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07/28/2016

Radian Announces Second Quarter 2016 Financial Results

-- Net income of $98 million or $0.44 per diluted share --

-- Adjusted diluted net operating income per share of $0.38 --

-- New MI business volume grows 60% over first quarter 2016 and 10% over last year --

-- Book value per share increases 16% year-over-year to $13.09 --

PHILADELPHIA--(BUSINESS WIRE)--Jul. 28, 2016-- Radian Group Inc. (NYSE: RDN) today reported net income from continuing operations for the quarter ended June 30, 2016, of $98.1 million, or $0.44 per diluted share. This compares to net income from continuing operations for the quarter ended June 30, 2015, of $45.2 million, or $0.20 per diluted share. Pretax income from continuing operations for the quarter ended June 30, 2016, was $156.5 million, compared to $80.0 million for the quarter ended June 30, 2015.

 

Key Financial Highlights (dollars in millions, except per share data)

   

Quarter Ended

June 30, 2016

 

Quarter Ended

June 30, 2015

 

Percent
Change

Net income from continuing operations

  $98.1   $45.2   117%
Diluted net income per share from continuing operations   $0.44   $0.20   120%
Pretax income from continuing operations   $156.5   $80.0   96%
Adjusted pretax operating income   $131.4   $147.3   (11%)
Adjusted diluted net operating income per share *   $0.38   $0.40   (5%)
Net premiums earned - insurance   $229.1   $237.4   (3%)
New Mortgage Insurance Written (NIW)   $12,921   $11,751   10%
Book value per share   $13.09   $11.28   16%

*

 

Adjusted diluted net operating income per share is calculated using the company’s statutory tax rate of 35 percent.

 

Adjusted pretax operating income for the quarter ended June 30, 2016, was $131.4 million, compared to $147.3 million for the quarter ended June 30, 2015. Adjusted diluted net operating income per share for the quarter ended June 30, 2016, was $0.38, compared to $0.40 for the quarter ended June 30, 2015. See “Non-GAAP Financial Measures” below.

Book value per share at June 30, 2016 was $13.09, an increase of 5 percent from $12.42 at March 31, 2016, and an increase of 16 percent from $11.28 at June 30, 2015.

“Radian continued to deliver excellent results in the second quarter, adding to insurance in force with high-quality new business that is expected to generate attractive returns and strengthen our company,” said Radian’s Chief Executive Officer S.A. Ibrahim. “We were also successful in enhancing our holding company liquidity position, and in taking the next steps to accelerate our capital plan.”

SECOND QUARTER HIGHLIGHTS

Mortgage Insurance

  • New mortgage insurance written (NIW) grew to $12.9 billion for the quarter, an increase of 60 percent compared to $8.1 billion in the first quarter of 2016 and an increase of 10 percent compared to $11.8 billion in the prior-year quarter.
    • Of the $12.9 billion in new business written in the second quarter of 2016, 26 percent was written with single premiums, which represents a decrease from the first quarter of 2016. Net single premiums written, after consideration of the 35 percent ceded under the company’s Single Premium QSR, was 17 percent in the second quarter of 2016.
    • Refinances accounted for 18 percent of total NIW in the second quarter of 2016, compared to 19 percent in the first quarter of 2016, and 23 percent a year ago.
    • NIW continued to consist of loans with excellent risk characteristics.

  • Total primary mortgage insurance in force as of June 30, 2016, grew to $177.7 billion, compared to $175.4 billion as of March 31, 2016, and $172.7 billion as of June 30, 2015.
    • The composition of Radian’s mortgage insurance portfolio has significantly improved over the past several years:
      • 86 percent of primary mortgage insurance risk in force consisted of new business written after 2008, including those loans that successfully completed the Home Affordable Refinance Program (HARP).
      • 57 percent of primary mortgage insurance risk in force in the second quarter of 2016 consisted of loans with FICO scores greater than or equal to 740, compared to 26 percent of loans in 2007.
      • 7 percent of primary mortgage insurance risk in force in the second quarter of 2016 consisted of loans with a loan-to-value (LTV) greater than 95 percent, compared to 24 percent of loans in 2007.
    • Persistency, which is the percentage of mortgage insurance in force that remains on the company’s books after a twelve-month period, was 79.9 percent as of June 30, 2016, compared to 79.4 percent as of March 31, 2016, and 80.1 percent as of June 30, 2015.
    • Annualized persistency for the three-months ended June 30, 2016, was 78.0 percent, compared to 82.3 percent for the three-months ended March 31, 2016, and 76.2 percent for the three-months ended June 30, 2015.
  • Total net premiums earned were $229.1 million for the quarter ended June 30, 2016, which is net of $19.8 million in ceded premiums, compared to $221.0 million for the quarter ended March 31, 2016, which is net of $19.4 million in ceded premiums, and $237.4 million for the quarter ended June 30, 2015, which is net of $12.4 million in ceded premiums. Notable variable items impacting net premiums earned include:
    • Single Premium Policy cancellations, which are net of ceded premiums, were $14.8 million in the second quarter, compared to $9.8 million in the first quarter of 2016, and $25.0 million in the second quarter of 2015.
    • Ceded premiums are net of accrued profit commission on reinsurance transactions of $7.9 million in the second quarter, compared to $6.1 million in the first quarter of 2016, and $5.8 million in the second quarter of 2015.
    • Additional details may be found in Exhibit D.

  • The mortgage insurance provision for losses was $50.1 million in the second quarter of 2016, compared to $43.3 million in the first quarter of 2016, and $31.6 million in the prior-year period.
    • The loss ratio in the second quarter was 21.9 percent, compared to 19.6 percent in the first quarter of 2016 and 13.3 percent in the second quarter of 2015. The loss ratios in the first quarter of 2016 and second quarter of 2015 were impacted by a positive reserve development on prior year defaults.
    • Mortgage insurance loss reserves were $848.4 million as of June 30, 2016, compared to $891.3 million as of March 31, 2016, and $1,204.8 million as of June 30, 2015.
    • Primary reserve per primary default (excluding IBNR and other reserves) was $24,609 as of June 30, 2016. This compares to primary reserve per primary default of $24,959 as of March 31, 2016, and $27,279 as of June 30, 2015.
  • The total number of primary delinquent loans decreased by 3 percent in the second quarter from the first quarter of 2016, and by 21 percent from the second quarter of 2015. The primary mortgage insurance delinquency rate decreased to 3.4 percent in the second quarter of 2016, compared to 3.5 percent in the first quarter of 2016, and 4.3 percent in the second quarter of 2015.
  • Total mortgage insurance claims paid were $90.7 million in the second quarter, compared to $127.7 million in the first quarter of 2016, and $212.0 million in the second quarter of 2015. The company continues to expect claims paid for the full-year 2016 of approximately $400 million.

