Newswires
RADIAN GROUP INC – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The disclosures in this quarterly report are complementary to those made in our 2021 Form 10-K and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this report, as well as our audited financial statements, notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K. The following analysis of our financial condition and results of operations for the three months endedMarch 31, 2022 provides information that evaluates our financial condition as ofMarch 31, 2022 compared withDecember 31, 2021 and our results of operations for the three months endedMarch 31, 2022 , compared to the same period last year. Certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report. In addition, investors should review the "Cautionary Note Regarding Forward-Looking Statements-Safe Harbor Provisions" herein, and "Item 1A. Risk Factors" in our 2021 Form 10-K for a discussion of those risks and uncertainties that have the potential to adversely affect our business, financial condition, results of operations, cash flows or prospects. Our results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period. See "Overview" and Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Index to Item 2
Item Page Overview 37 Key Factors Affecting Our Results 38 Mortgage Insurance Portfolio 39 Results of Operations-Consolidated 42 Results of Operations-Mortgage 47 Results of Operations-homegenius 53 Results of Operations-All Other 54 Liquidity and Capital Resources 55 Critical Accounting Estimates 59
Overview
We are a diversified mortgage and real estate business with two reportable
business segments-Mortgage and homegenius.
Our Mortgage segment aggregates, manages and distributesU.S. mortgage credit risk on behalf of mortgage lending institutions and mortgage credit investors, principally through private mortgage insurance on residential first-lien mortgage loans, and also provides other credit risk management, contract underwriting and fulfillment solutions to our customers. Our homegenius segment offers an array of title, real estate and technology products and services to consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents.
Current Operating Environment
As a seller of mortgage credit protection and other mortgage and credit risk management solutions and real estate products and services, our business results are subject to macroeconomic conditions and other events that impact the housing, housing finance and related real estate markets, the credit performance of our underlying insured assets and our future business opportunities, as well as seasonal fluctuations that specifically affect the mortgage origination environment. The performance of our Mortgage business is particularly influenced by macroeconomic conditions and specific events that impact the housing finance and real estate markets, including events that impact mortgage originations and the credit performance of our mortgage insurance portfolio, most of which are beyond our control, including housing prices, inflationary pressures, unemployment levels, interest rate changes, the availability of credit and other national and regional economic conditions. The invasion ofUkraine byRussia inFebruary 2022 , and the sanctions imposed in response to this crisis, have increased the level of economic and political uncertainty. The conflict and sanctions resulting therefrom may negatively impact 37
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
pressures or increasing volatility in the financial markets.
In the first quarter of 2022 we wrote NIW of$18.7 billion , a decrease of 7.5% compared to our NIW in the first quarter of 2021. Despite current inflationary pressures and rising interest rates, we continue to believe that the long-term housing market fundamentals and outlook remain positive, including demographics supporting growth in the population of first-time homebuyers and a constrained supply of homes available for sale. While the recent increases in mortgage interest rates have reduced refinance demand, they have also resulted in a decrease in policy cancellations, which has increased our Persistency Rate, and in turn contributed to growth in our IIF. See "Mortgage Insurance Portfolio" for additional details on our NIW and IIF. In addition to impacting mortgage refinance demand and our NIW, the recent sharp increases in interest rates also materially affected the fair value of our investment portfolio in the first quarter of 2022, resulting in significant unrealized losses on investments. Given our intent and ability as ofMarch 31, 2022 , to hold these securities until recovery of their amortized cost basis, we do not expect to realize a loss on any of our investments in an unrealized loss position. While the recent decrease in the fair value of our investments due to higher market interest rates negatively affected our net income and stockholders' equity during the three months endedMarch 31, 2022 , the higher interest rate environment is expected to result in the recognition of higher net investment income in future periods. See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information about our investments. The onset of the COVID-19 pandemic resulted in a significant increase in unemployment and had a negative impact on the economy, and as a result, we experienced a material increase in new defaults in 2020, substantially all of which related to defaults of loans subject to forbearance programs implemented in response to the COVID-19 pandemic. Beginning in the second quarter of 2020, the increase in the number of new mortgage defaults resulting from the COVID-19 pandemic had a negative effect on our results of operations and our reserve for losses. However, subsequent trends in Cures have been more favorable than original expectations, resulting in favorable loss reserve development in 2021 and the three months endedMarch 31, 2022 . See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our reserve for losses. Our primary default rate was 2.6% atMarch 31, 2022 , down from 6.5% atJune 30, 2020 , which was elevated by the material increase in new defaults in the three months endedJune 30, 2020 , primarily due to defaults related to loans subject to forbearance programs implemented in response to the COVID-19 pandemic. Favorable trends in the number of new defaults and Cures were the primary drivers of the decline in our default inventory and default rate, compared toJune 30, 2020 . The number, timing and duration of new defaults and, in turn, the number of defaults that ultimately result in claims will depend on a variety of factors, including the number and timing of Cures and claims paid and the net impact on IIF from our Persistency Rate and future NIW. See "Item 1A. Risk Factors" in our 2021 Form 10-K for additional discussion of these factors and other risks and uncertainties. Despite risks and uncertainties, we believe that the steps we have taken in recent years, including by improving our capital and liquidity positions, enhancing our financial flexibility, implementing greater risk-based granularity into our pricing methodologies and increasing our use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, has helped position the Company to better withstand the negative effects from macroeconomic stresses such as those that may result from reoccurring COVID-19 outbreaks and theRussia -Ukraine conflict and the other risks described in "Item 1A. Risk Factors" in our 2021 Form 10-K. In recent years, Radian and other participants in the private mortgage insurance industry have engaged in a range of risk distribution transactions and strategies and implemented enhanced risk-based pricing frameworks, which we believe have helped increase the financial strength and flexibility of the private mortgage insurance industry by mitigating credit risk and financial volatility through varying economic cycles. As ofMarch 31, 2022 , 67% of our primary RIF is subject to a form of risk distribution and our estimated reinsurance recoverables related to our mortgage insurance portfolio were$54.0 million . Our use of risk distribution structures has reduced our required capital and enhanced our projected return on capital, and we expect these structures to provide a level of credit protection in periods of economic stress.
Legislative and Regulatory Developments
We are subject to comprehensive regulation by both federal and state regulatory authorities. For a description of significant state and federal regulations and other requirements of the GSEs that are applicable to our businesses, as well as legislative and regulatory developments affecting the housing finance industry, see "Item 1. Business-Regulation" in our 2021 Form 10-K. There were no significant regulatory developments impacting our businesses from those discussed in our 2021 Form 10-K.
Key Factors Affecting Our Results
The key factors affecting our results are discussed in our 2021 Form 10-K. There
have been no material changes to these key factors.
38
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Mortgage Insurance Portfolio
IIF by origination vintage (1)
[[Image Removed: rdn-20220331_g2.jpg]]
Insurance in Force as of:
Vintage written in: March 31, December 31, 2021 March 31,
($ in billions) 2022 2021
¢ 2022 $18.6 7.5 % $- - % $- - %
¢ 2021 84.9 34.1 87.4 35.5 20.0 8.4
¢ 2020 69.8 28.0 74.3 30.2 92.3 38.6
¢ 2019 21.6 8.7 24.0 9.8 37.5 15.7
¢ 2018 11.1 4.4 12.4 5.0 19.9 8.3
¢ 2017 10.2 4.1 11.5 4.7 18.0 7.5
¢ 2009 - 2016 22.1 8.9 25.0 10.2 37.2 15.6
¢ 2008 & Prior (2) 10.7 4.3 11.4 4.6 14.0 5.9
Total $249.0 100.0 % $246.0 100.0 % $238.9 100.0 %
(1)Policy years represent the original policy years and have not been adjusted
to reflect subsequent refinancing activity under HARP.
