Radian Reports Second Quarter 2012 Financial Results
August 01, 2012
–New MI volume triples in first half of 2012 compared to first half of
2011–
–Risk-to-capital ratio of 21.0:1–
PHILADELPHIA--(BUSINESS WIRE)--
Radian Group Inc. (NYSE: RDN) today reported a net loss for the quarter
ended June 30, 2012, of $119.3 million, or $0.90 per diluted share,
which included combined losses from the change in fair value of
derivatives and other financial instruments of $95.0 million. This
compares to net income of $137.1 million, or $1.03 per diluted share,
which included combined gains from the change in fair value of
derivatives and other financial instruments of $193.8 million, for the
prior-year quarter. Book value per share at June 30, 2012, was $6.75.
“We remain steadfast in executing against our strategy and on managing
what we can control in this challenging macroeconomic environment,” said
Chief Executive Officer S.A. Ibrahim. “Our success in growing our MI
business and managing our capital is evident, as we tripled Radian’s
volume of new business and leveraged the capital support of our
financial guaranty business to maintain a competitive risk-to-capital
ratio of 21.0 to 1.”
Ibrahim continued, “We are encouraged by the continued improvement in
our legacy MI portfolio as our number of delinquent loans decline
steadily. The improving composition of our overall MI book helps
position Radian for future success and a return to profitability.”
CAPITAL AND LIQUIDITY UPDATE
-
Radian Guaranty’s risk-to-capital ratio was 21.0:1 as of June 30,
2012, compared to 20.6:1 as of March 31, 2012, and 21.5:1 as of
December 31, 2011.
-
The slight change in the risk-to-capital ratio from March 31,
2012, was primarily driven by the increase to the company’s net
risk in force resulting from increased volume of new, high-quality
mortgage insurance business.
-
Earlier this year, Radian Guaranty entered a quota share
reinsurance arrangement to proactively manage its mortgage
insurance risk-to-capital position. Radian ceded 20 percent of its
new mortgage insurance written beginning with the fourth quarter
of 2011, which benefited its risk-to-capital position in the
second quarter and represented $922 million of ceded risk in force
as of June 30, 2012.
-
As of June 30, 2012, Radian Guaranty had $923.5 million of
statutory capital, compared to $919.9 million in the first quarter
of 2012 and $1.0 billion in the prior-year quarter.
- Radian Group maintains approximately $340 million of currently
available liquidity. Since the end of the first quarter, the company
has purchased an additional $24 million of its debt maturing in
February 2013 at a discount to face value. There is currently $80
million of remaining debt outstanding and due in February 2013.
-
In the event that Radian Guaranty exceeds the risk-based capital
requirements imposed by certain states, the company has the ability to
continue writing new mortgage insurance business in those states
through a combination of state-specific waivers or similar relief and
by writing business in its subsidiary, Radian Mortgage Assurance Inc.
(RMAI), which has been approved by Fannie Mae and Freddie Mac as an
eligible mortgage insurer.
SECOND QUARTER HIGHLIGHTS
-
New mortgage insurance written (NIW) grew to $8.3 billion during the
quarter, compared to $6.5 billion in the first quarter of 2012 and
$2.3 billion in the prior-year quarter.
-
The product mix of Radian’s NIW has continued the recent shift to
an increased level of monthly premium business. Of the $8.3
billion in new business written in the second quarter, 67 percent
was written with monthly premiums and 33 percent with single
premiums. This compares to a mix of 64 percent monthly premiums
and 36 percent single premiums in the first quarter of 2012, and
57 percent monthly premiums and 43 percent single premiums in the
fourth quarter of 2011.
-
The Home Affordable Refinance Program (HARP) accounted for $2.4
billion of insurance not included in Radian Guaranty’s NIW total
for the quarter. This compares to $929.9 million in the first
quarter of 2012 and $553.7 in the second quarter of 2011.
-
NIW continued to consist of loans with excellent risk
characteristics.
-
In addition, Radian wrote approximately $3.4 billion in NIW in
July 2012.
-
The net loss for the second quarter was $119.3 million, which included
combined losses from the change in fair value of derivatives and other
financial instruments of $95.0 million. The largest component of the
combined losses of $95 million was a $108 million loss recorded on the
April commutation of Radian Asset Assurance’s large CDO of ABS and
certain TruPs CDO exposures further explained below. In addition, the
quarter’s results included investment gains and a reduced level of
operating losses compared to recent prior periods. Results for the
second quarter of 2011 included a pre-tax gain recognized on
derivatives and other financial instruments of $193.8 million,
resulting mainly from a widening of Radian’s credit spread that
significantly reduced the fair value of the company’s derivative
liabilities.
-
The mortgage insurance provision for losses was $208.1 million in the
second quarter of 2012, compared to $234.7 million in the first
quarter and $270.0 million in the prior-year period. Mortgage
insurance loss reserves were approximately $3.2 billion as of June 30,
2012, which was flat to the first quarter and down slightly from $3.3
billion a year ago. First-lien reserves per primary default increased
to $28,410 as of June 30, 2012, compared to $27,833 as of March 31,
2012, and $25,334 as of June 30, 2011.
-
The total number of primary delinquent loans decreased by 4 percent in
the second quarter from the first quarter of 2012, and by 12 percent
from the second quarter of 2011. The primary mortgage insurance
delinquency rate decreased to 13.3 percent in the second quarter of
2012, compared to 14.1 percent in the first quarter and 15.2 percent
in the second quarter of 2011.
-
Total mortgage insurance claims paid were $263.4 million, compared to
$218.2 million in the first quarter and $512.6 million in the second
quarter of 2011. The company continues to expect mortgage insurance
net claims paid of approximately $1.1 billion for the full-year 2012.
- 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 previously disclosed, Radian Asset paid an ordinary dividend of
$54.0 million to Radian Guaranty in July 2012. Radian Asset has
paid a total of $384 million in dividends to Radian Guaranty since
2008, and expects to pay another dividend of approximately $40
million in 2013.
-
As of June 30, 2012, Radian Asset had approximately $1.2 billion
in statutory surplus with an additional $600 million in
claims-paying resources.
-
On April 11, 2012, as previously disclosed, Radian Asset
successfully executed a commutation of its distressed CDO of ABS
transaction. The company expected to pay claims for substantially
all of the $450.2 million of net par outstanding on this
transaction. Radian Asset also commuted its credit protection on
six directly insured TruPs CDO transactions, representing $699.0
million of net par outstanding. In consideration for these
commutations, Radian Asset paid $210.0 million, a significant
portion of which has been deposited with a limited purpose vehicle
to cover potential future losses on the terminated TruPs bonds. As
previously reported, the fair value liability on the transactions
prior to the commutations was impacted by Radian’s credit spread,
therefore the company recognized a $108 million GAAP loss on these
transactions in the second quarter, as anticipated.
-
As previously reported, Radian Asset released $55 million of
contingency reserves in May, which benefited Radian Guaranty’s
statutory capital position in the second quarter.
-
Radian Asset completed the sale of Municipal and Infrastructure
Assurance Corporation (MIAC) in the second quarter for a gain of
$7.7 million.
-
Since June 30, 2008, Radian Asset has successfully reduced its
total net par exposure by 64 percent to $41.5 billion as of June
30, 2012, including large declines in the riskier segments of the
portfolio.
CONFERENCE CALL
Radian will discuss these items in its conference call today, Wednesday,
August 1, 2012, 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 800-288-8961 inside the U.S.,
or 612-288-0337 for international callers, using passcode 254001 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 254001.
