-- GAAP net income increases to $171 million;
diluted net income per share grows 50% year-over-year to $0.78
--
-- Adjusted diluted net operating income per
share increases 24% year-over-year to $0.73 --
-- MI in force increases 10% year-over-year to
$224 billion --
-- Book value per share grows 24%
year-over-year to $17.49 --
-- Company purchases shares of its common stock
under most recent share repurchase program --
-- In April, company enhances risk profile and
improves capital position with closing of $562 million ILN
transaction; improves financial flexibility with additional $375
million return of capital from Radian Guaranty to Radian Group
--
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended March 31, 2019, of $171.0 million, or $0.78 per
diluted share. This compares to net income for the quarter ended
March 31, 2018, of $114.5 million, or $0.52 per diluted
share.
Key Financial Highlights (dollars
in millions, except per-share data)
Quarter Ended March 31,2019
Quarter Ended March 31,2018
PercentChange
Net income (1) $171.0 $114.5
49% Diluted net income per share $0.78
$0.52 50% Consolidated pretax income
$216.1 $142.4 52% Adjusted
pretax operating income (2) $202.1
$164.1 23%
Adjusted diluted net operatingincome per
share (2)
$0.73 $0.59 24% Net
premiums earned - mortgage insurance $261.8
$242.6 8% MI New Insurance Written (NIW)
$10,900 $11,664 (7)% MI
primary insurance in force $223,734
$204,025 10% Book value per share
$17.49 $14.16 24% Return on Equity
(1)(3) 19.0% 15.1% 26%
Adjusted Net Operating Return on Equity (2) 17.7%
17.1% 4%
(1)
Net income for the first quarter of 2019
includes a $21.9 million pretax net gain on investments and other
financial instruments. Net income for the first quarter of 2018
includes a $18.9 million pretax net loss on investments and other
financial instruments.
(2)
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 a reconciliation of these
measures to the comparable GAAP measures, see Exhibits F and G.
(3)
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 March 31,
2019, was $202.1 million, compared to $164.1 million for the
quarter ended March 31, 2018. Adjusted diluted net operating income
per share for the quarter ended March 31, 2019, was $0.73, an
increase of 24 percent compared to $0.59 for the quarter ended
March 31, 2018.
Book value per share at March 31, 2019, was $17.49, an
increase of 7 percent compared to $16.34 at December 31, 2018,
and an increase of 24 percent compared to $14.16 at March 31,
2018. A $78.4 million after-tax change in accumulated other
comprehensive income, due to net unrealized gains on investment
securities, increased book value per share by $0.37 during the
first quarter of 2019.
“I am pleased to report on another excellent first quarter for
Radian, with net income of $171 million, return on equity of 19%,
and the fifth consecutive quarter of 10% year-over-year growth in
our mortgage insurance in-force portfolio, which grew to $224
billion. These results are driven by the fundamental strength of
our business model,” said Radian’s Chief Executive Officer Rick
Thornberry. "We continue to enhance our risk profile and improve
our financial flexibility, and are pleased that our strong
financial position has afforded us the opportunity to return value
more quickly to our stockholders through our share
repurchases."
FIRST QUARTER HIGHLIGHTS
- Mortgage insurance NIW was $10.9
billion for the quarter, representing a decrease of 14 percent
compared to $12.7 billion in the fourth quarter of 2018 and a
decrease of 7 percent compared to $11.7 billion in the prior-year
quarter.
- Of the $10.9 billion in NIW in the
first quarter of 2019, 83 percent was written with monthly and
other recurring premiums compared to 83 percent in the fourth
quarter of 2018, and 79 percent a year ago.
- Borrower-paid originations accounted
for 95 percent of total NIW in the first quarter of 2019, compared
to 94 percent in the fourth quarter of 2018, and 83 percent a year
ago.
- Purchase originations accounted for 92
percent of total NIW in the first quarter of 2019, compared to 95
percent in the fourth quarter of 2018, and 89 percent a year
ago.
- Total primary mortgage insurance in
force as of March 31, 2019, grew to $223.7 billion, an
increase of 1 percent compared to $221.4 billion as of
December 31, 2018, and an increase of 10 percent compared to
$204.0 billion as of March 31, 2018.
- Radian’s mortgage insurance portfolio
consists of 94 percent 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 12-month period,
was 83.4 percent as of March 31, 2019, compared to 83.1
percent as of December 31, 2018, and 81.0 percent as of
March 31, 2018.
- Annualized persistency for the three
months ended March 31, 2019, was 85.4 percent, compared to
85.5 percent for the three months ended December 31, 2018, and
84.3 percent for the three months ended March 31, 2018.
- Net mortgage insurance premiums earned
were $261.8 million for the quarter ended March 31, 2019,
compared to $259.7 million for the quarter ended December 31,
2018, and $242.6 million for the quarter ended March 31, 2018.
- Mortgage insurance in force premium
yield was 48.6 basis points in the first quarter of 2019, compared
to 49.0 basis points in the fourth quarter of 2018 and 48.7 basis
points in the first quarter of 2018.
- Total net mortgage insurance premium
yield, which includes the impact of ceded premiums and accrued
profit commission, was 47.0 basis points in the first quarter of
2019, compared to 47.4 basis points in the fourth quarter of 2018,
and 47.9 basis points in the first quarter of 2018.
