-- Net income of $98 million or $0.44 per
diluted share --
-- Adjusted diluted net operating income per
share of $0.38 --
-- New MI business volume grows 60% over first
quarter 2016 and 10% over last year --
-- Book value per share increases 16%
year-over-year to $13.09 --
Radian Group Inc. (NYSE: RDN) today reported net income from
continuing operations for the quarter ended June 30, 2016, of $98.1
million, or $0.44 per diluted share. This compares to net income
from continuing operations for the quarter ended June 30, 2015, of
$45.2 million, or $0.20 per diluted share. Pretax income from
continuing operations for the quarter ended June 30, 2016, was
$156.5 million, compared to $80.0 million for the quarter ended
June 30, 2015.
Key Financial Highlights (dollars
in millions, except per share data)
Quarter Ended
June 30, 2016
Quarter Ended
June 30, 2015
PercentChange
Net income from continuing operations
$98.1 $45.2 117% Diluted net income per share
from continuing operations $0.44 $0.20 120%
Pretax income from continuing operations $156.5 $80.0
96% Adjusted pretax operating income $131.4
$147.3 (11%) Adjusted diluted net operating income per share
* $0.38 $0.40 (5%) Net premiums earned -
insurance $229.1 $237.4 (3%) New Mortgage
Insurance Written (NIW) $12,921 $11,751 10%
Book value per share $13.09 $11.28 16%
*
Adjusted diluted net operating income per
share is calculated using the company’s statutory tax rate of 35
percent.
Adjusted pretax operating income for the quarter ended June 30,
2016, was $131.4 million, compared to $147.3 million for the
quarter ended June 30, 2015. Adjusted diluted net operating income
per share for the quarter ended June 30, 2016, was $0.38, compared
to $0.40 for the quarter ended June 30, 2015. See “Non-GAAP
Financial Measures” below.
Book value per share at June 30, 2016 was $13.09, an increase of
5 percent from $12.42 at March 31, 2016, and an increase of 16
percent from $11.28 at June 30, 2015.
“Radian continued to deliver excellent results in the second
quarter, adding to insurance in force with high-quality new
business that is expected to generate attractive returns and
strengthen our company,” said Radian’s Chief Executive Officer S.A.
Ibrahim. “We were also successful in enhancing our holding company
liquidity position, and in taking the next steps to accelerate our
capital plan.”
SECOND QUARTER HIGHLIGHTS
Mortgage Insurance
- New mortgage insurance written (NIW)
grew to $12.9 billion for the quarter, an increase of 60 percent
compared to $8.1 billion in the first quarter of 2016 and an
increase of 10 percent compared to $11.8 billion in the prior-year
quarter.
- Of the $12.9 billion in new business
written in the second quarter of 2016, 26 percent was written with
single premiums, which represents a decrease from the first quarter
of 2016. Net single premiums written, after consideration of the 35
percent ceded under the company’s Single Premium QSR, was 17
percent in the second quarter of 2016.
- Refinances accounted for 18 percent of
total NIW in the second quarter of 2016, compared to 19 percent in
the first quarter of 2016, and 23 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force as of June 30, 2016, grew to $177.7 billion, compared to
$175.4 billion as of March 31, 2016, and $172.7 billion as of June
30, 2015.
- The composition of Radian’s mortgage
insurance portfolio has significantly improved over the past
several years:
- 86 percent of primary mortgage
insurance risk in force consisted of new business written after
2008, including those loans that successfully completed the Home
Affordable Refinance Program (HARP).
- 57 percent of primary mortgage
insurance risk in force in the second quarter of 2016 consisted of
loans with FICO scores greater than or equal to 740, compared to 26
percent of loans in 2007.
- 7 percent of primary mortgage insurance
risk in force in the second quarter of 2016 consisted of loans with
a loan-to-value (LTV) greater than 95 percent, compared to 24
percent of loans in 2007.
- Persistency, which is the percentage of
mortgage insurance in force that remains on the company’s books
after a twelve-month period, was 79.9 percent as of June 30, 2016,
compared to 79.4 percent as of March 31, 2016, and 80.1 percent as
of June 30, 2015.
- Annualized persistency for the
three-months ended June 30, 2016, was 78.0 percent, compared to
82.3 percent for the three-months ended March 31, 2016, and 76.2
percent for the three-months ended June 30, 2015.
- Total net premiums earned were $229.1
million for the quarter ended June 30, 2016, which is net of $19.8
million in ceded premiums, compared to $221.0 million for the
quarter ended March 31, 2016, which is net of $19.4 million in
ceded premiums, and $237.4 million for the quarter ended June 30,
2015, which is net of $12.4 million in ceded premiums. Notable
variable items impacting net premiums earned include:
- Single Premium Policy cancellations,
which are net of ceded premiums, were $14.8 million in the second
quarter, compared to $9.8 million in the first quarter of 2016, and
$25.0 million in the second quarter of 2015.
- Ceded premiums are net of accrued
profit commission on reinsurance transactions of $7.9 million in
the second quarter, compared to $6.1 million in the first quarter
of 2016, and $5.8 million in the second quarter of 2015.
- Additional details may be found in
Exhibit D.
- The mortgage insurance provision for
losses was $50.1 million in the second quarter of 2016, compared to
$43.3 million in the first quarter of 2016, and $31.6 million in
the prior-year period.
- The loss ratio in the second quarter
was 21.9 percent, compared to 19.6 percent in the first quarter of
2016 and 13.3 percent in the second quarter of 2015. The loss
ratios in the first quarter of 2016 and second quarter of 2015 were
impacted by a positive reserve development on prior year
defaults.
- Mortgage insurance loss reserves were
$848.4 million as of June 30, 2016, compared to $891.3 million as
of March 31, 2016, and $1,204.8 million as of June 30, 2015.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $24,609 as of June 30,
2016. This compares to primary reserve per primary default of
$24,959 as of March 31, 2016, and $27,279 as of June 30, 2015.