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. (NYSE: 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 June 30, 2012 | |
Exhibit D:
| |
Segment Information Quarter Ended June 30, 2011 | |
Exhibit E:
| |
Segment Information Six Months Ended June 30, 2012 | |
Exhibit F:
| |
Segment Information Six Months Ended June 30, 2011 | | |
| |
Exhibit G:
| |
Financial Guaranty Supplemental Information
| |
Exhibit H:
| |
Financial Guaranty Supplemental Information
| |
Exhibit G:
| |
Mortgage Insurance Supplemental Information
| | |
New Insurance Written
| |
Exhibit I:
| |
Mortgage Insurance Supplemental Information
| | |
NIW by Product, FICO and LTV
| |
Exhibit J:
| |
Mortgage Insurance Supplemental Information
| | |
Insurance in Force and Risk in Force by Product
| |
Exhibit K:
| |
Mortgage Insurance Supplemental Information
| | |
Risk in Force by FICO, LTV and Policy Year
| |
Exhibit L:
| |
Mortgage Insurance Supplemental Information
| | |
Primary, Pool and Other Risk in Force
| |
Exhibit M:
| |
Mortgage Insurance Supplemental Information
| | |
Claims, Reserves and Reserves per Default
| |
Exhibit N:
| |
Mortgage Insurance Supplemental Information
| | |
Default Statistics
| |
Exhibit O:
| |
Mortgage Insurance Supplemental Information
| | |
Net Premiums Written and Earned, Captives and Persistency
|
|
| |
| | | Radian Group Inc. and Subsidiaries | | Condensed Consolidated Statements of Income | | Exhibit A | | | | |
| | | Quarter Ended
June 30 | | Six Months Ended
June 30 | (In thousands, except per-share data) | | 2012 |
|
2011
| | 2012 |
|
2011
| | | | | | | | |
| | Revenues: | | | | | | | | | | Net premiums written - insurance | | $ | 181,932 |
| |
$
|
152,778
|
| | $ | 259,610 |
| |
$
|
335,527
|
| | | | | | | | |
| | Net premiums earned - insurance | | $ | 186,779 | | |
$
|
188,934
| | | $ | 354,144 | | |
$
|
391,957
| | | Net investment income | | 30,877 | | |
43,823
| | | 65,590 | | |
86,063
| | | Net gains on investments | | 26,419 | | |
44,236
| | | 93,878 | | |
81,671
| | | Net impairment losses recognized in earnings | | — | | |
(11
|
)
| | — | | |
(11
|
)
| | Change in fair value of derivative instruments | | (33,124 | ) | |
188,726
| | | (105,881 | ) | |
432,618
| | | Net (losses) gains on other financial instruments | | (61,862 | ) | |
5,047
| | | (79,714 | ) | |
80,298
| | | Gain on sale of affiliate | | 7,708 | | | — | | | 7,708 | | | — | | | Other income | | 1,395 |
| |
1,196
|
| | 2,835 |
| |
2,644
|
| | Total revenues | | 158,192 |
| |
471,951
|
| | 338,560 |
| |
1,075,240
|
| | | | | | | | |
| | Expenses: | | | | | | | | | | Provision for losses | | 210,868 | | |
263,566
| | | 477,022 | | |
690,939
| | | Change in reserve for premium deficiency | | 559 | | |
(3,102
|
)
| | 539 | | |
(4,485
|
)
| | Policy acquisition costs | | 10,805 | | |
14,387
| | | 38,851 | | |
28,518
| | | Other operating expenses | | 40,193 | | |
45,954
| | | 90,347 | | |
92,173
| | | Interest expense | | 12,581 |
| |
16,079
|
| | 26,729 |
| |
33,103
|
| | Total expenses | | 275,006 |
| |
336,884
|
| | 633,488 |
| |
840,248
|
| | | | | | | | |
| | Equity in net (loss) income of affiliates | | (2 | ) | |
—
|
| | (13 | ) | |
65
|
| | | | | | | | |
| | Pretax (loss) income | | (116,816 | ) | |
135,067
| | | (294,941 | ) | |
235,057
| | | Income tax provision (benefit) | | 2,443 |
| |
(2,048
|
)
| | (6,450 | ) | |
(5,064
|
)
| | | | | | | | |
| | Net (loss) income | | $ | (119,259 | ) | |
$
|
137,115
|
| | $ | (288,491 | ) | |
$
|
240,121
|
| | | | | | | | |
| | Diluted net (loss) income per share (1) | | $ | (0.90 | ) | |
$
|
1.03
|
| | $ | (2.18 | ) | |
$
|
1.80
|
| | | | | | | | |
| |
|
|
|
|
|
|
|
|
| | (1) Weighted average shares outstanding (in thousands) | | | | |
| |
|
| | | Weighted average common shares outstanding | | 132,346 | | |
132,185
| | | 132,350 | | |
132,185
| | | Increase in weighted average shares-common stock
equivalents-diluted basis | | — |
| |
1,429
|
| | — |
| |
1,539
|
| | Weighted average shares outstanding | | 132,346 |
| |
133,614
|
| | 132,350 |
| |
133,724
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | | | | | | |
| | | June 30 | | December 31 | | June 30 | (In thousands, except per-share data) | | 2012 | |
2011
| |
2011
| | | | | | |
| | Assets: | | | | | | | | Cash and investments | | $ | 5,313,983 | | |
$
|
5,846,168
| | |
$
|
6,038,529
| | Deferred policy acquisition costs | | 99,386 | | |
139,906
| | |
138,926
| | Deferred income taxes, net | | 15,975 | | |
15,975
| | |
27,531
| | Reinsurance recoverables | | 103,143 | | |
157,985
| | |
179,573
| | Derivative assets | | 14,229 | | |
17,212
| | |
27,266
| | Other assets | | 484,814 |
| |
479,519
|
| |
516,971
| | Total assets | | $ | 6,031,530 |
| |
$
|
6,656,765
|
| |
$
|
6,928,796
| | | | | | |
| | Liabilities and stockholders' equity: | | | | | | | | Unearned premiums | | $ | 588,431 | | |
$
|
637,372
| | |
$
|
629,813
| | Reserve for losses and loss adjustment expenses | | 3,250,280 | | |
3,310,902
| | |
3,343,624
| | Reserve for premium deficiency | | 4,183 | | |
3,644
| | |
6,251
| | Long-term debt | | 666,806 | | |
818,584
| | |
811,319
| | VIE debt | | 107,833 | | |
228,240
| | |
393,740
| | Derivative liabilities | | 219,960 | | |
126,006
| | |
313,708
| | Payable for securities purchased | | 3,767 | | |
46,368
| | |
48,707
| | Other liabilities | | 289,382 |
| |
303,358
|
| |
252,324
| | Total liabilities | | 5,130,642 |
| |
5,474,474
|
| |
5,799,486
| | | | | | |
| | Common stock | | 151 | | |
151
| | |
151
| | Additional paid-in capital | | 1,074,683 | | |
1,074,513
| | |
1,073,703
| | Retained (deficit) earnings | | (192,264 | ) | |
96,227
| | |
34,861
| | Accumulated other comprehensive income | | 18,318 |
| |
11,400
|
| |
20,595
| | Total common stockholders’ equity | | 900,888 |
| |
1,182,291
|
| |
1,129,310
| | Total liabilities and stockholders’ equity | | $ | 6,031,530 |
| |
$
|
6,656,765
|
| |
$
|
6,928,796
| | | | | | |
| | Book value per share | | $ | 6.75 | | |
$
|
8.88
| | |
$
|
8.48
|
|
| |
| |
| | | Radian Group Inc. and Subsidiaries | | Segment Information | | Quarter Ended June 30, 2012 | | Exhibit C | | | | | | |
| | | Mortgage | | Financial | | | (In thousands) | | Insurance | | Guaranty | | Total | | Revenues: | | | | | | | | Net premiums written - insurance | | $ | 182,518 |
| | $ | (586 | ) | | $ | 181,932 |
| | | | | | |
| | Net premiums earned - insurance | | $ | 170,763 | | | $ | 16,016 | | | $ | 186,779 | | | Net investment income | | 17,608 | | | 13,269 | | | 30,877 | | | Net gains (losses) on investments | | 26,662 | | | (243 | ) | | 26,419 | | | Net impairment losses recognized in earnings | | — | | | — | | | — | | | Change in fair value of derivative instruments | | (52 | ) | | (33,072 | ) | | (33,124 | ) | | Net gains (losses) on other financial instruments | | 42 | | | (61,904 | ) | | (61,862 | ) | | Gain on sale of affiliate | | — | | | 7,708 | | | 7,708 | | | Other income | | 1,304 |
| | 91 |
| | 1,395 |
| | Total revenues | | 216,327 |
| | (58,135 | ) | | 158,192 |
| | | | | | |
| | Expenses: | | | | | | | | Provision for losses | | 208,078 | | | 2,790 | | | 210,868 | | | Change in reserve for premium deficiency | | 559 | | | — | | | 559 | | | Policy acquisition costs | | 7,890 | | | 2,915 | | | 10,805 | | | Other operating expenses | | 31,272 | | | 8,921 | | | 40,193 | | | Interest expense | | 1,723 |
| | 10,858 |
| | 12,581 |
| | Total expenses | | 249,522 |
| | 25,484 |
| | 275,006 |
| | | | | | |
| | Equity in net loss of affiliates | | — |
| | (2 | ) | | (2 | ) | | | | | | |
| | Pretax loss | | (33,195 | ) | | (83,621 | ) | | (116,816 | ) | | Income tax (benefit) provision | | (10,209 | ) | | 12,652 |
| | 2,443 |
| | | | | | |
| | Net loss | | $ | (22,986 | ) | | $ | (96,273 | ) | | $ | (119,259 | ) | | | | | | |