(2)Adjusted to reflect subsequent refinancing activity under HARP, these
percentages would decrease to 2.8%, 3.0% and 3.7% as of
New Insurance Written
We wrote$18.7 billion of primary new mortgage insurance in the three months endedMarch 31, 2022 compared to$20.2 billion of NIW in the three months endedMarch 31, 2021 . As shown in the chart above, IIF increased to$249.0 billion atMarch 31, 2022 , from$246.0 billion atDecember 31, 2021 , driven by a higher Persistency Rate and our NIW for the first three months of 2022. Our NIW decreased by 7.5% for the three months endedMarch 31, 2022 compared to the same period in 2021 due to reduced refinance originations and lower utilization of mortgage insurance in connection with refinances, partially offset by increases in purchase mortgage originations and an increase in our market share. According to industry estimates, total mortgage origination volume was lower for the three months endedMarch 31, 2022 as compared to the comparable period in 2021 due to a decline in refinance activity. Although it is difficult to project future volumes, recent market projections for 2022 estimate total mortgage originations of approximately$2.8 trillion , which would represent a decline in the total annual mortgage origination market of approximately 36% as compared to 2021, with a private mortgage insurance market of$500 to$525 billion . This outlook anticipates a significant decrease in refinance originations in 2022 resulting from expected continued increases in interest rates. While expectations for refinance volume vary, there is consensus around a large purchase market driven by increased home sales, which is a positive for mortgage insurers given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. As refinance volume declines, we would expect the Persistency Rate for our portfolio to increase, benefiting the size of our IIF portfolio. See "Item 1A. Risk Factors" in our 2021 Form 10-K for more information. The following table provides selected information as of and for the periods indicated related to our mortgage insurance NIW. For direct Single Premium Policies, NIW includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated). 39
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
NIW
Three Months Ended
March 31,
($ in millions) 2022 2021
NIW $ 18,655 $ 20,161
Primary risk written $ 4,804 $ 4,524
Average coverage percentage 25.8 % 22.4 %
NIW by loan purpose
Purchases 91.4 % 59.1 %
Refinances 8.6 % 40.9 %
Total borrower-paid NIW 99.2 % 99.2 %
NIW by premium type
Direct Monthly and Other Recurring Premiums 94.5 % 90.2 %
Direct single premiums (1) 5.5 % 9.8 %
NIW by FICO Score (2)
>=740 57.1 % 64.3 %
680-739 35.7 % 31.5 %
620-679 7.2 % 4.2 %
NIW by LTV
95.01% and above 14.6 % 8.0 %
90.01% to 95.00% 42.0 % 31.6 %
85.01% to 90.00% 29.4 % 31.3 %
85.00% and below 14.0 % 29.1 %
(1)Borrower-paid Single Premium Policies were 5.3% of NIW for the three months
ended
(2)For loans with multiple borrowers, the percentage of NIW by FICO score
represents the lowest of the borrowers' FICO scores.
Insurance and Risk in Force
Our IIF is the primary driver of the future premiums that we expect to earn over time. IIF atMarch 31, 2022 increased 4.2% as compared to the same period last year, reflecting a 10.3% increase in Monthly Premium Policies in force partially offset by a 19.1% decline in Single Premium Policies in force. Single Premium Policy cancellations were the primary driver of the decrease in unearned premiums on our condensed consolidated balance sheet atMarch 31, 2022 as compared toDecember 31, 2021 . Historically, there is a close correlation between interest rates and Persistency Rates. Higher interest rate environments generally decrease refinancings, which decrease the cancellation rate of our insurance and positively affect our Persistency Rates. As shown in the table below, our 12-month Persistency Rate atMarch 31, 2022 increased as compared to the same period in 2021. The increase in our Persistency Rate atMarch 31, 2022 was primarily attributable to decreased refinance activity due to increases in mortgage interest rates, as compared to the same period in the prior year. As ofMarch 31, 2022 , only 3.3% of our IIF had a mortgage note rate greater than 5.0%. Given the recent increase in market mortgage interest rates, which now exceed that level based on reported industry averages, we expect that our persistency rates should continue to increase during the remainder of 2022. Historical loan performance data indicates that credit scores and underwriting quality are key drivers of credit performance. As ofMarch 31, 2022 , our portfolio of business written subsequent to 2008, including refinancings under HARP, represented approximately 97.2% of our total primary RIF. Loan originations after 2008 have consisted primarily of high credit quality loans with significantly better credit performance than loans originated during 2008 and prior periods. However, the impact to our future losses remains uncertain due to risks associated with the macroeconomic environment. For additional 40
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
information, see our 2021 Form 10-K, "Item 1A. Risk Factors-The credit
performance of our mortgage insurance portfolio is impacted by macroeconomic
conditions and specific events that affect the ability of borrowers to pay their
mortgages."
Throughout this report, unless otherwise noted, RIF is presented on a gross
basis and includes the amount ceded under reinsurance. RIF and IIF for direct
Single Premium Policies include policies written on an individual basis (as each
loan is originated) and on an aggregated basis (in which each individual loan in
a group of loans is insured in a single transaction, typically after the loans
have been originated).
The following table provides selected information as of and for the periods
indicated related to mortgage insurance IIF and RIF.
IIF and RIF ($ in millions) March 31, 2022 December 31, 2021 March 31, 2021 Primary IIF$ 248,951 $ 245,972 $ 238,921 Primary RIF$ 62,036 $ 60,913$ 58,508 Average coverage percentage 24.9 % 24.8 % 24.5 % Persistency Rate (12 months ended) 68.0 % 64.3 % 57.2 % Persistency Rate (quarterly, annualized) (1) 76.9 % 71.7 % 62.5 % Total borrower-paid RIF 91.6 % 90.6 % 87.3 % Primary RIF by Premium Type Direct Monthly and Other Recurring Premiums 84.9 % 83.9 % 80.0 % Direct single premiums (2) 15.1 % 16.1 % 20.0 % Primary RIF by FICO Score (3) >=740 56.9 % 56.9 % 57.2 % 680-739 35.1 % 35.0 % 34.9 % 620-679 7.5 % 7.6 % 7.3 % <=619 0.5 % 0.5 % 0.6 % Primary RIF by LTV 95.01% and above 15.5 % 15.1 % 14.4 % 90.01% to 95.00% 48.9 % 48.9 % 48.6 % 85.01% to 90.00% 27.6 % 27.7 % 28.2 % 85.00% and below 8.0 % 8.3 % 8.8 % (1)The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods, and may not be indicative of full-year trends. (2)Borrower-paid Single Premium Policies were 8.4%, 8.5% and 9.4% of primary RIF for the periods indicated, respectively. (3)For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers' FICO scores.
Risk Distribution
We use third-party reinsurance in our mortgage insurance business as part of our
risk distribution strategy, including to manage our capital position and risk
profile. When we enter into a reinsurance agreement, the reinsurer receives a
premium and, in exchange, insures an agreed-upon portion of incurred losses.
While these arrangements have the impact of reducing our earned premiums, they
also reduce our required capital and are expected to increase our return on
required capital for the related policies.
The impact of these programs on our financial results will vary depending on the
level of ceded RIF, as well as the levels of prepayments and incurred losses on
the reinsured portfolios, among other factors. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Key
Factors Affecting Our Results-Mortgage-Risk Distribution" in our 2021 Form 10-K
and Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements in
this report for more information about our reinsurance transactions.
41
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The table below provides information about the amounts by which Radian
Guaranty's reinsurance programs reduced its Minimum Required Assets as of the
dates indicated.
