-- Net income of $66 million or $0.29 per
diluted share --
-- Adjusted pretax operating income of $130
million --
-- Adjusted diluted net operating income of
$0.37 per share --
-- Book value per share increases 8%
year-over-year to $12.42 --
Radian Group Inc. (NYSE: RDN) today reported net income from
continuing operations for the quarter ended March 31, 2016, of
$66.2 million, or $0.29 per diluted share. This compares to net
income from continuing operations for the quarter ended March 31,
2015, of $91.7 million, or $0.39 per diluted share. Pretax income
from continuing operations for the quarter ended March 31, 2016,
was $102.4 million, compared to $137.5 million for the quarter
ended March 31, 2015.
Key Financial Highlights (dollars
in millions, except per share data)
Quarter EndedMarch 31, 2016
Quarter EndedMarch 31, 2015
PercentChange
Net income from continuing operations $66.2 $91.7
(28 %) Diluted net income per share from continuing
operations $0.29 $0.39 (26 %) Pretax income
from continuing operations $102.4 $137.5 (26
%) Adjusted pretax operating income $130.2 $123.9
5 % Adjusted diluted net operating income per share *
$0.37 $0.35 6 % Revenues $313.0 $290.7
8 % Net premiums earned - insurance $221.0
$224.6 (2 %) Book value per share $12.42
$11.53 8 %
* Adjusted diluted net operating income per share is calculated
using the company’s statutory tax rate.
Adjusted pretax operating income for the quarter ended March 31,
2016, was $130.2 million, compared to $123.9 million for the
quarter ended March 31, 2015. Adjusted diluted net operating income
per share for the quarter ended March 31, 2016, was $0.37, compared
to $0.35 for the quarter ended March 31, 2015. See “Non-GAAP
Financial Measures” below.
Book value per share at March 31, 2016 grew to $12.42, compared
to $12.07 at December 31, 2015, and $11.53 at March 31, 2015.
“Our solid first quarter results were driven primarily by
exceptional credit trends,” said Radian’s Chief Executive Officer
S.A. Ibrahim. “We delivered on our commitment to strengthen our
financial position, increase capital flexibility and improve our
debt maturity profile, and during the quarter Radian Guaranty
returned to investment grade ratings.”
FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- New mortgage insurance written (NIW)
was $8.1 billion for the quarter, compared to $9.1 billion in the
fourth quarter of 2015 and $9.4 billion in the prior-year quarter.
- Of the $8.1 billion in new business
written in the first quarter of 2016, 29 percent was written with
single premiums, which is generally unchanged from the fourth
quarter of 2015. Net single premiums written, after consideration
of the 35 percent ceded under the previously announced Single
Premium QSR, was 19 percent in the first quarter of 2016.
- The Single Premium QSR decreased the
percentage of Radian’s single-premium risk in force, net of
reinsurance ceded, from 31 to 25 percent as of March 31, 2016.
- Refinances accounted for 19 percent of
total NIW in the first quarter of 2016, compared to 17 percent in
the fourth quarter of 2015, and 33 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force as of March 31, 2016, was $175.4 billion, compared to $175.6
billion as of December 31, 2015, and $172.1 billion as of March 31,
2015.
- Persistency, which is the percentage of
mortgage insurance in force that remains on the company’s books
after a twelve-month period, was 79.4 percent as of March 31, 2016,
compared to 78.8 percent as of December 31, 2015, and 82.6 percent
as of March 31, 2015.
- Annualized persistency for the
three-months ended March 31, 2016, was 82.3 percent, compared to
81.8 percent for the three-months ended December 31, 2015, and 80.3
percent for the three-months ended March 31, 2015.
- Total net premiums earned were $221.0
million for the quarter ended March 31, 2016, compared to $226.4
million for the quarter ended December 31, 2015, and $224.6 million
for the quarter ended March 31, 2015.
- The Single Premium QSR decreased net
premiums earned by approximately $6.0 million, net of the accrued
profit commission of $6.1 million.
- The mortgage insurance provision for
losses was $43.3 million in the first quarter of 2016, compared to
$56.8 million in the fourth quarter of 2015, and $45.9 million in
the prior-year period.
- The provision for losses in the first
quarter included the positive impact of a modest reduction in the
company’s default to claim rate assumption for new notices of
default as well as positive development on existing defaults.
- The loss ratio in the first quarter was
19.6 percent, compared to 25.1 percent in the fourth quarter of
2015 and 20.4 percent in the first quarter of 2015.
- Mortgage insurance loss reserves were
$891.3 million as of March 31, 2016, compared to $976.4 million as
of December 31, 2015, and $1,384.7 million as of March 31,
2015.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $24,959 as of March 31,
2016. This compares to primary reserve per primary default of
$24,019 as of December 31, 2015, and $28,423 as of March 31,
2015.
- The total number of primary delinquent
loans decreased by 13 percent in the first quarter from the fourth
quarter of 2015, and by 24 percent from the first quarter of 2015.
The primary mortgage insurance delinquency rate decreased to 3.5
percent in the first quarter of 2016, compared to 4.0 percent in
the fourth quarter of 2015, and 4.6 percent in the first quarter of
2015.
- Total mortgage insurance claims paid
were $127.7 million in the first quarter, compared to $176.5
million in the fourth quarter of 2015, and $207.1 million in the
first quarter of 2015. The company continues to expect claims paid
for the full-year 2016 of approximately $400–450 million.
- In January, Moody’s Investors Service
upgraded its insurance financial strength ratings of Radian
Guaranty to an investment grade rating of Baa3. In March, Standard
& Poor’s Ratings Services upgraded its financial strength and
long-term issuer credit ratings on Radian Guaranty to an investment
grade rating of BBB-.
Mortgage and Real Estate Services
- The Services segment is primarily
comprised of the operations for Clayton Holdings LLC, a leading
provider of risk-based analytics, residential loan due diligence,
consulting, surveillance and staffing solutions. The company also
provides
- customized Real Estate Owned (REO)
asset management and single-family rental component services
through its Green River Capital subsidiary;
- advanced Automated Valuation Models,
Broker Price Opinions and technology solutions to monitor loan
portfolio performance, acquire and track non-performing loans, and
value and sell residential real estate through its Red Bell Real
Estate subsidiary;
- valuation, title, closing and
settlement services as well as technology solutions for vendor
management through its ValuAmerica subsidiary; and
- a global reach through its Clayton
EuroRisk subsidiary.