| | Cash and investments | | $ | 3,176,027 | | | $ | 2,137,956 | | | $ | 5,313,983 | | | Deferred policy acquisition costs | | 44,240 | | | 55,146 | | | 99,386 | | | Total assets | | 3,388,524 | | | 2,643,006 | | | 6,031,530 | | | Unearned premiums | | 290,880 | | | 297,551 | | | 588,431 | | | Reserve for losses and loss adjustment expenses | | 3,155,343 | | | 94,937 | | | 3,250,280 | | | VIE debt | | 7,500 | | | 100,333 | | | 107,833 | | | Derivative liabilities | | — | | | 219,960 | | | 219,960 | |
|
| |
| |
| | | Radian Group Inc. and Subsidiaries | | Segment Information | | Quarter Ended June 30, 2011 | | Exhibit D | | | | | | |
| | | Mortgage | | Financial | | | (In thousands) | | Insurance | | Guaranty | | Total | | Revenues: | | | | | | | | Net premiums written - insurance | |
$
|
164,194
|
| |
$
|
(11,416
|
)
| |
$
|
152,778
|
| | | | | | |
| | Net premiums earned - insurance | |
$
|
164,325
| | |
$
|
24,609
| | |
$
|
188,934
| | | Net investment income | |
24,853
| | |
18,970
| | |
43,823
| | | Net gains on investments | |
27,425
| | |
16,811
| | |
44,236
| | | Net impairment losses recognized in earnings | |
(11
|
)
| |
—
| | |
(11
|
)
| | Change in fair value of derivative instruments | |
258
| | |
188,468
| | |
188,726
| | | Net (losses) gains on other financial instruments | |
(631
|
)
| |
5,678
| | |
5,047
| | | Other income | |
1,124
|
| |
72
|
| |
1,196
|
| | Total revenues | |
217,343
|
| |
254,608
|
| |
471,951
|
| | | | | | |
| | Expenses: | | | | | | | | Provision for losses | |
269,992
| | |
(6,426
|
)
| |
263,566
| | | Change in reserve for premium deficiency | |
(3,102
|
)
| |
—
| | |
(3,102
|
)
| | Policy acquisition costs | |
8,601
| | |
5,786
| | |
14,387
| | | Other operating expenses | |
33,913
| | |
12,041
| | |
45,954
| | | Interest expense | |
146
|
| |
15,933
|
| |
16,079
|
| | Total expenses | |
309,550
|
| |
27,334
|
| |
336,884
|
| | | | | | |
| | Equity in net income of affiliates | |
—
|
| |
—
|
| |
—
|
| | | | | | |
| | Pretax (loss) income | |
(92,207
|
)
| |
227,274
| | |
135,067
| | | Income tax provision (benefit) | |
5,374
|
| |
(7,422
|
)
| |
(2,048
|
)
| | | | | | |
| | Net (loss) income | |
$
|
(97,581
|
)
| |
$
|
234,696
|
| |
$
|
137,115
|
| | | | | | |
| | Cash and investments | |
$
|
3,334,789
| | |
$
|
2,703,740
| | |
$
|
6,038,529
| | | Deferred policy acquisition costs | |
44,509
| | |
94,417
| | |
138,926
| | | Total assets | |
3,688,720
| | |
3,240,076
| | |
6,928,796
| | | Unearned premiums | |
191,737
| | |
438,076
| | |
629,813
| | | Reserve for losses and loss adjustment expenses | |
3,268,582
| | |
75,042
| | |
3,343,624
| | | VIE debt | |
56,239
| | |
337,501
| | |
393,740
| | | Derivative liabilities | |
—
| | |
313,708
| | |
313,708
| |
|
| |
| |
| | | Radian Group Inc. and Subsidiaries | | Segment Information | | Six Months Ended June 30, 2012 | | Exhibit E | | | | | | |
| | | Mortgage | | Financial | | | (In thousands) | | Insurance | | Guaranty | | Total | | Revenues: | | | | | | | | Net premiums written - insurance | | $ | 379,371 |
| | $ | (119,761 | ) | | $ | 259,610 |
| | | | | | |
| | Net premiums earned - insurance | | $ | 344,214 | | | $ | 9,930 | | | $ | 354,144 | | | Net investment income | | 35,619 | | | 29,971 | | | 65,590 | | | Net gains on investments | | 58,840 | | | 35,038 | | | 93,878 | | | Net impairment losses recognized in earnings | | — | | | — | | | — | | | Change in fair value of derivative instruments | | (31 | ) | | (105,850 | ) | | (105,881 | ) | | Net losses on other financial instruments | | (667 | ) | | (79,047 | ) | | (79,714 | ) | | Gain on sale of affiliate | | — | | | 7,708 | | | 7,708 | | | Other income | | 2,648 |
| | 187 |
| | 2,835 |
| | Total revenues | | 440,623 |
| | (102,063 | ) | | 338,560 |
| | | | | | |
| | Expenses: | | | | | | | | Provision for losses | | 442,807 | | | 34,215 | | | 477,022 | | | Change in reserve for premium deficiency | | 539 | | | — | | | 539 | | | Policy acquisition costs | | 16,536 | | | 22,315 | | | 38,851 | | | Other operating expenses | | 67,537 | | | 22,810 | | | 90,347 | | | Interest expense | | 3,445 |
| | 23,284 |
| | 26,729 |
| | Total expenses | | 530,864 |
| | 102,624 |
| | 633,488 |
| | | | | | |
| | Equity in net loss of affiliates | | — |
| | (13 | ) | | (13 | ) | | | | | | |
| | Pretax loss | | (90,241 | ) | | (204,700 | ) | | (294,941 | ) | | Income tax (benefit) provision | | (22,008 | ) | | 15,558 |
| | (6,450 | ) | | | | | | |
| | Net loss | | $ | (68,233 | ) | | $ | (220,258 | ) | | $ | (288,491 | ) |
|
| |
| |
| | | Radian Group Inc. and Subsidiaries | | Segment Information | | Six Months Ended June 30, 2011 | | Exhibit F | | | | | | |
| | | Mortgage | | Financial | | | (In thousands) | | Insurance | | Guaranty | | Total | | Revenues: | | | | | | | | Net premiums written - insurance | |
$
|
345,040
|
| |
$
|
(9,513
|
)
| |
$
|
335,527
|
| | | | | | |
| | Net premiums earned - insurance | |
$
|
350,459
| | |
$
|
41,498
| | |
$
|
391,957
| | | Net investment income | |
51,686
| | |
34,377
| | |
86,063
| | | Net gains on investments | |
45,187
| | |
36,484
| | |
81,671
| | | Net impairment losses recognized in earnings | |
(11
|
)
| |
—
| | |
(11
|
)
| | Change in fair value of derivative instruments | |
(136
|
)
| |
432,754
| | |
432,618
| | | Net gains on other financial instruments | |
1,835
| | |
78,463
| | |
80,298
| | | Other income | |
2,524
|
| |
120
|
| |
2,644
|
| | Total revenues | |
451,544
|
| |
623,696
|
| |
1,075,240
|
| | | | | | |
| | Expenses: | | | | | | | | Provision for losses | |
683,965
| | |
6,974
| | |
690,939
| | | Change in reserve for premium deficiency | |
(4,485
|
)
| |
—
| | |
(4,485
|
)
| | Policy acquisition costs | |
18,817
| | |
9,701
| | |
28,518
| | | Other operating expenses | |
68,050
| | |
24,123
| | |
92,173
| | | Interest expense | |
9,935
|
| |
23,168
|
| |
33,103
|
| | Total expenses | |
776,282
|
| |
63,966
|
| |
840,248
|
| | | | | | |
| | Equity in net income of affiliates | |
—
|
| |
65
|
| |
65
|
| | | | | | |
| | Pretax (loss) income | |
(324,738
|
)
| |
559,795
| | |
235,057
| | | Income tax provision (benefit) | |
8,875
|
| |
(13,939
|
)
| |
(5,064
|
)
| | | | | | |
| | Net (loss) income | |
$
|
(333,613
|
)
| |
$
|
573,734
|
| |
$
|
240,121
|
|
|
| |
| | | Radian Group Inc. and Subsidiaries | | Financial Guaranty Supplemental Information | | Exhibit G | | | | |
| | | Quarter Ended | | Six Months Ended | | | June 30 | | June 30 | (In thousands) | | 2012 | |
|
2011
| | 2012 |
|
2011
| | | | | | | | | |
| | Net Premiums Earned: | | | | | | | | | | Public finance direct | | $ | 14,147 | | | |
$
|
11,580
| | | $ | 24,360 | | |
$
|
19,416
| | Public finance reinsurance | | 822 | | | |
8,262
| | | 5,592 | | |
16,066
| | Structured direct | | 246 | | | |
941
| | | 628 | | |
1,382
| | Structured reinsurance | | 803 | | | |
955
| | | 1,616 | | |
1,764
| | Trade credit reinsurance | | (2 | ) | | |
42
|
| | (2 | ) | |
41
| | Net Premiums Earned - insurance | | 16,016 | | | |
21,780
| | | 32,194 | | |
38,669
| | Impact of commutations and reinsurance | | — |
| | |
2,829
|
| | (22,264 | ) | |
2,829
| | Total Net Premiums Earned - insurance | | $ | 16,016 |
| | |
$
|
24,609
|
| | $ | 9,930 |
| |
$
|
41,498
| | | | | | | | | |
| | Refundings included in earned premium | | $ | 10,483 |
| | |
$
|
9,300
|
| | $ | 18,707 |
| |
$
|
14,131
| | | | | | | | | |
| | Net premiums earned - derivatives (1) | | $ | 7,224 |
| | |
$
|
10,473
|
| | $ | 15,872 |
| |
$
|
21,356
| | | | | | | | | |
| | Claims paid | | $ | (6,720 | ) | (2) | |
$
|
3,430
|
| | $ | 2,280 |
| |
$
|
3,696
|
|
| | |
(1)
| |
Included in change in fair value of derivative instruments.
| |
(2)
| |
Reduction due to salvage recovery on a prior claim.
