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08/26/2008
Radian Comments on Standard & Poor's Rating Action
Radian Group said while it was disappointed by the action, S&P noted several positives for the long-term in Radian's mortgage insurance business and the MI industry overall. Those include improved credit quality in Radian's first-lien portfolio and a capital adequacy ratio that S&P said is slightly less than the minimum for a mortgage insurer to be eligible for a 'AAA' financial strength rating.
"We do not believe today's action by S&P reflects the significant progress we have made in developing our internally-sourced capital plan and improving the quality of our mortgage insurance portfolio," stated S.A. Ibrahim, Chief Executive Officer of Radian Group. "It is important to view our rating within the context of the mortgage insurance industry, which continues to face challenging macroeconomic conditions. The rating continues to reflect Radian Guaranty's investment grade status, and we will maintain close contact with S&P to address their concerns. Radian Guaranty is a long-standing Top Tier provider to the GSEs, and we do not expect that this action will affect our ability to insure loans that are sold to the GSEs. As always, we remain focused on the day-to-day details of operating the business and, most importantly, serving our clients."
In its statement released earlier today, S&P acknowledged that Radian's MI business has taken actions to improve the credit quality of its core product, traditional first-lien MI. In particular, S&P noted that the Company has the least exposure in the industry to mortgages with LTVs above 95% and that its risk-in-force from ARMs, loans with reduced documentation, and mortgages to borrowers with low credit scores has declined steadily since 2006. Consequently, S&P believes that Radian MI's exposure to the most troublesome vintages will be partially mitigated by better credit quality.
S&P also acknowledged that Radian MI is well capitalized. Radian MI's capital adequacy ratio as of June 30, 2008, was 97%, which according to S&P is expected to remain well above S&P's standards for its rating.
As previously announced, Radian remains committed to its mortgage insurance business and has made several operating improvements which have already resulted in significant traction:
-- Radian Guaranty maintains a strong risk to capital ratio of 14.9 to 1 as of June 30, 2008.
-- The Company believes Radian is uniquely positioned to support its capital needs through internal resources by contributing Radian Asset Assurance Inc., its principal financial guaranty subsidiary (Radian Asset), to Radian Guaranty.
-- Radian Asset has $960 million of statutory surplus which is part of approximately $3 billion of claims paying resources.
-- After the contribution of Radian Asset, which the Company expects to complete in the third quarter of 2008, the pro forma risk to capital ratio at Radian Guaranty would be 10.3 to 1 as of June 30, 2008.
-- Radian has a 29% ownership interest in Sherman Financial, providing a potential source of additional capital and dividends.
-- Approximately 93% of new insurance written during the second quarter of 2008 was prime.
-- First and second lien claims have improved, driven by increased investment in loss management efforts.
-- Captive reinsurance and Smart Home transactions generated ceded losses recoverables of $131.1 million and $44.7 million, respectively, for the six months ended June 30, 2008.
The Company will continue to keep the market and its constituents informed as it progresses through the execution of its capital plan.
About Radian
Radian Group Inc. is a global credit risk management company headquartered in Philadelphia with significant operations in New York and London. Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, primarily through credit insurance products. The company also provides credit enhancement for public finance and other corporate and consumer assets on both a direct and reinsurance basis and holds strategic interests in credit-based consumer asset businesses. Additional information may be found at www.radian.com.
