-- Reports net income of $92 million or $0.39
per diluted share --
-- Adjusted diluted net operating income of
$0.35 per share --
Radian Group Inc. (NYSE: RDN) today reported net income from
continuing operations for the quarter ended March 31, 2015, of
$91.7 million, or $0.39 per diluted share, which included net gains
on investments and other financial instruments of $16.8 million.
This compares to net income from continuing operations for the
quarter ended March 31, 2014, of $146.0 million, or $0.68 per
diluted share, which included net gains on investments and other
financial instruments of $43.0 million. Book value per share at
March 31, 2015, was $11.53.
Adjusted pretax operating income for the quarter ended March 31,
2015, was $123.9 million, compared to adjusted pretax operating
income for the quarter ended March 31, 2014, of $84.0 million.
Adjusted diluted net operating income per share for the quarter
ended March 31, 2015, was $0.35. See “Non-GAAP Financial Measures”
below.
Key Financial Highlights (dollars
in millions, except per share data)
Quarter EndedMarch 31,2015
Quarter EndedMarch 31,2014**
PercentChange
Net income from continuing operations $91.7 $146.0
(37%) Diluted net income per share from continuing
operations $0.39 $0.68 (43%) Adjusted pretax
operating income $123.9 $84.0 48% Adjusted
diluted net operating income per share * $0.35 *
* Revenues $290.7 $258.2 13% Book value
per share $11.53 $6.10 89% *
Adjusted diluted net operating income per
share is not comparable for periods prior to the quarter ended
March 31, 2015, due to the impact on the company’s effective tax
rate from the valuation allowance against deferred tax assets.
**
Radian acquired Clayton on June 30, 2014,
and therefore results for the quarter ended March 31, 2014, do not
include results from Clayton.
“We delivered strong results for Radian in the first quarter,
driven primarily by outstanding credit trends in our mortgage
insurance business,” said Radian’s Chief Executive Officer S.A.
Ibrahim. “The last twelve months have been a turning point for
Radian, as we’ve eliminated a significant portion of our legacy
risk and therefore simplified our company with a focus on our core
strengths. Today, we are better positioned to drive long-term
value, both from our large and growing mortgage insurance portfolio
and by broadening our future sources of revenue through our new
mortgage and real estate services businesses.”
FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- New mortgage insurance written (NIW)
was $9.4 billion for the quarter, compared to $10.0 billion in the
fourth quarter of 2014 and $6.8 billion in the prior-year quarter.
- Of the $9.4 billion in new business
written in the first quarter of 2015, 63 percent was written with
monthly premiums and 37 percent with single premiums. This compares
to a mix of 69 percent monthly premiums and 31 percent single
premiums in the fourth quarter of 2014. For the twelve-months ended
March 31, 2015, the percentage of new business written with single
premiums averaged approximately 30 percent.
- Refinances accounted for 33 percent of
total NIW in the first quarter of 2015, compared to 22 percent in
the fourth quarter of 2014, and 18 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force was $172.1 billion, compared to $171.8 billion as of December
31, 2014, and $162.4 billion as of March 31, 2014. Persistency,
which is the percentage of mortgage insurance in force that remains
on the company’s books after a twelve-month period, was 82.6
percent as of March 31, 2015, compared to 84.2 percent as of
December 31, 2014, and 83.3 percent as of March 31, 2014.
- The mortgage insurance provision for
losses was $45.9 million in the first quarter of 2015, compared to
$83.6 million in the fourth quarter of 2014, and $49.6 million in
the prior-year period.
- The loss ratio in the first quarter was
20.4 percent, compared to 36.9 percent in the fourth quarter of
2014 and 25.0 percent in the first quarter of 2014.
- Mortgage insurance loss reserves were
$1.4 billion as of March 31, 2015, compared to $1.6 billion as of
December 31, 2014, and $1.9 billion as of March 31, 2014.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $28,423 as of March 31,
2015. This compares to primary reserve per primary default of
$27,683 as of December 31, 2014, and $26,509 as of March 31,
2014.
- The total number of primary delinquent
loans decreased by 11 percent in the first quarter from the fourth
quarter of 2014, and by 24 percent from the first quarter of 2014.
The primary mortgage insurance delinquency rate decreased to 4.6
percent in the first quarter of 2015, compared to 5.2 percent in
the fourth quarter of 2014, and 6.3 percent in the first quarter of
2014.
- Total mortgage insurance claims paid
were $207.1 million in the first quarter, compared to $117.2
million in the fourth quarter of 2014, and $306.9 million in the
first quarter of 2014. Claims paid in the first quarter of 2015
include $98.5 million of claims paid relating to the September 2014
BofA Settlement Agreement. The company continues to expect mortgage
insurance net claims paid for the full-year 2015 of approximately
$600 – $700 million. This includes a total of approximately $250
million of claims expected to be paid in the first half of 2015
related to the September 2014 BofA Settlement Agreement.
- On April 17, 2015, the Federal Housing
Finance Agency (FHFA) issued the final Private Mortgage Insurer
Eligibility Requirements (PMIERs) developed by Fannie Mae and
Freddie Mac (GSEs). The PMIERs provide revised requirements for
private mortgage insurers (MIs), including Radian Guaranty, to
remain eligible insurers of loans purchased by the GSEs. The PMIERs
effective date for existing approved insurers is December 31, 2015.
