RDN Radian Group Inc

-- Net income of $83 million or $0.37 per diluted share –

-- Adjusted diluted net operating income per share of $0.41–

-- Writes $15.7 billion in new MI business; sets company record for highest quarterly volume of flow MI –

-- Book value per share increases 14% year-over-year to $13.47 –

Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended September 30, 2016, of $82.8 million, or $0.37 per diluted share. This compares to net income for the quarter ended September 30, 2015, of $70.1 million, or $0.29 per diluted share. Pretax income for the quarter ended September 30, 2016, was $126.9 million, compared to $115.7 million for the quarter ended September 30, 2015.

     

Key Financial Highlights (dollars in millions, except per share data)

Quarter Ended Quarter Ended Percent September 30, September 30, Change     2016   2015     Net income   $82.8   $70.1   18% Diluted net income per share   $0.37   $0.29   28% Pretax income   $126.9   $115.7   10% Adjusted pretax operating income   $139.9   $115.6   21% Adjusted diluted net operating income per share *   $0.41   $0.31   32% Net premiums earned - insurance   $238.1   $227.4   5% New Mortgage Insurance Written (NIW)   $15,656   $11,176   40% Book value per share   $13.47   $11.77   14%

* 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 September 30, 2016, was $139.9 million, compared to $115.6 million for the quarter ended September 30, 2015. Adjusted diluted net operating income per share for the quarter ended September 30, 2016, was $0.41, compared to $0.31 for the quarter ended September 30, 2015. See “Non-GAAP Financial Measures” below.

Book value per share at September 30, 2016 was $13.47, an increase of 3 percent from $13.09 at June 30, 2016, and an increase of 14 percent from $11.77 at September 30, 2015.

“We set a record for Radian in the third quarter, writing the highest volume of new flow mortgage insurance business ever in our 40-year history, adding to our existing high-quality insurance in-force book,” said Radian’s Chief Executive Officer S.A. Ibrahim. “Our company continued to benefit from positive credit trends, including another decline in our total number of delinquent loans, high quarterly cure rates and continued outstanding performance from our newest books of mortgage insurance business.”

THIRD QUARTER HIGHLIGHTS

Mortgage Insurance

• New mortgage insurance written (NIW) grew to $15.7 billion for the quarter, representing record volume of NIW written on a flow basis for the company, and an increase of 40 percent compared to $11.2 billion in the prior-year quarter.
  • Of the $15.7 billion in new business written in the third quarter of 2016, 27 percent was written with single premiums. Net single premiums written, after consideration of the 35 percent ceded under the company’s Single Premium Quota Share Reinsurance Agreement, was 17 percent in the third quarter of 2016.
  • Refinances accounted for 22 percent of total NIW in the third quarter of 2016, compared to 18 percent in the second quarter of 2016, and 13 percent a year ago.
  • NIW continued to consist of loans with excellent risk and return characteristics.
• Total primary mortgage insurance in force as of September 30, 2016, grew to $181.2 billion, compared to $177.7 billion as of June 30, 2016, and $174.9 billion as of September 30, 2015.
  • The composition of Radian’s mortgage insurance portfolio has significantly improved over the past several years:
    • 87 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 at September 30, 2016, consisted of loans with FICO scores greater than or equal to 740, compared to 26 percent of loans at December 31, 2007.
    • 7 percent of primary mortgage insurance risk in force at September 30, 2016, consisted of loans with a loan-to-value (LTV) greater than 95 percent, compared to 24 percent of loans at December 31, 2007.
  • Persistency, which is the percentage of mortgage insurance in force that remains on the company’s books after a twelve-month period, was 78.4 percent as of September 30, 2016, compared to 79.9 percent as of June 30, 2016, and 79.2 percent as of September 30, 2015.
  • Annualized persistency for the three-months ended September 30, 2016, was 75.3 percent, compared to 78.0 percent for the three-months ended June 30, 2016, and 80.5 percent for the three-months ended September 30, 2015.
• Total net premiums earned were $238.1 million for the quarter ended September 30, 2016, compared to $229.1 million for the quarter ended June 30, 2016, and $227.4 million for the quarter ended September 30, 2015. Notable variable items impacting net premiums earned include:
  • Acceleration of premiums related to Single Premium Policy cancellations, which are net of reinsurance, were $18.4 million in the third quarter, compared to $14.8 million in the second quarter of 2016, and $12.8 million in the third quarter of 2015.
  • Ceded premiums of $19.9 million, $19.9 million and $14.8 million for the quarters ended September 30, 2016, June 30, 2016, and September 30, 2015, respectively, are net of accrued profit commission on reinsurance transactions of $8.9 million in the third quarter, compared to $7.9 million in the second quarter of 2016, and $0.7 million in the third quarter of 2015.
  • Additional details may be found in Exhibit D.
• The mortgage insurance provision for losses was $56.1 million in the third quarter of 2016, compared to $50.1 million in the second quarter of 2016, and $64.1 million in the third quarter of 2015.
  • The loss ratio in the third quarter was 23.6 percent, compared to 21.9 percent in the second quarter of 2016 and 28.2 percent in the third quarter of 2015.
  • Mortgage insurance loss reserves were $821.9 million as of September 30, 2016, compared to $848.4 million as of June 30, 2016, and $1,098.6 million as of September 30, 2015.
  • Primary reserve per primary default (excluding IBNR and other reserves) was $24,049 as of September 30, 2016. This compares to primary reserve per primary default of $24,609 as of June 30, 2016, and $26,237 as of September 30, 2015.
• The total number of primary delinquent loans decreased by 1 percent in the third quarter from the second quarter of 2016, and by 18 percent from the third quarter of 2015. The primary mortgage insurance delinquency rate decreased to 3.3 percent in the third quarter of 2016, compared to 3.4 percent in the second quarter of 2016, and 4.1 percent in the third quarter of 2015.
• Total mortgage insurance claims paid were $82.7 million in the third quarter, compared to $90.7 million in the second quarter of 2016, and $169.1 million in the third quarter of 2015. The company expects claims paid for the full-year 2016 of approximately $375 million.

