-- GAAP net income of $173 million, or $0.83
per diluted share --
-- Adjusted diluted net operating income per
share increases 14% year-over-year to $0.81 --
-- Writes $22.0 billion in new MI business,
sets company record for quarterly flow MI; MI in force increases 9%
year-over-year to $237 billion --
-- Book value per share grows 24%
year-over-year to $19.40 --
-- Company purchases $78 million or 3.3 million
shares of Radian Group common stock during the quarter --
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended September 30, 2019, of $173.4 million, or $0.83 per
diluted share. This compares to net income for the quarter ended
September 30, 2018, of $142.8 million, or $0.66 per diluted
share.
Key Financial Highlights (dollars in millions, except
per-share data)
Quarter Ended September 30,
2019
Quarter Ended September 30,
2018
Percent Change
Net income (1)
$173.4
$142.8
21
%
Diluted net income per share
$0.83
$0.66
26
%
Consolidated pretax income
$217.7
$184.7
18
%
Adjusted pretax operating income
(2)
$212.7
$196.7
8
%
Adjusted diluted net
operating
income per share (2)
$0.81
$0.71
14
%
Net premiums earned - mortgage
insurance
$277.6
$255.5
9
%
MI New Insurance Written
(NIW)
$22,037
$15,764
40
%
MI primary insurance in force
$237,158
$217,096
9
%
Book value per share (3)
$19.40
$15.69
24
%
Available holding company
liquidity
$730.7
$246.0
197
%
Return on equity (1)(4)
18.0%
17.4%
3
%
Adjusted net operating return on
equity (2)
17.4%
19.0%
(8
)%
(1)
Net income for the third quarter of 2019
includes: (i) a $5.9 million pretax loss on extinguishment of debt
and (ii) $13.0 million pretax net gain on investments and other
financial instruments. Net income for the third quarter of 2018
includes: (i) $4.5 million pretax net loss on investments and other
financial instruments; and (ii) $4.5 million of pretax
restructuring and other exit costs.
(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)
Accumulated other comprehensive income
(loss) impacted book value per share by $0.62 per share as of
September 30, 2019, and $(0.28) per share as of September 30,
2018.
(4)
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 September
30, 2019, was $212.7 million, compared to $196.7 million for the
quarter ended September 30, 2018. Adjusted diluted net operating
income per share for the quarter ended September 30, 2019, was
$0.81, an increase of 14 percent compared to $0.71 for the quarter
ended September 30, 2018.
Book value per share at September 30, 2019, was $19.40, an
increase of 5 percent compared to $18.42 at June 30, 2019, and an
increase of 24 percent compared to $15.69 at September 30,
2018.
“I am pleased to report another excellent quarter for Radian,
with net income of $173 million, a 24% increase in book value per
share to $19.40, and return on equity of 18%. We broke another
company record in the third quarter for volume of new mortgage
insurance business, which drove a 9% year-over-year increase in our
high-quality insurance in force portfolio to $237 billion," said
Radian’s Chief Executive Officer Rick Thornberry. "These results
reflect the fundamental strength of our business model, the value
of our customer partnerships and the talent of our entire Radian
team."
THIRD QUARTER HIGHLIGHTS
- Mortgage insurance NIW was $22.0 billion for the quarter,
representing an increase of 19 percent compared to $18.5 billion in
the second quarter of 2019 and an increase of 40 percent compared
to $15.8 billion in the prior-year quarter.
- NIW for the quarter represented record volume written on a flow
basis for the company.
- Of the $22.0 billion in NIW in the third quarter of 2019, 85
percent was written with monthly and other recurring premiums,
compared to 83 percent in the second quarter of 2019, and 78
percent in the third quarter of 2018.
- Borrower-paid originations accounted for 97 percent of total
NIW in the third quarter of 2019, compared to 97 percent in the
second quarter of 2019, and 91 percent in the third quarter of
2018.
- Refinances accounted for 19 percent of total NIW in the third
quarter of 2019, compared to 10 percent in the second quarter of
2019, and 5 percent in the third quarter of 2018.
- Total primary mortgage insurance in force as of September 30,
2019, grew to $237.2 billion, an increase of 3 percent compared to
$230.8 billion as of June 30, 2019, and an increase of 9 percent
compared to $217.1 billion as of September 30, 2018.
- Radian’s mortgage insurance portfolio consists of 95 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 81.5 percent as of
September 30, 2019, compared to 83.4 percent as of June 30, 2019,
and 81.4 percent as of September 30, 2018.
- Annualized persistency for the three months ended September 30,
2019, was 75.5 percent, reflecting increased refinance activity in
the market, compared to 80.8 percent for the three months ended
June 30, 2019, and 83.4 percent for the three months ended
September 30, 2018.
- Net mortgage insurance premiums earned were $277.6 million for
the quarter ended September 30, 2019, compared to $296.3 million
for the quarter ended June 30, 2019, and $255.5 million for the
quarter ended September 30, 2018.