- Total revenues for the first quarter
were $32.2 million, compared to $38.2 million for the fourth
quarter of 2015, and $31.5 million for the first quarter of
2015.
- The adjusted pretax operating loss
before corporate allocations for the quarter ended March 31, 2016,
was $3.7 million, compared to income of $3.6 million for the
quarter ended December 31, 2015, and income of $3.4 million for the
quarter ended March 31, 2015. Earnings before interest, income
taxes, depreciation and amortization (EBITDA) for the quarter ended
March 31, 2016 was a loss of $3.1 million, compared to income of
$4.2 million for the quarter ended December 31, 2015, and income of
$3.9 million for the quarter ended March 31, 2015. You may find
details regarding the non-GAAP measure EBITDA and its definition in
Exhibits F and G.
Consolidated Expenses
Other operating expenses were $59.0 million in the first
quarter, compared to $59.6 million in the fourth quarter of 2015,
and $53.8 million in the first quarter of last year.
- Consistent with the company’s expense
reduction initiatives announced last quarter, operating expenses
for the first quarter of 2016 included severance charges of
approximately $3.0 million related to a reduction in force.
- Operating expenses for the first
quarter of 2016 were comprised of $43.2 million for the Mortgage
Insurance segment, compared to $46.7 million in the fourth quarter
of 2015, and $43.8 million in the first quarter of last year.
- Operating expenses for the first
quarter of 2016 were comprised of $15.6 million for the Services
segment, compared to $12.7 million in the fourth quarter of 2015,
and $9.8 million in the first quarter of last year.
- A significant portion of the $3.0
million in severance charges reflected in the company’s
consolidated expenses was related to a reduction in force in the
Services segment.
- Red Bell Real Estate and ValuAmerica
were acquired March 20, 2015, and October 8, 2015, respectively,
and are therefore not included in operating expenses for the first
quarter of 2015. Operating expenses for these companies represented
$2.8 million in the first quarter of 2016.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $393 million of available
liquidity. Radian Guaranty expects to be in a position to seek to
redeem a portion, or potentially all, of its $325 million surplus
note with Radian Group as early as June 30, 2016. Any repayments of
the surplus note by Radian Guaranty would increase Radian Group’s
available liquidity by the same amount. Redemption of the surplus
note is subject to approval by the Pennsylvania Insurance
Department.
- During the first quarter of 2016, the
company successfully completed a series of transactions to
strengthen its financial position. The combination of these actions
have the impact of decreasing diluted shares outstanding, improving
its debt maturity profile and significantly increasing the amount
by which our Available Assets exceed our Minimum Required Assets
under the PMIERs Financial Requirements. This series of
transactions consisted of:
- the issuance of $350 million aggregate
principal amount of Senior Notes due 2021;
- the purchases of aggregate principal
amounts of approximately $30.1 million and $288.4 million,
respectively, of the company’s outstanding Convertible Senior Notes
due 2017 and 2019;
- the termination of a corresponding
portion of the capped call transactions related to the purchased
Convertible Senior Notes due 2017;
- the completion of a share repurchase
program pursuant to which the company purchased an aggregate of
$100.0 million of Radian Group common stock; and
- the entry into the Radian Guaranty
Single Premium QSR transaction.
- Radian Guaranty is compliant with the
PMIERs and does not expect to require any additional capital
contributions in order to remain compliant. The financial
requirements of the PMIERs require a mortgage insurer's Available
Assets to equal or exceed its Minimum Required Assets. As of March
31, 2016, Radian Guaranty’s Available Assets exceeded its Minimum
Required Assets by approximately $500 million, due primarily to the
significant positive impact of the Single Premium QSR as well as
organic growth.
- As of March 31, 2016, a total of $5.3
billion of risk in force outstanding had been ceded under quota
share reinsurance agreements.
Ibrahim added, “With the combination of our high-quality
mortgage insurance portfolio and the expanded capabilities of our
mortgage and real estate services businesses, we believe we are
better positioned today to drive long-term value than ever
before.”
CONFERENCE CALL
Radian will discuss first quarter financial results in a
conference call today, Wednesday, April 27, 2016, 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
800.288.8967 inside the U.S., or 612.332.0345 for international
callers, using passcode 391331 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 391331.
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 and
adjusted diluted net operating income per share (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 viewed as alternatives to GAAP
measures of performance. The measures described below have been
established in order to increase transparency for the purpose of
evaluating the company’s core 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 (loss) from continuing operations.
Adjusted pretax operating income adjusts GAAP pretax income from
continuing operations to remove the effects of: (i) net gains
(losses) on investments and other financial instruments; (ii) loss
on induced conversion and debt extinguishment; (iii)
acquisition-related expenses; (iv) amortization and impairment of
intangible assets; and (v) net impairment losses recognized in
earnings. 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.
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 taxes, depreciation and amortization
(EBITDA). Services EBITDA is calculated 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. Services EBITDA is presented to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
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 Group Inc. (NYSE: RDN), headquartered in Philadelphia,
provides private mortgage insurance, risk management products and
real estate services to financial institutions. Radian offers
products and services through two business segments:
- Mortgage Insurance, through its
principal mortgage insurance subsidiary Radian Guaranty Inc. This
private mortgage insurance protects lenders from default-related
losses, facilitates the sale of low-downpayment mortgages in the
secondary market and enables homebuyers to purchase homes more
quickly with downpayments less than 20%.
- Mortgage and Real Estate
Services, through its principal services subsidiary Clayton, as
well as Green River Capital, Red Bell Real Estate and ValuAmerica.
These solutions include information and services that financial
institutions, investors and government entities use to evaluate,
acquire, securitize, service and monitor loans and asset-backed
securities.
