RDN Radian Group Inc

Radian Group Inc. (NYSE: RDN) today reported a net loss for the quarter ended March 31, 2013, of $187.5 million, or $1.30 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $173.3 million. This compares to a net loss for the quarter ended March 31, 2012, of $169.2 million, or $1.28 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $90.6 million. Book value per share at March 31, 2013, was $5.39.

“We took the opportunity this quarter to significantly improve our capital and liquidity positions, providing a competitive advantage for Radian in an extremely attractive business environment,” said Chief Executive Officer S.A. Ibrahim. “Building on our momentum with a strong risk-to-capital ratio, financial flexibility at the holding company, and the number one mortgage insurance market share position in the fourth quarter of last year, we kicked off 2013 with a 69% jump in new mortgage insurance business written year-over-year.”

Ibrahim continued, “As our strong new business volume continues, our delinquency inventory decreases and the mix of profitable new business begins to outweigh our legacy mortgage insurance book, we are positioning Radian for a return to operating profitability.”

CAPITAL AND LIQUIDITY UPDATE

In March, Radian improved its capital and liquidity position through a successful capital raise, resulting in net proceeds of approximately $689 million. As previously reported, Radian Group contributed $115 million of capital to Radian Guaranty in the first quarter, in order to support the company’s strong risk-to-capital position. Radian Guaranty’s risk-to-capital ratio was 18.6:1 as of March 31, 2013. After the above-mentioned contribution of $115 million to Radian Guaranty, Radian Group maintains approximately $815 million of currently available liquidity.

• Radian expects to maintain a risk-to-capital ratio of 20:1 or below at Radian Guaranty for the foreseeable future.
• The improvement in the risk-to-capital ratio from December 31, 2012, was primarily driven by the $115 million capital contribution from Radian Group and a release of Radian Asset’s contingency reserves of $68 million, partially offset by an increase to the company’s net risk in force resulting from strong, new mortgage insurance business volume.
• In order to proactively manage its risk-to-capital position, Radian Guaranty entered into two quota share reinsurance agreements in 2012 with the same third-party reinsurance provider. As of March 31, 2013, a total of $2.4 billion of risk in force was ceded under those agreements. Beginning April 1, the company reduced the amount of new business that will be ceded to the reinsurer on a prospective basis from 20 percent to 5 percent. On December 31, 2014, and on December 31, 2015, Radian has the ability, at its option, to recapture a portion of the business that was reinsured.
• As of March 31, 2013, Radian Guaranty’s statutory capital was $1.1 billion compared to $926 million at year-end 2012, and $920 million a year ago.

FIRST QUARTER HIGHLIGHTS

• New mortgage insurance written (NIW) was $10.9 billion for the quarter, compared to $11.7 billion in the fourth quarter of 2012 and $6.5 billion in the prior-year quarter. Radian wrote an additional $4.1 billion in NIW in April 2013, compared to $2.5 billion in April 2012.
  • The Home Affordable Refinance Program (HARP) accounted for $2.5 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $2.9 billion in the fourth quarter of 2012 and $929.9 million in the prior-year quarter. As of March 31, 2013, more than 10 percent of the company’s total primary mortgage insurance risk in force had successfully completed a HARP refinance.
  • Of the $10.9 billion in new business written in the first quarter of 2013, 64 percent was written with monthly premiums and 36 percent with single premiums.
  • NIW continued to consist of loans with excellent risk characteristics, with 75 percent consisting of loans with FICO scores of 740 or greater.

• The mortgage insurance provision for losses was $132.0 million in the first quarter of 2013, compared to $306.9 million in the fourth quarter of 2012, and $234.7 million in the prior-year period. The loss ratio in the first quarter for Radian Guaranty was 72.1 percent, compared to 171.0 in the fourth quarter of 2012 and 135.3 percent in the first quarter of 2012. Mortgage insurance loss reserves were approximately $2.9 billion as of March 31, 2013, which decreased from $3.1 billion as of December 31, 2012, and from $3.2 billion as of March 31, 2012. First-lien reserves per primary default increased to $30,426 as of March 31, 2013, compared to $29,510 as of December 31, 2012, and $27,833 as of March 31, 2012.
• The total number of primary delinquent loans decreased by 9 percent in the first quarter from the fourth quarter of 2012, and by 17 percent from the first quarter of 2012. The primary mortgage insurance delinquency rate decreased to 10.9 percent in the first quarter of 2013, compared to 12.1 percent in the fourth quarter of 2012, and 14.1 percent in the first quarter of 2012. The company’s primary risk in force on defaulted loans was $4.0 billion in the first quarter, compared to $4.3 billion in the fourth quarter of 2012, and $4.9 billion in the first quarter of 2012.
• Total mortgage insurance claims paid were $309.9 million in the first quarter, compared to $263.4 million in the fourth quarter, and $218.2 million in the first quarter of 2012.