- Mortgage insurance in force premium yield was 47.4 basis points
in the third quarter of 2019, compared to 55.9 basis points in the
second quarter of 2019 and 48.6 basis points in the third quarter
of 2018. Net mortgage insurance premiums earned for the second
quarter of 2019 included an increase of $32.9 million as a result
of a cumulative adjustment to unearned premiums related to an
update to the amortization rates used to recognize revenue for
single premium policies. Excluding the impact of this adjustment,
in force premium yield was 47.9 basis points in the second quarter
of 2019.
- The impact of single premium cancellations before consideration
of reinsurance represented 4.6 basis points in the third quarter of
2019, 2.8 basis points in the second quarter of 2019, and 2.1 basis
points in the third quarter of 2018.
- Total net mortgage insurance premium yield, which includes the
impact of ceded premiums and accrued profit commission, was 47.5
basis points in the third quarter of 2019. This compares to 52.2
basis points in the second quarter of 2019, or 46.4 basis points
excluding the impact of the updates to single premium policy
amortization rates described above, and 47.8 basis points in the
third quarter of 2018.
- Additional details regarding premiums earned may be found in
Exhibit D.
- The mortgage insurance provision for losses was $29.1 million
in the third quarter of 2019, compared to $47.2 million in the
second quarter of 2019, and $20.7 million in the prior-year
quarter.
- The number of primary delinquent loans was 20,184 as of
September 30, 2019, an increase of 3 percent compared to 19,643 as
of June 30, 2019 and a decrease of 3 percent compared to 20,770 as
of September 30, 2018.
- The primary mortgage insurance delinquency rate was 1.9 percent
in the third quarter of 2019, compared to 1.9 percent in the second
quarter of 2019, and 2.1 percent in the third quarter of 2018.
- The loss ratio in the third quarter of 2019 was 10.5 percent,
compared to 15.9 percent in the second quarter of 2019, and 8.1
percent in the third quarter of 2018.
- Mortgage insurance loss reserves were $394.1 million as of
September 30, 2019, compared to $401.3 million as of June 30, 2019,
and $409.0 million as of September 30, 2018.
- Total mortgage insurance claims paid were $36.7 million in the
third quarter of 2019, compared to $32.4 million in the second
quarter of 2019, and $59.8 million in the third quarter of 2018. In
addition, the company’s pending claim inventory declined 10 percent
from September 30, 2018.
- Total Services Segment revenues for the third quarter of 2019
were $47.4 million, compared to $43.0 million for the second
quarter of 2019, and $40.9 million for the third quarter of 2018.
Adjusted earnings before interest, income taxes, depreciation and
amortization (Services adjusted EBITDA) for the quarter ended
September 30, 2019 was $3.7 million, compared to $1.4 million for
the quarter ended June 30, 2019, and $0.6 million for the quarter
ended September 30, 2018. Additional details regarding the non-GAAP
measure Services adjusted EBITDA may be found in Exhibits F and
G.
- Other operating expenses were $76.4 million in the third
quarter of 2019, compared to $70.0 million in the second quarter of
2019, and $70.1 million in the third quarter of 2018. Compared to
the second quarter of 2019, the increase in operating expenses was
driven by a reduction in ceding commissions as well as increased
incentive compensation based on year-to-date performance.
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 September 30, 2019, Radian Group maintained $731 million
of available liquidity. Total liquidity, which includes the
company’s $268 million unsecured revolving credit facility entered
into in October 2017, was approximately $1.0 billion as of
September 30, 2019.
- During the third quarter of 2019, Radian redeemed the remaining
$27 million aggregate principal amount of Senior Notes due 2020 and
the remaining $70 million aggregate principal amount of Senior
Notes due 2021.
- Also during the third quarter of 2019, Radian repurchased
approximately 3.3 million shares, or approximately $77.5 million of
Radian Group common stock, including commissions. This repurchase
activity completed the company's $250 million share repurchase
program initiated in August 2018 and also included shares purchased
under the company's new $200 million program authorized in August
2019.
- In addition, in October 2019, the Company purchased an
additional 1.1 million shares, or approximately $25 million of
Radian Group common stock, including commissions. At October 30,
2019, purchase authority of up to approximately $150 million
remained available under the existing program, which expires on
July 31, 2020.
- On October 17, 2019, Moody’s Investors Service upgraded the
senior unsecured debt rating of Radian Group to Ba1 from Ba2. The
outlook for the ratings is stable. Moody's rationale in support of
the rating includes expectations for continued strong profitability
due to favorable U.S. housing market and economic fundamentals, as
well as the company's recent actions to reduce its financial
leverage, extend its debt maturity profile and increase liquidity
at the holding company.
Radian Guaranty
- At September 30, 2019, Radian Guaranty’s Available Assets under
the Private Mortgage Insurer Eligibility Requirements (PMIERs)
totaled approximately $3.4 billion, resulting in an excess or
“cushion” of approximately $652 million, or 24 percent over its
Minimum Required Assets of approximately $2.7 billion.