Mortgage and Real Estate Services

  • The Services segment is primarily comprised of the operations for Clayton Holdings LLC, a leading provider of risk-based analytics, residential loan due diligence, consulting, surveillance and staffing solutions. The company also provides
    • customized Real Estate Owned (REO) asset management and single-family rental component services through its Green River Capital subsidiary;
    • advanced Automated Valuation Models, Broker Price Opinions and technology solutions to monitor loan portfolio performance, acquire and track non-performing loans, and value and sell residential real estate through its Red Bell Real Estate subsidiary;
    • real estate valuation, title, closing and settlement services as well as technology solutions for vendor management through its ValuAmerica subsidiary; and
    • a global reach through its Clayton EuroRisk subsidiary.

  • Total revenues for the second quarter were $39.0 million, compared to $32.2 million for the first quarter of 2016, and $44.6 million for the second quarter of 2015.
  • The adjusted pretax operating income before corporate allocations for the quarter ended June 30, 2016, was $1.2 million, compared to a loss of $3.7 million for the quarter ended March 31, 2016, and income of $7.6 million for the quarter ended June 30, 2015. Services adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) for the quarter ended June 30, 2016 was $2.0 million, compared to a loss of $3.1 million for the quarter ended March 31, 2016, and income of $8.1 million for the quarter ended June 30, 2015. Additional details regarding the non-GAAP measure Services adjusted EBITDA may be found in Exhibits G and H.

Consolidated Expenses

Other operating expenses were $65.7 million in the second quarter, compared to $59.0 million in the first quarter of 2016, and $67.7 million in the second quarter of last year.

  • Notable variable items impacting other operating expenses include:
    • The company’s investment to significantly upgrade its technology systems, which represented $2.4 million in the second quarter, compared to $2.3 million in the first quarter of 2016, and $1.3 million in the second quarter of 2015.
    • Severance charges of $0.3 million in the second quarter, compared to $3.0 million in the first quarter of 2016, and $0.7 million in the second quarter of 2015.
    • An increase in expense related to annual grants of new equity-settled long-term incentive awards, primarily due to the acceleration of such expense for retirement-eligible employees, which represented $7.3 million in the second quarter. In the second quarter of 2015, the increase in expense related to the impact of stock price appreciation on the estimated fair value of cash-settled equity-based long-term incentive awards represented $5.3 million.
    • Additional details may be found in Exhibit D.

  • Operating expenses before corporate allocations for the second quarter of 2016 were comprised of $36.1 million for the Mortgage Insurance segment, compared to $33.8 million in the first quarter of 2016, and $41.9 million in the second quarter of last year.
  • Operating expenses before corporate allocations for the second quarter of 2016 were comprised of $12.5 million for the Services segment, compared to $13.9 million in the first quarter of 2016, and $11.5 million in the second quarter of last year.
    • A significant portion of the severance charges in 2016 reflected in the company’s consolidated expenses was related to a reduction in force in the Services segment.

CAPITAL AND LIQUIDITY UPDATE

  • As previously announced, on June 30, 2016, Radian Guaranty redeemed its $325 million surplus note due to Radian Group, which immediately resulted in a $325 million increase to Radian Group’s available liquidity. The redemption of the surplus note was approved by the Pennsylvania Insurance Department. Following the redemption, Radian Group maintained $718 million of available liquidity as of June 30, 2016.
  • The company also recently announced its intent to utilize a portion of its liquidity in order to accelerate its capital plan, with the objective of better positioning Radian Group for a return to investment grade ratings in the future. Consistent with this strategy, Radian’s Board of Directors authorized the following actions:
    • An additional share repurchase of up to $125 million of the company’s common stock
    • The early redemption of the remaining $196 million face value of its 9.000% Senior Notes due 2017
    On July 13, 2016, Radian Group notified the holders of its outstanding 9.000% Senior Notes due 2017 that the company will redeem the entire $196 million aggregate principal amount outstanding of the Notes on August 12, 2016. The company will publicly announce the redemption price as soon as reasonably practical after it is calculated.
  • During the second quarter, the company purchased approximately $12.4 million face value of its outstanding 2.25% Convertible Senior Notes due 2019. Radian’s capital strategy continues to include opportunistically removing the company’s outstanding Convertible Senior Notes from its capital structure and potentially the redemption, repurchase, or exchange of a portion of its other outstanding senior debt.

CONFERENCE CALL

Radian will discuss second quarter financial results in a conference call today, Thursday, July 28, 2016, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.com. The call may also be accessed by dialing 800.288.8960 inside the U.S., or 612.332.0107 for international callers, using passcode 398387 or by referencing Radian.

A replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two and a half hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800.475.6701 inside the U.S., or 320.365.3844 for international callers, passcode 398387.

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

NON-GAAP FINANCIAL MEASURES

Radian believes that adjusted pretax operating income and adjusted diluted net operating income per share (non-GAAP measures) facilitate evaluation of the company’s fundamental financial performance and provide relevant and meaningful information to investors about the ongoing operating results of the company. On a consolidated basis, these measures are not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as alternatives to GAAP measures of performance. The measures described below have been established in order to increase transparency for the purpose of evaluating the company’s core operating trends and enabling more meaningful comparisons with Radian’s competitors.

Adjusted pretax operating income is defined as earnings excluding the impact of certain items that are not viewed as part of the operating performance of the company’s primary activities, or not expected to result in an economic impact equal to the amount reflected in pretax income (loss) from continuing operations. Adjusted pretax operating income adjusts GAAP pretax income from continuing operations to remove the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on induced conversion and debt extinguishment; (iii) acquisition-related expenses; (iv) amortization and impairment of intangible assets; and (v) net impairment losses recognized in earnings. Adjusted diluted net operating income per share represents a diluted net income per share calculation using as its basis adjusted pretax operating income, net of taxes at the company’s statutory tax rate for the period.

In addition to the above non-GAAP measures for the consolidated company, the company also presents as supplemental information a non-GAAP measure for the Services segment, representing earnings before interest, income taxes, depreciation and amortization (EBITDA). Services adjusted EBITDA is calculated by using the Services segment’s adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. Services adjusted EBITDA is presented to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.

See Exhibit G or Radian’s website for a description of these items, as well as Exhibit H for reconciliations to the most comparable consolidated GAAP measures.