- Additional details regarding notable
variable items impacting premiums earned may be found in Exhibit
D.
- The mortgage insurance provision for
losses was $20.8 million in the first quarter of 2019, compared to
$27.1 million in the fourth quarter of 2018, and $37.4 million in
the prior-year quarter.
- The number of primary delinquent loans
was 20,122 as of March 31, 2019, a decrease of 5 percent
compared to 21,093 as of December 31, 2018 and a decrease of
18 percent compared to 24,597 as of March 31, 2018.
- The primary mortgage insurance
delinquency rate decreased to 2.0 percent in the first quarter of
2019, compared to 2.1 percent in the fourth quarter of 2018, and
2.5 percent in the first quarter of 2018.
- The loss ratio in the first quarter of
2019 was 8.0 percent, compared to 10.4 percent in the fourth
quarter of 2018, and 15.4 percent in the first quarter of
2018.
- Mortgage insurance loss reserves were
$385.4 million as of March 31, 2019, compared to $397.9
million as of December 31, 2018, and $485.2 million as of
March 31, 2018.
- Total mortgage insurance claims paid
were $34.6 million in the first quarter of 2019, compared to $39.7
million in the fourth quarter of 2018, and $59.9 million in the
first quarter of 2018. In addition, the company’s pending claim
inventory declined 3 percent from March 31, 2018.
- Total Mortgage and Real Estate Services
Segment revenues for the first quarter of 2019 were $36.0 million,
compared to $41.5 million for the fourth quarter of 2018, and $34.2
million for the first quarter of 2018. Segment results for the
first quarter of 2019 include revenues of approximately $5.1
million and incremental expenses (comprised of approximately $3.6
million of operating expenses and approximately $2.2 million of
cost of services), both related to businesses acquired in 2018.
Adjusted earnings before interest, income taxes, depreciation and
amortization (Services adjusted EBITDA) for the quarter ended
March 31, 2019 was a loss of $0.9 million, compared to income
of $3.2 million for the quarter ended December 31, 2018, and
income of $0.5 million for the quarter ended March 31, 2018.
Additional details regarding the non-GAAP measure Services adjusted
EBITDA may be found in Exhibits F and G.
- Other operating expenses were $78.8
million in the first quarter of 2019, compared to $77.3 million in
the fourth quarter of 2018, and $63.2 million in the first quarter
of 2018. The change in expenses year-over-year is primarily driven
by $5.7 million of non-operating items, $3.6 million related to
businesses acquired in 2018 as previously mentioned, and an
increase in legal and other professional services of $1.6
million.
CAPITAL AND LIQUIDITY UPDATE
The company remains focused on optimizing its capital position,
enhancing its return on capital, and increasing its financial
flexibility.
Radian Group
- As of March 31, 2019, Radian Group
maintained $718 million of available liquidity. Total liquidity,
which includes the company’s $268 million unsecured revolving
credit facility entered into in October 2017, was $986 million as
of March 31, 2019.
- In March 2019, the company announced
the Board's authorization to increase its existing share repurchase
program from $100 million to $250 million and extend the term to
July 31, 2020. This program provides Radian the flexibility to
repurchase shares opportunistically from time to time and to spend
up to $250 million, excluding commissions, based on market and
business conditions, stock price and other factors. During the
first quarter, Radian repurchased and settled 1,546,674 shares of
its common stock. In addition, as of April 26, 2019, the company
repurchased an additional 4,131,329 shares. As of April 26, 2019,
total shares repurchased in 2019 were 5,678,003, representing a
total approximate value of $122.4 million or $21.56 per share
inclusive of commissions. At April 26, 2019, purchase authority of
up to approximately $128 million remained available under this
program, which expires on July 31, 2020.
- After consideration of the shares
repurchased after quarter end and the $375 million return of
capital described below, Radian Group's available liquidity would
have increased by approximately $284 million relative to the amount
as of March 31, 2019.
Radian Guaranty
- At March 31, 2019, Radian
Guaranty’s Available Assets under the Private Mortgage Insurer
Eligibility Requirements (PMIERs) totaled approximately $3.5
billion, resulting in an excess or “cushion” of approximately $488
million, or 16 percent over its Minimum Required Assets of
approximately $3.0 billion.
- In April 2019, Radian Guaranty
announced the closing of its second mortgage insurance-linked note
(ILN) transaction, where the company obtained $562 million of
credit risk protection from Eagle Re 2019-1 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 Guaranty. Eagle Re has funded its
reinsurance obligations by issuing four classes of ILNs which have
a 10-year maturity with a 7-year call option. The ILNs are
non-recourse to Radian Group or its subsidiaries and
affiliates.
- The Pennsylvania Insurance Department
approved a $375 million return of capital from Radian Guaranty to
Radian Group during the second quarter of 2019, which was paid on
April 30, 2019 from Radian Guaranty's gross paid in and contributed
statutory surplus. As previously reported, the Pennsylvania
Insurance Department approved a $450 million return of capital in
the fourth quarter of 2018. These strategic capital actions improve
Radian Group's financial flexibility.