Mortgage and Real Estate Services

• The Services segment provides outsourced services, information-based analytics, residential loan due diligence, valuations, surveillance and specialty consulting for buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities. These services and solutions are provided primarily through Clayton and its subsidiaries, including Green River Capital, Red Bell Real Estate and ValuAmerica.
• Total revenues for the third quarter were $43.8 million, compared to $39.0 million for the second quarter of 2016, and $43.1 million for the third quarter of 2015.
• The adjusted pretax operating loss for the quarter ended September 30, 2016, was $2.5 million, compared to $6.0 million for the quarter ended June 30, 2016, and $0.3 million for the quarter ended September 30, 2015. Services adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) for the quarter ended September 30, 2016, was $5.0 million, compared to $2.0 million for the quarter ended June 30, 2016, and $6.3 million for the quarter ended September 30, 2015. Additional details regarding the non-GAAP measure Services adjusted EBITDA may be found in Exhibits F and G.

Consolidated Expenses

Other operating expenses were $64.9 million in the third quarter, compared to $65.7 million in the second quarter of 2016, and $65.1 million in the third 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 third quarter, compared to $2.4 million in the second quarter of 2016, and $1.8 million in the third quarter of 2015.
  • Severance charges of $1.1 million in the third quarter, compared to $0.3 million in the second quarter, and $0.3 million in the third quarter of 2015.
  • Total incentive compensation expense of $12.8 million in the third quarter, compared to $14.2 million in the second quarter of 2016, and $11.9 million in the third quarter of 2015. The expense in the third quarter of 2016 was impacted by an increase to accrued short-term incentive compensation. The expense in the second quarter of 2016 and the third quarter of 2015 included expense related to the annual grants of new equity-settled long-term incentive awards. The expense in these periods was significantly elevated primarily due to the required acceleration of expense recognition for retirement-eligible employees.
  • Additional details may be found in Exhibit D.
• Operating expenses before corporate allocations for the third quarter of 2016 were comprised of $38.1 million for the Mortgage Insurance segment, compared to $36.1 million in the second quarter of 2016, and $36.6 million in the third quarter of last year.
• Operating expenses before corporate allocations for the third quarter of 2016 were comprised of $12.7 million for the Services segment, compared to $12.5 million in the second quarter of 2016, and $11.5 million in the third quarter of last year.

CAPITAL AND LIQUIDITY UPDATE

Radian Group maintained approximately $480 million of available liquidity as of September 30, 2016. The company continues 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.

During the third quarter, the company took the following actions:

• Radian purchased approximately $21.2 million face value of its outstanding 2.25% Convertible Senior Notes due 2019. This decreased the company’s fully diluted share count by approximately 2 million shares.
• The company adopted a Rule 10b5-1 plan to implement the previously authorized $125 million share repurchase program through its June 2017 expiration. As a result of the timing of implementation and the initial parameters of the 10b5-1 plan, Radian did not repurchase any shares of its common stock during the third quarter.
• Radian redeemed the remaining $196 million aggregate principal amount outstanding of its 9.000% Senior Notes due 2017. Radian Group paid an aggregate redemption amount of $211 million, including accrued interest through the redemption date.

