– Reports net income of $70 million or $0.29
per diluted share –
– Adjusted diluted net operating income of
$0.31 per share –
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended September 30, 2015, of $70.1 million, or $0.29 per
diluted share. This compares to net income for the quarter ended
September 30, 2014, of $153.6 million, or $0.67 per diluted
share.
Adjusted pretax operating income for the quarter ended September
30, 2015, was $115.6 million, compared to adjusted pretax operating
income for the quarter ended September 30, 2014, of $125.8 million.
Adjusted diluted net operating income per share for the quarter
ended September 30, 2015, was $0.31. See “Non-GAAP Financial
Measures” below.
Key Financial Highlights (dollars in millions, except per
share data)
Quarter EndedSeptember 30,2015
Quarter EndedSeptember 30,2014
PercentChange
Net income from continuing operations $70.1 $132.0
(47%) Diluted net income per share from continuing
operations $0.29 $0.58 (50%) Adjusted pretax
operating income $115.6 $125.8 (8%) Adjusted
diluted net operating income per share * $0.31 $0.37
(16%) Revenues $297.3 $272.1 9% Book
value per share $11.77 $9.08 30%
* Adjusted diluted net operating income per share is calculated
using the company’s statutory tax rate.
“We were successful in growing our mortgage insurance in force
with high-quality business and in further expanding the scope of
services we offer through our fee-based businesses,” said Radian’s
Chief Executive Officer S.A. Ibrahim. “We are excited about the
growth and opportunities ahead for our mortgage insurance and
mortgage and real estate services segments, as we continue to
enhance and seek new opportunities for our existing products and
services.”
THIRD QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- New mortgage insurance written (NIW)
was $11.2 billion for the quarter, compared to $11.8 billion in the
second quarter of 2015 and $11.2 billion in the prior-year quarter.
- Of the $11.2 billion in new business
written in the third quarter of 2015, 73 percent was written with
monthly premiums and 27 percent with single premiums. This compares
to a mix of 68 percent monthly premiums and 32 percent single
premiums in the second quarter of 2015.
- Refinances accounted for 13 percent of
total NIW in the third quarter of 2015, compared to 23 percent in
the second quarter of 2015, and 16 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force as of September 30, 2015, was $174.9 billion, compared to
$172.7 billion as of June 30, 2015, and $169.2 billion as of
September 30, 2014. Persistency, which is the percentage of
mortgage insurance in force that remains on the company’s books
after a twelve-month period, was 79.2 percent as of September 30,
2015, compared to 80.1 percent as of June 30, 2015, and 84.3
percent as of September 30, 2014. Annualized persistency for the
three-months ended September 30, 2015, was 80.5 percent, compared
to 76.2 percent for the three-months ended June 30, 2015, and 84.0
percent for the three-months ended September 30, 2014.
- Total net premiums earned were $227.4
million for the quarter ended September 30, 2015, which included
the favorable impact of an approximate $5 million reduction to the
company’s accrual for rescission-related premium refunds, resulting
from a reduction in rescission estimates. This compares to $237.4
million for the quarter ended June 30, 2015, which included the
favorable impact of two significant items totaling $15.6 million,
and $217.8 million for the quarter ended September 30, 2014.
- The mortgage insurance provision for
losses was $64.1 million in the third quarter of 2015, compared to
$31.6 million in the second quarter of 2015, and $48.9 million in
the prior-year period.
- As compared to the third quarter of
2015, results in the second quarter of 2015 significantly benefited
from a reduction in the company’s estimated claim rate on new
defaults.
- The loss ratio in the third quarter was
28.2 percent, compared to 13.3 percent in the second quarter of
2015 and 22.5 percent in the third quarter of 2014.
- Mortgage insurance loss reserves were
$1.1 billion as of September 30, 2015, compared to $1.2 billion as
of June 30, 2015, and $1.6 billion as of September 30, 2014.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $26,237 as of September 30,
2015. This compares to primary reserve per primary default of
$27,279 as of June 30, 2015, and $27,477 as of September 30,
2014.
- The total number of primary delinquent
loans decreased by 5 percent in the third quarter from the second
quarter of 2015, and by 23 percent from the third quarter of 2014.
The primary mortgage insurance delinquency rate decreased to 4.1
percent in the third quarter of 2015, compared to 4.3 percent in
the second quarter of 2015, and 5.4 percent in the third quarter of
2014.
- Total mortgage insurance claims paid
were $169.1 million in the third quarter, compared to $212.0
million in the second quarter, and $173.9 million in the third
quarter of 2014. Claims paid in the third quarter of 2015 include
$62.0 million of claims paid relating to the September 2014 BofA
Settlement Agreement. The company expects mortgage insurance net
claims paid for the full-year 2015 of approximately $700 million.
Claims paid for the full-year 2016 are expected to be approximately
$400–450 million.
- Radian Guaranty expects to be able to
immediately comply with the financial requirements of the Private
Mortgage Insurer Eligibility Requirements (PMIERs) developed by
Fannie Mae and Freddie Mac that come into effect on December 31,
2015, by utilizing approximately $320 million of existing holding
company liquidity.