- After consideration of the ILN
transaction and the $375 million return of capital described above,
Radian Guaranty’s excess of Available Assets over its Minimum
Required Assets under PMIERs would have increased by approximately
$187 million.
CONFERENCE CALL
Radian will discuss first quarter financial results in a
conference call tomorrow, Wednesday, May 1, 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
800.230.1074 inside the U.S., or 612.288.0340 for international
callers, using passcode 466411 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 466411.
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.
2019 INVESTOR DAY
Radian will host an Investor Day on Tuesday, May 7, 2019, from
9:30 a.m. to 3:30 p.m. Eastern time in Philadelphia. The company’s
senior leaders will provide details on Radian’s business strategy
and priorities, key business and product initiatives, and financial
objectives. The event will be broadcast live over the Internet at
http://www.radian.biz/page?name=Webcasts. The slide presentation
will also be available on Radian's website one hour prior to the
event and can be accessed by visiting
http://www.radian.biz/page?name=Presentations. A replay of the
webcast will be available at
http://www.radian.biz/page?name=Webcasts following the live
broadcast, for a period of one year.
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 infrequent or unusual
non-operating items. 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.
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 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
2019 2018
(In thousands,
except per-share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Revenues: Net premiums earned -
insurance $ 263,512 $ 261,682 $ 258,431 $ 251,344
$ 242,550
Services revenue 32,753 38,414 36,566
36,828 33,164
Net investment income 43,847 42,051
38,995 37,473 33,956
Net gains (losses) on investments and other
financial instruments 21,913 (11,705 ) (4,480 ) (7,404 )
(18,887 )
Other income 1,604
1,031 1,174 1,016 807
Total revenues 363,629
331,473 330,686 319,257
291,590
Expenses: Provision for losses
20,754 27,140 20,881 19,337 37,283
Policy acquisition
costs 5,893 6,485 5,667 5,996 7,117
Cost of
services 24,157 24,939 25,854 24,205 23,126
Other
operating expenses 78,805 77,266 70,125 70,184 63,243
Restructuring and other exit costs — 113 4,464 925
551
Interest expense 15,697 15,584 15,535 15,291
15,080
Amortization and impairment of other acquired intangible
assets 2,187 3,461
3,472 2,748 2,748
Total
expenses 147,493 154,988
145,998 138,686 149,148
Pretax income 216,136 176,485 184,688 180,571
142,442
Income tax provision (benefit) 45,179
36,706 41,891 (28,378 )
27,956
Net income $ 170,957
$ 139,779 $ 142,797 $ 208,949 $ 114,486
Diluted net income per share $
0.78 $ 0.64 $ 0.66 $ 0.96 $ 0.52
Radian
Group Inc. and Subsidiaries Net Income Per Share Trend
Schedule Exhibit B
The calculation of basic and diluted
net income per share was as follows:
2019 2018
(In thousands,
except per-share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net income —basic and diluted $
170,957 $ 139,779 $ 142,797 $ 208,949 $ 114,486
Average common shares outstanding—basic 213,537
213,435 213,309 213,976 215,967
Dilutive effect of stock-based
compensation arrangements (1) 4,806 4,448
4,593 3,854 3,916
Adjusted average common
shares outstanding—diluted 218,343 217,883
217,902 217,830 219,883
Basic net
income per share $ 0.80 $ 0.65 $ 0.67 $ 0.98 $
0.53
Diluted net income per share $
0.78 $ 0.64 $ 0.66 $ 0.96 $ 0.52
(1)
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:
2019
2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Shares of common stock equivalents 169
337 338 484 170
Radian Group Inc. and
Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C
(In thousands,
except per-share amounts)
March 31,2019
December 31,2018 September 30,2018
June 30,2018 March 31,2018
Assets: Investments $ 5,475,770 $
5,153,029 $ 5,028,235 $ 4,873,919 $ 4,668,217
Cash
118,668 95,393 104,413 95,573 122,481
Restricted cash
9,086 11,609 9,925 9,152 7,623
Accounts and notes
receivable 89,237 78,652 108,003 94,848 80,068
Deferred income taxes, net 67,697 131,643 134,201
171,293 253,381
Goodwill and other acquired intangible assets,
net 56,811 58,998 55,707 59,179 61,465
Prepaid
reinsurance premium 408,622 417,628 413,728 405,447
390,241
Other assets 373,678
367,700 415,272 430,077
426,773
Total assets $ 6,599,569
$ 6,314,652 $ 6,269,484 $ 6,139,488 $
6,010,249
Liabilities and stockholders’
equity: Unearned premiums $ 720,159 $
739,357 $ 747,921 $ 741,296 $ 723,100
Reserve for losses and
loss adjustment expense 388,784 401,361 412,460 451,542
488,656
Senior notes 1,031,197 1,030,348 1,029,511
1,028,687 1,027,875
Reinsurance funds withheld
329,868 321,212 352,952 331,776 305,409
Other
liabilities 419,470 333,659
379,362 385,051 412,793
Total liabilities 2,889,478
2,825,937 2,922,206 2,938,352
2,957,833
Common stock 230 231
231 231 233
Treasury stock (895,321 ) (894,870
) (894,635 ) (894,610 ) (894,191 )
Additional paid-in
capital 2,697,724 2,724,733 2,720,626 2,715,426
2,748,233
Retained earnings 1,889,964 1,719,541
1,580,296 1,438,032 1,229,616
Accumulated other comprehensive
income (loss) 17,494 (60,920 )
(59,240 ) (57,943 ) (31,475 )
Total
stockholders’ equity 3,710,091
3,488,715 3,347,278 3,201,136
3,052,416
Total liabilities and stockholders’
equity $ 6,599,569 $ 6,314,652 $
6,269,484 $ 6,139,488 $ 6,010,249
Shares outstanding 212,136 213,473 213,333 213,232
215,543
Book value per share $ 17.49 $
16.34 $ 15.69 $ 15.01 $ 14.16
Tangible book value per
share (See Exhibit G) $ 17.22 $ 16.06 $ 15.43 $
14.73 $ 13.88
Statutory Capital Ratios Risk to
capital ratio-Radian Guaranty only 13.4 :1
(1) 13.9 :1 12.4 :1 12.5 :1 12.6 :1
Risk to capital
ratio-Mortgage Insurance combined 12.4 :1
(1) 12.8 :1 11.7 :1 11.8 :1 11.9 :1
(1) Preliminary.