The combination of these capital actions, along with the actions taken in the first and second quarters of 2016, decreased the company’s total number of diluted shares by 23.1 million.

CONFERENCE CALL

Radian will discuss third quarter financial results in a conference call today, Thursday, October 27, 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 800.230.1096 inside the U.S., or 612.332.0107 for international callers, using passcode 404490 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 404490.

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). Adjusted pretax operating income adjusts GAAP pretax income 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 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: Net Premiums – Insurance Earned and Other Operating Expenses Exhibit E: Segment Information Exhibit F: Definition of Consolidated Non-GAAP Financial Measures 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 Exhibit J: Mortgage Insurance Supplemental Information Claims and Reserves Exhibit K: Mortgage Insurance Supplemental Information Default Statistics Exhibit L: 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 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Revenues: Net premiums earned - insurance $ 238,149 $ 229,085 $ 220,950 $ 226,443 $ 227,433 Services revenue 43,096 38,294 31,600 37,493 42,189 Net investment income 28,430 28,839 27,201 22,833 22,091 Net gains (losses) on investments and other financial instruments 7,711 30,527 31,286 (13,402 ) 3,868 Other income 3,497   3,423   1,915   1,515   1,711   Total revenues 320,883   330,168   312,952   274,882   297,292     Expenses: Provision for losses 55,785 49,725 42,991 56,805 64,192 Policy acquisition costs 6,119 5,393 6,389 4,831 2,880 Direct cost of services 26,704 24,858 21,749 22,241 24,949 Other operating expenses 64,862 65,680 58,989 59,570 65,082 Interest expense 19,783 22,546 21,534 20,996 21,220 Loss on induced conversion and debt extinguishment 17,397 2,108 55,570 2,320 11 Amortization and impairment of intangible assets 3,292   3,311   3,328   3,409   3,273   Total expenses 193,942   173,621   210,550   170,172   181,607     Pretax income 126,941 156,547 102,402 104,710 115,685 Income tax provision 44,138   58,435   36,153   30,182   45,594   Net income $ 82,803   $ 98,112   $ 66,249   $ 74,528   $ 70,091     Diluted net income per share: $ 0.37 $ 0.44 $ 0.29 $ 0.32 $ 0.29   Selected Mortgage Insurance Key Ratios Loss ratio (1) 23.6 % 21.9 % 19.6 % 25.1 % 28.2 % Expense ratio (1) 23.6 % 24.4 % 22.4 % 22.7 % 23.9 %  

(1)

Calculated on a GAAP basis using net premiums earned.

    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 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Net income: Net income—basic $ 82,803 $ 98,112 $ 66,249 $ 74,528 $ 70,091 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 848   913   3,390   3,664   3,714 Net income—diluted $ 83,651   $ 99,025   $ 69,639   $ 78,192   $ 73,805   Average common shares outstanding—basic 214,387 214,274 203,706 206,872 207,938 Dilutive effect of Convertible Senior Notes due 2017 (2) 178 12 — 1,057 1,798 Dilutive effect of Convertible Senior Notes due 2019 8,274 8,928 33,583 37,736 37,736 Dilutive effect of stock-based compensation arrangements (2) 3,129   2,989   2,418   2,316   3,323 Adjusted average common shares outstanding—diluted 225,968   226,203   239,707   247,981   250,795   Basic net income per share: $ 0.39   $ 0.46   $ 0.33   $ 0.36   $ 0.34   Diluted net income per share: $ 0.37   $ 0.44   $ 0.29   $ 0.32   $ 0.29  

(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 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Shares of common stock equivalents 1,045 1,042 709 728 469 Shares of Convertible Senior Notes due 2017 — — 1,902 — —         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)

