Triad Guaranty Inc. Reports Fourth Quarter and Year End Results

WINSTON-SALEM, N.C., Feb. 25 /PRNewswire-FirstCall/ -- Triad Guaranty Inc. (OTC Bulletin Board: TGIC) today reported a net loss for the quarter ended December 31, 2009 of $79.1 million compared to a net loss of $101.9 million for the third quarter of 2009 and a net loss of $122.2 million for the fourth quarter of 2008.  The 2009 fourth quarter diluted loss per share was $5.26 compared to a diluted loss per share of $6.78 for the 2009 third quarter and $8.16 for the fourth quarter of 2008.

The net loss for the year ended December 31, 2009 was $595.6 million compared to a net loss of $631.1 million for the year ended December 31, 2008.  The diluted loss per share was $39.70 for the year ended December 31, 2009 compared to a diluted loss per share of $42.27 for the year ended December 31, 2008.

Ken Jones, President and CEO, said, "The fourth quarter of 2009 continued to be a very difficult environment for our business.  First-time defaults, while down moderately from earlier 2009 quarters, continued at a high volume.  We have seen very little permanent impact to date from the existing loan modification programs and, consequently, the cure rates on existing defaults remain at historic lows and have shown little sign of improvement.  As a company in run-off, our primary focus remains on the efficient and effective servicing of our insured portfolio, particularly with respect to loss management, in order to maximize our claims-paying ability."  

Total insurance in force declined to $50.5 billion at December 31, 2009, a 7.5% drop from September 30, 2009 and a 19.3% decline from December 31, 2008.  Persistency rates have remained high over the past year due primarily to more restrictive credit standards in mortgage lending and declines in home prices, both of which limit the opportunities for borrowers to refinance existing mortgages.  The majority of the decline in insurance in force over the past year is attributable to paid claims and rescinded coverage, as opposed to refinancing or sales.  In addition, during the fourth quarter five Modified Pool contracts terminated in accordance with their terms after reaching the paid stop loss, which accounted for approximately 2% of the decline in insurance in force during the quarter.

Total revenues increased sequentially by $6.5 million to $57.8 million for the fourth quarter of 2009, as compared to $51.3 million in the third quarter of 2009 and $41.4 million in the fourth quarter of 2008.  Driving the fourth quarter growth in revenues was a gain of $12.9 million related to the sale of the operating platform to Essent Guaranty, Inc.  Earned premiums were essentially flat for the fourth quarter of 2009 when compared to the 2009 third quarter, but declined 30% when compared to the fourth quarter of 2008.  The decline in year-over-year earned premiums was primarily due to the decline in insurance in force combined with the impact of refunds and expected refunds of premium relating to rescission activity.  Revenues in the fourth quarter of 2008 were negatively impacted by an $18.9 million non-cash impairment loss, while the Company realized a small investment gain of $0.7 million in the fourth quarter of 2009.  

Net losses and loss adjustment expenses were $128.9 million for the fourth quarter of 2009, down from $145.8 million in the 2009 third quarter and $178.1 million for the fourth quarter of 2008.  Net settled claims totaled $153.7 million in the 2009 fourth quarter, down slightly from $157.9 million in the 2009 third quarter, but up significantly when compared to the $69.4 million settled in the fourth quarter of 2008.  The increase in net settled claims during 2009 reflects the progression through the foreclosure process of a higher number of defaults from the 2006 and 2007 vintages.  In the fourth quarter of 2009, loss reserves declined by $30.2 million compared to a decline of $15.8 million in the 2009 third quarter, while loss reserves increased by $106.1 million in the fourth quarter of 2008.

As a result of the Corrective Orders issued by the Illinois Department of Insurance, since June 1, 2009, all valid claims under Triad's mortgage guaranty insurance policies have been settled 60% in cash and 40% by the creation of a deferred payment obligation ("DPO") payable to the insured.  The DPO requires that the Company accrue a carrying charge, or interest, based on the investment yield earned by its investment portfolio.  Payments of the carrying charge and the DPO will be subject to the future financial performance of the operating insurance subsidiary and will require the approval of the Director of the Illinois Department of Insurance.  Under U.S. generally accepted accounting principles, the DPOs and the related accrued interest are recorded as liabilities and are included in the "deferred payment obligation" line on our balance sheet.   Other operating expenses were down moderately for the fourth quarter of 2009 as compared to the third quarter of 2009 and the fourth quarter of 2008 as the Company continues through the run-off process.  The increase in interest expense in the fourth quarter of 2009 reflects an additional $1.5 million of accrued interest related to the DPOs.

We have updated the quarterly statistical and supplemental information for the 2009 fourth quarter results on our web site at www.triadguaranty.com.   The supplemental information can be found under "Investors" and then under "Webcasts and Presentations" by the title "Supplemental Information – Fourth Quarter 2009".