PMIERs benefit from risk distribution
($ in millions) March 31, 2022 December 31, 2021 March 31, 2021 PMIERs impact - reduction in Minimum Required Assets Excess-of-Loss Program$ 881.9 $ 995.2$ 674.0 Single Premium QSR Program 286.7 314.2 388.5 QSR Program 11.2 12.5 19.4 Total PMIERs impact$ 1,179.8 $ 1,321.9 $ 1,081.9 Percentage of gross Minimum Required Assets 25.0 % 28.4 % 23.8 %
Results of Operations-Consolidated
Three Months Ended
Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. Our consolidated operating results for the three months endedMarch 31, 2022 andMarch 31, 2021 primarily reflect the financial results and performance of our two reportable business segments-Mortgage and homegenius. See "Results of Operations-Mortgage" and "Results of Operations-homegenius" for the operating results of these business segments for the three months endedMarch 31, 2022 , compared to the same period in 2021. In addition to the results of our operating segments, pretax income (loss) is also affected by those factors described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Key Factors Affecting Our Results" in our 2021 Form 10-K. 42
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table summarizes our consolidated results of operations for the
three months ended
Summary results of operations - Consolidated
Change
Three Months Ended Favorable
March 31, (Unfavorable)
($ in thousands, except per-share amounts) 2022 2021 2022 vs. 2021
Revenues
Net premiums earned $ 254,190 $ 271,872 $ (17,682)
Services revenue 29,348 22,895 6,453
Net investment income 38,196 38,251 (55)
Net gains (losses) on investments and other financial
instruments (29,457) (5,181) (24,276)
Other income 703 976 (273)
Total revenues 292,980 328,813 (35,833)
Expenses
Provision for losses (83,754) 46,143 129,897
Policy acquisition costs 6,605 8,996 2,391
Cost of services 24,753 20,246 (4,507)
Other operating expenses 89,541 70,262 (19,279)
Interest expense 20,846 21,115 269
Amortization of other acquired intangible assets 849 862 13
Total expenses 58,840 167,624 108,784
Pretax income 234,140 161,189 72,951
Income tax provision 53,009 35,581 (17,428)
Net income $ 181,131 $ 125,608 $ 55,523
Diluted net income per share $ 1.01 $ 0.64 $ 0.37
Return on equity 17.2 % 11.8 % 5.4 %
Non-GAAP Financial Measures (1)
Adjusted pretax operating income $ 264,948 $ 167,316 $ 97,632
Adjusted diluted net operating income per share $ 1.17 $ 0.68 $ 0.49
Adjusted net operating return on equity 19.9 % 12.4 % 7.5 %
(1)See "-Use of Non-GAAP Financial Measures" below.
Revenues
Net Premiums Earned. The decrease in net premiums earned for the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily driven by a decrease in net premiums earned in our Mortgage segment. See "Results of Operations-Mortgage-Three Months EndedMarch 31, 2022 Compared to Three Months EndedMarch 31 , 2021-Revenues-Net Premiums Earned," for more information.Net Gains (Losses) on Investments and Other Financial Instruments. The increase in net losses on investments and other financial instruments for the three months endedMarch 31, 2022 , as compared to the same period in 2021, is primarily due to an increase in net unrealized losses on our equity and trading securities and, to a lesser extent, an increase in losses on other financial instruments. The primary driver of the increase in losses on our equity and trading securities for the three months endedMarch 31, 2022 was the impact of rising interest rates as well as other market and macroeconomic conditions, including the impact of theRussia -Ukraine conflict as further discussed in "Overview-Current Operating Environment." See Note 6 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information about net gains (losses) on investments. 43
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Expenses
Provision for Losses. The decrease in provision for losses for the three months
ended March 31, 2022 as compared to the same period in 2021, is primarily driven
by favorable development on prior period defaults, which impacted our mortgage
insurance reserves. See "Results of Operations-Mortgage-Three Months Ended March
31, 2022 Compared to Three Months Ended March 31 , 2021-Expenses-Provision for
Losses," for more information.
Other Operating Expenses. The increase in other operating expenses for the three
months ended March 31, 2022 as compared to the same period in 2021 is primarily
due to an increase in variable incentive compensation expense, including from
increases in the projected payouts associated with our performance-based
restricted stock units, driven primarily by the impact of the favorable loss
reserve development recorded in the first quarter of 2022. See Note 17 of Notes
to Consolidated Financial Statements in our 2021 Form 10-K for additional
information on our performance-based restricted stock units. See "Results of
Operations-Mortgage-Three Months Ended March 31, 2022 Compared to Three Months
Ended March 31 , 2021-Expenses-Other Operating Expenses," and "Results of
Operations-homegenius-Three Months Ended March 31, 2022 Compared to Three Months
Ended March 31 , 2021-Expenses-Other Operating Expenses," for more information on
other operating expenses.
Income Tax Provision
Variations in our effective tax rates, combined with differences in pretax
income, were the drivers of the changes in our income tax provision between
periods. Our effective tax rate for the three months ended March 31, 2022 was
22.6% as compared to 22.1% for the same period in 2021. Our effective tax rate
for the three months ended March 31, 2022 and 2021 was higher than the statutory
rate of 21% primarily due to the impact of certain permanent book-to-tax
adjustments.
Use of Non-GAAP Financial Measures
In addition to the traditional GAAP financial measures, we have presented
"adjusted pretax operating income (loss)," "adjusted diluted net operating
income (loss) per share" and "adjusted net operating return on equity," which
are non-GAAP financial measures for the consolidated company, among our key
performance indicators to evaluate our fundamental financial performance. These
non-GAAP financial measures align with the way our business performance is
evaluated by both management and by our board of directors. These measures have
been established in order to increase transparency for the purposes of
evaluating our operating trends and enabling more meaningful comparisons with
our peers. Although on a consolidated basis "adjusted pretax operating income
(loss)," "adjusted diluted net operating income (loss) per share" and "adjusted
net operating return on equity" are non-GAAP financial measures, for the reasons
discussed above we believe these measures aid in understanding the underlying
performance of our operations.
Total adjusted pretax operating income (loss), adjusted diluted net operating
income (loss) per share and adjusted net operating return on equity are not
measures of overall profitability, and therefore should not be considered in
isolation or viewed as substitutes for GAAP pretax income (loss), diluted net
income (loss) per share or return on equity. Our definitions of adjusted pretax
operating income (loss), adjusted diluted net operating income (loss) per share
and adjusted net operating return on equity, as discussed and reconciled below
to the most comparable respective GAAP measures, may not be comparable to
similarly-named measures reported by other companies.
Our senior management, including our Chief Executive Officer (Radian's chief
operating decision maker), uses adjusted pretax operating income (loss) as our
primary measure to evaluate the fundamental financial performance of the
Company's business segments and to allocate resources to the segments. See Note
4 of Notes to Consolidated Financial Statements and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Results
of Operations-Consolidated-Use of Non-GAAP Financial Measures" each in our 2021
Form 10-K for detailed information regarding items excluded from adjusted pretax
operating income and the reasons for their treatment.
Adjusted pretax operating income (loss) is defined as GAAP consolidated pretax
income (loss) excluding the effects of: (i) net gains (losses) on investments
and other financial instruments, except for certain investments attributable to
our reportable segments; (ii) loss on extinguishment of debt; (iii) amortization
and impairment of goodwill and other acquired intangible assets; and (iv)
impairment of other long-lived assets and other non-operating items, such as
impairment of internal-use software, gains (losses) from the sale of lines of
business and acquisition-related income and expenses.
44
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table provides a reconciliation of consolidated pretax income to
our non-GAAP financial measure for the consolidated Company of adjusted pretax
operating income.
Reconciliation of consolidated pretax income to consolidated adjusted pretax operating income
Three Months Ended
March 31,
(In millions) 2022 2021
Consolidated pretax income $ 234.1 $ 161.2
Less income (expense) items
Net gains (losses) on investments and other financial instruments (29.5) (5.2)
Amortization of other acquired intangible assets (0.8) (0.9)
Impairment of other long-lived assets and other non-operating items
(0.5) - Total adjusted pretax operating income (1)$ 264.9 $ 167.3 (1)Total adjusted pretax operating income on a consolidated basis consists of adjusted pretax operating income (loss) for our Mortgage segment, homegenius segment and All Other activities, as further detailed in Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common stockholders, net of taxes computed using the Company's statutory tax rate, by (ii) the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table provides a reconciliation of diluted net income (loss) per share to our non-GAAP financial measure for the consolidated Company of adjusted diluted net operating income (loss) per share.