Mortgage and Real Estate Services
- On June 30, 2014, Radian completed the
acquisition of Clayton Holdings LLC, a leading provider of
risk-based analytics, residential loan due diligence, consulting,
surveillance and staffing solutions. The company also provides
customized Real Estate Owned (REO) asset management and
single-family rental services through its Green River Capital
subsidiary; advanced Automated Valuation Models, Broker Price
Opinions and technology solutions to monitor loan portfolio
performance, acquire and track non-performing loans, and value and
sell residential real estate through its Red Bell Real Estate
subsidiary; and a global reach through its Clayton EuroRisk
subsidiary.
- Total revenues for the quarter were
$43.1 million, compared to $44.6 for the second quarter of 2015,
and $42.2 million for the third quarter of 2014. Gross profit for
the quarter was $17.2 million, compared to $19.1 million for the
second quarter of 2015, and $18.3 million for the third quarter of
2014.
- Adjusted pretax operating income before
corporate allocations for the quarter ended September 30, 2015, was
$5.7 million, compared to $7.6 million for the quarter ended June
30, 2015, and $9.4 million for the quarter ended September 30,
2014.
- In order to help facilitate the
evaluation of its Services segment, the company has introduced an
additional non-GAAP financial measure representing earnings before
interest, income taxes, depreciation and amortization (EBITDA). You
may find details regarding this measure and its definition in press
release Exhibits E, F and G.
- In October, Clayton announced that it
had acquired ValuAmerica, Inc., a national title agency and a
fully-compliant appraisal management company with coverage across
all 3,143 counties in the U.S. In addition, the company's
award-winning technology platform, ValuNet xsp, helps mortgage
lenders and their vendors streamline and manage their supply chains
and operational workflow. The acquisition expands the scope of
title and valuation services Clayton offers to its mortgage clients
and is consistent with the company’s strategy of being a complete
solution provider to the mortgage and real estate industries.
Expenses
Other operating expenses were $65.1 million in the third
quarter, compared to $67.7 million in the second quarter of 2015,
and $51.2 million in the third quarter of last year.
- Operating expenses for the third
quarter of 2015 were comprised of $51.5 million for the Mortgage
Insurance segment, compared to $54.4 million in the second quarter
of 2015, and $42.2 million in the third quarter of last year.
- Operating expenses for the third
quarter of 2015 were comprised of $13.1 million for the Services
segment, compared to $12.8 million in the second quarter of 2015,
and $9.5 million in the third quarter of last year.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $710 million of currently
available liquidity.
- Currently available holding company
liquidity of approximately $710 million reflects the following
fourth quarter 2015 transactions:
- A cash payment to repurchase $8.5
million principal amount of the company’s convertible senior notes
due 2017 in a negotiated transaction
- The expected settlement of a holder’s
conversion of $10.0 million principal amount of the company’s
convertible senior notes due 2019
- Cash utilized for the Clayton
acquisition of ValuAmerica
- Book value per share at September 30,
2015, was $11.77, compared to $11.28 at June 30, 2015.
- As of September 30, 2015, Radian
Guaranty’s risk-to-capital ratio was 16.5:1 and statutory capital
was $2.0 billion. The Mortgage Insurance segment’s combined
risk-to-capital ratio was 17.9:1 and statutory capital was $2.3
billion.
- As of September 30, 2015, a total of
$2.3 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. Radian expects to exercise its
option to recapture 50 percent of the ceded risk under the Second
Quota Share Reinsurance Transaction on December 31, 2015.
CONFERENCE CALL
Radian will discuss third quarter financial results in a
conference call today, Tuesday, October 27, 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
800.230.1096 inside the U.S., or 612.332.0228 for international
callers, using passcode 371396 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, using passcode 371396 or by referencing Radian.
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 company’s
statutory tax rate for the period.
In addition to the above non-GAAP measures for the consolidated
company, we also have presented as supplemental information a
non-GAAP measure for our Services segment, representing earnings
before interest, income taxes, depreciation and amortization
(EBITDA). We calculate Services EBITDA by using adjusted pretax
operating income as described above, further adjusted to remove the
impact of depreciation and corporate allocations for interest and
operating expenses. We have presented Services EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
See press release Exhibit F or Radian’s website for a
description of these items, as well as Exhibit G for
reconciliations to the most comparable consolidated GAAP
measures.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia,
provides private mortgage insurance, risk management products and
real estate services to financial institutions. Radian offers
products and services through two business segments:
- Mortgage Insurance, through its
principal mortgage insurance subsidiary Radian Guaranty Inc. This
private mortgage insurance protects lenders from default-related
losses, facilitates the sale of low-downpayment mortgages in the
secondary market and enables homebuyers to purchase homes more
quickly with downpayments less than 20%.
- Mortgage and Real Estate
Services, through its principal services subsidiary Clayton, as
well as Green River Capital, Red Bell Real Estate and ValuAmerica.
These solutions include information and services that financial
institutions, investors and government entities use to evaluate,
acquire, securitize, service and monitor loans and asset-backed
securities.