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 Operations
Trend Schedule Exhibit B: Net Income Per Share Trend Schedule
Exhibit C: Condensed Consolidated Balance Sheets Exhibit D:
Discontinued Operations Exhibit E: Segment Information Exhibit F:
Definition of Consolidated Non-GAAP Financial Measure Exhibit G:
Consolidated Non-GAAP Financial Measure Reconciliations Exhibit H:
Mortgage Insurance Supplemental Information New Insurance Written
Exhibit I: Mortgage Insurance Supplemental Information Insurance in
Force, Risk in Force by Product and Statutory Capital Ratios
Exhibit J: Mortgage Insurance Supplemental Information Risk in
Force by FICO, LTV and Policy Year Exhibit K: Mortgage Insurance
Supplemental Information Claims, Reserves and Reserve per Default
Exhibit L: Mortgage Insurance Supplemental Information Default
Statistics Exhibit M: Mortgage Insurance Supplemental Information
QSR, Captives and Persistency
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Exhibit
A 2016 2015
(In thousands,
except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Revenues: Net premiums earned - insurance $
220,950 $ 226,443 $ 227,433 $ 237,437 $ 224,595
Services
revenue 31,600 37,493 42,189 43,503 30,630
Net
investment income 27,201 22,833 22,091 19,285 17,328
Net gains (losses) on investments and other financial
instruments 31,286 (13,402 ) 3,868 28,448 16,779
Other income 1,915 1,515 1,711
1,743 1,331
Total revenues 312,952
274,882 297,292 330,416 290,663
Expenses: Provision for losses 42,991
56,805 64,192 32,560 45,028
Policy acquisition costs
6,389 4,831 2,880 6,963 7,750
Direct cost of services
21,749 22,241 24,949 23,520 19,253
Other operating
expenses 58,989 59,570 65,082 67,731 53,774
Interest
expense 21,534 20,996 21,220 24,501 24,385
Loss on
induced conversion and debt extinguishment 55,570 2,320
11 91,876 —
Amortization and impairment of intangible assets
3,328 3,409 3,273 3,281 3,023
Total expenses 210,550 170,172
181,607 250,432 153,213
Pretax
income from continuing operations 102,402 104,710
115,685 79,984 137,450
Income tax provision 36,153
30,182 45,594 34,791 45,723
Net income from continuing operations 66,249 74,528
70,091 45,193 91,727
Income from discontinued operations, net of
tax — — — 4,855 530
Net income $ 66,249 $ 74,528 $
70,091 $ 50,048 $ 92,257
Diluted net
income per share: Net income from continuing operations
$ 0.29 $ 0.32 $ 0.29 $ 0.20 $ 0.39
Income from
discontinued operations, net of tax — — —
0.02 —
Net income $ 0.29
$ 0.32 $ 0.29 $ 0.22 $ 0.39
Selected Mortgage Insurance Key Ratios Loss ratio
(1) 19.6 % 25.1 % 28.2 % 13.3 % 20.4 %
Expense
ratio (1) 22.4 % 22.7 % 23.9 % 25.8 % 23.0 %
(1) Calculated on a GAAP basis using net premiums
earned.
On April 1, 2015, Radian Guaranty completed the previously
disclosed sale of 100% of the issued and outstanding shares of
Radian Asset Assurance to Assured, pursuant to the Radian Asset
Assurance Stock Purchase Agreement dated as of December 22, 2014.
As a result, the operating results of Radian Asset Assurance are
classified as discontinued operations for all periods presented in
our condensed consolidated statements of operations. See Exhibit D
for additional information on discontinued operations.
Radian Group Inc. and Subsidiaries Net
Income Per Share Exhibit B The calculation of
basic and diluted net income per share was as follows:
2016 2015
(In thousands,
except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Net
income from continuing operations: Net income from
continuing operations—basic $ 66,249 $ 74,528 $
70,091 $ 45,193 $ 91,727
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1) 3,390 3,664
3,714 3,707 3,673
Net income from
continuing operations—diluted $ 69,639 $
78,192 $ 73,805 $ 48,900 $ 95,400
Net income: Net income from continuing
operations—basic $ 66,249 $ 74,528 $ 70,091 $
45,193 $ 91,727
Income from discontinued operations, net of
tax — — — 4,855 530
Net income—basic 66,249 74,528 70,091 50,048 92,257
Adjustment for dilutive Convertible Senior Notes due 2019, net
of tax (1) 3,390 3,664 3,714 3,707
3,673
Net income—diluted $
69,639 $ 78,192 $ 73,805 $ 53,755
$ 95,930
Average common shares
outstanding—basic 203,706 206,872 207,938 193,112
191,224
Dilutive effect of Convertible Senior Notes due 2017
— 1,057 1,798 12,438 10,886
Dilutive effect of
Convertible Senior Notes due 2019 33,583 37,736 37,736
37,736 37,736
Dilutive effect of stock-based compensation
arrangements (2) 2,418 2,316 3,323
3,364 3,202
Adjusted average common shares outstanding—diluted
239,707 247,981 250,795 246,650
243,048
Net income per
share:
Basic: Net income from continuing operations $
0.33 $ 0.36 $ 0.34 $ 0.23 $ 0.48
Income from discontinued
operations, net of tax — — — 0.03
—
Net income $ 0.33 $
0.36 $ 0.34 $ 0.26 $ 0.48
Diluted: Net income from continuing operations
$ 0.29 $ 0.32 $ 0.29 $ 0.20 $ 0.39
Income from
discontinued operations, net of tax — — —
0.02 —
Net income $ 0.29
$ 0.32 $ 0.29 $ 0.22 $ 0.39
(1)
As applicable, includes coupon
interest, amortization of discount and fees, and other changes in
income or loss that would result from the assumed
conversion.