ABOUT RADIAN

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance, risk management products and real estate services to financial institutions. Radian offers products and services through two business segments:

  • Mortgage Insurance, through its principal mortgage insurance subsidiary Radian Guaranty Inc. This private mortgage insurance protects lenders from default-related losses, facilitates the sale of low-downpayment mortgages in the secondary market and enables homebuyers to purchase homes more quickly with downpayments less than 20%.
  • Mortgage and Real Estate Services, through its principal services subsidiary Clayton, as well as Green River Capital, Red Bell Real Estate and ValuAmerica. These solutions include information and services that financial institutions, investors and government entities use to evaluate, acquire, securitize, service and monitor loans and asset-backed securities.

Additional information may be found at www.radian.com.

FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)

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

   
Exhibit A: Condensed Consolidated Statements of Operations Trend Schedule
Exhibit B: Net Income Per Share Trend Schedule
Exhibit C: Condensed Consolidated Balance Sheets
Exhibit D:

Net Premiums Earned-Insurance and Other Operating Expenses

Exhibit E: Discontinued Operations
Exhibit F: Segment Information
Exhibit G: Definition of Consolidated Non-GAAP Financial Measures
Exhibit H: Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit I: Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit J: Mortgage Insurance Supplemental Information
Insurance in Force, Risk in Force by Product and Statutory Capital Ratios
Exhibit K: Mortgage Insurance Supplemental Information
Risk in Force by FICO, LTV and Policy Year
Exhibit L: Mortgage Insurance Supplemental Information
Claims and Reserves
Exhibit M: Mortgage Insurance Supplemental Information
Default Statistics
Exhibit N: Mortgage Insurance Supplemental Information

QSR, Captives and Persistency

 

   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Exhibit A
 
2016 2015

(In thousands, except per share amounts)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
 
Revenues:
Net premiums earned - insurance $ 229,085 $ 220,950 $ 226,443 $ 227,433 $ 237,437
Services revenue 38,294 31,600 37,493 42,189 43,503
Net investment income 28,839 27,201 22,833 22,091 19,285
Net gains (losses) on investments and other financial instruments 30,527 31,286 (13,402 ) 3,868 28,448
Other income 3,423   1,915   1,515   1,711   1,743  
Total revenues 330,168   312,952   274,882   297,292   330,416  
 
Expenses:
Provision for losses 49,725 42,991 56,805 64,192 32,560
Policy acquisition costs 5,393 6,389 4,831 2,880 6,963
Direct cost of services 24,858 21,749 22,241 24,949 23,520
Other operating expenses 65,680 58,989 59,570 65,082 67,731
Interest expense 22,546 21,534 20,996 21,220 24,501
Loss on induced conversion and debt extinguishment 2,108 55,570 2,320 11 91,876
Amortization and impairment of intangible assets 3,311   3,328   3,409   3,273   3,281  
Total expenses 173,621   210,550   170,172   181,607   250,432  
 
Pretax income from continuing operations 156,547 102,402 104,710 115,685 79,984
Income tax provision (benefit) 58,435   36,153   30,182   45,594   34,791  
Net income from continuing operations 98,112 66,249 74,528 70,091 45,193
Income (loss) from discontinued operations, net of tax         4,855  
Net income $ 98,112   $ 66,249   $ 74,528   $ 70,091   $ 50,048  
 
Diluted net income per share:
Net income from continuing operations $ 0.44 $ 0.29 $ 0.32 $ 0.29 $ 0.20
Income from discontinued operations, net of tax         0.02  
Net income $ 0.44   $ 0.29   $ 0.32   $ 0.29   $ 0.22  
 
Selected Mortgage Insurance Key Ratios
Loss ratio (1) 21.9 % 19.6 % 25.1 % 28.2 % 13.3 %
Expense ratio (1) 24.4 % 22.4 % 22.7 % 23.9 % 25.8 %
 

(1)

 

Calculated on a GAAP basis using net premiums earned.

 

On April 1, 2015, Radian Guaranty completed the previously disclosed sale of 100% of the issued and outstanding shares of Radian Asset Assurance to Assured, pursuant to the Radian Asset Assurance Stock Purchase Agreement dated as of December 22, 2014. As a result, the operating results of Radian Asset Assurance are classified as discontinued operations for all periods presented in our condensed consolidated statements of operations. See Exhibit E for additional information on discontinued operations.

 

   
Radian Group Inc. and Subsidiaries
Net Income Per Share
Exhibit B
 

The calculation of basic and diluted net income per share was as follows:

 
2016 2015

(In thousands, except per share amounts)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Net income from continuing operations:
Net income from continuing operations—basic $ 98,112 $ 66,249 $ 74,528 $ 70,091 $ 45,193
Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 913   3,390   3,664   3,714   3,707
Net income from continuing operations—diluted $ 99,025   $ 69,639   $ 78,192   $ 73,805   $ 48,900
 
Net income:
Net income from continuing operations—basic $ 98,112 $ 66,249 $ 74,528 $ 70,091 $ 45,193
Income (loss) from discontinued operations, net of tax         4,855
Net income—basic 98,112 66,249 74,528 70,091 50,048
Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 913   3,390   3,664   3,714   3,707
Net income—diluted $ 99,025   $ 69,639   $ 78,192   $ 73,805   $ 53,755
 
Average common shares outstanding—basic 214,274 203,706 206,872 207,938 193,112
Dilutive effect of Convertible Senior Notes due 2017 (2) 12 1,057 1,798 12,438
Dilutive effect of Convertible Senior Notes due 2019 8,928 33,583 37,736 37,736 37,736
Dilutive effect of stock-based compensation arrangements (2) 2,989   2,418   2,316   3,323   3,364
Adjusted average common shares outstanding—diluted 226,203   239,707   247,981   250,795   246,650
 

Net income per share:

Basic:
Net income from continuing operations $ 0.46 $ 0.33 $ 0.36 $ 0.34 $ 0.23
Income (loss) from discontinued operations, net of tax         0.03
Net income $ 0.46   $ 0.33   $ 0.36   $ 0.34   $ 0.26
 
Diluted:
Net income from continuing operations $ 0.44 $ 0.29 $ 0.32 $ 0.29 $ 0.20
Income (loss) from discontinued operations, net of tax         0.02
Net income $ 0.44   $ 0.29   $ 0.32   $ 0.29   $ 0.22
 

(1)

 

As applicable, includes coupon interest, amortization of discount and fees, and other changes in income or loss that would result from the assumed conversion.