Forward Looking Statements
All statements made in this news release that address events, developments or results that we expect or anticipate may occur in the future are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking information. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties, including the following:
* changes in general financial and political conditions, such as extended national or regional economic recessions, changes in housing demand or mortgage originations, changes in housing values (in particular, further deterioration in the housing, mortgage and related credit markets, which would harm our future consolidated results of operations and could cause losses for our businesses to be worse than expected), changes in the liquidity in the capital markets and the further contraction of credit markets, population trends and changes in household formation patterns, changes in unemployment rates, changes or volatility in interest rates or consumer confidence, changes in credit spreads, changes in the way investors perceive the strength of private mortgage insurers or financial guaranty providers, investor concern over the credit quality and specific risks faced by the particular businesses, municipalities or pools of assets covered by our insurance;
* economic changes or catastrophic events in geographic regions where our mortgage insurance or financial guaranty insurance in force is more concentrated;
* our ability to successfully obtain additional capital, if necessary, to support our long-term liquidity needs and to protect our credit ratings and the financial strength ratings of Radian Guaranty Inc., our primary mortgage insurance subsidiary;
* a decrease in the volume of home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards and a deterioration in housing markets throughout the U.S.;
* our ability to maintain adequate risk-to-capital ratios, leverage ratios and surplus requirements in our mortgage insurance business in light of on-going losses in this business;
* a decrease in the volume of municipal bonds, and other public finance and structured finance transactions that we insure, or a decrease in the volume of such transactions for which issuers or investors seek or demand financial guaranty insurance;
* the loss of a customer for whom we write a significant amount of mortgage insurance or financial guaranty insurance or the influence of large customers;
* reduction in the volume of reinsurance business available to us from one or more of our primary financial guaranty insurer customers due to adverse changes in their ability to generate new profitable direct financial guaranty insurance or their need for us to reinsure their risk;
* disruption in the servicing of mortgages covered by our insurance policies;
* the aging of our mortgage insurance portfolio and changes in severity or frequency of losses associated with certain of our products that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
* the performance of our insured portfolio of higher risk loans, such as Alternative-A ("Alt-A") and subprime loans, and adjustable rate products, such as adjustable rate mortgages and interest-only mortgages, which have resulted in increased losses in 2007 and 2008 and may result in further losses;
* reduced opportunities for loss mitigation in markets where housing values fail to appreciate or begin to decline;
* changes in persistency rates of our mortgage insurance policies caused by changes in refinancing activity, in the rate of appreciation or depreciation of home values and changes in the mortgage insurance cancellation requirements of mortgage lenders and investors;
* recapture of reinsurance business by the primary insurers under our financial guaranty reinsurance arrangements, which would reduce written and earned premiums in our financial guaranty business and correspondingly reduce the amount of capital required to be held against this risk;
* downgrades or threatened downgrades of, or other ratings actions with respect to, our credit ratings or the insurance financial strength ratings assigned by the major rating agencies to any of our rated insurance subsidiaries at any time (in particular, our credit rating and the financial strength ratings assigned to Radian Guaranty Inc., which are currently on negative outlook);
* heightened competition for our mortgage insurance business from others such as the Federal Housing Administration and the Veterans' Administration or other private mortgage insurers (in particular those that have been assigned higher ratings from the major ratings agencies;
* changes in the charters or business practices of Federal National Mortgage Association and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to retain our "Top Tier" eligibility requirement from both Freddie Mac and Fannie Mae;
* heightened competition for financial guaranty business from other financial guaranty insurers, from other forms of credit enhancement such as letters of credit, guaranties and credit default swaps provided by foreign and domestic banks and other financial institutions, and from alternative structures that may permit insurers to securitize assets more cost-effectively without the need for the types of credit enhancement we offer, or result in our having to reduce the premium we charge for our products;
* the application of existing federal or state consumer, lending, insurance, securities and other applicable laws and regulations, or changes in these laws and regulations or the way they are interpreted; including, without limitation: (i) the possibility of private lawsuits or formal investigations by state insurance departments and state attorneys general alleging that services offered by the mortgage insurance industry, such as captive reinsurance, pool insurance and contract underwriting, are violative of the Real Estate Settlement Procedures Act and/or similar state regulations, (ii) legislative and regulatory changes affecting demand for private mortgage insurance or financial guaranty insurance, or (iii) legislation and regulatory changes limiting or restricting our use of (or requirements for) additional capital, the products we may offer, the form in which we may execute the credit protection we provide or the aggregate notional amount of any product we may offer for any one transaction or in the aggregate;
* the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses, or the premium deficiency for our first- and second-lien mortgage insurance business, or to estimate accurately the fair value amounts of derivative contracts in our mortgage insurance and financial guaranty businesses in determining gains and losses on these contracts;
* volatility in our earnings caused by changes in the fair value of our derivative instruments and our need to reevaluate the premium deficiencies in our mortgage insurance business on a quarterly basis;
* changes in accounting guidance from the Securities and Exchange Commission ("SEC") or the Financial Accounting Standards Board;
* legal and other limitations on amounts we may receive from our subsidiaries as dividends or through tax and expense sharing arrangements with our subsidiaries; and
* vulnerability to the performance of our strategic investments, including in particular, our investment in Sherman Financial Group LLC.
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2007 as well as the material changes to these risks discussed in our Quarterly Reports on Form 10-Q. 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 news release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements made in this release to reflect new information or future events or for any other reason.
SOURCE Radian Group Inc.
http://www.radian.com