-- Fourth quarter GAAP net income of $139.8
million, or $0.64 per diluted share, and full year GAAP net income
of $606.0 million, or $2.77 per diluted share --
-- Adjusted diluted net operating income per
share for the fourth quarter of $0.70, an increase of 37%
year-over-year, and for the full year of $2.69, an increase of 48%
year-over-year --
-- Writes $56.5 billion in new MI business for
2018, sets company record for flow MI; MI in force increases 10%
year-over-year to $221 billion and net MI premiums earned exceeds
$1 billion --
-- Improves financial flexibility with $450
million return of capital from Radian Guaranty to Radian Group
--
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended December 31, 2018, of $139.8 million, or $0.64
per diluted share. This compares with net income for the quarter
ended December 31, 2017, of $6.8 million, or $0.03 per diluted
share, which included an incremental tax provision of $102.6
million, representing the impact of tax reform enacted in the
fourth quarter of 2017.
Net income for the full year 2018 was $606.0 million, or $2.77
per diluted share, which includes a tax benefit of approximately
$73.6 million from the impact of the settlement with the IRS as
well as the reversal of certain previously accrued state and local
tax liabilities. This compares to net income for the full year 2017
of $121.1 million, or $0.55 per diluted share which, in addition to
the incremental tax provision, included impairment of goodwill and
other acquired intangible assets related to the Mortgage and Real
Estate Services segment of $130.9 million, net of tax.
Key Financial Highlights (dollars
in millions, except per-share amounts)
Year endedDecember 31, 2018
Year endedDecember 31, 2017
PercentChange
Net income (1) $606.0 $121.1
N/M (2) Diluted net income per share $2.77
$0.55 N/M (2) Consolidated pretax
income $684.2 $346.7 97%
Adjusted pretax operating income (3) $745.5
$617.2 21%
Adjusted diluted net operatingincome per
share(3) (4)
$2.69 $1.82 48% Net
premiums earned - mortgage insurance $1,006.7
$932.8 8% MI New Insurance Written (NIW)
$56,547 $53,905 5% MI
primary insurance in force $221,443
$200,724 10% Book value per share
$16.34 $13.90 18% Return on equity
(1)(5) 18.7% 4.1% N/M (2)
Adjusted net operating return on equity (3) 18.2%
13.7% 33%
Quarter endedDecember 31, 2018
Quarter endedDecember 31, 2017
PercentChange
Net income (1) $139.8 $6.8
N/M (2) Diluted net income per share $0.64
$0.03 N/M (2) Consolidated pretax
income $176.5 $164.7 7%
Adjusted pretax operating income (3) $193.7
$172.5 12%
Adjusted diluted net operatingincome per
share(3) (4)
$0.70 $0.51 37% Net
premiums earned - mortgage insurance $259.7
$245.2 6% MI New Insurance Written (NIW)
$12,737 $14,383 (11)%
Return on equity (1)(5) 16.4% 0.9%
N/M (2) Adjusted net operating return on equity (3)
17.9% 15.0% 19%
(1)
Net income for the full year 2018 includes
the impact of tax benefits of $73.6 million, which includes both
the impact of the settlement with the IRS as well as the reversal
of certain previously accrued state and local tax liabilities.
Additionally, net income for the fourth quarter and the full year
2018 includes a pretax net loss on investments and other financial
instruments of $11.7 million and $42.5 million, respectively. Net
income for the fourth quarter and full year 2017 includes an
incremental tax provision of $102.6 million as a result of the
remeasurement of net deferred tax assets to reflect lower enacted
corporate tax rates. Additionally, net income for the full year
2017 includes pretax impairment of goodwill and other acquired
intangible assets related to the Mortgage and Real Estate Services
segment of $200.2 million and a $51.5 million pretax loss on
induced conversion and debt extinguishment (incurred primarily to
purchase the company's convertible debt prior to maturity).
(2)
N/M - Calculation results are not
meaningful.
(3)
Adjusted results, including adjusted
pretax operating income, adjusted diluted net operating income per
share, and adjusted net operating return on equity are non-GAAP
financial measures. For definitions and reconciliations of these
measures to the comparable GAAP measures, see Exhibits F and G.
(4)
Adjusted diluted net operating income per
share is calculated using the company’s statutory tax rates of 21
percent in 2018 and 35 percent in 2017.
(5)
Calculated by dividing annualized net
income by average stockholders' equity, based on the average of the
beginning and ending balances for each period presented.
Adjusted pretax operating income for the quarter ended
December 31, 2018, was $193.7 million, compared to $172.5
million for the quarter ended December 31, 2017. Adjusted
diluted net operating income per share for the quarter ended
December 31, 2018, was $0.70, an increase of 37 percent
compared to $0.51 for the quarter ended December 31, 2017.
Adjusted pretax operating income for the year ended
December 31, 2018, was $745.5 million, compared to $617.2
million for the same period of 2017. Adjusted diluted net operating
income per share for the year ended December 31, 2018, was
$2.69, an increase of 48 percent compared to $1.82 for the same
period of 2017.
Book value per share at December 31, 2018, was $16.34,
compared to $15.69 at September 30, 2018, and an increase of
18 percent compared to $13.90 at December 31, 2017.
“I am pleased to report that 2018 was another outstanding year
for Radian, with net income of $606 million, return on equity of
18.7%, 10% growth in mortgage insurance in force and record volume
of flow mortgage insurance business,” said Radian’s Chief Executive
Officer Rick Thornberry. “We are delivering on our strategy of
becoming an even stronger company across all of our businesses,
from Mortgage Insurance and Risk Services to Title, Mortgage and
Real Estate Services, while also strengthening our capital position
and increasing our financial flexibility.”
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
- MI new insurance written (NIW) grew to
$56.5 billion for the full year 2018, an increase of 5 percent
compared to $53.9 billion for the prior year. NIW was $12.7 billion
for the fourth quarter, compared to $15.8 billion in the third
quarter of 2018 and $14.4 billion in the prior-year quarter.
- NIW for the full year 2018 represented
record volume written on a flow basis for the company.
- Of the $12.7 billion in NIW in the
fourth quarter of 2018, 83 percent was written with monthly
premiums, compared to 78 percent in the third quarter of 2018, and
77 percent a year ago.
- Borrower-paid originations accounted
for 94 percent of total NIW in the fourth quarter of 2018, compared
to 91 percent in the third quarter of 2018, and 79 percent a year
ago.
- Purchase originations accounted for 95
percent of total NIW in the fourth quarter of 2018, compared to 96
percent in the third quarter of 2018, and 88 percent a year
ago.
- Total primary mortgage insurance in
force as of December 31, 2018, grew to $221.4 billion, an
increase of 2 percent compared to $217.1 billion as of
September 30, 2018, and an increase of 10 percent compared to
$200.7 billion as of December 31, 2017.
- The composition of Radian’s mortgage
insurance portfolio continues to improve, with 94 percent
consisting of new business written after 2008, including those
loans that successfully completed the Home Affordable Refinance
Program (HARP).
- Persistency, which is the percentage of
mortgage insurance that remains in force after a twelve-month
period, was 83.1 percent for the twelve months ended
December 31, 2018, compared to 81.4 percent for the twelve
months ended September 30, 2018 and 81.1 percent for the
twelve months ended December 31, 2017.
- Annualized persistency for the three
months ended December 31, 2018, was 85.5 percent, compared to
83.4 percent for the three months ended September 30, 2018,
and 79.4 percent for the three months ended December 31,
2017.
- Net mortgage insurance premiums earned
were $259.7 million for the quarter ended December 31, 2018,
compared to $255.5 million for the quarter ended September 30,
2018, and $245.2 million for the quarter ended December 31,
2017.
- Mortgage insurance in force portfolio
yield was 49.0 basis points in the fourth quarter, compared to 48.6
basis points in the third quarter of 2018, and 48.1 basis points in
the fourth quarter of 2017.
- Total net mortgage insurance premium
yield, which includes the impact of ceded premiums and accrued
profit commission, was 47.4 basis points in the fourth quarter,
compared to 47.8 basis points in the third quarter of 2018, and
49.4 basis points in the fourth quarter of 2017.
- Additional details regarding notable
variable items impacting premiums earned may be found in Exhibit
D.
- The mortgage insurance provision for
losses was $27.1 million in the fourth quarter of 2018, compared to
$20.7 million in the third quarter of 2018, and $35.3 million in
the fourth quarter of 2017.
- The number of primary delinquent loans
was 21,093 as of December 31, 2018, an increase of 2 percent
compared to 20,770 as of September 30, 2018 and a decrease of 24
percent compared to 27,922 as of December 31, 2017. The elevated
number of primary delinquent loans as of December 31, 2017 was
driven by new notices of default from areas affected by major 2017
hurricanes. Based on past experience, the company continues to
expect that these delinquencies will not result in a material
number of new paid claims.