- On October 17, 2019, Moody’s Investors Service upgraded the
insurance financial strength rating of Radian Guaranty to Baa1 from
Baa2. The outlook for the ratings is stable. Moody’s rationale in
support of the rating includes Radian's strong position in the
market, its increased risk distribution through insurance-linked
notes and traditional reinsurance, and its significant capital
resources to absorb losses during periods of elevated mortgage
credit losses, as well as the company's diverse customer base and
comfortable PMIERs cushion.
CONFERENCE CALL
Radian will discuss third quarter financial results in a
conference call tomorrow, Thursday, October 31, 2019, at 10:00 a.m.
Eastern time. The conference call will be broadcast live over the
Internet at http://www.radian.biz/page?name=Webcasts or at
www.radian.biz. The call may also be
accessed by dialing 844.767.5679 inside the U.S., or 409.207.6967
for international callers, using passcode 4017930 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:
866.207.1041 inside the U.S., or 402.970.0847 for international
callers, passcode 2166484.
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 extinguishment of debt; (iii) amortization and impairment of
goodwill and other acquired intangible assets; and (iv) impairment
of other long-lived assets and other non-operating items, such as
losses from the sale of lines of business and acquisition-related
expenses. 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, Services adjusted EBITDA margin is
calculated by dividing Services adjusted EBITDA by GAAP total
revenue for the Services segment. Services adjusted EBITDA and
Services adjusted EBITDA margin are used 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
Information
New Insurance Written
Exhibit I:
Mortgage Insurance Supplemental
Information
Primary Insurance in Force and Risk in
Force
Exhibit J:
Mortgage Insurance Supplemental
Information
Claims and Reserves
Exhibit K:
Mortgage Insurance Supplemental
Information
Default Statistics
Exhibit L:
Mortgage Insurance Supplemental
Information
Reinsurance Programs
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations Trend Schedule
Exhibit A
2019
2018
(In thousands,
except per-share amounts)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Revenues:
Net premiums earned - insurance
$
281,185
$
299,166
$
263,512
$
261,682
$
258,431
Services revenue
42,509
39,303
32,753
38,414
36,566
Net investment income
42,756
43,761
43,847
42,051
38,995
Net gains (losses) on investments and
other financial instruments
13,009
12,540
21,913
(11,705
)
(4,480
)
Other income
879
194
1,604
1,031
1,174
Total revenues
380,338
394,964
363,629
331,473
330,686
Expenses:
Provision for losses
29,231
47,427
20,754
27,140
20,881
Policy acquisition costs
6,435
6,203
5,893
6,485
5,667
Cost of services
29,044
27,845
24,157
24,939
25,854
Other operating expenses
76,384
70,046
78,805
77,266
70,125
Restructuring and other exit
costs
—
—
—
113
4,464
Interest expense
13,492
14,961
15,697
15,584
15,535
Loss on extinguishment of debt
5,940
16,798
—
—
—
Amortization and impairment of other
acquired intangible assets
2,139
2,139
2,187
3,461
3,472
Total expenses
162,665
185,419
147,493
154,988
145,998
Pretax income
217,673
209,545
216,136
176,485
184,688
Income tax provision
44,235
42,815
45,179
36,706
41,891
Net income
$
173,438
$
166,730
$
170,957
$
139,779
$
142,797
Diluted net income per share
$
0.83
$
0.78
$
0.78
$
0.64
$
0.66
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net income —basic and diluted
$
173,438
$
166,730
$
170,957
$
139,779
$
142,797
Average common shares
outstanding—basic
203,107
208,097
213,537
213,435
213,309
Dilutive effect of share-based
compensation arrangements (1)
5,584
5,506
4,806
4,448
4,593
Adjusted average common shares
outstanding—diluted
208,691
213,603
218,343
217,883
217,902
Basic net income per share
$
0.85
$
0.80
$
0.80
$
0.65
$
0.67
Diluted net income per share
$
0.83
$
0.78
$
0.78
$
0.64
$
0.66
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Shares of common stock
equivalents
—
168
169
337
338
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