(Relevant Triad Guaranty Inc. financial and statistical information follows)

Triad Guaranty Inc.'s wholly owned subsidiary, Triad Guaranty Insurance Corporation, is a nationwide mortgage insurer pursuing a voluntary run-off of its existing in-force book of business. For more information, please visit the Company's web site at www.triadguaranty.com.

Certain of the statements contained in this release are "forward-looking statements" and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include estimates and assumptions related to economic, competitive, regulatory, operational and legislative developments. These forward-looking statements are subject to change, uncertainty and circumstances that are, in many instances, beyond our control and they have been made based upon our current expectations and beliefs concerning future developments and their potential effect on us. Actual developments and their results could differ materially from those expected by us, depending on the outcome of a number of factors, including: the possibility that the Illinois Department of Insurance may take various actions regarding Triad if it does not operate its business in accordance with its revised financial and operating plan and the corrective orders, including seeking receivership proceedings; our ability to operate our business in run-off and maintain a solvent run-off; our ability to continue as a going concern; the possibility of general economic and business conditions that are different than anticipated; legislative, regulatory, and other similar developments; changes in interest rates, employment rates, the housing market, the mortgage industry and the stock market; the possibility that there will not be adequate interest in the Company's common stock on the over the counter markets to ensure efficient pricing; and various factors described under "Risk Factors" and in the "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" in our Annual Report on Form 10-K for the year ended December 31, 2008 and in other reports and statements filed with the Securities and Exchange Commission.  Forward-looking statements are based upon our current expectations and beliefs concerning future events and we undertake no obligation to update or revise any forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements are made.