- As of March 31, 2015, Radian Guaranty
would be able to immediately comply with the financial requirements
of the PMIERs by utilizing approximately $330 million of existing
holding company liquidity. This estimate includes the net proceeds
of $789 million from the recent sale of Radian Asset Assurance
Inc., Radian’s financial guaranty insurance subsidiary, and assumes
that the company converts approximately $130 million of existing
liquid assets into PMIERs-compliant Available Assets (as defined in
the PMIERs) and receives full PMIERs benefit of approximately $145
million for its outstanding quota-share reinsurance arrangements,
following the completion of amendments needed for GSE
approval.
Mortgage and Real Estate Services
- On June 30, 2014, Radian completed the
acquisition of Clayton Holdings LLC, a leading provider of loan due
diligence, surveillance, REO management and consulting services to
the mortgage and real estate industries, which was an important
step in Radian’s growth and diversification strategy. The Mortgage
and Real Estate Services segment is primarily comprised of
Clayton’s operations.
- Total service revenues for the Mortgage
and Real Estate Services segment were $30.7 million and gross
profit on services was $12.3 million in the first quarter of 2015.
This compares to total service revenues of $34.5 million and gross
profit on services of $14.8 million in the fourth quarter of
2014.
- On March 20, 2015, Clayton Holdings
acquired Red Bell Real Estate, LLC and its sister company, Main
Street Valuations, LLC, in order to broaden its product offerings
within the real estate market. Red Bell is a real estate brokerage
firm that provides products and services that include automated
valuation models (AVMs); broker price opinions (BPOs) used by
investors, lenders and loan servicers; and advanced technology
solutions for monitoring loan portfolio performance, tracking
non-performing loans, managing real estate owned (REO) assets and
valuing residential real estate through a secure platform.
Expenses and Discontinued Operations
- Other operating expenses were $54.6
million in the first quarter, compared to $85.8 million in the
fourth quarter of 2014, and $54.5 million in the first quarter of
last year. Other operating expenses in the fourth quarter of 2014
included $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, and an $11.2 million
settlement of remedies related to services provided on legacy
business.
- As previously disclosed, on April 1,
2015, Radian Guaranty completed the sale of Radian Asset to Assured
Guaranty Corp., a subsidiary of Assured Guaranty Ltd. (NYSE: AGO).
After consideration of transaction-related expenses, net proceeds
were $789 million. Details regarding the assets and liabilities
associated with these discontinued operations may be found on press
release Exhibits D and E.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $700 million of available
liquidity.
- As of March 31, 2015, Radian Guaranty’s
risk-to-capital ratio was 17.1:1 and statutory capital was $1.8
billion.
- As of March 31, 2015, a total of $2.6
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. Radian has ceded the maximum
amount of NIW under these agreements and has not ceded any premium
on new business in 2015.
CONFERENCE CALL
Radian will discuss first quarter financial results in a
conference call today, Thursday, April 30, 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
800.288.8961 inside the U.S., or 612.332.0335 for international
callers, using passcode 358122 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 358122.
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 MEASURES
Radian believes that adjusted pretax operating income and
adjusted diluted net operating income per share (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. On a
consolidated basis, these measures are not recognized in accordance
with accounting principles generally accepted in the United States
of America (GAAP) and should not be viewed as alternatives 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 enabling 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 amount
reflected in pretax income (loss) from continuing operations.
Adjusted diluted net operating income per share represents a
diluted net income per share calculation using as its basis
adjusted pretax operating income, net of taxes at the effective tax
rate for the period. 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
consolidated 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
Trend Schedule Exhibit B: Net Income Per Share Trend Schedule
Exhibit C: Condensed Consolidated Balance Sheets Exhibit D:
Discontinued Operations Exhibit E:
Segment Information Three Months Ended
March 31, 2015 and Three Months Ended March 31, 2014
Exhibit F: Definition of Consolidated Non-GAAP Financial Measure
Exhibit G:
Consolidated Non-GAAP Financial Measure Reconciliations
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:
Mortgage and Real Estate Services Supplemental Information
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend
Schedule Exhibit A 2015 2014
(In thousands,
except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1 Revenues: Net premiums earned
- insurance $ 224,595 $ 224,293 $ 217,827 $
203,646 $ 198,762
Services revenue 30,529 34,450
42,243 — —
Net investment income 17,328 16,531 17,143
16,663 15,318
Net gains on investments and other financial
instruments 16,779 17,983 (6,294 ) 25,332 42,968
Other income 1,432 1,793 1,162
1,739 1,126
Total revenues 290,663
295,050 272,081 247,380 258,174
Expenses: Provision for losses 45,028
82,867 48,942 64,648 49,626
Policy acquisition costs
7,750 6,443 4,240 6,746 7,017
Direct cost of services
18,451 19,709 23,896 — —
Other operating expenses
54,576 85,800 51,225 60,751 54,507
Interest expense
24,385 24,200 23,989 22,348 19,927
Amortization and
impairment of intangible assets 3,023 5,354
3,294 — —
Total expenses
153,213 224,373 155,586 154,493
131,077
Pretax income from continuing
operations 137,450 70,677 116,495 92,887 127,097
Income tax provision (benefit) 45,723 (807,349
) (15,536 ) (10,650 ) (18,883 )
Net income from continuing
operations 91,727 878,026 132,031 103,537 145,980
Income (loss) from discontinued operations, net of tax
530 (449,691 ) 21,559 71,296 56,779
Net income $ 92,257 $ 428,335
$ 153,590 $ 174,833 $ 202,759
Diluted net income per share: Net income from continuing
operations $ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68
Income (loss) from discontinued operations, net of tax
— (1.85 ) 0.09 0.31 0.26
Net
income $ 0.39 $ 1.78 $ 0.67
$ 0.78 $ 0.94
On April 1, 2015, Radian Guaranty completed the previously
disclosed sale of 100% of the issued and outstanding shares of
Radian Asset Assurance to Assured, pursuant to the Radian Asset
Assurance Stock Purchase Agreement dated as of December 22, 2014.