(2)
The following number of shares of our
common stock equivalents issued under our stock-based compensation
arrangements were not included in the calculation of diluted net
income per share because they were anti-dilutive:
2016 2015
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Shares
of common stock equivalents 709 728 469 264 540
Radian Group Inc. and
Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C March 31 December 31, September 30,
June 30, March 31,
(In thousands,
except per share data)
2016 2015 2015 2015 2015
Assets:
Investments $ 4,470,172 $ 4,298,686 $
4,376,771 $ 4,309,148 $ 3,621,646
Cash 64,844 46,898
69,030 51,381 57,204
Restricted cash 10,060 13,000
10,280 12,633 14,220
Accounts and notes receivable
66,340 61,734 65,951 72,093 64,405
Deferred income taxes,
net 518,059 577,945 601,893 651,238 649,996
Goodwill
and other intangible assets, net 286,069 289,417 287,334
290,640 293,798
Prepaid reinsurance premium 228,718
40,491 44,091 47,835 53,088
Other assets 325,129
313,929 305,566 301,536 287,188
Assets held for sale
— — — — 1,755,873
Total
assets $ 5,969,391 $ 5,642,100 $
5,760,916 $ 5,736,504 $ 6,797,418
Liabilities and stockholders’ equity: Unearned
premiums $ 673,887 $ 680,300 $ 676,938 $ 665,947
$ 657,555
Reserve for losses and loss adjustment expense
891,348 976,399 1,098,570 1,204,792 1,384,714
Long-term
debt 1,286,466 1,219,454 1,230,246 1,224,892 1,202,535
Reinsurance funds withheld 151,104 — — — —
Other
liabilities 306,188 269,016 311,855 278,929 310,642
Liabilities held for sale — — —
— 966,078
Total liabilities 3,308,993
3,145,169 3,317,609 3,374,560 4,521,524
Equity component of currently redeemable convertible senior
notes — — 7,737 8,546 68,982
Common stock
232 224 224 226 209
Additional paid-in capital
1,880,173 1,823,442 1,825,034 1,816,545 1,648,436
Retained earnings 757,202 691,742 617,731 548,161
498,593
Accumulated other comprehensive income (loss)
22,791 (18,477 ) (7,419 ) (11,534 ) 59,674
Total
stockholders’ equity 2,660,398 2,496,931
2,435,570 2,353,398 2,206,912
Total liabilities
and stockholders’ equity $ 5,969,391 $
5,642,100 $ 5,760,916 $ 5,736,504 $ 6,797,418
Shares outstanding 214,265 206,872 206,870
208,587 191,416
Book value per share $
12.42 $ 12.07 $ 11.77 $ 11.28 $ 11.53
Radian Group
Inc. and Subsidiaries Discontinued Operations Exhibit
D
The income from discontinued operations,
net of tax consisted of the following components for the periods
indicated:
2015
(In
thousands)
Qtr 2 Qtr 1
Net premiums earned $ — $ 1,007
Net
investment income — 9,153
Net gains on investments and other
financial instruments 7,818 13,668
Change in fair value of
derivative instruments — 2,625
Total
revenues 7,818 26,453
Provision for
losses — 502
Policy acquisition costs — (191 )
Other
operating expense — 4,107
Total expenses —
4,418
Equity in net loss of affiliates
— (13 )
Income from operations of businesses held for
sale 7,818 22,022
Loss on sale (350 ) (13,930 )
Income tax provision 2,613 7,562
Income
from discontinued operations, net of tax $ 4,855 $ 530
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 EBITDA, along with reconciliations to
consolidated GAAP measures, see Exhibits F and G.
Mortgage Insurance 2016 2015
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Net
premiums written - insurance $ 26,310 (1)
$ 233,347 $ 242,168 $ 251,082 $ 241,908
Decrease (increase) in
unearned premiums 194,640 (6,904 ) (14,735 )
(13,645 ) (17,313 )
Net premiums earned - insurance
220,950 226,443 227,433 237,437 224,595
Net investment
income (2) 27,201 22,833 22,091 19,285 17,328
Other
income (2) 1,915 1,515 1,711 1,743
1,331
Total 250,066 250,791
251,235 258,465 243,254
Provision for losses 43,275 56,817 64,128 31,637
45,851
Policy acquisition costs 6,389 4,831 2,880
6,963 7,750
Other operating expenses before corporate
allocations 33,829 37,406 36,632
41,853 34,050
Total (3)
83,493 99,054 103,640 80,453
87,651
Adjusted pretax operating income before corporate
allocations 166,573 151,737 147,595 178,012 155,603
Allocation of corporate operating
expenses (2)
9,329 9,251 14,893 12,516 9,758
Allocation of interest
expense (2) 17,112 16,582 16,797
20,070 19,953
Adjusted pretax operating income
$ 140,132 $ 125,904 $ 115,905 $
145,426 $ 125,892
Services 2016
2015
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1
Services revenue (3)
$ 32,196 $ 38,175 $ 43,114 $
44,595 $ 31,532
Direct cost of services
22,053 22,880 25,870 25,501 19,253
Other operating
expenses before corporate allocations 13,883
11,710 11,533 11,522 8,857
Total
35,936 34,590 37,403 37,023
28,110
Adjusted pretax operating (loss) income before
corporate allocations (4) (3,740 ) 3,585 5,711
7,572 3,422
Allocation of corporate operating expenses
1,751 968 1,567 1,307 981
Allocation of interest
expense 4,422 4,414 4,423 4,431
4,432
Adjusted pretax operating (loss) income
$ (9,913 ) $ (1,797 ) $ (279 ) $ 1,834
$ (1,991 )
(1)
Net of ceded premiums written under the
Single Premium QSR transaction of $197.6 million.
(2)
For periods prior to the quarter ended
June 30, 2015, includes certain corporate income and expenses that
have been reallocated from our prior financial guaranty segment to
the Mortgage Insurance segment and that were not reclassified to
discontinued operations.
(3)
Inter-segment information:
2016 2015
Qtr 1 Qtr 4 Qtr 3
Qtr 2 Qtr 1
Inter-segment expense included in
Mortgage Insurance segment $ 596 $ 682 $
925 $ 1,092 $ 902
Inter-segment revenue included
in Services segment 596 682 925 1,092 902
Radian Group Inc. and Subsidiaries Segment
Information Exhibit E (page 2 of 2) (4)
Supplemental information for Services EBITDA (see definition in
Exhibit F): 2016 2015
Qtr 1 Qtr 4
Qtr 3 Qtr 2 Qtr 1
Adjusted pretax operating (loss)
income before corporate allocations $ (3,740
) $ 3,585 $ 5,711 $ 7,572 $ 3,422
Depreciation and
amortization 661 612 555 482
449
Services EBITDA $ (3,079 ) $
4,197 $ 6,266 $ 8,054 $ 3,871
Selected balance sheet information for our segments, as of
the periods indicated, is as follows:
At March 31, 2016
(In
thousands)
MortgageInsurance
Services Total Total assets
$ 5,605,505 363,886 $ 5,969,391
At December 31, 2015
(In
thousands)
MortgageInsurance
Services Total
Total assets $ 5,281,597 360,503 $ 5,642,100
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 non-GAAP financial measures for the consolidated company,
“adjusted pretax operating income (loss)” and “adjusted diluted net
operating income (loss) per share,” 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 core
operating trends and enabling more meaningful comparisons with our
peers. Although on a consolidated basis “adjusted pretax operating
income (loss)” and “adjusted diluted net operating income (loss)
per share” 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 (the Company’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 (loss) is defined as GAAP
pretax income (loss) from continuing operations excluding the
effects of net gains (losses) on investments and other financial
instruments, loss on induced conversion and debt extinguishment,
acquisition-related expenses, amortization and impairment of
intangible assets and net impairment losses recognized in earnings.