                                        Triad Guaranty Inc.                       Consolidated Statement of Operations                               Three Months Ended              Twelve Months Ended                              December 31,                   December 31,                              (Unaudited)            (Unaudited)                          2009           2008            2009           2008                          ----           ----            ----           ----                           (Dollars in thousands except per share amounts)          Earned premiums    $34,891         $49,840        $179,658       $257,423     Net investment      income              9,739          10,509          44,133        $39,580     Net realized      investment      gains (losses)        649         (18,944)          1,354        (26,559)     Other income        12,536               2          12,666              8                         ------             ---          ------            ---       Total revenues    57,815          41,407         237,811        270,452          Losses and      loss adjustment      expenses:       Net settled        claims          153,749          69,373         515,413        237,080       Change        in reserves     (30,195)        106,080         272,553        665,549       Loss adjustment        expenses          5,370           2,646          19,661         20,672                          -----           -----          ------         ------           Net losses            and loss            adjustment            expenses    128,924         178,099         807,627        923,301          Interest expense     2,243             694           6,034          3,557     DAC amortization         -               -               -         39,416     Other operating      expenses - net      8,160           8,639          35,911         58,709                          -----           -----          ------         ------     Loss before      income taxes      (81,512)       (146,025)       (611,761)      (754,531)          Income tax      benefit            (2,368)        (23,818)        (16,129)      (123,404)                         ------         -------         -------       --------          Net loss          $(79,144)      $(122,207)      $(595,632)     $(631,127)                       ========       =========       =========      =========          Diluted loss      per share          $(5.26)         $(8.16)        $(39.70)       $(42.27)          Diluted      weighted      average      common and      common stock      equivalents      outstanding       (in thousands)     15,059          14,980          15,002         14,930                                              Triad Guaranty Inc.                           Consolidated Balance Sheet                                              (Unaudited)                                         December 31,        December 31,                                             2009                2008                                             ----                ----                                (Dollars in thousands except per share amounts)     Assets:       Invested assets:          Fixed maturities,            available for sale,           at market                       $784,830            $854,186          Equity securities,           available for           sale, at market                                          583          Short-term investments             26,651              40,653                                             ------              ------                                            811,481             895,422            Cash and cash equivalents             21,839              39,940       Prepaid federal income tax                 -                  15       Reinsurance recoverable              233,499             150,848       Other assets                          58,007              44,309                                             ------              ------                 Total assets                 $1,124,826          $1,130,534                                         ==========          ==========          Liabilities:       Losses and loss adjustment        expenses                         $1,537,043          $1,187,840       Unearned premiums                     12,153              15,863       Deferred income tax                        -                   -       Long-term debt                        34,540              34,529       Deferred payment obligation          168,386                   -       Other liabilities                     79,062              28,968                                             ------              ------                Total liabilities              1,831,184           1,267,200          Stockholders' equity:       Accumulated deficit                 (851,141)           (255,509)       Accumulated other        comprehensive income                 30,782               6,063       Other equity accounts                114,001             112,780                                            -------             -------               Total stockholders' deficit           in assets                       (706,358)           (136,666)                                           --------            --------          Total liabilities and      stockholders' equity               $1,124,826          $1,130,534                                         ==========          ==========               Stockholders' deficit in assets      per share:                            $(46.29)             $(9.01)          Common shares outstanding           15,258,128          15,161,259                                              Triad Guaranty Inc.                       Consolidated Statement of Cash Flow                                                           Twelve Months Ended                                                          December 31,                                                    2009                2008                                                    ----                ----                                                (Unaudited)                                                    (Dollars in Thousands)     OPERATING ACTIVITIES     Net loss                                    $(595,632)          $(631,127)     Adjustments to reconcile net loss to      net cash provided by operating activities:       Increase in loss and unearned premium        reserves                                   345,493             825,971       Amounts due to/from reinsurer               (83,363)           (150,839)       Net realized investment (gains) losses       (1,354)             26,559       Policy acquisition costs deferred                 -              (3,173)       Amortization of policy acquisition costs          -              39,416       Deferred income taxes                       (13,311)           (121,392)       Redemption of Tax and Loss Bonds                 15             115,993       Deferred payment obligation                 168,386                   -       Other operating activities                   44,856              45,730                                                    ------              ------          Net cash (used in) provided by      operating activities                        (134,910)            147,138                                                  --------             -------          INVESTING ACTIVITIES       Purchases of investment securities         (182,251)           (839,372)       Sales and maturities of investment        securities                                 284,188             674,688       Net change in short-term investments         13,915              14,074       Other investing activities                      957              (1,296)                                                       ---              ------          Net cash provided by (used in)      investing activities                         116,809            (151,906)                                                   -------            --------          FINANCING ACTIVITIES       Repayments on credit facility                     -             (80,000)       Excess tax benefits related to share        based compensation                               -                  15                                                       ---                 ---          Net cash used in financing activities               -             (79,985)                                                       ---             -------          Foreign currency translation adjustment             -                (118)                                                       ---                ----          Net decrease in cash                          (18,101)            (84,871)     Cash at beginning of period                    39,940             124,811                                                    ------             -------          Cash at end of period                         $21,839             $39,940                                                   =======             =======                                                TRIAD GUARANTY INC.                     