– Achieves full-year profitability and makes
significant progress in eliminating legacy exposure –
– Reports fourth quarter net income of $428
million or $1.78 per diluted share –
– Results include reversal of DTA valuation
allowance and loss on pending sale of FG business –
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended December 31, 2014, of $428.3 million, or $1.78 per
diluted share. This compares to net income for the quarter ended
December 31, 2013, of $36.4 million, or $0.21 per diluted
share.
“We made significant progress in 2014 with full year
profitability and by reducing Radian’s overall risk profile,” said
Chief Executive Officer S.A. Ibrahim. “By focusing on our core
strengths in mortgage insurance and mortgage and real estate
services, we are driving long-term value from our existing and
growing portfolio while diversifying our future revenue
sources.”
Results for the fourth quarter of 2014 include two significant
items:
- A net loss on discontinued operations
of $449.7 million, or $1.85 per diluted share, which includes the
loss on sale of Radian Asset Assurance Inc., Radian’s financial
guaranty insurance subsidiary. Operations for Radian Asset for all
periods have been reported as discontinued operations. The
completion of the sale is subject to satisfaction of customary
closing conditions, including regulatory approvals, and is expected
to occur in the first half of 2015. Details regarding the sale of
Radian Asset may be found below; the balance sheet and statement of
operations associated with discontinued operations may be found in
press release Exhibit D.
- The reversal of substantially all of
the company’s deferred tax asset (DTA) valuation allowance, in the
amount of $815.6 million, or $3.36 per diluted share, in the fourth
quarter of 2014. The DTA valuation allowance reversal, which
represented $4.27 in book value per share as of December 31, 2014,
is the result of Radian’s sustained profitability in recent
quarters as well as the positive outlook for future profitability,
driven by the reduction in the company’s legacy exposure and the
improved composition of the overall portfolio.
Net income for the full year 2014 was $959.5 million, or $4.16
per diluted share, which included a net loss after tax of $300.1
million from discontinued operations and an income tax benefit of
$852.4 million from continuing operations, which was primarily
driven by the reversal of the DTA valuation allowance. This
compares to a net loss for the full year 2013 of $197.0 million, or
$1.18 per diluted share, which included an after-tax loss of $55.1
million from discontinued operations and an income tax benefit of
$31.5 million from continuing operations.
Adjusted pretax operating income for the quarter ended December
31, 2014, was $58.4 million, compared to an adjusted pretax
operating loss for the quarter ended December 31, 2013, of $13.3
million. Adjusted pretax operating income for the twelve months
ended December 31, 2014, was $342.4 million, compared to an
adjusted pretax operating loss for the twelve months ended December
31, 2013, of $67.4 million.
Book value per share at December 31, 2014, was $10.98.
Ibrahim continued, “As we look to 2015 and beyond, we believe
the combination of our mortgage insurance and mortgage and real
estate services platforms will better enable us to sharpen our
customer focus and provide a variety of services to meet their
needs. This directly aligns with our strategy to serve the entire
mortgage finance market and to be well positioned to compete in the
next phase of the evolving housing finance market.”
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
- New mortgage insurance written (NIW)
was $10.0 billion during the quarter, compared to $11.2 billion in
the third quarter of 2014, and $9.3 billion in the prior-year
quarter.
- Of the $10.0 billion in new business
written in the fourth quarter of 2014, 69 percent was written with
monthly premiums and 31 percent with single premiums. This compares
to a mix of 70 percent monthly premiums and 30 percent single
premiums in the fourth quarter of 2013.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force was an industry-leading $171.8 billion as of December 31,
2014, compared to $169.2 billion as of September 30, 2014, and
$161.2 billion as of December 31, 2013. Persistency, which is the
percentage of mortgage insurance in force that remains on the
company’s books after a twelve-month period, was 83.4 percent as of
December 31, 2014, compared to 83.5 percent as of September 30,
2014, and 81.1 percent as of December 31, 2013.
- Consistent with the company’s strategy
for actively managing and reducing legacy mortgage insurance
exposure, on September 16, 2014, Radian Guaranty Inc. entered into
a Confidential Settlement Agreement with Countrywide Home Loans and
Bank of America (BofA) in order to resolve various actual and
potential claims and disputes related to mortgage insurance
coverage on legacy loans. In late December 2014, Radian received
the necessary consents from Fannie Mae and Freddie Mac to implement
the Settlement Agreement. The implementation, which commenced on
February 1, 2015, will result in a decrease to future rescissions
and denials and an increase in claims paid, but is not expected to
impact future net income.
- The mortgage insurance provision for
losses was $83.6 million in the fourth quarter of 2014, compared to
$48.9 million in the third quarter of 2014, and $144.1 million in
the prior-year period.
- The loss ratio in the fourth quarter
was 36.9 percent, compared to 22.5 percent in the third quarter of
2014, and 71.9 percent in the fourth quarter of 2013.
- Mortgage insurance loss reserves were
$1.6 billion as of December 31, 2014, compared to $1.6 billion as
of September 30, 2014, and $2.2 billion as of December 31,
2013.
- Primary reserve per default (excluding
IBNR and other reserves) was $27,683 as of December 31, 2014. This
compares to primary reserve per default of $27,477 as of September
30, 2014, and $26,717 as of December 31, 2013.
- The total number of primary delinquent
loans decreased by three percent in the fourth quarter from the
third quarter of 2014, and by 26 percent from the fourth quarter of
2013. The primary mortgage insurance delinquency rate decreased to
5.2 percent in the fourth quarter of 2014, compared to 5.4 percent
in the third quarter of 2014, and 7.3 percent in the fourth quarter
of 2013.
- Total mortgage insurance claims paid
were $117.2 million in the fourth quarter of 2014, compared to
$173.9 million in the third quarter of 2014, and $283.4 million in
the fourth quarter of 2013. Claims paid in the fourth quarter of
2014 exclude
- $15.7 million of claims processed in
the quarter in accordance with the terms of the August 2013 Freddie
Mac Agreement, for which no cash payment was necessary, and
- claims expected to be paid of
approximately $250 million in the first half of 2015 relating to
the September 2014 BofA Settlement Agreement.
For the full-year 2014, total claims paid excluding the Freddie
Mac agreement were $838.3 million, compared to $1.2 billion for the
full-year 2013. The company currently expects mortgage insurance
net claims paid for the full-year 2015 of approximately $600 – $700
million. This includes the approximately $250 million of claims
expected to be paid related to the September 2014 BofA Settlement
Agreement.
- Other operating expenses were $85.8
million in the fourth quarter, including $24.4 million related to
long-term compensation expenses and other year-end bonus accruals,
a significant portion of which was driven by the variable
compensation expense related to an increase in the company’s stock
price. Other operating expenses in the fourth quarter also included
an $11.2 million settlement of remedies related to services
provided on legacy business. This compares to $51.2 million in the
third quarter, which included $2.1 million of long-term
compensation expenses, and $64.1 million in the fourth quarter of
2013, which included $16.1 million of long-term compensation
expenses and other year-end bonus accruals.
- On June 30, 2014, Radian completed the
acquisition of Clayton Holdings LLC, which was an important step in
its growth and diversification strategy. The Mortgage and Real
Estate Services segment is primarily comprised of Clayton’s
operations. Total service revenues were $34.5 million and gross
profit on services was $14.8 million in the fourth quarter of 2014.