As a result, until the April 1, 2015 sale date, the operating
results of Radian Asset Assurance continue to be classified as
discontinued operations for all periods presented in our condensed
consolidated statements of operations. Prior periods have been
revised to conform to the current period presentation for these
changes.
Radian Group Inc. and Subsidiaries Net
Income Per Share Trend Schedule Exhibit B The
calculation of basic and diluted net income per share was as
follows: 2015 2014
(In thousands,
except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1 Net income from continuing operations:
Net income from continuing operations—basic $
91,727 $ 878,026 $ 132,031 $ 103,537 $ 145,980
Adjustment
for dilutive Convertible Senior Notes due 2019, net of tax (1)
3,673 3,641 5,552 5,503 5,455
Net income from continuing operations—diluted $
95,400 $ 881,667 $ 137,583 $ 109,040
$ 151,435
Net income: Net income from
continuing operations—basic $ 91,727 $ 878,026 $
132,031 $ 103,537 $ 145,980
Income (loss) from discontinued
operations, net of tax 530 (449,691 ) 21,559
71,296 56,779
Net income—basic 92,257
428,335 153,590 174,833 202,759
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1)
3,673 3,641 5,552 5,503 5,455
Net income—diluted $ 95,930 $ 431,976
$ 159,142 $ 180,336 $ 208,214
Average common shares outstanding—basic 191,224
191,053 191,050 182,583 173,165
Dilutive effect of Convertible
Senior Notes due 2017 10,886 10,590 6,342 7,599 9,003
Dilutive effect of Convertible Senior Notes due 2019
37,736 37,736 37,736 37,736 37,736
Dilutive effect of
stock-based compensation arrangements (2) 3,202
3,422 2,939 2,861 2,764
Adjusted average
common shares outstanding—diluted 243,048 242,801
238,067 230,779 222,668
Net income per
share:
Basic: Net income from continuing operations
$ 0.48 $ 4.59 $ 0.69 $ 0.57 $ 0.84
Income (loss)
from discontinued operations, net of tax — (2.35
) 0.11 0.39 0.33
Net income $
0.48 $ 2.24 $ 0.80 $ 0.96 $ 1.17
Diluted: Net income from continuing operations
$ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68
Income (loss)
from discontinued operations, net of tax — (1.85
) 0.09 0.31 0.26
Net income $
0.39 $ 1.78 $ 0.67 $ 0.78 $ 0.94
(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 ended March 31,
2015, December 31, 2014, September 31, 2014, June 30, 2014 and
March 31, 2014, 540,400 541,720, 557,240, 1,483,800 and 946,400
shares, respectively, of our common stock equivalents issued under
our stock-based compensation arrangements were not included in the
calculation of diluted net income per share because they were
anti-dilutive.
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets Exhibit C
March 31, December 31,
(In thousands,
except per share data)
2015 2014
Assets: Investments $
3,621,646 $ 3,629,299
Cash 57,204 30,465
Restricted cash 14,220 14,031
Accounts and notes
receivable 64,405 85,792
Deferred income taxes,
net 649,996 700,201
Goodwill and other intangible
assets, net 293,798 288,240
Other assets
356,713 375,491
Assets held for sale 1,755,873
1,736,444
Total assets $ 6,813,855
$ 6,859,963
Liabilities and stockholders’
equity: Unearned premiums $ 657,555 $
644,504
Reserve for losses and loss adjustment expenses
1,384,714 1,560,032
Long-term debt 1,218,972
1,209,926
Other liabilities 310,642 326,743
Liabilities held for sale 966,078 947,008
Total liabilities 4,537,961 4,688,213
Equity component of currently redeemable convertible senior
notes 68,982 74,690
Common stock
209 209
Additional paid-in capital 1,648,436
1,638,552
Retained earnings 498,593 406,814
Accumulated other comprehensive income 59,674
51,485
Total common stockholders’ equity 2,206,912
2,097,060
Total liabilities and stockholders’ equity
$ 6,813,855 $ 6,859,963
Shares
outstanding, end of period 191,416 191,054
Book value per share $ 11.53 $ 10.98
Radian Group Inc. and
Subsidiaries
Discontinued Operations
Exhibit D
The income from discontinued operations, net of tax consisted of
the following components for the periods indicated:
Three Months Ended March 31,
(In
thousands)
2015 2014
Net premiums earned $
1,007 $ 6,903
Net investment income 9,153
8,911
Net gains on investments and other financial
instruments 13,668 22,182
Change in fair value of
derivative instruments 2,625 50,086
Total revenues 26,453 88,082
Provision for losses 502 5,649
Policy acquisition
costs (191 ) 1,597
Other operating expense
4,107 5,402
Total expenses 4,418
12,648
Equity in net loss of affiliates
(13 ) (13 )
Income from operations of businesses
held for sale 22,022 75,421
Loss on classification as
held for sale (13,930 ) —
Income tax
provision 7,562 18,642
Income from
discontinued operations, net of tax $ 530