2016 2016 2016 2015 2015   Assets: Investments $ 4,565,748 $ 4,636,914 $ 4,470,172 $ 4,298,686 $ 4,376,771 Cash 46,356 55,062 64,844 46,898 69,030 Restricted cash 10,312 9,298 10,060 13,000 10,280 Accounts and notes receivable 94,692 77,170 66,340 61,734 65,951 Deferred income taxes, net 401,442 444,513 518,059 577,945 601,893 Goodwill and other intangible assets, net 279,400 282,703 286,069 289,417 287,334 Prepaid reinsurance premium 229,754 229,231 228,718 40,491 44,091 Other assets 422,123   332,372   325,129   313,929   305,566   Total assets $ 6,049,827   $ 6,067,263   $ 5,969,391   $ 5,642,100   $ 5,760,916     Liabilities and stockholders’ equity: Unearned premiums $ 680,973 $ 677,599 $ 673,887 $ 680,300 $ 676,938 Reserve for losses and loss adjustment expense 821,934 848,379 891,348 976,399 1,098,570 Long-term debt 1,067,666 1,278,051 1,286,466 1,219,454 1,230,246 Reinsurance funds withheld 177,147 163,360 151,104 — — Other liabilities 413,401   294,507   306,188   269,016   311,855   Total liabilities 3,161,121   3,261,896   3,308,993   3,145,169   3,317,609     Equity component of currently redeemable convertible senior notes — — — — 7,737   Common stock 232 232 232 224 224 Treasury stock (893,197 ) (893,176 ) (893,176 ) (893,176 ) (893,176 ) Additional paid-in capital 2,778,860 2,781,136 2,773,349 2,716,618 2,718,210 Retained earnings 937,338 855,070 757,202 691,742 617,731 Accumulated other comprehensive income (loss) 65,473   62,105   22,791   (18,477 ) (7,419 ) Total stockholders’ equity 2,888,706   2,805,367   2,660,398   2,496,931   2,435,570   Total liabilities and stockholders’ equity $ 6,049,827   $ 6,067,263   $ 5,969,391   $ 5,642,100   $ 5,760,916     Shares outstanding 214,405 214,284 214,265 206,872 206,870   Book value per share $ 13.47 $ 13.09 $ 12.42 $ 12.07 $ 11.77   Statutory Capital Ratios Risk to capital ratio-Radian Guaranty only 13.7 :1

 (1)

14.0 :1 12.5 :1 14.3 :1 16.5 :1 Risk to capital ratio-Mortgage Insurance combined 13.9 :1

 (1)

14.2 :1 12.9 :1 14.6 :1 17.9 :1  

(1)

Preliminary.

    Radian Group Inc. and Subsidiaries Net Premiums Earned - Insurance and Other Operating Expenses Exhibit D   2016 2015

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Premiums earned - insurance: Direct $ 258,074 $ 248,938 $ 240,330 $ 239,424 $ 242,260 Assumed 9 9 9 10 10 Ceded (19,934 ) (19,862 ) (19,389 ) (12,991 ) (14,837 ) Net premiums earned - insurance $ 238,149   $ 229,085   $ 220,950   $ 226,443   $ 227,433     Notable variable items: (1) Single Premium Policy cancellations, net of reinsurance $ 18,448 $ 14,841 $ 9,783 $ 13,520 $ 12,771 Profit commission - reinsurance (2) 8,922   7,891   6,134   1,559   678   Total $ 27,370   $ 22,732   $ 15,917   $ 15,079   $ 13,449     Other operating expenses $ 64,862   $ 65,680   $ 58,989   $ 59,570   $ 65,082     Notable variable items: (3) Technology upgrade project (4) $ 2,440 $ 2,443 $ 2,271 $ 1,558 $ 1,818 Severance costs 1,137 277 3,040 116 327 Incentive compensation (5) (6) 12,771 14,248 6,196 4,037 11,916 Ceding commissions (7) (5,460 ) (5,006 ) (4,413 ) (1,229 ) (1,318 ) Total $ 10,888   $ 11,962   $ 7,094   $ 4,482   $ 12,743    

(1)

Affecting net premiums earned-insurance.

(2)

For 2016, the amounts represent the profit commission on the Single Premium QSR Transaction. For 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)

The expense relates to short- and long-term incentive compensation programs. For our equity-settled long-term incentive awards the annual grants for 2015 were made in the third quarter of 2015, whereas the annual grants for 2016 were made in the second quarter of 2016. The expense is elevated in these two quarters primarily due to the required acceleration of expense recognition for retirement-eligible employees, who are considered effectively vested immediately in these grants that would otherwise vest over a period of 3 or 4 years. The expense in the third quarter of 2016 remained elevated, primarily due to an adjustment to accrued short-term incentives based on year-to-date performance.

(6)

Incentive compensation expense is shown net of deferred policy acquisition costs.

(7)

Ceding commissions are shown net of deferred policy acquisition costs.