This compares to total service revenues of $42.2 million and gross
profit on services of $18.3 million in the third quarter of
2014.
- As previously disclosed, on December
22, 2014, Radian Guaranty, the mortgage insurance subsidiary of
Radian Group Inc., entered into a Stock Purchase Agreement to sell
100% of the issued and outstanding shares of Radian Asset, Radian’s
financial guaranty insurance subsidiary, to Assured Guaranty Corp.,
a subsidiary of Assured Guaranty Ltd. (NYSE: AGO), for a purchase
price of $810 million.
- Expected net proceeds of $790 million
will be payable in cash on the closing date.
- The financial results of Radian Asset
are not expected to have an impact on Radian’s consolidated net
income after December 31, 2014.
- Details regarding the assets and
liabilities associated with the discontinued operations may be
found on press release Exhibit D.
- As a result of the pending sale of
Radian Asset discussed above, the company has reclassified the
operating results related to the disposition as discontinued
operations for all periods presented in our consolidated statements
of operations and no longer presents a Financial Guaranty segment.
In addition, certain corporate income and expenses that were
previously allocated to the Financial Guaranty segment have been
reallocated to the Mortgage Insurance segment for all periods
presented.
CAPITAL AND LIQUIDITY UPDATE
Radian Guaranty’s risk-to-capital ratio was 17.9:1 as of
December 31, 2014, 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 $670 million of
currently available liquidity.
- As of December 31, 2014, Radian
Guaranty’s statutory capital was $1.7 billion, compared to $1.6
billion at September 30, 2014, and $1.3 billion a year ago.
- As of December 31, 2014, a total of
$2.7 billion of risk in force outstanding had been ceded under
quota share reinsurance agreements in order to proactively manage
Radian Guaranty’s risk-to-capital position. Effective January 1,
2015, Radian is no longer ceding NIW under these agreements.
- Radian had the option to recapture a
portion of the ceded risk on December 31, 2014, however the company
chose not to recapture that risk and received a $9.2 million profit
commission based on experience to date, which increased net
premiums earned in the quarter, and a $15.0 million prepaid
supplemental ceding commission, which has been deferred and will be
amortized as a reduction to our policy acquisition costs over
approximately the next five years.
- In July 2014, The Federal Housing
Finance Agency issued proposed new Private Mortgage Insurer
Eligibility Requirements (PMIERs). The public comment period for
the proposed PMIERs ended in September 2014, and Radian expects the
final PMIERs to be published sometime in the first half of 2015,
with an effective date 180 days after publication. The proposed
PMIERs state that, subject to the approval of Fannie Mae and
Freddie Mac, private mortgage insurers may be granted a transition
period of up to two years from the publication date to comply with
the PMIERs’ financial requirements. As previously disclosed, the
sale of Radian Asset is expected to increase Radian Guaranty’s
Available Assets (as defined by PMIERs) by approximately $790.0
million. Assuming that the final PMIERs are published in their
current form on June 30, 2015, with an effective date of December
31, 2015, the company currently estimates that Radian Guaranty’s
projected net shortfall in Available Assets would be approximately
$350 million as of December 31, 2015, after consideration of the
company’s holding company cash. Additionally, absent the use of
external reinsurance or other potential options available to the
company to accelerate PMIERs compliance, the company further
projects that Radian Guaranty would have no net shortfall in
Available Assets by June 30, 2017, which is the assumed end of the
two-year transition period. Radian Guaranty expects to be able to
comply fully with the PMIERs without a need to raise additional
capital.
CONFERENCE CALL
Radian will discuss fourth quarter and year-end 2014 financial
results in its conference call today, Thursday, February 12, 2015
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 612.234.9960 for international
callers, using passcode 351274 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 351274.
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.
NON-GAAP FINANCIAL MEASURE
Radian believes that adjusted pretax operating income (a
non-GAAP measure) facilitates evaluation of the company’s
fundamental financial performance and provides relevant and
meaningful information to investors about the ongoing operating
results of the company. On a consolidated basis, this measure is
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 a GAAP measure of performance. The
measure described below has 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 press release Exhibit F or Radian’s website for a
description of these items, as well as a reconciliation of adjusted
pretax operating income (loss) to pretax income (loss) from
continuing operations.
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
Operations Exhibit B: Net Income (Loss) Per Share Exhibit C:
Condensed Consolidated Balance Sheets Exhibit D: Discontinued
Operations Exhibit E: Segment Information Three and Twelve Months
Ended December 31, 2014 and Three and Twelve Months Ended December
31, 2013 Exhibit F: Definition of Consolidated Non-GAAP Financial
Measure Exhibit G: Mortgage Insurance Supplemental Information New
Insurance Written Exhibit H: Mortgage Insurance Supplemental
Information Insurance in Force and Risk in Force by Product Exhibit
I: Mortgage Insurance Supplemental Information Risk in Force by
FICO, LTV and Policy Year Exhibit J: Mortgage Insurance
Supplemental Information Pool and Other Risk in Force,
Risk-to-Capital Exhibit K: Mortgage Insurance Supplemental
Information Claims, Reserves and Reserve per Default Exhibit L:
Mortgage Insurance Supplemental Information Default Statistics
Exhibit M: Mortgage Insurance Supplemental Information Captives,
QSR and Persistency Exhibit N: Mortgage and Real Estate Services
Selected Financial Information
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations (1)
Exhibit A
Three Months EndedDecember 31,
Year EndedDecember 31,
(In thousands,
except per-share data)
2014 2013
2014 2013
Revenues: Net premiums earned - insurance $
224,293 $ 200,356
$ 844,528 $ 781,420
Services revenue 34,450 —
76,693 —
Net
investment income 16,531 17,723
65,655 68,121
Net gains (losses) on investments 18,658 (2,631 )
83,869 (98,945 )
Net losses on other financial
instruments (675 ) (2,209 )
(3,880
) (7,580 )
Other income 1,793
1,583
5,820 6,890
Total revenues 295,050 214,822
1,072,685 749,906
Expenses: Provision for losses 82,867 144,072
246,083 562,747
Policy acquisition costs 6,443
4,413
24,446 28,485
Direct cost of services
19,709 —
43,605 —
Other operating expenses
85,800 64,060
252,283 257,402
Interest expense
24,200 19,747
90,464 74,618
Amortization and
impairment of intangible assets 5,354
—
8,648 —
Total
expenses 224,373 232,292
665,529 923,252
Pretax
income (loss) from continuing operations 70,677 (17,470
)
407,156 (173,346 )
Income tax benefit
(807,349 ) (1,422 )
(852,418
) (31,495 )
Net income (loss) from continuing
operations 878,026 (16,048 )
1,259,574 (141,851 )
(Loss) income from discontinued operations, net of tax (2)
(449,691 ) 52,417
(300,057 ) (55,134 )
Net income (loss)
$ 428,335 $ 36,369
$
959,517 $ (196,985 )
Diluted net income
(loss) per share: Net income (loss) from continuing
operations $ 3.63 $ (0.09 )
$ 5.44
$ (0.85 )
(Loss) income from discontinued operations, net of
tax (1.85 ) 0.30
(1.28 ) (0.33 )
Net income (loss)
$ 1.78 $ 0.21
$ 4.16
$ (1.18 )
(1)
As a result of the December 22, 2014
Radian Asset Assurance Stock Purchase Agreement to sell 100% of the
issued and outstanding shares of Radian Asset Assurance, Radian’s
financial guaranty insurance subsidiary, we have reclassified the
operating results related to the disposition as discontinued
operations for all periods presented in our consolidated statements
of operations.