(2)

The following number of shares of our common stock equivalents issued under our stock-based compensation arrangements and convertible debt were not included in the calculation of diluted net income per share because they were anti-dilutive:

     
2016 2015

(In thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Shares of common stock equivalents 1,042 709 728 469 264
Shares of Convertible Senior Notes due 2017 1,902
 

         
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit C
 
June 30, March 31, December 31, September 30, June 30,
(In thousands, except per share data) 2016 2016 2015 2015 2015
 
Assets:
Investments $ 4,636,914 $ 4,470,172 $ 4,298,686 $ 4,376,771 $ 4,309,148
Cash 55,062 64,844 46,898 69,030 51,381
Restricted cash 9,298 10,060 13,000 10,280 12,633
Accounts and notes receivable 77,170 66,340 61,734 65,951 72,093
Deferred income taxes, net 444,513 518,059 577,945 601,893 651,238
Goodwill and other intangible assets, net 282,703 286,069 289,417 287,334 290,640
Prepaid reinsurance premium 229,231 228,718 40,491 44,091 47,835
Other assets 332,372   325,129   313,929   305,566   301,536  
Total assets $ 6,067,263   $ 5,969,391   $ 5,642,100   $ 5,760,916   $ 5,736,504  
 
Liabilities and stockholders’ equity:
Unearned premiums $ 677,599 $ 673,887 $ 680,300 $ 676,938 $ 665,947
Reserve for losses and loss adjustment expense 848,379 891,348 976,399 1,098,570 1,204,792
Long-term debt 1,278,051 1,286,466 1,219,454 1,230,246 1,224,892
Reinsurance funds withheld 163,360 151,104
Other liabilities 294,507   306,188   269,016   311,855   278,929  
Total liabilities 3,261,896   3,308,993   3,145,169   3,317,609   3,374,560  
 
Equity component of currently redeemable convertible senior notes 7,737 8,546
 
Common stock 232 232 224 224 226
Additional paid-in capital 1,887,960 1,880,173 1,823,442 1,825,034 1,816,545
Retained earnings 855,070 757,202 691,742 617,731 548,161
Accumulated other comprehensive income (loss) 62,105   22,791   (18,477 ) (7,419 ) (11,534 )
Total stockholders’ equity 2,805,367   2,660,398   2,496,931   2,435,570   2,353,398  
Total liabilities and stockholders’ equity $ 6,067,263   $ 5,969,391   $ 5,642,100   $ 5,760,916   $ 5,736,504  
 
Shares outstanding 214,284 214,265 206,872 206,870 208,587
 
Book value per share $ 13.09 $ 12.42 $ 12.07 $ 11.77 $ 11.28
 

 

Radian Group Inc. and Subsidiaries

Net Premiums Earned - Insurance and Other Operating Expenses

Exhibit D

   
2016 2015

(In millions)

Qtr 2   Qtr 1 Qtr 2
 
Premiums earned - insurance:
Direct $ 248,938 $ 240,330 $ 249,797
Assumed 9 9 10
Ceded   (19,862 )   (19,389 )   (12,370 )
Net premiums earned - insurance $ 229,085   $ 220,950   $ 237,437  
 
Notable variable items (1):
Single Premium Policy cancellations $ 14,841 $ 9,783 $ 24,975
Profit commission - reinsurance (2)   7,891     6,134     5,760  
Total $ 22,732   $ 15,917   $ 30,735  
 
Other operating expenses $ 65,680   $ 58,989   $ 67,731  
 
Notable variable items (3):
Technology upgrade project (4) $ 2,443 $ 2,271 $ 1,304
Severance costs 277 3,040 665
Increase (decrease) in long-term incentive compensation (5) 7,271 5,345
Ceding commissions   (6,297 )   (5,820 )   (3,304 )
Total $ 3,694   $ (509 ) $ 4,010  
 

(1)

 

Affecting net premiums earned-insurance.

(2)

For the first and second quarters of 2016, the amounts represent the profit commission on the Single Premium QSR Transaction. For the second quarter of 2015, the amount represents an accrual for the profit commission on the Second QSR Transaction.

(3)

Affecting other operating expenses.

(4)

Represents the expense impact of certain costs incurred in our initiative to significantly upgrade our technology systems.

(5)

Represents the impact of specifically identified items during the quarters shown. The expense increase in the second quarter of 2016 related to annual grants of new equity-settled long-term incentive awards, primarily due to the acceleration of such expense for retirement-eligible employees. The annual grants for 2015 were made in the third quarter of 2015. The expense increase in the second quarter of 2015 represents the impact of stock price appreciation on the estimated fair value of cash-settled equity-based long-term incentive awards that were valued, in large part, relative to the price of Radian Group’s common stock. Now that substantially all of the cash-settled awards have vested, this expense volatility due to the level of Radian’s stock price is not expected in the future.

 

 

Radian Group Inc. and Subsidiaries

Discontinued Operations

Exhibit E

 
The income from discontinued operations, net of tax consisted of the following components for the periods indicated:
 
  2015

(In thousands)

Qtr 2
Net premiums earned $
Net investment income
Net gains (losses) on investments and other financial instruments 7,818
Change in fair value of derivative instruments    
Total revenues   7,818  
 
Provision for losses
Policy acquisition costs
Other operating expense    
Total expenses    
 
Equity in net income (loss) of affiliates    
Income (loss) from operations of businesses held for sale 7,818
Income (loss) on sale (350 )
Income tax provision (benefit)   2,613  
Income (loss) from discontinued operations, net of tax $ 4,855  
 

 

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit F (page 1 of 2)

 
Summarized financial information concerning our operating segments as of and for the periods indicated is as follows. For a definition of adjusted pretax operating income and Services adjusted EBITDA, along with reconciliations to consolidated GAAP measures, see Exhibits G and H.
 
  Mortgage Insurance
2016       2015

(In thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Net premiums written - insurance $ 232,353 $ 26,310

(1)

 

$ 233,347 $ 242,168 $ 251,082
Decrease (increase) in unearned premiums (3,268 ) 194,640   (6,904 ) (14,735 ) (13,645 )
Net premiums earned - insurance 229,085 220,950 226,443 227,433 237,437
Net investment income 28,839 27,201 22,833 22,091 19,285
Other income 3,424   1,915   1,515   1,711   1,743  
Total 261,348   250,066   250,791   251,235   258,465  
 
Provision for losses 50,074 43,275 56,817 64,128 31,637
Policy acquisition costs 5,393 6,389 4,831 2,880 6,963
Other operating expenses before corporate allocations 36,126   33,829   37,406   36,632   41,853  
Total (2) 91,593   83,493   99,054   103,640   80,453  
Adjusted pretax operating income before corporate allocations 169,755 166,573 151,737 147,595 178,012
Allocation of corporate operating expenses 14,286 9,329 9,251 14,893 12,516
Allocation of interest expense 18,124   17,112   16,582   16,797   20,070  
Adjusted pretax operating income $ 137,345   $ 140,132   $ 125,904   $ 115,905   $ 145,426  
 
Services
2016 2015

(In thousands)

Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Services revenue (2) $ 39,002   $ 32,196   $ 38,175   $ 43,114   $ 44,595  
 
Direct cost of services 25,224 22,053 22,880 25,870 25,501
Other operating expenses before corporate allocations 12,537   13,883   11,710   11,533   11,522  
Total 37,761   35,936   34,590   37,403   37,023  
Adjusted pretax operating income (loss) before corporate allocations (3) 1,241 (3,740 ) 3,585 5,711 7,572
Allocation of corporate operating expenses 2,779 1,751 968 1,567 1,307
Allocation of interest expense 4,422   4,422   4,414   4,423   4,431  
Adjusted pretax operating income (loss) $ (5,960 ) $ (9,913 ) $ (1,797 ) $ (279 ) $ 1,834  
 

(1)

 

Net of ceded premiums written under the Single Premium QSR transaction of $197.6 million.