 

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 Services adjusted EBITDA, along with reconciliations to consolidated GAAP measures, see Exhibits F and G.   Mortgage Insurance 2016   2015

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Net premiums written - insurance $ 240,999 $ 232,353 $ 26,310 (1) $ 233,347 $ 242,168 Decrease (increase) in unearned premiums (2,850 ) (3,268 ) 194,640   (6,904 ) (14,735

)

Net premiums earned - insurance 238,149 229,085 220,950 226,443 227,433 Net investment income 28,430 28,839 27,201 22,833 22,091 Other income 3,511   3,424   1,915   1,515   1,711   Total 270,090   261,348   250,066   250,791   251,235     Provision for losses 56,151 50,074 43,275 56,817 64,128 Policy acquisition costs 6,119 5,393 6,389 4,831 2,880 Other operating expenses before corporate allocations 38,081   36,126   33,829   37,406   36,632   Total (2) 100,351   91,593   83,493   99,054   103,640   Adjusted pretax operating income before corporate allocations 169,739 169,755 166,573 151,737 147,595 Allocation of corporate operating expenses 11,911 14,286 9,329 9,251 14,893 Allocation of interest expense 15,360   18,124   17,112   16,582   16,797   Adjusted pretax operating income $ 142,468   $ 137,345   $ 140,132   $ 125,904   $ 115,905     Services 2016 2015

(In thousands)

Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Services revenue (2) $ 43,800   $ 39,002   $ 32,196   $ 38,175   $ 43,114     Direct cost of services 26,911 25,224 22,053 22,880 25,870 Other operating expenses before corporate allocations 12,740   12,537   13,883   11,710   11,533   Total 39,651   37,761   35,936   34,590   37,403   Adjusted pretax operating income (loss) before corporate allocations (3) 4,149 1,241 (3,740 ) 3,585 5,711 Allocation of corporate operating expenses 2,265 2,779 1,751 968 1,567 Allocation of interest expense 4,423   4,422   4,422   4,414   4,423   Adjusted pretax operating income (loss) $ (2,539 ) $ (5,960 ) $ (9,913 ) $ (1,797 ) $ (279

)

 

(1)

Net of ceded premiums written under the Single Premium QSR transaction of $197.6 million.

(2)

Inter-segment information:

        2016   2015 Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Inter-segment expense included in Mortgage Insurance segment $ 718 $ 709 $ 596 $ 682   $ 1,092 Inter-segment revenue included in Services segment 718 709 596 682 1,092  

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit E (page 2 of 2)

 

(3)

Supplemental information for Services adjusted EBITDA (see definition in Exhibit F):

        2016   2015 Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Adjusted pretax operating income (loss) before corporate allocations $ 4,149 $ 1,241 $ (3,740 ) $ 3,585 $ 5,711 Depreciation and amortization 882   747   661   612   555 Services adjusted EBITDA $ 5,031   $ 1,988   $ (3,079 ) $ 4,197   $ 6,266  

Selected balance sheet information for our segments, as of the periods indicated, is as follows:

  At September 30, 2016

(In thousands)

MortgageInsurance

  Services   Total Total assets $ 5,686,726 $ 363,101 $ 6,049,827   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 F (page 1 of 2)

 

Use of Non-GAAP Financial Measures

In addition to the traditional GAAP financial measures, we have presented “adjusted pretax operating income (loss)” and “adjusted diluted net operating income (loss) per share,” non-GAAP financial measures for the consolidated company, 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) 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). 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 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 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 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 and diluted net income per share, respectively. Exhibit G 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), diluted net income (loss) per share 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 G (page 1 of 2)     Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income     2016 2015

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Adjusted pretax operating income (loss): Mortgage Insurance $ 142,468 $ 137,345 $ 140,132 $ 125,904 $ 115,905 Services (2,539 ) (5,960 ) (9,913 ) (1,797 ) (279 ) Total adjusted pretax operating income 139,929 131,385 130,219 124,107 115,626   Net gains (losses) on investments and other financial instruments 7,711 30,527 31,286 (13,402 ) 3,868 Loss on induced conversion and debt extinguishment (17,397 ) (2,108 ) (55,570 ) (2,320 ) (11 ) Acquisition-related expenses (1) (10 ) 54 (205 ) (266 ) (525 ) Amortization and impairment of intangible assets (1) (3,292 ) (3,311 ) (3,328 ) (3,409 ) (3,273 ) Consolidated pretax income $ 126,941   $ 156,547   $ 102,402   $ 104,710   $ 115,685    

(1)

 

Please see Exhibit F for the definition of this line item.

     

Reconciliation of Adjusted Diluted Net Operating Income Per Share to Diluted Net Income Per Share

  2016 2015 Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3 Adjusted diluted net operating income per share (1) $ 0.41   $ 0.38   $ 0.37   $ 0.34   $ 0.31     Per share impact of debt items: Loss on induced conversion and debt extinguishment (0.08 ) (0.01 ) (0.23 ) (0.01 ) — Income tax provision (benefit) (2) (0.03 ) —   (0.03 ) (0.04 ) —   Per share impact of debt items (0.05 ) (0.01 ) (0.20 ) 0.03   —     Per share impact of other reconciling items: Net gains (losses) on investments and other financial instruments 0.03 0.13 0.13 (0.05 ) 0.01 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) 0.01 0.04 0.04 (0.02 ) — Difference between statutory and effective tax rate —   (0.01 ) 0.04   (0.01 ) (0.02 )

Per share impact of other reconciling items

0.01   0.07   0.12   (0.05 ) (0.02 ) Diluted net income per share $ 0.37   $ 0.44   $ 0.29   $ 0.32   $ 0.29    

(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.