(2)
The financial results of Radian Asset
Assurance are not expected to have an impact on Radian’s
consolidated income after December 31, 2014, because the purchase
price of approximately $810 million is not subject to adjustment
due to Radian Asset Assurance’s results of operations, changes in
valuation or market conditions occurring between the date of the
stock purchase agreement and the closing date.
For Trend Information, refer to our
Quarterly Financial Statistics on Radian’s (RDN) website.
Radian Group Inc. and
Subsidiaries
Net Income (Loss) Per Share
Exhibit B
The calculation of basic and diluted net
income (loss) per share was as follows:
Three Months EndedDecember 31, Year
Ended December 31,
(In thousands,
except per share amounts)
2014 2013
2014 2013
Net income
(loss) from continuing operations: Net income (loss) from
continuing operations - basic $ 878,026 $ (16,048
)
$ 1,259,574 $ (141,851 )
Adjustment for dilutive
Convertible Senior Notes due 2019, net of tax (1)
3,641 —
14,372
—
Net income (loss) from continuing operations -
diluted $ 881,667 $ (16,048 )
$
1,273,946 $ (141,851 )
Net income
(loss): Net income (loss) from continuing operations -
basic $ 878,026 $ (16,048 )
$
1,259,574 $ (141,851 )
(Loss) income from discontinued
operations, net of tax (449,691 )
52,417
(300,057 ) (55,134 )
Net income (loss) - basic 428,335 36,369
959,517 (196,985 )
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1) 3,641
—
14,372 —
Net income (loss) - diluted $ 431,976 $
36,369
$ 973,889 $ (196,985 )
Average common shares outstanding—basic 191,053
173,099
184,551 166,366
Dilutive effect of Convertible
Senior Notes due 2017 10,590 —
8,465 —
Dilutive effect of Convertible Senior Notes due 2019
37,736 —
37,736 —
Dilutive effect of stock-based
compensation arrangements (2) 3,422
—
3,150 —
Adjusted
average common shares outstanding—diluted 242,801
173,099
233,902
166,366
Net income (loss)
per share:
Basic: Net income (loss) from continuing
operations $ 4.60 $ (0.09 )
$ 6.83
$ (0.85 )
(Loss) income from discontinued operations, net of
tax (2.35 ) 0.30
(1.63 ) (0.33 )
Net income (loss)
$ 2.24 $ 0.21
$ 5.20
$ (1.18 )
Diluted: Net income (loss) from
continuing operations $ 3.63 $ (0.09 )
$
5.44 $ (0.85 )
(Loss) income from discontinued
operations, net of tax (1.85 ) 0.30
(1.28 ) (0.33 )
Net income
(loss) $ 1.78 $ 0.21
$
4.16 $ (1.18 )
For all calculations, the determination
of whether potential common shares are dilutive or anti-dilutive is
based on net income (loss) from continuing operations.
(1)
As applicable, includes coupon
interest, amortization of discount and fees, and other changes in
income or loss that would result from the assumed
conversion.
(2)
For the three months and year ended
December 31, 2014, 541,720 shares of our common stock equivalents
issued under our stock-based compensation arrangements were not
included in the calculations of diluted net income per share as of
such dates because they were anti-dilutive.
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
December 31,2014
December 31,2013
(In thousands,
except per share data)
Assets: Investments $ 3,629,299
$ 3,361,678
Cash 30,465 22,880
Restricted cash
14,031 22,527
Accounts and notes receivable
85,792 46,440
Deferred income taxes, net
700,201 17,902
Goodwill and other intangible assets,
net 288,240 2,300
Other assets 375,491
379,903
Assets held for sale 1,736,444
1,768,061
Total assets $ 6,859,963 $
5,621,691
Liabilities and stockholders'
equity: Unearned premiums $ 644,504 $
567,072
Reserve for losses and loss adjustment expenses
1,560,032 2,164,353
Long-term debt 1,209,926
930,072
Other liabilities 326,743 377,930
Liabilities held for sale 947,008
642,619
Total liabilities 4,688,213
4,682,046
Equity component of currently
redeemable convertible senior notes 74,690 —
Common stock 209 191
Additional paid-in
capital 1,638,552 1,454,297
Retained earnings
(deficit) 406,814 (552,226 )
Accumulated other
comprehensive income 51,485 37,383
Total common stockholders’ equity 2,097,060
939,645
Total liabilities and stockholders’
equity $ 6,859,963 $ 5,621,691
Shares outstanding, end of period 191,054 173,100
Book value per share $ 10.98 $ 5.43
Radian Group Inc. and
Subsidiaries
Discontinued Operations
Exhibit D
The (loss) income from discontinued operations, net of tax
consisted of the following components for the periods indicated:
Three Months EndedDecember
31,
Year EndedDecember 31,
(In
thousands)
2014
2013
2014
2013
Net premiums earned $ 10,494 $ 12,842
$
37,194 $ 49,474
Net investment income 8,614
9,145
35,633 39,966
Net gains (losses) on investments
12,788 (4,198 )
51,409 (50,775 )
Impairment losses
on investments — (3 )
— (3 )
Change in fair
value of derivative instruments 3,694 37,951
130,617 (32,406 )
Net gains on other financial
instruments 927 1,058
3,903 2,845
Other
income — (33 )
88
(20 )
Total revenues 36,517
56,762
258,844
9,081
Provision for losses (1,458
) (6,660 )
2,853 2,486
Policy acquisition
costs 1,274 2,092
6,340 13,178
Other operating
expense 8,487 8,412
23,726 27,127
Total expenses
8,303 3,844
32,919
42,791
Equity in net (loss) income
of affiliates — —
(13 ) 1
Income (loss) from
operations of businesses held for sale 28,214 52,918
225,912 (33,709 )
Loss on classification as held for
sale (467,527 ) —
(467,527 ) —
Income tax provision 10,378 501
58,442 21,425
(Loss)
income from discontinued operations, net of tax $
(449,691 ) $ 52,417
$ (300,057
) $ (55,134 ) The assets and liabilities associated
with the discontinued operations have been segregated in the
consolidated balance sheets. The following table summarizes the
major components of Radian Asset Assurance’s assets and liabilities
held for sale on the consolidated balance sheets as of December 31,
2014 and 2013:
December 31,
(In
thousands)
2014
2013
Fixed-maturity investments $ 224,552 $ 85,408
Equity securities 3,749 —
Trading securities
689,887 884,696
Short-term investments 435,413
493,376
Other invested assets 108,206 106,000
Other assets 274,637 198,581
Total
assets held for sale $ 1,736,444 $ 1,768,061
Unearned premiums $ 158,921 $ 201,798
Reserve for losses and loss adjustment expenses
31,558 21,069
VIE debt 85,016 91,800
Derivative liabilities 183,370 307,185
Other
liabilities 488,143 20,767
Total
liabilities held for sale $ 947,008 $ 642,619
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 6)
Summarized financial information concerning our operating
segments and reconciliations to consolidated pretax income (loss)
from continuing operations as of and for the periods indicated, is
as follows:
Three Months Ended December 31,
2014
(In
thousands)
MortgageInsurance
Mortgage andReal
EstateServices (1)
Total Net premiums written - insurance
$ 244,506 $ — $ 244,506
Increase in unearned premiums (20,213 )
— (20,213 ) Net premiums
earned - insurance 224,293 — 224,293
Services revenue (2) — 34,466 34,466
Net investment income (3) 16,531 —
16,531 Other income (3) (4) 1,668
891 2,559 Total
revenues 242,492 35,357
277,849 Provision for losses (5)
83,649 — 83,649 Estimated present value of
net credit recoveries incurred (6) (16 ) —
(16 ) Policy acquisition costs 6,443
— 6,443 Direct cost of services —
19,709 19,709 Other operating expenses (3)
76,320 9,100 85,420 Interest expense
(3) 19,760 4,440
24,200 Total expenses 186,156
33,249 219,405
Adjusted pretax operating income $ 56,336
$ 2,108 $ 58,444
At December 31, 2014
(In
thousands)
MortgageInsurance
Mortgage andReal
EstateServices (1)
Total Cash & Investments $
3,649,582 $ 10,182 $ 3,659,764
Restricted cash 11,508 2,523 14,031
Goodwill — 191,931 191,931 Other
intangible assets, net 137 96,172 96,309
Assets held for sale (7) — — 1,736,444
Total assets 4,786,641 336,878
6,859,963 Unearned premiums 644,504 —
644,504 Reserve for losses and loss adjustment
expenses 1,560,032 — 1,560,032
Liabilities held for sale (7) — —
947,008
(1)
Includes the acquisition of Clayton
Holdings, effective June 30, 2014.