September 30,
June 30,
March 31,
December 31,
September 30,
(In thousands,
except per-share amounts)
2019
2019
2019
2018
2018
Assets:
Investments
$
5,533,724
$
5,513,319
$
5,475,770
$
5,153,029
$
5,028,235
Cash
49,393
74,111
118,668
95,393
104,413
Restricted cash
2,853
5,007
9,086
11,609
9,925
Accounts and notes receivable
144,113
122,104
89,237
78,652
108,003
Deferred income taxes, net
—
6,872
67,697
131,643
134,201
Goodwill and other acquired intangible
assets, net
52,533
54,672
56,811
58,998
55,707
Prepaid reinsurance premium
374,339
385,805
408,622
417,628
413,728
Other assets
513,647
430,236
373,678
367,700
415,272
Total assets
$
6,670,602
$
6,592,126
$
6,599,569
$
6,314,652
$
6,269,484
Liabilities and stockholders’
equity:
Unearned premiums
$
647,856
$
666,354
$
720,159
$
739,357
$
747,921
Reserve for losses and loss adjustment
expense
398,141
405,278
388,784
401,361
412,460
Senior notes
886,643
982,890
1,031,197
1,030,348
1,029,511
FHLB advances
104,492
106,382
108,532
82,532
71,430
Reinsurance funds withheld
352,532
339,641
329,868
321,212
352,952
Other liabilities
358,431
308,337
310,938
251,127
307,932
Total liabilities
2,748,095
2,808,882
2,889,478
2,825,937
2,922,206
Common stock
220
223
230
231
231
Treasury stock
(901,556
)
(901,419
)
(895,321
)
(894,870
)
(894,635
)
Additional paid-in capital
2,469,097
2,539,803
2,697,724
2,724,733
2,720,626
Retained earnings
2,229,107
2,056,175
1,889,964
1,719,541
1,580,296
Accumulated other comprehensive income
(loss)
125,639
88,462
17,494
(60,920
)
(59,240
)
Total stockholders’ equity
3,922,507
3,783,244
3,710,091
3,488,715
3,347,278
Total liabilities and stockholders’
equity
$
6,670,602
$
6,592,126
$
6,599,569
$
6,314,652
$
6,269,484
Shares outstanding
202,219
205,399
212,136
213,473
213,333
Book value per share
$
19.40
$
18.42
$
17.49
$
16.34
$
15.69
Tangible book value per share (See
Exhibit G)
$
19.14
$
18.15
$
17.22
$
16.06
$
15.43
Debt to capital ratio (1)
18.4
%
20.6
%
21.7
%
22.8
%
23.5
%
Risk to capital ratio-Radian Guaranty
only
14.2
:1
14.6
:1
13.4
:1
13.9
:1
12.4
:1
Risk to capital ratio-Mortgage
Insurance combined
12.9
:1
13.3
:1
12.4
:1
12.8
:1
11.7
:1
(1)
Calculated as senior notes
divided by senior notes and stockholders' equity.
Radian Group Inc. and
Subsidiaries
Net Premiums Earned - Insurance
Exhibit D
2019
2018
(In
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Premiums earned - insurance:
Direct - Mortgage Insurance:
Premiums earned, excluding revenue from
cancellations (1)
$
274,595
$
315,109
(2)
$
268,496
$
266,536
$
257,940
Single Premium Policy
cancellations
27,254
15,793
9,957
9,320
11,559
Total direct - Mortgage
Insurance
301,849
330,902
(2)
278,453
275,856
269,499
Assumed - Mortgage Insurance: (1)
(3)
2,614
2,481
2,450
2,082
1,994
Ceded - Mortgage Insurance:
Premiums earned, excluding revenue from
cancellations
(28,457
)
(53,948
)
(2)
(24,486
)
(23,573
)
(20,990
)
Single Premium Policy cancellations
(4)
(8,137
)
(4,833
)
(2,953
)
(3,091
)
(3,288
)
Profit commission - other (5)
9,729
21,732
(2)
8,314
8,447
8,267
Total ceded premiums, net of profit
commission - Mortgage Insurance (6)
(26,865
)
(37,049
)
(2)
(19,125
)
(18,217
)
(16,011
)
Net premiums earned - insurance -
Mortgage Insurance
277,598
296,334
(2)
261,778
259,721
255,482
Net premiums earned - insurance -
Services
3,587
2,832
1,734
1,961
2,949
Net premiums earned - insurance
$
281,185
$
299,166
(2)
$
263,512
$
261,682
$
258,431
(1)
Certain prior period amounts
in 2018 have been reclassified to conform to current period
presentation.
(2)
Includes a cumulative
adjustment to unearned premiums related to an update to the
amortization rates used to recognize revenue for Single Premium
Policies.
(3)
Includes premiums earned from
our participation in certain credit risk transfer programs.
(4)
Includes the impact of related
profit commissions.
(5)
The amounts represent the
profit commission on the Single Premium QSR Program, excluding the
impact of Single Premium Policy cancellations.
(6)
See Exhibit L for additional
information on ceded premiums for our various reinsurance
programs.