Reconciliation of diluted net income per share to adjusted diluted net operating income per share
Three Months Ended
March 31,
2022 2021
Diluted net income per share $ 1.01 $ 0.64
Less per-share impact of reconciling income (expense) items
Net gains (losses) on investments and other financial instruments
(0.16) (0.03) Amortization of other acquired intangible assets (0.01) -
Income tax (provision) benefit on reconciling income (expense) items
(1)
0.03 0.01 Difference between statutory and effective tax rates (0.02) (0.02) Per-share impact of reconciling income (expense) items (0.16) (0.04) Adjusted diluted net operating income per share (1)$ 1.17 $ 0.68
(1)Calculated using the Company's federal statutory tax rate of 21%. Any
permanent tax adjustments and state income taxes on these items have been deemed
immaterial and are not included.
45
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Adjusted net operating return on equity is calculated by dividing annualized
adjusted pretax operating income (loss), net of taxes computed using the
Company's statutory tax rate, by average stockholders' equity, based on the
average of the beginning and ending balances for each period presented. The
following table provides a reconciliation of return on equity to our non-GAAP
financial measure for the consolidated Company of adjusted net operating return
on equity.
Reconciliation of return on equity to adjusted net operating return on equity
Three Months Ended
March 31,
2022 2021
Return on equity (1) 17.2 % 11.8 %
Less impact of reconciling income (expense) items (2)
Net gains (losses) on investments and other financial instruments
(2.8) (0.5) Amortization of other acquired intangible assets (0.1) (0.1)
Income tax (provision) benefit on reconciling income (expense) items
(3)
0.6 0.1
Difference between statutory and effective tax rates (0.4) (0.1)
Impact of reconciling income (expense) items (2.7) (0.6)
Adjusted net operating return on equity (3) 19.9 % 12.4 %
(1)Calculated by dividing annualized net income (loss) by average stockholders'
equity, based on the average of the beginning and ending balances for each
period presented.
(2)Annualized, as a percentage of average stockholders' equity.
(3)Calculated using the Company's federal statutory tax rate of 21%. Any
permanent tax adjustments and state income taxes on these items have been deemed
immaterial and are not included.
46
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations-Mortgage
Three Months Ended
The following table summarizes our Mortgage segment's results of operations for
the three months ended
Summary results of operations - Mortgage
Change
Three Months Ended Favorable
March 31, (Unfavorable)
(In thousands) 2022 2021 2022 vs. 2021
Revenues
Net premiums written $ 248,360 $ 246,874 $ 1,486
(Increase) decrease in unearned premiums (3,186) 17,790 (20,976)
Net premiums earned 245,174 264,664 (19,490)
Services revenue 4,552 4,351 201
Net investment income 34,017 34,013 4
Other income 703 769 (66)
Total revenues 284,446 303,797 (19,351)
Expenses
Provision for losses (84,193) 45,869 130,062
Policy acquisition costs 6,605 8,996 2,391
Cost of services 3,383 3,192 (191)
Other operating expenses 59,964 48,916 (11,048)
Interest expense 20,846 21,115 269
Total expenses 6,605 128,088 121,483
Adjusted pretax operating income (1) $ 277,841
(1)Our senior management uses adjusted pretax operating income as our primary
measure to evaluate the fundamental financial performance of our business
segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial
Statements for more information.
Revenues
Net Premiums Earned. Net premiums earned decreased for the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to: (i) a decrease in the impact, net of reinsurance, from Single Premium Policy cancellations due to lower refinance activity and (ii) a decrease in premiums earned on our Monthly Premium Policies due to lower average premium yields. These decreases were partially offset by an increase in the profit commission retained by the Company, due to favorable reserve development in the first quarter of 2022. 47
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The table below provides additional information about the components of mortgage
insurance net premiums earned for the periods indicated, including the effects
of our reinsurance programs.
Net premiums earned
Three Months
Ended
March 31,
($ in millions, except as otherwise indicated) 2022 2021
Direct
Premiums earned, excluding revenue from cancellations$ 243.6 $ 256.9 Single Premium Policy cancellations 14.7 38.5 Direct 258.3 295.4 Assumed (1) 1.3 2.3 Ceded Premiums earned, excluding revenue from cancellations (27.3) (25.4) Single Premium Policy cancellations (2) (4.2) (11.1) Profit commission-other (3) 17.1 3.4 Ceded premiums, net of profit commission (14.4) (33.1) Total net premiums earned$ 245.2 $ 264.6 In force portfolio premium yield (in basis points) (4) 39.6 42.7 Direct premium yield (in basis points) (5) 42.0 49.1 Net premium yield (in basis points) (6) 39.6 43.6 Average primary IIF (in billions)$ 247.5 $ 242.5 (1)Includes premiums earned from our participation in certain credit risk transfer programs. (2)Includes the impact of related profit commissions. (3)Represents the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations. (4)Calculated by dividing annualized direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF. (5)Calculated by dividing annualized direct premiums earned, including assumed revenue, by average primary IIF. (6)Calculated by dividing annualized net premiums earned by average primary IIF. The level of mortgage prepayments affects the revenue ultimately produced by our mortgage insurance business and is influenced by the mix of business we write. We believe that writing a mix of Single Premium Policies and Monthly Premium Policies has the potential to moderate the overall impact on our results if actual prepayments are significantly different from expectations. However, the impact of this moderating effect is affected by the amount of reinsurance we obtain on portions of our portfolio, with the Single Premium QSR Program currently reducing the proportion of retained Single Premium Policies in our portfolio. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Key Factors Affecting Our Results-Mortgage-IIF and Related Drivers" in our 2021 Form 10-K for more information. 48
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table provides information related to the impact of our
reinsurance transactions on premiums earned. See Note 8 of Notes to Unaudited
Condensed Consolidated Financial Statements for more information about our
reinsurance programs.
Ceded premiums earned
Three Months Ended
March 31,
($ in millions) 2022 2021
Single Premium QSR Program $
(3.7) (1)$ 19.5 Excess-of-Loss Program 17.6 12.2 QSR Program 0.5 1.3 Other - 0.1 Total ceded premiums earned (2)$ 14.4 $ 33.1 Percentage of total direct and assumed premiums earned 5.3 % 10.8 % (1)Includes the increase in the profit commission retained by the Company due to favorable reserve development in the first quarter of 2022. See "-Expenses-Provision for Losses" below for additional information on the favorable reserve development. (2)Does not include the benefit from ceding commissions on our Single Premium QSR Programs, which are included in other operating expenses on the condensed consolidated statements of operations. See Note 8 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Expenses
Provision for Losses. The following table details the financial impact of the
significant components of our provision for losses for the periods indicated.
Provision for losses
Three Months Ended
March 31,
($ in millions, except reserve per new default) 2022 2021
Current period defaults (1) $ 40.7 $ 50.3
Prior period defaults (2) (124.9) (4.5)
Second-lien mortgage loan premium deficiency reserve and other - 0.1
Provision for losses $ (84.2) $ 45.9
Loss ratio (3) (34.3) % 17.3 %
Reserve per new default (4) $ 4,333 $ 4,244
(1)Related to defaulted loans with a most recent default notice dated in the
period indicated. For example, if a loan had defaulted in a prior period, but
then subsequently cured and later re-defaulted in the current period, the
default would be considered a current period default.
(2)Related to defaulted loans with a default notice dated in a period earlier
than the period indicated, which have been continuously in default since that
time.
(3)Provision for losses as a percentage of net premiums earned.
(4)Calculated by dividing provision for losses for new defaults, net of
reinsurance, by new primary defaults for each period.
Our mortgage insurance provision for losses for the three months ended March 31,
2022 decreased by $130.1 million , as compared to the same period in 2021.
Current period new primary defaults decreased by 20.7% for the three months
ended March 31, 2022 , compared to the same period in 2021, as shown below. Our
gross Default to Claim Rate assumption for new primary defaults was 8.0% at both
March 31, 2022 and March 31, 2021 .