• $38.0 million of other operating expenses in the first quarter represented compensation expenses related to an increase in the estimated future value of performance awards that are impacted by changes in the company’s stock price. This increased compensation expense primarily reflects Radian’s higher stock price in the first quarter. In 2012, such compensation expenses were $13.5 million in the fourth quarter and $8.0 million in the first quarter.
• Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
  • As of March 31, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.5 billion in claims-paying resources.
  • In January, Radian Asset completed the commutation of its remaining reinsurance risk from Financial Guaranty Insurance Corporation (FGIC) of $822 million, which resulted in a $7 million contingency reserve release in the first quarter.
  • In February, Radian Asset received regulatory approval to release an additional $61 million of contingency reserves, which benefited Radian Guaranty's statutory capital position in the first quarter. The reserve release was based on a reduction in Radian Asset’s net par outstanding, resulting from the maturing of exposures and other terminations of coverage.
  • Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $37 million in 2013.
  • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 76 percent to $28.2 billion as of March 31, 2013, including large declines in many of the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, May 1, 2013, at 11:00 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 612-288-0329 for international callers, using passcode 290876 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 290876.

In addition to the information provided in the company's earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, will be available on Radian's website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.

ABOUT RADIAN

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. Additional information may be found at www.radian.biz.

FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)

For trend information on all schedules, refer to Radian’s quarterly financial statistics at http://www.radian.biz/page?name=FinancialReportsCorporate.

    Exhibit A: Condensed Consolidated Statements of Income Exhibit B: Condensed Consolidated Balance Sheets Exhibit C: Segment Information Quarter Ended March 31, 2013 Exhibit D: Segment Information Quarter Ended March 31, 2012 Exhibit E: Financial Guaranty Supplemental Information Exhibit F: Mortgage Insurance Supplemental Information New Insurance Written Exhibit G: Mortgage Insurance Supplemental Information Insurance in Force and Risk in Force by Product Exhibit H: Mortgage Insurance Supplemental Information Risk in Force by FICO, LTV and Policy Year Exhibit I: Mortgage Insurance Supplemental Information Pool and Other Risk in Force, Risk-to-Capital Exhibit J: Mortgage Insurance Supplemental Information Claims, Reserves and Reserve per Default Exhibit K: Mortgage Insurance Supplemental Information Default Statistics Exhibit L: Mortgage Insurance Supplemental Information Captives, QSR and Persistency     Radian Group Inc. and Subsidiaries Condensed Consolidated Statements of Income Exhibit A     Quarter Ended March 31,

(In thousands, except per-share data)

2013     2012   Revenues: Net premiums written - insurance $ 207,185   $ 77,678     Net premiums earned - insurance $ 192,588 $ 167,365 Net investment income 26,873 34,713 Net (losses) gains on investments (5,505 ) 67,459 Change in fair value of derivative instruments (167,670 ) (72,757 ) Net losses on other financial instruments (5,675 ) (17,852 ) Other income 1,771   1,440   Total revenues 42,382   180,368     Expenses: Provision for losses 132,059 266,154 Change in reserve for premium deficiency (629 ) (20 ) Policy acquisition costs 17,195 28,046 Other operating expenses 80,100 50,154 Interest expense 15,881   14,148   Total expenses 244,606   358,482     Equity in net income (loss) of affiliates 1   (11 )   Pretax loss (202,223 ) (178,125 ) Income tax benefit (14,723 ) (8,893 )   Net loss $ (187,500 ) $ (169,232 )   Diluted net loss per share (1) $ (1.30 ) $ (1.28 )       (1) Weighted average shares outstanding (in thousands)           Weighted average common shares outstanding 132,625 132,465 Increase in weighted average shares - common stock offering 11,730   — Weighted average shares outstanding 144,355   132,465                

For Trend Information, refer to our Quarterly Financial Statistics on Radian’s (RDN) website.

