News

01/17/2018

Radian Provides Update on Capital Actions, Comments on Proposed Changes to PMIERs and Sets Fourth Quarter 2017 Conference Call for February 1, 2018

-- Leverages financial flexibility and strengthens PMIERs financial position at low cost by expanding existing reinsurance program and issuing intercompany surplus note --

-- Expects to comply with the proposed PMIERs by the effective date without a need to take further actions --

PHILADELPHIA--(BUSINESS WIRE)--Jan. 17, 2018-- Radian Group Inc. today announced that it has taken the following actions in order to leverage its financial flexibility and cost-effectively strengthen the financial position of Radian Guaranty Inc., its principal mortgage insurance (MI) subsidiary, under the Private Mortgage Insurer Eligibility Requirements (PMIERs):

• Enhancements to Single-Premium MI Reinsurance Program
  Radian Guaranty has agreed with its reinsurance providers to increase the cession of business for its first single-premium MI quota share reinsurance arrangement, which was entered into in 2016. The cession of business increased from 35 to 65 percent for single-premium policies with effective dates in 2015 through 2017. This increased cession, which is effective December 31, 2017, has been approved by Fannie Mae and Freddie Mac (the GSEs). As previously announced, the company entered into a second single-premium MI quota share reinsurance arrangement in October 2017, with 65 percent cession on single-premium policies with effective dates in 2018 and 2019. This reinsurance arrangement has also been approved by the GSEs. These actions are consistent with the company’s continued focus on effectively managing its capital position in a cost-efficient manner, improving its return on capital and proactively managing the retained mix of single-premium business in its total MI portfolio.

• Issuance of Intercompany Surplus Note
  On December 28, 2017, Radian Group transferred $100 million of cash and marketable securities to Radian Guaranty in exchange for a surplus note. The intercompany surplus note has a 0 percent interest rate and a stated maturity date of December 31, 2027. The surplus note may be redeemed at any time upon 30 days prior notice, subject to the approval of the Pennsylvania Insurance Department. Any redemption of the surplus note increases holding company liquidity by the corresponding amount of the redemption.

As a result of these capital actions, at December 31, 2017, Radian Guaranty’s “Available Assets” under the PMIERs were approximately $3.7 billion and its “Minimum Required Assets” under the PMIERs were approximately $3.2 billion, resulting in an excess of approximately $450 million, or 14 percent. This compares to an excess of approximately $237 million, or 7 percent, at September 30, 2017. In addition, Radian Group maintained approximately $200 million of available liquidity as of December 31, 2017. Total available liquidity, which includes the company’s $225 million unsecured revolving credit facility entered into in October 2017, was approximately $425 million as of December 31, 2017.

As expected, Radian Guaranty experienced a recent increase in reported delinquencies in hurricane-affected areas. Given that the PMIERs require Radian to maintain significantly more Minimum Required Assets for delinquent loans than for performing loans, the company’s Minimum Required Assets from FEMA-designated areas increased by approximately $100 million as of December 31, 2017, as compared to September 30, 2017. The company believes that these hurricane-related delinquencies have reached their peak and, based on past experience, continues to expect that these delinquencies will not result in a material number of new paid claims.

Proposed Changes to PMIERs

On December 18, 2017, Radian Guaranty received a summary of proposed changes to the PMIERs that are being recommended to the Federal Housing Finance Agency (FHFA) by the GSEs. Based on this initial summary, which remains subject to comment by the private mortgage insurance industry, Radian expects to be able to fully comply with the proposed PMIERs and to maintain an excess of Available Assets over Minimum Required Assets under the PMIERs as of the expected effective date in late 2018, without a need to take further actions to do so. The company’s expectation is not dependent upon the existing surplus note and is based on its projections for positive operating results in 2018, its strong capital position, and the benefits of its reinsurance programs.

In response to the GSEs’ request, Radian expects to provide initial comments on the proposed PMIERs to the GSEs and the FHFA, which will include the company’s suggested modifications. Once the proposed PMIERs are finalized, the company anticipates a six-month implementation period before they are effective, which is expected to be no earlier than the fourth quarter of 2018. Radian is subject to non-disclosure agreements with each of the GSEs covering the specific provisions of the GSE-recommended changes.

“Our ongoing compliance with PMIERs allows us to continue to support our customers with the products and services they need, and helps create sustainable homeownership opportunities for more families,” said Radian Chief Executive Officer Rick Thornberry. “I am pleased with our financial strength and flexibility, which allow us to effectively manage our capital position today and are expected to enable us to comply with the proposed changes to PMIERs.”

Fourth Quarter and Year-end 2017 Conference Call

Radian will hold a conference call on Thursday, February 1, 2018, at 10:00 a.m. Eastern time to discuss the company’s fourth quarter and year-end 2017 results, which will be announced prior to the market open on the same day.

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 800.230.1093 inside the U.S., or 612.332.0226 for international callers, using passcode 443361 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 443361.

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

About Radian

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance, 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 helps protect 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.

FORWARD-LOOKING STATEMENTS

All statements in this press release that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the 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 include, without limitation, projections regarding our future performance and financial condition and our expectations regarding our ability to comply with the proposed PMIERs, are made on the basis of management’s current views and assumptions with respect to future performance and other 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 where 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. These risks and uncertainties include, without limitation:

• changes in general economic and political conditions, including in particular unemployment rates, interest rates and changes in housing and mortgage credit markets, that impact the size of the insurable market, the credit performance of our insured portfolio, and the business opportunities in our Services segment;
• changes in the way customers, investors, ratings agencies, regulators or legislators perceive our performance, financial strength and future prospects;
• Radian Guaranty Inc.’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the Federal Housing Finance Agency and by Fannie Mae and Freddie Mac (collectively, 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, including temporary reductions in liquidity resulting from federal alternative minimum tax (“AMT”) payments that we are currently required to make and future federal income tax payments that we expect to make once our NOLs are fully utilized, which we anticipate occurring within the next 12 months;
• our ability to successfully execute and implement our business plans and strategies, including plans and strategies to reposition our Services segment as well as plans and strategies that require GSE and/or regulatory approvals and licenses;
• 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 our mortgage insurance business, including any new information or interpretations regarding the proposed PMIERs that would alter our expectations regarding our ability to comply with them when implemented;
• changes in the current housing finance system in the U.S., including the role of the Federal Housing Administration (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 mortgage insurance policies;
• competition in our mortgage insurance business, including price competition and competition from the FHA, U.S. Department of Veterans Affairs and 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;
• legislative and regulatory activity (or inactivity), including the adoption of (or failure to adopt) new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted or applied;
• legal and regulatory claims, assertions, 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 Internal Revenue Service 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 or in establishing the assumptions that have formed the basis for our expectations regarding our ability to comply with the proposed PMIERs when implemented, including as it relates to losses, the impact of recent hurricanes on our incurred losses, the amount and timing of paid claims and our Minimum Required Assets under the PMIERs;
• 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, and potential volatility in our Available Assets as a result of a new requirement in the proposed PMIERs to mark certain of our Available Assets to fair value;
• potential future impairment charges related to our goodwill and other intangible assets, and uncertainties regarding our ability to execute our restructuring plans within expected costs;
• changes in “GAAP” (accounting principles generally accepted in the U.S.) or “SAP” (statutory accounting practices including those required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries) rules and guidance, or their interpretation;
• our ability to attract and retain key employees; and
• legal and other limitations on dividends and other amounts we may receive from our subsidiaries.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, and subsequent reports filed from time to time with the U.S. Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this press release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.

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Source: Radian Group Inc.

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