| | |
|
The impact of the Assured Transaction for the
Six Months Ended June 30, 2012, was as follows: |
| | | (In millions) | | | Statement of Operations | | | | Decrease in premiums written | | $ | (119.8 | ) | | Decrease in premiums earned | | $ | (22.2 | ) | | Increase in change in fair value of derivative instruments—gain | | 1.4 | | | Gain on sale of affiliate | | 7.7 | | | Increase in amortization of policy acquisition costs | | (15.7 | ) | | Decrease in pre-tax income | | $ | (28.8 | ) | | |
| Balance Sheet | | | | Decrease in: | | | | Cash | | $ | 93.6 | | | Deferred policy acquisition costs | | 26.2 | | | Accounts and notes receivable | | 1.1 | | | Derivative assets | | 0.6 | | | Unearned premiums | | 71.6 | | | Derivative liabilities | | 2.1 | | | Increase in other assets | | 19.1 | |
| Radian Group Inc. and Subsidiaries |
| | |
| |
| | | Financial Guaranty Supplemental Information | | | | | | | | | Exhibit H | | | | | | | | | | | | | | |
| | | June 30 | | | December 31 | | June 30 | ($ in thousands, except ratios) | | 2012 | | |
2011
| |
2011
| | | | | | | |
| Statutory Information: | | | | | | | | | | | | | | |
| | Capital and surplus | | $ | 1,153,339 | | | |
$
|
974,874
| | |
$
|
1,002,337
| | Contingency reserve | | 288,145 |
| | |
421,406
|
| |
414,462
| | Qualified statutory capital | | 1,441,484 | | | |
1,396,280
| | |
1,416,799
| | | | | | | |
| | Unearned premium reserve | | 288,142 | | | |
448,669
| | |
486,589
| | Loss and loss expense reserve | | (47,532 | ) | | |
161,287
|
| |
80,378
| | Total statutory policyholders' reserves | | 1,682,094 | | | |
2,006,236
| | |
1,983,766
| | | | | | | |
| | Present value of installment premiums | | 112,824 |
| | |
148,641
|
| |
171,397
| | Total statutory claims paying resources | | $ | 1,794,918 |
| | |
$
|
2,154,877
|
| |
$
|
2,155,163
| | | | | | | |
| | Net debt service outstanding | | $ | 51,128,082 |
| | |
$
|
88,202,630
|
| |
$
|
95,107,674
| | | | | | | |
| | Capital leverage ratio (1) | | 35 | | | |
63
| | |
67
| | Claims paying leverage ratio (2) | | 28 | | | |
41
| | |
44
| | | | | | | |
| | Net par outstanding by product: | | | | | | | | | Public finance direct | | $ | 10,709,855 | | | |
$
|
13,838,427
| | |
$
|
15,084,460
| | Public finance reinsurance | | 5,658,564 | | | |
19,097,057
| | |
20,548,760
| | Structured direct | | 24,267,242 | | | |
34,760,869
| | |
37,351,096
| | Structured reinsurance | | 830,121 |
| | |
1,492,859
|
| |
1,703,261
| | Total (3) | | $ | 41,465,782 |
| (4) | |
$
|
69,189,212
|
| |
$
|
74,687,577
| | | | | | | | | | | | |
|
(1) |
| The capital leverage ratio is derived by dividing net debt
service outstanding by qualified statutory capital. | (2) | | The claims paying leverage ratio is derived by dividing net
debt service outstanding by total statutory claims paying
resources. | (3) | | Included in public finance net par outstanding is $1.0 billion,
$1.4 billion and $1.8 billion at June 30, 2012, December 31, 2011,
and June 30, 2011, 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. | (4) | | Reductions in par caused by the following: $15.6 billion in
connection with the Assured Transaction, $9.4 billion in
connection with the CDO terminations, and $1.2 billion in
connection with the Commutation Transactions. | | |
|
| Radian Group Inc. and Subsidiaries |
| | | Mortgage Insurance Supplemental Information | | | | Exhibit I | | | |
| | | | | | Quarter Ended | | Six Months Ended | | | June 30 | | June 30 | | | 2012 |
|
2011
| | 2012 |
|
2011
| ($ in millions) | | $ | % | |
$
|
%
| | $ | % | |
$
|
%
| Primary new insurance written | | | | | | | | | | | | | | Prime | | $ | 8,330 | | 99.9 | % | |
$
|
2,280
| |
100.0
|
%
| | $ | 14,790 | | 99.9 | % | |
$
|
4,863
| |
99.9
|
%
| | Alt-A | | 1 | | — | | |
—
| |
—
| | | 1 | | — | | |
—
| |
—
| | | A minus and below | | 4 |
| 0.1 | % | |
—
|
|
—
|
| | 9 |
| 0.1 | % | |
3
|
|
0.1
|
%
| | Total Flow | | $ | 8,335 |
| 100.0 | % | |
$
|
2,280
|
|
100.0
|
%
| | $ | 14,800 |
| 100.0 | % | |
$
|
4,866
|
|
100.0
|
%
| | | | | | | | | | | | |
| Total primary new insurance written by
FICO score | | | | | | | | | | | | | | >=740 | | $ | 6,326 | | 75.9 | % | |
$
|
1,846
| |
81.0
|
%
| | $ | 11,246 | | 76.0 | % | |
$
|
3,927
| |
80.7
|
%
| | 680-739 | | 1,816 | | 21.8 | % | |
434
| |
19.0
|
%
| | 3,216 | | 21.7 | % | |
936
| |
19.2
|
%
| | 620-679 | | 193 |
| 2.3 | % | |
—
|
|
—
|
| | 338 |
| 2.3 | % | |
3
|
|
0.1
|
%
| | Total Flow | | $ | 8,335 |
| 100.0 | % | |
$
|
2,280
|
|
100.0
|
%
| | $ | 14,800 |
| 100.0 | % | |
$
|
4,866
|
|
100.0
|
%
| | | | | | | | | | | | |
| Percentage of primary new insurance
written | | | | | | | | | | | | | | Monthly premiums | | 67 | % | | |
63
|
%
| | | 66 | % | | |
65
|
%
| | | Single premiums | | 33 | % | | |
37
|
%
| | | 34 | % | | |
35
|
%
| | | Refinances | | 34 | % | | |
23
|
%
| | | 39 | % | | |
38
|
%
| | | LTV | | | | | | | | | | | | | | 95.01% and above | | 1.3 | % | | |
1.4
|
%
| | | 1.5 | % | | |
1.3
|
%
| | | 90.01% to 95.00% | | 42.6 | % | | |
35.5
|
%
| | | 40.9 | % | | |
33.1
|
%
| | | ARMS | | | | | | | | | | | | | | Less than 5 years | | 0.1 | % | | |
0.1
|
%
| | | 0.1 | % | | |
0.1
|
%
| | | 5 years and longer | | 2.5 | % | | |
6.9
|
%
| | | 2.5 | % | | |
5.8
|
%
| | | | | | | | | | | | | | | | | |
|
| Radian Group Inc. and Subsidiaries |
| | | Mortgage Insurance Supplemental Information | | | | Exhibit J | | | |
| | | | | | June 30 | | June 30 | | | 2012 | |
2011
| ($ in millions) | | $ |
| % | |
$
|
|
%
| Primary insurance in force | | |
| | | |
| | | Flow | | $ | 118,420 | | | 90.8 | % | |
$
|
111,510
| | |
89.1
|
%
| | Structured | | 11,991 |
|
| 9.2 | % | |
13,600
|
|
|
10.9
|
%
| | Total Primary | | $ | 130,411 |
|
| 100.0 | % | |
$
|
125,110
|
|
|
100.0
|
%
| | | | | | | | |
| | Prime | | $ | 112,112 | | | 86.0 | % | |
$
|
103,860
| | |
83.0
|
%
| | Alt-A | | 11,383 | | | 8.7 | % | |
13,318
| | |
10.7
|
%
| | A minus and below | | 6,916 |
|
| 5.3 | % | |
7,932
|
|
|
6.3
|
%
| | Total Primary | | $ | 130,411 |
|
| 100.0 | % | |
$
|
125,110
|
|
|
100.0
|
%
| | | | | | | | |
| Primary risk in force | | | | | | | | | | Flow | | $ | 29,200 | | | 91.8 | % | |
$
|
27,448
| | |
90.4
|
%
| | Structured | | 2,609 |
|
| 8.2 | % | |
2,913
|
|
|
9.6
|
%
| | Total Primary | | $ | 31,809 |
|
| 100.0 | % | |
$
|
30,361
|
|
|
100.0
|
%
| | | | | | | | |
| | Flow | | | | | | | | | | Prime | | $ | 25,951 | | | 88.9 | % | |
$
|
23,637
| | |
86.1
|
%
| | Alt-A | | 2,022 | | | 6.9 | % | |
2,374
| | |
8.7
|
%
| | A minus and below | | 1,227 |
|
| 4.2 | % | |
1,437
|
|
|
5.2
|
%
| | Total Flow | | $ | 29,200 |
|
| 100.0 | % | |
$
|
27,448
|
|
|
100.0
|
%
| | | | | | | | |
| | Structured | | | | | | | | | | Prime | | $ | 1,520 | | | 58.2 | % | |
$
|
1,702
| | |
58.4
|
%
| | Alt-A | | 589 | | | 22.6 | % | |
665
| | |
22.8
|
%
| | A minus and below | | 500 |
|
| 19.2 | % | |
546
|
|
|
18.8
|
%
| | Total Structured | | $ | 2,609 |
|
| 100.0 | % | |
$
|
2,913
|
|
|
100.0
|
%
| | | | | | | | |
| | Total | | | | | | | | | | Prime | | $ | 27,471 | | | 86.4 | % | |
$
|
25,339
| | |
83.5
|
%
| | Alt-A | | 2,611 | | | 8.2 | % | |
3,039
| | |
10.0
|
%
| | A minus and below | | 1,727 |
|
| 5.4 | % | |
1,983
|
|
|
6.5
|
%
| | Total Primary | | $ | 31,809 |
|
| 100.0 | % | |
$
|
30,361
|
|
|
100.0
|
%
| | | | | | | | | | | | | | |
|
| Radian Group Inc. and Subsidiaries |
| | | Mortgage Insurance Supplemental Information | | | | Exhibit K | | | |
| | | | | | June 30 | | June 30 | | | 2012 | |
2011
| ($ in millions) | | $ |
| % | |
$
|
|
%
| Total primary risk in force by FICO score | | |
| | | |
| | | Flow | | | | | | | | | | >=740 | | $ | 13,868 | | | 47.5 | % | |
$
|
11,196
| | |
40.8
|
%
| | 680-739 | | 9,265 | | | 31.7 | % | |
9,327
| | |
34.0
|
%
| | 620-679 | | 5,162 | | | 17.7 | % | |
5,865
| | |
21.4
|
%
| | <=619 | | 905 |
|
| 3.1 | % | |
1,060
|
|
|
3.8
|
%
| | Total Flow | | $ | 29,200 |
|
| 100.0 | % | |
$
|
27,448
|
|
|
100.0
|
%
| | | | | | | | |
| | Structured | | | | | | | | | | >=740 | | $ | 690 | | | 26.4 | % | |