- The total number of primary delinquent
loans decreased by 3 percent in the second quarter from the first
quarter of 2016, and by 21 percent from the second quarter of 2015.
The primary mortgage insurance delinquency rate decreased to 3.4
percent in the second quarter of 2016, compared to 3.5 percent in
the first quarter of 2016, and 4.3 percent in the second quarter of
2015.
- Total mortgage insurance claims paid
were $90.7 million in the second quarter, compared to $127.7
million in the first quarter of 2016, and $212.0 million in the
second quarter of 2015. The company continues to expect claims paid
for the full-year 2016 of approximately $400 million.
Mortgage and Real Estate Services
- The Services segment is primarily
comprised of the operations for 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 component 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;
- real estate valuation, title, closing
and settlement services as well as technology solutions for vendor
management through its ValuAmerica subsidiary; and
- a global reach through its Clayton
EuroRisk subsidiary.
- Total revenues for the second quarter
were $39.0 million, compared to $32.2 million for the first quarter
of 2016, and $44.6 million for the second quarter of 2015.
- The adjusted pretax operating income
before corporate allocations for the quarter ended June 30, 2016,
was $1.2 million, compared to a loss of $3.7 million for the
quarter ended March 31, 2016, and income of $7.6 million for the
quarter ended June 30, 2015. Services adjusted earnings before
interest, income taxes, depreciation and amortization (Services
adjusted EBITDA) for the quarter ended June 30, 2016 was $2.0
million, compared to a loss of $3.1 million for the quarter ended
March 31, 2016, and income of $8.1 million for the quarter ended
June 30, 2015. Additional details regarding the non-GAAP measure
Services adjusted EBITDA may be found in Exhibits G and H.
Consolidated Expenses
Other operating expenses were $65.7 million in the second
quarter, compared to $59.0 million in the first quarter of 2016,
and $67.7 million in the second quarter of last year.
- Notable variable items impacting other
operating expenses include:
- The company’s investment to
significantly upgrade its technology systems, which represented
$2.4 million in the second quarter, compared to $2.3 million in the
first quarter of 2016, and $1.3 million in the second quarter of
2015.
- Severance charges of $0.3 million in
the second quarter, compared to $3.0 million in the first quarter
of 2016, and $0.7 million in the second quarter of 2015.
- An increase in expense related to
annual grants of new equity-settled long-term incentive awards,
primarily due to the acceleration of such expense for
retirement-eligible employees, which represented $7.3 million in
the second quarter. In the second quarter of 2015, the increase in
expense related to the impact of stock price appreciation on the
estimated fair value of cash-settled equity-based long-term
incentive awards represented $5.3 million.
- Additional details may be found in
Exhibit D.
- Operating expenses before corporate
allocations for the second quarter of 2016 were comprised of $36.1
million for the Mortgage Insurance segment, compared to $33.8
million in the first quarter of 2016, and $41.9 million in the
second quarter of last year.
- Operating expenses before corporate
allocations for the second quarter of 2016 were comprised of $12.5
million for the Services segment, compared to $13.9 million in the
first quarter of 2016, and $11.5 million in the second quarter of
last year.
- A significant portion of the severance
charges in 2016 reflected in the company’s consolidated expenses
was related to a reduction in force in the Services segment.
CAPITAL AND LIQUIDITY UPDATE
- As previously announced, on June 30,
2016, Radian Guaranty redeemed its $325 million surplus note due to
Radian Group, which immediately resulted in a $325 million increase
to Radian Group’s available liquidity. The redemption of the
surplus note was approved by the Pennsylvania Insurance Department.
Following the redemption, Radian Group maintained $718 million of
available liquidity as of June 30, 2016.
- The company also recently announced its
intent to utilize a portion of its liquidity in order to accelerate
its capital plan, with the objective of better positioning Radian
Group for a return to investment grade ratings in the future.
Consistent with this strategy, Radian’s Board of Directors
authorized the following actions:
- An additional share repurchase of up to
$125 million of the company’s common stock
- The early redemption of the remaining
$196 million face value of its 9.000% Senior Notes due 2017
On July 13, 2016, Radian Group notified the holders of its
outstanding 9.000% Senior Notes due 2017 that the company will
redeem the entire $196 million aggregate principal amount
outstanding of the Notes on August 12, 2016. The company will
publicly announce the redemption price as soon as reasonably
practical after it is calculated.
- During the second quarter, the company
purchased approximately $12.4 million face value of its outstanding
2.25% Convertible Senior Notes due 2019. Radian’s capital strategy
continues to include opportunistically removing the company’s
outstanding Convertible Senior Notes from its capital structure and
potentially the redemption, repurchase, or exchange of a portion of
its other outstanding senior debt.
CONFERENCE CALL
Radian will discuss second quarter financial results in a
conference call today, Thursday, July 28, 2016, 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
800.288.8960 inside the U.S., or 612.332.0107 for international
callers, using passcode 398387 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 398387.
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 pretax operating income adjusts GAAP pretax income from
continuing operations to remove the effects of: (i) net gains
(losses) on investments and other financial instruments; (ii) loss
on induced conversion and debt extinguishment; (iii)
acquisition-related expenses; (iv) amortization and impairment of
intangible assets; and (v) net impairment losses recognized in
earnings. 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, the company also presents as supplemental information a
non-GAAP measure for the Services segment, representing earnings
before interest, income taxes, depreciation and amortization
(EBITDA). Services adjusted EBITDA is calculated by using the
Services segment’s adjusted pretax operating income as described
above, further adjusted to remove the impact of depreciation and
corporate allocations for interest and operating expenses. Services
adjusted EBITDA is presented to facilitate comparisons with other
services companies, since it is a widely accepted measure of
performance in the services industry.
