Radian Comments on Standard & Poor's Rating Action
26 Août 2008 - 10:44PM
PR Newswire (US)
Reiterates Long-Term Strength of Internally-Sourced Capital
Strategy PHILADELPHIA, Aug. 26 /PRNewswire-FirstCall/ -- Radian
Group Inc. (NYSE:RDN) commented today on the action taken by
Standard & Poor's Rating Services (S&P). S&P lowered
its financial strength rating on Radian's principal mortgage
insurance (MI) subsidiary, Radian Guaranty, to 'BBB+' (negative
outlook) from 'A' and removed it from Credit Watch. Radian Group
said while it was disappointed by the action, S&P noted several
positives for the long-term in Radian's mortgage insurance business
and the MI industry overall. Those include improved credit quality
in Radian's first-lien portfolio and a capital adequacy ratio that
S&P said is slightly less than the minimum for a mortgage
insurer to be eligible for a 'AAA' financial strength rating. "We
do not believe today's action by S&P reflects the significant
progress we have made in developing our internally-sourced capital
plan and improving the quality of our mortgage insurance
portfolio," stated S.A. Ibrahim, Chief Executive Officer of Radian
Group. "It is important to view our rating within the context of
the mortgage insurance industry, which continues to face
challenging macroeconomic conditions. The rating continues to
reflect Radian Guaranty's investment grade status, and we will
maintain close contact with S&P to address their concerns.
Radian Guaranty is a long-standing Top Tier provider to the GSEs,
and we do not expect that this action will affect our ability to
insure loans that are sold to the GSEs. As always, we remain
focused on the day-to-day details of operating the business and,
most importantly, serving our clients." In its statement released
earlier today, S&P acknowledged that Radian's MI business has
taken actions to improve the credit quality of its core product,
traditional first-lien MI. In particular, S&P noted that the
Company has the least exposure in the industry to mortgages with
LTVs above 95% and that its risk-in-force from ARMs, loans with
reduced documentation, and mortgages to borrowers with low credit
scores has declined steadily since 2006. Consequently, S&P
believes that Radian MI's exposure to the most troublesome vintages
will be partially mitigated by better credit quality. S&P also
acknowledged that Radian MI is well capitalized. Radian MI's
capital adequacy ratio as of June 30, 2008, was 97%, which
according to S&P is expected to remain well above S&P's
standards for its rating. As previously announced, Radian remains
committed to its mortgage insurance business and has made several
operating improvements which have already resulted in significant
traction: -- Radian Guaranty maintains a strong risk to capital
ratio of 14.9 to 1 as of June 30, 2008. -- The Company believes
Radian is uniquely positioned to support its capital needs through
internal resources by contributing Radian Asset Assurance Inc., its
principal financial guaranty subsidiary (Radian Asset), to Radian
Guaranty. -- Radian Asset has $960 million of statutory surplus
which is part of approximately $3 billion of claims paying
resources. -- After the contribution of Radian Asset, which the
Company expects to complete in the third quarter of 2008, the pro
forma risk to capital ratio at Radian Guaranty would be 10.3 to 1
as of June 30, 2008. -- Radian has a 29% ownership interest in
Sherman Financial, providing a potential source of additional
capital and dividends. -- Approximately 93% of new insurance
written during the second quarter of 2008 was prime. -- First and
second lien claims have improved, driven by increased investment in
loss management efforts. -- Captive reinsurance and Smart Home
transactions generated ceded losses recoverables of $131.1 million
and $44.7 million, respectively, for the six months ended June 30,
2008. The Company will continue to keep the market and its
constituents informed as it progresses through the execution of its
capital plan. About Radian Radian Group Inc. is a global credit
risk management company headquartered in Philadelphia with
significant operations in New York and London. Radian develops
innovative financial solutions by applying its core mortgage credit
risk expertise and structured finance capabilities to the credit
enhancement needs of the capital markets worldwide, primarily
through credit insurance products. The company also provides credit
enhancement for public finance and other corporate and consumer
assets on both a direct and reinsurance basis and holds strategic
interests in credit-based consumer asset businesses. Additional
information may be found at http://www.radian.biz/. Forward Looking
Statements All statements made in this news release that address
events, developments or results that we expect or anticipate may
occur in the future are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, Section 21E
of the Securities Exchange Act of 1934 and the U.S. Private
Securities Litigation Reform Act of 1995. These statements are made
on the basis of management's current views and assumptions with
respect to future events. Any forward-looking statement is not a
guarantee of future performance and actual results could differ
materially from those contained in the forward-looking information.