Our provision for losses during the three months ended March 31, 2022 benefited
from favorable reserve development on prior period defaults, primarily as a
result of more favorable trends in Cures than originally estimated due to
favorable outcomes resulting from forbearance programs implemented in response
to the COVID-19 pandemic as well as positive trends in home price appreciation.
These favorable observed trends resulted in reductions in our Default to Claim
Rate assumptions for prior year default notices, particularly for those defaults
first reported in 2020 following the start of the COVID-19 pandemic. See Note 11
herein for additional information, as well as Notes 1 and 11 of Notes to
Consolidated Financial Statements and "Item 1A. Risk Factors" in our 2021 Form
10-K.
Our primary default rate as a percentage of total insured loans at March 31,
2022 was 2.6% compared to 2.9% at December 31, 2021 . In April 2022 , our default
rate decreased further to 2.4%, as Cures continued to exceed new defaults, which
totaled 2,570 during the month, representing the third lowest number of monthly
new defaults in at least 20 years. The following table shows a rollforward of
our primary loans in default.
49
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Rollforward of primary loans in default
Three Months Ended
March 31,
2022 2021
Beginning default inventory 29,061 55,537
New defaults 9,393 11,851
Cures (12,789) (17,137)
Claims paid (125) (143)
Rescissions and Claim Denials, net of Reinstatements (1) (30) (2)
Ending default inventory 25,510 50,106
(1)Net of any previous Rescissions and Claim Denials that were reinstated during
the period. Such reinstated Rescissions and Claim Denials may ultimately result
in a paid claim.
The following tables show additional information about our primary loans in
default as of the dates indicated.
Primary loans in default - additional information
March 31, 2022
Foreclosure Stage Cure % During Reserve for
Total Defaulted Loans the 1st Quarter Losses % of Reserve
($ in millions) # % # % $ %
Missed payments
Three payments or less 7,042 27.6 % 35 41.5 % $ 65.3 9.4 %
Four to eleven payments 7,599 29.8 116 27.7 138.1 20.0
Twelve payments or more 10,562 41.4 804 27.8 471.9 68.3
Pending claims 307 1.2 N/A 15.1 15.8 2.3
Total 25,510 100.0 % 955 691.1 100.0 %
IBNR and other 2.5
LAE 17.4
Total primary reserve $ 711.0
December 31, 2021
Foreclosure Stage Cure % During Reserve for
Total Defaulted Loans the 4th Quarter Losses % of Reserve
($ in millions) # % # % $ %
Missed payments
Three payments or less 7,267 25.0 % 47 39.4 % $ 62.1 7.9 %
Four to eleven payments 8,088 27.8 84 27.6 146.9 18.6
Twelve payments or more 13,389 46.1 784 29.0 565.2 71.5
Pending claims 317 1.1 N/A 10.4 16.2 2.0
Total 29,061 100.0 % 915 790.4 100.0 %
IBNR and other 2.9
LAE 19.9
Total primary reserve $ 813.2
N/A - Not applicable
We develop our Default to Claim Rate estimates based primarily on models that
use a variety of loan characteristics to determine the likelihood that a default
will reach claim status. See Note 11 of Notes to Consolidated Financial
Statements in our 2021 Form 10-K for additional details about our Default to
Claim Rate assumptions.
50
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Our aggregate weighted average net Default to Claim Rate assumption for our
primary loans used in estimating our reserve for losses, which is net of
estimated Claim Denials and Rescissions, was approximately 46% at both
2022
Our net Default to Claim Rate and loss reserve estimate incorporate our expectations with respect to future Rescissions, Claim Denials and Claim Curtailments. Our estimate of such net future Loss Mitigation Activities, inclusive of claim withdrawals, reduced our loss reserve as ofMarch 31, 2022 andDecember 31, 2021 by$24.8 million and$27.3 million , respectively. These expectations are based primarily on recent claim withdrawal activity and our recent experience with respect to the number of claims that have been denied due to the policyholder's failure to submit sufficient documentation to perfect a claim within the time period permitted under our Master Policies, as well as our recent experience with respect to the number of insurance certificates that have been rescinded due to fraud, underwriter negligence or other factors. Our mortgage insurance total loss reserve as a percentage of our mortgage insurance total RIF was 1.2% and 1.4% atMarch 31, 2022 andDecember 31, 2021 , respectively. See Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for information regarding our reserves for losses and a reconciliation of our Mortgage segment's beginning and ending reserves for losses and LAE. We considered the sensitivity of our loss reserve estimates atMarch 31, 2022 by assessing the potential changes resulting from a parallel shift in Claim Severity and Default to Claim Rate for primary loans. For example, assuming all other factors remain constant, for every one percentage point absolute change in primary Claim Severity for our primary insurance risk exposure (which we estimated to be 99% of our risk exposure at each ofMarch 31, 2022 andDecember 31, 2021 ), we estimated that our total loss reserve atMarch 31, 2022 would change by approximately$7.0 million . Assuming the portfolio mix and all other factors remain constant, for every one percentage point absolute change in our primary net Default to Claim Rate, we estimated a$14.8 million change in our primary loss reserve atMarch 31, 2022 . Total mortgage insurance claims paid of$4.7 million for the three months endedMarch 31, 2022 decreased from claims paid of$10.5 million for the same period in 2021. Claims paid also include the impact of commutations and settlements, including for payments made in the first quarter of 2021 to settle certain previously disclosed legal proceedings. Although expected claims are included in our reserve for losses, the timing of claims paid is subject to fluctuation from quarter to quarter based on the rate that defaults cure and other factors, including the impact of foreclosure moratoriums (as described in "Item 1. Business-Mortgage-Defaults and Claims" in our 2021 Form 10-K) that make the timing of paid claims difficult to predict.
The following table shows net claims paid by product and the average claim paid
by product for the periods indicated.
Claims paid
Three Months Ended
March 31,
(In millions, except as indicated below) 2022 2021
Net claims paid (1)
Total primary claims paid $ 5.1 $ 6.6
Total pool and other (0.4) (0.1)
Subtotal 4.7 6.5
Impact of commutations and settlements - 4.0
Total net claims paid $ 4.7 $ 10.5
Total average net primary claim paid (in thousands) (1) (2) $ 41.6 $ 43.8
Average direct primary claim paid (in thousands) (2) (3) $ 42.1 $ 45.5
(1)Net of reinsurance recoveries.
(2)Calculated without giving effect to the impact of commutations and
settlements.
(3)Before reinsurance recoveries.
51
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other Operating Expenses. The increase in other operating expenses for the three
months ended March 31, 2022 , as compared to the same period in 2021, primarily
reflects: (i) an increase in variable incentive compensation expense, including
as part of allocated corporate operating expenses and (ii) a decrease in ceding
commissions.
The following table shows additional information about Mortgage other operating
expenses.
Other operating expenses
Three Months Ended
March 31,
(In millions) 2022 2021
Direct
Salaries and other base employee expenses $ 10.9 $ 13.0
Variable and share-based incentive compensation 5.6
3.2
Other general operating expenses 11.2 12.8 Ceding commissions (3.9) (7.7) Total direct 23.8 21.3 Allocated (1) Salaries and other base employee expenses 11.3
10.4
Variable and share-based incentive compensation 11.1
5.7
Other general operating expenses 13.8 11.5 Total allocated 36.2 27.6 Total Mortgage$ 60.0 $ 48.9
(1)See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements
for more information about our allocation of corporate operating expenses.
