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04/30/2015

Radian Announces First Quarter 2015 Financial Results

-- Reports net income of $92 million or $0.39 per diluted share --

-- Adjusted diluted net operating income of $0.35 per share --

PHILADELPHIA--(BUSINESS WIRE)--Apr. 30, 2015-- Radian Group Inc. (NYSE: RDN) today reported net income from continuing operations for the quarter ended March 31, 2015, of $91.7 million, or $0.39 per diluted share, which included net gains on investments and other financial instruments of $16.8 million. This compares to net income from continuing operations for the quarter ended March 31, 2014, of $146.0 million, or $0.68 per diluted share, which included net gains on investments and other financial instruments of $43.0 million. Book value per share at March 31, 2015, was $11.53.

Adjusted pretax operating income for the quarter ended March 31, 2015, was $123.9 million, compared to adjusted pretax operating income for the quarter ended March 31, 2014, of $84.0 million. Adjusted diluted net operating income per share for the quarter ended March 31, 2015, was $0.35. See “Non-GAAP Financial Measures” below.

     

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

             
   

Quarter Ended
March 31,
2015

 

Quarter Ended
March 31,
2014**

 

Percent
Change

Net income from continuing operations   $91.7   $146.0   (37%)
Diluted net income per share from continuing operations   $0.39   $0.68   (43%)
Adjusted pretax operating income   $123.9   $84.0   48%
Adjusted diluted net operating income per share *   $0.35   *   *
Revenues   $290.7   $258.2   13%
Book value per share   $11.53   $6.10   89%
*  

Adjusted diluted net operating income per share is not comparable for periods prior to the quarter ended March 31, 2015, due to the impact on the company’s effective tax rate from the valuation allowance against deferred tax assets.

**

Radian acquired Clayton on June 30, 2014, and therefore results for the quarter ended March 31, 2014, do not include results from Clayton.

 

“We delivered strong results for Radian in the first quarter, driven primarily by outstanding credit trends in our mortgage insurance business,” said Radian’s Chief Executive Officer S.A. Ibrahim. “The last twelve months have been a turning point for Radian, as we’ve eliminated a significant portion of our legacy risk and therefore simplified our company with a focus on our core strengths. Today, we are better positioned to drive long-term value, both from our large and growing mortgage insurance portfolio and by broadening our future sources of revenue through our new mortgage and real estate services businesses.”

FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS

Mortgage Insurance

  • New mortgage insurance written (NIW) was $9.4 billion for the quarter, compared to $10.0 billion in the fourth quarter of 2014 and $6.8 billion in the prior-year quarter.
    • Of the $9.4 billion in new business written in the first quarter of 2015, 63 percent was written with monthly premiums and 37 percent with single premiums. This compares to a mix of 69 percent monthly premiums and 31 percent single premiums in the fourth quarter of 2014. For the twelve-months ended March 31, 2015, the percentage of new business written with single premiums averaged approximately 30 percent.
    • Refinances accounted for 33 percent of total NIW in the first quarter of 2015, compared to 22 percent in the fourth quarter of 2014, and 18 percent a year ago.
    • NIW continued to consist of loans with excellent risk characteristics.
  • Total primary mortgage insurance in force was $172.1 billion, compared to $171.8 billion as of December 31, 2014, and $162.4 billion as of March 31, 2014. Persistency, which is the percentage of mortgage insurance in force that remains on the company’s books after a twelve-month period, was 82.6 percent as of March 31, 2015, compared to 84.2 percent as of December 31, 2014, and 83.3 percent as of March 31, 2014.
  • The mortgage insurance provision for losses was $45.9 million in the first quarter of 2015, compared to $83.6 million in the fourth quarter of 2014, and $49.6 million in the prior-year period.
    • The loss ratio in the first quarter was 20.4 percent, compared to 36.9 percent in the fourth quarter of 2014 and 25.0 percent in the first quarter of 2014.
    • Mortgage insurance loss reserves were $1.4 billion as of March 31, 2015, compared to $1.6 billion as of December 31, 2014, and $1.9 billion as of March 31, 2014.
    • Primary reserve per primary default (excluding IBNR and other reserves) was $28,423 as of March 31, 2015. This compares to primary reserve per primary default of $27,683 as of December 31, 2014, and $26,509 as of March 31, 2014.
  • The total number of primary delinquent loans decreased by 11 percent in the first quarter from the fourth quarter of 2014, and by 24 percent from the first quarter of 2014. The primary mortgage insurance delinquency rate decreased to 4.6 percent in the first quarter of 2015, compared to 5.2 percent in the fourth quarter of 2014, and 6.3 percent in the first quarter of 2014.
  • Total mortgage insurance claims paid were $207.1 million in the first quarter, compared to $117.2 million in the fourth quarter of 2014, and $306.9 million in the first quarter of 2014. Claims paid in the first quarter of 2015 include $98.5 million of claims paid relating to the September 2014 BofA Settlement Agreement. The company continues to expect mortgage insurance net claims paid for the full-year 2015 of approximately $600$700 million. This includes a total of approximately $250 million of claims expected to be paid in the first half of 2015 related to the September 2014 BofA Settlement Agreement.
  • On April 17, 2015, the Federal Housing Finance Agency (FHFA) issued the final Private Mortgage Insurer Eligibility Requirements (PMIERs) developed by Fannie Mae and Freddie Mac (GSEs). The PMIERs provide revised requirements for private mortgage insurers (MIs), including Radian Guaranty, to remain eligible insurers of loans purchased by the GSEs. The PMIERs effective date for existing approved insurers is December 31, 2015.
    • As of March 31, 2015, Radian Guaranty would be able to immediately comply with the financial requirements of the PMIERs by utilizing approximately $330 million of existing holding company liquidity. This estimate includes the net proceeds of $789 million from the recent sale of Radian Asset Assurance Inc., Radian’s financial guaranty insurance subsidiary, and assumes that the company converts approximately $130 million of existing liquid assets into PMIERs-compliant Available Assets (as defined in the PMIERs) and receives full PMIERs benefit of approximately $145 million for its outstanding quota-share reinsurance arrangements, following the completion of amendments needed for GSE approval.