Radian Group Inc. and Subsidiaries Net
Premiums Earned - Insurance Exhibit D
2019 2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Premiums earned - insurance: Direct:
Mortgage Insurance (1) $ 278,453 $ 275,856 $
269,499 $ 264,078 $ 257,431
Services 1,770
1,995 3,006 2,434
—
Total direct 280,223
277,851 272,505 266,512
257,431
Assumed - Mortgage Insurance: (1)
(2) 2,450 2,082 1,994
1,510 1,318
Ceded:
Mortgage Insurance (19,125 ) (3)
(18,217 )
(3) (16,011 ) (16,620 ) (16,199 )
Services
(36 ) (34 ) (57 ) (58 )
—
Total ceded (19,161 )
(18,251 ) (16,068 ) (16,678 ) (16,199 )
Net premiums earned - insurance $ 263,512
$ 261,682 $ 258,431 $ 251,344 $ 242,550
Notable variable items: (4) Single Premium
Policy cancellations, direct $ 9,957 $ 9,320 $
11,559 $ 14,776 $ 12,335
Single Premium Policy cancellations,
ceded (5) (2,953 ) (3,091 )
(3,288 ) (4,046 ) (3,301 )
Single Premium Policy
cancellations, net $ 7,004 $ 6,229
$ 8,271 $ 10,730 $ 9,034
Profit
commission - other (6) $ 8,314 $ 8,447
$ 8,267 $ 7,917 $ 7,405
(1)
Certain prior period amounts have been
reclassified to conform to current period presentation.
(2)
Includes premiums earned from our
participation in certain Front-end and Back-end credit risk
transfer programs.
(3)
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
$3.3 million and $2.3 million in the three months ended March 31,
2019 and December 31, 2018, respectively.
(4)
These amounts are included in net
premiums earned - insurance, in our Mortgage Insurance
segment.
(5)
Includes the impact of related profit
commissions.
(6)
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.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating
segments as of and for the periods indicated is as follows. For a
definition of adjusted pretax operating income and Services
adjusted EBITDA, along with reconciliations to consolidated GAAP
measures, see Exhibits F and G.
Mortgage
Insurance 2019 2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net premiums written - insurance (1) $
251,586 $ 247,256 $ 253,827 $ 251,958 $ 237,980
(Increase) decrease in unearned premiums
10,192 12,465 1,655
(2,990 ) 4,570
Net premiums earned - insurance
261,778 259,721 255,482 248,968 242,550
Net investment
income 43,665 41,875 38,824 37,447 33,956
Other
income 1,196 641 725
621 807
Total
306,639 302,237 295,031
287,036 277,313
Provision for
losses 20,844 27,079 20,715 19,362 37,391
Policy
acquisition costs 5,893 6,485 5,667 5,996 7,117
Other
operating expenses before corporate allocations (2)
30,410 37,070 33,152
33,262 31,888
Total (3)
57,147 70,634 59,534
58,620 76,396
Adjusted pretax operating
income before corporate allocations 249,492 231,603
235,497 228,416 200,917
Allocation of corporate operating
expenses 25,625 21,627 19,794 20,136 18,577
Allocation of interest expense 15,697
11,133 11,083 10,840
10,629
Adjusted pretax operating income $
208,170 $ 198,843 $ 204,620 $ 197,440
$ 171,711
Services 2019
2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net premiums earned - insurance $
1,734 $ 1,961 $ 2,949 $ 2,376 $ —
Services revenue
(3) 33,723 39,006 37,332 37,713 34,166
Net investment
income 182 176 171 26 —
Other income
408 390 449 395
—
Total 36,047
41,533 40,901 40,510
34,166
Provision for losses (18
) 113 242 53 —
Cost of services 24,559 25,064
26,001 24,357 23,270
Other operating expenses before corporate
allocations (2) 13,435 13,719 14,772 14,015 10,744
Restructuring and other exit costs (2) —
113 407 1,055
525
Total 37,976
39,009 41,422 39,480
34,539
Adjusted pretax operating income (loss) before
corporate allocations (4) (1,929 ) 2,524 (521 )
1,030 (373 )
Allocation of corporate operating expenses
4,171 3,232 2,948 3,010 2,784
Allocation of interest
expense — (5) 4,451
4,452 4,451 4,451
Adjusted pretax operating income (loss) $
(6,100 ) $ (5,159 ) $ (7,921 ) $ (6,431 ) $ (7,608 )
(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 2)
Notes continued from prior
page.