- The primary mortgage insurance
delinquency rate was 2.1 percent in the fourth quarter of 2018,
compared to 2.1 percent in the third quarter of 2018, and 2.9
percent in the fourth quarter of 2017.
- The loss ratio in the fourth quarter
was 10.4 percent, compared to 8.1 percent in the third quarter of
2018 and 14.4 percent in the fourth quarter of 2017.
- Mortgage insurance loss reserves were
$397.9 million as of December 31, 2018, compared to $409.0
million as of September 30, 2018, and $507.6 million as of
December 31, 2017.
- Total mortgage insurance claims paid
were $39.7 million in the fourth quarter, compared to $59.8 million
in the third quarter of 2018, and $85.5 million in the fourth
quarter of 2017. Excluding the impact of commutations and captive
terminations, claims paid were $35.4 million in the fourth quarter
of 2018, compared to $47.1 million in the third quarter of 2018 and
$58.9 million in the fourth quarter of 2017. For the full year
2018, total net claims paid were $215.9 million, compared to $390.4
million for the full year 2017. Claims paid for the full year 2017
included the payment of $54.8 million made in connection with the
scheduled final settlement of the Freddie Mac Agreement entered
into in August 2013. In addition, the company’s pending claim
inventory declined 8 percent from the fourth quarter of 2017.
- Total Mortgage and Real Estate Services
Segment revenues for the fourth quarter were $41.5 million,
compared to $40.9 million for the third quarter of 2018, and $40.7
million for the fourth quarter of 2017. Total revenues for the full
year 2018 were $157.1 million, compared to $161.8 million for the
same period of 2017. Adjusted earnings before interest, income
taxes, depreciation and amortization (Services adjusted EBITDA) for
the quarter ended December 31, 2018 was $3.2 million, compared
to $0.6 million for the quarter ended September 30, 2018, and $3.8
million for the quarter ended December 31, 2017. Services
adjusted EBITDA for the full year 2018 was $6.2 million, compared
to $2.0 million for the prior year period. Additional details
regarding the non-GAAP measure Services adjusted EBITDA may be
found in Exhibits F and G.
- As previously announced and during the
fourth quarter, Radian acquired Independent Settlement Services, a
national appraisal and title management services company, and Five
Bridges Advisors, LLC, a developer of proprietary software, data
analytics and predictive models leveraging artificial intelligence,
machine learning and traditional econometric techniques. While the
financial terms of the transactions were immaterial to Radian, the
acquisitions are consistent with the company's growth and
diversification strategy, as well as its focus on the core product
offerings of its Title, Mortgage and Real Estate Services
businesses.
- Other operating expenses were $77.3
million in the fourth quarter, compared to $70.1 million in the
third quarter of 2018, and $66.0 million in the fourth quarter of
last year. The year-over-year increase was driven primarily by
approximately $5.5 million in increased incentive compensation and
benefits based on year-to-date performance and approximately $4.1
million of incremental expenses related to the operations of
businesses acquired in 2018.
CAPITAL AND LIQUIDITY UPDATE
As of December 31, 2018, Radian Group maintained $714
million of available liquidity. Total liquidity, which includes the
company’s $268 million unsecured revolving credit facility, was
$982 million as of December 31, 2018. The company remains
focused on optimizing its capital position, enhancing its return on
capital, and increasing its financial flexibility.
- The Pennsylvania Insurance Department
approved a $450 million return of capital from Radian Guaranty to
Radian Group during the fourth quarter of 2018, which was paid on
December 21, 2018 from Radian Guaranty's gross paid in and
contributed statutory surplus. This strategic capital action
improves Radian Group's financial flexibility. The company plans to
use a portion of these proceeds to retire its $159 million in
Senior Notes when due in June 2019.
- As previously announced, Radian
executed the mortgage insurance industry's first simultaneous
mortgage insurance linked notes (ILNs) and excess of loss (XOL)
reinsurance placement during the fourth quarter of 2018. Radian
Guaranty Inc., the principal mortgage insurance subsidiary of
Radian Group, obtained $434 million of credit risk protection from
Eagle Re 2018-1 Ltd. (Eagle Re) through the issuance by Eagle Re of
ILNs to eligible third-party capital markets investors in an
unregistered private offering. Eagle Re is a special purpose
insurer domiciled in Bermuda and is not a subsidiary or affiliate
of Radian. In addition, Radian Guaranty agreed to terms with a
third-party global reinsurer on a separate XOL reinsurance
agreement for $21 million of protection. The ILN-related
reinsurance and XOL transfer risk on the same portfolio of eligible
mortgage insurance policies issued by Radian Guaranty between
January 2017 and December 2017, with the XOL covering a pro rata
portion of the risk alongside certain classes of the ILNs.
- After consideration of the ILN and XOL
reinsurance placement and the $450 million return of capital
described above, as of December 31, 2018, Radian Guaranty had
Available Assets under the Private Mortgage Insurer Eligibility
Requirements (PMIERs 1.0) of approximately $3.5 billion, which
resulted in an excess or “cushion” of approximately $567 million,
or 19 percent, over its Minimum Required Assets of approximately
$2.9 billion.
- If the new PMIERs (PMIERs 2.0)
requirements were in effect, Radian Guaranty calculates that its
Available Assets at December 31, 2018 would have resulted in a
cushion of approximately $340 million, or 12 percent, over its
Minimum Required Assets. The change in Radian's PMIERs cushion for
PMIERs 2.0 as compared to PMIERs 1.0 is primarily due to the
elimination in PMIERS 2.0 of any credit for future premiums that is
currently allowed for insurance policies written prior to and
including 2008. Radian continues to expect its PMIERs cushion to
increase over time as a result of continued organic growth and
ongoing risk distribution.
CONFERENCE CALL
Radian will discuss fourth quarter and year-end 2018 financial
results in a conference call today, Friday, February 8, 2019, at
9:00 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
800.230.1085 inside the U.S., or 612.288.0340 for international
callers, using passcode 462718 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 462718.
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, adjusted
diluted net operating income per share and adjusted net operating
return on equity (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
considered in isolation or viewed as substitutes for GAAP measures
of performance. The measures described below have been established
in order to increase transparency for the purpose of evaluating the
company’s 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. 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 or impairment of
goodwill and other acquired intangible assets; and (v) net
impairment losses recognized in earnings and losses from the sale
of business lines. 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. Adjusted net operating
return on equity is calculated by dividing annualized adjusted
pretax operating income, net of taxes computed using the company's
statutory tax rate, by average stockholders' equity, based on the
average of the beginning and ending balances for each period
presented.
The company has also presented a non-GAAP measure for tangible
book value per share, which represents book value per share less
the per-share impact of goodwill and other acquired intangible
assets, net. The company uses this measure to assess the quality
and growth of its capital. Because tangible book value per share is
a widely used financial measure which focuses on the underlying
fundamentals of the company’s financial position and operating
trends without the impact of goodwill and other acquired intangible
assets, the company believes that current and prospective investors
may find it useful in their analysis.
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 tax provision (benefit), 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. In addition, the company also has presented a related
non-GAAP measure, Services adjusted EBITDA margin, which is
calculated by dividing Services adjusted EBITDA by GAAP total
revenue for the Services segment. Services adjusted EBITDA and
Services adjusted EBITDA margin are presented to facilitate
comparisons with other services companies, since they are widely
accepted measures of performance in the services industry and are
used internally as supplemental measures to evaluate the
performance of our Services segment.
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 is ensuring the American dream of homeownership
responsibly and sustainably through products and services that
include industry-leading mortgage insurance and a comprehensive
suite of mortgage, risk, real estate, and title services. We are
powered by technology, informed by data and driven to deliver new
and better ways to transact and manage risk. Learn more about
Radian’s financial strength and flexibility at www.radian.biz and
visit www.radian.com to see how Radian is shaping the future of
mortgage and real estate services.