Mortgage and Real Estate Services

  • On June 30, 2014, Radian completed the acquisition of Clayton Holdings LLC, a leading provider of loan due diligence, surveillance, REO management and consulting services to the mortgage and real estate industries, which was an important step in Radian’s growth and diversification strategy. The Mortgage and Real Estate Services segment is primarily comprised of Clayton’s operations.
  • Total service revenues for the Mortgage and Real Estate Services segment were $30.7 million and gross profit on services was $12.3 million in the first quarter of 2015. This compares to total service revenues of $34.5 million and gross profit on services of $14.8 million in the fourth quarter of 2014.
  • On March 20, 2015, Clayton Holdings acquired Red Bell Real Estate, LLC and its sister company, Main Street Valuations, LLC, in order to broaden its product offerings within the real estate market. Red Bell is a real estate brokerage firm that provides products and services that include automated valuation models (AVMs); broker price opinions (BPOs) used by investors, lenders and loan servicers; and advanced technology solutions for monitoring loan portfolio performance, tracking non-performing loans, managing real estate owned (REO) assets and valuing residential real estate through a secure platform.

Expenses and Discontinued Operations

  • Other operating expenses were $54.6 million in the first quarter, compared to $85.8 million in the fourth quarter of 2014, and $54.5 million in the first quarter of last year. Other operating expenses in the fourth quarter of 2014 included $24.4 million related to long-term compensation expenses and other year-end bonus accruals, a significant portion of which was driven by the variable compensation expense related to an increase in the company’s stock price, and an $11.2 million settlement of remedies related to services provided on legacy business.
  • As previously disclosed, on April 1, 2015, Radian Guaranty completed the sale of Radian Asset to Assured Guaranty Corp., a subsidiary of Assured Guaranty Ltd. (NYSE: AGO). After consideration of transaction-related expenses, net proceeds were $789 million. Details regarding the assets and liabilities associated with these discontinued operations may be found on press release Exhibits D and E.

CAPITAL AND LIQUIDITY UPDATE

Radian Group maintains approximately $700 million of available liquidity.

  • As of March 31, 2015, Radian Guaranty’s risk-to-capital ratio was 17.1:1 and statutory capital was $1.8 billion.
  • As of March 31, 2015, a total of $2.6 billion of risk in force outstanding had been ceded under quota share reinsurance agreements in order to proactively manage Radian Guaranty’s risk-to-capital position. Radian has ceded the maximum amount of NIW under these agreements and has not ceded any premium on new business in 2015.

CONFERENCE CALL

Radian will discuss first quarter financial results in a conference call today, Thursday, April 30, 2015, 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 800.288.8961 inside the U.S., or 612.332.0335 for international callers, using passcode 358122 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 358122.

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 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 effective tax rate for the period. See press release Exhibit F or Radian’s website for a description of these items, as well as a reconciliation of adjusted pretax operating income (loss) to consolidated pretax income (loss) from continuing operations.

ABOUT RADIAN

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. 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: Discontinued Operations
Exhibit E:

Segment Information Three Months Ended March 31, 2015 and Three Months Ended March 31, 2014

Exhibit F: Definition of Consolidated Non-GAAP Financial Measure

Exhibit G:

Consolidated Non-GAAP Financial Measure Reconciliations

Exhibit H:

Mortgage Insurance Supplemental Information New Insurance Written

Exhibit I:

Mortgage Insurance Supplemental Information Insurance in Force and Risk in Force by Product

Exhibit J:

Mortgage Insurance Supplemental Information Risk in Force by FICO, LTV and Policy Year

Exhibit K:

Mortgage Insurance Supplemental Information Pool and Other Risk in Force, Risk-to-Capital

Exhibit L:

Mortgage Insurance Supplemental Information Claims, Reserves and Reserve per Default

Exhibit M:

Mortgage Insurance Supplemental Information Default Statistics

Exhibit N:

Mortgage Insurance Supplemental Information Captives, QSR and Persistency

Exhibit O:

Mortgage and Real Estate Services Supplemental Information
 

   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend Schedule
Exhibit A
 
2015 2014

(In thousands, except per share amounts)

Qtr 1 Qtr 4   Qtr 3   Qtr 2   Qtr 1
 
Revenues:
Net premiums earned - insurance $ 224,595 $ 224,293 $ 217,827 $ 203,646 $ 198,762
Services revenue 30,529 34,450 42,243
Net investment income 17,328 16,531 17,143 16,663 15,318
Net gains on investments and other financial instruments 16,779 17,983 (6,294 ) 25,332 42,968
Other income 1,432   1,793   1,162   1,739   1,126  
Total revenues 290,663   295,050   272,081   247,380   258,174  
 