See Exhibit G or Radian’s website for a description of these
items, as well as Exhibit H 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:
Net Premiums Earned-Insurance and Other
Operating Expenses
Exhibit E: Discontinued Operations Exhibit F: Segment Information
Exhibit G: Definition of Consolidated Non-GAAP Financial Measures
Exhibit H: Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit I: Mortgage Insurance Supplemental Information New
Insurance Written Exhibit J: Mortgage Insurance Supplemental
Information Insurance in Force, Risk in Force by Product and
Statutory Capital Ratios Exhibit K: Mortgage Insurance Supplemental
Information Risk in Force by FICO, LTV and Policy Year Exhibit L:
Mortgage Insurance Supplemental Information Claims and Reserves
Exhibit M: Mortgage Insurance Supplemental Information Default
Statistics Exhibit N: Mortgage Insurance Supplemental Information
QSR, Captives and Persistency
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Exhibit
A 2016 2015
(In thousands,
except per share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Revenues: Net premiums earned - insurance $
229,085 $ 220,950 $ 226,443 $ 227,433 $ 237,437
Services
revenue 38,294 31,600 37,493 42,189 43,503
Net
investment income 28,839 27,201 22,833 22,091 19,285
Net gains (losses) on investments and other financial
instruments 30,527 31,286 (13,402 ) 3,868 28,448
Other income 3,423 1,915 1,515
1,711 1,743
Total revenues 330,168
312,952 274,882 297,292 330,416
Expenses: Provision for losses 49,725
42,991 56,805 64,192 32,560
Policy acquisition costs
5,393 6,389 4,831 2,880 6,963
Direct cost of services
24,858 21,749 22,241 24,949 23,520
Other operating
expenses 65,680 58,989 59,570 65,082 67,731
Interest
expense 22,546 21,534 20,996 21,220 24,501
Loss on
induced conversion and debt extinguishment 2,108 55,570
2,320 11 91,876
Amortization and impairment of intangible
assets 3,311 3,328 3,409 3,273
3,281
Total expenses 173,621
210,550 170,172 181,607 250,432
Pretax income from continuing operations 156,547
102,402 104,710 115,685 79,984
Income tax provision
(benefit) 58,435 36,153 30,182
45,594 34,791
Net income from continuing
operations 98,112 66,249 74,528 70,091 45,193
Income
(loss) from discontinued operations, net of tax —
— — — 4,855
Net income $
98,112 $ 66,249 $ 74,528 $ 70,091
$ 50,048
Diluted net income per share:
Net income from continuing operations $ 0.44 $
0.29 $ 0.32 $ 0.29 $ 0.20
Income from discontinued operations,
net of tax — — — — 0.02
Net income $ 0.44 $ 0.29
$ 0.32 $ 0.29 $ 0.22
Selected
Mortgage Insurance Key Ratios Loss ratio (1) 21.9
% 19.6 % 25.1 % 28.2 % 13.3 %
Expense ratio (1)
24.4 % 22.4 % 22.7 % 23.9 % 25.8 %
(1)
Calculated on a GAAP basis using net
premiums earned.
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 E for additional information on
discontinued operations.
Radian Group Inc. and Subsidiaries
Net Income Per Share Exhibit B
The calculation of basic and diluted
net income per share was as follows:
2016 2015
(In thousands,
except per share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net
income from continuing operations: Net income from
continuing operations—basic $ 98,112 $ 66,249 $
74,528 $ 70,091 $ 45,193
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1) 913 3,390
3,664 3,714 3,707
Net income from
continuing operations—diluted $ 99,025 $
69,639 $ 78,192 $ 73,805 $ 48,900
Net income: Net income from continuing
operations—basic $ 98,112 $ 66,249 $ 74,528 $
70,091 $ 45,193
Income (loss) from discontinued operations, net
of tax — — — — 4,855
Net
income—basic 98,112 66,249 74,528 70,091 50,048
Adjustment for dilutive Convertible Senior Notes due 2019, net
of tax (1) 913 3,390 3,664 3,714
3,707
Net income—diluted $ 99,025
$ 69,639 $ 78,192 $ 73,805 $ 53,755
Average common shares outstanding—basic
214,274 203,706 206,872 207,938 193,112
Dilutive effect
of Convertible Senior Notes due 2017 (2) 12 — 1,057
1,798 12,438
Dilutive effect of Convertible Senior Notes due
2019 8,928 33,583 37,736 37,736 37,736
Dilutive
effect of stock-based compensation arrangements (2)
2,989 2,418 2,316 3,323 3,364
Adjusted average common shares outstanding—diluted
226,203 239,707 247,981 250,795
246,650
Net income per
share:
Basic: Net income from continuing operations $
0.46 $ 0.33 $ 0.36 $ 0.34 $ 0.23
Income (loss) from
discontinued operations, net of tax — — —
— 0.03
Net income $ 0.46
$ 0.33 $ 0.36 $ 0.34 $ 0.26
Diluted: Net income from continuing operations
$ 0.44 $ 0.29 $ 0.32 $ 0.29 $ 0.20
Income (loss)
from discontinued operations, net of tax — —
— — 0.02
Net income $
0.44 $ 0.29 $ 0.32 $ 0.29 $ 0.22
(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 and convertible debt were not included in the
calculation of diluted net income per share because they were
anti-dilutive:
2016 2015
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Shares
of common stock equivalents 1,042 709 728 469 264
Shares of Convertible Senior Notes due 2017 — 1,902 —
— —
Radian Group Inc.
and Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C June 30, March 31, December 31,
September 30, June 30,
(In thousands, except per share
data) 2016 2016 2015 2015 2015
Assets: Investments $ 4,636,914 $
4,470,172 $ 4,298,686 $ 4,376,771 $ 4,309,148
Cash
55,062 64,844 46,898 69,030 51,381
Restricted cash
9,298 10,060 13,000 10,280 12,633
Accounts and notes
receivable 77,170 66,340 61,734 65,951 72,093
Deferred income taxes, net 444,513 518,059 577,945
601,893 651,238
Goodwill and other intangible assets, net
282,703 286,069 289,417 287,334 290,640
Prepaid
reinsurance premium 229,231 228,718 40,491 44,091 47,835
Other assets 332,372 325,129 313,929
305,566 301,536
Total assets $
6,067,263 $ 5,969,391 $ 5,642,100 $
5,760,916 $ 5,736,504
Liabilities and
stockholders’ equity: Unearned premiums $
677,599 $ 673,887 $ 680,300 $ 676,938 $ 665,947
Reserve
for losses and loss adjustment expense 848,379 891,348
976,399 1,098,570 1,204,792
Long-term debt 1,278,051
1,286,466 1,219,454 1,230,246 1,224,892
Reinsurance funds
withheld 163,360 151,104 — — —
Other liabilities
294,507 306,188 269,016 311,855
278,929
Total liabilities 3,261,896
3,308,993 3,145,169 3,317,609 3,374,560
Equity component of currently redeemable convertible
senior notes — — — 7,737 8,546
Common
stock 232 232 224 224 226
Additional paid-in
capital 1,887,960 1,880,173 1,823,442 1,825,034
1,816,545
Retained earnings 855,070 757,202 691,742
617,731 548,161
Accumulated other comprehensive income
(loss) 62,105 22,791 (18,477 ) (7,419 )
(11,534 )
Total stockholders’ equity 2,805,367
2,660,398 2,496,931 2,435,570 2,353,398
Total liabilities and stockholders’ equity $
6,067,263 $ 5,969,391 $ 5,642,100 $
5,760,916 $ 5,736,504
Shares
outstanding 214,284 214,265 206,872 206,870 208,587
Book value per share $ 13.09 $ 12.42 $
12.07 $ 11.77 $ 11.28
Radian Group Inc. and
Subsidiaries
Net Premiums Earned - Insurance and
Other Operating Expenses
Exhibit D
2016 2015
(In
millions)
Qtr 2 Qtr 1 Qtr 2
Premiums earned -
insurance: Direct $ 248,938 $ 240,330 $
249,797
Assumed 9 9 10
Ceded
(19,862 ) (19,389 ) (12,370 )
Net
premiums earned - insurance $ 229,085 $
220,950 $ 237,437
Notable variable items
(1): Single Premium Policy cancellations $
14,841 $ 9,783 $ 24,975
Profit commission - reinsurance
(2) 7,891 6,134 5,760
Total $ 22,732 $ 15,917 $
30,735
Other operating expenses $
65,680 $ 58,989 $ 67,731
Notable variable items (3): Technology upgrade project
(4) $ 2,443 $ 2,271 $ 1,304
Severance
costs 277 3,040 665
Increase (decrease) in long-term
incentive compensation (5) 7,271 — 5,345
Ceding
commissions (6,297 ) (5,820 )
(3,304 )
Total $ 3,694 $ (509 )
$ 4,010
(1)
Affecting net premiums
earned-insurance.
(2)
For the first and second quarters of
2016, the amounts represent the profit commission on the Single
Premium QSR Transaction. For the second quarter of 2015, the amount
represents an accrual for the profit commission on the Second QSR
Transaction.
(3)
Affecting other operating
expenses.
(4)
Represents the expense impact of
certain costs incurred in our initiative to significantly upgrade
our technology systems.
(5)
Represents the impact of specifically
identified items during the quarters shown. The expense increase in
the second quarter of 2016 related to annual grants of new
equity-settled long-term incentive awards, primarily due to the
acceleration of such expense for retirement-eligible employees. The
annual grants for 2015 were made in the third quarter of 2015. The
expense increase in the second quarter of 2015 represents the
impact of stock price appreciation on the estimated fair value of
cash-settled equity-based long-term incentive awards that were
valued, in large part, relative to the price of Radian Group’s
common stock. Now that substantially all of the cash-settled awards
have vested, this expense volatility due to the level of Radian’s
stock price is not expected in the future.
Radian Group Inc. and
Subsidiaries
Discontinued Operations
Exhibit E
The income from discontinued operations, net of tax
consisted of the following components for the periods indicated:
2015
(In
thousands)
Qtr 2
Net premiums earned $ —
Net investment income —
Net gains (losses) on investments and other financial
instruments 7,818
Change in fair value of derivative
instruments —
Total revenues 7,818
Provision for losses —
Policy acquisition
costs —
Other operating expense —
Total
expenses —
Equity in net income (loss)
of affiliates —
Income (loss) from operations
of businesses held for sale 7,818
Income (loss) on sale
(350 )
Income tax provision (benefit) 2,613
Income (loss) from discontinued operations, net of tax $
4,855
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit F (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 Services
adjusted EBITDA, along with reconciliations to consolidated GAAP
measures, see Exhibits G and H.
Mortgage
Insurance 2016 2015
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net premiums written - insurance $ 232,353 $
26,310
(1)
$ 233,347 $ 242,168 $ 251,082
Decrease (increase) in unearned
premiums (3,268 ) 194,640 (6,904 ) (14,735
) (13,645 )
Net premiums earned - insurance 229,085
220,950 226,443 227,433 237,437
Net investment income
28,839 27,201 22,833 22,091 19,285
Other income
3,424 1,915 1,515 1,711 1,743
Total 261,348 250,066 250,791
251,235 258,465
Provision for
losses 50,074 43,275 56,817 64,128 31,637
Policy
acquisition costs 5,393 6,389 4,831 2,880 6,963
Other
operating expenses before corporate allocations 36,126
33,829 37,406 36,632 41,853
Total (2) 91,593 83,493 99,054
103,640 80,453
Adjusted pretax operating income
before corporate allocations 169,755 166,573 151,737
147,595 178,012
Allocation of corporate operating expenses
14,286 9,329 9,251 14,893 12,516
Allocation of interest
expense 18,124 17,112 16,582 16,797
20,070
Adjusted pretax operating income
$ 137,345 $ 140,132 $ 125,904 $
115,905 $ 145,426
Services 2016
2015
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Services revenue
(2) $ 39,002 $ 32,196 $ 38,175
$ 43,114 $ 44,595
Direct cost of
services 25,224 22,053 22,880 25,870 25,501
Other
operating expenses before corporate allocations 12,537
13,883 11,710 11,533 11,522
Total 37,761 35,936 34,590
37,403 37,023
Adjusted pretax operating income
(loss) before corporate allocations (3) 1,241 (3,740 )
3,585 5,711 7,572
Allocation of corporate operating expenses
2,779 1,751 968 1,567 1,307
Allocation of interest
expense 4,422 4,422 4,414 4,423
4,431
Adjusted pretax operating income (loss)
$ (5,960 ) $ (9,913 ) $ (1,797 ) $ (279 ) $
1,834
(1)
Net of ceded premiums written under the
Single Premium QSR transaction of $197.6 million.