FINANCIAL RESULTS AND SUPPLEMENTAL
INFORMATION CONTENTS (Unaudited)
For historical trend information, 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 Restructuring and Other Exit Costs
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 InformationNew Insurance Written Exhibit I:
Mortgage Insurance Supplemental InformationPrimary Insurance in
Force and Risk in Force Exhibit J: Mortgage Insurance Supplemental
InformationClaims and Reserves Exhibit K: Mortgage Insurance
Supplemental InformationDefault Statistics Exhibit L: Mortgage
Insurance Supplemental InformationReinsurance Programs
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations Trend Schedule
Exhibit A (page 1 of 2)
2018 2017
(In thousands,
except per-share amounts)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Revenues: Net
premiums earned - insurance $ 261,682 $ 258,431 $
251,344 $ 242,550 $ 245,175
Services revenue 38,414
36,566 36,828 33,164 39,703
Net investment income
42,051 38,995 37,473 33,956 33,605
Net gains (losses) on
investments and other financial instruments (11,705
) (4,480 ) (7,404 ) (18,887 ) (1,339 )
Other income
1,031 1,174 1,016
807 768
Total revenues
331,473 330,686 319,257
291,590 317,912
Expenses:
Provision for losses 27,140 20,881 19,337 37,283
35,178
Policy acquisition costs 6,485 5,667 5,996
7,117 5,871
Cost of services 24,939 25,854 24,205
23,126 23,349
Other operating expenses 77,266 70,125
70,184 63,243 65,999
Restructuring and other exit costs
113 4,464 925 551 5,230
Interest expense
15,584 15,535 15,291 15,080 14,929
Amortization and
impairment of other acquired intangible assets
3,461 3,472 2,748
2,748 2,629
Total expenses
154,988 145,998 138,686
149,148 153,185
Pretax
income 176,485 184,688 180,571 142,442 164,727
Income
tax provision (benefit) 36,706
41,891 (28,378 ) 27,956 157,911
Net income $ 139,779 $ 142,797
$ 208,949 $ 114,486 $ 6,816
Diluted net income per share $ 0.64 $
0.66 $ 0.96 $ 0.52 $ 0.03
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations
Exhibit A (page 2 of 2)
Year EndedDecember 31,
(In thousands,
except per-share amounts)
2018 2017
Revenues: Net premiums earned -
insurance $ 1,014,007 $ 932,773
Services
revenue 144,972 155,103
Net investment income
152,475 127,248
Net gains (losses) on investments and
other financial instruments (42,476 ) 3,621
Other income 4,028 2,886
Total revenues 1,273,006
1,221,631
Expenses: Provision for losses
104,641 135,154
Policy acquisition costs
25,265 24,277
Cost of services 98,124 104,599
Other operating expenses 280,818 267,321
Restructuring and other exit costs 6,053 17,268
Interest expense 61,490 62,761
Loss on induced
conversion and debt extinguishment — 51,469
Impairment of goodwill — 184,374
Amortization and
impairment of other intangible assets 12,429
27,671
Total expenses 588,820
874,894
Pretax income 684,186
346,737
Income tax provision (benefit) 78,175
225,649
Net income $ 606,011
$ 121,088
Diluted net income per share
$ 2.77 $ 0.55
Radian Group Inc. and
Subsidiaries
Net Income Per Share Trend
Schedule
Exhibit B (page 1 of 2)
The calculation of basic and diluted
net income per share was as follows:
2018 2017
(In thousands,
except per-share amounts)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net income —basic and
diluted $ 139,779 $ 142,797 $ 208,949 $ 114,486 $
6,816
Average common shares outstanding—basic
213,435 213,309 213,976 215,967 215,623
Dilutive effect
of Convertible Senior Notes due 2017 (1) — — — — 9
Dilutive effect of stock-based compensation arrangements (1)
4,448 4,593 3,854 3,916
4,618
Adjusted average common shares outstanding—diluted
217,883 217,902 217,830 219,883
220,250
Basic net income per share $
0.65 $ 0.67 $ 0.98 $ 0.53 $ 0.03
Diluted net
income per share $ 0.64 $ 0.66 $ 0.96 $ 0.52 $
0.03
(1)
There were no Convertible Senior Notes
outstanding at December 31, 2017, or in subsequent periods. The
following number of shares of our common stock equivalents issued
under our share-based compensation arrangements were not included
in the calculation of diluted net income per share because they
were anti-dilutive:
2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Shares of common stock
equivalents 337 338 484 170 170
Radian Group Inc. and
Subsidiaries
Net Income Per Share
Exhibit B (page 2 of 2)
Year Ended December 31,
(In thousands,
except per-share amounts)
2018 2017
Net income: Net income -
basic $ 606,011 $ 121,088
Adjustment for
dilutive Convertible Senior Notes due 2019, net of tax (1)
— (215 )
Net income - diluted $
606,011 $ 120,873
Average common shares
outstanding—basic 214,267 215,321
Dilutive effect of
Convertible Senior Notes due 2017 — 323
Dilutive
effect of Convertible Senior Notes due 2019 — 457
Dilutive effect of stock-based compensation arrangements (2)
4,286 4,305
Adjusted average common
shares outstanding—diluted 218,553 220,406
Basic net income per share $
2.83 $ 0.56
Diluted net income per
share $ 2.77 $ 0.55
(1)
As applicable, includes coupon
interest, amortization of discount and fees, and other changes in
income or loss that would result from the assumed
conversion.
(2)
The following number of shares of our
common stock equivalents issued under our stock-based compensation
arrangements were not included in the calculation of diluted net
income per share because they were anti-dilutive:
Year Ended December 31,
(In
thousands)
2018 2017
Shares of common stock
equivalents 337 353
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
December 31, September 30, June 30, March 31,
December 31,
(In thousands,
except per-share amounts)
2018 2018 2018 2018 2017
Assets:
Investments $ 5,153,029 $ 5,028,235 $
4,873,919 $ 4,668,217 $ 4,643,942
Cash 95,393 104,413
95,573 122,481 80,569
Restricted cash 11,609 9,925
9,152 7,623 15,675
Accounts and notes receivable
78,652 108,003 94,848 80,068 72,558
Deferred income
taxes, net 131,643 134,201 171,293 253,381 229,567
Goodwill and other acquired intangible assets, net
58,998 55,707 59,179 61,465 64,212
Prepaid reinsurance
premium 417,628 413,728 405,447 390,241 386,509
Other
assets 367,700 415,272
430,077 426,773 407,849
Total assets $ 6,314,652 $ 6,269,484
$ 6,139,488 $ 6,010,249 $ 5,900,881
Liabilities and stockholders’ equity: Unearned
premiums $ 739,357 $ 747,921 $ 741,296 $ 723,100
$ 723,938
Reserve for losses and loss adjustment expense
401,361 412,460 451,542 488,656 507,588
Senior notes
1,030,348 1,029,511 1,028,687 1,027,875 1,027,074
Reinsurance funds withheld 321,212 352,952 331,776
305,409 288,398
Other liabilities 333,659
379,362 385,051 412,793
353,845
Total liabilities
2,825,937 2,922,206 2,938,352
2,957,833 2,900,843
Common stock 231 231 231 233 233
Treasury
stock (894,870 ) (894,635 ) (894,610 ) (894,191 )
(893,888 )
Additional paid-in capital 2,724,733
2,720,626 2,715,426 2,748,233 2,754,275
Retained earnings
1,719,541 1,580,296 1,438,032 1,229,616 1,116,333
Accumulated other comprehensive income (loss)
(60,920 ) (59,240 ) (57,943 )
(31,475 ) 23,085
Total stockholders’ equity
3,488,715 3,347,278
3,201,136 3,052,416 3,000,038
Total liabilities and stockholders’ equity $
6,314,652 $ 6,269,484 $ 6,139,488 $
6,010,249 $ 5,900,881
Shares
outstanding 213,473 213,333 213,232 215,543 215,814
Book value per share $ 16.34 $ 15.69 $
15.01 $ 14.16 $ 13.90
Tangible book value per share (See
Exhibit G) $ 16.06 $ 15.43 $ 14.73 $ 13.88 $
13.60
Statutory Capital Ratios Risk to capital
ratio-Radian Guaranty only 13.9:1 (1) 12.4:1
12.5:1 12.6:1 12.8:1
Risk to capital ratio-Mortgage Insurance
combined 12.8:1 (1) 11.7:1 11.8:1 11.9:1 12.1:1
(1) Preliminary.
Radian Group Inc. and
Subsidiaries
Net Premiums Earned - Insurance and
Restructuring and Other Exit Costs
Exhibit D (page 1 of 2)
2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Premiums earned -
insurance: (1) Direct $ 277,932 $ 271,487
$ 265,581 $ 258,743 $ 260,184
Assumed 6 6 7 6 7
Ceded (18,217 ) (2)
(16,011 ) (16,620 ) (16,199 ) (15,016 )
Net
premiums earned - insurance $ 259,721 $
255,482 $ 248,968 $ 242,550 $ 245,175
Notable variable items: (3) Single Premium Policy
cancellations, direct $ 9,320 $ 11,559 $ 14,776 $
12,335 $ 21,172
Single Premium Policy cancellations, ceded
(4) (3,091 ) (3,288 ) (4,046
) (3,301 ) (3,934 )
Single Premium Policy
cancellations, net 6,229 8,271
$ 10,730 $ 9,034 $ 17,238
Profit commission - other (5) $ 8,447 $
8,267 $ 7,917 $ 7,405 $ 4,272
Restructuring and other exit costs: (6) Employee
severance, related benefits and other exit costs (7) $
113 $ 407 $ 1,055 $ 525 $ 1,365
Impairment of other
long-lived assets and loss from the sale of a business line (8)
— 4,057 (130 ) 26
3,865
Total restructuring and other exit
costs $ 113 $ 4,464 $ 925 $
551 $ 5,230
(1)
These amounts are related to our
Mortgage Insurance segment.