Expenses:
Provision for losses 45,028 82,867 48,942 64,648 49,626
Policy acquisition costs 7,750 6,443 4,240 6,746 7,017
Direct cost of services 18,451 19,709 23,896
Other operating expenses 54,576 85,800 51,225 60,751 54,507
Interest expense 24,385 24,200 23,989 22,348 19,927
Amortization and impairment of intangible assets 3,023   5,354   3,294      
Total expenses 153,213   224,373   155,586   154,493   131,077  
 
Pretax income from continuing operations 137,450 70,677 116,495 92,887 127,097
Income tax provision (benefit) 45,723   (807,349 ) (15,536 ) (10,650 ) (18,883 )
Net income from continuing operations 91,727 878,026 132,031 103,537 145,980
Income (loss) from discontinued operations, net of tax 530   (449,691 ) 21,559   71,296   56,779  
Net income $ 92,257   $ 428,335   $ 153,590   $ 174,833   $ 202,759  
 
Diluted net income per share:
Net income from continuing operations $ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68
Income (loss) from discontinued operations, net of tax   (1.85 ) 0.09   0.31   0.26  
Net income $ 0.39   $ 1.78   $ 0.67   $ 0.78   $ 0.94  
 

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, until the April 1, 2015 sale date, the operating results of Radian Asset Assurance continue to be classified as discontinued operations for all periods presented in our condensed consolidated statements of operations. Prior periods have been revised to conform to the current period presentation for these changes.

   
Radian Group Inc. and Subsidiaries
Net Income Per Share Trend Schedule
Exhibit B
 
The calculation of basic and diluted net income per share was as follows:
 
2015 2014

(In thousands, except per share amounts)

Qtr 1 Qtr 4   Qtr 3   Qtr 2   Qtr 1
Net income from continuing operations:
Net income from continuing operations—basic $ 91,727 $ 878,026 $ 132,031 $ 103,537 $ 145,980
Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,673   3,641   5,552   5,503   5,455
Net income from continuing operations—diluted $ 95,400   $ 881,667   $ 137,583   $ 109,040   $ 151,435
 
Net income:
Net income from continuing operations—basic $ 91,727 $ 878,026 $ 132,031 $ 103,537 $ 145,980
Income (loss) from discontinued operations, net of tax 530   (449,691 ) 21,559   71,296   56,779
Net income—basic 92,257 428,335 153,590 174,833 202,759

Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1)

3,673   3,641   5,552   5,503   5,455
Net income—diluted $ 95,930   $ 431,976   $ 159,142   $ 180,336   $ 208,214
 
Average common shares outstanding—basic 191,224 191,053 191,050 182,583 173,165
Dilutive effect of Convertible Senior Notes due 2017 10,886 10,590 6,342 7,599 9,003
Dilutive effect of Convertible Senior Notes due 2019 37,736 37,736 37,736 37,736 37,736
Dilutive effect of stock-based compensation arrangements (2) 3,202   3,422   2,939   2,861   2,764
Adjusted average common shares outstanding—diluted 243,048   242,801   238,067   230,779   222,668
 

Net income per share:

 
Basic:
Net income from continuing operations $ 0.48 $ 4.59 $ 0.69 $ 0.57 $ 0.84
Income (loss) from discontinued operations, net of tax   (2.35 ) 0.11   0.39   0.33
Net income $ 0.48   $ 2.24   $ 0.80   $ 0.96   $ 1.17
 
Diluted:
Net income from continuing operations $ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68
Income (loss) from discontinued operations, net of tax   (1.85 ) 0.09   0.31   0.26
Net income $ 0.39   $ 1.78   $ 0.67   $ 0.78   $ 0.94
 
 

(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)

For the three months ended March 31, 2015, December 31, 2014, September 31, 2014, June 30, 2014 and March 31, 2014, 540,400 541,720, 557,240, 1,483,800 and 946,400 shares, respectively, of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of diluted net income per share because they were anti-dilutive.

 

   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit C
 
March 31, December 31,

(In thousands, except per share data)

2015 2014
 
Assets:
Investments $ 3,621,646 $ 3,629,299
Cash 57,204 30,465
Restricted cash 14,220 14,031
Accounts and notes receivable 64,405 85,792
Deferred income taxes, net 649,996 700,201
Goodwill and other intangible assets, net 293,798 288,240
Other assets 356,713 375,491
Assets held for sale 1,755,873   1,736,444
Total assets $ 6,813,855   $ 6,859,963
 
Liabilities and stockholders’ equity:
Unearned premiums $ 657,555 $ 644,504
Reserve for losses and loss adjustment expenses 1,384,714 1,560,032
Long-term debt 1,218,972 1,209,926
Other liabilities 310,642 326,743
Liabilities held for sale 966,078   947,008
Total liabilities 4,537,961   4,688,213
 
Equity component of currently redeemable convertible senior notes 68,982 74,690
 
Common stock 209 209
Additional paid-in capital 1,648,436 1,638,552
Retained earnings 498,593 406,814
Accumulated other comprehensive income 59,674   51,485
Total common stockholders’ equity 2,206,912   2,097,060
Total liabilities and stockholders’ equity $ 6,813,855   $ 6,859,963
 
Shares outstanding, end of period 191,416 191,054
 
Book value per share $ 11.53 $ 10.98
 

 