Sequential Quarterly Financial Statements                                     (unaudited)                   Condensed Statements of Operations For The Quarter Ended                               (Dollars in thousands)                               ----------------------                                       Dec 31,    Sept 30,   Jun 30,   Mar 31,                                    2009       2009       2009      2009                                    ----       ----       ----      ----     Revenue:       Earned premiums            $34,891    $35,576    $64,833   $44,358       Net investment income        9,739     12,342     10,859    11,192       Realized investment        gains (losses)                649      3,253      2,017    (4,565)       Other income (loss)         12,536        127          2         2                                   ------        ---        ---       ---         Total revenues            57,815     51,298     77,711    50,987                                   ------     ------     ------    ------     Losses and expenses:          Net settled claims      153,749    157,881    149,863    53,920          Change in reserves      (30,195)   (15,836)   278,956    39,628          Loss adjustment expenses  5,370      3,713      2,549     8,029                                    -----      -----      -----     -----       Net losses and LAE         128,924    145,758    431,368   101,577       Change in premium        deficiency reserve              -          -          -         -       Interest expense             2,243      1,202      1,895       694       Amortization of DAC              -          -          -         -       Other operating expenses     8,160      9,659      8,680     9,411                                    -----      -----      -----     -----         Total losses and          expenses                139,327    156,619    441,943   111,682                                  -------    -------    -------   -------     Income (loss) before      income taxes                (81,512)  (105,321)  (364,232)  (60,695)       Income taxes (benefit)      (2,368)    (3,426)    (4,813)   (5,521)                                   ------     ------     ------    ------     Net income (loss)           $(79,144) $(101,895) $(359,419) $(55,174)                                 ========  =========  =========  ========                                        Dec 31,     Sep 30,   Jun 30,    Mar 31,    Dec 31,                           2008       2008       2008       2008       2007                           ----       ----       ----       ----       ----     Revenue:       Earned premiums   $49,840    $65,654    $69,864    $72,065    $73,130       Net investment        income            10,509     10,349      9,175      9,547      9,544       Realized        investment        gains (losses)   (18,944)    (6,519)    (3,799)     2,703        (29)       Other income (loss)     2          2          2          2          2                             ---        ---        ---        ---        ---         Total revenues   41,407     69,486     75,242     84,317     82,647                          ------     ------     ------     ------     ------     Losses and expenses:          Net settled           claims         69,372     59,357     68,263     40,471     36,341          Change in           reserves      106,080    165,958    218,568    174,561    150,687          Loss adjustment           expenses        2,647      5,879      5,918      6,227      4,624                           -----      -----      -----      -----      -----       Net losses        and LAE          178,099    231,194    292,749    221,259    191,652       Change in premium        deficiency reserve     -          -    (15,000)    15,000          -       Interest expense      694        691        696      1,476      1,828       Amortization        of DAC                 -          -          -     39,416      4,637       Other operating        expenses           8,639      8,726     27,238     14,106     10,895                           -----      -----     ------     ------     ------         Total losses          and expenses   187,432    240,611    305,683    291,257    209,012                         -------    -------    -------    -------    -------     Income (loss)      before income      taxes             (146,025)  (171,125)  (230,441)  (206,940)  (126,365)       Income taxes        (benefit)        (23,818)   (11,030)   (31,630)   (56,926)   (51,406)                         -------    -------    -------    -------    -------     Net income (loss) $(122,207) $(160,095) $(198,811) $(150,014)  $(74,959)                       =========  =========  =========  =========   ========                                               Condensed  Balance Sheets As Of                                     (Dollars in thousands)                                     ----------------------                                     Dec 31,    Sept 30,        Jun 30,     Mar 31,                                 2009       2009            2009        2009                                 ----       ----            ----        ----     Assets       Invested assets        $811,481    $846,905        $851,640    $918,531       Cash                     21,839       7,480          31,600      21,394       Real estate acquired          -           -               -         526       Deferred policy        acquisition costs            -           -               -           -       Prepaid federal        income tax                   -           -               -          15       Reinsurance         recoverable            233,499     245,436         234,248     182,589       Other assets             58,007      54,331          57,650      52,307                                ------      ------          ------      ------       Total assets         $1,124,826  $1,154,152      $1,175,138  $1,175,362                            ==========  ==========      ==========  ==========          Liabilities and      stockholders' equity       Liabilities:             Losses and loss              adjustment              expenses      $1,537,043  $1,576,303      $1,591,207  $1,262,746             Premium              deficiency              reserve                -           -               -           -             Deferred income              taxes                  -           -               -           -             Borrowing under              credit facility        -           -               -           -             Long term debt     34,540      34,537          34,535      34,532             Deferred              payment              obligation       168,386      97,048          27,020           -             Accrued              expenses and              other              liabilities       91,215      71,291          52,066      59,477                                ------      ------          ------      ------       Total        liabilities          1,831,184   1,779,179       1,704,828   1,356,755       Total        stockholders'        equity (deficit in        assets)               (706,358)   (625,027)       (529,690)   (181,393)                              --------    --------        --------    --------       Total        liabilities        and stockholders'        equity              $1,124,826   $1,154,152     $1,175,138  $1,175,362                            ==========   ==========      ========== ==========                                          Dec 31,    Sep 30,    Jun 30,    Mar 31,    Dec 31,                            2008       2008       2008       2008       2007                            ----       ----       ----       ----       ----     Assets       Invested assets    $895,422   $890,720   $869,022   $760,073   $784,539       Cash                 39,940     47,818     19,669     80,544    124,811       Real estate        acquired               713      3,661      6,202      8,993     10,860       Deferred        policy        acquisition        costs                    -          -          -          -     36,243       Prepaid        federal        income        tax                     15         15     63,184    115,598    116,008       Reinsurance        recoverable        150,848    111,827     55,316     93,244      5,815       Other assets         43,596     47,915     50,405     52,572     54,577                            ------     ------     ------     ------     ------       Total assets     $1,130,534 $1,101,956 $1,063,798 $1,111,024 $1,132,853                        ========== ========== ========== ========== ==========           Liabilities       and stockholders'       equity        Liabilities:          Losses and           loss           adjustment           expenses     $1,187,840 $1,042,053   $817,262   $547,766   $359,939          Premium           deficiency           reserve               -          -          -     96,073          -          Deferred           income taxes          -     22,889     30,386     61,522    123,297          Borrowing           under credit           facility              -          -          -          -     80,000          Long term           debt             34,529     34,527     34,527     34,522     34,519          Deferred           payment           obligation            -          -          -          -          -          Accrued           expenses           and other           liabilities      44,831     30,887     40,714     32,699     36,247                            ------     ------     ------     ------     ------       Total        liabilities      1,267,200  1,130,356    922,889    772,582    634,002       Total        stockholders'        equity (deficit        in assets)        (136,666)   (28,400)   140,909    338,442    498,851                          --------    -------    -------    -------    -------       Total        liabilities        and stockholders'        equity          $1,130,534 $1,101,956 $1,063,798 $1,111,024 $1,132,853                        ========== ========== ========== ========== ========== 

SOURCE Triad Guaranty Inc.