(2)
Includes a de minimis amount of
intersegment revenues in the Mortgage and Real Estate Services
segment.
(3)
Includes amounts that have been
reallocated to the Mortgage Insurance segment that were previously
allocated to the Financial Guaranty segment, but were not
reclassified to discontinued operations. Please see Exhibit E page
5 for details on these reallocations.
(4)
Includes intersegment revenues of $0.8
million in the Mortgage and Real Estate Services segment.
(5)
Includes intersegment expenses of $0.8
million in the Mortgage Insurance segment.
(6)
Please see Exhibit F for the definition
of this line item.
(7)
Assets and liabilities held for sale
are not part of the Mortgage Insurance or Mortgage and Real Estate
Services segments.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 6)
Year Ended December 31, 2014
(In
thousands)
MortgageInsurance
Mortgage andReal
EstateServices (1)
Total Net premiums written - insurance
$ 925,181 $ — $ 925,181
Increase in unearned premiums (80,653 )
— (80,653 ) Net premiums
earned - insurance 844,528 — 844,528
Services revenue (2) — 76,709 76,709
Net investment income (3) 65,655 —
65,655 Other income (3) (4) 5,321
1,265 6,586 Total
revenues 915,504 77,974
993,478 Provision for losses (5)
246,865 — 246,865 Estimated present value
of net credit losses incurred (6) 113 —
113 Policy acquisition costs 24,446 —
24,446 Direct cost of services — 43,605
43,605 Other operating expenses (3) 225,544
20,059 245,603 Interest expense (3)
81,600 8,864 90,464
Total expenses 578,568
72,528 651,096 Adjusted
pretax operating income $ 336,936 $
5,446 $ 342,382
(1)
Includes the acquisition of Clayton
Holdings, effective June 30, 2014.
(2)
Includes a de minimis amount of
intersegment revenues in the Mortgage and Real Estate Services
segment.
(3)
Includes amounts that have been
reallocated to the Mortgage Insurance segment that were previously
allocated to the Financial Guaranty segment, but were not
reclassified to discontinued operations. Please see Exhibit E page
5 for details on these reallocations.
(4)
Includes intersegment revenues of $0.8
million in the Mortgage and Real Estate Services segment.
(5)
Includes intersegment expenses of $0.8
million in the Mortgage Insurance segment.
(6)
Please see Exhibit F for the definition
of this line item.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 3 of 6)
Mortgage Insurance
Three Months Ended
Year Ended
(In
thousands)
December 31, 2013
Net premiums written - insurance $ 231,754 $ 950,998
Increase in unearned premiums (31,398 )
(169,578 )
Net premiums earned - insurance 200,356 781,420
Net investment income (1) 17,723 68,121
Other income
(1) 948 6,255
Total revenues
219,027 855,796
Provision for
losses 144,072 562,747
Estimated present value of net credit
losses (recoveries) incurred (2) 29 (21 )
Policy acquisition
costs 4,413 28,485
Other operating expenses (1) 64,060
257,402
Interest expense (1) 19,747
74,618
Total expenses 232,321
923,231
Adjusted pretax operating loss $
(13,294 ) $ (67,435 )
Mortgage Insurance
At December 31, 2013
Cash & Investments $ 3,384,558
Restricted cash
22,527
Total assets (3) 3,853,630
Unearned premiums
567,072
Reserve for losses and loss adjustment expenses
2,164,353
(1)
Includes amounts that have been
reallocated to the Mortgage Insurance segment that were previously
allocated to the Financial Guaranty segment, but were not
reclassified to discontinued operations. Please see Exhibit E page
6 for details on these reallocations.
(2)
Please see Exhibit F for the definition
of this line item.
(3)
Does not include assets held for sale
or liabilities held for sale of $1.8 billion and $0.6 billion,
respectively, which are not a part of the Mortgage Insurance
segment.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 4 of 6)
Reconciliation of Adjusted Pretax
Operating Income (Loss) to Consolidated Pretax Income
(Loss)
from Continuing Operations
Three Months EndedDecember 31, Year
Ended December 31,
(In
thousands)
2014 2013
2014 2013
Adjusted pretax
operating income (loss): Mortgage Insurance (1) (2)
$ 56,336 $ (13,294 )
$ 336,936 $
(67,435 )
Mortgage and Real Estate Services (3) (4)
2,108 —
5,446
—
Total adjusted pretax operating income
(loss) 58,444 (13,294 )
342,382 (67,435 )
Change in fair
value of derivative instruments — 635
— 635
Less: Estimated present value of net credit recoveries (losses)
incurred (5) 16 (29 )
(113 ) 21
Change in fair value of
derivative instruments expected to reverse over time
(16 ) 664
113
614
Net gains (losses) on investments
18,658 (2,631 )
83,869 (98,945 )
Net losses on
other financial instruments (675 ) (2,209 )
(3,880 ) (7,580 )
Acquisition-related expenses
(5) (380 ) —
(6,680 ) —
Amortization and impairment of intangible assets (5)
(5,354 ) —
(8,648
) —
Consolidated pretax income (loss) from
continuing operations $ 70,677 $ (17,470 )
$ 407,156 $ (173,346 )
(1)
Includes amounts that have been
reallocated to the Mortgage Insurance segment that were previously
allocated to the Financial Guaranty segment, but were not
reclassified to discontinued operations. Please see Exhibit E pages
5 and 6 for details on these reallocations.
(2)
Includes intersegment expenses of $0.8
million for both the three months and year ended December 31,
2014.