      Radian Group Inc. and Subsidiaries Consolidated Non-GAAP Financial Measure Reconciliations Exhibit G (page 2 of 2)   Reconciliation of Services Adjusted EBITDA to Net Income     2016 2015

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Services adjusted EBITDA $ 5,031 $ 1,988 $ (3,079 ) $ 4,197 $ 6,266 Allocation of corporate operating expenses to Services (2,265 ) (2,779 ) (1,751 ) (968 ) (1,567 ) Allocation of corporate interest expenses to Services (4,423 ) (4,422 ) (4,422 ) (4,414 ) (4,423 ) Services depreciation and amortization (882 ) (747 ) (661 ) (612 ) (555 ) Services adjusted pretax operating income (loss) (2,539 ) (5,960 ) (9,913 ) (1,797 ) (279 ) Mortgage Insurance adjusted pretax operating income 142,468   137,345   140,132   125,904   115,905   Total adjusted pretax operating income 139,929 131,385 130,219 124,107 115,626   Net gains (losses) on investments and other financial instruments 7,711 30,527 31,286 (13,402 ) 3,868 Loss on induced conversion and debt extinguishment (17,397 ) (2,108 ) (55,570 ) (2,320 ) (11 ) Acquisition-related expenses (10 ) 54 (205 ) (266 ) (525 ) Amortization and impairment of intangible assets (3,292 ) (3,311 ) (3,328 ) (3,409 ) (3,273 ) Consolidated pretax income 126,941 156,547 102,402 104,710 115,685 Income tax provision 44,138   58,435   36,153   30,182   45,594   Net income $ 82,803   $ 98,112   $ 66,249   $ 74,528   $ 70,091    

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 or diluted net income per share. 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 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   2016 2015

($ in millions)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Total primary new insurance written $ 15,656   $ 12,921   $ 8,071   $ 9,099   $ 11,176    

Percentage of primary new insurance written by FICO score

>=740 64.2 % 60.9 % 58.4 % 60.3 % 61.0 %

680-739

30.4 32.2 33.7 32.2 31.9

620-679

5.4   6.9   7.9   7.5   7.1   Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %  

Percentage of primary new insurance written

Direct monthly and other premiums 73 % 74 % 71 % 71 % 73 % Direct single premiums 27 % 26 % 29 % 29 % 27 %   Net single premiums (1) 17 % 17 % 19 % 29 % 27 %   Refinances 22 % 18 % 19 % 17 % 13 %   LTV 95.01% and above 6.0 % 4.8 % 3.7 % 3.6 % 3.5 % 90.01% to 95.00% 47.1 % 50.2 % 50.5 % 49.5 % 51.5 % 85.01% to 90.00% 31.4 % 31.8 % 33.1 % 34.4 % 34.1 % 85.00% and below 15.5 % 13.2 % 12.7 % 12.5 % 10.9 %  

(1)

In 2016, represents the percentage of direct single premiums written, after consideration of the 35% single premium NIW ceded under the Single Premium QSR Transaction.

          Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Primary Insurance in Force and Risk in Force Exhibit I   September 30, June 30, March 31, December 31, September 30, ($ in millions) 2016 2016 2016 2015 2015

Primary insurance in force (1)

Prime $ 172,178 $ 168,259 $ 165,526 $ 165,291 $ 164,060 Alt-A 5,363 5,627 5,907 6,176 6,531 A minus and below 3,624   3,786   3,953   4,117   4,275   Total Primary $ 181,165   $ 177,672   $ 175,386   $ 175,584   $ 174,866    

Primary risk in force (1) (2)

Prime $ 44,075 $ 43,076 $ 42,312 $ 42,170 $ 41,784 Alt-A 1,241 1,302 1,366 1,427 1,510 A minus and below 906   946   988   1,030   1,070   Total Primary $ 46,222   $ 45,324   $ 44,666   $ 44,627   $ 44,364    

Percentage of primary risk in force

Direct monthly and other premiums 69 % 69 % 69 % 69 % 70 % Direct single premiums 31 % 31 % 31 % 31 % 30 %   Net single premiums (3) 25 % 25 % 25 % 30 % 30 %  