Radian Group Inc. and Subsidiaries

Discontinued Operations

Exhibit D

 

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

 
Three Months Ended
March 31,

(In thousands)

2015   2014
Net premiums earned $ 1,007 $ 6,903
Net investment income 9,153 8,911
Net gains on investments and other financial instruments 13,668 22,182
Change in fair value of derivative instruments 2,625   50,086  
Total revenues 26,453   88,082  
 
Provision for losses 502 5,649
Policy acquisition costs (191 ) 1,597
Other operating expense 4,107   5,402  
Total expenses 4,418   12,648  
 
Equity in net loss of affiliates (13 ) (13 )
Income from operations of businesses held for sale 22,022 75,421
Loss on classification as held for sale (13,930 )
Income tax provision 7,562   18,642  
Income from discontinued operations, net of tax $ 530   $ 56,779  
 

The assets and liabilities associated with the discontinued operations have been segregated in the condensed consolidated balance sheets. The following table summarizes the major components of Radian Asset Assurance’s assets and liabilities held for sale on the condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014:

   
March 31, December 31,

(In thousands)

2015 2014
Fixed-maturity investments $ 226,334 $ 224,552
Equity securities 4,019 3,749
Trading securities 679,972 689,887
Short-term investments 449,391 435,413
Other invested assets 108,080 108,206
Other assets 288,077   274,637
Total assets held for sale $ 1,755,873   $ 1,736,444
 
Unearned premiums $ 152,445 $ 158,921
Reserve for losses and loss adjustment expenses 32,420 31,558
VIE debt 82,238 85,016
Derivative liabilities 187,462 183,370
Other liabilities 511,513   488,143
Total liabilities held for sale $ 966,078   $ 947,008
 

 

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit E (page 1 of 2)

 

Summarized financial information concerning our operating segments and reconciliations to consolidated pretax income from continuing operations, as of and for the periods indicated, is as follows:

 
Three Months Ended March 31, 2015
  Mortgage and  
Mortgage Real Estate

(In thousands)

Insurance Services Total
Net premiums written - insurance $241,908 $

$

241,908

Increase in unearned premiums (17,313 )       (17,313 )
Net premiums earned - insurance 224,595 224,595
Services revenue 30,742 30,742
Net investment income (1) 17,328 17,328
Other income (1) 1,331     790     2,121  
Total (2) 243,254     31,532     274,786  
 
Provision for losses 45,851 45,851
Policy acquisition costs 7,750 7,750
Direct cost of services 18,451 18,451
Other operating expenses before corporate allocations 34,050     9,659     43,709  
Total (3) 87,651     28,110     115,761  
Adjusted pretax operating income before corporate allocations 155,603 3,422 159,025
Allocation of corporate operating expenses (1) 9,758 981 10,739
Allocation of interest expense (1) 19,953     4,432     24,385  
 
Adjusted pretax operating income (loss) $125,892   $ (1,991 ) $ 123,901  
 
At March 31, 2015
Mortgage and
Mortgage Real Estate

(In thousands)

Insurance Services Total
Cash & Investments $ 3,669,413 $ 9,437

$

3,678,850
Restricted cash 11,348 2,872 14,220
Goodwill 194,246 194,246
Other intangible assets, net 99,552 99,552
Assets held for sale (4) 1,755,873
Total assets 4,708,744 349,238 6,813,855
Unearned premiums 657,555 657,555
Reserve for losses and loss adjustment expenses 1,384,714 1,384,714
 
 

(1)

Includes certain corporate income and expenses that have been reallocated from our prior financial guaranty segment to the Mortgage Insurance segment and that were not reclassified to discontinued operations.

(2)

Includes inter-segment revenues of $0.9 million in the Mortgage and Real Estate Services segment.

(3)

Includes inter-segment expenses of $0.9 million in the Mortgage Insurance segment.

(4)

Assets held for sale are not part of the Mortgage Insurance or Mortgage and Real Estate Services segments.

 

 
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
 
Three Months Ended March 31, 2014
  Mortgage and  
Mortgage Real Estate

(In thousands)

Insurance Services (1) Total
Net premiums written - insurance $ 212,953 $ $ 212,953
Increase in unearned premiums (14,191 )   (14,191 )
Net premiums earned - insurance 198,762 198,762
Net investment income (2) 15,318 15,318
Other income (2) 996   130   1,126  
Total 215,076   130   215,206  
 
Provision for losses 49,626 49,626
Change in expected economic loss or recovery for consolidated VIEs 139 139
Policy acquisition costs 7,017 7,017
Other operating expenses before corporate allocations 37,764   859   38,623  
Total 94,546   859   95,405  
Adjusted pretax operating income (loss) before corporate allocations 120,530 (729 ) 119,801
Allocation of corporate operating expenses (2) 15,884 15,884
Allocation of interest expense (2) 19,927     19,927  
 
Adjusted pretax operating income (loss) $ 84,719   $ (729 ) $ 83,990  
 
At March 31, 2014
Mortgage and
Mortgage Real Estate

(In thousands)

Insurance Services Total
Cash and investments $ 3,302,763 $ 24 $ 3,302,787
Restricted cash 22,366 22,366
Goodwill 2,095 2,095
Intangible assets, net 188 188
Assets held for sale (3) 1,795,185
Total assets 3,731,139 2,661 5,528,985
Unearned premiums 580,453 580,453
Reserve for losses and loss adjustment expenses 1,893,960 1,893,960
 
 

(1)

Amounts do not include Clayton Holdings, acquired June 30, 2014. However, effective with the fourth quarter of 2014, the Mortgage and Real Estate Services segment undertook the management responsibilities of certain additional loan servicer surveillance functions previously considered part of the Mortgage Insurance segment. As a result, these activities are now reported in the Mortgage and Real Estate Services segment for all periods presented.