(2)
Does not include impairment of
long-lived assets and infrequent or unusual non-operating items,
which are not considered components of adjusted pretax operating
income (loss).
(3)
Inter-segment information:
2019
2018
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Inter-segment expense included in Mortgage
Insurance segment $ 970 $ 592 $ 766 $ 885 $ 1,002
Inter-segment revenue included in Services segment
970 592 766 885 1,002
(4)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F):
2019
2018
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Adjusted pretax operating income (loss)
before corporate allocations $ (1,929 ) $
2,524 $ (521 ) $ 1,030 $ (373 )
Depreciation and
amortization 995 700
1,077 920 867
Services
adjusted EBITDA $ (934 ) $ 3,224 $
556 $ 1,950 $ 494
(5)
Effective January 1, 2019, Clayton's
holding company repaid to Radian Group the intercompany note (with
terms consistent with the original issued amount of $300 million
from the Senior Notes due 2019 that were used to fund our purchase
of Clayton), using proceeds from an additional capital contribution
from Radian Group. As a result of the intercompany note repayment,
the Services segment no longer incurs interest expense on the
intercompany note.
Selected Mortgage Insurance Key
Ratios
2019 2018
Qtr 1
Qtr 4 Qtr 3 Qtr 2 Qtr 1
Loss ratio (1) 8.0 % 10.4 % 8.1 % 7.8 %
15.4 %
Expense ratio (1) 23.7 % 25.1 % 22.9 %
23.9 % 23.7 %
(1)
Calculated on a GAAP basis using net
premiums earned.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measures
In addition to the traditional GAAP financial measures, we
have presented “adjusted pretax operating income,” “adjusted
diluted net operating income per share” and “adjusted net operating
return on equity,” which are 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 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 infrequent or unusual non-operating items. Adjusted
diluted net operating income per share is calculated by dividing
(i) adjusted pretax operating income attributable to common
stockholders, 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,
we do not view acquisition-related expenses as a primary business
activity. Therefore, we do not consider these expenses to be part
of our operating performance and they are excluded from our
calculation of adjusted pretax operating income (loss).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
(4)
Amortization 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 infrequent or unusual non-operating items. The
recognition of net impairment losses on investments and the
impairment of other long-lived assets can vary significantly in
both amount and frequency, depending on market credit cycles and
other factors. Infrequent and unusual non-operating items reflect
activities that we do not view 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
4) Reconciliation of Consolidated Pretax Income to
Adjusted Pretax Operating Income
2019 2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Consolidated pretax
income $ 216,136 $ 176,485 $ 184,688 $ 180,571 $
142,442
Less reconciling income (expense) items: Net
gains (losses) on investments and other financial instruments
21,913 (11,705 ) (4,480 ) (7,404 ) (18,887 )
Acquisition-related expenses (1) (233 ) (463 )
(2 ) (416 ) —
Amortization and impairment of other acquired
intangible assets (2,187 ) (3,461 ) (3,472 )
(2,748 ) (2,748 )
Impairment of other long-lived assets and
infrequent or unusual non-operating items (2)
(5,427 ) (1,570 ) (4,057 ) 130
(26 )
Total adjusted pretax operating income
(3) $ 202,070 $ 193,684 $ 196,699
$ 191,009 $ 164,103
(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 amounts for the three months ended
March 31, 2019 and December 31, 2018 are included in other
operating expenses on the Condensed Consolidated Statement of
Operations in Exhibit A and primarily relate to impairments of
other long-lived assets. 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 4)
Reconciliation of Diluted Net Income
Per Share to Adjusted Diluted Net Operating Income Per
Share
2019 2018
Qtr 1
Qtr 4 Qtr 3 Qtr 2 Qtr 1
Diluted net income per share $ 0.78 $
0.64 $ 0.66 $ 0.96 $ 0.52
Less per-share impact of reconciling income (expense) items:
Net gains (losses) on investments and other financial
instruments 0.10 (0.05 ) (0.02 ) (0.03 ) (0.09 )
Amortization and impairment of other acquired intangible
assets (0.01 ) (0.02 ) (0.02 ) (0.01 ) (0.01 )
Impairment of other long-lived assets and infrequent or unusual
non-operating items (0.02 ) (0.01 ) (0.02 ) — —