$
|
776
| | |
26.6
|
%
| | 680-739 | | 757 | | | 29.0 | % | |
848
| | |
29.1
|
%
| | 620-679 | | 698 | | | 26.8 | % | |
781
| | |
26.8
|
%
| | <=619 | | 464 |
|
| 17.8 | % | |
508
|
|
|
17.5
|
%
| | Total Structured | | $ | 2,609 |
|
| 100.0 | % | |
$
|
2,913
|
|
|
100.0
|
%
| | | | | | | | |
| | Total | | | | | | | | | | >=740 | | $ | 14,558 | | | 45.8 | % | |
$
|
11,972
| | |
39.4
|
%
| | 680-739 | | 10,022 | | | 31.5 | % | |
10,175
| | |
33.5
|
%
| | 620-679 | | 5,860 | | | 18.4 | % | |
6,646
| | |
21.9
|
%
| | <=619 | | 1,369 |
|
| 4.3 | % | |
1,568
|
|
|
5.2
|
%
| | Total Primary | | $ | 31,809 |
|
| 100.0 | % | |
$
|
30,361
|
|
|
100.0
|
%
| | | | | | | | |
| Total primary risk in force by LTV | | | | | | | | | | 85.00% and below | | $ | 2,936 | | | 9.2 | % | |
$
|
2,753
| | |
9.1
|
%
| | 85.01% to 90.00% | | 12,265 | | | 38.6 | % | |
11,722
| | |
38.6
|
%
| | 90.01% to 95.00% | | 11,648 | | | 36.6 | % | |
10,268
| | |
33.8
|
%
| | 95.01% and above | | 4,960 |
|
| 15.6 | % | |
5,618
|
|
|
18.5
|
%
| | Total | | $ | 31,809 |
|
| 100.0 | % | |
$
|
30,361
|
|
|
100.0
|
%
| | | | | | | | |
| Total primary risk in force by policy year | | | | | | | | | | 2005 and prior | | $ | 6,250 | | | 19.7 | % | |
$
|
7,519
| | |
24.7
|
%
| | 2006 | | 2,944 | | | 9.3 | % | |
3,396
| | |
11.2
|
%
| | 2007 | | 6,471 | | | 20.3 | % | |
7,435
| | |
24.5
|
%
| | 2008 | | 4,870 | | | 15.3 | % | |
5,549
| | |
18.3
|
%
| | 2009 | | 2,362 | | | 7.4 | % | |
2,915
| | |
9.6
|
%
| | 2010 | | 2,035 | | | 6.4 | % | |
2,419
| | |
8.0
|
%
| | 2011 | | 3,352 | | | 10.5 | % | |
1,128
| | |
3.7
|
%
| | 2012 | | 3,525 |
|
| 11.1 | % | |
—
|
|
|
—
|
| | Total | | $ | 31,809 |
|
| 100.0 | % | |
$
|
30,361
|
|
|
100.0
|
%
| | | | | | | | |
| | Primary risk in force on defaulted loans | | $ | 4,628 |
| | | |
$
|
5,326
|
| | | | | | | | | | | | | | |
|
|
| | Radian Group Inc. and Subsidiaries | | Mortgage Insurance Supplemental Information | | Exhibit L | |
|
|
| | | | |
| | | | |
|
| June 30 |
|
| June 30 | | | | | | | 2012 | | |
2011
| ($ in millions) | | | $ |
|
| % | | |
$
|
|
|
%
| | | | | | | | | |
|
| | | | | | | |
|
| | | Percentage of primary risk in force | | | | | | | | | | | | | | | | | | | | | | Refinances | | | | 32 | % | | | | | | | |
31
|
%
| | | | | | | | ARMS | | | | | | | | | | | | | | | | | | | | | | Less than 5 years | | | | 4 | % | | | | | | | |
5
|
%
| | | | | | | | 5 years and longer | | | | 6 | % | | | | | | | |
7
|
%
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Pool risk in force | | | | | | | | | | | | | | | | | | | | Prime | | | $ | 1,471 | | | | 76.8 | % | | |
$
|
1,676
| | | |
75.6
|
%
| | Alt-A | | | | 113 | | | | 5.9 | % | | | |
132
| | | |
6.0
|
%
| | A minus and below | | |
| 331 |
|
|
| 17.3 | % | | |
|
408
|
|
|
|
18.4
|
%
| | Total | | | $ | 1,915 |
|
|
| 100.0 | % | | |
$
|
2,216
|
|
|
|
100.0
|
%
| | | | | | | | | | | | | | | | | | |
| Total pool risk in force by policy year | | | | | | | | | | | | | | | | | | | | | | 2005 and prior | | | $ | 1,722 | | | | 89.9 | % | | |
$
|
1,894
| | | |
85.5
|
%
| | | | 2006 | | | | 85 | | | | 4.4 | % | | | |
131
| | | |
5.9
|
%
| | | | 2007 | | | | 93 | | | | 4.9 | % | | | |
154
| | | |
6.9
|
%
| | | | 2008 | | |
| 15 |
|
|
| 0.8 | % | | |
|
37
|
|
|
|
1.7
|
%
| | | | Total pool risk in force | | | $ | 1,915 |
|
|
| 100.0 | % | | |
$
|
2,216
|
|
|
|
100.0
|
%
| | | | | | | | | | | | | | | | | | | | | |
| Other risk in force | | | | | | | | | | | | | | | | | | | | | | Second-lien | | | | | | | | | | | | | | | | | | | | | | 1st loss | | | $ | 91 | | | | | | | |
$
|
109
| | | | | | | | | 2nd loss | | | | 25 | | | | | | | | |
33
| | | | | | | | | NIMS | | | | 14 | | | | | | | | |
59
| | | | | | | | | 1st loss-Hong Kong primary mortgage insurance | | |
| 49 |
| | | | | | |
|
89
|
| | | | | | Total other risk in force | | | $ | 179 |
| | | | | | |
$
|
290
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Risk to capital ratio-Radian Guaranty only | | | | 21.0:1 | (1) | | |
|
| | | |
19.8:1
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (1) Preliminary | |
|
|
| | Radian Group Inc. and Subsidiaries | | Mortgage Insurance Supplemental Information | | Exhibit M | |
| |
| |
|
| Quarter Ended |
|
| Six Months Ended | | | | June 30 | | | June 30 | ($ in thousands) | | | 2012 |
|
|
2011
| | | 2012 |
|
|
2011
| | | | | | | | | | | | | | | | | | | | |
| | Net claims paid | | | | | | | | | | | | | | | | | | | | | | Prime | | | $ | 170,351 | | | |
$
|
256,020
| | | | $ | 297,452 | | | |
$
|
464,215
| | | Alt-A | | | | 40,261 | | | | |
88,140
| | | | | 76,912 | | | | |
163,270
| | | A minus and below | | |
| 31,112 |
| | |
|
52,794
|
| | |
| 57,192 |
| | |
|
97,379
|
| | Total primary claims paid | | | | 241,724 | | | | |
396,954
| | | | | 431,556 | | | | |
724,864
| | | Pool | | | | 20,374 | | | | |
58,341
| | | | | 45,300 | | | | |
92,699
| | | Second-lien and other | | |
| 1,349 |
| | |
|
3,736
|
| | |
| 4,932 |
| | |
|
6,619
|
| | Subtotal | | | | 263,447 | | | | |
459,031
| | | | | 481,788 | | | | |
824,182
| | | Impact of first-lien terminations | | | | — | | | | |
38,198
| | | | | — | | | | |
38,198
| | | Impact of captive terminations | | | | — | | | | |
(1,166
|
)
| | | | (148 | ) | | | |
(1,166
|
)
| | Impact of second-lien terminations | | |
| — |
| | |
|
16,550
|
| | |
| — |
| | |
|
16,550
|
| | Total | | | $ | 263,447 |
| | |
$
|
512,613
|
| | | $ | 481,640 |
| | |
$
|
877,764
|
| | | | | | | | | | | | | | | | | | | | |
| | Average claim paid (1) | | | | | | | | | | | | | | | | | | | | | | Prime | | | $ | 47.1 | | | |
$
|
49.9
| | | | $ | 48.6 | | | |
$
|
49.0
| | | Alt-A | | | | 56.4 | | | | |
62.0
| | | | | 57.8 | | | | |
60.9
| | | A minus and below | | | | 36.0 | | | | |
40.8
| | | | | 38.0 | | | | |
39.0
| | | Total primary average claims paid | | | | 46.6 | | | | |
50.6
| | | | | 47.6 | | | | |
49.5
| | | Pool | | | | 65.9 | | | | |
80.2
| | | | | 66.9 | | | | |
75.7
| | | Second-lien and other | | | | 24.5 | | | | |
27.7
| | | | | 26.2 | | | | |
28.9
| | | Total | | | $ | 47.4 | | | |
$
|
52.7
| | | | $ | 48.5 | | | |
$
|
51.2
| | | | | | | | | | | | | | | | | | | | | |
| | Average primary claim paid (2) (3) | | | $ | 49.2 | | | |
$
|
55.3
| | | | $ | 50.4 | | | |
$
|
54.8
| | | Average total claim paid (2) (3) | | | $ | 49.9 | | | |
$
|
56.9
| | | | $ | 51.0 | | | |
$
|
56.0
| | | | | | | | | | | | | | | | | | | | | |
| | Loss ratio - GAAP basis | | | | 121.9 | % | | | |
164.3
|
%
| | | | 128.6 | % | | | |
195.2
|
%
| | Expense ratio - GAAP basis | | |
| 22.9 | % | | |
|
25.9
|
%
| | |
| 24.4 | % | | |
|
24.8
|
%
| | | |
| 144.8 | % | | |
|
190.2
|
%
| | |
| 153.0 | % | | |
|
220.0
|
%
| | | | | | | | | | | | | | | | | | | | |
| | Reserve for losses by category | | | | | | | | | | | | | | | | | | | | | | Prime | | | $ | 1,740,492 | | | |
$
|
1,635,206
| | | | | | | | | | | | | Alt-A | | | | 597,570 | | | | |
652,577
| | | | | | | | | | | | | A minus and below | | | | 361,104 | | | | |
374,647
| | | | | | | | | | | | | Reinsurance recoverable (4) | | |
| 97,845 |
| | |
|
160,664
|
| | | | | | | | | | | | Total primary reserves | | | | 2,797,011 | | | | |
2,823,094
| | | | | | | | | | | | | Pool insurance | | |
| 348,288 |
| | |
|
436,948
|
| | | | | | | | | | | | Total 1st lien reserves | | | | 3,145,299 | | | | |
3,260,042
| | | | | | | | | | | | | Second lien | | | | 9,970 | | | | |
8,522
| | | | | | | | | | | | | Other | | |
| 74 |
| | |
|
18
|
| | | | | | | | | | | | Total reserves | | | $ | 3,155,343 |
| | |
$
|
3,268,582
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1st lien reserve per default (5) | | | | | | | | | | | | | | | | | | | | | | Primary reserve per primary default | | | $ | 28,410 | | | |
$
|
25,334
| | | | | | | | | | | | | Pool reserve per pool default (6) | | | | 18,012 | | | | |
16,795
| | | | | | | | | | | | | Total 1st lien reserve per default | | | | 26,704 | | | | |
23,718