(2)
Inter-segment information:
2016 2015 Qtr 2
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Inter-segment
expense included in Mortgage Insurance segment $
709 $ 596 $ 682 $ 925 $ 1,092
Inter-segment
revenue included in Services segment 709 596 682 925
1,092
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit F (page 2 of 2)
(3) Supplemental information for
Services adjusted EBITDA (see definition in Exhibit G):
2016 2015
Qtr 2 Qtr 1 Qtr
4 Qtr 3 Qtr 2
Adjusted pretax operating income
(loss) before corporate allocations $ 1,241 $
(3,740 ) $ 3,585 $ 5,711 $ 7,572
Depreciation and
amortization 747 661 612 555
482
Services adjusted EBITDA $ 1,988 $
(3,079 ) $ 4,197 $ 6,266 $ 8,054
Selected balance sheet information for
our segments, as of the periods indicated, is as follows:
At June 30, 2016
(In
thousands)
MortgageInsurance
Services Total Total assets
$ 5,708,233 $ 359,030 $
6,067,263 At December 31, 2015
(In
thousands)
MortgageInsurance
Services Total
Total assets $ 5,281,597 $ 360,503 $
5,642,100
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit G (page 1 of 2)
Use of Non-GAAP Financial Measures
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
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 and
losses incurred to purchase our convertible debt prior to maturity
are discretionary activities that are undertaken in order to take
advantage of market opportunities to strengthen our financial and
capital positions; therefore, we do not view these activities 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 Measures
Exhibit G (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 a measure of earnings before interest, income taxes,
depreciation and amortization (“EBITDA”). We calculate Services
adjusted 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 adjusted EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
See Exhibit H 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 diluted net income per share
from continuing operations, respectively. Exhibit H also contains
the reconciliation of Services adjusted EBITDA to the most
comparable GAAP measure, net income.
Total adjusted pretax operating income
(loss), adjusted diluted net operating income (loss) per share and
Services adjusted EBITDA are not measures of total profitability,
and therefore should not be viewed as substitutes for GAAP pretax
income (loss) from continuing operations, diluted net income (loss)
per share from continuing operations or net income. Our definitions
of adjusted pretax operating income (loss), adjusted diluted net
operating income (loss) per share or Services adjusted 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 H (page 1 of 2)
Reconciliation of Adjusted Pretax
Operating Income (Loss) to Consolidated Pretax Income
from Continuing Operations
2016 2015
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted pretax
operating income (loss): Mortgage Insurance $
137,345 $ 140,132 $ 125,904 $ 115,905 $ 145,426
Services (5,960 ) (9,913 )
(1,797 ) (279 ) 1,834
Total adjusted
pretax operating income 131,385 130,219 124,107 115,626
147,260
Net gains (losses) on investments and other
financial instruments 30,527 31,286 (13,402 ) 3,868
28,448
Loss on induced conversion and debt extinguishment
(2,108 ) (55,570 ) (2,320 ) (11 ) (91,876 )
Acquisition-related expenses
(1)
54 (205 ) (266 ) (525 ) (567 )
Amortization and impairment of
intangible assets (1)
(3,311 ) (3,328 ) (3,409 )
(3,273 ) (3,281 )
Consolidated pretax income from
continuing operations $ 156,547 $ 102,402
$ 104,710 $ 115,685 $ 79,984
(1)
Please see Exhibit G for the definition
of this line item.
Reconciliation of
Adjusted Diluted Net Operating Income Per Share to Diluted Net
Income Per Share from Continuing Operations
2016 2015
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted diluted net operating income
per share (1)
$ 0.38 $ 0.37 $ 0.34 $ 0.31
$ 0.40
Per share impact of debt items:
Loss on induced conversion and debt extinguishment
(0.01 ) (0.23 ) (0.01 ) — (0.37 )
Income tax provision (benefit)
(2)
— (0.03 ) (0.04 ) —
(0.09 )
Per share impact of debt items
(0.01 ) (0.20 ) 0.03 —
(0.28 )
Per share impact of other
reconciling items: Net gains (losses) on investments and
other financial instruments 0.13 0.13 (0.05 ) 0.01 0.11
Acquisition-related expenses — — — — —
Amortization and impairment of intangible assets
(0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.01 )
Income tax provision (benefit) on other
reconciling items (1)
0.04 0.04 (0.02 ) — 0.04
Difference between statutory and
effective tax rate (0.01 ) 0.04
(0.01 ) (0.02 ) 0.02
Per
share impact of other reconciling items 0.07
0.12 (0.05 ) (0.02 ) 0.08
Diluted net income per share from
continuing operations (3)
$ 0.44 $ 0.29 $ 0.32 $ 0.29
$ 0.20
(1)
Calculated using the company’s federal
statutory tax rate. Any permanent tax adjustments and state income
taxes on these items have been deemed immaterial and are not
included.
(2)
A portion of the loss on induced
conversion and debt extinguishment is non-deductible for tax
purposes. The income tax benefit is based on the tax deductible
loss using the company's federal statutory tax rate.