  Radian Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets Exhibit B         March 31 December 31

(In thousands, except per-share data)

2013 2012   Assets: Cash and investments $ 5,672,888 $ 5,208,199 Deferred policy acquisition costs 74,601 88,202 Deferred income taxes, net 17,902 — Reinsurance recoverables 78,770 89,204 Derivative assets 6,429 13,609 Other assets 520,359   503,986   Total assets $ 6,370,949   $ 5,903,200     Liabilities and stockholders’ equity: Unearned premiums $ 673,849 $ 648,682 Reserve for losses and loss adjustment expenses 2,919,073 3,149,936 Reserve for premium deficiency 3,056 3,685 Long-term debt 906,105 663,571 VIE debt 107,401 108,858 Derivative liabilities 430,898 266,873 Payable for securities purchased 37,491 697 Other liabilities 362,030   324,573   Total liabilities 5,439,903   5,166,875     Common stock 190 151 Additional paid-in capital 1,450,057 1,075,320 Retained deficit (542,741 ) (355,241 ) Accumulated other comprehensive income 23,540   16,095   Total common stockholders’ equity 931,046   736,325   Total liabilities and stockholders’ equity $ 6,370,949   $ 5,903,200     Book value per share $ 5.39 $ 5.51     Radian Group Inc. and Subsidiaries Segment Information Quarter Ended March 31, 2013 Exhibit C             Mortgage Financial

(In thousands)

Insurance Guaranty Total Revenues: Net premiums written - insurance $ 217,286   $ (10,101 )

(1)

$ 207,185     Net premiums earned - insurance $ 182,992 $ 9,596

(1)

$ 192,588 Net investment income 15,102 11,771 26,873 Net losses on investments (3,237 ) (2,268 ) (5,505 ) Net impairment losses recognized in earnings — — — Change in fair value of derivative instruments — (167,670 ) (167,670 ) Net losses on other financial instruments (1,877 ) (3,798 ) (5,675 ) Other income 1,712   59 1,771   Total revenues 194,692   (152,310 ) 42,382     Expenses: Provision for losses 131,956 103 132,059 Change in reserve for premium deficiency (629 ) — (629 ) Policy acquisition costs 11,732 5,463 17,195 Other operating expenses 65,780 14,320 80,100 Interest expense 2,669   13,212 15,881   Total expenses 211,508   33,098 244,606     Equity in net income of affiliates —   1 1     Pretax loss $ (16,816 ) $ (185,407 ) $ (202,223 ) Income tax benefit (14,723 )   Net loss $ (187,500 )   Cash and investments $ 3,186,871 $ 2,486,017 $ 5,672,888 Deferred policy acquisition costs 29,920 44,681 74,601 Total assets 3,663,552 2,707,397 6,370,949 Unearned premiums 428,574 245,275 673,849 Reserve for losses and loss adjustment expenses 2,894,500 24,573 2,919,073 VIE debt 11,062 96,339 107,401 Derivative liabilities — 430,898 430,898  

(1)

Reflects the impact of the commutation of reinsurance business.

    Radian Group Inc. and Subsidiaries Segment Information Quarter Ended March 31, 2012 Exhibit D             Mortgage Financial

(In thousands)

Insurance Guaranty Total Revenues: Net premiums written - insurance $ 196,853   $ (119,175 )

(1)

$ 77,678     Net premiums earned - insurance $ 173,451 $ (6,086 )

(1)

$ 167,365 Net investment income 18,011 16,702 34,713 Net gains on investments 32,178 35,281 67,459 Change in fair value of derivative instruments 21 (72,778 ) (72,757 ) Net losses on other financial instruments (709 ) (17,143 ) (17,852 ) Other income 1,344   96 1,440   Total revenues 224,296   (43,928 ) 180,368     Expenses: Provision for losses 234,729 31,425 266,154 Change in reserve for premium deficiency (20 ) — (20 ) Policy acquisition costs 8,646 19,400 28,046 Other operating expenses 36,265 13,889 50,154 Interest expense 1,722   12,426 14,148   Total expenses 281,342   77,140 358,482     Equity in net loss of affiliates —   (11 ) (11 )   Pretax loss (57,046 ) (121,079 ) (178,125 ) Income tax (benefit) provision (11,799 ) 2,906 (8,893 )   Net loss $ (45,247 ) $ (123,985 ) $ (169,232 )   Cash and investments $ 3,259,204 $ 2,392,620 $ 5,651,824 Deferred policy acquisition costs 49,786 58,155 107,941 Total assets 3,476,732 2,971,789 6,448,521 Unearned premiums 256,809 315,756 572,565 Reserve for losses and loss adjustment expenses 3,230,938 85,426 3,316,364 VIE debt 8,625 246,609 255,234 Derivative liabilities — 202,100 202,100

(1)

 

Reflects the impact of the commutation of reinsurance business.