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| | (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 and Smart Home. | (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 June
30, 2012 and 2011, would be $27,949 and $28,277, respectively. | | |
|
|
| | Radian Group Inc. and Subsidiaries | | Mortgage Insurance Supplemental Information | | Exhibit N | |
| |
| |
|
| June 30 |
|
| December 31 |
|
| June 30 | | | | 2012 | | |
2011
| | |
2011
| Default Statistics | | | | | | | | | | | | | | Primary Insurance: | | | | | | | | | | | | | | | | | | | | | | | | |
| | Flow | | | | | | | | | | | | | Prime | | | | | | | | | | | | | | Number of insured loans | | | 588,335 | | | |
569,190
| | | |
564,839
| | | Number of loans in default | | | 57,961 | | | |
65,238
| | | |
64,143
| | | Percentage of loans in default | | | 9.85 | % | | |
11.46
|
%
| | |
11.36
|
%
| | | | | | | | | | | | |
| Alt-A | | | | | | | | | | | | | | Number of insured loans | | | 40,976 | | | |
44,355
| | | |
47,491
| | | Number of loans in default | | | 13,001 | | | |
14,481
| | | |
15,329
| | | Percentage of loans in default | | | 31.73 | % | | |
32.65
|
%
| | |
32.28
|
%
| | | | | | | | | | | | |
| A minus and below | | | | | | | | | | | | | | Number of insured loans | | | 37,755 | | | |
40,884
| | | |
43,597
| | | Number of loans in default | | | 11,688 | | | |
13,560
| | | |
14,098
| | | Percentage of loans in default | | | 30.96 | % | | |
33.17
|
%
| | |
32.34
|
%
| | | | | | | | | | | | |
| Total Flow | | | | | | | | | | | | | | Number of insured loans | | | 667,066 | | | |
654,429
| | | |
655,927
| | | Number of loans in default | | | 82,650 | | | |
93,279
| | | |
93,570
| | | Percentage of loans in default | | | 12.39 | % | | |
14.25
|
%
| | |
14.27
|
%
| | | | | | | | | | | | |
| | Structured | | | | | | | | | | | | | Prime | | | | | | | | | | | | | | Number of insured loans | | | 39,278 | | | |
41,248
| | | |
43,429
| | | Number of loans in default | | | 5,608 | | | |
6,308
| | | |
6,248
| | | Percentage of loans in default | | | 14.28 | % | | |
15.29
|
%
| | |
14.39
|
%
| | | | | | | | | | | | |
| Alt-A | | | | | | | | | | | | | | Number of insured loans | | | 17,435 | | | |
18,484
| | | |
19,600
| | | Number of loans in default | | | 5,053 | | | |
5,563
| | | |
5,930
| | | Percentage of loans in default | | | 28.98 | % | | |
30.10
|
%
| | |
30.26
|
%
| | | | | | | | | | | | |
| A minus and below | | | | | | | | | | | | | | Number of insured loans | | | 14,816 | | | |
15,477
| | | |
16,159
| | | Number of loans in default | | | 5,139 | | | |
5,711
| | | |
5,686
| | | Percentage of loans in default | | | 34.69 | % | | |
36.90
|
%
| | |
35.19
|
%
| | | | | | | | | | | | |
| | Total Structured | | | | | | | | | | | | | | Number of insured loans | | | 71,529 | | | |
75,209
| | | |
79,188
| | | Number of loans in default | | | 15,800 | | | |
17,582
| | | |
17,864
| | | Percentage of loans in default | | | 22.09 | % | | |
23.38
|
%
| | |
22.56
|
%
| | | | | | | | | | | | |
| | Total Primary Insurance | | | | | | | | | | | | | Prime | | | | | | | | | | | | | | Number of insured loans | | | 627,613 | | | |
610,438
| | | |
608,268
| | | Number of loans in default | | | 63,569 | | | |
71,546
| | | |
70,391
| | | Percentage of loans in default | | | 10.13 | % | | |
11.72
|
%
| | |
11.57
|
%
| | | | | | | | | | | | |
| Alt-A | | | | | | | | | | | | | | Number of insured loans | | | 58,411 | | | |
62,839
| | | |
67,091
| | | Number of loans in default | | | 18,054 | | | |
20,044
| | | |
21,259
| | | Percentage of loans in default | | | 30.91 | % | | |
31.90
|
%
| | |
31.69
|
%
| | | | | | | | | | | | |
| A minus and below | | | | | | | | | | | | | | Number of insured loans | | | 52,571 | | | |
56,361
| | | |
59,756
| | | Number of loans in default | | | 16,827 | | | |
19,271
| | | |
19,784
| | | Percentage of loans in default | | | 32.01 | % | | |
34.19
|
%
| | |
33.11
|
%
| | | | | | | | | | | | |
| | Total Primary | | | | | | | | | | | | | | Number of insured loans | | | 738,595 | | | |
729,638
| | | |
735,115
| | | Number of loans in default | | | 98,450 | | | |
110,861
| | | |
111,434
| | | Percentage of loans in default | | | 13.33 | % | | |
15.19
|
%
| | |
15.16
|
%
| | | | | | | | | | | | |
| | Pool insurance | | | | | | | | | | | | | | Number of loans in default | | | 19,336 | | | |
21,685
| | | |
26,016
| | | | | | | | | | | | | |
|
|
| | Radian Group Inc. and Subsidiaries | | Mortgage Insurance Supplemental Information | | Exhibit O | |
| |
| |
|
| Quarter Ended |
|
| Six Months Ended | | | | June 30 | | | June 30 | ($ in thousands) | | | 2012 |
|
|
2011
| | | 2012 |
|
|
2011
| | | | | | | | | | | | | | | | | | | | |
| Net Premiums Written | | | | | | | | | | | | | | | | | | | | | | Primary and Pool Insurance | | | $ | 181,996 | | | |
$
|
163,556
| | | | $ | 378,317 | | | |
$
|
343,813
| | | Second-lien | | | | 482 | | | | |
592
| | | | | 993 | | | | |
1,212
| | | International | | |
| 40 |
| | |
|
46
|
| | |
| 61 |
| | |
|
15
|
| | Total Net Premiums Written - Insurance | | | $ | 182,518 |
| | |
$
|
164,194
|
| | | $ | 379,371 |
| | |
$
|
345,040
|
| | | | | | | | | | | | | | | | | | | | |
| Net Premiums Earned | | | | | | | | | | | | | | | | | | | | | | Primary and Pool Insurance | | | $ | 169,898 | | | |
$
|
162,388
| | | | $ | 342,379 | | | |
$
|
345,857
| | | Second-lien | | | | 482 | | | | |
592
| | | | | 993 | | | | |
1,212
| | | International | | |
| 383 |
| | |
|
1,345
|
| | |
| 842 |
| | |
|
3,390
|
| | Total Net Premiums Earned - Insurance | | | $ | 170,763 |
| | |
$
|
164,325
|
| | | $ | 344,214 |
| | |
$
|
350,459
|
| | | | | | | | | | | | | | | | | | | | |
| 1st Lien Captives | | | | | | | | | | | | | | | | | | | | | | Premiums ceded to captives | | | $ | 6,289 | | | |
$
|
7,266
| | | | $ | 12,718 | | | |
$
|
14,853
| | | % of total premiums | | | | 3.5 | % | | | |
4.2
|
%
| | | | 3.6 | % | | | |
4.1
|
%
| | IIF included in captives (1) | | | | 8.9 | % | | | |
9.9
|
%
| | | | | | | | | | | | RIF included in captives (1) | | | | 7.7 | % | | | |
9.7
|
%
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quota Share Reinsurance ("QSR") | | | | | | | | | | | | | | | | | | | | | | QSR ceded premiums written | | | $ | 25,477 | | | | | | | | | | | | | | | | | | % of premiums written | | | | 12.0 | % | | | | | | | | | | | | | | | | | QSR ceded premiums earned | | | $ | 3,098 | | | | | | | | | | | | | | | | | | % of premiums earned | | | | 1.7 | % | | | | | | | | | | | | | | | | | RIF included in QSR (2) | | | $ | 922,497 | | | | | | | | | | | | | | | | | | Ceding commissions | | | $ | 6,369 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Persistency (twelve months ended June 30) | | | | 83.9 | % | | | |
82.5
|
%
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| | (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 information. 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:
- Losses in our mortgage insurance and financial guaranty
businesses have reduced Radian Guaranty's statutory surplus and
increased Radian Guaranty's risk-to-capital ratio; additional losses
in these businesses, without a corresponding increase in new capital
or capital relief, would further negatively impact this ratio, which
could limit Radian Guaranty's ability to write new insurance and
increase restrictions and requirements placed on Radian Guaranty.
We
and our insurance subsidiaries are subject to comprehensive, detailed
regulation by the insurance departments in the various states where
our insurance subsidiaries are licensed to transact business. These
regulations are principally designed for the protection of our insured
policyholders rather than for the benefit of investors. Insurance laws
vary from state to state, but generally grant broad supervisory powers
to state agencies or officials to examine insurance companies and
enforce rules or exercise discretion affecting almost every
significant aspect of the insurance business, including the power to
revoke or restrict an insurance company's ability to write new
business.