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 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 Primary
Insurance in Force and Risk in Force by Product, Statutory Capital
Ratios Exhibit J: Mortgage Insurance Supplemental Information
Percentage of Primary Risk in Force by FICO, LTV and Policy Year
Exhibit K: Mortgage Insurance Supplemental Information Claims and
Reserves Exhibit L: Mortgage Insurance Supplemental Information
Default Statistics Exhibit M: Mortgage Insurance Supplemental
Information Captives, QSR and Persistency
Radian Group Inc. and Subsidiaries Condensed Consolidated
Statements of Operations Trend Schedule Exhibit A
2015 2014
(In thousands,
except per share amounts)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Revenues: Net premiums earned - insurance $
227,433 $ 237,437 $ 224,595 $ 224,293 $ 217,827
Services
revenue 42,189 43,503 30,630 34,450 42,243
Net
investment income 22,091 19,285 17,328 16,531 17,143
Net gains (losses) on investments and other financial
instruments 3,868 28,448 16,779 17,983 (6,294 )
Other
income 1,711 1,743 1,331 1,793
1,162
Total revenues 297,292
330,416 290,663 295,050 272,081
Expenses: Provision for losses 64,192 32,560
45,028 82,867 48,942
Policy acquisition costs 2,880
6,963 7,750 6,443 4,240
Direct cost of services
24,949 23,520 19,253 19,709 23,896
Other operating
expenses 65,082 67,731 53,774 85,800 51,225
Interest
expense 21,220 24,501 24,385 24,200 23,989
Loss on
induced conversion and debt extinguishment 11 91,876 — —
—
Amortization and impairment of intangible assets
3,273 3,281 3,023 5,354 3,294
Total expenses 181,607 250,432
153,213 224,373 155,586
Pretax
income from continuing operations 115,685 79,984 137,450
70,677 116,495
Income tax provision (benefit) 45,594
34,791 45,723 (807,349 ) (15,536 )
Net
income from continuing operations 70,091 45,193 91,727
878,026 132,031
Income (loss) from discontinued operations, net
of tax — 4,855 530 (449,691 )
21,559
Net income $ 70,091 $
50,048 $ 92,257 $ 428,335 $ 153,590
Diluted net income per
share:
Net income from continuing operations $ 0.29 $
0.20 $ 0.39 $ 3.63 $ 0.58
Income (loss) from discontinued
operations, net of tax — 0.02 —
(1.85 ) 0.09
Net income $ 0.29 $
0.22 $ 0.39 $ 1.78 $ 0.67
Selected Mortgage Insurance Key
Ratios
Loss ratio (1) 28.2 % 13.3 % 20.4 % 36.9 %
22.5 %
Expense ratio - NPE basis (1) 23.9 %
25.8 % 23.0 % 36.9 % 21.3 %
Expense ratio - NPW basis (2)
22.5 % 24.4 % 21.3 % 33.8 % 18.9 %
(1)
Calculated on a GAAP basis using net
premiums earned (“NPE”).
(2)
Calculated on a GAAP basis using net
premiums written (“NPW”).
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, the operating results of Radian Asset Assurance are
classified as discontinued operations for all periods presented in
our condensed consolidated statements of operations. See Exhibit D
for additional information on discontinued operations.
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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net
income from continuing operations: Net income from
continuing operations—basic $ 70,091 $ 45,193 $
91,727 $ 878,026 $ 132,031
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1) 3,714 3,707
3,673 3,641 5,552
Net income from
continuing operations—diluted $ 73,805 $
48,900 $ 95,400 $ 881,667 $ 137,583
Net income: Net income from continuing
operations—basic $ 70,091 $ 45,193 $ 91,727 $
878,026 $ 132,031
Income (loss) from discontinued operations,
net of tax — 4,855 530 (449,691 )
21,559
Net income—basic 70,091 50,048 92,257
428,335 153,590
Adjustment for dilutive Convertible Senior Notes
due 2019, net of tax (1) 3,714 3,707 3,673
3,641 5,552
Net income—diluted $
73,805 $ 53,755 $ 95,930 $ 431,976
$ 159,142
Average common shares
outstanding—basic 207,938 193,112 191,224 191,053
191,050
Dilutive effect of Convertible Senior Notes due 2017
1,798 12,438 10,886 10,590 6,342
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) 3,323 3,364 3,202
3,422 2,939
Adjusted average common shares
outstanding—diluted 250,795 246,650
243,048 242,801 238,067
Net income per
share:
Basic: Net income from continuing operations $
0.34 $ 0.23 $ 0.48 $ 4.60 $ 0.69
Income (loss) from
discontinued operations, net of tax — 0.03
— (2.36 ) 0.11
Net income $ 0.34
$ 0.26 $ 0.48 $ 2.24 $ 0.80
Diluted: Net income from continuing operations
$ 0.29 $ 0.20 $ 0.39 $ 3.63 $ 0.58
Income (loss)
from discontinued operations, net of tax — 0.02
— (1.85 ) 0.09
Net income $
0.29 $ 0.22 $ 0.39 $ 1.78 $ 0.67
(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)
The following number of shares 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:
2015 2014
(In
thousands)
Qtr 3
Qtr 2
Qtr 1 Qtr 4
Qtr 3
Shares of common stock equivalents 469
264 540 542 557
Radian Group
Inc. and Subsidiaries Condensed Consolidated Balance
Sheets
Exhibit C
September 30, June 30, March 31, December 31,
September 30,
(In thousands,
except per share data)
2015 2015 2015 2014 2014
Assets:
Investments $ 4,376,771 $ 4,309,148 $
3,621,646 $ 3,629,299 $ 3,529,310
Cash 69,030 51,381
57,204 30,465 30,491
Restricted cash 10,280 12,633
14,220 14,031 16,509
Accounts and notes receivable
65,951 72,093 64,405 85,792 69,029
Deferred income taxes,
net 601,893 651,238 649,996 700,201 —
Goodwill and
other intangible assets, net 287,334 290,640 293,798
288,240 293,632