Income tax provision (benefit) on reconciling income (expense)
items (1) 0.01 (0.02 ) (0.01 ) (0.01 ) (0.02 )
Difference between statutory and effective tax rate
(0.01 ) — — 0.30
(2) 0.01
Per-share impact of
reconciling income (expense) items 0.05
(0.06 ) (0.05 ) 0.27 (0.07 )
Adjusted diluted net operating income per share (1) $
0.73 $ 0.70 $ 0.71 $ 0.69 $ 0.59
(1)
Calculated using the company’s federal
statutory tax rate of 21%. 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.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 3 of 4) Reconciliation of Return
on Equity to Adjusted Net Operating Return on Equity (1)
2019 2018
Qtr 1 Qtr 4
Qtr 3 Qtr 2 Qtr 1
Return on
equity (1) 19.0 % 16.4 % 17.4 % 26.7 % 15.1 %
Less impact of reconciling income (expense) items: (2)
Net gains (losses) on investments and other financial
instruments 2.4 (1.4 ) (0.5 ) (0.9 ) (2.5 )
Acquisition-related expenses — (0.1 ) — (0.1 ) —
Amortization and impairment of other acquired intangible
assets (0.2 ) (0.4 ) (0.4 ) (0.4 ) (0.4 )
Impairment of other long-lived assets and infrequent or unusual
non-operating items (0.6 ) (0.2 ) (0.5 ) — —
Income tax provision (benefit) on reconciling income (expense)
items (3) 0.3 (0.4 ) (0.3 ) (0.3 ) (0.6 )
Difference
between statutory and effective tax rate — 0.2
(0.5 ) 8.5
(4)
0.3
Impact of reconciling income (expense) items
1.3 (1.5 ) (1.6 ) 7.4 (2.0 )
Adjusted net
operating return on equity 17.7 % 17.9 % 19.0 %
19.3 % 17.1 %
(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 rate of 21%. 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) 2019
2018
Qtr 1 Qtr 4 Qtr 3
Qtr 2 Qtr 1
Book value per share $
17.49 $ 16.34 $ 15.69 $ 15.01 $ 14.16
Less: Goodwill and
other acquired intangible assets, net per share
0.27 0.28 0.26 0.28 0.28
Tangible book value per share $ 17.22 $ 16.06
$ 15.43 $ 14.73 $ 13.88
(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 4) Reconciliation of Net
Income to Services Adjusted EBITDA
2019 2018
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net income $ 170,957 $
139,779 $ 142,797 $ 208,949 $ 114,486
Less reconciling income
(expense) items: Net gains (losses) on investments and other
financial instruments 21,913 (11,705 ) (4,480 ) (7,404 )
(18,887 )
Acquisition-related expenses (233 )
(463 ) (2 ) (416 ) —
Amortization and impairment of other
acquired intangible assets (2,187 ) (3,461 )
(3,472 ) (2,748 ) (2,748 )
Impairment of other long-lived assets
and infrequent or unusual non-operating items (5,427
) (1,570 ) (4,057 ) 130 (26 )
Income tax provision
(benefit) 45,179 36,706 41,891 (28,378 ) 27,956
Mortgage Insurance adjusted pretax operating income
208,170 198,843 204,620
197,440 171,711
Services adjusted
pretax operating income (loss) (6,100 ) (5,159 )
(7,921 ) (6,431 ) (7,608 )
Less reconciling income
(expense) items: Allocation of corporate operating expenses
to Services (4,171 ) (3,232 ) (2,948 ) (3,010 )
(2,784 )
Allocation of corporate interest expense to
Services — (4,451 ) (4,452 ) (4,451 ) (4,451 )
Services depreciation and amortization (995
) (700 ) (1,077 ) (920 ) (867 )
Services adjusted EBITDA $ (934 ) $
3,224 $ 556 $ 1,950 $ 494 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
2019 2018
($ in
millions)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Total primary new
insurance written $ 10,900 $ 12,737
$ 15,764 $ 16,417 $ 11,664
Percentage of
primary new insurance written by FICO score (1)
>=740 57.6 % 54.6 % 55.5 % 56.0 % 56.4 %
680-739
34.7 35.8 34.7 35.9 35.9
620-679
7.7 9.6 9.8
8.1 7.7
Total Primary
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Borrower-paid 95 % 94 % 91 % 89 % 83 %
Percentage by
premium type
Direct monthly and other recurring premiums 83
% 83 % 78 % 76 % 79 %
Direct single premiums (2):
Lender-paid 4 % 5 % 8 % 10 % 16 %
Borrower-paid (3) 13 % 12 %
14 % 14 % 5 %
Total primary new insurance
written 100 % 100 % 100 %
100 % 100 %
NIW for purchases 92
% 95 % 96 % 95 % 89 %
NIW for refinances 8
% 5 % 4 % 5 % 11 %
Percentage by
LTV
95.01% and above 19.7 % 18.3 % 16.9 % 16.3 %
15.4 %
90.01% to 95.00% 40.9 % 43.1 % 44.3 %
45.3 % 44.5 %
85.01% to 90.00% 27.3 % 27.5 %
27.9 % 27.5 % 27.5 %
85.00% and below 12.1 %
11.1 % 10.9 % 10.9 % 12.6 %
(1)
For loans with multiple borrowers, the
percentage of primary new insurance written by FICO score
represents the lowest of the borrowers’ FICO scores. All periods
prior to March 31, 2019 had previously been presented based on the
FICO score of the primary borrower and have been restated to
reflect the lowest of the borrowers’ FICO scores.
(2)
Percentages exclude the impact of
reinsurance.