$ 56,779
The assets and liabilities associated with the discontinued
operations have been segregated in the condensed consolidated
balance sheets. The following table summarizes the major components
of Radian Asset Assurance’s assets and liabilities held for sale on
the condensed consolidated balance sheets as of March 31, 2015
and December 31, 2014:
March 31, December 31,
(In
thousands)
2015 2014
Fixed-maturity investments $
226,334 $ 224,552
Equity securities 4,019
3,749
Trading securities 679,972 689,887
Short-term investments 449,391 435,413
Other
invested assets 108,080 108,206
Other assets
288,077 274,637
Total assets held for sale
$ 1,755,873 $ 1,736,444
Unearned
premiums $ 152,445 $ 158,921
Reserve for
losses and loss adjustment expenses 32,420 31,558
VIE
debt 82,238 85,016
Derivative liabilities
187,462 183,370
Other liabilities 511,513
488,143
Total liabilities held for sale $
966,078 $ 947,008
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating
segments and reconciliations to consolidated pretax income from
continuing operations, as of and for the periods indicated, is as
follows:
Three Months Ended March 31, 2015 Mortgage
and Mortgage Real Estate
(In
thousands)
Insurance Services Total Net premiums
written - insurance $241,908 $ —
$
241,908
Increase in unearned premiums (17,313 )
— (17,313 ) Net premiums
earned - insurance 224,595 — 224,595
Services revenue — 30,742 30,742 Net
investment income (1) 17,328 — 17,328
Other income (1) 1,331 790
2,121 Total (2) 243,254
31,532 274,786
Provision for losses 45,851 —
45,851 Policy acquisition costs 7,750 —
7,750 Direct cost of services — 18,451
18,451 Other operating expenses before corporate
allocations 34,050 9,659
43,709 Total (3) 87,651
28,110 115,761
Adjusted pretax operating income before corporate
allocations 155,603 3,422 159,025
Allocation of corporate operating expenses (1) 9,758
981 10,739 Allocation of interest expense (1)
19,953 4,432
24,385 Adjusted pretax operating income
(loss) $125,892 $ (1,991 )
$ 123,901 At March 31, 2015
Mortgage and Mortgage Real Estate
(In
thousands)
Insurance Services Total Cash &
Investments $ 3,669,413 $ 9,437
$
3,678,850 Restricted cash 11,348 2,872
14,220 Goodwill — 194,246
194,246 Other intangible assets, net —
99,552 99,552 Assets held for sale (4)
— — 1,755,873 Total assets
4,708,744 349,238 6,813,855 Unearned
premiums 657,555 — 657,555 Reserve for
losses and loss adjustment expenses 1,384,714 —
1,384,714
(1)
Includes certain corporate income and
expenses that have been reallocated from our prior financial
guaranty segment to the Mortgage Insurance segment and that were
not reclassified to discontinued operations.
(2)
Includes inter-segment revenues of $0.9
million in the Mortgage and Real Estate Services segment.
(3)
Includes inter-segment expenses of $0.9
million in the Mortgage Insurance segment.
(4)
Assets 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 2) Three
Months Ended March 31, 2014 Mortgage and
Mortgage Real Estate
(In
thousands)
Insurance Services (1) Total Net premiums
written - insurance $ 212,953 $ — $ 212,953
Increase in
unearned premiums (14,191 ) — (14,191 )
Net premiums
earned - insurance 198,762 — 198,762
Net investment income
(2) 15,318 — 15,318
Other income (2) 996 130
1,126
Total 215,076 130 215,206
Provision for losses 49,626 — 49,626
Change
in expected economic loss or recovery for consolidated VIEs 139
— 139
Policy acquisition costs 7,017 — 7,017
Other
operating expenses before corporate allocations 37,764
859 38,623
Total 94,546 859
95,405
Adjusted pretax operating income (loss) before
corporate allocations 120,530 (729 ) 119,801
Allocation of
corporate operating expenses (2) 15,884 — 15,884
Allocation
of interest expense (2) 19,927 — 19,927
Adjusted pretax operating income (loss) $ 84,719
$ (729 ) $ 83,990
At March 31, 2014
Mortgage and Mortgage Real Estate
(In
thousands)
Insurance Services Total Cash and
investments $ 3,302,763 $ 24 $ 3,302,787
Restricted cash
22,366 — 22,366
Goodwill — 2,095 2,095
Intangible assets,
net — 188 188
Assets held for sale (3) — — 1,795,185
Total assets 3,731,139 2,661 5,528,985
Unearned
premiums 580,453 — 580,453
Reserve for losses and loss
adjustment expenses 1,893,960 — 1,893,960
(1)
Amounts do not include Clayton
Holdings, acquired June 30, 2014. However, effective with the
fourth quarter of 2014, the Mortgage and Real Estate Services
segment undertook the management responsibilities of certain
additional loan servicer surveillance functions previously
considered part of the Mortgage Insurance segment. As a result,
these activities are now reported in the Mortgage and Real Estate
Services segment for all periods presented.