Other assets 349,657 349,371 340,276
357,864 364,665
Assets held for sale — —
1,755,873 1,736,444 1,637,233
Total
assets $ 5,760,916 $ 5,736,504 $
6,797,418 $ 6,842,336 $ 5,940,869
Liabilities and stockholders’ equity: Unearned
premiums $ 676,938 $ 665,947 $ 657,555 $ 644,504
$ 625,269
Reserve for losses and loss adjustment expenses
1,098,570 1,204,792 1,384,714 1,560,032 1,591,150
Long-term debt 1,230,246 1,224,892 1,202,535
1,192,299 1,182,247
Other liabilities 311,855 278,929
310,642 326,743 314,395
Liabilities held for sale —
— 966,078 947,008 493,407
Total liabilities 3,317,609 3,374,560
4,521,524 4,670,586 4,206,468
Equity
component of currently redeemable convertible senior notes
7,737 8,546 68,982 74,690 —
Common stock
224 226 209 209 209
Additional paid-in capital
1,825,034 1,816,545 1,648,436 1,638,552 1,706,222
Retained earnings (deficit) 617,731 548,161 498,593
406,814 (21,044 )
Accumulated other comprehensive (loss)
income (7,419 ) (11,534 ) 59,674 51,485
49,014
Total common stockholders’ equity
2,435,570 2,353,398 2,206,912 2,097,060
1,734,401
Total liabilities and stockholders’
equity $ 5,760,916 $ 5,736,504 $
6,797,418 $ 6,842,336 $ 5,940,869
Shares outstanding 206,870 208,587 191,416 191,054
191,050
Book value per share $ 11.77 $
11.28 $ 11.53 $ 10.98 $ 9.08
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:
2015
(In
thousands)
Qtr 2 Qtr 1
Net premiums earned $ — $ 1,007
Net
investment income — 9,153
Net gains on investments and other
financial instruments 7,818 13,668
Change in fair value of
derivative instruments — 2,625
Total
revenues 7,818 26,453
Provision for
losses — 502
Policy acquisition costs — (191 )
Other
operating expense — 4,107
Total expenses —
4,418
Equity in net loss of affiliates
— (13 )
Income from operations of businesses held for
sale 7,818 22,022
Loss on sale (350 ) (13,930 )
Income tax provision 2,613 7,562
Income
from discontinued operations, net of tax $ 4,855 $ 530
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating
segments as of and for the periods indicated, is as follows. For a
definition of adjusted pretax operating income and EBITDA, along
with reconciliations to consolidated GAAP measures, see Exhibits F
and G.
Mortgage Insurance 2015 2014
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net
premiums written - insurance $ 242,168 $ 251,082
$ 241,908 $ 244,506 $ 245,775
Increase in unearned premiums
(14,735 ) (13,645 ) (17,313 ) (20,213 ) (27,948 )
Net premiums earned - insurance 227,433 237,437
224,595 224,293 217,827
Net investment income (1)
22,091 19,285 17,328 16,531 17,143
Other income (1)
1,711 1,743 1,331 1,668 1,037
Total 251,235 258,465 243,254
242,492 236,007
Provision for
losses 64,128 31,637 45,851 83,649 48,942
Change in
expected economic loss or recovery for consolidated VIEs
— — — (16 ) (190 )
Policy acquisition costs
2,880 6,963 7,750 6,443 4,240
Other operating expenses
before corporate allocations 36,632 41,853
34,050 62,591 33,679
Total (2)
103,640 80,453 87,651 152,667
86,671
Adjusted pretax operating income before corporate
allocations 147,595 178,012 155,603 89,825 149,336
Allocation of corporate operating expenses (1) 14,893
12,516 9,758 13,729 8,520
Allocation of interest expense (1)
16,797 20,070 19,953 19,760
19,565
Adjusted pretax operating income $
115,905 $ 145,426 $ 125,892 $ 56,336
$ 121,251
Services 2015
2014
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Services revenue $ 43,114 $ 44,595 $ 31,532 $
34,466 $ 42,243
Other income — — —
891 125
Total (2) 43,114
44,595 31,532 35,357 42,368
Direct cost of services 25,870 25,501 19,253 19,709
23,896
Other operating expenses before corporate allocations
11,533 11,522 8,857 8,360 9,054
Total 37,403 37,023 28,110
28,069 32,950
Adjusted pretax operating
income before corporate allocations (3) 5,711 7,572
3,422 7,288 9,418
Allocation of corporate operating expenses
1,567 1,307 981 740 404
Allocation of interest
expense 4,423 4,431 4,432 4,440
4,424
Adjusted pretax operating (loss) income
$ (279 ) $ 1,834 $ (1,991 ) $ 2,108
$ 4,590
(1)
For periods prior to the quarter ended
June 30, 2015, 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)
Inter-segment information:
2015 2014
Qtr 3 Qtr 2 Qtr
1 Qtr 4 Qtr 3
Inter-segment expense included in Mortgage
Insurance segment $ 925 $ 1,092 $ 902 $ 782 $ —
Inter-segment revenue included in Services segment
925 1,092 902 782 —
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
(3) Supplemental information for
Services EBITDA (see definition in Exhibit F):
2015 2014
Qtr 3 Qtr 2 Qtr
1 Qtr 4 Qtr 3
Adjusted pretax operating income before
corporate allocations $ 5,711 $ 7,572 $ 3,422 $
7,288 $ 9,418
Depreciation and amortization 555
482 449 442 383
Services
EBITDA $ 6,266 $ 8,054 $ 3,871
$ 7,730 $ 9,801
At September 30,
2015
(In
thousands)
MortgageInsurance
Services
Total
Total assets $ 5,408,200 $
352,716 $ 5,760,916 At December 31,
2014
(In
thousands)
MortgageInsurance
Services Total
Assets held for sale (1) $ — $ — $ 1,736,444
Total assets 4,769,014 336,878 6,842,336
(1)
Assets held for sale are not part of
the Mortgage Insurance or 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, loss on induced conversion and debt extinguishment,
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 company’s statutory 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.