(2)

Inter-segment information:

 
  2016   2015
Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Inter-segment expense included in Mortgage Insurance segment $ 709 $ 596 $ 682   $ 925   $ 1,092
Inter-segment revenue included in Services segment 709 596 682 925 1,092
 

 

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit F (page 2 of 2)

 

(3) Supplemental information for Services adjusted EBITDA (see definition in Exhibit G):

 
  2016   2015
Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Adjusted pretax operating income (loss) before corporate allocations $ 1,241 $ (3,740 ) $ 3,585 $ 5,711 $ 7,572
Depreciation and amortization 747   661   612   555   482
Services adjusted EBITDA $ 1,988   $ (3,079 ) $ 4,197   $ 6,266   $ 8,054
 
 

Selected balance sheet information for our segments, as of the periods indicated, is as follows:

 
  At June 30, 2016

(In thousands)

Mortgage
Insurance

  Services   Total
Total assets $ 5,708,233 $ 359,030 $ 6,067,263
 
At December 31, 2015

(In thousands)

Mortgage
Insurance

Services Total
Total assets $ 5,281,597 $ 360,503 $ 5,642,100
 

 

Radian Group Inc. and Subsidiaries

Definition of Consolidated Non-GAAP Financial Measures

Exhibit G (page 1 of 2)

     

Use of Non-GAAP Financial Measures

 
In addition to the traditional GAAP financial measures, we have presented non-GAAP financial measures for the consolidated company, “adjusted pretax operating income (loss)” and “adjusted diluted net operating income (loss) per share,” among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way the Company’s business performance is evaluated by both management and the board of directors. These measures have been established in order to increase transparency for the purposes of evaluating our operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis “adjusted pretax operating income (loss)” and “adjusted diluted net operating income (loss) per share” are non-GAAP financial measures, we believe these measures aid in understanding the underlying performance of our operations. Our senior management, including our Chief Executive Officer (the Company’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.
 
Adjusted pretax operating income (loss) is defined as GAAP pretax income (loss) from continuing operations excluding the effects of net gains (losses) on investments and other financial instruments, loss on induced conversion and debt extinguishment, acquisition-related expenses, amortization and impairment of intangible assets and net impairment losses recognized in earnings. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common shareholders, net of taxes computed using the company’s statutory tax rate, by (ii) the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Interest expense on convertible debt, share dilution from convertible debt and the impact of stock-based compensation arrangements have been reflected in the per share calculations consistent with the accounting standard regarding earnings per share, whenever the impact is dilutive.
 
Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (1) not viewed as part of the operating performance of our primary activities; or (2) not expected to result in an economic impact equal to the amount reflected in pretax income (loss) from continuing operations. These adjustments, along with the reasons for their treatment, are described below.
 
(1)

Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses.

 
Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss). However, we include the change in expected economic loss or recovery associated with our consolidated VIEs, if any, in the calculation of adjusted pretax operating income (loss).
 
(2)

Loss on induced conversion and debt extinguishment. Gains or losses on early extinguishment of debt and losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).

 
(3)

Acquisition-related expenses. Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).

 

 

Radian Group Inc. and Subsidiaries

Definition of Consolidated Non-GAAP Financial Measures

Exhibit G (page 2 of 2)

     
(4)  

Amortization and impairment of intangible assets. Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore are excluded from our calculation of adjusted pretax operating income (loss).

 
(5)

Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).

 
In addition to the above non-GAAP measures for the consolidated company, we also have presented as supplemental information a non-GAAP measure for our Services segment, representing a measure of earnings before interest, income taxes, depreciation and amortization (“EBITDA”). We calculate Services adjusted EBITDA by using adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. We have presented Services adjusted EBITDA to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.
 

See Exhibit H for the reconciliation of our non-GAAP financial measures for the consolidated company, adjusted pretax operating income and adjusted diluted net operating income per share, to the most comparable GAAP measures, pretax income from continuing operations and diluted net income per share from continuing operations, respectively. Exhibit H also contains the reconciliation of Services adjusted EBITDA to the most comparable GAAP measure, net income.

 

Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and Services adjusted EBITDA are not measures of total profitability, and therefore should not be viewed as substitutes for GAAP pretax income (loss) from continuing operations, diluted net income (loss) per share from continuing operations or net income. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share or Services adjusted EBITDA may not be comparable to similarly-named measures reported by other companies.

 

         

Radian Group Inc. and Subsidiaries

Consolidated Non-GAAP Financial Measure Reconciliations

Exhibit H (page 1 of 2)

 

Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income

from Continuing Operations

 
 
2016 2015

(In thousands)

Qtr 2   Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted pretax operating income (loss):
Mortgage Insurance $ 137,345 $ 140,132 $ 125,904 $ 115,905 $ 145,426
Services   (5,960 )   (9,913 )   (1,797 )   (279 )   1,834  
Total adjusted pretax operating income 131,385 130,219 124,107 115,626 147,260
 
Net gains (losses) on investments and other financial instruments 30,527 31,286 (13,402 ) 3,868 28,448
Loss on induced conversion and debt extinguishment (2,108 ) (55,570 ) (2,320 ) (11 ) (91,876 )

Acquisition-related expenses (1)

54 (205 ) (266 ) (525 ) (567 )

Amortization and impairment of intangible assets (1)

  (3,311 )   (3,328 )   (3,409 )   (3,273 )   (3,281 )
Consolidated pretax income from continuing operations $ 156,547   $ 102,402   $ 104,710   $ 115,685   $ 79,984  
 

(1)

   

Please see Exhibit G for the definition of this line item.