Our Mortgage segment's expense ratio represents segment operating expenses (which include policy acquisition costs and other operating expenses, as well as allocated corporate operating expenses), expressed as a percentage of net premiums earned, and was 27.2% for the three months endedMarch 31, 2022 , compared to 21.9% for the same period in 2021. The increase in the expense ratio for the three months endedMarch 31, 2022 was driven by: (i) an increase in total other operating expenses, as detailed in the table above, and (ii) a decrease in net premiums earned, both as compared to the same period in 2021. See "-Revenues-Net Premiums Earned" above for additional information on the decrease in net premiums earned. 52
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations-homegenius
Three Months Ended
The following table summarizes our homegenius segment's results of operations
for the three months ended
Summary results of operations - homegenius
Change
Three Months Ended Favorable
March 31, (Unfavorable)
(In thousands) 2022 2021 2022 vs. 2021
Revenues
Net premiums earned $ 9,016 $ 7,208 $ 1,808
Services revenue 24,878 18,550 6,328
Net investment income 18 37 (19)
Total revenues 33,912 25,795 8,117
Expenses
Provision for losses 481 296 (185)
Cost of services 21,370 17,028 (4,342)
Other operating expenses 25,567 18,924 (6,643)
Total expenses 47,418 36,248 (11,170)
Adjusted pretax operating income (loss) (1) $ (13,506)
(1)Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the our business segments. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Revenues Net Premiums Earned. Net premiums earned for the three months endedMarch 31, 2022 increased compared to the same period in 2021. This increase reflects an increase in new title policies written and closed orders in our title insurance business. Services Revenue. Services revenue for the three months endedMarch 31, 2022 increased compared to the same period in 2021, primarily due to increased revenue in our real estate services, including increases from valuation and single family rental products and services. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for the disaggregation of services revenue by revenue type. Expenses Cost of Services. Cost of services for the three months endedMarch 31, 2022 increased compared to the same period in 2021, primarily due to incremental expenses incurred to support the increase in services revenue. Our cost of services is primarily affected by our level of services revenue and the number of employees providing those services. Other Operating Expenses. The increase in other operating expenses for the three months endedMarch 31, 2022 , as compared to the same period in 2021, primarily reflects: (i) continued strategic investments focused on our title and digital real estate businesses, including an increase in staffing levels, and (ii) an increase in variable incentive compensation expense, including as part of allocated corporate operating expenses. 53
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table shows additional information about homegenius other
operating expenses.
Other operating expenses
Three Months Ended
March 31,
(In millions) 2022 2021
Direct
Salaries and other base employee expenses $ 8.7 $ 6.8
Variable and share-based incentive compensation 3.9
2.1
Other general operating expenses 6.6 4.6 Title agent commissions 1.1 1.4 Total direct 20.3 14.9 Allocated (1) Salaries and other base employee expenses 1.7
1.5
Variable and share-based incentive compensation 1.6
0.8
Other general operating expenses 2.0 1.7 Total allocated 5.3 4.0 Total homegenius$ 25.6 $ 18.9
(1)See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements
for more information about our allocation of corporate operating expenses.
Results of Operations-All Other
Three Months Ended
The following table summarizes our All Other results of operations for the three
months ended
Summary results of operations - All Other
Change
Three Months Ended Favorable
March 31, (Unfavorable)
(In thousands) 2022 2021 2022 vs. 2021
Revenues
Services revenue $ - $ 53 $ (53)
Net investment income 4,161 4,201 (40)
Other income - 207 (207)
Total revenues 4,161 4,461 (300)
Expenses
Cost of services - 28 28
Other operating expenses 3,548 2,373 (1,175)
Total expenses 3,548 2,401 (1,147)
Adjusted pretax operating income (1) $ 613
(1)Our senior management uses adjusted pretax operating income (loss) as our
primary measure to evaluate the fundamental financial performance of each of our
business segments. See Note 4 of Notes to Unaudited Condensed Consolidated
Financial Statements.
54
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Consolidated Cash Flows
The following table summarizes our consolidated cash flows from operating,
investing and financing activities.
Summary cash flows - Consolidated
Three Months Ended
March 31,
(In millions) 2022 2021
Net cash provided by (used in):
Operating activities $ 116.7 $ 153.0
Investing activities (71.8) (81.9)
Financing activities (64.0) (41.5)
Increase (decrease) in cash and restricted cash
Operating Activities. Our most significant source of operating cash flows is from premiums received from our mortgage insurance policies, while our most significant uses of operating cash flows are for our operating expenses and claims paid on our mortgage insurance policies. Net cash provided by operating activities totaled$116.7 million for the three months endedMarch 31, 2022 , compared to$153.0 million for the same period in 2021. This decrease was principally due to higher payments for other operating expenses, primarily related to incentive compensation, and lower direct premiums written for the three months endedMarch 31, 2022 . Investing Activities. Net cash used in investing activities was$71.8 million for the three months endedMarch 31, 2022 , compared to$81.9 million for the same period in 2021. This change was primarily the result of a decrease in sales and redemptions and an increase in purchases of fixed-maturity investments available for sale, partially offset by an increase in sales and redemptions, net of purchases, on short-term investments and a decrease in purchases of equity securities. Financing Activities. Net cash used in financing activities was$64.0 million for the three months endedMarch 31, 2022 , compared to$41.5 million for the same period in 2021. For the three months endedMarch 31, 2022 , our primary financing activities included: (i) payment of dividends; (ii) repurchases of our common shares; and (iii) net changes in secured borrowings. See Notes 12 and 14 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding our borrowings and share repurchases, respectively.
See "Item 1. Financial Statements (Unaudited)-Condensed Consolidated Statements
of Cash Flows (Unaudited)" for additional information.
Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. AtMarch 31, 2022 ,Radian Group had available, either directly or through unregulated subsidiaries, unrestricted cash and liquid investments of$1.0 billion . Available liquidity atMarch 31, 2022 excludes certain additional cash and liquid investments that have been advanced toRadian Group from its subsidiaries to pay for corporate expenses and interest payments. Total liquidity, which includes our undrawn$275.0 million unsecured revolving credit facility, as described below, was$1.3 billion as ofMarch 31, 2022 . During the three months endedMarch 31, 2022 ,Radian Group's available liquidity increased by$402.5 million , due primarily to a$500 million return of capital from Radian Guaranty toRadian Group paid inFebruary 2022 , partially offset by other items such as payments for dividends and share repurchases, as described below. In addition to available cash and marketable securities,Radian Group's principal sources of cash to fund future liquidity needs include: (i) payments made toRadian Group by its subsidiaries under expense- and tax-sharing arrangements; (ii) net investment income earned on its cash and marketable securities; (iii) to the extent available, dividends or other distributions from its subsidiaries; and (iv) amounts, if any, that Radian Guaranty is able to repay under the Surplus Note due 2027.Radian Group also has in place a$275.0 million unsecured revolving credit facility with a syndicate of bank lenders. Subject to certain limitations, borrowings under the credit facility may be used for working capital and general corporate purposes, including, without limitation, capital contributions to our insurance and reinsurance subsidiaries as well as growth initiatives. AtMarch 31, 2022 , the full$275.0 million remains undrawn and available under the facility. See Note 12 of Notes to Consolidated Financial Statements in our 2021 Form 10-K for additional information on the unsecured revolving credit facility. We expectRadian Group's principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; (iii) subject to approval by our board of 55
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
directors and our ongoing assessment of our financial condition and potential
needs related to the execution and implementation of our business plans and
strategies, the payment of quarterly dividends on our common stock, which we
increased in February 2022 from $0.14 to $0.20 per share; and (iv) the potential
continued repurchases of shares of our common stock pursuant to share repurchase
authorizations, as described below.
In addition to our ongoing short-term liquidity needs discussed above, our most
significant need for liquidity beyond the next 12 months is the repayment of
$1.4 billion aggregate principal amount of our senior debt due in future years.
See "-Capitalization-Holding Company " below for details of our debt maturity
profile. Radian Group's liquidity demands for the next 12 months or in future
periods could also include: (i) early repurchases or redemptions of portions of
our debt obligations; (ii) additional investments to support our business
strategy; and (iii) additional capital contributions to its subsidiaries. For
additional information about related risks and uncertainties, see "Item 1A. Risk
Factors," including "-Radian Group's sources of liquidity may be insufficient to
fund its obligations" and "-Radian Guaranty may fail to maintain its eligibility
status with the GSEs, and the additional capital required to support Radian
Guaranty's eligibility could reduce our available liquidity" in our 2021 Form
10-K.