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. We do not view
them to be indicative of our fundamental operating activities.
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)
Loss on induced conversion and debt
extinguishment. Gains or losses on early extinguishment of debt or
losses incurred to induce conversion of convertible debt prior to
maturity are discretionary activities that are undertaken in order
to take advantage of market opportunities to strengthen our
financial position; therefore, these activities are not viewed as
part of our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).
(3)
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)
(4)
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).
(5)
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).
In addition to the above non-GAAP measures for the consolidated
company, we also have presented as supplemental information a
non-GAAP measure for our Services segment, representing earnings
before interest, income taxes, depreciation and amortization
(“EBITDA”). We calculate Services EBITDA by using adjusted pretax
operating income as described above, further adjusted to remove the
impact of depreciation and corporate allocations for interest and
operating expenses. We have presented Services EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
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. Exhibit G also contains the reconciliation of
Services EBITDA to the most comparable GAAP measure, pretax income
from continuing operations.
Total adjusted pretax operating income (loss), adjusted diluted
net operating income (loss) per share and Services EBITDA 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), adjusted diluted net operating income (loss) per share or
EBITDA 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 (page 1 of 2)
Reconciliation of Adjusted Pretax Operating Income (Loss)
to Consolidated Pretax Income from Continuing Operations
2015 2014
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Adjusted pretax operating income (loss): Mortgage
Insurance (1) $ 115,905 $ 145,426 $ 125,892 $
56,336 $ 121,251
Services (2) (279 ) 1,834
(1,991 ) 2,108 4,590
Total adjusted pretax
operating income 115,626 147,260 123,901 58,444 125,841
Net gains (losses) on investments and other financial
instruments (3) 3,868 28,448 16,779 17,967 (6,484 )
Loss on induced conversion and debt extinguishment
(11 ) (91,876 ) — — —
Acquisition-related expenses
(4) (525 ) (567 ) (207 ) (380 ) 432
Amortization and impairment of intangible assets (4)
(3,273 ) (3,281 ) (3,023 ) (5,354 ) (3,294 )
Consolidated pretax income from continuing operations
$ 115,685 $ 79,984 $ 137,450 $
70,677 $ 116,495
(1)
For periods prior to the quarter ended
June 30, 2015, 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)
Effective with the fourth quarter of
2014, the 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
Services segment for all periods presented.
(3)
This line item includes a de minimis
amount of expected economic loss or recovery associated with our
previously consolidated VIEs that is included in adjusted pretax
operating income above.
(4)
Please see Exhibit F for the definition
of this line item.
Reconciliation of Adjusted Diluted Net
Operating Income Per Share (1) to Net Income Per
Share from Continuing Operations
2015 2014
Qtr 3 Qtr 2 Qtr 1 Qtr
4 Qtr 3
Adjusted diluted net operating income per
share $ 0.31 $ 0.40 $ 0.35 $ 0.17 $ 0.37
After tax per share impact: Net gains (losses) on
investments and other financial instruments 0.01 0.07
0.04 0.05 (0.02 )
Loss on induced conversion and debt
extinguishment — (0.28 ) — — —
Amortization and
impairment of intangible assets (0.01 ) (0.01 )
(0.01 ) (0.01 ) (0.01 )
Difference between statutory and
effective tax rate (0.02 ) 0.02 0.01 3.42 0.24
Net income per share from
continuing operations $ 0.29 $ 0.20
$ 0.39 $ 3.63 $ 0.58
(1)
Calculated using the company’s
statutory tax rate.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 2 of 2) Reconciliation of Services
