 

(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.
 

 

Radian Group Inc. and Subsidiaries

Use of Non-GAAP Financial Measures

Exhibit O (page 1 of 4)
 
In addition to the traditional GAAP financial measures, the Company has begun to include certain non-GAAP financial measures, “adjusted pretax operating income,” “adjusted net operating income” and “adjusted diluted net operating income per share” among its key performance indicators to facilitate evaluation of its fundamental financial performance. These measures have been established in order to increase transparency for the purpose of evaluating our core operating trends and enable more meaningful comparisons with our competitors. We believe these measures aid in understanding the underlying performance of our operations.
 
Adjusted pretax operating income adjusts GAAP pretax income to remove the effects of net gains (losses) on investments and other financial instruments and net impairment losses recognized in earnings. It also excludes gains and losses related to changes in fair value estimates on insured credit derivatives and includes the impact of changes in the present value of insurance claims and recoveries on insured credit derivatives, based on the Company's ongoing insurance loss monitoring, as well as premiums earned on insured credit derivatives.
 
Although this measure excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are (1) not viewed as part of the operating performance of the Company’s primary activities, or (2) not expected to result in an economic impact equal to the GAAP measure. These adjustments, along with the reasons for their treatment, are described below.
     
(1)

Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, the Company’s tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of the Company’s investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses. The Company does not view them to be indicative of its fundamental operating activities. Trends in the profitability of the Company’s fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. Therefore, these items are excluded from the Company’s calculation of adjusted pretax operating income.
 
(2)

Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. The Company does not view them to be indicative of its fundamental operating activities. Therefore, these losses are excluded from the Company’s calculation of adjusted pretax operating income.
 
(3)

Change in fair value of derivative instruments. Gains and losses related to changes in the fair value of insured credit derivatives are subject to significant fluctuation based on changes in interest rates, credit spreads (of both the underlying collateral as well as the Company's credit spread), credit ratings and other market, asset-class and transaction-specific conditions and factors that may be unrelated or only indirectly related to our obligation to pay future claims. With the exception of the change in present value of estimated credit loss payments (recoveries) and net premiums earned on derivatives, discussed in items 4 and 5 below, the Company believes these gains and losses will reverse over time and consequently these changes are not expected to result in economic gains or losses. Therefore, these gains and losses are excluded from the Company’s calculation of adjusted pretax operating income.
 
(4)

Change in present value of estimated credit loss payments (recoveries). The change in present value of insurance claims the Company expects to pay or recover on insured credit derivatives represents the amount of the change in credit derivatives from item 3, above, that the Company expects to result in an economic loss or recovery based on its ongoing loss monitoring analytics. Therefore, this item is expected to have an economic impact and is included in the Company’s calculation of adjusted pretax operating income.
 
(5)

Net premiums earned on derivatives. The net premiums earned on insured credit derivatives are classified as part of the change in fair value of derivative instruments discussed in item 3 above. However, since net premiums earned on derivatives are considered part of the Company’s fundamental operating activities, these premiums are included in the Company’s calculation of adjusted pretax operating income.
 
Adjusted pretax operating income is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP pretax income. The Company’s definition of adjusted pretax operating income may not be comparable to similarly-named measures reported by other companies.
 
Adjusted net operating income consists of adjusted pretax operating income reduced by income taxes computed at the statutory tax rate of 35%. Adjusted diluted net operating income per share consists of adjusted net operating income divided by the weighted-average number of common and common equivalent shares outstanding on a diluted basis. Interest expense on convertible debt, share dilution from convertible debt and the impact of stock-based compensation arrangements have been reflected in the per share calculations consistent with the accounting standard regarding earnings per share, whenever the impact is dilutive.
 
These non-GAAP financial measures align with the way the Company’s business performance is evaluated by both management and the board of directors. The following tables provide reconciliations of pretax income (loss) to adjusted pretax operating income (loss) for each business segment and the consolidated company, in addition to a reconciliation of net income (loss) to adjusted net operating income (loss) for the consolidated company.

 
Radian Group Inc. and Subsidiaries

GAAP to Non-GAAP Reconciliation by Segment
Exhibit O (page 2 of 4)
 
2013 Quarters

(In thousands)
First   Second   Third   Fourth   Year
Mortgage Insurance:
Pretax loss $ (16,816 ) $ (67,096 ) $ (7,873 ) $ (1,368 ) $ (93,153 )
Less:
Net losses on investments (3,237 ) (83,386 ) (4,380 ) (2,818 ) (93,821 )
Net impairment losses recognized in earnings
Change in fair value of derivative instruments 635 635
Net (losses) gains on other financial instruments (1,877 ) 74   (168 ) (869 ) (2,840 )
Total exclusions (5,114 ) (83,312 ) (4,548 ) (3,052 ) (96,026 )
Plus:
Change in present value of estimated credit loss payments (recoveries) 299 (323 ) 74 (29 ) 21
Net premiums earned on derivatives          
Total additions 299   (323 ) 74   (29 ) 21  
Adjusted pretax operating (loss) income - Mortgage Insurance $ (11,403 ) $ 15,893   $ (3,251 ) $ 1,655   $ 2,894  
 