Adjusted diluted net operating income (loss) per share is
calculated by dividing (i) adjusted pretax operating income (loss)
attributable to common shareholders, net of taxes computed using
the company’s statutory tax rate, by (ii) the sum of the weighted
average number of common shares outstanding and all dilutive
potential common shares outstanding. Interest expense on
convertible debt, share dilution from convertible debt and the
impact of stock-based compensation arrangements have been reflected
in the per share calculations consistent with the accounting
standard regarding earnings per share, whenever the impact is
dilutive.
Although adjusted pretax operating income (loss) excludes
certain items that have occurred in the past and are expected to
occur in the future, the excluded items represent those that are:
(1) not viewed as part of the operating performance of our primary
activities; or (2) not expected to result in an economic impact
equal to the amount reflected in pretax income (loss) from
continuing operations. 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
investment gains and losses arise primarily from changes in the
market value of our investments that are classified as trading.
These valuation adjustments may not necessarily result in 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. We do not view
them to be indicative of our fundamental operating activities.
Therefore, these items are excluded from our calculation of
adjusted pretax operating income (loss). However, we include the
change in expected economic loss or recovery associated with our
consolidated VIEs, if any, in the calculation of adjusted pretax
operating income (loss). (2)
Loss on induced conversion and debt
extinguishment. Gains or losses on early extinguishment of debt and
losses incurred to induce conversion of convertible debt prior to
maturity are discretionary activities that are undertaken in order
to take advantage of market opportunities to strengthen our
financial position; therefore, we do not view these activities as
part of our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).
(3)
Acquisition-related expenses.
Acquisition-related expenses represent the costs incurred to effect
an acquisition of a business (i.e., a business combination).
Because we pursue acquisitions on a strategic and selective basis
and not in the ordinary course of our business, we do not view
acquisition-related expenses as a consequence of a primary business
activity. Therefore, we do not consider these expenses to be part
of our operating performance and they are excluded from our
calculation of adjusted pretax operating income (loss).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
(4)
Amortization and impairment of intangible
assets. Amortization of intangible assets represents the periodic
expense required to amortize the cost of intangible assets over
their estimated useful lives. Intangible assets with an indefinite
useful life are also periodically reviewed for potential
impairment, and impairment adjustments are made whenever
appropriate. These charges are not viewed as part of the operating
performance of our primary activities and therefore are excluded
from our calculation of adjusted pretax operating income
(loss).
(5)
Net impairment losses recognized in
earnings. The recognition of net impairment losses on investments
can vary significantly in both size and timing, depending on market
credit cycles. We do not view these impairment losses to be
indicative of our fundamental operating activities. Therefore,
whenever these losses occur, we exclude them from our calculation
of adjusted pretax operating income (loss).
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 earnings
before interest, income taxes, depreciation and amortization
(“EBITDA”). We calculate Services 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. We have presented Services EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
See Exhibit G for the reconciliation of our non-GAAP financial
measures for the consolidated company, adjusted pretax operating
income and adjusted diluted net operating income per share, to the
most comparable GAAP measures, pretax income from continuing
operations and net income per share from continuing operations,
respectively. Exhibit G also contains the reconciliation of
Services EBITDA to the most comparable GAAP measure, pretax income
from continuing operations.
Total adjusted pretax operating income (loss), adjusted diluted
net operating income (loss) per share and Services EBITDA are not
measures of total profitability, and therefore should not be viewed
as substitutes for GAAP pretax income (loss) from continuing
operations or net income (loss) per share from continuing
operations. Our definitions of adjusted pretax operating income
(loss), adjusted diluted net operating income (loss) per share or
EBITDA 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 2)
Reconciliation of Adjusted Pretax
Operating Income (Loss) to Consolidated Pretax Incomefrom
Continuing Operations
2016 2015
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Adjusted pretax operating income (loss):
Mortgage Insurance (1) $ 140,132 $ 125,904 $
115,905 $ 145,426 $ 125,892
Services (9,913
) (1,797 ) (279 ) 1,834
(1,991 )
Total adjusted pretax operating income
130,219 124,107 115,626 147,260 123,901
Net gains
(losses) on investments and other financial instruments (2)
31,286 (13,402 ) 3,868 28,448 16,779
Loss on induced
conversion and debt extinguishment (55,570 )
(2,320 ) (11 ) (91,876 ) —
Acquisition-related expenses (3)
(205 ) (266 ) (525 ) (567 ) (207 )
Amortization
and impairment of intangible assets (3) (3,328
) (3,409 ) (3,273 ) (3,281 )
(3,023 )
Consolidated pretax income from continuing
operations $ 102,402 $ 104,710 $
115,685 $ 79,984 $ 137,450
(1)
For periods prior to the quarter ended
June 30, 2015, includes certain corporate income and expenses that
have been reallocated from our prior financial guaranty segment to
the Mortgage Insurance segment and that were not reclassified to
discontinued operations.
(2)
This line item includes a de minimis
amount of expected economic loss or recovery associated with our
previously consolidated VIEs that is included in adjusted pretax
operating income above.
(3)
Please see Exhibit F for the definition
of this line item.
Reconciliation of Adjusted Diluted Net
Operating Income Per Share (1) to Net Income Per
Sharefrom Continuing Operations
2016 2015
Qtr
1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Adjusted diluted net operating income per share
$ 0.37 $ 0.34 $ 0.31 $ 0.40 $ 0.35
After
tax per share impact: Net gains (losses) on
investments and other financial instruments 0.08 (0.03 )
0.01 0.07 0.04
Loss on induced conversion and debt
extinguishment (0.15 ) (0.01 ) — (0.28 ) —
Acquisition-related expenses — — — — —
Amortization and impairment of intangible assets
(0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.01 )
Difference
between statutory and effective tax rate — 0.03 (0.02 )
0.02 0.01
Net income per
share from continuing operations $ 0.29 $
0.32 $ 0.29 $ 0.20 $ 0.39
(1)
Calculated using the company’s
statutory tax rate.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 2 of 2)
Reconciliation of Services Segment
EBITDA to Consolidated Pretax Income
from Continuing Operations
2016 2015
(In
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Services EBITDA $ (3,079
) $ 4,197 $ 6,266 $ 8,054 $ 3,871
Allocation of corporate
operating expenses to Services (1,751 ) (968 )
(1,567 ) (1,307 ) (981 )
Allocation of corporate interest
expenses to Services (4,422 ) (4,414 ) (4,423 )
(4,431 ) (4,432 )
Services depreciation and amortization
(661 ) (612 ) (555 ) (482
) (449 )
Services adjusted pretax operating (loss)
income (9,913 ) (1,797 ) (279 ) 1,834 (1,991 )
Mortgage Insurance adjusted pretax operating income
140,132 125,904 115,905
145,426 125,892
Total adjusted
pretax operating income 130,219 124,107 115,626 147,260
123,901
Net gains (losses) on investments and other
financial instruments 31,286 (13,402 ) 3,868 28,448
16,779
Loss on induced conversion and debt extinguishment
(55,570 ) (2,320 ) (11 ) (91,876 ) —
Acquisition-related expenses (205 ) (266 )
(525 ) (567 ) (207 )
Amortization and impairment of intangible
assets (3,328 ) (3,409 )
(3,273 ) (3,281 ) (3,023 )
Consolidated pretax
income from continuing operations $ 102,402
$ 104,710 $ 115,685 $ 79,984 $ 137,450
On a consolidated basis, “adjusted pretax
operating income” and “adjusted diluted net operating income per
share” are measures not determined in accordance with GAAP.