Segment EBITDA to Consolidated Pretax Income from Continuing
Operations 2015 2014
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Services EBITDA $ 6,266 $ 8,054 $ 3,871 $
7,730 $ 9,801
Allocation of corporate operating expenses to
Services (1,567 ) (1,307 ) (981 ) (740 ) (404 )
Allocation of corporate interest expenses to Services
(4,423 ) (4,431 ) (4,432 ) (4,440 ) (4,424 )
Services depreciation and amortization (555 )
(482 ) (449 ) (442 ) (383 )
Services adjusted pretax operating
(loss) income (279 ) 1,834 (1,991 ) 2,108 4,590
Mortgage Insurance adjusted pretax operating income
115,905 145,426 125,892 56,336
121,251
Total adjusted pretax operating income
115,626 147,260 123,901 58,444 125,841
Net gains
(losses) on investments and other financial instruments
3,868 28,448 16,779 17,967 (6,484 )
Loss on induced
conversion and debt extinguishment (11 ) (91,876
) — — —
Acquisition-related expenses (525 )
(567 ) (207 ) (380 ) 432
Amortization and impairment of
intangible assets (3,273 ) (3,281 ) (3,023 )
(5,354 ) (3,294 )
Consolidated pretax income from continuing
operations $ 115,685 $ 79,984 $
137,450 $ 70,677 $ 116,495
On a consolidated basis, “adjusted pretax operating income” and
“adjusted diluted net operating income per share” are measures not
determined in accordance with GAAP. “Services EBITDA” is also a
non-GAAP measure. 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, adjusted diluted net operating income per
share or EBITDA 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 - New Insurance
Written Exhibit H 2015 2014
($ in
millions)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Total primary new insurance written $ 11,176
$ 11,751 $ 9,385 $ 10,009 $ 11,210
Percentage of
primary new insurance written by FICO score
>=740 61.0 % 63.0 % 63.6 % 60.2 % 61.6 %
680-739
31.9 30.8 30.3 32.6 31.2
620-679
7.1 6.2 6.1
7.2 7.2
Total Primary
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Monthly premiums 73 % 68 % 63 % 69 % 72 %
Single premiums 27 % 32 % 37 % 31 % 28 %
Refinances 13 % 23 % 33 % 22 % 16 %
LTV 95.01% and above 3.5 % 3.2 % 1.8 %
0.5 % 0.3 %
90.01% to 95.00% 51.5 % 49.4 %
48.4 % 51.7 % 53.7 %
85.01% to 90.00% 34.1 %
34.0 % 33.3 % 33.2 % 33.5 %
85.00% and below 10.9
% 13.4 % 16.5 % 14.6 % 12.5 %
Radian Group
Inc. and Subsidiaries Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force by
Product, Statutory Capital Ratios Exhibit I
September 30, June 30, March 31,
December 31, September 30,
($ in millions) 2015 2015
2015 2014 2014
Primary insurance
in force (1)
Flow $ 166,527 $ 164,137 $ 162,832 $ 162,302 $
159,770
Structured 8,339 8,555 9,309 9,508 9,452
Total Primary $ 174,866 $ 172,692 $ 172,141 $
171,810 $ 169,222
Prime $ 164,060 $
161,397 $ 160,452 $ 159,647 $ 156,581
Alt-A 6,531
6,857 7,122 7,412 7,709
A minus and below 4,275 4,438
4,567 4,751 4,932
Total Primary $ 174,866 $
172,692 $ 172,141 $ 171,810 $ 169,222
Primary risk in
force (1) (2)
Flow $ 42,454 $ 41,706 $ 41,256 $ 41,071 $
40,337
Structured 1,910 1,957 2,133 2,168 2,150
Total Primary $ 44,364 $ 43,663 $ 43,389 $
43,239 $ 42,487
Flow Prime $
40,629 $ 39,781 $ 39,251 $ 38,977 $ 38,156
Alt-A
1,124 1,191 1,243 1,295 1,350
A minus and below
701 734 762 799 831
Total Flow $ 42,454
$ 41,706 $ 41,256 $ 41,071 $ 40,337
Structured
Prime $ 1,155 $ 1,182 $ 1,341 $ 1,349 $ 1,302
Alt-A 386 397 410 425 441
A minus and below
369 378 382 394 407
Total Structured $
1,910 $ 1,957 $ 2,133 $ 2,168 $ 2,150
Total
Prime $ 41,784 $ 40,963 $ 40,592 $ 40,326 $
39,458
Alt-A 1,510 1,588 1,653 1,720 1,791
A minus
and below 1,070 1,112 1,144 1,193 1,238
Total
Primary $ 44,364 $ 43,663 $ 43,389 $ 43,239 $
42,487
Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only 16.5:1
(3)
16.5:1 17.1:1 17.9:1 18.4:1
Risk to capital ratio-Mortgage
Insurance combined 17.9:1
(3)
18.0:1 19.1:1 20.3:1 21.2:1
(1)
Includes amounts ceded under our
reinsurance agreements, as well as amounts related to the Freddie
Mac Agreement.
(2)
Does not include pool risk in force or
other risk in force, which combined represent less than 3.0% of our
total risk in force for all periods presented.
