Radian Reports First Quarter 2013 Financial Results

– Writes $10.9 billion of new MI business in the first quarter –

– Improves risk-to-capital ratio to 18.6:1; More than $800 million of currently available holding company liquidity –

– Total number of primary delinquent loans declines by 17% from first quarter of 2012 –

Business Wire

PHILADELPHIA--(BUSINESS WIRE)--

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

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

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

CAPITAL AND LIQUIDITY UPDATE

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

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

FIRST QUARTER HIGHLIGHTS

  • New mortgage insurance written (NIW) was $10.9 billion for the quarter, compared to $11.7 billion in the fourth quarter of 2012 and $6.5 billion in the prior-year quarter. Radian wrote an additional $4.1 billion in NIW in April 2013, compared to $2.5 billion in April 2012.

    • The Home Affordable Refinance Program (HARP) accounted for $2.5 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $2.9 billion in the fourth quarter of 2012 and $929.9 million in the prior-year quarter. As of March 31, 2013, more than 10 percent of the company’s total primary mortgage insurance risk in force had successfully completed a HARP refinance.
    • Of the $10.9 billion in new business written in the first quarter of 2013, 64 percent was written with monthly premiums and 36 percent with single premiums.
    • NIW continued to consist of loans with excellent risk characteristics, with 75 percent consisting of loans with FICO scores of 740 or greater.
  • The mortgage insurance provision for losses was $132.0 million in the first quarter of 2013, compared to $306.9 million in the fourth quarter of 2012, and $234.7 million in the prior-year period. The loss ratio in the first quarter for Radian Guaranty was 72.1 percent, compared to 171.0 in the fourth quarter of 2012 and 135.3 percent in the first quarter of 2012. Mortgage insurance loss reserves were approximately $2.9 billion as of March 31, 2013, which decreased from $3.1 billion as of December 31, 2012, and from $3.2 billion as of March 31, 2012. First-lien reserves per primary default increased to $30,426 as of March 31, 2013, compared to $29,510 as of December 31, 2012, and $27,833 as of March 31, 2012.
  • The total number of primary delinquent loans decreased by 9 percent in the first quarter from the fourth quarter of 2012, and by 17 percent from the first quarter of 2012. The primary mortgage insurance delinquency rate decreased to 10.9 percent in the first quarter of 2013, compared to 12.1 percent in the fourth quarter of 2012, and 14.1 percent in the first quarter of 2012. The company’s primary risk in force on defaulted loans was $4.0 billion in the first quarter, compared to $4.3 billion in the fourth quarter of 2012, and $4.9 billion in the first quarter of 2012.
  • Total mortgage insurance claims paid were $309.9 million in the first quarter, compared to $263.4 million in the fourth quarter, and $218.2 million in the first quarter of 2012.
  • $38.0 million of other operating expenses in the first quarter represented compensation expenses related to an increase in the estimated future value of performance awards that are impacted by changes in the company’s stock price. This increased compensation expense primarily reflects Radian’s higher stock price in the first quarter. In 2012, such compensation expenses were $13.5 million in the fourth quarter and $8.0 million in the first quarter.
  • Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.

    • As of March 31, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.5 billion in claims-paying resources.
    • In January, Radian Asset completed the commutation of its remaining reinsurance risk from Financial Guaranty Insurance Corporation (FGIC) of $822 million, which resulted in a $7 million contingency reserve release in the first quarter.
    • In February, Radian Asset received regulatory approval to release an additional $61 million of contingency reserves, which benefited Radian Guaranty's statutory capital position in the first quarter. The reserve release was based on a reduction in Radian Asset’s net par outstanding, resulting from the maturing of exposures and other terminations of coverage.
    • Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $37 million in 2013.
    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 76 percent to $28.2 billion as of March 31, 2013, including large declines in many of the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, May 1, 2013, at 11:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800-230-1096 inside the U.S., or 612-288-0329 for international callers, using passcode 290876 or by referencing Radian.

A replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two and a half hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800-475-6701 inside the U.S., or 320-365-3844 for international callers, passcode 290876.

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

ABOUT RADIAN

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

FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)

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

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

(In thousands, except per-share data)

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

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

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

(In thousands, except per-share data)

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

(In thousands)

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

(1)

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

(1)

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

(1)

Reflects the impact of the commutation of reinsurance business.

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

(In thousands)

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

(1)

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

(1)

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

(1)

 

Reflects the impact of the commutation of reinsurance business.