(3)
Includes the acquisition of Clayton
Holdings, effective June 30, 2014.
(4)
Includes intersegment revenues of $0.8
million for both the three months and year ended December 31,
2014.
(5)
Please see Exhibit F for the definition
of this line item.
On a consolidated basis, “adjusted pretax operating income
(loss)” is a measure not determined in accordance with GAAP. Total
adjusted pretax operating income (loss) is not a measure of total
profitability, and therefore should not be viewed as a substitute
for GAAP pretax income (loss) from continuing operations. Our
definition of adjusted pretax operating income (loss) may not be
comparable to similarly-named measures reported by other companies.
See Exhibit F for additional information on our consolidated
non-GAAP financial measure.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 5 of 6)
Impact of Reallocations to Mortgage
Insurance Segment
Three Months Ended December 31, 2014
(In
thousands)
Original (1) Reallocations (2)
CurrentlyReported (3)
Net premiums written - insurance $ 244,506
$ — $ 244,506 Increase in unearned
premiums (20,213 ) —
(20,213 ) Net premiums earned -
insurance 224,293 — 224,293 Net
investment income 15,641 890 16,531
Other income 1,619 49
1,668 Total revenues
241,553 939
242,492 Provision for losses
83,649 — 83,649 Estimated present value of
net credit recoveries incurred (4) (16 ) —
(16 ) Policy acquisition costs 6,443
— 6,443 Other operating expenses 73,061
3,259 76,320 Interest expense
8,619 11,141
19,760 Total expenses 171,756
14,400 186,156
Adjusted pretax operating income (loss) $
69,797 $ (13,461 ) $
56,336 Year Ended December 31, 2014
(In
thousands)
Original (1) Reallocations (2)
CurrentlyReported (3)
Net premiums written - insurance $ 925,181
$ — $ 925,181 Increase in unearned
premiums (80,653 ) —
(80,653 ) Net premiums earned -
insurance 844,528 — 844,528 Net
investment income 60,837 4,818 65,655
Other income 5,058 263
5,321 Total revenues
910,423 5,081
915,504 Provision for losses
246,865 — 246,865 Estimated present value
of net credit losses incurred (4) 113 —
113 Policy acquisition costs 24,446 —
24,446 Other operating expenses 212,098
13,446 225,544 Interest expense
28,332 53,268
81,600 Total expenses 511,854
66,714 578,568
Adjusted pretax operating income (loss) $
398,569 $ (61,633 ) $
336,936
(1)
Represents segment results with
corporate expense and income allocations calculated under prior
allocation methodology, without giving effect to the reallocation
of those corporate income and expenses that were previously
allocated to the Financial Guaranty segment.
(2)
Adjustments to segment allocations
resulting from the reallocation of certain corporate income and
expenses to the Mortgage Insurance segment. These allocations were
previously allocated to the Financial Guaranty segment, but were
not reclassified to discontinued operations.
(3)
Represents segment results including
the reallocation of certain corporate income and expenses that were
previously allocated to the Financial Guaranty segment.
(4)
Please see Exhibit F for the definition
of this line item.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 6 of 6)
Impact of Reallocations to Mortgage
Insurance Segment
Three Months Ended December 31, 2013
(In
thousands)
Original (1)
Reallocations (2)
CurrentlyReported (3)
Net premiums written - insurance $ 231,754 $ — $ 231,754
Increase in unearned premiums (31,398 ) —
(31,398 )
Net premiums earned - insurance
200,356 — 200,356
Net investment income 16,379 1,344 17,723
Other income 903 45 948
Total revenues 217,638 1,389
219,027
Provision for losses
144,072 — 144,072
Estimated present value of net credit losses
incurred (4) 29 — 29
Policy acquisition costs 4,413 —
4,413
Other operating expenses 60,294 3,766 64,060
Interest expense 7,175 12,572
19,747
Total expenses 215,983
16,338 232,321
Adjusted
pretax operating income (loss) $ 1,655 $ (14,949 ) $
(13,294 )
Year Ended December 31, 2013
(In
thousands)
Original (1)
Reallocations (2)
CurrentlyReported (3)
Net premiums written - insurance $ 950,998 $ — $ 950,998
Increase in unearned premiums (169,578 ) —
(169,578 )
Net premiums earned - insurance
781,420 — 781,420
Net investment income 61,615 6,506 68,121
Other income 6,024 231
6,255
Total revenues 849,059
6,737 855,796
Provision for
losses 562,747 — 562,747
Estimated present value of net
credit recoveries incurred (4) (21 ) — (21 )
Policy
acquisition costs 28,485 — 28,485
Other operating
expenses 236,959 20,443 257,402
Interest expense
17,995 56,623 74,618
Total
expenses 846,165 77,066
923,231
Adjusted pretax operating income
(loss) $ 2,894 $ (70,329 ) $ (67,435 )
(1)
Represents segment results with
corporate expense and income allocations calculated under prior
allocation methodology, without giving effect to the reallocation
of those corporate income and expenses that were previously
allocated to the Financial Guaranty segment.
(2)
Adjustments to segment allocations
resulting from the reallocation of certain corporate income and
expenses to the Mortgage Insurance segment. These allocations were
previously allocated to the Financial Guaranty segment, but were
not reclassified to discontinued operations.
(3)
Represents segment results including
the reallocation of certain corporate income and expenses that were
previously allocated to the Financial Guaranty segment.
(4)
Please see Exhibit F for the definition
of this line item.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measure
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measure
In addition to the traditional GAAP financial measures, we
have presented a non-GAAP financial measure for the consolidated
company, “adjusted pretax operating income (loss),” among our key
performance indicators to evaluate our fundamental financial
performance. This non-GAAP financial measure aligns with the way
the Company’s business performance is evaluated by both management
and the board of directors. This measure has been established in
order to increase transparency for the purposes of evaluating our
core operating trends and enabling more meaningful comparisons with
our peers. Although on a consolidated basis “adjusted pretax
operating income (loss)” is a non-GAAP financial measure, we
believe this measure aids in understanding the underlying
performance of our operations. Our senior management, including our
Chief Executive Officer (the Company’s chief operating decision
maker), uses adjusted pretax operating income (loss) as our primary
measure to evaluate the fundamental financial performance of the
Company’s business segments and to allocate resources to the
segments. Management’s use of this measure as its primary measure
to evaluate segment performance began with the quarter ended March
31, 2014. Accordingly, for comparison purposes, we also present the
applicable measures from the corresponding periods of 2013 on a
basis consistent with the current year presentation.
Adjusted pretax operating income (loss) adjusts GAAP pretax income
(loss) to remove the effects of net gains (losses) on investments
and other financial instruments, acquisition-related expenses,
amortization and impairment of intangible assets 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 instead includes the impact of changes in the
present value of insurance claims and recoveries on insured credit
derivatives, based on our ongoing insurance loss monitoring.
Although adjusted pretax operating income (loss) 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 our 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)
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,
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 estimated present value of net credit
(losses) recoveries incurred discussed in item 2 below, we believe
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 our
calculation of adjusted pretax operating income (loss).