(3)
Preliminary.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Percentage of Primary Risk in
Force by FICO, LTV and Policy Year Exhibit J
September 30, June 30, March 31,
December 31, September 30,
($ in millions) 2015 2015
2015 2014 2014
Percentage of
primary risk in force by FICO score
Flow >=740 58.2 % 58.1 % 58.1 % 58.1
% 58.0 %
680-739 30.3 30.2 30.0 29.7 29.5
620-679 10.3 10.5 10.6 10.8 11.0
<=619
1.2 1.2 1.3 1.4 1.5
Total Flow 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Structured >=740 28.9
% 28.7 31.1 % 30.3 % 28.7 %
680-739 27.9 27.9
28.1 28.5 28.3
620-679 25.2 25.4 24.1 24.3 25.4
<=619 18.0 18.0 16.7 16.9
17.6
Total Structured 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Total >=740
57.0 % 56.7 % 56.8 % 56.7 % 56.6 %
680-739
30.2 30.1 29.8 29.6 29.4
620-679 10.9 11.2
11.3 11.6 11.7
<=619 1.9 2.0 2.1
2.1 2.3
Total Primary 100.0
% 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 7.4 % 7.6 % 7.9 % 8.2 % 8.6 %
90.01% to 95.00% 49.8 49.0 48.2 47.5 46.5
85.01%
to 90.00% 34.3 34.6 35.0 35.4 35.8
85.00% and
below 8.5 8.8 8.9 8.9 9.1
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior
6.8 % 7.3 % 7.8 % 8.2 % 8.8 %
2006
3.9 4.2 4.4 4.6 4.9
2007
9.1 9.6 10.2 10.6 11.1
2008
6.6 7.0 7.5 7.9 8.3
2009
1.8 2.0 2.3 2.5 2.8
2010
1.5 1.7 2.0 2.1 2.3
2011
3.1 3.5 3.9 4.2 4.5
2012
12.0 13.0 14.2 15.1 16.2
2013
19.2 20.8 22.4 23.8 25.1
2014
18.0 19.0 20.0 21.0 16.0
2015
18.0 11.9 5.3 — —
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Primary risk in force on defaulted loans (1) $
1,666 $ 1,753 $ 1,883 $ 2,089 $ 2,168
(1) Excludes risk related to loans
subject to the Freddie Mac Agreement.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Claims and Reserves
Exhibit K
2015 2014
($ in
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net claims
paid Prime $ 65,396 $ 83,489 $ 76,186 $
74,342 $ 104,440
Alt-A 18,966 23,260 19,999 21,909
26,882
A minus and below 14,028 14,965
15,141 12,600 19,658
Total primary claims paid
98,390 121,714 111,326 108,851 150,980
Pool
8,721 10,798 8,874 8,086 8,880
Second-lien and other
(16 ) (53 ) (111 ) 283 490
Subtotal
107,095 132,459 120,089 117,220 160,350
Impact of captive
terminations — — (12,000 ) — —
Impact of
settlements 61,994 79,557 99,006 —
13,500
Total $ 169,089 $ 212,016
$ 207,095 $ 117,220 $ 173,850
Average claim paid (1) Prime $
46.2
$ 48.1 $ 44.0 $ 48.7 $ 49.2
Alt-A 60.2 59.5 54.6 58.7
56.7
A minus and below 42.5 40.1 35.9 39.3 40.3
Total primary average claims paid 47.8 48.7 44.2 49.0
49.0
Pool 51.3 69.7 51.5 46.5 48.0
Second-lien and
other (1.6 ) (3.5 ) (12.3 ) 7.6 18.9
Total
$ 47.8 $ 49.6 $ 44.5 $ 48.2 $ 48.7
Average
primary claim paid (2) $ 48.5 $ 49.6 $ 45.3 $
50.4 $ 50.0
Average total claim paid (2) $
48.5 $ 50.4 $ 45.5 $ 49.4 $ 49.6
($ in thousands,
except primary reserve per
September 30, June 30, March 31, December 31, September 30,
primary default
amounts)
2015 2015 2015 2014 2014
Reserve for losses by
category Prime $ 519,572 $ 562,918 $
640,919 $ 700,174 $ 721,811
Alt-A 234,772 256,854
278,350 292,293 308,283
A minus and below 137,441
148,043 163,390 179,103 182,885
IBNR and other
107,179 125,038 167,204 223,114 212,908
LAE
41,464 48,141 53,210 56,164 52,690
Reinsurance
recoverable (3) 11,071 11,677 13,365
26,665 21,201
Total primary reserves
1,051,499 1,152,671 1,316,438 1,477,513
1,499,778
Pool insurance 43,234 47,902 62,943
75,785 80,664
IBNR and other 949 891 1,227 1,775
2,468
LAE 1,983 2,353 3,051
3,542 3,434
Total pool reserves 46,166
51,146 67,221 81,102 86,566
Total 1st lien
reserves 1,097,665 1,203,817 1,383,659 1,558,615
1,586,344
Second-lien and other 905 975
1,055 1,417 1,787
Total reserves $
1,098,570 $ 1,204,792 $ 1,384,714 $
1,560,032 $ 1,588,131
1st lien reserve per
default Primary reserve per primary default excluding IBNR
and other $ 26,237 $ 27,279 $ 28,423 $ 27,683 $
27,477
(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.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Default Statistics
Exhibit L September
30,
June 30,
March 31, December 31, September 30,
2015 2015 2015 2014
2014
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 812,657 802,719 801,332
797,436 783,414
Number of loans in default 22,328
23,237 25,114 28,246 28,963
Percentage of loans in default
2.75 % 2.89 % 3.13 % 3.54 % 3.70 %
Alt-A
Number of insured loans 34,166 35,927 37,468 38,953
40,319
Number of loans in default 6,318 6,949 7,480
8,136 8,629
Percentage of loans in default 18.49
% 19.34 % 19.96 % 20.89 % 21.40 %
A minus and
below
Number of insured loans 33,018 34,224 35,425 36,688
37,843
Number of loans in default 7,229 7,490 7,846
8,937 9,251
Percentage of loans in default 21.89
% 21.89 % 22.15 % 24.36 % 24.45 %
Total Primary
Number of insured loans 879,841 872,870 874,225
873,077 861,576
Number of loans in default (1) 35,875
37,676 40,440 45,319 46,843
Percentage of loans in default
4.08 % 4.32 % 4.63 % 5.19 % 5.44 %
(1)
Excludes the following number of loans
subject to the Freddie Mac Agreement that are in default as we no
longer have claims exposure on these loans:
September 30,
June 30,
March 31, December 31, September 30,
2015 2015 2015 2014
2014
Number of loans in default 2,993 3,246 3,715
4,467 4,824
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Captives, QSR and
Persistency Exhibit M 2015 2014
($ in
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
1st Lien
Captives
Premiums ceded to captives $ 2,434 $ 2,700 $
2,585 $ 3,078 $ 3,096
% of total premiums 1.0
% 1.1 % 1.1 % 1.3 % 1.3 %
Insurance in force included in
captives (1) 2.2 % 2.4 % 2.5 % 2.8 % 3.0 %
Risk in force included in captives (1) 2.1 %
2.2 % 2.4 % 2.7 % 2.9 %
Initial Quota
Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ 3,437 $ 3,822 $
4,067 $ (4,801 ) $ 4,668
% of premiums written 1.4