(3)
In periods with no activity from
discontinued operations, diluted net income per share from
continuing operations is equivalent to diluted net income per
share.
Radian Group Inc. and
Subsidiaries Consolidated Non-GAAP Financial Measure
Reconciliations Exhibit H (page 2 of 2)
Reconciliation of Services Adjusted
EBITDA to Net Income
2016 2015
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Services adjusted
EBITDA $ 1,988 $ (3,079 ) $ 4,197 $ 6,266 $ 8,054
Allocation of corporate operating expenses to Services
(2,779 ) (1,751 ) (968 ) (1,567 ) (1,307 )
Allocation of corporate interest expenses to Services
(4,422 ) (4,422 ) (4,414 ) (4,423 ) (4,431 )
Services depreciation and amortization (747
) (661 ) (612 ) (555 ) (482 )
Services adjusted pretax operating income (loss)
(5,960 ) (9,913 ) (1,797 ) (279 ) 1,834
Mortgage
Insurance adjusted pretax operating income
137,345 140,132 125,904
115,905 145,426
Total adjusted
pretax operating income 131,385 130,219 124,107 115,626
147,260
Net gains (losses) on investments and other
financial instruments 30,527 31,286 (13,402 ) 3,868
28,448
Loss on induced conversion and debt extinguishment
(2,108 ) (55,570 ) (2,320 ) (11 ) (91,876 )
Acquisition-related expenses 54 (205 ) (266 ) (525 )
(567 )
Amortization and impairment of intangible assets
(3,311 ) (3,328 ) (3,409 )
(3,273 ) (3,281 )
Consolidated pretax income from
continuing operations 156,547 102,402 104,710 115,685
79,984
Income tax provision 58,435
36,153 30,182 45,594
34,791
Net income from continuing operations
98,112 66,249 74,528 70,091 45,193
Income from
discontinued operations, net of tax —
— — — 4,855
Net income $ 98,112 $ 66,249 $
74,528 $ 70,091 $ 50,048
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 adjusted 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 diluted net income per share
from continuing operations. Our definitions of adjusted pretax
operating income, adjusted diluted net operating income per share
or Services adjusted EBITDA may not be comparable to
similarly-named measures reported by other companies. See Exhibit G
for additional information on our consolidated non-GAAP financial
measures.
Radian Group Inc. and
Subsidiaries Mortgage Insurance Supplemental Information -
New Insurance Written Exhibit I 2016 2015
($ in
millions)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Total primary new
insurance written $ 12,921 $ 8,071
$ 9,099 $ 11,176 $ 11,751
Percentage of
primary new insurance written by FICO score
>=740 60.9 % 58.4 % 60.3 % 61.0 % 63.0 %
680-739
32.2 33.7 32.2 31.9 30.8
620-679
6.9 7.9 7.5
7.1 6.2
Total Primary
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Direct monthly and other premiums 74 % 71 % 71
% 73 % 68 %
Direct single premiums 26 % 29 %
29 % 27 % 32 %
Net single premiums (1)
17 % 19 % 29 % 27 % 32 %
Refinances
18 % 19 % 17 % 13 % 23 %
LTV 95.01% and
above 4.8 % 3.7 % 3.6 % 3.5 % 3.2 %
90.01% to
95.00% 50.2 % 50.5 % 49.5 % 51.5 % 49.4 %
85.01% to 90.00% 31.8 % 33.1 % 34.4 % 34.1 %
34.0 %
85.00% and below 13.2 % 12.7 % 12.5 %
10.9 % 13.4 %
(1)
In 2016, represents percentage of
direct single premiums written, after consideration of the 35%
single premium NIW ceded under the Single Premium QSR.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force by
Product, Statutory Capital Ratios
Exhibit J
June 30, March 31, December 31, September 30, June
30,
($ in millions) 2016 2016 2015 2015 2015
Primary insurance
in force (1)
Flow $ 170,069 $ 167,526 $ 167,469 $ 166,527 $
164,137
Structured 7,603 7,860 8,115
8,339 8,555
Total Primary $
177,672 $ 175,386 $ 175,584 $ 174,866
$ 172,692
Prime $ 168,259
$ 165,526 $ 165,291 $ 164,060 $ 161,397
Alt-A 5,627
5,907 6,176 6,531 6,857
A minus and below 3,786
3,953 4,117 4,275 4,438
Total
Primary $ 177,672 $ 175,386 $
175,584 $ 174,866 $ 172,692
Primary risk in
force (1) (2)
Flow $ 43,576 $ 42,861 $ 42,771 $ 42,454 $
41,706
Structured 1,748 1,805 1,856
1,910 1,957
Total Primary $
45,324 $ 44,666 $ 44,627 $ 44,364
$ 43,663
Flow Prime $
42,008 $ 41,211 $ 41,036 $ 40,629 $ 39,781
Alt-A
959 1,010 1,061 1,124 1,191
A minus and below
609 640 674 701 734
Total Flow $ 43,576 $ 42,861 $
42,771 $ 42,454 $ 41,706
Structured Prime $ 1,068 $ 1,101 $
1,134 $ 1,155 $ 1,182
Alt-A 343 356 366 386 397
A
minus and below 337 348 356
369 378
Total Structured $ 1,748
$ 1,805 $ 1,856 $ 1,910 $ 1,957
Total Prime $ 43,076 $ 42,312 $
42,170 $ 41,784 $ 40,963
Alt-A 1,302 1,366 1,427
1,510 1,588
A minus and below 946 988
1,030 1,070 1,112
Total Primary
$ 45,324 $ 44,666 $ 44,627 $
44,364 $ 43,663
Percentage of
primary risk in force
Direct monthly and other premiums 69 % 69 % 69
% 70 % 70 %
Direct single premiums 31 % 31 %
31 % 30 % 30 %
Net single premiums (3) 25
% 25 % 30 % 30 % 29 %
Statutory Capital
Ratios
Risk to capital ratio-Radian Guaranty only 14.0
:1 (4) 12.5 :1 14.3 :1 16.5 :1 16.5 :1
Risk to
capital ratio-Mortgage Insurance combined 14.2 :1
(4) 12.9 :1 14.6 :1 17.9 :1 18.0 :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)
Represents RIF after giving effect to
all reinsurance ceded ("Net RIF").