(2)
Includes certain corporate income and
expenses that have been reallocated from our prior financial
guaranty segment to the Mortgage Insurance segment and that were
not reclassified to discontinued operations.
(3)
Assets held for sale are not part of
the Mortgage Insurance or Mortgage and Real Estate Services
segments.
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 non-GAAP financial measures for the consolidated company,
“adjusted pretax operating income (loss)” and "adjusted diluted net
operating income (loss) per share," among our key performance
indicators to evaluate our fundamental financial performance. These
non-GAAP financial measures align with the way the Company’s
business performance is evaluated by both management and the board
of directors. These measures have 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)” and adjusted diluted net operating income (loss) per
share" are non-GAAP financial measures, we believe these measures
aid 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.
Adjusted pretax operating income (loss) is defined as GAAP
pretax income (loss) from continuing operations excluding 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. Adjusted diluted net operating income
(loss) per share is calculated by dividing (i) adjusted pretax
operating income (loss) attributable to common shareholders, net of
taxes computed using the period's effective tax rate, by (ii) the
sum of the weighted average number of common shares outstanding and
all dilutive potential common shares outstanding. 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.
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 amount reflected in pretax income (loss) from
continuing operations. 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, 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). However, we include the
change in expected economic loss or recovery associated with our
consolidated VIEs, if any, in the calculation of adjusted pretax
operating income (loss).
(2)
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 strategic 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).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measure
Exhibit F (page 2 of 2)
(3)
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).
(4)
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 G for the reconciliation of our non-GAAP financial
measures for the consolidated company, adjusted pretax operating
income and adjusted diluted net operating income per share, to the
most comparable GAAP measures, pretax income from continuing
operations and net income per share from continuing operations,
respectively.
Total adjusted pretax operating income (loss) and adjusted
diluted net operating income (loss) per share are not measures of
total profitability, and therefore should not be viewed as
substitutes for GAAP pretax income (loss) from continuing
operations or net income (loss) per share from continuing
operations. Our definitions of adjusted pretax operating income
(loss) and adjusted diluted net operating income (loss) per share
may not be comparable to similarly-named measures reported by other
companies.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G
Reconciliation of Adjusted Pretax
Operating Income (Loss) to Consolidated Pretax Income from
Continuing Operations
Three Months Ended March 31,
(In
thousands)
2015 2014 Adjusted pretax operating income
(loss): Mortgage Insurance (1) $ 125,892 $
84,719
Mortgage and Real Estate Services (2) (1,991
) (729 )
Total adjusted pretax operating income
123,901 83,990
Net gains on
investments and other financial instruments (3) 16,779
43,107
Acquisition-related expenses (4) (207 )
—
Amortization and impairment of intangible assets (4)
(3,023 ) —
Consolidated pretax income from
continuing operations $ 137,450 $ 127,097
(1)
Includes certain corporate income and
expenses that have been reallocated from our prior financial
guaranty segment to the Mortgage Insurance segment and that were
not reclassified to discontinued operations.
(2)
Includes the acquisition of Clayton
Holdings, effective June 30, 2014. Also, effective with the fourth
quarter of 2014, the Mortgage and Real Estate Services segment
undertook the management responsibilities of certain additional
loan servicer surveillance functions previously considered part of
the Mortgage Insurance segment. As a result, these activities are
now reported in the Mortgage and Real Estate Services segment for
all periods presented.
(3)
The change in expected economic loss or
recovery associated with our consolidated VIEs is included in
adjusted pretax operating income above. Therefore, for purposes of
this reconciliation, net gains on investments and other financial
instruments has been adjusted by $0.1 million for the three months
ended March 31, 2014, to reverse this item, which represents a
non-GAAP amount that is not included in net income.
(4)
Please see Exhibit F for the definition
of this line item.