The GSEs and state insurance regulators impose
various capital requirements on our insurance subsidiaries. These
include risk-to-capital ratios, risk-based capital measures and
surplus requirements that potentially limit the amount of insurance
that each of our insurance subsidiaries may write. The GSEs and our
insurance regulators possess significant discretion with respect to
our insurance subsidiaries. Our failure to maintain adequate levels of
capital, among other things, could lead to intervention by the various
insurance regulatory authorities, which could materially and adversely
affect our business, business prospects and financial condition.
Under
state insurance regulations, Radian Guaranty is required to maintain
minimum surplus levels and, in certain states, a minimum amount of
statutory capital relative to the level of risk in force, or
"risk-to-capital." Sixteen states (the risk-based capital or “RBC
States”) currently impose a statutory or regulatory risk-based capital
requirement (the “Statutory RBC Requirement”), the most common of
which (imposed by 11 of the RBC States) is a requirement that a
mortgage insurer's risk-to-capital ratio may not exceed 25 to 1.
Unless an RBC State grants a waiver or other form of relief, if a
mortgage insurer is not in compliance with the Statutory RBC
Requirement of an RBC State, it may be prohibited from writing new
mortgage insurance business in that state. Radian Guaranty's
domiciliary state, Pennsylvania, is not one of the RBC States. For the
full year 2011 and for the six months ended June 30, 2012, the RBC
States accounted for approximately 50.5% and 54.8%, respectively, of
Radian Guaranty's total primary new insurance written.
As a
result of ongoing incurred losses, Radian Guaranty's risk-to-capital
ratio has increased to 21.0 to 1 as of June 30, 2012. Based on our
current projections, Radian Guaranty's risk-to-capital ratio is
expected to continue to increase and, absent any further capital
contributions from Radian Group or other forms of capital relief such
as reinsurance, is expected to exceed 25 to 1 in 2012. The ultimate
amount of losses and the timing of these losses will depend, in part,
on general economic conditions and other factors, including the health
of credit markets, home prices and unemployment rates, all of which
are difficult to predict and beyond our control.
Our
mortgage insurance incurred losses are driven primarily by new
mortgage insurance defaults and adverse development in the assumptions
used to determine our loss reserves. Establishing loss reserves in our
businesses requires significant judgment by management with respect to
the likelihood, magnitude and timing of anticipated losses. This
judgment has been made more difficult in the current period of
prolonged economic uncertainty. Our estimate of the percentage of
defaults that ultimately will result in a paid claim (the “default to
claim rate”) is a significant assumption in our reserving methodology.
Our assumed aggregate weighted average default to claim rate (which
incorporates the expected impact of rescissions and denials) was
approximately 43% for the year ended December 31, 2011, and was 46% as
of June 30, 2012. Assuming all other factors remain constant, for each
1% increase in our aggregate weighted average default to claim rate as
of June 30, 2012, incurred losses would increase by approximately $58
million. Radian Guaranty's statutory capital would be reduced by the
after-tax impact of these incurred losses. Our level of incurred
losses is also dependent on our estimate of anticipated rescissions
and denials, including our estimate of the number of successful
challenges to previously rescinded policies or claim denials, among
other assumptions. If the actual losses we ultimately realize are in
excess of the loss estimates we use in establishing loss reserves, we
may be required to take unexpected charges to income, which could
adversely affect our statutory capital position and further increase
Radian Guaranty's risk-to-capital ratio.
If Radian Guaranty
is not in compliance with the applicable Statutory RBC Requirement in
any RBC State, it may be prohibited from writing new business in that
state until it is back in compliance or it receives a waiver of or
similar relief from the requirement from the applicable state
insurance regulator, as discussed in more detail below. In those
states that do not have a Statutory RBC Requirement, it is not clear
what actions the applicable state regulators would take if a mortgage
insurer fails to meet the Statutory RBC Requirement established by
another state. Accordingly, if Radian Guaranty fails to meet the
Statutory RBC Requirement in one or more states, it could be required
to suspend writing business in some or all of the states in which it
does business. In addition, the GSEs and our mortgage lending
customers may decide not to conduct new business with Radian Guaranty
(or may reduce current business levels) or impose restrictions on
Radian Guaranty while its risk-to-capital ratio remained at elevated
levels. The franchise value of our mortgage insurance business would
likely be significantly diminished if we were prohibited from writing
new business or restricted in the amount of new business we could
write in one or more states.
Radian Guaranty's
risk-to-capital position also is dependent on the performance of our
financial guaranty portfolio. During the third quarter of 2008, we
contributed our ownership interest in Radian Asset Assurance to Radian
Guaranty. While this reorganization provided Radian Guaranty with
substantial regulatory capital and dividends, it also makes the
capital adequacy of our mortgage insurance business dependent, to a
significant degree, on the successful run-off of our financial
guaranty business. Any decrease in the capital support from our
financial guaranty business would therefore have a negative impact on
Radian Guaranty's risk-to-capital position and its ability to remain
in compliance with the Statutory RBC Requirements. If the performance
of our financial guaranty portfolio deteriorates materially, including
if we are required to establish (or significantly increase) one or
more significant statutory reserves on defaulted obligations that we
insure, or if we make net commutation payments to terminate insured
financial guaranty obligations in excess of the then established
statutory reserves for such obligations, the statutory capital of
Radian Guaranty also would be negatively impacted.
We
actively manage Radian Guaranty's risk-to-capital position in various
ways, including: (1) through reinsurance arrangements; (2) by seeking
opportunities to reduce our risk exposure through commutations or
other negotiated transactions; (3) by contributing additional capital
from Radian Group to our mortgage insurance subsidiaries; and (4) by
monetizing gains in our investment portfolio through open market sales
of securities. Radian Group had unrestricted cash and liquid
investments of approximately $352.6 million as of June 30, 2012. We
used an additional $11.5 million of our available liquidity in July
and August 2012 to purchase $11.7 million in principal amount of our
2013 Notes. Our remaining available liquidity may be used to further
support Radian Guaranty's risk-to-capital position. Depending on the
extent of our future incurred losses, the amount of capital
contributions required for Radian Guaranty to remain in compliance
with the Statutory RBC Requirements could be substantial and could
exceed amounts maintained at Radian Group.
Our ability to
continue to reduce Radian Guaranty's risk through affiliated
reinsurance arrangements may be limited. These arrangements are
subject to regulation by state insurance regulators who could decide
to limit, or require the termination of, such arrangements. In
addition, certain of these affiliated reinsurance companies currently
are operating at or near minimum capital levels and have required, and
may continue to require, additional capital contributions from Radian
Group in the future. One of these affiliated insurance companies,
which provides reinsurance to Radian Guaranty for coverage in excess
of 25% of certain loans insured by Radian Guaranty, is a sister
company of Radian Guaranty, and therefore, any contributions to this
insurer would not be consolidated with Radian Guaranty's capital for
purposes of calculating Radian Guaranty's risk-to-capital position. In
addition, we must obtain prior approval from the GSEs to enter into
new, or to modify existing, reinsurance arrangements. If we are
limited in, or prohibited from, using reinsurance arrangements to
reduce Radian Guaranty's risk, it would adversely affect Radian
Guaranty's risk-to-capital position. In order to maximize our
financial flexibility, we have applied for waivers or similar relief
for Radian Guaranty in each of the RBC States. Of the 16 RBC states,
New York does not possess the regulatory authority to grant waivers
and Iowa, Kansas and Ohio have declined to grant waivers to Radian
Guaranty. In addition, Oregon has indicated that it will not consider
our waiver application until such time that Radian Guaranty has
exceeded its Statutory RBC Requirement. Of the remaining 11 RBC
States, Radian Guaranty has received waivers or similar relief from
the following ten states: Illinois, Kentucky, Wisconsin, Arizona,
Missouri, and New Jersey, North Carolina, California, Florida and
Texas. Radian Guaranty has one remaining application that is pending
in Idaho. There can be no assurance: (1) that Radian Guaranty will be
granted a waiver in the remaining RBC State; (2) that for any waiver
granted, such regulator will not revoke or terminate the waiver, which
the regulator generally has the authority to do at any time; (3) that
for any waiver granted, it will be renewed or extended after its
original expiration date, which in the case of certain waivers is
December 31, 2012; or (4) regarding what, if any, requirements may be
imposed as a condition to such waivers or their renewal or extension,
and whether we will be able to comply with any such conditions.
In
addition to filing for waivers in the RBC States, we intend to write
new first-lien mortgage insurance business in Radian Mortgage
Assurance, in any RBC State that does not permit Radian Guaranty to
continue writing insurance while it is out of compliance with
applicable Statutory RBC Requirements. Radian Mortgage Assurance is a
wholly-owned subsidiary of Radian Guaranty and is licensed to write
mortgage insurance in each of the fifty states. In February 2012,
Radian Mortgage Assurance received approvals from the GSEs to write
new mortgage insurance business in any RBC State where Radian Guaranty
would be prohibited from writing new business if it were not in
compliance with the state's Statutory RBC Requirement without a waiver
or other similar relief. These approvals are temporary (the Fannie Mae
approval expires on December 31, 2013, while the Freddie Mac approval
expires on December 31, 2012) and are conditioned upon our compliance
with a broad range of conditions and restrictions, including without
limitation, minimum capital and liquidity requirements, a maximum
risk-to-capital ratio of 20 to 1 for Radian Mortgage Assurance,
restrictions on the payment of dividends and requirements governing
the manner in which Radian Guaranty and Radian Mortgage Assurance
conduct affiliate transactions. Under the GSE approvals, Radian Group
is also required to contribute $50 million of additional capital to
Radian Mortgage Assurance if Radian Guaranty’s risk-to-capital ratio
exceeds applicable Statutory RBC Requirements. There can be no
assurance that: (1) we will be able to comply with the conditions
imposed by the GSEs’ approval for Radian Mortgage Assurance; (2) that
the GSEs will not revoke or terminate their approvals, which they
generally have the authority to do at any time; (3) that the approvals
will be renewed or extended after their original expiration date; or
(4) regarding what, if any, additional requirements could be imposed
as a condition to such on-going approvals, including their renewal or
extension.