(2)
Estimated present value of net credit
(losses) recoveries incurred. The change in present value of
insurance claims we expect to pay or recover on insured credit
derivatives represents the amount of the change in credit
derivatives from item 1 above, that we expect to result in an
economic loss or recovery based on our ongoing loss monitoring
analytics. Therefore, this item is expected to have an economic
impact and is included in our calculation of adjusted pretax
operating income (loss). Also included in this item is the change
in expected economic loss or recovery associated with our
consolidated VIEs.
(3)
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, our
tax and capital profile and overall market cycles. Unrealized
investment gains and losses arise primarily from changes in the
market value of our investments that are classified as trading.
These valuation adjustments may not necessarily result in economic
gains or losses. We do not view them to be indicative of our
fundamental operating activities. Trends in the profitability of
our 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 our calculation of
adjusted pretax operating income (loss).
(4)
Acquisition-related expenses.
Acquisition-related expenses represent the costs incurred to effect
an acquisition of a business (i.e., a business combination).
Because we pursue acquisitions on a limited and selective basis and
not in the ordinary course of our business, we do not view
acquisition-related expenses as a consequence of a primary business
activity. Therefore, we do not consider these expenses to be part
of our operating performance and they are excluded from our
calculation of adjusted pretax operating income (loss).
(5)
Amortization and impairment of intangible
assets. Amortization of intangible assets represents the periodic
expense required to amortize the cost of intangible assets over
their estimated useful lives. Intangible assets with an indefinite
useful life are also periodically reviewed for potential impairment
and impairment adjustments are made whenever appropriate. These
charges are not viewed as part of the operating performance of our
primary activities and therefore are excluded from our calculation
of adjusted pretax operating income (loss).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measure
Exhibit F (page 2 of 2)
(6)
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. We do not view these impairment losses to be
indicative of our fundamental operating activities. Therefore,
whenever these losses occur, we exclude them from our calculation
of adjusted pretax operating income (loss).
See Exhibit E, page 4, for the
reconciliation of our non-GAAP financial measure for the
consolidated company, adjusted pretax operating income (loss), to
the most comparable GAAP measure, pretax income (loss) from
continuing operations.
Total adjusted pretax operating income
(loss) is not a measure of total profitability, and therefore
should not be viewed as a substitute for GAAP pretax income (loss)
from continuing operations. Our definition of adjusted pretax
operating income (loss) may not be comparable to similarly-named
measures reported by other companies.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information Exhibit G
Three Months EndedDecember
31,
Year EndedDecember 31,
2014 2013
2014 2013
($ in
millions)
$ % $ %
$ % $
%
Primary new
insurance written
Prime $ 10,008
100.0 % $ 9,252 100.0 %
$ 37,346
100.0 % $ 47,251 100.0 %
Alt -A and A minus and
below 1 — — —
3 — 4 —
Total Primary $ 10,009
100.0 % $ 9,252 100.0 %
$
37,349 100.0 % $ 47,255
100.0 %
Total primary new
insurance written by FICO score
>=740 $ 6,029 60.2 % $ 6,082
65.7 %
$ 23,043 61.7 % $ 33,466 70.8 %
680-739 3,266 32.6 2,675 28.9
11,737
31.4 11,971 25.3
620-679 714
7.2 495 5.4
2,569
6.9 1,818 3.9
Total
Primary $ 10,009 100.0
% $ 9,252 100.0 %
$ 37,349
100.0 % $ 47,255 100.0 %
Percentage of
primary new insurance written
Monthly premiums 69 % 70 %
72 %
68 %
Single premiums 31 % 30 %
28
% 32 %
Refinances 22 % 17 %
17 % 30 %
Loan to value (“LTV”) 95.01% and
above 0.5 % 3.4 %
0.4 % 2.6 %
90.01% to 95.00% 51.7 % 48.7 %
52.9
% 45.4 %
85.01% to 90.00% 33.2 % 36.0 %
33.8 % 37.3 %
85.00% and below 14.6
% 11.9 %
12.9 % 14.7 %
Radian Group Inc. and Subsidiaries Mortgage Insurance
Supplemental Information Exhibit H December
31, December 31,
2014 2013
($ in
millions)
$ % $ %
Primary insurance
in force (“IIF”) (1)
Flow $ 162,302 94.5
% $ 151,383 93.9 %
Structured 9,508
5.5 9,857 6.1
Total
Primary $ 171,810 100.0
% $ 161,240 100.0 %
Prime
$ 159,647 92.9 % $ 147,072 91.2 %
Alt-A 7,412 4.3 8,634 5.4
A minus and
below 4,751 2.8 5,534
3.4
Total Primary $ 171,810
100.0 % $ 161,240 100.0 %
Primary risk in
force (“RIF”) (1)
Flow $ 41,071 95.0 % $ 37,792
94.4 %
Structured 2,168 5.0
2,225 5.6
Total Primary $
43,239 100.0 % $ 40,017
100.0 %
Flow Prime $
38,977 94.9 % $ 35,294 93.4 %
Alt-A
1,295 3.2 1,541 4.1
A minus and below
799 1.9 957 2.5
Total Flow $ 41,071
100.0 % $ 37,792 100.0 %
Structured Prime $ 1,349 62.2
% $ 1,319 59.3 %
Alt-A 425 19.6 476
21.4
A minus and below 394 18.2
430 19.3
Total Structured
$ 2,168 100.0 % $ 2,225
100.0 %
Total Prime $
40,326 93.3 % $ 36,613 91.5 %
Alt-A
1,720 4.0 2,017 5.0
A minus and below
1,193 2.7 1,387
3.5
Total Primary $ 43,239
100.0 % $ 40,017 100.0 %
(1) Includes amounts related to the
Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information Exhibit I
December 31, 2014 December 31, 2013
($ in
millions)
$ % $ %
Total primary RIF
by FICO score
Flow >=740 $ 23,855
58.1 % $ 21,525 57.0 %
680-739 12,199
29.7 11,019 29.2
620-679 4,446 10.8
4,555 12.0
<=619 571 1.4
693 1.8
Total Flow $
41,071 100.0 % $ 37,792
100.0 %
Structured >=740 $
656 30.3 % $ 602 27.0 %
680-739
618 28.5 640 28.8
620-679 527
24.3 585 26.3
<=619 367
16.9 398 17.9
Total
Structured $ 2,168 100.0
% $ 2,225 100.0 %
Total
>=740 $ 24,511 56.7 % $
22,127 55.3 %
680-739 12,817 29.6 11,659 29.1
620-679 4,973 11.6 5,140 12.9
<=619
938 2.1 1,091 2.7
Total Primary $ 43,239
100.0 % $ 40,017 100.0 %
Total primary RIF
by LTV
95.01% and above $ 3,547 8.2 % $
4,171 10.4 %
90.01% to 95.00% 20,521 47.5
17,239 43.1
85.01% to 90.00% 15,307 35.4
14,750 36.9
85.00% and below 3,864
8.9 3,857 9.6
Total
$ 43,239 100.0 % $ 40,017
100.0 %
Total primary RIF
by policy year
2005 and prior
$ 3,540 8.2 % $ 4,461 11.1 %
2006
2,001 4.6 2,326 5.8
2007
4,592 10.6 5,247 13.1
2008
3,394 7.9 3,950 9.9
2009
1,081 2.5 1,448 3.6
2010
925 2.1 1,206 3.0
2011
1,809 4.2 2,263 5.7
2012
6,534 15.1 7,710 19.3
2013
10,265 23.8 11,406 28.5
2014
9,098 21.0 —
—
Total $ 43,239
100.0 % $ 40,017 100.0 %
Primary RIF on defaulted loans (1) $ 2,089 $
2,786
(1) Excludes risk related to loans
subject to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information Exhibit J
December 31, 2014 December 31, 2013
($ in
millions)
$ % $ %
Pool
RIF
Prime $ 1,134 78.5
% $ 1,252 78.1 %
Alt-A 56 3.9 74 4.6
A minus and below 255 17.6
278 17.3
Total $
1,445 100.0 % $ 1,604
100.0 %
Total pool RIF by
policy year
2005 and prior
$ 1,373 95.0 % $ 1,503 93.7 %
2006
9 0.6 31 1.9
2007
62 4.3 68 4.2
2008
1 0.1 2 0.2
Total pool RIF $ 1,445
100.0 % $ 1,604 100.0 %
Other
RIF
Second-lien 1st loss $ 44 $ 56
2nd
loss 13 17
NIMS 5 5
1st loss-Hong Kong
primary mortgage insurance 11 19
Total
other RIF $ 73 $ 97
Risk
to capital ratio - Radian Guaranty only 17.9 :1
(1) 19.5 :1
Risk to capital ratio - Mortgage Insurance
combined 20.3 :1 (1) 24.0 :1
Three Months Ended Year Ended December 31,
December 31, 2014
2013
2014
2013
Loss ratio (2) 36.9 % 71.9 %
29.1 % 72.0 %
Expense ratio - NPE basis (2)
36.9 % 34.2 %
29.6 % 36.6 %
Expense
ratio - NPW basis (3) 33.8 % 29.5 %
27.0
% 30.1 %
(1)
Preliminary.