Reconciliation of Adjusted Diluted Net
Operating Income Per Share to Net Income Per Share from Continuing
Operations
Three Months Ended March 31, 2015 Adjusted
diluted net operating income per share $ 0.35
After tax per share impact: Net gains on
investments and other financial instruments 0.05
Acquisition-related expenses —
Amortization and
impairment of intangible assets (0.01 )
Net income per share from continuing operations $
0.39
On a consolidated basis, “adjusted pretax operating income” and
"adjusted diluted net operating income per share" are measures not
determined in accordance with GAAP. These measures are not
representative of total profitability, and therefore should not be
viewed as substitutes for GAAP pretax income from continuing
operations or net income per share from continuing operations. Our
definitions of adjusted pretax operating income and adjusted
diluted net operating income per share may not be comparable to
similarly-named measures reported by other companies. See Exhibit F
for additional information on our consolidated non-GAAP financial
measures.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information Exhibit H
Three Months Ended March 31, 2015 2014
($ in
millions)
$ % $ %
Primary new
insurance written
Prime $ 9,384 100.0
% $ 6,807 100.0 %
Alt-A and A minus and below
1 — 1 —
Total Primary $ 9,385
100.0 % $ 6,808 100.0 %
Total primary new
insurance written by FICO score
>=740 5,968 63.6 % 4,345 63.8 %
680-739
2,845 30.3 2,041 30.0
620-679
572 6.1 422 6.2
Total Primary $ 9,385
100.0 % $ 6,808 100.0 %
Percentage of
primary new insurance written
Monthly premiums 63 % 73 %
Single
premiums 37 % 27 %
Refinances
33 % 18 %
LTV 95.01% and above
1.8 % 0.9 %
90.01% to 95.00% 48.4
% 51.8 %
85.01% to 90.00% 33.3 % 34.4 %
85.00% and below 16.5 % 12.9 %
Radian Group Inc. and Subsidiaries Mortgage Insurance
Supplemental Information Exhibit I
March 31, March 31,
2015 2014
($ in
millions)
$ % $ %
Primary insurance
in force (1)
Flow $ 162,832 94.6
% $ 152,731 94.1 %
Structured 9,309
5.4 9,637 5.9
Total
Primary $ 172,141 100.0
% $ 162,368 100.0 %
Prime
$ 160,452 93.2 % $ 148,736 91.6 %
Alt-A 7,122 4.1 8,317 5.1
A minus and
below 4,567 2.7 5,315
3.3
Total Primary $ 172,141
100.0 % $ 162,368 100.0 %
Primary risk in
force (1)
Flow $ 41,256 95.1 % $ 38,252
94.6 %
Structured 2,133 4.9
2,180 5.4
Total Primary $
43,389 100.0 % $ 40,432
100.0 %
Flow Prime $
39,251 95.1 % $ 35,867 93.8 %
Alt-A
1,243 3.0 1,474 3.8
A minus and below
762 1.9 911 2.4
Total Flow $ 41,256
100.0 % $ 38,252 100.0 %
Structured Prime $ 1,341 62.9
% $ 1,292 59.3 %
Alt-A 410 19.2 465
21.3
A minus and below 382 17.9
423 19.4
Total Structured
$ 2,133 100.0 % $ 2,180
100.0 %
Total Prime $
40,592 93.6 % $ 37,159 91.9 %
Alt-A
1,653 3.8 1,939 4.8
A minus and below
1,144 2.6 1,334
3.3
Total Primary $ 43,389
100.0 % $ 40,432 100.0 %
(1)
Includes amounts ceded under our
reinsurance agreements, as well as amounts related to the Freddie
Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information Exhibit J
March 31, March 31,
2015 2014
($ in
millions)
$ % $ %
Total primary
risk in force by FICO score
Flow >=740 $
23,964 58.1 % $ 21,976 57.4 %
680-739
12,356 30.0 11,158 29.2
620-679 4,392
10.6 4,459 11.7
<=619 544
1.3 659 1.7
Total Flow $ 41,256 100.0
% $ 38,252 100.0 %
Structured >=740 $ 664 31.1
% $ 590 27.1 %
680-739 599 28.1 624
28.6
620-679 513 24.1 572 26.2
<=619
357 16.7 394
18.1
Total Structured $
2,133 100.0 % $ 2,180
100.0 %
Total >=740
$ 24,628 56.8 % $ 22,566 55.8 %
680-739 12,955 29.8 11,782 29.1
620-679
4,905 11.3 5,031 12.5
<=619 901
2.1 1,053
2.6
Total Primary $ 43,389
100.0 % $ 40,432
100.0 %
Total primary
risk in force by LTV
95.01% and above $ 3,440 7.9 % $
4,008 9.9 %
90.01% to 95.00% 20,897 48.2
17,767 44.0
85.01% to 90.00% 15,187 35.0
14,807 36.6
85.00% and below 3,865
8.9 3,850 9.5
Total $ 43,389 100.0
% $ 40,432 100.0 %
Total primary
risk in force by policy year
2005 and prior $ 3,364 7.8 % $
4,209 10.4 %
2006
1,922 4.4 2,243 5.6
2007
4,442 10.2 5,064 12.5
2008
3,267 7.5 3,810 9.4
2009
994 2.3 1,363 3.4
2010
859 2.0 1,144 2.8
2011
1,677 3.9 2,165 5.4
2012
6,170 14.2 7,511 18.6
2013
9,704 22.4 11,210 27.7
2014
8,684 20.0 1,713 4.2
2015
2,306 5.3 —
—
Total $ 43,389
100 % $ 40,432 100.0 %
Primary risk in force on defaulted loans (1) $
1,883 $ 2,466
(1)
(1)
Excludes risk related to loans subject
to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information Exhibit K
March 31, March 31,
($ in
millions)
2015 2014
$ % $ %
Pool risk in
force
Prime $ 867 74.7 %
$ 1,263 78.9 %
Alt-A 54 4.7 68 4.3
A minus
and below 239 20.6
269 16.8
Total $
1,160 100.0 % $
1,600 100.0 %
Total pool risk
in force by policy year
2005 and prior
$ 1,090 94.0 % $ 1,516 94.7 %
2006
7 0.6 19 1.2
2007
62 5.3 64 4.0
2008
1 0.1 1
0.1
Total pool risk in force $
1,160 100.0 % $
1,600 100.0 %
Other risk in
force
Second-lien 1st loss $ 42 $ 54
2nd
loss 12 16
NIMS — 5
1st loss-Hong Kong
primary mortgage insurance 9 18
Total
other risk in force $ 63 $ 93
Risk to capital ratio-Radian Guaranty only
17.1 :1
(1)
19.2 :1
Risk to capital ratio-Mortgage Insurance combined
19.1 :1
(1)
23.0 :1
Three Months Ended March 31,
2015
2014
Loss ratio (2) 20.4 %
25.0
%
Expense ratio - NPE basis (2) 23.0 %
30.5
%
Expense ratio - NPW basis (3) 21.3 %
28.5
%
(1)
Preliminary.