(3)
Borrower-paid Single Premium Policies
have lower Minimum Required Assets under PMIERs as compared to
lender-paid Single Premium Policies.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 1 of 2)
March 31, December 31, September 30, June 30, March
31,
($ in millions) 2019 2018 2018 2018 2018
Primary insurance
in force (1)
Prime $ 218,227 $ 215,739 $ 211,168 $ 204,537
$ 197,589
Alt-A and A minus and below 5,507
5,704 5,928 6,204
6,436
Total Primary $ 223,734
$ 221,443 $ 217,096 $ 210,741 $ 204,025
Primary risk in
force (1) (2)
Prime $ 56,054 $ 55,374 $ 54,168 $
52,446
$ 50,623
Alt-A and A minus and below 1,307
1,354 1,409 1,476
1,530
Total Primary $ 57,361
$ 56,728 $ 55,577 $ 53,922 $ 52,153
Percentage of
primary risk in force
Direct monthly and other recurring premiums 71
% 70 % 70 % 70 % 69 %
Direct single premiums
29 % 30 % 30 % 30 % 31 %
Percentage of
primary risk in force by FICO score (3)
>=740 55.2 % 55.1 % 55.1 % 55.0 % 55.0 %
680-739 34.8 34.8 34.7 34.6 34.5
620-679
9.2 9.3 9.3 9.4 9.5
<=619 0.8
0.8 0.9 1.0 1.0
Total Primary 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 12.2 % 11.6 % 11.0 % 10.3 %
9.7 %
90.01% to 95.00% 53.0 53.1 53.1 53.3 53.2
85.01% to 90.00% 28.6 29.0 29.4 29.7 30.2
85.00%
and below 6.2 6.3 6.5
6.7 6.9
Total
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2008 and prior 9.6 10.1 10.9 11.9 13.0
2009
0.3 0.4 0.4 0.4 0.5
2010
0.3 0.3 0.3 0.4 0.5
2011
0.7 0.8 0.9 1.0 1.2
2012
3.3 3.7 4.1 4.5 5.1
2013
5.8 6.2 6.7 7.4 8.2
2014
5.8 6.1 6.5 7.1 7.9
2015
9.7 10.2 10.9 11.9 13.0
2016
16.0 16.8 17.9 19.2 20.5
2017
20.3 21.1 22.0 23.2 24.5
2018
23.5 24.3 19.4 13.0 5.6
2019
4.7 — — —
—
Total 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Primary risk in force on defaulted loans $
1,002 $ 1,032 $ 1,019 $ 1,093 $ 1,223
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.
March 31, December 31,
September 30, June 30,
March 31,
2019 2018 2018 2018 2018
Persistency Rate (12
months ended) 83.4 % 83.1 % 81.4 % 80.9 % 81.0 %
Persistency Rate (quarterly, annualized) (4) 85.4
% 85.5 % 83.4 % 82.3 % 84.3 %
(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 approximately 1.0% of
our total risk in force for all periods presented.
(3)
For loans with multiple borrowers, the
percentage of primary risk in force by FICO score represents the
lowest of the borrowers’ FICO scores. All periods prior to March
31, 2019 had previously been presented based on the FICO score of
the primary borrower and have been restated to reflect the lowest
of the borrowers’ FICO scores.
(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)
2019 2018
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net claims paid: (1) Prime
$ 23,863 $ 22,716 $ 29,709 $ 30,936 $ 37,142
Alt-A
and A minus and below 9,497 12,459
16,105 17,156 21,416
Total primary
claims paid 33,360 35,175 45,814 48,092 58,558
Pool 1,109 342 1,072 954 1,152
Second-lien and
other 121 (152 ) 169 157
148
Subtotal 34,590 35,365 47,055
49,203 59,858
Impact of captive terminations — (757 )
— — (36 )
Impact of commutations (2) —
5,113 12,712 7,331 104
Total
net claims paid $ 34,590 $ 39,721 $ 59,767
$ 56,534 $ 59,926
Average net claim paid: (1)
(3) Prime $ 47.1 $ 48.1 $ 50.9 $ 50.1 $
50.0
Alt-A and A minus and below 53.1 61.1 59.4 65.7
63.0
Total average net primary claim paid 48.6 52.0
53.6 54.8 54.1
Average direct primary claim paid (3)
(4) $ 49.2 $ 52.9 $ 54.2 $ 55.5 $ 54.5
(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)
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Reserve for losses by category (1) Mortgage
insurance (“MI”) reserves Prime $ 240,489
$ 242,135 $ 241,858 $ 264,548 $ 283,497
Alt-A and A minus and
below 111,955 119,553 129,297 144,432 158,663
IBNR
and other 13,008 13,864 14,505 14,246 17,164
LAE
8,994 10,271 11,203 12,228
13,440
Total primary reserves 374,446 385,823
396,863 435,454 472,764
Total pool reserves
10,621 11,640 11,705 12,197
11,952
Total 1st lien reserves 385,067 397,463
408,568 447,651 484,716
Other 294 428
412 443 476
Total MI reserves
385,361 397,891 408,980 448,094 485,192
Services
reserves 3,423 3,470 3,480
3,448 3,464
Total reserves $ 388,784 $
401,361 $ 412,460 $ 451,542 $ 488,656
1st lien reserve
per default Primary reserve per primary default excluding
IBNR and other $ 17,962 $ 17,634 $ 18,409 $
19,070 $ 18,523
(1)
Includes ceded losses on reinsurance
transactions, which are expected to be recovered and are included
in the reinsurance recoverables reported in other assets in our
condensed consolidated balance sheets.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Default Statistics
Exhibit K
March 31, December 31, September 30, June 30, March
31,
2019 2018 2018 2018 2018
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 994,865 986,704 969,994
947,165 925,648
Number of loans in default 14,831