(4)
Preliminary.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Percentage of Primary Risk in Force by FICO, LTV and
Policy Year and Primary Risk in Force on Defaulted
Loans(1)
Exhibit K June 30, March 31, December 31,
September 30, June 30,
($ in millions) 2016 2016 2015
2015 2015
Percentage of
primary risk in force by FICO score
Flow >=740 58.2 % 58.2 % 58.3 % 58.2
% 58.1 %
680-739 30.9 30.7 30.5 30.3 30.2
620-679 9.9 10.0 10.1 10.3 10.5
<=619
1.0 1.1 1.1 1.2 1.2
Total Flow 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Structured >=740 29.3
% 29.3 29.4 % 28.9 % 28.7 %
680-739 27.7 27.8
27.7 27.9 27.9
620-679 25.0 25.0 25.0 25.2 25.4
<=619 18.0 17.9 17.9 18.0
18.0
Total Structured 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Total >=740
57.1 % 57.0 % 57.1 % 57.0 % 56.7 %
680-739
30.8 30.6 30.3 30.2 30.1
620-679 10.5 10.7
10.8 10.9 11.2
<=619 1.6 1.7 1.8
1.9 2.0
Total Primary 100.0
% 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 7.1 % 7.2 % 7.3 % 7.4 % 7.6 %
90.01% to 95.00% 51.6 50.9 50.4 49.8 49.0
85.01%
to 90.00% 33.3 33.7 34.0 34.3 34.6
85.00% and
below 8.0 8.2 8.3 8.5 8.8
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior 5.5 % 6.0 % 6.3 % 6.8 % 7.3 %
2006 3.4 3.6 3.7 3.9 4.2
2007 7.9 8.4
8.7 9.1 9.6
2008 5.6 6.0 6.3 6.6 7.0
2009
1.3 1.5 1.7 1.8 2.0
2010 1.2 1.3 1.4 1.5 1.7
2011 2.5 2.7 2.9 3.1 3.5
2012 9.7 10.6
11.2 12.0 13.0
2013 15.5 17.0 18.1 19.2 20.8
2014 14.9 16.3 17.1 18.0 19.0
2015 21.0
22.0 22.6 18.0 11.9
2016 11.5 4.6 —
— —
Total 100.0 % 100.0 %
100.0 % 100.0 % 100.0 %
Primary risk in force on
defaulted loans (2) $ 1,398 $ 1,562 $ 1,625 $
1,666 $ 1,753
(1)
Includes amounts ceded under our
reinsurance agreements.
(2)
Excludes risk related to loans subject
to the Freddie Mac Agreement.
Radian Group Inc. and
Subsidiaries Mortgage Insurance Supplemental Information -
Claims and Reserves Exhibit L 2016 2015
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net claims paid Prime $ 56,036 $ 74,432
$ 56,900 $ 65,396 $ 83,489
Alt-A 18,349 28,929 21,343
18,966 23,260
A minus and below 12,315 13,196
11,530 14,028 14,965
Total primary
claims paid 86,700 116,557 89,773 98,390 121,714
Pool 5,451 7,389 6,477 8,721 10,798
Second-lien
and other (231 ) 345 (143 ) (16 ) (53 )
Subtotal 91,920 124,291 96,107 107,095 132,459
Impact of captive terminations (2,618 ) (120 )
(65 ) — —
Impact of settlements 1,400 3,500
80,426 61,994 79,557
Total
$ 90,702 $ 127,671 $ 176,468 $
169,089 $ 212,016
Average claim paid
(1) Prime $ 48.6 $ 47.7 $ 46.9 $ 46.2 $
48.1
Alt-A 63.5 63.0 61.7 60.2 59.5
A minus and
below 39.9 36.8 40.6 42.5 40.1
Total primary average
claims paid 49.5 49.0 48.7 47.8 48.7
Pool
58.0 53.2 56.3 51.3 69.7
Total $ 49.6 $
48.9 $ 48.9 $ 47.8 $ 49.6
Average primary claim paid
(2) $ 49.9 $ 49.6 $ 50.5 $ 48.5 $ 49.6
Average
total claim paid (2) $ 50.0 $ 49.5 $ 50.6 $ 48.5
$ 50.4
($ in thousands,
except primary reserve per
June 30, March 31, December 31, September 30, June 30,
primary default
amounts)
2016 2016 2015 2015 2015
Reserve for losses by
category Prime $ 420,281 $ 438,598 $
480,481 $ 519,572 $ 562,918
Alt-A 173,284 183,189
203,706 234,772 256,854
A minus and below 112,001
116,835 129,352 137,441 148,043
IBNR and other 74,639
79,051 83,066 107,179 125,038
LAE 22,389 23,600
26,108 41,464 48,141
Reinsurance recoverable (3)
6,044 8,239 8,286 11,071 11,677
Total primary reserves 808,638 849,512
930,999 1,051,499 1,152,671
Pool insurance
36,982 38,843 42,084 43,234 47,902
IBNR and other
897 1,050 1,118 949 891
LAE 1,163 1,227 1,335
1,983 2,353
Reinsurance recoverable (3) 33 —
— — —
Total pool reserves 39,075
41,120 44,537 46,166 51,146
Total
1st lien reserves 847,713 890,632 975,536 1,097,665
1,203,817
Second-lien and other 666 716
863 905 975
Total reserves $
848,379 $ 891,348 $ 976,399 $ 1,098,570
$ 1,204,792
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other
$ 24,609 $ 24,959 $ 24,019 $ 26,237 $ 27,279
(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 M June 30,
March 31, December 31, September 30, June 30
2016 2016 2015
2015 2015
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 826,511 817,236 816,797
812,657 802,719
Number of loans in default 19,025
19,510 22,223 22,328 23,237
Percentage of loans in default
2.30 % 2.39 % 2.72 % 2.75 % 2.89 %
Alt-A
Number of insured loans 29,445 30,990 32,411 34,166
35,927
Number of loans in default 4,820 5,138 5,813
6,318 6,949
Percentage of loans in default 16.37
% 16.58 % 17.94 % 18.49 % 19.34 %
A minus and
below
Number of insured loans
29,450 30,681 31,902 33,018 34,224
Number of loans in
default 5,982 6,221 7,267 7,229 7,490
Percentage of
loans in default 20.31 % 20.28 % 22.78 % 21.89 %
21.89 %
Total Primary Number of insured loans
885,406 878,907 881,110 879,841 872,870
Number of loans
in default (1) 29,827 30,869 35,303 35,875 37,676
Percentage of loans in default 3.37 % 3.51 %
4.01 % 4.08 % 4.32 %
(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:
June
30, March 31, December 31, September 30, June 30
2016
2016 2015 2015 2015
Number of loans in default 2,180
2,339 2,821 2,993 3,246
Radian Group Inc.