(2)
Calculated on a GAAP basis using net
premiums earned (“NPE”). For the three months ended March 31, 2015
and 2014, the expense ratio includes 0.9% 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.
(3)
Calculated on a GAAP basis using net
premiums written (“NPW”). For the three months ended March 31, 2015
and 2014, includes 0.9% and 1.9%, 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 L
Three Months EndedMarch
31,
($ in thousands) 2015 2014
Net claims paid Prime $ 76,434 $
195,446
Alt-A 20,194 46,593
A minus and below
15,209 33,593
Total primary claims paid
111,837 275,632
Pool 8,901 30,863
Second-lien and other (111 ) 727
Subtotal 120,627 307,222
Impact of captive
terminations (12,000 ) (1,156 )
Impact of
settlements 98,468 875
Total
$ 207,095 $ 306,941
Average
claim paid (1) Prime $ 44.0 $ 44.3
Alt-A 54.6 55.4
A minus and below 35.9
37.1
Total primary average claims paid 44.2 44.7
Pool 51.5 60.3
Second-lien and other
(12.3 ) 20.8
Total $ 44.5 $ 45.8
Average primary claim paid (2) $ 45.3 $
46.5
Average total claim paid (2) $ 45.5 $
47.4
Reserve for losses by category Prime
$ 640,919 $ 790,529
Alt-A 278,350
351,695
A minus and below 163,390 189,453
IBNR and
other 167,204 347,674
LAE 53,210 50,684
Reinsurance recoverable (3) 13,365 25,751
Total primary reserves 1,316,438
1,755,786
Pool insurance 62,943 123,596
IBNR and other 1,227 5,679
LAE 3,051
4,517
Total pool reserves 67,221
133,792
Total 1st lien reserves 1,383,659
1,889,578
Second lien and other 1,055 4,382
Total reserves $ 1,384,714 $
1,893,960
1st lien reserve per default (4)
Primary reserve per primary default excluding IBNR and other
$ 28,423 $ 26,509 Pool reserve per
pool default excluding IBNR and other $ 9,774
$ 13,054
(1)
Net of reinsurance recoveries and
without giving effect to the impact of captive terminations and
settlements.
(2)
Before reinsurance recoveries and
without giving effect to the impact of 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
$17,942 and $22,172 at March 31, 2015 and 2014,
respectively.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information Exhibit M
March 31, December 31, March 31,
2015 2014
2014
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 801,332 797,436 755,396
Number of loans in default 25,114 28,246 32,708
Percentage of loans in default 3.13 % 3.54 %
4.33 %
Alt-A
Number of insured loans 37,468 38,953 43,508
Number of loans in default 7,480 8,136 10,173
Percentage of loans in default 19.96 % 20.89 %
23.38 %
A minus and
below
Number of insured loans 35,425 36,688 40,898
Number of loans in default 7,846 8,937 10,238
Percentage of loans in default 22.15 % 24.36 %
25.03 %
Total Primary Number of insured loans
874,225 873,077 839,802
Number of loans in default
(1) 40,440 45,319 53,119
Percentage of loans in
default 4.63 % 5.19 % 6.33 %
Pool
insurance Number of loans in default 6,748 8,297
9,814
(1)
Excludes 3,715, 4,467 and 6,022 loans
subject to the Freddie Mac Agreement that are in default at March
31, 2015, December 31, 2014 and March 31, 2014, respectively, as we
no longer have claims exposure on these loans.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information Exhibit N
Three Months EndedMarch 31, ($ in
thousands) 2015 2014
1st Lien
Captives
Premiums ceded to captives $ 2,585 $ 3,508
% of total premiums 1.1 % 1.6 %
Insurance
in force included in captives (1) 2.5 % 3.5 %
Risk in force included in captives (1) 2.4 %
3.3 %
Initial Quota
Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ 4,067 $ 5,304
% of premiums written 1.6 % 2.3 %
QSR ceded
premiums earned $ 6,018 $ 6,807
% of premiums
earned 2.5 % 3.2 %
Ceding commissions
$ 880 $ 1,326
Risk in force included in QSR
(2) $ 1,041,383 $ 1,289,856
Second QSR
Transaction
QSR ceded premiums written $ 6,529 $ 7,293
% of premiums written 2.6 % 3.2 %
QSR ceded
premiums earned $ 8,768 $ 6,585
% of premiums
earned 3.6 % 3.1 %
Ceding commissions
$ 2,285 $ 2,553
Risk in force included in QSR
(2) $ 1,533,677 $ 1,360,651
Persistency
(twelve months ended March 31) (3) 82.6 % 83.3 %
(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 RIF.