15,402 14,916 15,849 17,887
Percentage of loans in default
1.49 % 1.56 % 1.54 % 1.67 % 1.93 %
Alt-A and A minus
and below
Number of insured loans 34,763 35,906 37,268 38,892
40,661
Number of loans in default 5,291 5,691 5,854
6,239 6,710
Percentage of loans in default 15.22
% 15.85 % 15.71 % 16.04 % 16.50 %
Total
Primary Number of insured loans 1,029,628
1,022,610 1,007,262 986,057 966,309
Number of loans in default
(1) 20,122 21,093 20,770 22,088 24,597
Percentage of
loans in default 1.95 % 2.06 % 2.06 % 2.24 % 2.55
%
(1) Includes the following amounts
related to the FEMA Designated Areas associated with Hurricanes
Harvey and Irma, as of the dates presented:
March 31,
December 31,
September 30,
June 30,
March 31,
2019
2018
2018
2018
2018
Number of FEMA loans in default
2,420
2,627
2,946
4,132
5,780
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Reinsurance Programs
Exhibit L
2019 2018
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Quota Share
Reinsurance (“QSR”) and Single Premium QSR Programs
Ceded premiums written (1) $ 7,017 $ 12,923 $
24,094 $ 31,623 $ 19,722
% of premiums written 2.7
% 4.8 % 8.5 % 11.0 % 7.6 %
Ceded premiums earned
$ 15,676 $ 15,726 $ 15,813 $ 16,418 $ 15,989
% of
premiums earned 5.5 % 5.6 % 5.7 % 6.2 % 6.2 %
Ceding commissions written $ 4,695 $ 6,006 $
8,988 $ 10,892 $ 7,749
Ceding commissions earned (2)
$ 8,685 $ 7,718 $ 8,373 $ 8,539 $ 8,816
Profit
commission $ 11,318 $ 10,638 $ 11,358 $ 11,414 $
10,693
Ceded losses $ 1,687 $ 1,730 $ 1,191 $
1,019 $ 1,146
Excess-of-Loss
Program
Ceded premiums written (1) $ 2,919 $ 9,009 $ —
$ — $ —
% of premiums written 1.1 % 3.3 % — %
— % — %
Ceded premiums earned $ 3,265 $ 2,305
$ — $ — $ —
% of premiums earned 1.2 % 0.8 % —
% — % — %
Ceded RIF
(3)
QSR Program $ 840,621 $ 910,862 $ 974,359 $
1,044,463 $ 1,135,597
Single Premium QSR Program
8,267,506 8,168,939 7,984,178 7,614,614 7,176,662
Excess-of-Loss Program 454,641
455,440 — — —
Total Ceded RIF $ 9,562,768 $ 9,535,241
$ 8,958,537 $ 8,659,077 $ 8,312,259
PMIERs impact -
reduction in Minimum Required Assets (4)
QSR Program $ 45,477 $ 48,734 $ 51,883 $
55,583 $ 61,088
Single Premium QSR Program 507,656
522,318 511,052 489,631 463,662
Excess-of-Loss Program
454,641 455,440 —
— —
Total PMIERs impact $
1,007,774
$ 1,026,492 $ 562,935 $ 545,214 $
524,750
(1)
Net of profit commission, where
applicable.
(2)
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:
2019 2018
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Ceding commissions $
(5,643 ) $ (5,837 ) $ (5,988 ) $ (6,085 ) $ (5,812 )
(3)
Included in primary RIF.
(4)
Excludes the impact of intercompany
reinsurance.
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, including
potential future changes to the PMIERs which, among other things,
may be impacted by the general economic environment and housing
market, as well as the proposed Conservatorship Capital Framework
("CCF") that would establish capital requirements for the GSEs, if
the CCF is finalized;
- our ability to successfully execute and
implement our capital plans, including 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 and grow 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 changes impacting loans
purchased by the GSEs, such as the GSEs' requirements regarding
mortgage credit and loan size and the GSEs' pricing;
- 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 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
and U.S. Department of Veterans Affairs as well as from other forms
of credit enhancement, including GSE sponsored alternatives to
traditional mortgage insurance;
- 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, including
future changes to the Qualified Mortgage (QM) loan
requirements;
- 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, increased reserves 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," each as defined under the PMIERs,
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;
- changes in “GAAP” (accounting
principles generally accepted in the U.S.) or “SAPP” (statutory
accounting principles and 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 amounts
we may receive from our subsidiaries, including dividends or
ordinary course distributions under our internal tax and expense
sharing arrangements.
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 Annual Report on Form
10-K for the year ended December 31, 2018, and to subsequent
reports filed from time to time with the U.S. Securities and
Exchange Commission. We caution you not to place undue reliance on
these forward-looking statements, which are current only as of the
date on which we issued this 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/20190430006263/en/
Emily Riley - Phone: 215.231.1035Email:
emily.riley@radian.com
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