"Services EBITDA" is also a non-GAAP measure. These measures are
not representative of total profitability, and therefore should not
be viewed as substitutes for GAAP pretax income from continuing
operations or net income per share from continuing operations. Our
definitions of adjusted pretax operating income, adjusted diluted
net operating income per share or EBITDA 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
2016 2015
($ in
millions)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Total primary new insurance written
$ 8,071 $ 9,099 $ 11,176 $
11,751 $ 9,385
Percentage of
primary new insurance written by FICO score
>=740
58.4 % 60.3 % 61.0 % 63.0 % 63.6 %
680-739
33.7 32.2 31.9 30.8 30.3
620-679
7.9 7.5 7.1
6.2 6.1
Total Primary
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Direct monthly and other premiums 71 % 71 % 73
% 68 % 63 %
Direct single premiums 29 % 29 %
27 % 32 % 37 %
Net single premiums 19 %
(1) N/A N/A N/A N/A
Refinances 19
% 17 % 13 % 23 % 33 %
LTV 95.01% and above
3.7 % 3.6 % 3.5 % 3.2 % 1.8 %
90.01% to 95.00%
50.5 % 49.5 % 51.5 % 49.4 % 48.4 %
85.01% to
90.00% 33.1 % 34.4 % 34.1 % 34.0 % 33.3 %
85.00% and below 12.7 % 12.5 % 10.9 % 13.4 %
16.5 %
(1)
Represents 29% of direct single
premiums written, after consideration of the 35% single premium NIW
ceded under the Single Premium QSR.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force by
Product, Statutory Capital Ratios
Exhibit I
March 31, December 31,
September 30, June 30,
March 31,
($ in millions) 2016 2015 2015 2015 2015
Primary insurance
in force (1)
Flow $ 167,526 $ 167,469 $ 166,527 $ 164,137 $
162,832
Structured 7,860 8,115
8,339 8,555 9,309
Total Primary $ 175,386 $ 175,584
$ 174,866 $ 172,692 $ 172,141
Prime $ 165,526 $ 165,291 $ 164,060 $ 161,397
$ 160,452
Alt-A 5,907 6,176 6,531 6,857 7,122
A
minus and below 3,953 4,117
4,275 4,438 4,567
Total Primary $ 175,386 $ 175,584
$ 174,866 $ 172,692 $ 172,141
Primary risk in
force (1) (2)
Flow $ 42,861 $ 42,771 $ 42,454 $ 41,706 $
41,256
Structured 1,805 1,856
1,910 1,957 2,133
Total Primary $ 44,666 $ 44,627
$ 44,364 $ 43,663 $ 43,389
Flow
Prime $ 41,211 $ 41,036 $ 40,629 $ 39,781 $
39,251
Alt-A 1,010 1,061 1,124 1,191 1,243
A minus
and below 640 674 701
734 762
Total Flow
$ 42,861 $ 42,771 $ 42,454 $
41,706 $ 41,256
Structured Prime
$ 1,101 $ 1,134 $ 1,155 $ 1,182 $ 1,341
Alt-A
356 366 386 397 410
A minus and below
348 356 369 378
382
Total Structured $
1,805 $ 1,856 $ 1,910 $ 1,957 $
2,133
Total Prime $
42,312 $ 42,170 $ 41,784 $ 40,963 $ 40,592
Alt-A
1,366 1,427 1,510 1,588 1,653
A minus and below
988 1,030 1,070
1,112 1,144
Total Primary
$ 44,666 $ 44,627 $ 44,364 $
43,663 $ 43,389
Percentage of
primary risk in force
Direct monthly and other premiums 69 % 69 % 70
% 70 % 70 %
Direct single premiums 31 % 31 %
30 % 30 % 30 %
Net single premiums (3) 25
% 30 % 30 % 29 % 29 %
Statutory Capital
Ratios
Risk to capital ratio-Radian Guaranty only 12.5:1
(4) 14.3:1 16.5:1 16.5:1 17.1:1
Risk to capital
ratio-Mortgage Insurance combined 12.9:1 (4)
14.6:1 17.9:1 18.0:1 19.1:1
(1)
Includes amounts ceded under our
reinsurance agreements, as well as amounts related to the Freddie
Mac Agreement.
(2)
Does not include pool risk in force or
other risk in force, which combined represent less than 3.0% of our
total risk in force for all periods presented.
(3)
Represents RIF after giving effect to
all reinsurance ceded ("Net RIF").