(2)
Amount includes premiums ceded to
unaffiliated special purpose insurers in connection with our
Excess-of-Loss reinsurance program, entered into in the fourth
quarter of 2018. Premiums ceded pursuant to this program totaled
$2.3 million in the three months ended December 31, 2018.
(3)
These amounts are included in net
premiums earned - insurance, in our Mortgage Insurance
segment.
(4)
Includes the impact of related profit
commissions.
(5)
The amounts represent the profit
commission on the Single Premium QSR Program, included in net
premiums earned - insurance, and exclude the impact of Single
Premium Policy cancellations.
(6)
Primarily represents the charges
associated with our plan to restructure the Services business. For
the three months ended September 30, 2018, also includes an
unrelated impairment of internal-use software.
(7)
Employee severance, related benefits
and other exit costs are components of adjusted pretax operating
income.
(8)
Impairment of other long-lived assets
and loss from the sale of a business line are not components of
adjusted pretax operating income. The amount for the three months
ended September 30, 2018 primarily relates to the impairment of
internal-use software. The amounts for the three months ended June
30, 2018 and December 31, 2017 primarily relate to the loss on the
sale of our EuroRisk business, which was completed during the
fourth quarter of 2017. See Exhibit F for additional information on
our non-GAAP financial measures.
Radian Group Inc. and
Subsidiaries
Net Premiums Earned - Insurance and
Restructuring and Other Exit Costs
Exhibit D (page 2 of 2)
Year EndedDecember 31,
(In
thousands)
2018 2017
Premiums earned -
insurance: (1) Direct $ 1,073,743 $
990,016
Assumed 25 28
Ceded
(67,047 ) (57,271 )
Net premiums earned -
insurance $ 1,006,721 $ 932,773
Notable variable items: (2) Single Premium Policy
cancellations, direct $ 47,990 $ 60,348
Single
Premium Policy cancellations, ceded (3) (13,726
) (11,734 )
Single Premium Policy cancellations,
net 34,264 48,614
Profit commission - other (4) 32,036
17,869
Restructuring and other exit costs:
(5) Employee severance, related benefits and other exit
costs (6) $ 2,100
$
6,828
Impairment of other long-lived assets and loss from the sale of
a business line (7) 3,953
10,440
Total restructuring and other exit costs $
6,053
$
17,268
(1)
These amounts are related to our
Mortgage Insurance segment.
(2)
These amounts are included in net
premiums earned - insurance, in our Mortgage Insurance
segment.
(3)
Includes the impact of related profit
commissions.
(4)
The amounts represent the profit
commission on the Single Premium QSR Program, included in net
premiums earned - insurance, and exclude the impact of Single
Premium Policy cancellations.
(5)
Primarily represents the charges
associated with our plan to restructure the Services business. For
the year ended December 31, 2018, also includes an unrelated
impairment of internal-use software.
(6)
Employee severance, related benefits
and other exit costs are components of adjusted pretax operating
income.
(7)
Impairment of other long-lived assets
and loss from the sale of a business line are not components of
adjusted pretax operating income. For 2018, the amounts primarily
relate to the impairment of internal-use software. The amount in
2017 includes the impairment of other long-lived assets and the
loss on the sale of our EuroRisk business, which was completed
during the fourth quarter of 2017. See Exhibit F for additional
information on our non-GAAP financial measures.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 4)
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 2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Net premiums written - insurance (1) $
247,256 $ 253,827 $ 251,958 $ 237,980 $ 104,635
(2)
(Increase) decrease in unearned premiums
12,465 1,655 (2,990 )
4,570 140,540
Net premiums earned -
insurance 259,721 255,482 248,968 242,550 245,175
Net
investment income 41,875 38,824 37,447 33,956 33,605
Other income 641 725
621 807 768
Total
302,237 295,031 287,036
277,313 279,548
Provision for losses 27,079 20,715 19,362 37,391
35,257
Policy acquisition costs 6,485 5,667 5,996
7,117 5,871
Other operating expenses before corporate
allocations 37,070 33,152
33,262 31,888 36,806
Total (3) 70,634 59,534
58,620 76,396 77,934
Adjusted pretax operating income before corporate
allocations 231,603 235,497 228,416 200,917 201,614
Allocation of corporate operating expenses 21,627
19,794 20,136 18,577 13,624
Allocation of interest expense
11,133 11,083 10,840
10,629 10,477
Adjusted pretax
operating income $ 198,843 $ 204,620
$ 197,440 $ 171,711 $ 177,513
Services 2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net premiums earned -
insurance $ 1,961 $ 2,949 $ 2,376 $ — $ —
Services revenue (3) 39,006 37,332 37,713 34,166
40,707
Net investment income 176 171 26 — —
Other
income 390 449 395
— —
Total
41,533 40,901 40,510
34,166 40,707
Provision for
losses 113 242 53 — —
Cost of services
25,064 26,001 24,357 23,270 23,616
Other operating
expenses before corporate allocations 13,719 14,772
14,015 10,744 12,781
Restructuring and other exit costs (4)
113 407 1,055
525 1,365
Total
39,009 41,422 39,480
34,539 37,762
Adjusted pretax
operating income (loss) before corporate allocations (5)
2,524 (521 ) 1,030 (373 ) 2,945
Allocation of corporate
operating expenses 3,232 2,948 3,010 2,784 3,467
Allocation of interest expense 4,451
4,452 4,451 4,451
4,452
Adjusted pretax operating income (loss)
$ (5,159 ) $ (7,921 ) $ (6,431 ) $ (7,608 ) $
(4,974 )
(1)
Net of ceded premiums written under the
QSR Programs and the Excess-of-Loss Program. See Exhibit L for
additional information.
See notes continued on next
page.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 4)
Notes continued from prior
page.
(2)
Effective December 31, 2017, we amended
the 2016 Single Premium QSR Agreement to increase the amount of
ceded risk for 2015 through 2017 vintages under the agreement from
35% to 65%, resulting in a reduction of $145.7 million in net
premiums written for the fourth quarter of 2017.
(3)
Inter-segment information:
2018 2017
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Inter-segment expense included in Mortgage Insurance segment
$ 592 $ 766 $ 885 $ 1,002 $ 1,004
Inter-segment
revenue included in Services segment 592 766 885 1,002
1,004
(4)
Does not include impairment of
long-lived assets and loss from the sale of a business line, which
are not considered components of adjusted pretax operating income
(loss).
(5)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F):
2018 2017
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Adjusted pretax operating income (loss) before corporate
allocations $ 2,524 $ (521 ) $ 1,030 $ (373 ) $
2,945
Depreciation and amortization 700
1,077 920 867 893
Services
adjusted EBITDA $ 3,224 $ 556 $ 1,950 $
494 $ 3,838
Mortgage
Insurance Year EndedDecember 31,
(In
thousands)
2018 2017
Net premiums written - insurance (1)
$ 991,021 $ 818,417
Decrease in unearned
premiums 15,700 114,356
Net premiums
earned - insurance 1,006,721 932,773
Net investment
income 152,102 127,248
Other income
2,794 2,886
Total 1,161,617
1,062,907
Provision for losses 104,547
136,183
Policy acquisition costs 25,265 24,277
Other operating expenses before corporate allocations
135,372 150,975
Total (2)
265,184 311,435
Adjusted pretax operating income
before corporate allocations 896,433 751,472
Allocation of corporate operating expenses 80,134
55,441
Allocation of interest expense 43,685
45,016
Adjusted pretax operating income $
772,614 $ 651,015
Table continued on next page.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 3 of 4)
Table continued from prior
page.
Services Year
EndedDecember 31,
(In
thousands)
2018 2017
Net premiums earned -
insurance $ 7,286
$
—
Services revenue (2) 148,217 161,833
Net
investment income 373 —
Other income
1,234 — Total
157,110 161,833
Provision for
losses 408 —
Cost of services 98,692
105,812
Other operating expenses before corporate
allocations 53,250 50,969
Restructuring and other
exit costs (3) 2,100 6,828
Total 154,450 163,609
Adjusted pretax operating income (loss) before corporate
allocations (4) 2,660 (1,776 )
Allocation of
corporate operating expenses 11,974 14,319
Allocation
of interest expense 17,805 17,745
Adjusted pretax operating income (loss) $
(27,119 ) $ (33,840 )
(1)
Net of ceded premiums written under the
QSR Programs and the Excess-of-Loss Program. See Exhibit L for
additional information.
(2)
Inter-segment information:
Year EndedDecember
31, 2018 2017
Inter-segment expense included in
Mortgage Insurance segment $ 3,245 $ 6,730
Inter-segment revenue included in Services segment
3,245 6,730
(3)
Does not include impairment of
long-lived assets and loss from the sale of a business line, which
are not considered components of adjusted pretax operating income
(loss).