(2)

Includes certain corporate income and expenses that have been reallocated from our prior financial guaranty segment to the Mortgage Insurance segment and that were not reclassified to discontinued operations.

(3)

Assets held for sale are not part of the Mortgage Insurance or Mortgage and Real Estate Services segments.

 

 

Radian Group Inc. and Subsidiaries

Definition of Consolidated Non-GAAP Financial Measure

Exhibit F (page 1 of 2)

 

Use of Non-GAAP Financial Measure

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 core 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, 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 period's effective 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. We do not view them to be indicative of our fundamental operating activities. 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. 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)

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 Measure

Exhibit F (page 2 of 2)

 
     

(3)

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).

 

(4)

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).

 

See Exhibit G 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 net income per share from continuing operations, respectively.

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

 

Radian Group Inc. and Subsidiaries

Consolidated Non-GAAP Financial Measure Reconciliations

Exhibit G

 
         

Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income from Continuing Operations

 
Three Months Ended
March 31,

(In thousands)

2015   2014
Adjusted pretax operating income (loss):
Mortgage Insurance (1) $ 125,892 $ 84,719
Mortgage and Real Estate Services (2) (1,991 ) (729 )
Total adjusted pretax operating income 123,901   83,990  
 
Net gains on investments and other financial instruments (3) 16,779 43,107
Acquisition-related expenses (4) (207 )
Amortization and impairment of intangible assets (4) (3,023 )  
Consolidated pretax income from continuing operations $ 137,450   $ 127,097  
 
 

(1)

Includes certain corporate income and expenses that have been reallocated from our prior financial guaranty segment to the Mortgage Insurance segment and that were not reclassified to discontinued operations.

(2)

Includes the acquisition of Clayton Holdings, effective June 30, 2014. Also, effective with the fourth quarter of 2014, the Mortgage and Real Estate Services segment undertook the management responsibilities of certain additional loan servicer surveillance functions previously considered part of the Mortgage Insurance segment. As a result, these activities are now reported in the Mortgage and Real Estate Services segment for all periods presented.

(3)

The change in expected economic loss or recovery associated with our consolidated VIEs is included in adjusted pretax operating income above. Therefore, for purposes of this reconciliation, net gains on investments and other financial instruments has been adjusted by $0.1 million for the three months ended March 31, 2014, to reverse this item, which represents a non-GAAP amount that is not included in net income.

(4)

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

 
         

Reconciliation of Adjusted Diluted Net Operating Income Per Share to Net Income Per Share from Continuing Operations

 
Three Months Ended
March 31, 2015
Adjusted diluted net operating income per share $ 0.35  
 
After tax per share impact:
Net gains on investments and other financial instruments 0.05
Acquisition-related expenses
Amortization and impairment of intangible assets (0.01 )
 
Net income per share from continuing operations $ 0.39  
 

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

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit H
 
Three Months Ended
March 31,
2015   2014

($ in millions)

$   % $   %

Primary new insurance written

   
Prime $ 9,384 100.0 % $ 6,807 100.0 %

Alt-A and A minus and below

1       1      
Total Primary $ 9,385     100.0 % $ 6,808     100.0 %
 

Total primary new insurance written by FICO score

>=740 5,968 63.6 % 4,345 63.8 %

  680-739

2,845 30.3 2,041 30.0

  620-679

572     6.1   422     6.2  
Total Primary $ 9,385     100.0 % $ 6,808     100.0 %
 

Percentage of primary new insurance written

Monthly premiums 63 % 73 %
Single premiums 37 % 27 %
 
Refinances 33 % 18 %
LTV
95.01% and above 1.8 % 0.9 %
90.01% to 95.00% 48.4 % 51.8 %
85.01% to 90.00% 33.3 % 34.4 %
85.00% and below 16.5 % 12.9 %
 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit I
   
March 31, March 31,
2015 2014

($ in millions)

$   % $   %

Primary insurance in force (1)

   
Flow $ 162,832 94.6 % $ 152,731 94.1 %
Structured 9,309     5.4   9,637     5.9  
Total Primary $ 172,141     100.0 % $ 162,368     100.0 %
 
Prime $ 160,452 93.2 % $ 148,736 91.6 %
Alt-A 7,122 4.1 8,317 5.1
A minus and below 4,567     2.7   5,315     3.3  
Total Primary $ 172,141     100.0 % $ 162,368     100.0 %
 

Primary risk in force (1)

Flow $ 41,256 95.1 % $ 38,252 94.6 %
Structured 2,133     4.9   2,180     5.4  
Total Primary $ 43,389     100.0 % $ 40,432     100.0 %
 
Flow
Prime $ 39,251 95.1 % $ 35,867 93.8 %
Alt-A 1,243 3.0 1,474 3.8
A minus and below 762     1.9   911     2.4  
Total Flow $ 41,256     100.0 % $ 38,252     100.0 %
 