 
         
Reconciliation of Adjusted Diluted Net Operating Income Per Share to Diluted Net Income Per Share
from Continuing Operations
 
 
2016 2015
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2

Adjusted diluted net operating income per share (1)

$ 0.38   $ 0.37   $ 0.34   $ 0.31   $ 0.40  
 
Per share impact of debt items:
Loss on induced conversion and debt extinguishment (0.01 ) (0.23 ) (0.01 ) (0.37 )

Income tax provision (benefit) (2)

      (0.03 )   (0.04 )       (0.09 )
Per share impact of debt items   (0.01 )   (0.20 )   0.03         (0.28 )
 
Per share impact of other reconciling items:
Net gains (losses) on investments and other financial instruments 0.13 0.13 (0.05 ) 0.01 0.11
Acquisition-related expenses
Amortization and impairment of intangible assets (0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.01 )

Income tax provision (benefit) on other reconciling items (1)

0.04 0.04 (0.02 ) 0.04
Difference between statutory and effective tax rate   (0.01 )   0.04     (0.01 )   (0.02 )   0.02  
Per share impact of other reconciling items   0.07     0.12     (0.05 )   (0.02 )   0.08  

Diluted net income per share from continuing operations (3)

$ 0.44   $ 0.29   $ 0.32   $ 0.29   $ 0.20  
 

(1)

   

Calculated using the company’s federal statutory tax rate. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.

(2)

A portion of the loss on induced conversion and debt extinguishment is non-deductible for tax purposes. The income tax benefit is based on the tax deductible loss using the company's federal statutory tax rate.

(3)

In periods with no activity from discontinued operations, diluted net income per share from continuing operations is equivalent to diluted net income per share.

 

         
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit H (page 2 of 2)
 

Reconciliation of Services Adjusted EBITDA to Net Income

 
 
2016 2015

(In thousands)

Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
 
Services adjusted EBITDA $ 1,988 $ (3,079 ) $ 4,197 $ 6,266 $ 8,054
Allocation of corporate operating expenses to Services (2,779 ) (1,751 ) (968 ) (1,567 ) (1,307 )
Allocation of corporate interest expenses to Services (4,422 ) (4,422 ) (4,414 ) (4,423 ) (4,431 )
Services depreciation and amortization   (747 )   (661 )   (612 )   (555 )   (482 )
Services adjusted pretax operating income (loss) (5,960 ) (9,913 ) (1,797 ) (279 ) 1,834
Mortgage Insurance adjusted pretax operating income   137,345     140,132     125,904     115,905     145,426  
Total adjusted pretax operating income 131,385 130,219 124,107 115,626 147,260
 
Net gains (losses) on investments and other financial instruments 30,527 31,286 (13,402 ) 3,868 28,448
Loss on induced conversion and debt extinguishment (2,108 ) (55,570 ) (2,320 ) (11 ) (91,876 )
Acquisition-related expenses 54 (205 ) (266 ) (525 ) (567 )
Amortization and impairment of intangible assets   (3,311 )   (3,328 )   (3,409 )   (3,273 )   (3,281 )
Consolidated pretax income from continuing operations 156,547 102,402 104,710 115,685 79,984
Income tax provision   58,435     36,153     30,182     45,594     34,791  
Net income from continuing operations 98,112 66,249 74,528 70,091 45,193
Income from discontinued operations, net of tax                   4,855  
Net income $ 98,112   $ 66,249   $ 74,528   $ 70,091   $ 50,048  
 

On a consolidated basis, “adjusted pretax operating income” and “adjusted diluted net operating income per share” are measures not determined in accordance with GAAP. "Services adjusted EBITDA" is also a non-GAAP measure. These measures are not representative of total profitability, and therefore should not be viewed as substitutes for GAAP pretax income from continuing operations or diluted net income per share from continuing operations. Our definitions of adjusted pretax operating income, adjusted diluted net operating income per share or Services adjusted EBITDA may not be comparable to similarly-named measures reported by other companies. See Exhibit G for additional information on our consolidated non-GAAP financial measures.

 

         
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - New Insurance Written
Exhibit I
 
2016 2015

($ in millions)

Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
 
Total primary new insurance written $ 12,921   $ 8,071   $ 9,099   $ 11,176   $ 11,751  
 

Percentage of primary new insurance written by FICO score

>=740 60.9 % 58.4 % 60.3 % 61.0 % 63.0 %

680-739

32.2 33.7 32.2 31.9 30.8

620-679

  6.9     7.9     7.5     7.1     6.2  
Total Primary   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 

Percentage of primary new insurance written

Direct monthly and other premiums 74 % 71 % 71 % 73 % 68 %
Direct single premiums 26 % 29 % 29 % 27 % 32 %
 

Net single premiums (1)

17 % 19 % 29 % 27 % 32 %
 
Refinances 18 % 19 % 17 % 13 % 23 %
LTV
95.01% and above 4.8 % 3.7 % 3.6 % 3.5 % 3.2 %
90.01% to 95.00% 50.2 % 50.5 % 49.5 % 51.5 % 49.4 %
85.01% to 90.00% 31.8 % 33.1 % 34.4 % 34.1 % 34.0 %
85.00% and below 13.2 % 12.7 % 12.5 % 10.9 % 13.4 %
 

(1)

   

In 2016, represents percentage of direct single premiums written, after consideration of the 35% single premium NIW ceded under the Single Premium QSR.

 

       
Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information - Primary Insurance in Force and Risk in Force by Product, Statutory Capital Ratios

Exhibit J

 
June 30, March 31, December 31, September 30, June 30,
($ in millions) 2016 2016 2015 2015 2015

Primary insurance in force (1)

Flow $ 170,069 $ 167,526 $ 167,469 $ 166,527 $ 164,137
Structured 7,603   7,860   8,115   8,339   8,555  
Total Primary $ 177,672   $ 175,386   $ 175,584   $ 174,866   $ 172,692  
 
Prime $ 168,259 $ 165,526 $ 165,291 $ 164,060 $ 161,397
Alt-A 5,627 5,907 6,176 6,531 6,857
A minus and below 3,786   3,953   4,117   4,275   4,438  
Total Primary $ 177,672   $ 175,386   $ 175,584   $ 174,866   $ 172,692  
 

Primary risk in force (1) (2)

Flow $ 43,576 $ 42,861 $ 42,771 $ 42,454 $ 41,706
Structured 1,748   1,805   1,856   1,910   1,957  
Total Primary $ 45,324   $ 44,666   $ 44,627   $ 44,364   $ 43,663  
 
Flow
Prime $ 42,008 $ 41,211 $ 41,036 $ 40,629 $ 39,781
Alt-A 959 1,010 1,061 1,124 1,191
A minus and below 609   640   674   701   734  
Total Flow $ 43,576   $ 42,861   $ 42,771   $ 42,454   $ 41,706  
 
Structured
Prime $ 1,068 $ 1,101 $ 1,134 $ 1,155 $ 1,182
Alt-A 343 356 366 386 397
A minus and below 337   348     356   369   378  
Total Structured $ 1,748   $ 1,805   $ 1,856   $ 1,910   $ 1,957  
 
