-- Improves return on capital; manages MI
business mix and PMIERs position–
-- Webcast of first quarter call set for April
27, 2016–
Radian Guaranty Inc., the mortgage insurance (MI) subsidiary of
Radian Group Inc., announced today that it has entered into a quota
share reinsurance agreement for single-premium MI business (Single
Premium QSR) with a panel of third-party reinsurance providers.
Fannie Mae and Freddie Mac have approved the Single Premium QSR and
allowed full credit under the PMIERs for the risk ceded under the
agreement. The objective of this agreement is to improve the
company’s return on capital, proactively manage the mix of
single-premium business in Radian’s total MI portfolio, and
effectively manage the company’s PMIERs position in a
cost-efficient manner.
“This first-of-its-kind reinsurance program focused exclusively
on single-premium business allows us to improve our return on
capital, increase financial flexibility and proactively manage our
MI business mix,” said Radian’s Chief Executive Officer S.A.
Ibrahim. “Importantly, the extremely low cost of capital for this
program is expected to generate meaningful value for our
shareholders.”
Effective January 1, 2016, the agreement covers the following
single-premium business, subject to certain conditions:
- 20 percent of existing performing
policies written between January 1, 2012, and March 31, 2013
- 35 percent of existing performing
policies written between April 1, 2013, and December 31, 2015
- 35 percent of new insurance written
(NIW) between January 1, 2016, and December 31, 2017
Radian will receive a 25 percent ceding commission for ceded
premiums related to this transaction, as well as a profit
commission provided that the loss ratio on the loans covered under
the agreement generally remains below 55 percent. For risk ceded
under the Single Premium QSR, the after-tax implied cost of capital
over the term of the transaction is expected to be less than two
percent.
The Single Premium QSR is expected to improve the company’s
return on capital, significantly improve its PMIERs position, and
better position the company to redeem its $325 million surplus note
as early as June 30, 2016. Redemption of the surplus note is
subject to approval by the Pennsylvania Insurance Department. The
redemption of the surplus note is expected to increase holding
company liquidity by the corresponding amount of the
redemption.
In the first quarter of 2016, the Single Premium QSR is expected
to decrease the percentage of Radian’s single-premium risk in
force, net of reinsurance ceded, from 31 to 25 percent. The Single
Premium QSR is expected to have a negligible impact on operating
earnings per share, including the following for the first quarter
2016:
- A decrease to net premiums earned of
approximately $6 million, net of accrued profit commission
- A decrease to operating expenses of
approximately $3 million, related to the ceding commission
- A decrease to provision for losses and
amortization of deferred acquisition costs of approximately $0.6
million
- A net decrease to pretax income from
continuing operations (and to adjusted pretax operating income*) of
approximately $2.4 million
In any given quarter, the impact of the Single Premium QSR will
vary depending on the level of ceded risk in force and prepayments
and incurred losses on the reinsured portfolio, among other
factors.
* Adjusted pretax operating income is the company’s key
indicator to evaluate its fundamental financial performance. On a
consolidated basis, it is a non-GAAP financial measure. See “Use of
Non-GAAP Financial Measure” in Radian’s 2015 Form 10-K for further
information.
Radian maintains the right to discontinue ceding NIW under the
agreement at the end of any calendar quarter. The scheduled
termination of the contract is December 31, 2027, however Radian
reserves the right to terminate the agreement as of January 1,
2020, or at the end of any calendar quarter thereafter, based on
certain conditions and subject to a termination fee.
FIRST QUARTER CONFERENCE CALL
Radian will discuss the company’s first quarter 2016 results in
a conference call on Wednesday, April 27, 2016, at 10:00 a.m.
Eastern time. The financial results will be announced prior to the
market open on the same day.
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 800.288.8967 inside the U.S.,
or 612.332.0345 for international callers, using passcode 391331 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 391331.
In addition to the information provided in the company’s
earnings news release, other statistical and financial information,
which is expected to be referred to during the conference call,
will be available on Radian’s website under Investors >Quarterly
Results, or by clicking on
http://www.radian.biz/page?name=QuarterlyResults.
ABOUT RADIAN
Radian Group Inc. (NYSE:RDN), headquartered in Philadelphia,
provides private mortgage insurance, 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.
FORWARD-LOOKING STATEMENTS
All statements in this press release that address events,
developments or results that we expect or anticipate may occur in
the future are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, Section 21E of the
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. These risks and uncertainties include,
with limitation:
- The credit that we receive under the
PMIERs’ financial requirements for our Single Premium QSR, which is
subject under the PMIERs to review by the GSEs periodically;
- Our calculations regarding our
compliance with the PMIERs’ financial requirements, which could
differ from the calculations performed by the GSEs;
- Radian Guaranty’s ability to redeem its
surplus note with Radian Group, which remains subject to (1) our
ability to satisfy criteria established by the GSEs (as previously
disclosed) for early redemption and (2) approval by the
Pennsylvania Insurance Department; and
- The possibility that our estimates
regarding the impact of the Single Premium QSR on our cost of
capital and our financial results and position may prove to be
inaccurate.
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, 2015, and subsequent
reports and registration statements filed from time to time with
the U.S. Securities and Exchange Commission. We caution you not to
place undue reliance on these forward-looking statements, which are
current only as of the date on which we issued this presentation.
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/20160412005368/en/
For Radian Group Inc.:Emily Riley,
215-231-1035emily.riley@radian.biz
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