(4)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F)
Year EndedDecember 31,
2018 2017
Adjusted pretax operating income
(loss) before corporate allocations 2,660 $ (1,776 )
Depreciation and amortization 3,564
3,758
Services adjusted EBITDA $ 6,224
$ 1,982
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 4 of 4)
Selected balance sheet information for
our segments, as of the dates indicated, is as follows:
At December 31, 2018
(In
thousands)
Mortgage
Insurance
Services Total Total
assets $
6,138,679
$ 175,973 $
6,314,652
At December 31, 2017
(In
thousands)
Mortgage
Insurance
Services Total
Total assets $ 5,733,918 $ 166,963 $ 5,900,881
Selected Mortgage Insurance Key
Ratios
2018 2017
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Loss ratio (1) 10.4 % 8.1 % 7.8 % 15.4 % 14.4
%
Expense ratio (1) 25.1 % 22.9 % 23.9 % 23.7
% 23.0 %
Year EndedDecember 31,
2018 2017
Loss ratio (1) 10.4 %
14.6 % Expense ratio (1) 23.9 %
24.7 %
(1) Calculated on a GAAP basis using
net premiums earned.
Radian Group Inc. and
SubsidiariesDefinition of Consolidated Non-GAAP Financial
MeasuresExhibit 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,” “adjusted diluted net
operating income per share” and “adjusted net operating
return on equity,” 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,” “adjusted diluted net operating income per share” and
“adjusted net operating return on equity” 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 (Radian’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 is defined as GAAP consolidated
pretax income from continuing operations excluding 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 or impairment of goodwill and other acquired
intangible assets; and (v) net impairment losses recognized in
earnings and losses from the sale of lines of business. Adjusted
diluted net operating income per share is calculated by dividing
(i) adjusted pretax operating income 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 share-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. Adjusted net operating
return on equity is calculated by dividing annualized adjusted
pretax operating income, net of taxes computed using the Company’s
statutory tax rate, by average stockholders’ equity, based on the
average of the beginning and ending balances for each period
presented.
Although adjusted pretax operating income excludes certain items
that have occurred in the past and are expected to occur in the
future, the excluded items represent those that are: (i) not viewed
as part of the operating performance of our primary activities or
(ii) not expected to result in an economic impact equal to the
amount reflected in pretax income. 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 gains
and losses arise primarily from changes in the market value of our
investments that are classified as trading or equity securities.
These valuation adjustments may not necessarily result in realized
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 and changes in
fair value of other financial instruments. 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). (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
SubsidiariesDefinition of Consolidated Non-GAAP Financial
MeasuresExhibit F (page 2 of 2)
(4)
Amortization or impairment of goodwill and
other acquired intangible assets. Amortization of acquired
intangible assets represents the periodic expense required to
amortize the cost of acquired intangible assets over their
estimated useful lives. Acquired 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 and losses from the sale of lines of business. The
recognition of net impairment losses on investments and the
impairment of other long-lived assets does not result in a cash
payment and can vary significantly in both amount and frequency,
depending on market credit cycles and other factors. Losses from
the sale of lines of business are highly discretionary as a result
of strategic restructuring decisions, and generally do not occur in
the normal course of our business. We do not view these 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).
We have also presented a non-GAAP measure for tangible book
value per share, which represents book value per share less the
per-share impact of goodwill and other acquired intangible assets,
net. We use this measure to assess the quality and growth of our
capital. Because tangible book value per share is a widely-used
financial measure which focuses on the underlying fundamentals of
our financial position and operating trends without the impact of
goodwill and other acquired intangible assets, we believe that
current and prospective investors may find it useful in their
analysis of the Company.
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 tax provision (benefit),
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. In addition, we also have presented a related non-GAAP
measure, Services adjusted EBITDA margin, which we calculate by
dividing Services adjusted EBITDA by GAAP total revenue for the
Services segment. We have presented Services adjusted EBITDA and
Services adjusted EBITDA margin to facilitate comparisons with
other services companies, since they are widely accepted measures
of performance in the services industry and are used internally as
supplemental measures to evaluate the performance of our Services
segment.
See Exhibit G for the reconciliation of the most comparable GAAP
measures, consolidated pretax income, diluted net income per share,
return on equity and book value per share, to our non-GAAP
financial measures for the consolidated company, adjusted pretax
operating income, adjusted diluted net operating income per share,
adjusted net operating return on equity, and tangible book value
per share, respectively. Exhibit G also contains the reconciliation
of the most comparable GAAP measure, net income, to Services
adjusted EBITDA.
Total adjusted pretax operating income, adjusted diluted net
operating income per share, adjusted net operating return on
equity, tangible book value per share, Services adjusted EBITDA and
Services adjusted EBITDA margin should not be considered in
isolation or viewed as substitutes for GAAP pretax income, diluted
net income per share, return on equity, book value per share or net
income. Our definitions of adjusted pretax operating income,
adjusted diluted net operating income per share, adjusted net
operating return on equity, tangible book value per share, Services
adjusted EBITDA or Services adjusted EBITDA margin 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 7)
Reconciliation of Consolidated Pretax
Income to Adjusted Pretax Operating Income
2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Consolidated pretax
income $ 176,485 $ 184,688 $ 180,571 $ 142,442 $
164,727
Less reconciling income (expense) items: Net
gains (losses) on investments and other financial instruments
(11,705 ) (4,480 ) (7,404 ) (18,887 ) (1,339 )
Acquisition-related expenses (1) (463 ) (2 )
(416 ) — 21
Amortization and impairment of other acquired
intangible assets (3,461 ) (3,472 ) (2,748 )
(2,748 ) (2,629 )
Impairment of other long-lived assets and loss
from the sale of a business line (2) (1,570
) (4,057 ) 130 (26 )
(3,865 )
Total adjusted pretax operating income (3) $
193,684 $ 196,699 $ 191,009 $ 164,103
$ 172,539
(1)
Please see Exhibit F for the definition
of this line item. This item is included within other operating
expenses on the Condensed Consolidated Statement of Operations in
Exhibit A.
(2)
The amount for the three months ended
December 31, 2018 relates to impairment of other long-lived assets
and is included in other operating expenses on the Condensed
Consolidated Statement of Operations in Exhibit A. The amounts for
all other periods are included within restructuring and other exit
costs on the Condensed Consolidated Statement of Operations in
Exhibit A.
(3)
Total adjusted pretax operating income
on a consolidated basis consists of adjusted pretax operating
income (loss) for our Mortgage Insurance segment and our Services
segment, as further detailed in Exhibit E.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 2 of 7)
Reconciliation of Diluted Net Income
Per Share to Adjusted Diluted Net Operating Income Per
Share
2018 2017
Qtr 4
Qtr 3 Qtr 2 Qtr 1 Qtr 4
Diluted net income per share $ 0.64 $
0.66 $ 0.96 $ 0.52 $ 0.03
Less per-share impact of reconciling income (expense) items:
Net gains (losses) on investments and other financial
instruments (0.05 ) (0.02 ) (0.03 ) (0.09 ) (0.01
)
Amortization and impairment of other acquired intangible
assets (0.02 ) (0.02 ) (0.01 ) (0.01 ) (0.01 )
Impairment of other long-lived assets and loss from the sale of
a business line (0.01 ) (0.02 ) — — (0.02 )
Income tax provision (benefit) on reconciling income (expense)
items (1) (0.02 ) (0.01 ) (0.01 ) (0.02 ) (0.01 )
Difference between statutory and effective tax rate
— — 0.30
(2)
0.01 (0.45 )
(3) Per-share impact of
reconciling income (expense) items (0.06 )
(0.05 ) 0.27 (0.07 ) (0.48 )
Adjusted diluted net operating income per share (1) $
0.70 $ 0.71 $ 0.69 $ 0.59 $ 0.51
(1)
Calculated using the company’s federal
statutory tax rates of 21% and 35% for 2018 and 2017, respectively.
Any permanent tax adjustments and state income taxes on these items
have been deemed immaterial and are not included.
(2)
Includes $0.34 of tax benefit related
to the settlement of the IRS Matter, which includes both the impact
of the settlement with the IRS as well as the reversal of certain
related previously accrued state and local tax liabilities.