(2)
Calculated on a GAAP basis using net
premiums earned (“NPE”). For the three months ended December 31,
2014 and 2013, the expense ratio includes 1.5% and 1.9%,
respectively, and for the years ended December 31, 2014 and 2013,
the expense ratio includes 1.6% and 2.6%, respectively, of expenses
that were previously allocated to the Financial Guaranty segment,
because these corporate items were not reclassified to discontinued
operations. These expenses have been reallocated to the Mortgage
Insurance segment.
(3)
Calculated on a GAAP basis using net
premiums written (“NPW”). For the three months ended December 31,
2014 and 2013, includes 1.3% and 1.6%, respectively, and for the
years ended December 31, 2014 and 2013, includes 1.5% and 2.1%,
respectively, of expenses that were previously allocated to the
Financial Guaranty segment, because these corporate items were not
reclassified to discontinued operations. These expenses have been
reallocated to the Mortgage Insurance segment.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental Information Exhibit K
Three Months Ended Year Ended
December 31, December 31,
($ in
thousands)
2014 2013
2014
2013
Net claims paid Prime $
74,342 $ 192,014
$ 532,835 $ 770,500
Alt-A 21,909 42,222
132,350 183,846
A minus
and below 12,600 26,286
92,219
111,828
Total primary claims paid 108,851
260,522
757,404 1,066,174
Pool 8,086 22,451
64,191 115,192
Second-lien and other 283
417
2,011 2,995
Subtotal
117,220 283,390
823,606 1,184,361
Impact of
Freddie Mac Agreement — —
— 254,667
Impact of
captive terminations — —
1,156 —
Impact of
settlements — —
13,500 —
Total $ 117,220 $ 283,390
$ 838,262 $ 1,439,028
Average claim
paid (1) Prime $ 48.7 $ 47.7
$
46.3 $ 47.4
Alt-A 58.7 56.4
56.2 56.3
A minus and below 39.3 37.8
38.1 37.0
Total
primary average claims paid 49.0 47.6
46.5 47.3
Pool 46.5 54.2
56.9 65.6
Second-lien and
other 7.6 13.0
15.6 15.9
Total $
48.2 $ 47.9
$ 47.0 $ 48.4
Average
primary claim paid (2) $ 50.4 $ 50.0
$
47.9 $ 49.6
Average total claim paid (2) $
49.4 $ 50.1
$ 48.2 $ 50.5
Reserve
for losses by category Prime $ 700,174 $
937,307
Alt-A 292,293 384,841
A minus and
below 179,103 215,545
IBNR and other
223,114 347,698
LAE 56,164 51,245
Reinsurance recoverable (3) 26,665 38,363
Total primary reserves 1,477,513
1,974,999
Pool insurance 75,785 169,682
IBNR and other 1,775 8,938
LAE 3,542
5,439
Total pool reserves 81,102
184,059
Total 1st lien reserves 1,558,615
2,159,058
Second lien and other 1,417
5,295
Total reserves $ 1,560,032
$ 2,164,353
1st lien reserve per default
(4) Primary reserve per primary default excluding IBNR and
other
$27,683
$26,717
Pool reserve per pool default excluding IBNR and other
9,556 14,690
(1)
Net of reinsurance recoveries and
without giving effect to the impact of the Freddie Mac Agreement,
captive terminations and settlements.
(2)
Before reinsurance recoveries and
without giving effect to the impact of the Freddie Mac Agreement,
captive terminations and settlements.
(3)
Primarily represents ceded losses on
captive transactions and quota share reinsurance
transactions.
(4)
If calculated before giving effect to
deductibles and stop losses in pool transactions, this would be
$15,881 and $24,640 at December 31, 2014 and 2013,
respectively.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information Exhibit L
December 31,2014
December 31,2013
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 790,056 741,554
Number of
loans in default 28,246 37,932
Percentage of loans in
default 3.58 % 5.12 %
Alt-A
Number of insured loans 38,553 44,905
Number of
loans in default 8,136 11,209
Percentage of loans in
default 21.10 % 24.96 %
A minus and
below
Number of insured loans 35,367 40,930
Number of
loans in default 8,937 11,768
Percentage of loans in
default 25.27 % 28.75 %
Total
Primary Number of insured loans (1) 873,077
839,249
Number of loans in default (2) 45,319 60,909
Percentage of loans in default 5.19 % 7.26 %
Pool insurance Number of loans in default
8,297 11,921
(1)
Includes 9,101 and 11,860 insured loans
subject to the Freddie Mac Agreement at December 31, 2014 and 2013,
respectively.
(2)
Excludes 4,467 and 7,221 loans subject
to the Freddie Mac Agreement that are in default at December 31,
2014 and 2013, respectively, as we no longer have claims exposure
on these loans.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information Exhibit M
Three Months Ended Year Ended December
31, December 31,
($ in
thousands)
2014 2013
2014 2013
1st Lien
Captives
Premiums ceded to captives $ 3,078 $ 3,801
$ 12,996 $ 17,901
% of total premiums
1.3 % 1.8 %
1.4 % 2.1 %
IIF included
in captives (1) 2.8 % 4.0 %
RIF included in
captives (1) 2.7 % 3.8 %
Initial Quota
Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ (4,801 )
(2) $ 5,474
$ 10,217 $ 23,047
% of premiums
written (1.9 )% (2) 2.2 %
1.0
% 2.2 %
QSR ceded premiums earned $
(2,869 ) (2) $ 7,035
$ 17,319 $
29,746
% of premiums earned (1.2 )% (2)
3.2 %
1.9 % 3.5 %
Ceding commissions $
1,108 $ 1,369
$ 4,862 $ 5,762
RIF included
in QSR (3) $ 1,105,545 $ 1,329,544
Second QSR
Transaction
QSR ceded premiums written $ 9,303 $ 7,972
$ 33,750 $ 40,225
% of premiums written
3.7 % 3.2 %
3.4 % 3.9 %
QSR ceded
premiums earned $ 8,339 $ 6,137
$
29,820 $ 18,356
% of premiums earned 3.6
% 2.8 %
3.3 % 2.2 %
Ceding commissions
$ 3,256 $ 2,790
$ 11,813 $ 14,079
RIF included in QSR (3) $ 1,615,554 $
1,298,631
Persistency (twelve months ended December
31) 83.4 % 81.1 %
(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)
Reflects the receivable for profit
commission under a new Initial QSR Transaction agreement.