(4)
Preliminary.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Percentage of Primary Risk in Force by FICO, LTV and
Policy Year(1)
Exhibit J
March 31, December
31, September 30, June 30,
March 31,
($ in millions) 2016 2015 2015 2015
2015
Percentage of
primary risk in force by FICO score
Flow >=740 58.2 % 58.3 % 58.2 % 58.1
% 58.1 %
680-739 30.7 30.5 30.3 30.2 30.0
620-679 10.0 10.1 10.3 10.5 10.6
<=619
1.1 1.1 1.2
1.2 1.3
Total Flow 100.0
% 100.0 % 100.0 % 100.0 % 100.0
%
Structured >=740 29.3 %
29.4 28.9 % 28.7 % 31.1 %
680-739 27.8 27.7 27.9 27.9
28.1
620-679 25.0 25.0 25.2 25.4 24.1
<=619
17.9 17.9 18.0
18.0 16.7
Total Structured
100.0 % 100.0 % 100.0 %
100.0 % 100.0 %
Total >=740
57.0 % 57.1 % 57.0 % 56.7 % 56.8 %
680-739
30.6 30.3 30.2 30.1 29.8
620-679 10.7 10.8
10.9 11.2 11.3
<=619 1.7 1.8
1.9 2.0 2.1
Total Primary 100.0 % 100.0 %
100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 7.2 % 7.3 % 7.4 % 7.6 % 7.9 %
90.01% to 95.00% 50.9 50.4 49.8 49.0 48.2
85.01%
to 90.00% 33.7 34.0 34.3 34.6 35.0
85.00% and
below 8.2 8.3 8.5
8.8 8.9
Total
100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and
prior
6.0 % 6.3 % 6.8 % 7.3 % 7.8 %
2006
3.6 3.7 3.9 4.2 4.4
2007
8.4 8.7 9.1 9.6 10.2
2008
6.0 6.3 6.6 7.0 7.5
2009
1.5 1.7 1.8 2.0 2.3
2010
1.3 1.4 1.5 1.7 2.0
2011
2.7 2.9 3.1 3.5 3.9
2012
10.6 11.2 12.0 13.0 14.2
2013
17.0 18.1 19.2 20.8 22.4
2014
16.3 17.1 18.0 19.0 20.0
2015
22.0 22.6 18.0 11.9 5.3
2016
4.6 — % — % — % —
%
Total 100.0 % 100.0 %
100.0 % 100.0 % 100.0 %
Primary risk in
force on defaulted loans (2) $ 1,562 $ 1,625 $
1,666 $ 1,753 $ 1,883
(1)
Includes amounts ceded under our
reinsurance agreements.
(2)
Excludes risk related to loans subject
to the Freddie Mac Agreement.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Claims and Reserves
Exhibit K
2016 2015
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Net claims paid Prime $
74,432 $ 56,900 $ 65,396 $ 83,489 $ 76,186
Alt-A
28,929 21,343 18,966 23,260 19,999
A minus and below
13,196 11,530 14,028
14,965 15,141
Total primary
claims paid 116,557 89,773 98,390 121,714 111,326
Pool 7,389 6,477 8,721 10,798 8,874
Second-lien
and other 345 (143 ) (16 )
(53 ) (111 )
Subtotal 124,291 96,107
107,095 132,459 120,089
Impact of captive terminations
(120 ) (65 ) — — (12,000 )
Impact of
settlements 3,500 80,426
61,994 79,557 99,006
Total $ 127,671 $ 176,468 $
169,089 $ 212,016 $ 207,095
Average
claim paid (1) Prime $ 47.7 $ 46.9 $ 46.2
$ 48.1 $ 44.0
Alt-A 63.0 61.7 60.2 59.5 54.6
A
minus and below 36.8 40.6 42.5 40.1 35.9
Total
primary average claims paid 49.0 48.7 47.8 48.7 44.2
Pool 53.2 56.3 51.3 69.7 51.5
Total $
48.9 $ 48.9 $ 47.8 $ 49.6 $ 44.5
Average primary
claim paid (2) $ 49.6 $ 50.5 $ 48.5 $ 49.6 $ 45.3
Average total claim paid (2) $ 49.5 $ 50.6 $
48.5 $ 50.4 $ 45.5
($ in thousands,
except primary reserve per primary default amounts)
March 31,2016 December 31,2015 September 30,2015 June
30,2015 March 31,2015
Reserve for losses by category
Prime $ 438,598 $ 480,481 $ 519,572 $ 562,918
$ 640,919
Alt-A 183,189 203,706 234,772 256,854
278,350
A minus and below 116,835 129,352 137,441
148,043 163,390
IBNR and other 79,051 83,066 107,179
125,038 167,204
LAE 23,600 26,108 41,464 48,141
53,210
Reinsurance recoverable (3) 8,239
8,286 11,071 11,677
13,365
Total primary reserves
849,512 930,999 1,051,499
1,152,671 1,316,438
Pool
insurance 38,843 42,084 43,234 47,902 62,943
IBNR and
other 1,050 1,118 949 891 1,227
LAE
1,227 1,335 1,983
2,353 3,051
Total pool reserves
41,120 44,537 46,166
51,146 67,221
Total 1st lien
reserves 890,632 975,536 1,097,665 1,203,817 1,383,659
Second-lien and other 716 863
905 975 1,055
Total reserves $ 891,348 $ 976,399
$ 1,098,570 $ 1,204,792 $ 1,384,714
1st lien reserve per default Primary reserve per
primary default excluding IBNR and other $ 24,959
$ 24,019 $ 26,237 $ 27,279 $ 28,423
(1)
Net of reinsurance recoveries and
without giving effect to the impact of captive terminations and
settlements.
(2)
Before reinsurance recoveries and
without giving effect to the impact of captive terminations and
settlements.
(3)
Primarily represents ceded losses on
captive transactions and quota share reinsurance
transactions.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Default Statistics
Exhibit L
March 31, December
31, September 30,
June 30,
March 31,
2016 2015 2015 2015 2015
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 817,236 816,797 812,657
802,719 801,332
Number of loans in default 19,510
22,223 22,328 23,237 25,114
Percentage of loans in default
2.39 % 2.72 % 2.75 % 2.89 % 3.13 %
Alt-A
Number of insured loans 30,990 32,411 34,166 35,927
37,468
Number of loans in default 5,138 5,813 6,318
6,949 7,480
Percentage of loans in default 16.58
% 17.94 % 18.49 % 19.34 % 19.96 %
A minus and
below
Number of insured loans 30,681 31,902 33,018 34,224
35,425
Number of loans in default 6,221 7,267 7,229
7,490 7,846
Percentage of loans in default 20.28
% 22.78 % 21.89 % 21.89 % 22.15 %
Total
Primary Number of insured loans 878,907 881,110
879,841 872,870 874,225
Number of loans in default (1)
30,869 35,303 35,875 37,676 40,440
Percentage of loans in
default 3.51 % 4.01 % 4.08 % 4.32 % 4.63 %
(1)
Excludes the following number of loans
subject to the Freddie Mac Agreement that are in default as we no
longer have claims exposure on these loans:
March 31, December 31, September 30,
June 30,
March 31,
2016 2015 2015 2015 2015
Number of loans in
default 2,339 2,821 2,993 3,246 3,715
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - QSR, Captives and Persistency
Exhibit M (page 1 of 2)
2016 2015
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
Initial and
Second Quota Share Reinsurance (“QSR”) Transactions
QSR ceded premiums written $
7,962
$ 6,934 $ 8,467 $ 4,216 $ 10,596
% of premiums written
3.4 % 2.9 % 3.4 % 1.7 % 4.2 %
QSR ceded premiums
earned $ 11,325 $ 10,523 $ 12,201 $ 9,465 $
14,786
% of premiums earned 4.7 % 4.4 % 5.1 %
3.8 % 6.1 %
Ceding commissions written $ 2,270
$ 2,553 $ 2,743 $ 2,982 $ 3,165
Ceding commissions earned
$ 5,739 $ 4,921 $ 4,026 $ 5,363 $ 6,664
Profit
commission $ — $ 1,559 $ 678 $ 5,760 $ —
Risk
in force included in QSR (1) $
2,018,468
$ 2,131,030 $ 2,253,913 $ 2,394,985 $ 2,575,060
Single Premium
QSR Transaction
QSR ceded premiums written $ 197,593 N/A N/A
N/A N/A
% of premiums written 84.7 % N/A N/A
N/A N/A
QSR ceded premiums earned $ 5,994 N/A
N/A N/A N/A
% of premiums earned 2.5 % N/A N/A
N/A N/A
Ceding commissions written $ 50,932
N/A N/A N/A N/A
Ceding commissions earned $
3,032 N/A N/A N/A N/A
Profit commission $
6,134
N/A N/A N/A N/A
Risk in force included in QSR (1) $
3,308,057
N/A N/A N/A N/A
(1) Included in primary risk in
force.