Structured
Prime $ 1,341 62.9 % $ 1,292 59.3 %
Alt-A 410 19.2 465 21.3
A minus and below 382     17.9   423     19.4  
Total Structured $ 2,133     100.0 % $ 2,180     100.0 %
 
Total
Prime $ 40,592 93.6 % $ 37,159 91.9 %
Alt-A 1,653 3.8 1,939 4.8
A minus and below 1,144     2.6   1,334     3.3  
Total Primary $ 43,389     100.0 % $ 40,432     100.0 %
 

(1)

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

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit J
   
March 31, March 31,
2015 2014

($ in millions)

$   % $       %

Total primary risk in force by FICO score

     
Flow
>=740 $ 23,964 58.1 % $ 21,976 57.4 %
680-739 12,356 30.0 11,158 29.2
620-679 4,392 10.6 4,459 11.7
<=619 544     1.3   659         1.7  
Total Flow $ 41,256     100.0 % $ 38,252         100.0 %
 
Structured
>=740 $ 664 31.1 % $ 590 27.1 %
680-739 599 28.1 624 28.6
620-679 513 24.1 572 26.2
<=619 357     16.7   394         18.1  
Total Structured $ 2,133     100.0 % $ 2,180         100.0 %
 
Total
>=740 $ 24,628 56.8 % $ 22,566 55.8 %
680-739 12,955 29.8 11,782 29.1
620-679 4,905 11.3 5,031 12.5
<=619 901     2.1   1,053         2.6  
Total Primary $ 43,389     100.0 % $ 40,432         100.0 %
 

Total primary risk in force by LTV

95.01% and above $ 3,440 7.9 % $ 4,008 9.9 %
90.01% to 95.00% 20,897 48.2 17,767 44.0
85.01% to 90.00% 15,187 35.0 14,807 36.6
85.00% and below 3,865     8.9   3,850         9.5  
Total $ 43,389     100.0 % $ 40,432         100.0 %
 

Total primary risk in force by policy year

2005 and prior $ 3,364 7.8 % $ 4,209 10.4 %

  2006

1,922 4.4 2,243 5.6

  2007

4,442 10.2 5,064 12.5

  2008

3,267 7.5 3,810 9.4

  2009

994 2.3 1,363 3.4

  2010

859 2.0 1,144 2.8

  2011

1,677 3.9 2,165 5.4

  2012

6,170 14.2 7,511 18.6

  2013

9,704 22.4 11,210 27.7

  2014

8,684 20.0 1,713 4.2

  2015

2,306     5.3            
Total $ 43,389     100 % $ 40,432         100.0 %
 
Primary risk in force on defaulted loans (1) $ 1,883 $ 2,466

(1)

 

 

(1)

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

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit K
   
March 31, March 31,

($ in millions)

2015 2014
$     % $   %

Pool risk in force

   
Prime $ 867 74.7 % $ 1,263 78.9 %
Alt-A 54 4.7 68 4.3
A minus and below 239         20.6   269     16.8  
Total $ 1,160         100.0 % $ 1,600     100.0 %
 

Total pool risk in force by policy year

2005 and prior

$ 1,090 94.0 % $ 1,516 94.7 %

  2006

7 0.6 19 1.2

  2007

62 5.3 64 4.0

  2008

1         0.1   1     0.1  
Total pool risk in force $ 1,160         100.0 % $ 1,600     100.0 %
 

Other risk in force

Second-lien
1st loss $ 42 $ 54
2nd loss 12 16
NIMS 5
1st loss-Hong Kong primary mortgage insurance 9   18  
Total other risk in force $ 63   $ 93  
 
Risk to capital ratio-Radian Guaranty only 17.1 :1

(1)

 

19.2 :1
Risk to capital ratio-Mortgage Insurance combined 19.1 :1

(1)

 

23.0 :1
 
 
Three Months Ended
March 31,
2015

 

2014

 
Loss ratio (2) 20.4 %

 

25.0

%
Expense ratio - NPE basis (2) 23.0 %

 

30.5

%
Expense ratio - NPW basis (3) 21.3 %

 

28.5

%
 
 

(1)

Preliminary.

(2)

Calculated on a GAAP basis using net premiums earned (“NPE”). For the three months ended March 31, 2015 and 2014, the expense ratio includes 0.9% and 2.1%, respectively, of expenses that were previously allocated to the Financial Guaranty segment, because these corporate items were not reclassified to discontinued operations. These expenses have been reallocated to the Mortgage Insurance segment.

(3)

Calculated on a GAAP basis using net premiums written (“NPW”). For the three months ended March 31, 2015 and 2014, includes 0.9% and 1.9%, respectively, of expenses that were previously allocated to the Financial Guaranty segment, because these corporate items were not reclassified to discontinued operations. These expenses have been reallocated to the Mortgage Insurance segment.