% 1.5 % 1.6 % (1.9 )% 1.8 %
QSR ceded premiums earned
$ 5,067 $ 6,425 $ 6,018 $ (2,869 ) $ 6,578
% of
premiums earned 2.1 % 2.6 % 2.5 % (1.2 )% 2.8 %
Ceding commissions $ 745 $ 828 $ 880 $ 1,108 $
1,166
Risk in force included in QSR (2) $
889,298 $ 954,673 $ 1,041,383 $ 1,105,545 $ 1,170,496
Second QSR
Transaction
QSR ceded premiums written $ 5,030 $ 394 $
6,529 $ 9,303 $ 9,082
% of premiums written 2.0
% 0.2 % 2.6 % 3.7 % 3.5 %
QSR ceded premiums earned
$ 7,134 $ 3,040 $ 8,768 $ 8,339 $ 7,699
% of
premiums earned 3.0 % 1.2 % 3.6 % 3.6 % 3.3 %
Ceding commissions $ 1,998 $ 2,154 $ 2,285 $
3,256 $ 3,179
Risk in force included in QSR (2) $
1,364,615 $ 1,440,312 $ 1,533,677 $ 1,615,554 $ 1,546,311
Persistency (twelve months ended) (3) 79.2
% 80.1 % 82.6 % 84.2 % 84.3 %
Persistency (quarterly,
annualized) 80.5 % 76.2 % 80.3 % 83.3 % 84.0 %
(1)
Radian reinsures the middle layer risk
positions, while retaining a significant portion of the total risk
comprising the first loss and most remote risk positions.
(2)
Included in primary risk in
force.
(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.
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, 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 FHFA and the
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 distribute to Radian Guaranty a
significant amount of our holding company liquidity to support
Radian Guaranty's compliance with the PMIERs Financial
Requirements, which become effective for existing mortgage insurers
on December 31, 2015. Our projections regarding the amount of
holding company liquidity that we may distribute to Radian Guaranty
to comply with the PMIERs Financial Requirements are based on our
estimates of Radian Guaranty's Minimum Required Assets and
Available Assets, which may not prove to be accurate, and which
could be impacted by: (1) our ability to receive, as expected, GSE
approval for the amendments to our existing reinsurance
arrangements and to receive the full PMIERs benefit for these
arrangements; (2) whether we elect to convert certain holding
company assets into PMIERs-compliant Available Assets; (3) factors
affecting the performance of our mortgage insurance business,
including our level of defaults, prepayments, the losses we incur
on new or existing defaults and the credit characteristics of our
mortgage insurance; and (4) how much capital we expect to maintain
at our mortgage insurance subsidiaries in excess of the amount
required to satisfy the PMIERs Financial Requirements.
Contributions of holding company cash and investments from Radian
Group 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 NAIC
and that could be adopted by states in which we write
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
(including as updated on June 30, 2015 to increase the amount of
Available Assets that must be held against risk in force associated
with lender paid mortgage insurance originated on or after January
1, 2016), which (a) will increase the amount of capital that Radian
Guaranty is required to hold, and therefore, reduce our current
returns on subsidiary capital, (b) potentially impact the type of
business that Radian Guaranty is willing to write, which could
reduce our NIW and market share, (c) 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 to achieve and maintain compliance, and
(d) 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 is willing to write, which could reduce our NIW and
market share; (3) changes that 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) changes that could require us to alter our business practices
and which may result in substantial additional costs;
- our ability to continue to effectively
mitigate our mortgage insurance losses, including a decrease in net
Rescissions, Claim Denials or Claim Curtailments resulting from an
increase in the number of successful challenges to previous
Rescissions, Claim Denials or Claim Curtailments (including as part
of one or more settlements of disputed Rescissions or Claim
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 mortgage insurance
products paid on a monthly installment basis 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 may be more willing to aggressively price their mortgage
insurance offerings to gain market share from more established
mortgage insurers) and the impact such heightened competition may
have on our returns and our NIW;
- the increased demand from lenders for
customized (reduced) rates on mortgage insurance products, which
could further reduce our overall average premium rates and returns
and, to the extent we decide to limit certain types of business,
could adversely impact our NIW and market share;
- 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 laws and
regulations, or changes in existing laws and regulations, or the
way they are interpreted or applied, including, without limitation:
(1) the resolution of existing, or the possibility of additional,
lawsuits, inquiries or investigations (including an inquiry from
the Wisconsin Office of the Commissioner of Insurance to all
private mortgage insurers pertaining to customized insurance rates
and terms offered to mortgage insurance customers); (2) changes to
the Model Act being considered by the NAIC that could include more
stringent requirements for Radian Guaranty in states that adopt the
new Model Act in the future; and (3) other 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 business;
- 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;
- 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;
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151027005465/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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