Percentage of primary risk in force by FICO score

>=740 57.4 % 57.1 % 57.0 % 57.1 % 57.0 % 680-739 30.9 30.8 30.6 30.3 30.2 620-679 10.2 10.5 10.7 10.8 10.9 <=619 1.5   1.6   1.7   1.8   1.9   Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %  

Percentage of primary risk in force by LTV

95.01% and above 7.2 % 7.1 % 7.2 % 7.3 % 7.4 % 90.01% to 95.00% 52.1 51.6 50.9 50.4 49.8 85.01% to 90.00% 32.8 33.3 33.7 34.0 34.3 85.00% and below 7.9   8.0   8.2   8.3   8.5   Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %  

Percentage of primary risk in force by policy year

2005 and prior

5.1 % 5.5 % 6.0 % 6.3 % 6.8 %

2006

3.1 3.4 3.6 3.7 3.9

2007

7.4 7.9 8.4 8.7 9.1

2008

5.2 5.6 6.0 6.3 6.6

2009

1.2 1.3 1.5 1.7 1.8

2010

1.0 1.2 1.3 1.4 1.5

2011

2.2 2.5 2.7 2.9 3.1

2012

8.8 9.7 10.6 11.2 12.0

2013

13.9 15.5 17.0 18.1 19.2

2014

13.4 14.9 16.3 17.1 18.0

2015

19.4 21.0 22.0 22.6 18.0

2016

19.3   11.5   4.6   —   —   Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %   Primary risk in force on defaulted loans (4) $ 1,381 $ 1,398 $ 1,562 $ 1,625 $ 1,666  

(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 the percentage of Single Premium RIF, after giving effect to all reinsurance ceded.

(4)

Excludes risk related to loans subject to the Freddie Mac Agreement.

      Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Claims and Reserves Exhibit J   2016 2015

($ in thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3   Net claims paid: (1) Prime $ 51,964 $ 56,036 $ 74,432 $ 56,900 $ 65,396 Alt-A 16,334 18,349 28,929 21,343 18,966 A minus and below 9,615   12,315   13,196   11,530   14,028   Total primary claims paid 77,913 86,700 116,557 89,773 98,390 Pool 4,492 5,451 7,389 6,477 8,721 Second-lien and other (234 ) (231 ) 345   (143 ) (16 ) Subtotal 82,171 91,920 124,291 96,107 107,095 Impact of captive terminations (171 ) (2,619 ) (120 ) (65 ) — Impact of settlements (2) 705   1,400   3,500   80,426   61,994   Total net claims paid $ 82,705   $ 90,701   $ 127,671   $ 176,468   $ 169,089     Average net claim paid: (3) Prime $ 48.3 $ 48.6 $ 47.7 $ 46.9 $ 46.2 Alt-A 65.3 63.5

63.0

61.7 60.2 A minus and below 41.3 39.9 36.8 40.6 42.5 Total average net primary claim paid 50.0 49.5 49.0 48.7 47.8 Pool 51.0 58.0 53.2 56.3 51.3 Total average net claim paid $ 49.7 $ 49.6 $ 48.9 $ 48.9 $ 47.8   Average direct primary claim paid (3) (4) $ 50.3 $ 49.9 $ 49.6 $ 50.5 $ 48.5 Average total direct claim paid (3) (4) $ 50.0 $ 50.0 $ 49.5 $ 50.6 $ 48.5  

 

($ in thousands, except primary reserve per primary default amounts)

September 30,2016 June 30,2016 March 31,2016 December 31,2015 September 30,2015

 

Reserve for losses by category Prime $ 409,438 $ 420,281 $ 438,598 $ 480,481 $ 519,572 Alt-A 166,349 173,284 183,189 203,706 234,772 A minus and below 106,678 112,001 116,835 129,352 137,441 IBNR and other 73,057 74,639 79,051 83,066 107,179 LAE 21,255 22,389 23,600 26,108 41,464 Reinsurance recoverable (5) 6,448   6,044   8,239   8,286   11,071   Total primary reserves 783,225   808,638   849,512   930,999   1,051,499   Pool insurance 36,065 36,982 38,843 42,084 43,234 IBNR and other 823 897 1,050 1,118 949 LAE 1,112 1,163 1,227 1,335 1,983 Reinsurance recoverable (5) 36   33   —   —   —   Total pool reserves 38,036   39,075   41,120   44,537   46,166   Total 1st lien reserves 821,261 847,713 890,632 975,536 1,097,665 Second-lien and other 673   666   716   863   905   Total reserves $ 821,934   $ 848,379   $ 891,348   $ 976,399   $ 1,098,570     1st lien reserve per default Primary reserve per primary default excluding IBNR and other $ 24,049 $ 24,609 $ 24,959 $ 24,019 $ 26,237  

(1)

 

Net of reinsurance recoveries.