We believe that Radian Group has sufficient current sources of liquidity to fund
its obligations. If we otherwise decide to increase our liquidity position,
Radian Group may seek additional capital, including by incurring additional
debt, issuing additional equity, or selling assets, which we may not be able to
do on favorable terms, if at all.
Share Repurchases. During the three months ended March 31, 2022 , the Company
repurchased 0.9 million shares of Radian Group common stock under programs
authorized by Radian Group's board of directors, at a total cost of $21.3
million , including commissions. See Note 14 of Notes to Unaudited Condensed
Consolidated Financial Statements for additional details on our share repurchase
program.
Dividends and Dividend Equivalents. On February 9, 2022 , Radian Group's board of
directors authorized an increase to the Company's quarterly dividend from $0.14
to $0.20 per share. Based on our current outstanding shares of common stock and
restricted stock units, we expect to require approximately $140 million in the
aggregate to pay dividends and dividend equivalents for the next 12 months.
Radian Group is not subject to any limitations on its ability to pay dividends
except those generally applicable to corporations that are incorporated in
Delaware . As of March 31, 2022 , our capital surplus was $4.1 billion ,
representing our dividend limitation under Delaware law. The declaration and
payment of future quarterly dividends remains subject to the board of directors'
determination.
Corporate Expenses and Interest Expense. Radian Group has expense-sharing
arrangements in place with its principal operating subsidiaries that require
those subsidiaries to pay their allocated share of certain holding-company-level
expenses, including interest payments on Radian Group's outstanding debt
obligations. Corporate expenses and interest expense on Radian Group's debt
obligations allocated under these arrangements during the three months ended
March 31, 2022 of $41.9 million and $20.5 million , respectively, were
substantially all reimbursed by its subsidiaries. We expect substantially all of
our holding company expenses to continue to be reimbursed by our subsidiaries
under our expense-sharing arrangements. The expense-sharing arrangements between
Radian Group and its mortgage insurance subsidiaries, as amended, have been
approved by the Pennsylvania Insurance Department , but such approval may be
modified or revoked at any time.
Taxes. Pursuant to our tax-sharing agreements, our operating subsidiaries pay
Radian Group an amount equal to any federal income tax the subsidiary would have
paid on a standalone basis if they were not part of our consolidated tax return.
As a result, from time to time, under the provisions of our tax-sharing
agreements, Radian Group may pay to or receive from its operating subsidiaries
amounts that differ from Radian Group's consolidated federal tax payment
obligation. There were no tax-sharing agreement payments during the three months
ended March 31, 2022 .
56
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table presents our holding company capital structure.
Capital structure
March 31, December 31,
(In millions, except per-share amounts and ratios) 2022 2021
Debt
Senior Notes due 2024 $ 450.0 $ 450.0
Senior Notes due 2025 525.0 525.0
Senior Notes due 2027 450.0 450.0
Deferred debt costs on senior notes (14.5) (15.5)
Revolving credit facility - -
Total 1,410.5 1,409.5
Stockholders' equity 4,147.6 4,258.8
Total capitalization $ 5,558.1 $ 5,668.3
Debt-to-capital ratio 25.4 % 24.9 %
Shares outstanding 174.6 175.4
Book value per share $ 23.75 $ 24.28
Stockholders' equity decreased by $111.2 million from December 31, 2021 to
March 31, 2022 . The net decrease in stockholders' equity for the three months
ended March 31, 2022 resulted primarily from net unrealized losses in available
for sale securities of $249.7 million as a result of an increase in market
interest rates during the period, dividends of $35.9 million and share
repurchases of $21.3 million , partially offset by our net income of $181.1
million . Given our intent and ability as of March 31, 2022 , to hold these
securities until recovery of their amortized cost basis, we do not expect to
realize a loss on any of our investments in an unrealized loss position.
The decrease in book value per share from $24.28 at December 31, 2021 to $23.75
at March 31, 2022 , is primarily due to: (i) a decrease of $1.42 per share due to
unrealized losses in our available for sale securities, recorded in accumulated
other comprehensive income and (ii) a decrease of $0.20 per share attributable
to dividends and dividend equivalents. Partially offsetting these items was an
increase of $1.03 per share attributable to our net income for the three months
ended March 31, 2022 .
We regularly evaluate opportunities, based on market conditions, to finance our
operations by accessing the capital markets or entering into other types of
financing arrangements with institutional and other lenders and financing
sources, and consider various measures to improve our capital and liquidity
positions, as well as to strengthen our balance sheet, improve Radian Group's
debt maturity profile and maintain adequate liquidity for our operations. In the
past we have repurchased and exchanged, prior to maturity, some of our
outstanding debt, and in the future, we may from time to time seek to redeem,
repurchase or exchange for other securities, or otherwise restructure or
refinance some or all of our outstanding debt prior to maturity in the open
market through other public or private transactions, including pursuant to one
or more tender offers or through any combination of the foregoing, as
circumstances may allow. The timing or amount of any potential transactions will
depend on a number of factors, including market opportunities and our views
regarding our capital and liquidity positions and potential future needs. There
can be no assurance that any such transactions will be completed on favorable
terms, or at all.
Mortgage
The principal demands for liquidity in our Mortgage business currently include:
(i) the payment of claims and potential claim settlement transactions, net of
reinsurance; (ii) expenses (including those allocated from Radian Group ); (iii)
repayments of FHLB advances; (iv) repayments, if any, associated with the
Surplus Note due 2027; and (v) taxes, including potential additional purchases
of U.S. Mortgage Guaranty Tax and Loss Bonds. See Notes 10 and 16 of Notes to
Consolidated Financial Statements in our 2021 Form 10-K for additional
information related to these non-interest bearing instruments. In addition to
the foregoing liquidity demands, other payments have included and, in the future
could include, returns of capital from Radian Guaranty to Radian Group , subject
to approval by the Pennsylvania Insurance Department , as discussed below.
The principal sources of liquidity in our mortgage insurance business currently
include insurance premiums, net investment income and cash flows from: (i)
investment sales and maturities; (ii) FHLB advances; and (iii) capital
contributions from Radian Group . We believe that the operating cash flows
generated by each of our mortgage insurance subsidiaries will provide these
subsidiaries with a substantial portion of the funds necessary to satisfy their
needs for the foreseeable future.
57
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As of March 31, 2022 , our mortgage insurance subsidiaries maintained claims
paying resources of $5.6 billion on a statutory basis, which consist of
contingency reserves, statutory policyholders' surplus, premiums received but
not yet earned and loss reserves. In addition, our reinsurance programs are
designed to provide additional claims-paying resources during times of economic
stress and elevated losses. See Note 8 of Notes to Unaudited Condensed
Consolidated Financial Statements for additional information.
Radian Guaranty's Risk-to-capital as of March 31, 2022 was 12.1 to 1. Radian
Guaranty is not expected to need additional capital to satisfy state insurance
regulatory requirements in their current form. At March 31, 2022 , Radian
Guaranty had statutory policyholders' surplus of $422.6 million . This balance
includes a $354.1 million benefit from U.S. Mortgage Guaranty Tax and Loss Bonds
issued by the U.S. Department of the Treasury , which mortgage guaranty insurers
such as Radian Guaranty may purchase in order to be eligible for a tax
deduction, subject to certain limitations, related to amounts required to be set
aside in statutory contingency reserves. See Note 16 of Notes to Consolidated
Financial Statements and "Item 1A. Risk Factors" in our 2021 Form 10-K for more
information.
Radian Guaranty currently is an approved mortgage insurer under the PMIERs.