It is also possible that if Radian Guaranty were
not able to comply with the Statutory RBC Requirements of one or more
states, the insurance regulatory authorities in states other than the
RBC States could prevent Radian Guaranty from continuing to write new
business in such states. If this were to occur, we would need to seek
approval from the GSEs to expand the scope of their approvals to allow
Radian Mortgage Assurance to write business in states other than the
RBC States.
Our existing capital resources may not be
sufficient to successfully manage Radian Guaranty's risk-to-capital
ratio. Our ability to use waivers and Radian Mortgage Assurance to
allow Radian Guaranty to continue to write business with a
risk-to-capital position that is not in compliance with the Statutory
RBC Requirements is subject to conditions that we may be unable to
satisfy. As a result, even if we are successful in implementing this
strategy, additional capital contributions could be necessary, which
we may not have the ability to provide. Further, regardless of the
waivers and the GSEs approval of Radian Mortgage Assurance, we may
choose to use our existing capital at Radian Group to maintain
compliance with the Statutory RBC Requirements. Depending on the
extent of our future incurred losses along with other factors, the
amount of capital contributions that may be required to maintain
compliance with the Statutory RBC Requirements could be significant
and could exceed all of our remaining available capital. In the event
we contribute a significant amount of Radian Group's available capital
to Radian Guaranty and Radian Mortgage Assurance, our financial
flexibility would be significantly reduced, making it more difficult
for Radian Group to meet its obligations in the future, including
future principal payments on our outstanding debt.
- We are subject to the risk of private litigation and regulatory
proceedings.
We currently are a party to material
litigation, as discussed in “Part II—Other Information—Item 1. Legal
Proceedings” in our Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2012, and are subject to certain regulatory
proceedings. The cost to defend these actions and the ultimate
resolution of these matters could have a material adverse impact on
our financial results, financial condition, and on the trading price
of our common stock. There can be no assurance that additional
lawsuits, regulatory proceedings and other matters will not arise.
Recently,
we have been named as a defendant in a number of putative class action
lawsuits alleging, among other things, that our captive reinsurance
agreements violate the Real Estate Practices Act of 1974 (“RESPA”). In
addition to these private lawsuits, we and other mortgage insurers
have been subject to inquiries from the Minnesota Department of
Commerce and the Office of the Inspector General of HUD, requesting
information relating to captive reinsurance. The Dodd-Frank Act
amended RESPA and transferred the authority to implement and enforce
the statute from HUD to the Consumer Financial Protection Bureau
(“CFPB”). In January 2012, we and other mortgage insurers received a
request for information and documents from the CFPB relating to
captive reinsurance arrangements, and in June 2012, we and other
mortgage insurers received a Civil Investigative Demand (“CID”) from
the CFPB as part of its investigation to determine whether mortgage
lenders and private mortgage insurance providers engaged in acts or
practices in violation of the Dodd Frank Act, RESPA and the Consumer
Financial Protection Act. We are cooperating with the CFPB in its
investigation and are in active discussions with the CFPB with respect
to our response to the CID. Various regulators, including the CFPB,
state insurance commissioners or state attorneys general may bring
actions or proceedings regarding our compliance with RESPA or other
laws applicable to our mortgage insurance business. We cannot predict
whether additional actions or proceedings will be brought against us
or the outcome of any such actions or proceedings.
We face
an increasing number of challenges from certain of our lender
customers regarding our insurance rescissions and claim denials. These
discussions, if not resolved, could result in arbitration or judicial
proceedings.
There has been increased litigation in our
industry relating to rescissions and denials. On August 1, 2011, we
filed a lawsuit against Quicken in the United States District Court
for the Eastern District of Pennsylvania, seeking a declaratory
judgment that we properly rescinded mortgage insurance coverage under
our Master Policy and delegated underwriting endorsement for
approximately 140 home mortgage loans originated by Quicken based upon
deficiencies and improprieties in the underwriting process. We cannot
predict whether additional actions may be brought against us and the
outcome of the Quicken litigation or other additional actions. Because
the Quicken litigation relates to mortgage insurance policy terms and
practices that are widely used in the mortgage insurance industry, the
outcome of this litigation or other litigation in our industry
relating to rescissions may impact us. If this litigation results in a
change in mortgage insurance policy terms and practices that are
widely used by the mortgage insurance industry, including by us, or if
we engage in further material litigation with any customer and, as a
result, the customer limits the amount of business they conduct with
us or terminates our business relationship altogether, it could have a
negative impact on our business and results of operations.
Other risks and uncertainties that could cause actual results to differ
materially from those contained in the forward-looking statements
include the following:
-
changes in general economic and political conditions, including high
unemployment rates and continued weakness in the U.S. housing and
mortgage credit markets, the U.S. economy reentering a recessionary
period, a significant downturn in the global economy, 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, further 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 geographic regions,
including 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, including in particular, the
repayment of our long-term debt and additional capital contributions
that may be required to support our mortgage insurance business;
-
a further reduction in, or prolonged period of depressed levels of,
home mortgage originations due to reduced liquidity in the lending
market, tighter underwriting standards, general reduced housing demand
in the U.S., potential risk retention requirements established under
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act") and potential increases in capital requirements for
banks and bank holding companies for mortgage loans under proposed
interagency rules to implement Basel III ;
-
our ability to maintain an adequate risk-to-capital position and
surplus requirements in our mortgage insurance business, including if
necessary, our ability to write new mortgage insurance while
maintaining a capital position that is in excess of risk-based capital
limitations imposed in certain states, either through waivers of these
limitations or through use of another mortgage insurance subsidiary,
and the possibility that state regulators could pursue regulatory
actions or proceedings, including possible supervisory or receivership
actions, against Radian Guaranty, in the event Radian Guaranty's
risk-to-capital position exceeds levels that are acceptable to such
regulators;
-
our ability to continue to effectively mitigate our mortgage insurance
and financial guaranty losses;
-
the ability of our primary insurance customers in our financial
guaranty reinsurance business to provide appropriate surveillance and
to mitigate losses adequately with respect to our assumed insurance
portfolio;
-
a more rapid than expected decrease in the level of insurance
rescissions and claim denials from the current elevated levels, which
have reduced our paid losses and resulted in a significant reduction
in our loss reserves, including a decrease in 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 ("GSEs") intervening in mortgage
insurers' loss mitigation practices, including settlements of disputes;
-
the negative impact our insurance rescissions and claim denials or
claim curtailments 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 or denials, to increase our loss reserves for, and
reassume risk on, rescinded or denied loans, and to pay additional
claims;
-
any disruption in the servicing of mortgages covered by our insurance
policies and poor servicer performance;
-
adverse changes in the severity or frequency of losses associated with
certain products that we formerly offered (and currently insure) that
are riskier than traditional mortgage insurance or financial guaranty
insurance policies;
-
a decrease in persistency rates of our mortgage insurance policies,
which has the effect of reducing our premium incomes without a
corresponding decrease in incurred losses;
-
an increase in the risk profile of our existing mortgage insurance
portfolio due to the refinancing of existing mortgage loans for only
the most qualified borrowers in the current mortgage and housing
market;
-
changes in the criteria for assigning credit or similar ratings,
further downgrades or threatened downgrades of, or other ratings
actions with respect to, our credit ratings or the ratings assigned to
any of our rated insurance subsidiaries at any time, including in
particular, the credit ratings of Radian Group Inc. ("Radian Group")
and the financial strength ratings assigned to Radian Guaranty Inc.
("Radian Guaranty");
-
heightened competition for our mortgage insurance business from others
such as the Federal Housing Administration (the "FHA"), the Department
of Veterans Affairs ("VA") and other private mortgage insurers (in
particular, the FHA and those private mortgage insurers that have been
assigned higher ratings than us from the major rating agencies, that
may have access to greater amounts of capital than we do, or new
entrants to the industry that are not burdened by legacy obligations);
-
changes in the charters or business practices of, or rules or
regulations applicable to, Federal National Mortgage Association
("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 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 (1) whether and to what extent
loans with mortgage insurance are considered "qualified residential
mortgages" for purposes of the Dodd-Frank Act securitization
provisions or "qualified mortgages" for purposes of the ability to
repay provisions of the Dodd-Frank Act, and the possibility that the
ultimate definitions of "qualified residential mortgages" and
"qualified mortgages" could reduce the size of the mortgage market and
potentially reduce the number of insurable loans; and (2) the
possibility that our financial guaranty business could be subject to
additional registration, reporting, capital and margin requirements,
including potentially, the posting of collateral for certain existing
derivative contracts;
-
the application of existing federal or state consumer, lending,
insurance, tax, securities and other applicable laws and regulations,
or changes in these laws and regulations or the way they are
interpreted, including, without limitation: (i) the outcome of
existing, or the possibility of additional, lawsuits or
investigations; and (ii) legislative and regulatory changes (a)
impacting the demand for private mortgage insurance, (b) limiting or
restricting our use of (or increasing requirements for) additional
capital and the products we may offer, (c) affecting the form in which
we execute credit protection, or (d) impacting our existing financial
guaranty portfolio;
-
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 premium deficiencies for our mortgage insurance
business, 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 our need to reevaluate the possibility of a premium
deficiency in our mortgage insurance business on a quarterly basis;
-
our ability to realize 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, rules and guidance, or their
interpretation, from the Securities and Exchange Commission or the
Financial Accounting Standards Board; 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, 2011, and subsequent reports and
registration statements filed from time to time with the Securities and
Exchange Commission.
Radian Group Inc.
Emily Riley,215-231-1035
emily.riley@radian.biz Source: Radian Group Inc. | Copyright: | Copyright Business Wire 2012 | | Wordcount: | 10596 |
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