(3)
Includes $0.47 in additional tax
expense related to the remeasurement of our net deferred tax assets
as a result of the Tax Cuts and Jobs Act enacted in December
2017.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 3 of 7)
Reconciliation of Return on Equity to Adjusted Net
Operating Return on Equity (1)
2018 2017
Qtr 4 Qtr 3 Qtr
2 Qtr 1 Qtr 4
Return on equity (1) 16.4 % 17.4
% 26.7 % 15.1 % 0.9 %
Less impact of reconciling income
(expense) items: (2) Net gains (losses) on investments and
other financial instruments (1.4 ) (0.5 ) (0.9 )
(2.5 ) (0.2 )
Acquisition-related expenses (0.1
) — (0.1 ) — —
Amortization and impairment of other
acquired intangible assets (0.4 ) (0.4 ) (0.4 )
(0.4 ) (0.4 )
Impairment of other long-lived assets and loss
from the sale of a business line (0.2 ) (0.5 ) —
— (0.5 )
Income tax provision (benefit) on reconciling income
(expense) items (3) (0.4 ) (0.3 ) (0.3 ) (0.6 )
(0.4 )
Difference between statutory and effective tax rate
0.2 (0.5 ) 8.5
(4) 0.3 (13.4 )
Impact of reconciling income (expense) items (1.5
) (1.6 ) 7.4 (2.0 ) (14.1 )
Adjusted net operating
return on equity 17.9 % 19.0 % 19.3 % 17.1 % 15.0
%
(1)
Calculated by dividing annualized net
income by average stockholders’ equity, based on the average of the
beginning and ending balances for each period presented.
(2)
Annualized, as a percentage of average
stockholders’ equity.
(3)
Calculated using the company’s federal
statutory tax rates of 21% and 35% for 2018 and 2017, respectively.
Any permanent tax adjustments and state income taxes on these items
have been deemed immaterial and are not included.
(4)
Includes 9.4% of tax benefit related to
the settlement of the IRS Matter, which includes both the impact of
the settlement with the IRS as well as the reversal of certain
related previously accrued state and local tax liabilities.
Reconciliation of Book Value Per Share to Tangible
Book Value Per Share (1)
2018 2017
Qtr 4
Qtr 3 Qtr 2 Qtr 1 Qtr 4
Book value per share $
16.34 $ 15.69 $ 15.01 $ 14.16 $ 13.90
Less: Goodwill and
other acquired intangible assets, net per share
0.28 0.26 0.28 0.28 0.30
Tangible book value per share $ 16.06 $ 15.43
$ 14.73 $ 13.88 $ 13.60
(1)
All book value per share items are
calculated based on the number of shares outstanding at the end of
each respective period.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 4 of 7)
Reconciliation of Net Income to
Services Adjusted EBITDA
2018 2017
(In
thousands)
Qtr 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Net income $ 139,779 $ 142,797 $
208,949 $ 114,486 $ 6,816
Less reconciling income (expense)
items: Net gains (losses) on investments and other financial
instruments (11,705 ) (4,480 ) (7,404 ) (18,887 )
(1,339 )
Acquisition-related expenses (463 )
(2 ) (416 ) — 21
Amortization and impairment of other acquired
intangible assets (3,461 ) (3,472 ) (2,748 )
(2,748 ) (2,629 )
Impairment of other long-lived assets and loss
from the sale of a business line (1,570 ) (4,057
) 130 (26 ) (3,865 )
Income tax provision (benefit)
36,706 41,891 (28,378 ) 27,956 157,911
Mortgage Insurance
adjusted pretax operating income 198,843
204,620 197,440 171,711
177,513
Services adjusted pretax operating income
(loss) (5,159 ) (7,921 ) (6,431 ) (7,608 ) (4,974
)
Less reconciling income (expense) items: Allocation of
corporate operating expenses to Services (3,232 )
(2,948 ) (3,010 ) (2,784 ) (3,467 )
Allocation of corporate
interest expense to Services (4,451 ) (4,452 )
(4,451 ) (4,451 ) (4,452 )
Services depreciation and
amortization (700 ) (1,077 )
(920 ) (867 ) (893 )
Services adjusted EBITDA
$ 3,224 $ 556 $ 1,950 $ 494
$ 3,838
Reconciliation of Consolidated Pretax
Income to Adjusted Pretax Operating Income
Year EndedDecember 31,
(In
thousands)
2018 2017
Consolidated pretax income
$ 684,186 $ 346,737
Less reconciling income
(expense) items: Net gains (losses) on investments and other
financial instruments (42,476 ) 3,621
Loss on
induced conversion and debt extinguishment — (51,469 )
Acquisition-related expenses (1) (881 ) (105 )
Impairment of goodwill — (184,374 )
Amortization
and impairment of other acquired intangible assets
(12,429 ) (27,671 )
Impairment of other long-lived
assets and loss from the sale of a business line (2)
(5,523 ) (10,440 )
Total adjusted pretax
operating income (3) $ 745,495 $ 617,175
(1)
Please see Exhibit F for the definition
of this line item. This item is included within other operating
expenses on the Condensed Consolidated Statement of Operations in
Exhibit A.
(2)
For the year ended December 31, 2018,
this item includes $1.6 million and $3.9 million of other operating
expenses and restructuring and other exit costs, respectively, as
classified on the Condensed Consolidated Statement of Operations in
Exhibit A.
(3)
Total adjusted pretax operating income
on a consolidated basis consists of adjusted pretax operating
income (loss) for our Mortgage Insurance segment and our Services
segment, as further detailed in Exhibit E.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 5 of 7)
Reconciliation of Diluted Net Income
Per Share to Adjusted Diluted Net Operating Income Per
Share
Year EndedDecember 31,
2018 2017
Diluted net income per share
$ 2.77 $ 0.55
Less per-share
impact of reconciling income (expense) items: Net gains
(losses) on investments and other financial instruments
(0.19 ) 0.02
Loss on induced conversion and debt
extinguishment — (0.23 )
Impairment of goodwill
— (0.84 )
Amortization and impairment of other acquired
intangible assets (0.06 ) (0.13 )
Impairment
of other long-lived assets and loss from the sale of a business
line (0.03 ) (0.05 )
Income tax provision
(benefit) on other income (expense) items (1) (0.06
) (0.43 )
Difference between statutory and effective tax
rate (2) 0.30 (0.47 )
Per-share
impact of other income (expense) items 0.08
(1.27 )
Adjusted diluted net operating income per
share (1) $ 2.69 $ 1.82
(1)
Calculated using the company’s federal
statutory tax rates of 21% and 35% for 2018 and 2017, respectively.
Any permanent tax adjustments and state income taxes on these items
have been deemed immaterial and are not included.
(2)
For 2018, includes $0.34 of tax benefit
related to the settlement of the IRS Matter, which includes both
the impact of the settlement with the IRS as well as the reversal
of certain related previously accrued state and local tax
liabilities. All of the 2017 amount represents additional tax
expense related to the remeasurement of our net deferred tax assets
as a result of the Tax Cuts and Jobs Act enacted in December
2017.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 6 of 7)
Reconciliation of Return on Equity to
Adjusted Net Operating Return on Equity (1)
Year EndedDecember 31,
2018 2017
Return on equity (1)
18.7 % 4.1 %
Less impact of reconciling income
(expense) items: (2) Net gains (losses) on investments and
other financial instruments (1.3 ) 0.1
Loss on
induced conversion and debt extinguishment — (1.8 )
Acquisition-related expenses — —
Impairment of
goodwill — (6.3 )
Amortization and impairment of
other acquired intangible assets (0.4 ) (0.9 )
Impairment of other long-lived assets and loss from the sale of
a business line (0.2 ) (0.4 )
Income tax
provision (benefit) on reconciling income (expense) items (3)
(0.4 ) (3.2 )
Difference between statutory and
effective tax rate (3) 2.0 (3.5 )
Impact of
reconciling income (expense) items 0.5 (9.6 )
Adjusted net operating return on equity 18.2 %
13.7 %
(1)
Calculated by dividing net income by
average stockholders’ equity.
(2)
As a percentage of average
stockholders’ equity.
(3)
Calculated using the company’s federal
statutory tax rates of 21% and 35% for 2018 and 2017, respectively.
Any permanent tax adjustments and state income taxes on these items
have been deemed immaterial and are not included.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 7 of 7)
Reconciliation of Net Income to
Services Adjusted EBITDA
Year EndedDecember 31,
(In
thousands)
2018 2017
Net income $
606,011 $ 121,088
Less reconciling income (expense)
items: Net gains (losses) on investments and other financial
instruments (42,476 ) 3,621
Loss on induced
conversion and debt extinguishment — (51,469 )
Acquisition-related expenses (881 ) (105 )
Impairment of goodwill — (184,374 )
Amortization
and impairment of other acquired intangible assets
(12,429 ) (27,671 )
Impairment of other long-lived
assets and loss from the sale of a business line (5,523
) (10,440 )
Income tax provision (benefit)
78,175 225,649
Mortgage Insurance adjusted pretax
operating income 772,614 651,015
Services adjusted pretax operating income (loss)
(27,119 ) (33,840 )
Less reconciling income
(expense) items: Allocation of corporate operating expenses
to Services (11,974 ) (14,319 )
Allocation of
corporate interest expense to Services (17,805 )
(17,745 )
Services depreciation and amortization
(3,564 ) (3,758 )
Services adjusted
EBITDA $ 6,224 $ 1,982
On a consolidated basis, “adjusted pretax operating income,”
“adjusted diluted net operating income per share,” “adjusted net
operating return on equity” and “tangible book value per share” are
measures not determined in accordance with GAAP. “Services adjusted
EBITDA” and “Services adjusted EBITDA margin” are also non-GAAP
measures. These measures should not be considered in isolation or
viewed as substitutes for GAAP pretax income, diluted net income
per share, return on equity, book value per share or net income.