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

(In thousands)

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

(2)

$ 9,000  
 
March 31 December 31

($ in thousands, except ratios)

2013 2012
 

Statutory Information:

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

(1)

 

Included in change in fair value of derivative instruments.

(2)

Primarily related to commutation of reinsurance business.

(3)

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

(4)

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

(5)

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

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

($ in millions)

$   % $   %

Primary new insurance written

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

Total primary new insurance written by FICO score

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

Percentage of primary new insurance written

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

($ in millions)

$     % $     %

Primary insurance in force

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

Primary risk in force

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

($ in millions)

$     % $     %

Total primary risk in force by FICO score

       
Flow
>=740 $ 17,556 53.2 % $ 12,889 45.5 %
680-739 9,865 29.9 9,184 32.4
620-679 4,801 14.5 5,328 18.8
805       2.4   947       3.3  
Total Flow $ 33,027       100.0 % $ 28,348       100.0 %
 
Structured
>=740 $ 647 26.7 % $ 712 26.5 %
680-739 698 28.9 781 29.0
620-679 642 26.5 721 26.8
432       17.9   477       17.7  
Total Structured $ 2,419       100.0 % $ 2,691       100.0 %
 
Total
>=740 $ 18,203 51.3 % $ 13,601 43.8 %
680-739 10,563 29.8 9,965 32.1
620-679 5,443 15.4 6,049 19.5
1,237       3.5   1,424       4.6  
Total Primary $ 35,446       100.0 % $ 31,039       100.0 %
 

Total primary risk in force by LTV

95.01% and above $ 4,494 12.7 % $ 5,165 16.6 %
90.01% to 95.00% 13,988 39.5 11,072 35.7
85.01% to 90.00% 13,473 38.0 11,983 38.6
85.00% and below 3,491       9.8   2,819       9.1  
Total $ 35,446       100.0 % $ 31,039       100.0 %
 

Total primary risk in force by policy year

2005 and prior $ 5,362 15.1 % $ 6,574 21.2 %

 2006

2,635 7.4 3,057 9.8

 2007

5,876 16.6 6,722 21.7

 2008

4,436 12.5 5,042 16.2

 2009

1,855 5.2 2,511 8.1

 2010

1,573 4.5 2,147 6.9

 2011

2,735 7.7 3,463 11.2

 2012

8,397 23.7 1,523 4.9

 2013

2,577       7.3          
Total $ 35,446       100.0 % $ 31,039       100.0 %
 
Primary risk in force on defaulted loans $ 3,953   $ 4,866  
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit I
       
March 31 March 31
2013 2012

($ in millions)

$     % $     %
     

Pool risk in force

Prime $ 1,393 77.3 % $ 1,505 76.8 %
Alt-A 99 5.5 117 6.0
A minus and below 309       17.2   338       17.2  
Total $ 1,801       100.0 % $ 1,960       100.0 %

 

Total pool risk in force by policy year

2005 and prior $ 1,646 91.4 % $ 1,757 89.6 %

 2006

68 3.8 87 4.4

 2007

80 4.4 99 5.1

 2008

7       0.4   17       0.9  
Total pool risk in force $ 1,801       100.0 % $ 1,960       100.0 %
 
Other risk in force
Second-lien
1st loss $ 75 $ 96
2nd loss 12 27
NIMS 14 15
1st loss-Hong Kong primary mortgage insurance 33   55  
Total other risk in force $ 134   $ 193  
 
Risk to capital ratio-Radian Guaranty only 18.6:1

(1)

 

20.6:1
Risk to capital ratio-Mortgage Insurance combined 25.7:1

(1)

 

29.0:1
 
(1) Preliminary
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit J
   
Quarter Ended March 31,

($ in thousands)

2013     2012
 
Net claims paid
Prime $ 200,517 $ 127,101
Alt-A 49,091 36,651
A minus and below 27,486   26,080  
Total primary claims paid 277,094 189,832
Pool 30,949 24,926
Second-lien and other 1,884   3,583  
Subtotal 309,927 218,341
Impact of first-lien terminations
Impact of captive terminations (148 )
Impact of second-lien terminations    
Total $ 309,927   $ 218,193  
 
Average claim paid (1)
Prime $ 49.0 $ 48.6
Alt-A 60.1 59.4
A minus and below 37.6 40.6
Total primary average claims paid 49.1 49.0
Pool 73.5 67.7
Second-lien and other 22.2 26.9
Total $ 50.4 $ 49.9
 
Average primary claim paid (2) (3) $ 51.4 $ 52.0
Average total claim paid (2) (3) $ 52.6 $ 52.5
 