Total
Prime $ 43,076 $ 42,312 $ 42,170 $ 41,784 $ 40,963
Alt-A 1,302 1,366 1,427 1,510 1,588
A minus and below 946   988   1,030   1,070   1,112  
Total Primary $ 45,324   $ 44,666   $ 44,627   $ 44,364   $ 43,663  
 

Percentage of primary risk in force

Direct monthly and other premiums 69 % 69 % 69 % 70 % 70 %
Direct single premiums 31 % 31 % 31 % 30 % 30 %
 
Net single premiums (3) 25 % 25 % 30 % 30 % 29 %
 

Statutory Capital Ratios

Risk to capital ratio-Radian Guaranty only 14.0 :1 (4) 12.5 :1 14.3 :1 16.5 :1 16.5 :1
Risk to capital ratio-Mortgage Insurance combined 14.2 :1 (4) 12.9 :1 14.6 :1 17.9 :1 18.0 :1
 

(1)

 

Includes amounts ceded under our reinsurance agreements, as well as amounts related to the Freddie Mac Agreement.

(2)

Does not include pool risk in force or other risk in force, which combined represent less than 3.0% of our total risk in force for all periods presented.

(3)

Represents RIF after giving effect to all reinsurance ceded ("Net RIF").

(4)

Preliminary.

 

         
Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information - Percentage of Primary Risk in Force by FICO, LTV and Policy Year and Primary Risk in Force on Defaulted Loans(1)

Exhibit K
 
June 30, March 31, December 31, September 30, June 30,
($ in millions) 2016 2016 2015 2015 2015

Percentage of primary risk in force by FICO score

Flow
>=740 58.2 % 58.2 % 58.3 % 58.2 % 58.1 %
680-739 30.9 30.7 30.5 30.3 30.2
620-679 9.9 10.0 10.1 10.3 10.5
<=619 1.0   1.1   1.1   1.2   1.2  
Total Flow 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Structured
>=740 29.3 % 29.3 29.4 % 28.9 % 28.7 %
680-739 27.7 27.8 27.7 27.9 27.9
620-679 25.0 25.0 25.0 25.2 25.4
<=619 18.0   17.9   17.9   18.0   18.0  
Total Structured 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Total
>=740 57.1 % 57.0 % 57.1 % 57.0 % 56.7 %
680-739 30.8 30.6 30.3 30.2 30.1
620-679 10.5 10.7 10.8 10.9 11.2
<=619 1.6   1.7   1.8   1.9   2.0  
Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 

Percentage of primary risk in force by LTV

95.01% and above 7.1 % 7.2 % 7.3 % 7.4 % 7.6 %
90.01% to 95.00% 51.6 50.9 50.4 49.8 49.0
85.01% to 90.00% 33.3 33.7 34.0 34.3 34.6
85.00% and below 8.0   8.2   8.3   8.5   8.8  
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 

Percentage of primary risk in force by policy year

2005 and prior 5.5 % 6.0 % 6.3 % 6.8 % 7.3 %
2006 3.4 3.6 3.7 3.9 4.2
2007 7.9 8.4 8.7 9.1 9.6
2008 5.6 6.0 6.3 6.6 7.0
2009 1.3 1.5 1.7 1.8 2.0
2010 1.2 1.3 1.4 1.5 1.7
2011 2.5 2.7 2.9 3.1 3.5
2012 9.7 10.6 11.2 12.0 13.0
2013 15.5 17.0 18.1 19.2 20.8
2014 14.9 16.3 17.1 18.0 19.0
2015 21.0 22.0 22.6 18.0 11.9
2016 11.5   4.6        
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Primary risk in force on defaulted loans (2) $ 1,398 $ 1,562 $ 1,625 $ 1,666 $ 1,753
 

(1)

 

Includes amounts ceded under our reinsurance agreements.

(2)

Excludes risk related to loans subject to the Freddie Mac Agreement.

 

                                             
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Claims and Reserves
Exhibit L
 
2016 2015

($ in thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
 
Net claims paid
Prime $ 56,036 $ 74,432 $ 56,900 $ 65,396 $ 83,489
Alt-A 18,349 28,929 21,343 18,966 23,260
A minus and below 12,315   13,196   11,530   14,028   14,965  
Total primary claims paid 86,700 116,557 89,773 98,390 121,714
Pool 5,451 7,389 6,477 8,721 10,798
Second-lien and other (231 ) 345   (143 ) (16 ) (53 )
Subtotal 91,920 124,291 96,107 107,095 132,459
Impact of captive terminations (2,618 ) (120 ) (65 )
Impact of settlements 1,400   3,500   80,426   61,994   79,557  
Total $ 90,702   $ 127,671   $ 176,468   $ 169,089   $ 212,016  
 
Average claim paid (1)
Prime $ 48.6 $ 47.7 $ 46.9 $ 46.2 $ 48.1
Alt-A 63.5 63.0 61.7 60.2 59.5
A minus and below 39.9 36.8 40.6 42.5 40.1
Total primary average claims paid 49.5 49.0 48.7 47.8 48.7
Pool 58.0 53.2 56.3 51.3 69.7
Total $ 49.6 $ 48.9 $ 48.9 $ 47.8 $ 49.6
 
Average primary claim paid (2) $ 49.9 $ 49.6 $ 50.5 $ 48.5 $ 49.6
Average total claim paid (2) $ 50.0 $ 49.5 $ 50.6 $ 48.5 $ 50.4
 
         

($ in thousands, except primary reserve per

June 30, March 31, December 31, September 30, June 30,

primary default amounts)

2016 2016 2015 2015 2015
 
Reserve for losses by category
Prime $ 420,281 $ 438,598 $ 480,481 $ 519,572 $ 562,918
Alt-A 173,284 183,189 203,706 234,772 256,854
A minus and below 112,001 116,835 129,352 137,441 148,043
IBNR and other 74,639 79,051 83,066 107,179 125,038
LAE 22,389 23,600 26,108 41,464 48,141
Reinsurance recoverable (3) 6,044   8,239   8,286   11,071   11,677
Total primary reserves 808,638   849,512   930,999   1,051,499   1,152,671
Pool insurance 36,982 38,843 42,084 43,234 47,902
IBNR and other 897 1,050 1,118 949 891
LAE 1,163 1,227 1,335 1,983 2,353
Reinsurance recoverable (3) 33        
Total pool reserves 39,075   41,120   44,537   46,166   51,146
Total 1st lien reserves 847,713 890,632 975,536 1,097,665 1,203,817
Second-lien and other 666   716   863   905   975
Total reserves $ 848,379   $ 891,348   $ 976,399   $ 1,098,570   $ 1,204,792
 
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other $ 24,609 $ 24,959 $ 24,019 $ 26,237 $ 27,279
 

(1)

 

Net of reinsurance recoveries and without giving effect to the impact of captive terminations and settlements.