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit L
 

Three Months Ended
March 31,

($ in thousands) 2015   2014
 
Net claims paid
Prime $ 76,434 $ 195,446
Alt-A 20,194 46,593
A minus and below 15,209   33,593  
Total primary claims paid 111,837 275,632
Pool 8,901 30,863
Second-lien and other (111 ) 727  
Subtotal 120,627 307,222
Impact of captive terminations (12,000 ) (1,156 )
Impact of settlements 98,468   875  
Total $ 207,095   $ 306,941  
 
Average claim paid (1)
Prime $ 44.0 $ 44.3
Alt-A 54.6 55.4
A minus and below 35.9 37.1
Total primary average claims paid 44.2 44.7
Pool 51.5 60.3
Second-lien and other (12.3 ) 20.8
Total $ 44.5 $ 45.8
 
Average primary claim paid (2) $ 45.3 $ 46.5
Average total claim paid (2) $ 45.5 $ 47.4
 
Reserve for losses by category
Prime $ 640,919 $ 790,529
Alt-A 278,350 351,695
A minus and below 163,390 189,453
IBNR and other 167,204 347,674
LAE 53,210 50,684
Reinsurance recoverable (3) 13,365   25,751  
Total primary reserves 1,316,438   1,755,786  
Pool insurance 62,943 123,596
IBNR and other 1,227 5,679
LAE 3,051   4,517  
Total pool reserves 67,221   133,792  
Total 1st lien reserves 1,383,659 1,889,578
Second lien and other 1,055   4,382  
Total reserves $ 1,384,714   $ 1,893,960  
 
1st lien reserve per default (4)
Primary reserve per primary default excluding IBNR and other $ 28,423 $ 26,509
Pool reserve per pool default excluding IBNR and other $ 9,774 $ 13,054
 

(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.

(4)

If calculated before giving effect to deductibles and stop losses in pool transactions, this would be $17,942 and $22,172 at March 31, 2015 and 2014, respectively.

     
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit M
 
March 31, December 31, March 31,
2015 2014 2014

Default Statistics

Primary Insurance:

Prime

Number of insured loans 801,332 797,436 755,396
Number of loans in default 25,114 28,246 32,708
Percentage of loans in default 3.13 % 3.54 % 4.33 %
 

Alt-A

Number of insured loans 37,468 38,953 43,508
Number of loans in default 7,480 8,136 10,173
Percentage of loans in default 19.96 % 20.89 % 23.38 %
 

A minus and below

Number of insured loans 35,425 36,688 40,898
Number of loans in default 7,846 8,937 10,238
Percentage of loans in default 22.15 % 24.36 % 25.03 %
 
Total Primary
Number of insured loans 874,225 873,077 839,802
Number of loans in default (1) 40,440 45,319 53,119
Percentage of loans in default 4.63 % 5.19 % 6.33 %
 
Pool insurance
Number of loans in default 6,748 8,297 9,814
 

(1)

Excludes 3,715, 4,467 and 6,022 loans subject to the Freddie Mac Agreement that are in default at March 31, 2015, December 31, 2014 and March 31, 2014, respectively, as we no longer have claims exposure on these loans.

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information
Exhibit N
 
Three Months Ended
March 31,
($ in thousands) 2015   2014
 

1st Lien Captives

Premiums ceded to captives $ 2,585 $ 3,508
% of total premiums 1.1 % 1.6 %
Insurance in force included in captives (1) 2.5 % 3.5 %
Risk in force included in captives (1) 2.4 % 3.3 %
 

Initial Quota Share Reinsurance (“QSR”) Transaction

QSR ceded premiums written $ 4,067 $ 5,304
% of premiums written 1.6 % 2.3 %
QSR ceded premiums earned $ 6,018 $ 6,807
% of premiums earned 2.5 % 3.2 %
Ceding commissions $ 880 $ 1,326
Risk in force included in QSR (2) $ 1,041,383 $ 1,289,856
 

Second QSR Transaction

QSR ceded premiums written $ 6,529 $ 7,293
% of premiums written 2.6 % 3.2 %
QSR ceded premiums earned $ 8,768 $ 6,585
% of premiums earned 3.6 % 3.1 %
Ceding commissions $ 2,285 $ 2,553
Risk in force included in QSR (2) $ 1,533,677 $ 1,360,651
 
Persistency (twelve months ended March 31) (3) 82.6 % 83.3 %
 

(1)

 

Radian reinsures the middle layer risk positions, while retaining a significant portion of the total risk comprising the first loss and most remote risk positions.

(2)

Included in primary RIF.

(3)

Effective March 31, 2015, we refined our persistency calculation to incorporate loan level detail rather than aggregated portfolio data. Prior periods have been recalculated and reflect the current calculation methodology.

 

Radian Group Inc. and Subsidiaries

Mortgage and Real Estate Services Supplemental Information

Exhibit O

 
The following table shows additional trend information for the Mortgage and Real Estate Services segment:
     
Three Months Ended
March 31, 2015

Three Months Ended
December 31, 2014

Three Months Ended
September 30, 2014

(In thousands)

Services revenue $ 30,742 $ 34,466

$

42,243

Direct cost of services 18,451   19,709     23,896
Gross profit on services $ 12,291   $ 14,757  

$

18,347

 

The selected unaudited financial information presented below represents unaudited quarterly historical information for the businesses of Clayton Holdings LLC (“Clayton”) for periods prior to our acquisition on June 30, 2014. Financial information for periods after the acquisition is included in the table above and in Exhibit E as part of our Mortgage and Real Estate Services segment.