Loss ratio - GAAP basis 72.1 % 135.3 %
Expense ratio - GAAP basis 42.4 % 25.9 %
114.5 % 161.2 %
 
Reserve for losses by category
Prime $ 1,640,504 $ 1,776,426
Alt-A 539,321 603,998
A minus and below 337,584 369,006
Reinsurance recoverable (4) 72,101   118,071  
Total primary reserves 2,589,510 2,867,501
Pool insurance 295,283   354,133  
Total 1st lien reserves 2,884,793 3,221,634
Second lien and other 9,707   10,747  
Total reserves $ 2,894,500   $ 3,232,381  
 
1st lien reserve per default (5)
Primary reserve per primary default $ 30,426 $ 27,833
Primary reserve per default excluding IBNR 27,517 26,038
Pool reserve per pool default (6) 17,629 17,580
Total 1st lien reserve per default 28,321 26,156

(1)

 

Calculated net of reinsurance recoveries and without giving effect to the impact of first-lien, second-lien and captive terminations.

(2)

Calculated without giving effect to the impact of terminations of captive reinsurance and first- and second-lien transactions.

(3)

Before reinsurance recoveries.

(4)

Represents ceded losses on captive transactions, Smart Home and quota share reinsurance transactions.

(5)

Calculated as total reserves divided by total defaults.

(6)

If calculated before giving effect to deductibles and stop losses in pool transactions, the pool reserve per default at March 31, 2013 and 2012, would be $28,402 and $27,299, respectively.

 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit K
           
March 31 December 31 March 31
2013 2012 2012

Default Statistics

Primary Insurance:
 
Flow

Prime

Number of insured loans 646,497 630,094 575,769
Number of loans in default 50,496 55,483 60,785
Percentage of loans in default 7.81 % 8.81 % 10.56 %

 

Alt-A

Number of insured loans 36,236 37,754 42,591
Number of loans in default 10,910 11,798 13,642
Percentage of loans in default 30.11 % 31.25 % 32.03 %
 

A minus and below

Number of insured loans 33,811 35,150 39,461
Number of loans in default 10,044 11,211 12,241
Percentage of loans in default 29.71 % 31.89 % 31.02 %
 
Total Flow
Number of insured loans 716,544 702,998 657,821
Number of loans in default 71,450 78,492 86,668
Percentage of loans in default 9.97 % 11.17 % 13.18 %
 
Structured

Prime

Number of insured loans 36,730 37,528 40,367
Number of loans in default 4,994 5,371 5,856
Percentage of loans in default 13.60 % 14.31 % 14.51 %
 

Alt-A

Number of insured loans 15,745 16,315 17,977
Number of loans in default 3,923 4,207 5,251
Percentage of loans in default 24.92 % 25.79 % 29.21 %
 

A minus and below

Number of insured loans 13,845 14,157 15,171
Number of loans in default 4,742 5,099 5,252
Percentage of loans in default 34.25 % 36.02 % 34.62 %
 
Total Structured
Number of insured loans 66,320 68,000 73,515
Number of loans in default 13,659 14,677 16,359
Percentage of loans in default 20.60 % 21.58 % 22.25 %
 
Total Primary Insurance

Prime

Number of insured loans 683,227 667,622 616,136
Number of loans in default 55,490 60,854 66,641
Percentage of loans in default 8.12 % 9.12 % 10.82 %
 

Alt-A

Number of insured loans 51,981 54,069 60,568
Number of loans in default 14,833 16,005 18,893
Percentage of loans in default 28.54 % 29.60 % 31.19 %
 

A minus and below

Number of insured loans 47,656 49,307 54,632
Number of loans in default 14,786 16,310 17,493
Percentage of loans in default 31.03 % 33.08 % 32.02 %
 
Total Primary
Number of insured loans 782,864 770,998 731,336
Number of loans in default 85,109 93,169 103,027
Percentage of loans in default 10.87 % 12.08 % 14.09 %
 
Pool insurance
Number of loans in default 16,750 18,147 20,144
 
 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit L
   
Quarter Ended March 31,

($ in thousands)

2013     2012
 

1st Lien Captives

Premiums ceded to captives $ 5,152 $ 6,429
% of total premiums 2.6 % 3.6 %
IIF included in captives (1) 5.8 % 8.4 %
RIF included in captives (1) 5.7 % 8.2 %
 

Initial Quota Share Reinsurance ("QSR") Transaction

QSR ceded premiums written $ 6,122
% of premiums written 2.5 %
QSR ceded premiums earned $ 7,833
% of premiums earned 4.0 %
Ceding commissions $ 1,530
RIF included in QSR (2) $ 1,471,580
 

Second QSR Transaction

QSR ceded premiums written $ 16,440
% of premiums written 6.7 %
QSR ceded premiums earned $ 2,838
% of premiums earned 1.4 %
Ceding commissions $ 5,754
RIF included in QSR (2) $ 900,378
 
Persistency (twelve months ended March 31) 80.9 % 84.5 %

(1)

 

Radian reinsures the middle layer risk positions, while retaining a significant portion of the total risk comprising the first loss and most remote risk positions.