In the first quarter of 2016, the
Single Premium QSR decreased the percentage of Radian’s
single-premium risk in force, net of reinsurance ceded, from 31 to
25 percent. The Single Premium QSR had a negligible impact on
earnings for the first quarter 2016, as follows:
Three Months EndedMarch 31, 2016
($ in
thousands)
Before
Single
Premium
QSR
Impact of
Single
Premium
QSR
As Reported Net premiums earned $
226,944 $ (5,994 ) (1) $
220,950 Provision for losses (43,811 )
536 (43,275 ) Policy acquisition costs
(6,515 ) 126 (6,389 )
Operating expenses (61,698 )
2,906 (58,792 ) Net adjusted
pretax operating income $ 114,920 $
(2,426 ) $ 112,494
(1)
Net of profit commission of $6.1
million.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - QSR, Captives and Persistency
Exhibit M (page 2 of 2)
2016 2015
($ in
thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2
Qtr 1
1st Lien
Captives
Premiums earned ceded to captives $ 1,869 $
2,268 $ 2,434 $ 2,700 $ 2,585
% of total premiums earned
0.8 % 1.0 % 1.0 % 1.1 % 1.1 %
Insurance in force
included in captives (1) 2.1 % 2.1 % 2.2 % 2.4 %
2.5 %
Risk in force included in captives (1) 1.7
% 1.9 % 2.1 % 2.2 % 2.4 %
Persistency (twelve
months ended) 79.4 % 78.8 % 79.2 % 80.1 % 82.6 %
Persistency (quarterly, annualized) 82.3 %
81.8 % 80.5 % 76.2 % 80.3 %
(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.
FORWARD-LOOKING STATEMENTS
All statements in this report that address events, developments
or results that we expect or anticipate may occur in the future are
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, Section 21E of the Exchange Act and the
U.S. Private Securities Litigation Reform Act of 1995. In most
cases, forward-looking statements may be identified by words such
as "anticipate," "may," "will," "could," "should," "would,"
"expect," "intend," "plan," "goal," "contemplate," "believe,"
"estimate," "predict," "project," "potential," "continue," "seek,"
"strategy," "future," "likely" or the negative or other variations
on these words and other similar expressions. These statements,
which may include, without limitation, projections regarding our
future performance and financial condition, are made on the basis
of management's current views and assumptions with respect to
future events. Any forward-looking statement is not a guarantee of
future performance and actual results could differ materially from
those contained in the forward-looking statement. These statements
speak only as of the date they were made, and we undertake no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
We operate in a changing environment. 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 in particular but without
limitation, unemployment rates and changes in housing markets and
mortgage credit markets that could impact the size of the insurable
market and the credit performance of our insured portfolio;
- changes in the way customers,
investors, regulators or legislators perceive the performance and
financial strength of private mortgage insurers;
- Radian Guaranty’s ability to remain
eligible under the PMIERs and other applicable requirements imposed
by the Federal Housing Finance Agency and by the GSEs to insure
loans purchased by the GSEs;
- our ability to successfully execute and
implement our capital plans and to maintain sufficient holding
company liquidity to meet our short- and long-term liquidity
needs;
- our ability to successfully execute and
implement our business plans and strategies, including in
particular but without limitation, plans and strategies that
require GSE and/or regulatory approvals;
- our ability to maintain an adequate
level of capital in our insurance subsidiaries to satisfy existing
and future state regulatory requirements;
- changes in the charters or business
practices of, or rules or regulations imposed by or applicable to
the GSEs, including the GSE’s interpretation and application of the
PMIERs to Radian Guaranty;
- changes in the current housing finance
system in the U.S., including in particular but without limitation,
the role of the FHA, the GSEs and private mortgage insurers in this
system;
- any disruption in the servicing of
mortgages covered by our insurance policies, as well as poor
servicer performance;
- a significant decrease in the
Persistency Rates of our monthly premium mortgage insurance
policies;
- heightened competition in our mortgage
insurance business, including in particular but without limitation,
increased price competition and competition from other forms of
credit enhancement;
- the effect of the Dodd-Frank Act on the
financial services industry in general, and on our businesses in
particular;
- the adoption of new laws and
regulations, or changes in existing laws and regulations, or the
way they are interpreted;
- the amount and timing of potential
payments or adjustments associated with federal or other tax
examinations, including deficiencies assessed by the IRS resulting
from its examination of our 2000 through 2007 tax years, which we
are currently contesting;
- 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 business;
- volatility in our results of operations
caused by changes in the fair value of our assets and liabilities,
including a significant portion of our investment portfolio;
- changes in GAAP or SAP rules and
guidance, or their interpretation;
- legal and other limitations on
dividends and other amounts we may receive from our subsidiaries;
and
- the possibility that we may need to
impair the estimated fair value of goodwill established in
connection with our acquisition of Clayton.
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, 2015 and in our
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 press release. 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: http://www.businesswire.com/news/home/20160427005775/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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