(2)

Before reinsurance recoveries and without giving effect to the impact of captive terminations and settlements.

(3)

Primarily represents ceded losses on captive transactions and quota share reinsurance transactions.

 

         
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Default Statistics
Exhibit M
 
June 30, March 31, December 31, September 30, June 30
2016 2016 2015 2015 2015

Default Statistics

Primary Insurance:

Prime

Number of insured loans 826,511 817,236 816,797 812,657 802,719
Number of loans in default 19,025 19,510 22,223 22,328 23,237
Percentage of loans in default 2.30 % 2.39 % 2.72 % 2.75 % 2.89 %
 

Alt-A

Number of insured loans 29,445 30,990 32,411 34,166 35,927
Number of loans in default 4,820 5,138 5,813 6,318 6,949
Percentage of loans in default 16.37 % 16.58 % 17.94 % 18.49 % 19.34 %
 

A minus and below

Number of insured loans

29,450 30,681 31,902 33,018 34,224
Number of loans in default 5,982 6,221 7,267 7,229 7,490
Percentage of loans in default 20.31 % 20.28 % 22.78 % 21.89 % 21.89 %
 
Total Primary
Number of insured loans 885,406 878,907 881,110 879,841 872,870
Number of loans in default (1) 29,827 30,869 35,303 35,875 37,676
Percentage of loans in default 3.37 % 3.51 % 4.01 % 4.08 % 4.32 %
 

(1)

 

Excludes the following number of loans subject to the Freddie Mac Agreement that are in default as we no longer have claims exposure on these loans:

 
             
June 30, March 31, December 31, September 30, June 30
2016 2016 2015 2015 2015
Number of loans in default 2,180 2,339 2,821 2,993 3,246
 

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR, Captives and Persistency
Exhibit N
 
2016 2015

($ in thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
 

Initial and Second Quota Share Reinsurance (“QSR”) Transactions

QSR ceded premiums written (1) $ 7,356 $ 7,962 $ 6,934 $ 8,466 $ 4,217
% of premiums written 2.9 % 3.4 % 2.9 % 3.4 % 1.7 %
QSR ceded premiums earned (1) $ 11,172 $ 11,325 $ 10,523 $ 12,203 $ 9,463
% of premiums earned 4.5 % 4.7 % 4.4 % 5.1 % 3.8 %
Ceding commissions written $ 2,099 $ 2,270 $ 2,553 $ 2,743 $ 2,982
Ceding commissions earned $ 4,976 $ 5,739 $ 4,921 $ 4,026 $ 5,363
Profit commission $

$

$ 1,559 $ 678 $ 5,760
Risk in force included in QSR (2) $ 1,872,017 $ 2,018,468 $ 2,131,030 $ 2,253,913 $ 2,394,985
 

Single Premium QSR Transaction

QSR ceded premiums written (1) $ 11,488 $ 197,593 N/A N/A N/A
% of premiums written 4.6 % 84.7 % N/A N/A N/A
QSR ceded premiums earned (1) $ 7,146 $ 5,994 N/A N/A N/A
% of premiums earned 2.9 % 2.5 % N/A N/A N/A
Ceding commissions written $ 4,844 $ 50,932 N/A N/A N/A
Ceding commissions earned $ 3,759 $ 3,032 N/A N/A N/A
Profit commission $ 7,891 $ 6,134 N/A N/A N/A
Risk in force included in QSR (2) $ 3,461,464 $ 3,308,057 N/A N/A N/A
 
Total risk in force included in QSRs $ 5,333,481 $ 5,326,525 $ 2,131,030 $ 2,253,913 $ 2,394,985
 

1st Lien Captives

Premiums earned ceded to captives $ 1,346 $ 1,869 $ 2,268 $ 2,434 $ 2,700
% of total premiums earned 0.5 % 0.8 % 1.0 % 1.0 % 1.1 %
 
Persistency (twelve months ended) 79.9 % 79.4 % 78.8 % 79.2 % 80.1 %
Persistency (quarterly, annualized) 78.0 % 82.3 % 81.8 % 80.5 % 76.2 %
 

(1)

 

Net of profit commission.

(2)

Included in primary risk in force.

 

FORWARD-LOOKING STATEMENTS

All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the U.S. Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as "anticipate," "may," "will," "could," "should," "would," "expect," "intend," "plan," "goal," "contemplate," "believe," "estimate," "predict," "project," "potential," "continue," "seek," "strategy," "future," "likely" or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including:

  • changes in general economic and political conditions, including in particular but without limitation, unemployment rates, interest rates and changes in housing markets and mortgage credit markets that could impact the size of the insurable market and the credit performance of our insured portfolio;
  • changes in the way customers, investors, regulators or legislators perceive the performance and financial strength of private mortgage insurers;
  • Radian Guaranty’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the Federal Housing Finance Agency and by the GSEs to insure loans purchased by the GSEs;
  • our ability to successfully execute and implement our capital plans and to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs;
  • our ability to successfully execute and implement our business plans and strategies, including in particular but without limitation, plans and strategies that require GSE and/or regulatory approvals;
  • our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements;

  • changes in the charters or business practices of, or rules or regulations imposed by or applicable to, the GSEs, including the GSEs’ interpretation and application of the PMIERs to Radian Guaranty;
  • changes in the current housing finance system in the U.S., including in particular but without limitation, the role of the FHA, the GSEs and private mortgage insurers in this system;
  • any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
  • a significant decrease in the Persistency Rates of our Monthly Premium Policies;
  • heightened competition in our mortgage insurance business, including in particular but without limitation, increased price competition and competition from other forms of credit enhancement;
  • the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the financial services industry in general, and on our businesses in particular;
  • the adoption of new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted;
  • the outcome of legal and regulatory actions, reviews, audits, inquiries and investigations that could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures or have other effects on our business;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including deficiencies assessed by the IRS resulting from its examination of our 2000 through 2007 tax years, which we are currently contesting;
  • the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance business;
  • volatility in our results of operations caused by changes in the fair value of our assets and liabilities, including a significant portion of our investment portfolio;
  • changes in GAAP or SAP rules and guidance, or their interpretation;
  • legal and other limitations on dividends and other amounts we may receive from our subsidiaries; and
  • the possibility that we may need to impair the carrying value of goodwill established in connection with our acquisition of Clayton.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our 2015 Form 10-K, and in our subsequent quarterly and other reports filed from time to time with the SEC. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.

Source: Radian Group Inc.

Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.com