(3)
Included in primary RIF.
Radian Group Inc. and
Subsidiaries
Mortgage and Real Estate Services
Selected Financial Information
Exhibit N
The following table shows additional information for the
Mortgage and Real Estate Services segment for the three months and
year ended December 31, 2014:
Three Months
Ended Year Ended December 31, 2014 December
31, 2014
(In
thousands)
Services revenue: Loan Review and Due Diligence
$ 11,189 $ 27,860 Component
services 7,672 17,462 REO Management
5,670 12,284 Surveillance 6,876
13,276 EuroRisk 3,059 5,827
Total 34,466 76,709 Direct cost of
services 19,709 43,605 Gross profit on
services $ 14,757 $ 33,104
The selected unaudited financial information presented below
represents unaudited quarterly historical information for the
businesses of Clayton Holdings LLC (“Clayton”) for periods prior to
our acquisition on June 30, 2014. Financial information for periods
after the acquisition is included in the table above and in Exhibit
E as part of our Mortgage and Real Estate Services segment.
2012 2013
2014
(In
thousands)
Qtr 3 Qtr 4 Qtr 1 Qtr 2
Qtr 3 Qtr 4 Qtr 1 Qtr
2 Services revenue $ 32,514 $
31,524 $ 37,041 $ 39,115
$ 32,718 $ 25,593 $
28,043 $ 36,347 Direct cost of services
18,951 19,251 20,173 22,028
18,015 14,957 15,469 19,956 Gross
profit on services $ 13,563 $
12,273 $ 16,868 $ 17,087
$ 14,703 $ 10,636 $
12,574 $ 16,391
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,” “seek,” “strategy,”
“future,” “likely” 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 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 unemployment rates, changes in the
U.S. housing and mortgage credit markets (including declines in
home prices and property values), the performance of the U.S. or
global economies, the amount of liquidity in the capital or credit
markets, changes or volatility in interest rates or consumer
confidence and changes in credit spreads, all of which may be
impacted 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, 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, increased
unemployment, home price depreciation or other negative economic
changes in geographic regions where our mortgage insurance exposure
is more concentrated;
- our ability to maintain sufficient
holding company liquidity to meet our short- and long-term
liquidity needs;
- our ability to maintain an adequate
Risk-to-capital position, minimum policyholder position and other
surplus requirements for Radian Guaranty, our principal mortgage
insurance subsidiary, and an adequate minimum policyholder position
and surplus for our insurance subsidiaries that provide reinsurance
or capital support to Radian Guaranty;
- Radian Guaranty's ability to comply
with the financial requirements of the PMIERs (once adopted) within
the applicable transition period which, based on the proposed
PMIERs, may require us to contribute a substantial portion of our
holding company cash and investments to Radian Guaranty, and could
depend on our ability to, among other things: (1) successfully
consummate the transactions contemplated by the Radian Asset
Assurance Stock Purchase Agreement; and (2) successfully leverage
other options such as commutations or external reinsurance for a
portion of our mortgage insurance risk in force in a manner that
provides capital relief that is compliant with the PMIERs.
Contributing a substantial portion of our holding company cash and
investments to Radian Guaranty would leave Radian Group with less
liquidity to satisfy its obligations, and we may be required or we
may decide to seek additional capital by incurring additional debt,
by issuing additional equity, or by selling assets, which we may
not be able to do on favorable terms, if at all. The ultimate form
of the PMIERs and the timeframe for their implementation remain
uncertain;
- changes in the charters or business
practices of, or rules or regulations applicable to the GSEs,
including the adoption of the PMIERs, which in their current
proposed form: (1) would require Radian Guaranty to hold
significantly more capital than is currently required and could
negatively impact our returns on equity; (2) could limit the type
of business that Radian Guaranty and other private mortgage
insurers are willing to write, which could reduce our NIW; (3)
could increase the cost of private mortgage insurance, including as
compared to the FHA's pricing, or result in the emergence of other
forms of credit enhancement; and (4) could require changes to our
business practices that may result in substantial additional costs
in order to achieve and maintain compliance with the PMIERs;
- the possibility that we have not
accurately projected our net shortfall under the PMIERs which may
be impacted by, among other things: our understanding and
interpretation of the PMIERs financial requirements which may
differ from the interpretation that the Government Sponsored
Enterprises (GSEs) apply; and the performance of our mortgage
insurance business, including our level of defaults, the losses we
incur on new and existing defaults, the projected roll-off of our
existing risk in force, and the amount and credit characteristics
of new business we write;
- our ability to continue to effectively
mitigate our mortgage insurance losses, including the possibility
of 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 as a
result of the 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;
- 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 constitute a small part of our insured
portfolio) that are riskier than traditional mortgage insurance
policies;
- a substantial 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
with respect to other private mortgage insurers, those that have
been assigned higher ratings than we have, that may be perceived as
having a greater ability to comply with the PMIERs Financial
Requirements than we do, 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)
and the impact such heightened competition may have on our returns
and our NIW;
- 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 businesses in
particular;
- the adoption of new or 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; (ii) changes
to the Mortgage Guaranty Insurers Model Act being considered by the
NAIC that could include more stringent capital and other
requirements for Radian Guaranty in states that adopt the new
Mortgage Guaranty Insurers Model Act in the future; and (iii)
legislative and regulatory changes (a) impacting the demand for our
products, (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 or future
prospects;
- the amount and timing of potential
payments or adjustments associated with federal or other tax
examinations, including deficiencies assessed by the IRS resulting
from the examination of our 2000 through 2007 tax years, which we
are currently contesting;
- 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 businesses;
- volatility in our earnings caused by
changes in the fair value of our assets and liabilities carried at
fair value, including a significant portion of our investment
portfolio and certain of our long-term incentive compensation
awards;
- changes in GAAP or SAP, rules and
guidance, or their interpretation;
- 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;
- the possibility that we may need to
impair the estimated fair value of goodwill established in
connection with our acquisition of Clayton, the valuation of which
requires the use of significant estimates and assumptions with
respect to the estimated future economic benefits arising from
certain assets acquired in the transaction such as the value of
expected future cash flows of Clayton, Clayton's workforce,
expected synergies with our other affiliates and other
unidentifiable intangible assets; and
- our ability to consummate the
transactions contemplated by the Stock Purchase Agreement which
depends on, among other things, obtaining certain regulatory
approvals.
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, 2013 and in our
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.
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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