and Subsidiaries Mortgage Insurance Supplemental Information
- QSR, Captives and Persistency Exhibit N
2016 2015
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Initial and
Second Quota Share Reinsurance (“QSR”) Transactions
QSR ceded premiums written (1) $ 7,356 $ 7,962
$ 6,934 $ 8,466 $ 4,217
% of premiums written 2.9
% 3.4 % 2.9 % 3.4 % 1.7 %
QSR ceded premiums earned
(1) $ 11,172 $ 11,325 $ 10,523 $ 12,203 $ 9,463
% of premiums earned 4.5 % 4.7 % 4.4 % 5.1 %
3.8 %
Ceding commissions written $ 2,099 $
2,270 $ 2,553 $ 2,743 $ 2,982
Ceding commissions earned
$ 4,976 $ 5,739 $ 4,921 $ 4,026 $ 5,363
Profit
commission $ —
$
— $ 1,559 $ 678 $ 5,760
Risk in force included in QSR (2)
$ 1,872,017 $ 2,018,468 $ 2,131,030 $ 2,253,913 $
2,394,985
Single Premium
QSR Transaction
QSR ceded premiums written (1) $ 11,488 $
197,593 N/A N/A N/A
% of premiums written 4.6
% 84.7 % N/A N/A N/A
QSR ceded premiums earned (1)
$ 7,146 $ 5,994 N/A N/A N/A
% of premiums
earned 2.9 % 2.5 % N/A N/A N/A
Ceding
commissions written $ 4,844 $ 50,932 N/A N/A N/A
Ceding commissions earned $ 3,759 $ 3,032 N/A
N/A N/A
Profit commission $ 7,891 $ 6,134 N/A
N/A N/A
Risk in force included in QSR (2) $
3,461,464 $ 3,308,057 N/A N/A N/A
Total risk in
force included in QSRs $ 5,333,481 $ 5,326,525 $
2,131,030 $ 2,253,913 $ 2,394,985
1st Lien
Captives
Premiums earned ceded to captives $ 1,346 $
1,869 $ 2,268 $ 2,434 $ 2,700
% of total premiums earned
0.5 % 0.8 % 1.0 % 1.0 % 1.1 %
Persistency
(twelve months ended) 79.9 % 79.4 % 78.8 % 79.2 %
80.1 %
Persistency (quarterly, annualized) 78.0
% 82.3 % 81.8 % 80.5 % 76.2 %
(1)
Net of profit commission.
(2)
Included in primary risk in
force.
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 in particular but without
limitation, unemployment rates, interest rates and changes in
housing markets and mortgage credit markets that could impact the
size of the insurable market and the credit performance of our
insured portfolio;
- changes in the way customers,
investors, regulators or legislators perceive the performance and
financial strength of private mortgage insurers;
- Radian Guaranty’s ability to remain
eligible under the PMIERs and other applicable requirements imposed
by the Federal Housing Finance Agency and by the GSEs to insure
loans purchased by the GSEs;
- our ability to successfully execute and
implement our capital plans and to maintain sufficient holding
company liquidity to meet our short- and long-term liquidity
needs;
- our ability to successfully execute and
implement our business plans and strategies, including in
particular but without limitation, plans and strategies that
require GSE and/or regulatory approvals;
- our ability to maintain an adequate
level of capital in our insurance subsidiaries to satisfy existing
and future state regulatory requirements;
- changes in the charters or business
practices of, or rules or regulations imposed by or applicable to,
the GSEs, including the GSEs’ interpretation and application of the
PMIERs to Radian Guaranty;
- changes in the current housing finance
system in the U.S., including in particular but without limitation,
the role of the FHA, the GSEs and private mortgage insurers in this
system;
- any disruption in the servicing of
mortgages covered by our insurance policies, as well as poor
servicer performance;
- a significant decrease in the
Persistency Rates of our Monthly Premium Policies;
- heightened competition in our mortgage
insurance business, including in particular but without limitation,
increased price competition and competition from other forms of
credit enhancement;
- 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;
- the outcome of legal and regulatory
actions, reviews, audits, inquiries and investigations that could
result in adverse judgments, settlements, fines, injunctions,
restitutions or other relief that could require significant
expenditures or have other effects on our business;
- the amount and timing of potential
payments or adjustments associated with federal or other tax
examinations, including deficiencies assessed by the IRS resulting
from its 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
dividends and other amounts we may receive from our subsidiaries;
and
- the possibility that we may need to
impair the carrying value of goodwill established in connection
with our acquisition of Clayton.
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 our 2015 Form 10-K, and in
our subsequent quarterly and other reports filed from time to time
with the SEC. 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 report. 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/20160728005389/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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