(2)

Included in primary risk in force.

 

FORWARD-LOOKING STATEMENTS

All statements in this press release 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 United States (“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,” 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 publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. 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 including:

  • changes in general economic and political conditions, including high unemployment rates and weakness in the U.S. housing and mortgage credit markets, a significant downturn in the U.S. or global economies, a lack of meaningful liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, each of which may be accelerated or intensified by, among other things, legislative activity or inactivity or actual or threatened downgrades of U.S. credit ratings;
  • changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers or financial guaranty providers, in particular in light of developments in the private mortgage insurance and financial guaranty industries in which certain of our former competitors have ceased writing new insurance business and have been placed under supervision or receivership by insurance regulators;
  • catastrophic events or economic changes in certain geographic regions, including those affecting governments and municipalities, where our mortgage insurance exposure is more concentrated or where we have financial guaranty exposure;
  • our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs;
  • a reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, and general reduced housing demand in the U.S., which may be exacerbated by regulations impacting home mortgage originations, including requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);
  • the potential adverse impact on the mortgage origination market and on private mortgage insurers due to increased capital requirements for mortgage loans under proposed interagency rules to implement the third Basel Capital Accord, including in particular, the possibility that loans insured by the Federal Housing Administration (“FHA”) will receive more favorable regulatory capital treatment than loans with private mortgage insurance;
  • our ability to maintain an adequate risk-to-capital position, minimum policyholder position and other surplus requirements for Radian Guaranty Inc. (“Radian Guaranty”), our principal mortgage insurance subsidiary;
  • our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
  • a more rapid than expected decrease in the current elevated levels of mortgage insurance rescissions and claim denials, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in net rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials, or caused by the government-sponsored entities intervening in mortgage insurers’ loss mitigation practices, including settlements of disputes regarding loss mitigation activities;
  • the negative impact that our loss mitigation activities may have on our relationships with customers and potential customers, including the potential loss of business and the heightened risk of disputes and litigation;
  • the need, in the event that we are unsuccessful in defending our rescissions, denials or claim curtailments, to increase our loss reserves for, and reassume risk on, rescinded loans or denied claims, and to pay additional claims, including amounts previously curtailed;
  • any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
  • adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and which remain in our insured portfolio) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
  • a decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income on our monthly premium policies and could decrease the profitability of our mortgage insurance business;
  • heightened competition for our mortgage insurance business from others such as the FHA, the U.S. Department of Veterans Affairs and other private mortgage insurers, including in particular, those that have been assigned higher ratings than we have, that may have access to greater amounts of capital than we do, or that are new entrants to the industry and are therefore not burdened by legacy obligations;
  • changes in the charters or business practices of, or rules or regulations applicable to, Fannie Mae and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to remain an eligible provider to both Fannie Mae and Freddie Mac;
  • changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in effect or scope;
  • the effect of the Dodd-Frank Act on the financial services industry in general, and on our mortgage insurance and financial guaranty businesses in particular, including whether and to what extent loans with private mortgage insurance may be considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions;
  • the application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations (including in particular investigations and litigation relating to captive reinsurance arrangements under the Real Estate Settlement Practices Act of 1974); and (ii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) otherwise impacting our existing businesses;
  • the amount and timing of potential 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 connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses, or to estimate accurately the fair value amounts of derivative instruments in determining gains and losses on these instruments;
  • volatility in our earnings caused by changes in the fair value of our assets and liabilities carried at fair value, including our derivative instruments, and the impact of variable accounting for certain of our performance-based long-term compensation awards;
  • our ability to realize some or all of the tax benefits associated with our gross deferred tax assets, which will depend on our ability to generate sufficient sustainable taxable income in future periods;
  • changes in accounting principles generally accepted in the United States of America or statutory accounting principles, rules and guidance, or their interpretation; and
  • legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012, and those risks detailed in 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 filed this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements made in this report to reflect new information or future events or for any other reason.

Contact:
Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.biz
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