Private mortgage insurers, including Radian Guaranty, are required to comply
with the PMIERs to remain approved insurers of loans purchased by the GSEs. At
March 31, 2022 , Radian Guaranty's Available Assets under the PMIERs financial
requirements totaled approximately $5.1 billion , resulting in a PMIERs Cushion
of $1.6 billion , or 44%, over its Minimum Required Assets. Those amounts compare
to Available Assets of $5.4 billion and a PMIERs cushion of $2.1 billion , or
62%, at December 31, 2021 .
The primary driver of the decrease in Radian Guaranty's PMIERs Cushion during
the three months ended March 31, 2022 is the decrease in Available Assets,
primarily due to the $500 million return of capital from Radian Guaranty to
Radian Group , as discussed above, combined with an increase in Minimum Required
Assets, partially offset by positive cash flows from operating activities.
Our PMIERs Cushion at March 31, 2022 also includes a benefit from the current
broad-based application of the Disaster Related Capital Charge that has reduced
the total amount of Minimum Required Assets that Radian Guaranty otherwise would
have been required to hold against pandemic-related defaults by approximately
$260 million and $300 million as of March 31, 2022 and December 31, 2021 ,
respectively, taking into consideration our risk distribution structures in
effect as of that date. The application of the Disaster Related Capital Charge
has reduced Radian Guaranty's PMIERs Minimum Required Assets, but we expect this
impact will diminish over time. See "Item 1. Business-Regulation-Federal
Regulation-GSE Requirements for Mortgage Insurance Eligibility" in our 2021 Form
10-K for more information about the Disaster Related Capital Charge, and for
further information, including on the expiration of the COVID-19 Crisis Period.
Even though they hold assets in excess of the minimum statutory capital
thresholds and PMIERs financial requirements, the ability of Radian's mortgage
insurance subsidiaries to pay dividends on their common stock is restricted by
certain provisions of the insurance laws of Pennsylvania , their state of
domicile. Under Pennsylvania's insurance laws, ordinary dividends and other
distributions may only be paid out of an insurer's positive unassigned surplus
unless the Pennsylvania Insurance Department approves the payment of dividends
or other distributions from another source.
In light of Radian Guaranty's negative unassigned surplus related to operating
losses in prior periods and the ongoing need to set aside contingency reserves,
Radian Guaranty is not currently permitted under applicable insurance laws to
pay dividends or other distributions without prior approval from the
Pennsylvania Insurance Department . Under Pennsylvania's insurance laws, an
insurer must obtain the Pennsylvania Insurance Department's approval to pay an
Extraordinary Distribution. Radian Guaranty sought and received such approval to
return capital by paying Extraordinary Distributions to Radian Group , most
recently in February 2022 . Based on the current strong performance and assuming
the continuation of favorable trends in our mortgage insurance business, we
expect that Radian Guaranty could potentially have positive unassigned surplus
within the next two years. See Note 16 of Notes to Consolidated Financial
Statements in our 2021 Form 10-K for additional information on our Extraordinary
Distributions, statutory dividend restrictions and contingency reserve
requirements.
Radian Guaranty and Radian Reinsurance are both members of the FHLB. As members,
they may borrow from the FHLB, subject to certain conditions, which include
requirements to post collateral and to maintain a minimum investment in FHLB
stock. Advances from the FHLB may be used to provide low-cost, supplemental
liquidity for various purposes, including to fund incremental investments.
Radian's current strategy includes using FHLB advances as financing for general
cash management purposes and for purchases of additional investment securities
that have similar durations, for the purpose of generating additional earnings
from our investment securities portfolio with limited incremental risk. As of
March 31, 2022 , there were $149.0 million of FHLB advances outstanding. See Note
12 of Notes to Unaudited Condensed Consolidated Financial Statements for
additional information.
homegenius
As of
investments totaling
Insurance
Title insurance companies, including
comprehensive state regulations, including minimum net worth requirements.
requirements at
58
--------------------------------------------------------------------------------
Table of Contents
Glossary
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
March 31, 2022 . In the event the cash flows from operations of the homegenius
segment are not adequate to fund all of its needs, including the regulatory
capital needs of Radian Title Insurance , Radian Group may provide additional
funds to the homegenius segment in the form of an intercompany note or other
capital contribution, and if needed for Radian Title Insurance , subject to the
approval of the Ohio Department of Insurance . Additional capital support may
also be required for potential investments in new business initiatives to
support our strategy of growing our businesses.
Liquidity levels may fluctuate depending on the levels and contractual timing of
our invoicing and the payment practices of our homegenius clients, in
combination with the timing of our homegenius segment's payments for employee
compensation and to external vendors. The amount, if any, and timing of the
homegenius segment's dividend paying capacity will depend primarily on the
amount of excess cash flow generated by the segment.
Ratings
Radian Group , Radian Guaranty,Radian Reinsurance and Radian Title Insurance have been assigned the financial strength ratings set forth in the chart below. We believe that ratings often are considered by others in assessing our credit strength and the financial strength of our primary insurance subsidiaries. The following ratings have been independently assigned by third-party statistical rating organizations, are for informational purposes only and are subject to change. See "Item 1A. Risk Factors-The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned toRadian Group could adversely affect the Company" in our 2021 Form 10-K. Ratings Subsidiary Moody's (1) S&P (2) Fitch (3) Demotech (4) Radian Group Ba1 BB+ BBB- N/A Radian Guaranty Baa1 BBB+ A- N/A Radian Reinsurance N/A BBB+ N/A N/A Radian Title Insurance N/A N/A N/A A (1)Based on theApril 29, 2022 update, Moody's outlook forRadian Group and Radian Guaranty is currently Stable. (2)Based on theMay 21, 2021 update, S&P's outlook forRadian Group , Radian Guaranty and Radian Reinsurance is currently Stable. (3)Based on theApril 27, 2022 release, Fitch's outlook forRadian Group and Radian Guaranty is currently Stable. (4)Based on theMarch 15, 2022 release.
Critical Accounting Estimates
As of the filing date of this report, there were no significant changes in our critical accounting estimates from those discussed in our 2021 Form 10-K. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for accounting pronouncements issued but not yet adopted that may impact the Company's consolidated financial position, earnings, cash flows or disclosures. 59
--------------------------------------------------------------------------------
Table of Contents
Glossary
BIGLARI HOLDINGS INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
NI HOLDINGS, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
Advisor News
- OBBBA opens the door for advanced wealth transfer strategies
- Health insurance premium tax bill advancing
- The Medi-Cal money pit
- The untapped potential of Qualified Longevity Annuity Contracts
- NYC's fiscal outlook on downslide over budget gaps
More Advisor NewsAnnuity News
- Lincoln Financial launches two new FIAs
- Great-West Life & Annuity Insurance Company trademark request filed
- The forces shaping life and annuities in 2026
- Variable annuity sales surge as market confidence remains high, Wink finds
- New Allianz Life Annuity Offers Added Flexibility in Income Benefits
More Annuity NewsHealth/Employee Benefits News
- RURAL MISSOURIANS MORE LIKELY TO LACK HEALTH INSURANCE THAN URBAN RESIDENTS
- HEALTH INSURANCE MARKETPLACE CALCULATOR
- Portsmouth disputes $1.57 million SchoolCare health insurance bill
- Study Findings on Managed Care Are Outlined in Reports from First Medical Center (Economic burden of gastrointestinal malignancy among Medicare beneficiaries: A real-world cost-of-illness study): Managed Care
- Findings on Managed Care Reported by Researchers at University of Pennsylvania (Rising Home Care and Falling Wages: The Impact of the Growing Share of Home Care Workers on Direct Care Worker Wages): Managed Care
More Health/Employee Benefits NewsLife Insurance News
- Ethics and IUL: Tax-advantaged strategies for client success
- SWBC’s Joan Cleveland Appointed to the Texas Life and Health Insurance Guaranty Association Board of Directors
- Indexed life sales hit big despite lawsuits, market headwinds, Wink finds
- Are the biggest life insurance opportunities hiding during tax season?
- Hulse, Murray
More Life Insurance News