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net premiums written - insurance
(1)
$
270,567
$
265,345
$
251,586
$
247,256
$
253,827
(Increase) decrease in unearned
premiums
7,031
30,989
(2)
10,192
12,465
1,655
Net premiums earned - insurance
277,598
296,334
261,778
259,721
255,482
Net investment income
42,579
43,584
43,665
41,875
38,824
Other income
879
602
1,196
641
725
Total
321,056
340,520
306,639
302,237
295,031
Provision for losses
29,053
47,165
20,844
27,079
20,715
Policy acquisition costs
6,435
6,203
5,893
6,485
5,667
Other operating expenses before
corporate allocations (3)
31,149
28,438
30,410
37,070
33,152
Total (4)
66,637
81,806
57,147
70,634
59,534
Adjusted pretax operating income before
corporate allocations
254,419
258,714
249,492
231,603
235,497
Allocation of corporate operating
expenses
26,671
24,388
25,625
21,627
19,794
Allocation of interest expense
13,492
14,961
15,697
11,133
11,083
Adjusted pretax operating
income
$
214,256
$
219,365
$
208,170
$
198,843
$
204,620
Services
2019
2018
(In
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net premiums earned - insurance
$
3,587
$
2,832
$
1,734
$
1,961
$
2,949
Services revenue (4)
43,614
40,380
33,723
39,006
37,332
Net investment income
177
177
182
176
171
Other income
—
(408
)
408
390
449
Total
47,378
42,981
36,047
41,533
40,901
Provision for losses
211
318
(18
)
113
242
Cost of services
29,162
28,015
24,559
25,064
26,001
Other operating expenses before
corporate allocations (3)
15,176
14,204
13,435
13,719
14,772
Restructuring and other exit costs
(3)
—
—
—
113
407
Total
44,549
42,537
37,976
39,009
41,422
Adjusted pretax operating income (loss)
before corporate allocations (5)
2,829
444
(1,929
)
2,524
(521
)
Allocation of corporate operating
expenses
4,342
3,970
4,171
3,232
2,948
Allocation of interest expense
—
—
—
(6)
4,451
4,452
Adjusted pretax operating income
(loss)
$
(1,513
)
$
(3,526
)
$
(6,100
)
$
(5,159
)
$
(7,921
)
(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)
Includes a cumulative
adjustment to unearned premiums related to an update to the
amortization rates used to recognize revenue for Single Premium
Policies.
(3)
Does not include impairment of
other long-lived assets and other non-operating items, which are
not considered components of adjusted pretax operating income
(loss).
(4)
Inter-segment
information:
2019
2018
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Inter-segment expense included in
Mortgage Insurance segment
$
1,105
$
1,077
$
970
$
592
$
766
Inter-segment revenue included in
Services segment
1,105
1,077
970
592
766
(5)
Supplemental information for
Services adjusted EBITDA (see definition in Exhibit F):
2019
2018
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Adjusted pretax operating income (loss)
before corporate allocations
$
2,829
$
444
$
(1,929
)
$
2,524
$
(521
)
Depreciation and amortization
865
976
995
700
1,077
Services adjusted EBITDA
$
3,694
$
1,420
$
(934
)
$
3,224
$
556
(6)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Loss ratio (1)
10.5
%
15.9
%
8.0
%
10.4
%
8.1
%
Expense ratio (1)
23.1
%
19.9
%
23.7
%
25.1
%
22.9
%
(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 (loss) excluding the effects of: (i) net gains
(losses) on investments and other financial instruments; (ii) loss
on extinguishment of debt; (iii) amortization and impairment of
goodwill and other acquired intangible assets; and (iv) impairment
of other long-lived assets and other non-operating items, such as
losses from the sale of lines of business and acquisition-related
expenses. 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. 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.
(2)
Loss on extinguishment of debt. Gains or
losses on early extinguishment of debt and losses incurred to
purchase our 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)
Amortization and 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 are also
periodically reviewed for potential impairment, and impairment
adjustments are made whenever appropriate. We do not view these
charges as part of the operating performance of our primary
activities.
(4)
Impairment of other long-lived assets and
other non-operating items. Includes activities that we do not view
to be indicative of our fundamental operating activities, such as:
(i) losses from the sale of lines of business and (ii)
acquisition-related expenses.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
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, Services adjusted EBITDA margin is
calculated by dividing Services adjusted EBITDA by GAAP total
revenue for the Services segment. Services adjusted EBITDA and
Services adjusted EBITDA margin are used 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 3)
Reconciliation of Consolidated
Pretax Income to Adjusted Pretax Operating Income
2019
2018
(In
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Consolidated pretax income
$
217,673
$
209,545
$
216,136
$
176,485
$
184,688
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
13,009
12,540
21,913
(11,705
)
(4,480
)
Loss on extinguishment of debt
(5,940
)
(16,798
)
—
—
—
Amortization and impairment of other
acquired intangible assets
(2,139
)
(2,139
)
(2,187
)
(3,461
)
(3,472
)
Impairment of other long-lived assets
and other non-operating items (1)
—
103
(5,660
)
(2,033
)
(4,059
)
Total adjusted pretax operating income
(2)
$
212,743
$
215,839
$
202,070
$
193,684
$
196,699
(1)
The amount for the three months ended
September 31, 2018 includes $3.6 million of other exit costs
associated with impairment of internal-use software included within
restructuring and other exit costs on the Condensed Consolidated
Statement of Operations in Exhibit A. The amounts for all other
periods 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.
(2)
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.
Reconciliation of Diluted Net
Income Per Share to Adjusted Diluted Net Operating Income Per
Share
2019
2018
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Diluted net income per share
$
0.83
$
0.78
$
0.78
$
0.64
$
0.66
Less per-share impact of reconciling
income (expense) items:
Net gains (losses) on investments and
other financial instruments
0.06
0.06
0.10
(0.05
)
(0.02
)
Loss on extinguishment of debt
(0.03
)
(0.08
)
—
—
—
Amortization and impairment of other
acquired intangible assets
(0.01
)
(0.01
)
(0.01
)
(0.02
)
(0.02
)
Impairment of other long-lived assets
and other non-operating items
—
—
(0.02
)
(0.01
)
(0.02
)
Income tax (provision) benefit on
reconciling income (expense) items (1)
—
0.01
(0.01
)
0.02
0.01
Difference between statutory and
effective tax rates
—
—
(0.01
)
—
—
Per-share impact of reconciling income
(expense) items
0.02
(0.02
)
0.05
(0.06
)
(0.05
)
Adjusted diluted net operating income
per share (1)
$
0.81
$
0.80
$
0.73
$
0.70
$
0.71
(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.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 2 of 3)
Reconciliation of Return on
Equity to Adjusted Net Operating Return on Equity (1)
2019
2018
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Return on equity (1)
18.0
%
17.8
%
19.0
%
16.4
%
17.4
%
Less impact of reconciling income
(expense) items: (2)
Net gains (losses) on investments and
other financial instruments
1.4
1.3
2.4
(1.4
)
(0.5
)
Loss on extinguishment of debt
(0.6
)
(1.8
)
—
—
—
Amortization and impairment of other
acquired intangible assets
(0.2
)
(0.2
)
(0.2
)
(0.4
)
(0.4
)
Impairment of other long-lived assets
and other non-operating items
—
—
(0.6
)
(0.3
)
(0.5
)
Income tax (provision) benefit on
reconciling income (expense) items (3)
(0.1
)
0.1
(0.3
)
0.4
0.3
Difference between statutory and
effective tax rates
0.1
0.2
—
0.2
(0.5
)
Impact of reconciling income (expense)
items
0.6
(0.4
)
1.3
(1.5
)
(1.6
)
Adjusted net operating return on
equity
17.4
%
18.2
%
17.7
%
17.9
%
19.0
%
(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 rate of 21%. Any permanent tax adjustments
and state income taxes on these items have been deemed immaterial
and are not included.
Reconciliation of Book Value
Per Share to Tangible Book Value Per Share (1)
2019
2018
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Book value per share
$
19.40
$
18.42
$
17.49
$
16.34
$
15.69
Less: Goodwill and other acquired
intangible assets, net per share
0.26
0.27
0.27
0.28
0.26
Tangible book value per share
$
19.14
$
18.15
$
17.22
$
16.06
$
15.43
(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 3 of 3)
Reconciliation of Net Income
to Services Adjusted EBITDA
2019
2018
(In
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net income
$
173,438
$
166,730
$
170,957
$
139,779
$
142,797
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
13,009
12,540
21,913
(11,705
)
(4,480
)
Loss on extinguishment of debt
(5,940
)
(16,798
)
—
—
—
Amortization and impairment of other
acquired intangible assets
(2,139
)
(2,139
)
(2,187
)
(3,461
)
(3,472
)
Impairment of other long-lived assets
and other non-operating items
—
103
(5,660
)
(2,033
)
(4,059
)
Income tax provision
44,235
42,815
45,179
36,706
41,891
Mortgage Insurance adjusted pretax
operating income
214,256
219,365
208,170
198,843
204,620
Services adjusted pretax operating
income (loss)
(1,513
)
(3,526
)
(6,100
)
(5,159
)
(7,921
)
Less reconciling income (expense)
items:
Allocation of corporate operating
expenses to Services
(4,342
)
(3,970
)
(4,171
)
(3,232
)
(2,948
)
Allocation of corporate interest
expense to Services
—
—
—
(4,451
)
(4,452
)
Services depreciation and
amortization
(865
)
(976
)
(995
)
(700
)
(1,077
)
Services adjusted EBITDA
$
3,694
$
1,420
$
(934
)
$
3,224
$
556
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Total primary new insurance
written
$
22,037
$
18,539
$
10,900
$
12,737
$
15,764
Percentage of
primary new insurance written by FICO score (1)
>=740
64.1
%
62.2
%
57.6
%
54.6
%
55.5
%
680-739
31.5
32.5
34.7
35.8
34.7
620-679
4.4
5.3
7.7
9.6
9.8
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of
primary new insurance written
Borrower-paid
97.1
%
96.5
%
95.1
%
94.0
%
91.4
%
Percentage by
premium type
Direct monthly and other recurring
premiums
85.0
%
83.3
%
83.4
%
82.8
%
78.4
%
Direct single premiums (2):
Lender-paid
1.9
2.5
3.9
5.0
7.4
Borrower-paid (3)
13.1
14.2
12.7
12.2
14.2
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary new insurance written for
purchases
80.7
%
89.8
%
92.2
%
94.9
%
95.5
%
Primary new insurance written for
refinances
19.3
%
10.2
%
7.8
%
5.1
%
4.5
%
Percentage by
LTV
95.01% and above
16.8
%
20.5
%
19.7
%
18.3
%
16.9
%
90.01% to 95.00%
37.4
38.1
40.9
43.1
44.3
85.01% to 90.00%
27.4
26.9
27.3
27.5
27.9
85.00% and below
18.4
14.5
12.1
11.1
10.9
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
(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)
September 30,
June 30,
March 31,
December 31,
September 30,
($ in millions)
2019
2019
2019
2018
2018
Primary insurance
in force (1)
Prime
$
232,086
$
225,443
$
218,227
$
215,739
$
211,168
Alt-A and A minus and below
5,072
5,313
5,507
5,704
5,928
Total Primary
$
237,158
$
230,756
$
223,734
$
221,443
$
217,096
Primary risk in
force (1) (2)
Prime
$
59,217
$
57,795
$
56,054
$
55,374
$
54,168
Alt-A and A minus and below
1,203
1,262
1,307
1,354
1,409
Total Primary
$
60,420
$
59,057
$
57,361
$
56,728
$
55,577
Percentage of
primary risk in force
Direct monthly and other recurring
premiums
72.0
%
71.2
%
70.6
%
70.3
%
69.9
%
Direct single premiums
28.0
%
28.8
%
29.4
%
29.7
%
30.1
%
Percentage of
primary risk in force by FICO score (3)
>=740
56.2
%
55.7
%
55.2
%
55.1
%
55.1
%
680-739
34.5
34.6
34.8
34.8
34.7
620-679
8.6
8.9
9.2
9.3
9.3
<=619
0.7
0.8
0.8
0.8
0.9
Total Primary
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of
primary risk in force by LTV
95.01% and above
13.9
%
13.2
%
12.2
%
11.6
%
11.0
%
90.01% to 95.00%
51.9
52.5
53.0
53.1
53.1
85.01% to 90.00%
27.9
28.2
28.6
29.0
29.4
85.00% and below
6.3
6.1
6.2
6.3
6.5
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of
primary risk in force by policy year
2008 and prior
8.4
%
8.9
%
9.6
%
10.1
%
10.9
%
2009
0.2
0.3
0.3
0.4
0.4
2010
0.2
0.2
0.3
0.3
0.3
2011
0.6
0.7
0.7
0.8
0.9
2012
2.5
2.9
3.3
3.7
4.1
2013
4.6
5.2
5.8
6.2
6.7
2014
4.8
5.3
5.8
6.1
6.5
2015
8.1
8.9
9.7
10.2
10.9
2016
13.5
14.8
16.0
16.8
17.9
2017
17.4
18.9
20.3
21.1
22.0
2018
19.7
21.8
23.5
24.3
19.4
2019
20.0
12.1
4.7
—
—
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary risk in force on defaulted
loans
$
1,012
$
986
$
1,002
$
1,032
$
1,019
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.
September 30,
June 30,
March 31,
December 31,
September 30,
2019
2019
2019
2018
2018
Persistency Rate (12 months
ended)
81.5
%
83.4
%
83.4
%
83.1
%
81.4
%
Persistency Rate (quarterly,
annualized) (4)
75.5
%
80.8
%
85.4
%
85.5
%
83.4
%
(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 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
2019
2018
($ in
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net claims paid: (1)
Total primary claims paid
$
28,981
$
31,940
$
33,360
$
35,175
$
45,814
Total pool and other
901
472
1,230
190
1,241
Subtotal
29,882
32,412
34,590
35,365
47,055
Impact of commutations (2)
6,812
15
—
4,356
12,712
Total net claims paid
$
36,694
$
32,427
$
34,590
$
39,721
$
59,767
Total average net primary claim paid
(1) (3)
$
47.0
$
50.1
$
48.6
$
52.0
$
53.6
Average direct primary claim paid (3)
(4)
$
48.1
$
51.1
$
49.2
$
52.9
$
54.2
(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 commutations.
(4)
Before reinsurance recoveries.
($ in thousands,
except primary reserve
September 30,
June 30,
March 31,
December 31,
September 30,
per primary
default amounts)
2019
2019
2019
2018
2018
Reserve for losses by category
(1)
Mortgage insurance (“MI”)
reserves
Prime
$
236,382
$
242,378
$
240,489
$
242,135
$
241,858
Alt-A and A minus and below
95,723
104,863
111,955
119,553
129,297
IBNR and other (2)
42,117
33,888
13,008
13,864
14,505
LAE
9,000
9,070
8,994
10,271
11,203
Total primary reserves
383,222
390,199
374,446
385,823
396,863
Total pool reserves
10,605
10,816
10,621
11,640
11,705
Total 1st lien reserves
393,827
401,015
385,067
397,463
408,568
Other
260
279
294
428
412
Total MI reserves
394,087
401,294
385,361
397,891
408,980
Services reserves
4,054
3,984
3,423
3,470
3,480
Total reserves
$
398,141
$
405,278
$
388,784
$
401,361
$
412,460
1st lien reserve per default
Primary reserve per primary default
excluding IBNR and other
$
16,900
$
18,139
$
17,962
$
17,634
$
18,409
(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.
(2)
For the quarters ended September 30,
2019 and June 30, 2019, includes increases of $11.8 million and
$19.4 million, respectively, in the Company's IBNR reserve estimate
related to previously disclosed legal proceedings involving
challenges from certain servicers regarding loss mitigation
activities.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Default Statistics
Exhibit K
September 30,
June 30,
March 31,
December 31,
September 30,
2019
2019
2019
2018
2018
Default
Statistics
Primary Insurance:
Prime
Number of insured loans
1,040,520
1,018,715
994,865
986,704
969,994
Number of loans in default
15,345
14,521
14,831
15,402
14,916
Percentage of loans in default
1.47
%
1.43
%
1.49
%
1.56
%
1.54
%
Alt-A and A minus
and below
Number of insured loans
32,163
33,609
34,763
35,906
37,268
Number of loans in default
4,839
5,122
5,291
5,691
5,854
Percentage of loans in default
15.05
%
15.24
%
15.22
%
15.85
%
15.71
%
Total Primary
Number of insured loans
1,072,683
1,052,324
1,029,628
1,022,610
1,007,262
Number of loans in default
20,184
19,643
20,122
21,093
20,770
Percentage of loans in default
1.88
%
1.87
%
1.95
%
2.06
%
2.06
%
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Reinsurance Programs
Exhibit L
2019
2018
($ in
thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Quota Share
Reinsurance (“QSR”) and Single Premium QSR Programs
Ceded premiums written (1)
$
8,408
$
588
$
7,017
$
12,923
$
24,094
% of premiums written
2.9
%
2.2
%
2.7
%
4.8
%
8.5
%
Ceded premiums earned
$
19,295
$
29,212
(2)
$
15,676
$
15,726
$
15,813
% of premiums earned
6.3
%
8.7
%
5.5
%
5.6
%
5.7
%
Ceding commissions written
$
6,778
$
6,861
$
4,695
$
6,006
$
8,988
Ceding commissions earned (3)
$
12,153
$
16,353
(2)
$
8,685
$
7,718
$
8,373
Profit commission
$
18,346
$
26,476
(2)
$
11,318
$
10,638
$
11,358
Ceded losses
$
771
$
1,868
$
1,687
$
1,730
$
1,191
Excess-of-Loss
Program
Ceded premiums written
$
6,878
$
13,468
$
2,919
$
9,009
$
—
% of premiums written
2.4
%
4.8
%
1.1
%
3.3
%
—
%
Ceded premiums earned
$
7,452
$
7,662
$
3,265
$
2,305
$
—
% of premiums earned
2.4
%
2.3
%
1.2
%
0.8
%
—
%
Ceded RIF
(4)
QSR Program
$
702,201
$
768,554
$
840,621
$
910,862
$
974,359
Single Premium QSR Program
8,538,363
8,495,651
8,267,506
8,168,939
7,984,178
Excess-of-Loss Program
974,800
1,017,440
454,641
455,440
—
Total Ceded RIF
$
10,215,364
$
10,281,645
$
9,562,768
$
9,535,241
$
8,958,537
PMIERs impact -
reduction in Minimum Required Assets (5)
QSR Program
$
38,227
$
41,873
$
45,477
$
48,734
$
51,883
Single Premium QSR Program
513,832
516,468
507,656
522,318
511,052
Excess-of-Loss Program
834,072
926,640
454,641
455,440
—
Total PMIERs impact
$
1,386,131
$
1,484,981
$
1,007,774
$
1,026,492
$
562,935
(1)
Net of profit commission, where
applicable.
(2)
Includes a cumulative adjustment to
unearned premiums related to an update to the amortization rates
used to recognize revenue for Single Premium Policies.
(3)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Ceding commissions
$
(8,160
)
$
(12,408
)
$
(5,643
)
$
(5,837
)
$
(5,988
)
(4)
Included in primary
RIF.
(5)
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 Securities Exchange
Act of 1934 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 liquidity needs;
- our ability to successfully execute and implement our business
plans and strategies, including 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 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 whether GSE eligible loans meet the "qualified mortgages"
(QM) loan requirements under applicable law, 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 QM
loan requirements, which currently are subject to an Advanced
Notice of Proposed Rulemaking (ANPR) issued by the Consumer
Financial Protection Bureau;
- 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, new or
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" 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 financial results caused by changes in the
fair value of our assets and liabilities, including 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 and registration statements 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/20191030005914/en/
Emily Riley - Phone: 215.231.1035 email: emily.riley@radian.com
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