   
2013 2014

(In thousands)

Qtr 1   Qtr 2   Qtr 3   Qtr 4 Qtr 1   Qtr 2
Services revenue $ 37,041 $ 39,115 $ 32,718 $ 25,593 $ 28,043 $ 36,347
Direct cost of services 20,173   22,028   18,015   14,957   15,469   19,956
Gross profit on services $ 16,868   $ 17,087   $ 14,703   $ 10,636   $ 12,574   $ 16,391
 

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 unemployment rates, changes in the U.S. housing and mortgage credit markets (including declines in home prices and property values), the performance of the U.S. or global economies, the amount of liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, all of which may be impacted by, among other things, legislative activity or inactivity, actual or threatened downgrades of U.S. government credit ratings, or actual or threatened defaults on U.S. government obligations;
  • changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers;
  • catastrophic events, increased unemployment, home price depreciation or other negative economic changes in geographic regions where our mortgage insurance exposure is more concentrated;
  • Radian Guaranty's ability to remain eligible under applicable requirements imposed by the Federal Housing Finance Agency and the government-sponsored entities ("GSEs") to insure loans purchased by the GSEs;
  • our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs. We expect to contribute a portion of our holding company liquidity to Radian Guaranty to support Radian Guaranty's compliance with the final PMIERs financial requirements. Our projections regarding the amount of holding company liquidity that we may contribute to Radian Guaranty are based on our estimates of Radian Guaranty's Minimum Required Assets (as defined under the PMIERs) and Available Assets (as defined under the PMIERs), which may not prove to be accurate, and which could be impacted by: (1) our ability to receive GSE approval for the full benefit of our existing reinsurance arrangements under the PMIERs after any necessary amendments to these arrangements, (2) whether we elect to convert certain liquid assets into PMIERs compliant Available Assets; (3) factors affecting the performance of our mortgage insurance business, including our level of defaults, the losses we incur on new or existing defaults and the credit characteristics of new business that we write; and (4) the GSEs' intention to update the factors that are applied to calculate and determine a mortgage insurer's Minimum Required Assets every two years or more frequently, as determined by the GSEs, to reflect changes in macroeconomic conditions or loan performance. Contributing holding company cash and investments from Radian Group to Radian Guaranty will leave less liquidity to satisfy Radian Group's future obligations. Depending on the amount of holding company contributions that we make, we may be required or may decide to seek additional capital by incurring additional debt, by issuing additional equity, or by selling assets, which we may not be able to do on favorable terms, if at all;
  • our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements, including new capital adequacy standards that currently are being developed by the National Association of Insurance Commissioners ("NAIC") and that could be adopted by certain states in which we write conduct business;
  • changes in the charters or business practices of, or rules or regulations imposed by or applicable to the GSEs, including: (1) the implementation of the final PMIERs, which (i) will increase the amount of capital that Radian Guaranty is required to hold, and therefore, reduce our current returns on subsidiary capital; (ii) impose extensive and more stringent operational requirements in areas such as claim processing, loss mitigation, document retention, underwriting, quality control, reporting and monitoring, among others that may result in additional costs in order to achieve and maintain compliance; (iii) require the consent of the GSEs for Radian Guaranty to take certain actions such as paying dividends, entering into various inter-company agreements, and commuting or reinsuring risk, among others; (2) changes that could limit the type of business that Radian Guaranty and other private mortgage insurers are willing to write, which could reduce our NIW; (3) changes that could increase the cost of private mortgage insurance, including as compared to the Federal Housing Administration's ("FHA") pricing, or result in the emergence of other forms of credit enhancement; and (4) changes that could require us to alter our business practices, which may result in substantial additional costs in order to achieve and maintain compliance with the PMIERs;
  • our ability to continue to effectively mitigate our mortgage insurance losses, including a decrease in net rescissions, denials or curtailments resulting from an increase in the number of successful challenges to previously rescinded policies, claim denials or claim curtailments (including as part of one or more settlements of disputed rescissions or denials), or as a result of the GSEs intervening in or otherwise limiting our loss mitigation practices, including settlements of disputes regarding loss mitigation activities;
  • the negative impact that our loss mitigation activities may have on our relationships with our customers and potential customers, including the potential loss of current or future business and the heightened risk of disputes and litigation;
  • any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
  • a substantial decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income on our monthly premium policies and could decrease the profitability of our mortgage insurance business;
  • heightened competition for our mortgage insurance business from others such as the FHA, the U.S. Department of Veterans Affairs and other private mortgage insurers (including with respect to other private mortgage insurers, those that have been assigned higher ratings than we have that may have access to greater amounts of capital than we do, or that are new entrants to the industry, and therefore, are not burdened by legacy obligations) and the impact such heightened competition may have on our returns and our NIW;
  • changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in effect or scope;
  • 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 or application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (1) the resolution of existing, or the possibility of additional, lawsuits or investigations; (2) changes to the Mortgage Guaranty Insurers Model Act ("Model Act") being considered by the NAIC that could include more stringent capital and other requirements for Radian Guaranty in states that adopt the new Model Act in the future; and (3) legislative and regulatory changes (a) impacting the demand for our products, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) otherwise impacting our existing businesses or future prospects;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including deficiencies assessed by the IRS resulting from the 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 businesses;
  • 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 certain of our long-term incentive compensation awards;
  • changes in generally accepted accounting principles or statutory accounting practices, rules and guidance, or their interpretation;
  • legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries; and
  • the possibility that we may need to impair the estimated fair value of goodwill established in connection with our acquisition of Clayton, the valuation of which requires the use of significant estimates and assumptions with respect to the estimated future economic benefits arising from certain assets acquired in the transaction such as the value of expected future cash flows of Clayton, Clayton's workforce, expected synergies with our other affiliates and other unidentifiable intangible assets.

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, 2014 and in our subsequent reports and registration statements 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.

Source: Radian Group Inc.

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