Our definitions of adjusted pretax operating income, adjusted
diluted net operating income per share, adjusted net operating
return on equity, tangible book value per share, Services adjusted
EBITDA or Services adjusted EBITDA margin 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
2018 2017
($ in
millions)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Total primary new
insurance written $ 12,737 $ 15,764
$ 16,417 $ 11,664 $ 14,383
Percentage of
primary new insurance written by FICO score
>=740
59.3 % 60.7 % 60.8 % 61.0 % 60.4 %
680-739
32.7 31.5 32.5 32.6 33.1
620-679
8.0 7.8 6.7
6.4 6.5
Total Primary
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Borrower-paid 94 % 91 % 89 % 83 % 79 %
Percentage by
premium type
Direct monthly and other premiums 83 % 78 % 76
% 79 % 77 %
Direct single premiums Lender-paid
5 % 8 % 10 % 16 % 20 %
Borrower-paid (1)
12 % 14 % 14 % 5 %
3 %
Total primary new insurance written 100.0
% 100.0 % 100.0 % 100.0 % 100.0
%
Net single premiums (2) 6 % 8 % 8 % 7
% 15 %
NIW for purchases 95 % 96 % 95 %
89 % 88 %
NIW for refinances 5 % 4 % 5 % 11 %
12 %
Percentage by
LTV
95.01% and above 18.3 % 16.9 % 16.3 % 15.4 %
15.4 %
90.01% to 95.00% 43.1 % 44.3 % 45.3 %
44.5 % 43.9 %
85.01% to 90.00% 27.5 % 27.9 %
27.5 % 27.5 % 27.4 %
85.00% and below 11.1 %
10.9 % 10.9 % 12.6 % 13.3 %
(1)
Borrower-paid Single Premium Policies
have lower Minimum Required Assets under PMIERs as compared to
lender-paid Single Premium Policies.
(2)
Represents the percentage of direct
Single Premium Policies written, after giving effect to the Single
Premium NIW ceded under the Single Premium QSR Program (for NIW
after the effective dates of the respective agreements). Effective
December 31, 2017, we amended the 2016 Single Premium QSR Agreement
to increase the amount of ceded risk for 2015 through 2017 vintages
under the agreement from 35% to 65%.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 1 of
2)
December 31,
September 30, June 30, March 31,
December 31,
($ in millions) 2018 2018 2018
2018 2017
Primary insurance
in force (1)
Prime $ 215,739 $ 211,168 $ 204,537 $ 197,589
$ 193,949
Alt-A and A minus and below 5,704
5,928 6,204 6,436
6,775
Total Primary $ 221,443
$ 217,096 $ 210,741 $ 204,025 $ 200,724
Primary risk in
force (1) (2)
Prime $ 55,374 $ 54,168 $ 52,446 $ 50,623 $
49,674
Alt-A and A minus and below 1,354
1,409 1,476 1,530
1,614
Total Primary $ 56,728
$ 55,577 $ 53,922 $ 52,153 $ 51,288
Percentage of
primary risk in force
Direct monthly and other premiums 70 % 70 % 70
% 69 % 69 %
Direct single premiums 30 % 30 %
30 % 31 % 31 %
Net single premiums 17 %
18 % 18 % 19 % 19 %
Percentage of
primary risk in force by FICO score
>=740 59.4 % 59.4 % 59.3 % 59.2 % 58.9 %
680-739 31.6 31.5 31.5 31.4 31.4
620-679
8.2 8.2 8.3 8.4 8.6
<=619 0.8
0.9 0.9 1.0 1.1
Total Primary 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 11.6 % 11.0 % 10.3 % 9.7 %
9.2 %
90.01% to 95.00% 53.1 53.1 53.3 53.2 53.2
85.01% to 90.00% 29.0 29.4 29.7 30.2 30.6
85.00%
and below 6.3 6.5 6.7
6.9 7.0
Total
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior 2.4 % 2.6 % 2.8 % 3.0 % 3.3 %
2006
1.6 1.7 1.8 2.0 2.1
2007
3.7 4.0 4.4 4.8 5.2
2008
2.4 2.6 2.9 3.2 3.4
2009
0.4 0.4 0.4 0.5 0.6
2010
0.3 0.3 0.4 0.5 0.5
2011
0.8 0.9 1.0 1.2 1.3
2012
3.7 4.1 4.5 5.1 5.5
2013
6.2 6.7 7.4 8.2 8.9
2014
6.1 6.5 7.1 7.9 8.5
2015
10.2 10.9 11.9 13.0 13.8
2016
16.8 17.9 19.2 20.5 21.4
2017
21.1 22.0 23.2 24.5 25.5
2018
24.3 19.4 13.0
5.6 —
Total 100.0
% 100.0 % 100.0 % 100.0 % 100.0
%
Primary risk in force on defaulted loans $
1,032 $ 1,019 $ 1,093 $ 1,223 $ 1,389
Table continued on next page.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 2 of 2)
Table continued from prior
page.
December 31, September 30, June 30, March 31,
December 31,
2018 2018 2018 2018 2017
Persistency Rate
(12 months ended) (3) 83.1 % 81.4 % 80.9 % 81.0 %
81.1 %
Persistency Rate (quarterly, annualized) (3) (4)
85.5 % 83.4 % 82.3 % 84.3 % 79.4 %
(1)
Excludes the impact of premiums ceded
under our reinsurance agreements.
(2)
Does not include pool risk in force or
other risk in force, which combined represent less than 1.0% of our
total risk in force for all periods presented.
(3)
During the fourth quarter of 2017, the
Persistency Rate was reduced by an increase in cancellations of
single premium policies due to increased cancellations identified
by our ongoing servicer monitoring process for Single Premium
Policies.
(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.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance (“MI”) Supplemental
Information - Claims and Reserves
Exhibit J (page 1 of 2)
2018 2017
($ in
thousands)
Qtr 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Net claims paid: (1) Prime
$ 22,716 $ 29,709 $ 30,936 $ 37,142 $ 37,191
Alt-A
and A minus and below 12,459 16,105
17,156 21,416 19,384
Total
primary claims paid 35,175 45,814 48,092 58,558 56,575
Pool 342 1,072 954 1,152 2,458
Second-lien and
other (152 ) 169 157
148 (110 )
Subtotal 35,365 47,055
49,203 59,858 58,923
Impact of captive terminations
(757 ) — — (36 ) —
Impact of commutations (2)
5,113 12,712 7,331 104
26,590
Total net claims paid $
39,721 $ 59,767 $ 56,534 $ 59,926 $ 85,513
Average net claims paid (1) (3) Prime
$ 48.1 $ 50.9 $ 50.1 $ 50.0 $ 49.7
Alt-A and A
minus and below 61.1 59.4 65.7 63.0 56.5
Total
average net primary claims paid
52.0
53.6 54.8 54.1 51.8
Average direct primary claims paid
(3) (4) $ 52.9 $ 54.2 $ 55.5 $ 54.5 $ 52.2
(1)
Net of reinsurance recoveries.
(2)
Includes payments to commute mortgage
insurance coverage on certain performing and non-performing
loans.
(3)
Calculated without giving effect to the
impact of the termination of captive transactions and
commutations.
(4)
Before reinsurance recoveries.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance (“MI”) Supplemental
Information - Claims and Reserves
Exhibit J (page 2 of 2)
($ in thousands,
except primary reserve per primary default amounts)
December 31,2018
September 30,2018 June 30,2018 March
31,2018 December 31,2017
MI Reserve for
losses by category Prime $ 231,169 $
231,916 $ 255,284 $ 274,595 $ 285,022
Alt-A and A minus and
below 119,527 129,262 144,379 158,612 170,873
IBNR
and other 13,864 14,505 14,246 17,164 16,021
LAE
10,271 11,203 12,228 13,440 13,349
Reinsurance
recoverable (1) 10,992 9,977 9,317
8,953 8,315
Total primary reserves
385,823 396,863 435,454 472,764
493,580
Pool insurance 11,119 11,167 11,674 11,387
12,794
IBNR and other 191 205 172 226 278
LAE
313 313 327 319 356
Reinsurance recoverable (1)
17 20 24 20 35
Total
pool reserves 11,640 11,705 12,197
11,952 13,463
Total 1st lien reserves
397,463 408,568 447,651 484,716 507,043
Second-lien and
other 428 412 443 476
545
Total MI reserves $ 397,891 $ 408,980 $
448,094 $ 485,192 $ 507,588
1st lien reserve per
default Primary reserve per primary default excluding IBNR
and other (2) $ 17,634 $ 18,409 $ 19,070 $ 18,523
$ 17,103
(1)
Represents ceded losses on captive
transactions and quota share reinsurance transactions. This amount
is included in the reinsurance recoverables reported in other
assets in our condensed consolidated balance sheets.