    Radian Group Inc. and Subsidiaries Financial Guaranty Supplemental Information Exhibit E     Quarter Ended March 31,

(In thousands)

2013     2012   Net Premiums Earned: Total Premiums Earned - insurance $ 12,043 $ 16,178 Impact of commutations and reinsurance (2,447 ) (22,264 ) Net Premiums Earned - insurance $ 9,596   $ (6,086 )   Refundings included in earned premium $ 4,753   $ 8,224     Net premiums earned - derivatives (1) $ 4,992   $ 8,648     Claims paid $ 41,858  

(2)

$ 9,000     March 31 December 31

($ in thousands, except ratios)

2013 2012  

Statutory Information:

  Capital and surplus $ 1,206,578 $ 1,144,112 Contingency reserve 240,303   300,138   Qualified statutory capital 1,446,881 1,444,250   Unearned premium reserve 233,192 256,920 Loss and loss expense reserve (93,276 ) (53,441 ) Total statutory policyholders’ reserves 1,586,797 1,647,729   Present value of installment premiums 104,913   114,292   Total statutory claims paying resources $ 1,691,710   $ 1,762,021     Net debt service outstanding $ 36,412,556   $ 42,526,289     Capital leverage ratio (3) 25 29 Claims paying leverage ratio (4) 22 24   Net par outstanding by product: Public finance direct $ 9,531,501 $ 9,796,131 Public finance reinsurance 4,646,397 5,542,217 Structured direct 13,405,544 17,615,383 Structured reinsurance 635,210   787,758   Total (5) $ 28,218,652   $ 33,741,489  

(1)

 

Included in change in fair value of derivative instruments.

(2)

Primarily related to commutation of reinsurance business.

(3)

The capital leverage ratio is derived by dividing net debt service outstanding by qualified statutory capital.

(4)

The claims paying leverage ratio is derived by dividing net debt service outstanding by total statutory claims paying resources.

(5)

Included in public finance net par outstanding is $0.9 billion and $1.0 billion at March 31, 2013 and December 31, 2012, respectively, for legally defeased bond issues where our financial guaranty policy has not been extinguished but cash or securities have been deposited in an escrow account for the benefit of bondholders.

    Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit F     Quarter Ended March 31,   2013     2012

($ in millions)

$   % $   %

Primary new insurance written

    Prime $ 10,905 100.0 % $ 6,460 99.9 % Alt-A and A minus and below 1     —   5     0.1   Total Flow $ 10,906     100.0 % $ 6,465     100.0 %  

Total primary new insurance written by FICO score

>=740 $ 8,210 75.3 % $ 4,920 76.1 % 680-739 2,398 22.0 1,400 21.7 620-679 298     2.7   145     2.2   Total Flow $ 10,906     100.0 % $ 6,465     100.0 %  

Percentage of primary new insurance written

Monthly premiums 64 % 64 % Single premiums 36 % 36 %   Refinances 48 % 47 % LTV 95.01% and above 1.7 % 1.8 % 90.01% to 95.00% 39.8 % 38.7 % 85.01% to 90.00% 39.3 % 41.6 % 85.00% and below 19.2 % 17.9 %     Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit G         March 31 March 31 2013 2012

($ in millions)

$     % $     %

Primary insurance in force

        Flow $ 133,693 92.4 % $ 115,127 90.3 % Structured 10,950       7.6   12,399       9.7   Total Primary $ 144,643       100.0 % $ 127,526       100.0 %   Prime $ 128,361 88.8 % $ 108,507 85.1 % Alt-A 10,027 6.9 11,828 9.3 A minus and below 6,255       4.3   7,191       5.6   Total Primary $ 144,643       100.0 % $ 127,526       100.0 %  

Primary risk in force

Flow $ 33,027 93.2 % $ 28,348 91.3 % Structured 2,419       6.8   2,691       8.7   Total Primary $ 35,446       100.0 % $ 31,039       100.0 %   Flow Prime $ 30,146 91.3 % $ 24,962 88.1 % Alt-A 1,780 5.4 2,104 7.4 A minus and below 1,101       3.3   1,282       4.5   Total Flow $ 33,027       100.0 % $ 28,348       100.0 %   Structured Prime $ 1,419 58.7 % $ 1,570 58.3 % Alt-A 535 22.1 608 22.6 A minus and below 465       19.2   513       19.1   Total Structured $ 2,419       100.0 % $ 2,691       100.0 %   Total Prime $ 31,565 89.1 % $ 26,532 85.5 % Alt-A 2,315 6.5 2,712 8.7 A minus and below 1,566       4.4   1,795       5.8   Total Primary $ 35,446       100.0 % $ 31,039       100.0 %     Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit H         March 31 March 31 2013 2012

($ in millions)

$     % $     %

Total primary risk in force by FICO score

        Flow >=740 $ 17,556 53.2 % $ 12,889 45.5 % 680-739 9,865 29.9 9,184 32.4 620-679 4,801 14.5 5,328 18.8 =740 $ 647 26.7 % $ 712 26.5 % 680-739 698 28.9 781 29.0 620-679 642 26.5 721 26.8 =740 $ 18,203 51.3 % $ 13,601 43.8 % 680-739 10,563 29.8 9,965 32.1 620-679 5,443 15.4 6,049 19.5