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04/30/2015
Radian Announces First Quarter 2015 Financial Results
-- Reports net income of
-- Adjusted diluted net operating income of
Adjusted pretax operating income for the quarter ended
Key Financial Highlights (dollars in millions, except per share data) |
||||||
Quarter Ended |
Quarter Ended |
Percent |
||||
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
FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS
-
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 endedMarch 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.
-
Of the
-
Total primary mortgage insurance in force was
$172.1 billion , compared to$171.8 billion as ofDecember 31, 2014 , and$162.4 billion as ofMarch 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 ofMarch 31, 2015 , compared to 84.2 percent as ofDecember 31, 2014 , and 83.3 percent as ofMarch 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 ofMarch 31, 2015 , compared to$1.6 billion as ofDecember 31, 2014 , and$1.9 billion as ofMarch 31, 2014 . -
Primary reserve per primary default (excluding IBNR and other
reserves) was
$28,423 as ofMarch 31, 2015 . This compares to primary reserve per primary default of$27,683 as ofDecember 31, 2014 , and$26,509 as ofMarch 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 theSeptember 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 theSeptember 2014 BofA Settlement Agreement. -
On
April 17, 2015 , theFederal Housing Finance Agency (FHFA) issued the final Private Mortgage Insurer Eligibility Requirements (PMIERs) developed byFannie Mae andFreddie 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 isDecember 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 ofRadian 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.
-
As of
Mortgage and Real Estate Services
-
On
June 30, 2014 , Radian completed the acquisition ofClayton 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 acquiredRed 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 toAssured Guaranty Corp. , a subsidiary ofAssured 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
-
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,
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
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
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
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 |
||||||||
($ 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 |
Three Months Ended |
|||||||||
(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
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 satisfyRadian 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
Source:
Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.com