Financial Guaranty:
Pretax (loss) income $ (185,407 ) $ 35,589   $ (900 ) $ 36,816   $ (113,902 )
Less:
Net losses on investments (2,268 ) (46,868 ) (2,752 ) (4,011 ) (55,899 )
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments (167,670 ) 86,535 10,778 37,951 (32,406 )
Net (losses) gains on other financial instruments (3,798 ) 1,114   1,070   (282 ) (1,896 )
Total exclusions (173,736 ) 40,781   9,096   33,655   (90,204 )
Plus:
Change in present value of estimated credit loss payments (recoveries) 2,845 618 (3,347 ) 393 509
Net premiums earned on derivatives 4,992   4,857   4,170   3,879   17,898  
Total additions 7,837   5,475   823   4,272   18,407  
Adjusted pretax operating (loss) income - Financial Guaranty $ (3,834 ) $ 283   $ (9,173 ) $ 7,433   $ (5,291 )
 

 
Radian Group Inc. and Subsidiaries

GAAP to Non-GAAP Reconciliation Consolidated
Exhibit O (page 3 of 4)
 
2013 Quarters

(In thousands)
First   Second   Third   Fourth   Year
Consolidated:
Pretax (loss) income $ (202,223 ) $ (31,507 ) $ (8,773 ) $ 35,448   $ (207,055 )
Less:
Net losses on investments (5,505 ) (130,254 ) (7,132 ) (6,829 ) (149,720 )
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments (167,670 ) 86,535 10,778 38,586 (31,771 )
Net (losses) gains on other financial instruments (5,675 ) 1,188   902   (1,151 ) (4,736 )
Total exclusions (178,850 ) (42,531 ) 4,548   30,603   (186,230 )
Plus:
Change in present value of estimated credit loss payments (recoveries) 3,144 295 (3,273 ) 364 530
Net premiums earned on derivatives 4,992   4,857   4,170   3,879   17,898  
Total additions 8,136   5,152   897   4,243   18,428  
Adjusted pretax operating (loss) income - Consolidated $ (15,237 ) $ 16,176   $ (12,424 ) $ 9,088   $ (2,397 )
 
Consolidated:
Net (loss) income $ (187,500 ) $ (33,172 ) $ (12,682 ) $ 36,369   $ (196,985 )
Less:
Net losses on investments (5,505 ) (130,254 ) (7,132 ) (6,829 ) (149,720 )
Net impairment losses recognized in earnings (3 ) (3 )
Change in fair value of derivative instruments (167,670 ) 86,535 10,778 38,586 (31,771 )

Net (losses) gains on other financial instruments
(5,675 ) 1,188 902 (1,151 ) (4,736 )
Income tax benefit (provision) 14,723   (1,665 ) (3,909 ) 921   10,070  
Total exclusions (164,127 ) (44,196 ) 639   31,524   (176,160 )
Plus:
Change in present value of estimated credit loss payments (recoveries) 3,144 295 (3,273 ) 364 530
Net premiums earned on derivatives 4,992 4,857 4,170 3,879 17,898
Income tax benefit (provision) computed at the statutory tax rate 5,333   (5,661 ) 4,348   (3,181 ) 839  
Total additions 13,469   (509 ) 5,245   1,062   19,267  
Adjusted net operating (loss) income - Consolidated $ (9,904 ) $ 10,515   $ (8,076 ) $ 5,907   $ (1,558 )
 

 
Radian Group Inc. and Subsidiaries

GAAP to Non-GAAP Reconciliation Consolidated
Exhibit O (page 4 of 4)
 
2013 Quarters
First   Second   Third   Fourth   Year
Consolidated:
Diluted net (loss) income per share $ (1.30 ) $ (0.19 ) $ (0.07 ) $ 0.19 $ (1.18 )
Adjustments:
Total adjustments from net (loss) income to adjusted net operating (loss) income (1) 1.23 0.25 0.02 (0.14 ) 1.17
Change in dilutive impact of convertible debt and stock-based compensation arrangements (2)       (0.02 )  
Adjusted diluted net operating (loss) income per share (2) $ (0.07 ) $ 0.06   $ (0.05 ) $ 0.03   $ (0.01 )
 

(1)
 

EPS impact of adjustments from net (loss) income to adjusted net operating (loss) income as detailed in the previous table.

(2)

“Adjusted diluted net operating (loss) income per share” consists of “Adjusted net operating (loss) income” divided by the weighted-average number of common and common equivalent shares outstanding on a diluted basis. Interest expense, shares issuable on convertible debt and the impact of stock-based compensation arrangements have been reflected in the per share calculations consistent with the accounting standard regarding earnings per share, whenever the impact is dilutive. The “Change in dilutive impact of convertible debt and stock-based compensation arrangements” reflects the change in dilution due to the impact of the “Total adjustments from net (loss) income to adjusted net operating (loss) income.”
 

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, actual or threatened downgrades of U.S. government credit ratings, or actual or threatened defaults on U.S. government obligations;
  • 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, municipal and sovereign bankruptcy filings or other 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 our 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 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 (including as part of one or more settlements of disputed rescissions or 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 Federal Housing Administration, 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 (which are expected to be released in 2014 and implemented following a transition period), which may include more onerous 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 our 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 Internal Revenue Service 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, substantially all of our investment portfolio and certain of our long-term incentive compensation awards;
  • our ability to realize some or all of the tax benefits associated with our gross deferred tax assets, which will depend, in part, 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, Item 1A of Part II of our Quarterly Reports on Form 10-Q filed in 2013 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 issued this press release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.

Copyright Business Wire 2010

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