(2)
Includes the impact of reserves and
defaults related to areas designated as individual assistance
disaster areas by FEMA (“FEMA Designated Areas”) associated with
Hurricanes Harvey and Irma. Excluding the impact from defaults
received subsequent to Hurricanes Harvey and Irma in these FEMA
Designated Areas, these amounts would be approximately as follows
as of the dates indicated:
December 31,2018 September 30,2018 June
30,2018 March 31,2018 December 31,2017
Primary reserve per
primary default excluding IBNR and other 17,599 18,785
20,656 21,512 20,500
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Default Statistics
Exhibit K
December 31,2018
September 30,2018 June 30,2018
March 31,2018 December 31,2017
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 986,704 969,994 947,165
925,648 913,408
Number of loans in default 15,402
14,916 15,849 17,887 20,269
Percentage of loans in default
1.56 % 1.54 % 1.67 % 1.93 % 2.22 %
Alt-A and A minus
and below
Number of insured loans 35,906 37,268 38,892 40,661
42,318
Number of loans in default 5,691 5,854 6,239
6,710 7,653
Percentage of loans in default 15.85
% 15.71 % 16.04 % 16.50 % 18.08 %
Total
Primary Number of insured loans 1,022,610
1,007,262 986,057 966,309 955,726
Number of loans in default
(1) 21,093 20,770 22,088 24,597 27,922
Percentage of
loans in default 2.06 % 2.06 % 2.24 % 2.55 % 2.92
%
(1) Includes the following amounts
related to the FEMA Designated Areas associated with Hurricanes
Harvey and Irma, as of the dates presented:
December 31,2018 September 30,2018 June
30,2018 March 31,2018 December 31,2017
Number of FEMA loans in
default 2,627 2,946 4,132 5,780 7,051
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Reinsurance Programs
Exhibit L
2018 2017
($ in
thousands)
Qtr 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Quota Share
Reinsurance “QSR” Program
QSR ceded premiums written $ 2,865 $ 3,174 $
3,516 $ 3,931 $ 4,219
% of premiums written 1.1
% 1.1 % 1.2 % 1.5 % 1.6 %
QSR ceded premiums earned
$ 4,158 $ 4,632 $ 5,258 $ 5,612 $ 6,439
% of
premiums earned 1.5 % 1.7 % 2.0 % 2.2 % 2.5 %
Ceding commissions written $ 833 $ 918 $ 1,012
$ 1,128 $ 1,208
Ceding commissions earned (1) $
2,167 $ 2,738 $ 2,896 $ 3,548 $ 2,924
Ceded RIF included
in QSR Program (2) $ 910,862 $ 974,359 $
1,044,463 $ 1,135,597 $ 1,207,426
Single Premium
QSR Program
QSR ceded premiums written (3) (4) $ 10,057 $
20,920 $ 28,107 $ 15,791 $ 157,453
% of premiums written
3.7 % 7.4 % 9.8 % 6.1 % 59.5 %
QSR ceded premiums
earned (3) $ 11,568 $ 11,181 $ 11,160 $ 10,377 $
8,342
% of premiums earned 4.1 % 4.0 % 4.2 %
4.0 % 3.2 %
Ceding commissions written $ 5,174
$ 8,070 $ 9,880 $ 6,621 $ 41,331
Ceding commissions earned
(1) $ 5,551 $ 5,635 $ 5,643 $ 5,268 $ 4,053
Profit commission $ 10,638 $ 11,358 $ 11,414 $
10,693 $ 7,870
Ceded RIF included in Single Premium QSR Program
(2) (4) $ 8,168,939 $ 7,984,178 $ 7,614,614 $
7,176,662 $ 6,941,781
Excess-of-Loss
Program
Ceded premiums written $ 9,009 $ — $ — $ — $ —
% of premiums written 3.3 % — % — % — % — %
Ceded premiums earned $ 2,305 $ — $ — $ — $ —
% of premiums earned 0.8 % — % — % — % — %
Ceded RIF included in Excess-of-Loss Program (2) $
455,440 $ — $ — $ — $ —
Total ceded RIF included
in QSR Program, Single Premium QSR Program and Excess-of-Loss
Program $ 9,535,241 $ 8,958,537 $ 8,659,077 $
8,312,259 $ 8,149,207
(1)
Includes amounts reported in policy
acquisition costs and other operating expenses. Operating expenses
include the following ceding commissions, net of deferred policy
acquisition costs, for the periods indicated:
2018 2017
($ in
thousands)
Qtr 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Ceding commissions $ (5,837
) $ (5,988 ) $ (6,085 ) $ (5,812 ) $ (4,624 )
(2)
Included in primary RIF.
(3)
Net of profit commission.
(4)
Effective December 31, 2017, we amended
the 2016 Single Premium QSR Agreement to increase the amount of
ceded risk for 2015 through 2017 vintages under the agreement from
35% to 65%, resulting in ceded premiums written of $145.7 million
for the fourth quarter of 2017 and an increase of $2.5 billion in
ceded RIF at December 31, 2017.
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 where new risks emerge from
time to time and it is not possible for us to predict all risks
that may affect us. The forward-looking statements, as well as our
prospects as a whole, are subject to risks and uncertainties that
could cause actual results to differ materially from those set
forth in the forward-looking statements. These risks and
uncertainties include, without limitation:
- changes in economic and political
conditions that impact the size of the insurable market, the credit
performance of our insured portfolio, and our business
prospects;
- changes in the way customers,
investors, ratings agencies, regulators or legislators perceive our
performance, financial strength and future prospects;
- Radian Guaranty Inc.’s ("Radian
Guaranty") ability to remain eligible under the Private Mortgage
Insurer Eligibility Requirements (the "PMIERs") and other
applicable requirements imposed by the Federal Housing Finance
Agency ("FHFA") and by Fannie Mae and Freddie Mac (collectively,
the “GSEs”) to insure loans purchased by the GSEs;
- our ability to successfully execute and
implement our capital plans, including plans for expanding our risk
distribution strategy through the capital markets and reinsurance
markets, 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 plans and
strategies to reposition our Services segment as well as plans and
strategies that require GSE and/or regulatory approvals and
licenses;
- 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, which may include changes in the requirements to remain
an approved insurer to the GSEs, the GSEs’ interpretation and
application of the PMIERs, as well as potential future changes to
the PMIERs requirements which, among other things, may be impacted
by the general economic environment and housing market, as well as
the proposed Conservator Capital Framework (“CCF”) that would
establish capital requirements for the GSEs, if the CCF is
finalized;
- changes in the current housing finance
system in the U.S., including the role of the Federal Housing
Administration (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" (the percentage of insurance in force that
remains in force over a period of time) of our mortgage insurance
on monthly premium products;
- competition in our mortgage insurance
business, including price competition and competition from the FHA,
U.S. Department of Veterans Affairs as well as 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;
- legislative and regulatory activity (or
inactivity), including the adoption of (or failure to adopt) new
laws and regulations, or changes in existing laws and regulations,
or the way they are interpreted or applied;
- legal and regulatory claims,
assertions, 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
settlements, payments or adjustments associated with federal or
other tax examinations;
- the possibility that we may fail to
estimate accurately the likelihood, magnitude and timing of losses
in establishing loss reserves for our mortgage insurance business
or to accurately calculate and/or project our Available Assets and
Minimum Required Assets under the PMIERs, including the revised
PMIERs (“PMIERs 2.0”), which will be impacted by, among other
things, the size and mix of our insurance in force, the level of
defaults in our portfolio, the level of cash flow generated by our
insurance operations, and our risk distribution strategies;
- 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;
- potential future impairment charges
related to our goodwill and other acquired intangible assets, and
uncertainties regarding our ability to execute our restructuring
plans within expected costs;
- changes in “GAAP” (accounting
principles generally accepted in the U.S.) or “SAP” (statutory
accounting practices including those required or permitted, if
applicable, by the insurance departments of the respective states
of domicile of our insurance subsidiaries) rules and guidance, or
their interpretation;
- our ability to attract and retain key
employees; and legal and other limitations on dividends and other
amounts we may receive from our subsidiaries.
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 2017 Form 10-K, and to
subsequent 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: https://www.businesswire.com/news/home/20190208005097/en/
Emily Riley - Phone: 215.231.1035Email:
emily.riley@radian.biz
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