(3)
Effective March 31, 2015, we refined
our persistency calculation to incorporate loan level detail rather
than aggregated portfolio data. Prior periods have been
recalculated and reflect the current calculation
methodology.
Radian Group Inc. and
Subsidiaries
Mortgage and Real Estate Services
Supplemental Information
Exhibit O
The following table shows additional trend information for
the Mortgage and Real Estate Services segment:
Three Months EndedMarch 31, 2015
Three Months EndedDecember 31,
2014
Three Months EndedSeptember 30,
2014
(In
thousands)
Services revenue $ 30,742 $
34,466
$
42,243
Direct cost of services 18,451 19,709
23,896 Gross profit on services
$ 12,291 $ 14,757
$
18,347
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.
2013 2014
(In
thousands)
Qtr 1 Qtr 2 Qtr 3 Qtr
4 Qtr 1 Qtr 2 Services revenue
$ 37,041 $ 39,115 $
32,718 $ 25,593 $ 28,043
$ 36,347 Direct cost of services 20,173
22,028 18,015 14,957
15,469 19,956 Gross profit on
services $ 16,868 $ 17,087
$ 14,703 $ 10,636
$ 12,574 $ 16,391
FORWARD-LOOKING STATEMENTS
All statements in this report 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 Exchange Act and the
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;
- catastrophic events, increased
unemployment, home price depreciation or other negative economic
changes in geographic regions where our mortgage insurance exposure
is more concentrated;
- Radian Guaranty's ability to remain
eligible under applicable requirements imposed by the Federal
Housing Finance Agency and the government-sponsored entities
("GSEs") to insure loans purchased by the GSEs;
- our ability to maintain sufficient
holding company liquidity to meet our short- and long-term
liquidity needs. We expect to contribute a portion of our holding
company liquidity to Radian Guaranty to support Radian Guaranty's
compliance with the final PMIERs financial requirements. Our
projections regarding the amount of holding company liquidity that
we may contribute to Radian Guaranty are based on our estimates of
Radian Guaranty's Minimum Required Assets (as defined under the
PMIERs) and Available Assets (as defined under the PMIERs), which
may not prove to be accurate, and which could be impacted by: (1)
our ability to receive GSE approval for the full benefit of our
existing reinsurance arrangements under the PMIERs after any
necessary amendments to these arrangements, (2) whether we elect to
convert certain liquid assets into PMIERs compliant Available
Assets; (3) factors affecting the performance of our mortgage
insurance business, including our level of defaults, the losses we
incur on new or existing defaults and the credit characteristics of
new business that we write; and (4) the GSEs' intention to update
the factors that are applied to calculate and determine a mortgage
insurer's Minimum Required Assets every two years or more
frequently, as determined by the GSEs, to reflect changes in
macroeconomic conditions or loan performance. Contributing holding
company cash and investments from Radian Group to Radian Guaranty
will leave less liquidity to satisfy Radian Group's future
obligations. Depending on the amount of holding company
contributions that we make, we may be required or 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;
- our ability to maintain an adequate
level of capital in our insurance subsidiaries to satisfy existing
and future state regulatory requirements, including new capital
adequacy standards that currently are being developed by the
National Association of Insurance Commissioners ("NAIC") and that
could be adopted by certain states in which we write conduct
business;
- changes in the charters or business
practices of, or rules or regulations imposed by or applicable to
the GSEs, including: (1) the implementation of the final PMIERs,
which (i) will increase the amount of capital that Radian Guaranty
is required to hold, and therefore, reduce our current returns on
subsidiary capital; (ii) impose extensive and more stringent
operational requirements in areas such as claim processing, loss
mitigation, document retention, underwriting, quality control,
reporting and monitoring, among others that may result in
additional costs in order to achieve and maintain compliance; (iii)
require the consent of the GSEs for Radian Guaranty to take certain
actions such as paying dividends, entering into various
inter-company agreements, and commuting or reinsuring risk, among
others; (2) changes that could limit the type of business that
Radian Guaranty and other private mortgage insurers are willing to
write, which could reduce our NIW; (3) changes that could increase
the cost of private mortgage insurance, including as compared to
the Federal Housing Administration's ("FHA") pricing, or result in
the emergence of other forms of credit enhancement; and (4) changes
that could require us to alter our business practices, which may
result in substantial additional costs in order to achieve and
maintain compliance with the PMIERs;
- our ability to continue to effectively
mitigate our mortgage insurance losses, including a decrease in net
rescissions, denials or curtailments resulting from an increase in
the number of successful challenges to previously rescinded
policies, claim denials or claim curtailments (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;
- 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 have access to
greater amounts of capital than we do, 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 Wall
Street Reform and Consumer Protection 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: (1) the resolution of existing, or the
possibility of additional, lawsuits or investigations; (2) changes
to the Mortgage Guaranty Insurers Model Act ("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 Model Act in the future; and (3) 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 results of operations
caused by changes in the fair value of our assets and liabilities,
including a significant portion of our investment portfolio and
certain of our long-term incentive compensation awards;
- changes in generally accepted
accounting principles or statutory accounting practices, 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;
and
- 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.
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, 2014 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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