(2)

For 2015, includes the impact of the BofA Settlement Agreement.

(3)

Calculated without giving effect to the impact of the termination of captive transactions and settlements.

(4)

Before reinsurance recoveries.

(5)

Represents ceded losses on captive transactions and quota share reinsurance transactions.

            Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Default Statistics Exhibit K   September 30, June 30, March 31, December 31, September 30, 2016 2016 2016 2015 2015

Default Statistics

Primary Insurance:

Prime

Number of insured loans 840,534 826,511 817,236 816,797 812,657 Number of loans in default 19,100 19,025 19,510 22,223 22,328 Percentage of loans in default 2.27 % 2.30 % 2.39 % 2.72 % 2.75 %  

Alt-A

Number of insured loans 28,080 29,445 30,990 32,411 34,166 Number of loans in default 4,545 4,820 5,138 5,813 6,318 Percentage of loans in default 16.19 % 16.37 % 16.58 % 17.94 % 18.49 %  

A minus and below

Number of insured loans 28,313 29,450 30,681 31,902 33,018 Number of loans in default 5,885 5,982 6,221 7,267 7,229 Percentage of loans in default 20.79 % 20.31 % 20.28 % 22.78 % 21.89 %   Total Primary Number of insured loans 896,927 885,406 878,907 881,110 879,841 Number of loans in default (1) 29,530 29,827 30,869 35,303 35,875 Percentage of loans in default 3.29 % 3.37 % 3.51 % 4.01 % 4.08 %  

(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, 2016 2016 2016 2015 2015 Number of loans in default 1,888 2,180 2,339 2,821 2,993       Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - QSR, Captives and Persistency Exhibit L   2016 2015

($ in thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3  

Initial and Second Quota Share Reinsurance (“QSR”) Transactions

QSR ceded premiums written (1) $ 6,730 $ 7,356 $ 7,962 $ 6,934 $ 8,466 % of premiums written 2.6 % 2.9 % 3.4 % 2.9 % 3.4 % QSR ceded premiums earned (1) $ 10,597 $ 11,172 $ 11,325 $ 10,523 $ 12,203 % of premiums earned 4.1 % 4.5 % 4.7 % 4.4 % 5.1 % Ceding commissions written $ 1,922 $ 2,099 $ 2,270 $ 2,553 $ 2,743 Ceding commissions earned (2) $ 3,974 $ 3,779 $ 4,446 $ 3,466 $ 2,463 Profit commission $ — $ — $ — $ 1,559 $ 678 Risk in force included in QSR (3) $ 1,718,031 $ 1,872,017 $ 2,018,468 $ 2,131,030 $ 2,253,913  

Single Premium QSR Transaction

QSR ceded premiums written (1) $ 13,004 $ 11,488 $ 197,593 N/A N/A % of premiums written 5.0 % 4.6 % 84.7 % N/A N/A QSR ceded premiums earned (1) $ 8,608 $ 7,146 $ 5,994 N/A N/A % of premiums earned 3.3 % 2.9 % 2.5 % N/A N/A Ceding commissions written $ 5,482 $ 4,844 $ 50,932 N/A N/A Ceding commissions earned (2) $ 4,382 $ 3,759 $ 3,032 N/A N/A Profit commission $ 8,922 $ 7,891 $ 6,134 N/A N/A Risk in force included in QSR (3) $ 3,621,993 $ 3,461,464 $ 3,308,057 N/A N/A   Total risk in force included in QSRs $ 5,340,024 $ 5,333,481 $ 5,326,525 $ 2,131,030 $ 2,253,913  

1st Lien Captives

Premiums earned ceded to captives $ 537 $ 1,346 $ 1,869 $ 2,268 $ 2,434 % of total premiums earned 0.2 % 0.5 % 0.8 % 1.0 % 1.0 %   Persistency Rate (twelve months ended) 78.4 % 79.9 % 79.4 % 78.8 % 79.2 % Persistency Rate (quarterly, annualized) (4) 75.3 % 78.0 % 82.3 % 81.8 % 80.5 %    

(1)

Net of profit commission.

(2)

Includes amounts reported in policy acquisition costs and other operating expenses.

(3)

Included in primary risk in force.

(4)

The Persistency Rate on a quarterly, annualized basis may be impacted by seasonality or other factors, and may not be indicative of full-year trends.

 

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 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;
• competition in our mortgage insurance business, including in particular but without limitation, price competition (in particular from those mortgage insurers with advantageous tax positions) and competition from the FHA, VA and 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/20161027005327/en/

Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz