*********************Summary of The Last Week********************
Radian reported it's Q2 financial results on Wednesday, August 1, 2012. The risk to capital came in at a solid 21.0 to 1, a slight move from 20.6 to 1 reported in Q1 2012.
The Mortgage Guaranty Unit showed an improvement with a loss of $22.9 million from a loss of $45.2 million in Q1 2012. The improvement was a result of the loss provisions declining to $208 million from $234.7 million in Q1 2012. The total loss provision for Radian Group declined to $210.9 million in Q2 2012 from $266.2 million from Q2 2012. Radian defaults declined in Q2 from Q1 2012 and Q2 2011.
Net Premiums earned increased in Q2 2012 to $186.7 million from $167.4 million in Q1 2012. Mortgage Guaranty Unit revenues were $170.7 from $173.5 in Q2 2012. The total loss for Radian Group was 119.3 million in Q2 from $169.2 million in Q1 2012.
Derivatives Fair Value Adjustment
Combined losses from the change in fair value of derivatives and other financial instruments of $95.0 million.
Substracting fair adjustments leaves a total loss for Radian Group of only $24.3 million
Significant Events in Q2 2012 Quarter
1) Losses in Q1 and Q2 were driven by the Assured Guaranty transaction where Radian ceded some of it's Radian Asset Assurance financial guaranty unit assets.
2) Radian Asset completed the sale of Municipal and Infrastructure Assurance Corporation (MIAC) in the second quarter for a gain of $7.7 million
3) Total mortgage insurance claims paid were $263.4 million, compared to $218.2 million in the first quarter for 2012 total of $481.6 million. The company continues to expect mortgage insurance net claims paid of approximately $1.1 billion for the full-year 2012.
4) Lower New Defaults are driving better results for Radian Guaranty. New Defaults on loans in Q2 2012 were down 20% from Q2 2011. New Defaults were 4,867 down from 5,565 in Q1, for a decline of 698; New Defaults were 6,953 in the June 30, 2011 quarter.
Financial results for the rest of 2012 should reflect more normal operations. The extraordinary transactions Radian completed in the first half of 2012 increased statutory capital by over $110 million.
Radian expects to return to profitabity in 2013 based on current trends. More claims are expected to be paid in H2 2012 as servicers locate documents to perfect claims payments on loans that have been returned(rescinded)by Radian. Analysts question of rescissions are answered by that developement and process.
**************Financial Outlook for next 12 months***************
Overall Radian had a good quarter in June 2012, as they continued operating with strong capital and liquidity remains high and adequate. New Insurance Written(NIW) has already exceeded 2011 totals of $15.5 billion with $18.24 billion which is adding liquidity due to 33% of all policies are paid in cash upfront, the other policies are monthly payments type. New Defaults are Headed lower increasing Radian adding to Cash Flow.
Risk to capital for Radian is under pressure primarily due to the extraordinary level of NIW in 2012, projected to exceed $30 billion. It is extremely important for Radian to "write as much new NIW as possible" because, essentially, they are increasing the composition of their insurance portfolio "from the poorer quality NIW written in 2006-2007 and, part of 2008, with high quality NIW", which will ultimately result in lower "new defaults" and return Radian Group to profitability.
Radian's Group Corporate risk profile continues to improve:
References: Radian Group Financial Statements for June 30, 2011, March 31, 2012 and June 30, 2012
All results published in H2 2012 will support a stronger capitalized and liquidity driven Radian Group starting with monthly reports and quarterly Financial Statements.
Sentiment: Strong Buy