The forward-looking statements, as well as our prospects as a
whole, are subject to risks and uncertainties, including the
following: * changes in general financial and political conditions,
such as extended national or regional economic recessions, changes
in housing demand or mortgage originations, changes in housing
values (in particular, further deterioration in the housing,
mortgage and related credit markets, which would harm our future
consolidated results of operations and could cause losses for our
businesses to be worse than expected), changes in the liquidity in
the capital markets and the further contraction of credit markets,
population trends and changes in household formation patterns,
changes in unemployment rates, changes or volatility in interest
rates or consumer confidence, changes in credit spreads, changes in
the way investors perceive the strength of private mortgage
insurers or financial guaranty providers, investor concern over the
credit quality and specific risks faced by the particular
businesses, municipalities or pools of assets covered by our
insurance; * economic changes or catastrophic events in geographic
regions where our mortgage insurance or financial guaranty
insurance in force is more concentrated; * our ability to
successfully obtain additional capital, if necessary, to support
our long-term liquidity needs and to protect our credit ratings and
the financial strength ratings of Radian Guaranty Inc., our primary
mortgage insurance subsidiary; * a decrease in the volume of home
mortgage originations due to reduced liquidity in the lending
market, tighter underwriting standards and a deterioration in
housing markets throughout the U.S.; * our ability to maintain
adequate risk-to-capital ratios, leverage ratios and surplus
requirements in our mortgage insurance business in light of
on-going losses in this business; * a decrease in the volume of
municipal bonds, and other public finance and structured finance
transactions that we insure, or a decrease in the volume of such
transactions for which issuers or investors seek or demand
financial guaranty insurance; * the loss of a customer for whom we
write a significant amount of mortgage insurance or financial
guaranty insurance or the influence of large customers; * reduction
in the volume of reinsurance business available to us from one or
more of our primary financial guaranty insurer customers due to
adverse changes in their ability to generate new profitable direct
financial guaranty insurance or their need for us to reinsure their
risk; * disruption in the servicing of mortgages covered by our
insurance policies; * the aging of our mortgage insurance portfolio
and changes in severity or frequency of losses associated with
certain of our products that are riskier than traditional mortgage
insurance or financial guaranty insurance policies; * the
performance of our insured portfolio of higher risk loans, such as
Alternative-A ("Alt-A") and subprime loans, and adjustable rate
products, such as adjustable rate mortgages and interest-only
mortgages, which have resulted in increased losses in 2007 and 2008
and may result in further losses; * reduced opportunities for loss
mitigation in markets where housing values fail to appreciate or
begin to decline; * changes in persistency rates of our mortgage
insurance policies caused by changes in refinancing activity, in
the rate of appreciation or depreciation of home values and changes
in the mortgage insurance cancellation requirements of mortgage
lenders and investors; * recapture of reinsurance business by the
primary insurers under our financial guaranty reinsurance
arrangements, which would reduce written and earned premiums in our
financial guaranty business and correspondingly reduce the amount
of capital required to be held against this risk; * downgrades or
threatened downgrades of, or other ratings actions with respect to,
our credit ratings or the insurance financial strength ratings
assigned by the major rating agencies to any of our rated insurance
subsidiaries at any time (in particular, our credit rating and the
financial strength ratings assigned to Radian Guaranty Inc., which
are currently on negative outlook); * heightened competition for
our mortgage insurance business from others such as the Federal
Housing Administration and the Veterans' Administration or other
private mortgage insurers (in particular those that have been
assigned higher ratings from the major ratings agencies; * changes
in the charters or business practices of Federal National Mortgage
Association and Freddie Mac, the largest purchasers of mortgage
loans that we insure, and our ability to retain our "Top Tier"
eligibility requirement from both Freddie Mac and Fannie Mae; *
heightened competition for financial guaranty business from other
financial guaranty insurers, from other forms of credit enhancement
such as letters of credit, guaranties and credit default swaps
provided by foreign and domestic banks and other financial
institutions, and from alternative structures that may permit
insurers to securitize assets more cost-effectively without the
need for the types of credit enhancement we offer, or result in our
having to reduce the premium we charge for our products; * the
application of existing federal or state consumer, lending,
insurance, securities and other applicable laws and regulations, or
changes in these laws and regulations or the way they are
interpreted; including, without limitation: (i) the possibility of
private lawsuits or formal investigations by state insurance
departments and state attorneys general alleging that services
offered by the mortgage insurance industry, such as captive
reinsurance, pool insurance and contract underwriting, are
violative of the Real Estate Settlement Procedures Act and/or
similar state regulations, (ii) legislative and regulatory changes
affecting demand for private mortgage insurance or financial
guaranty insurance, or (iii) legislation and regulatory changes
limiting or restricting our use of (or requirements for) additional
capital, the products we may offer, the form in which we may
execute the credit protection we provide or the aggregate notional
amount of any product we may offer for any one transaction or in
the aggregate; * the possibility that we may fail to estimate
accurately the likelihood, magnitude and timing of losses in
connection with establishing loss reserves for our mortgage
insurance or financial guaranty businesses, or the premium
deficiency for our first- and second-lien mortgage insurance
business, or to estimate accurately the fair value amounts of
derivative contracts in our mortgage insurance and financial
guaranty businesses in determining gains and losses on these
contracts; * volatility in our earnings caused by changes in the
fair value of our derivative instruments and our need to reevaluate
the premium deficiencies in our mortgage insurance business on a
quarterly basis; * changes in accounting guidance from the
Securities and Exchange Commission ("SEC") or the Financial
Accounting Standards Board; * legal and other limitations on
amounts we may receive from our subsidiaries as dividends or
through tax and expense sharing arrangements with our subsidiaries;
and * vulnerability to the performance of our strategic
investments, including in particular, our investment in Sherman
Financial Group LLC. For more information regarding these risks and
uncertainties as well as certain additional risks that we face, you
should refer to the Risk Factors detailed in Item 1A of Part I of
our Annual Report on Form 10-K for the year ended December 31, 2007
as well as the material changes to these risks discussed in our
Quarterly Reports on Form 10-Q. We caution you not to place undue
reliance on these forward-looking statements, which are current
only as of the date on which we issued this news release. We do not
intend to, and we disclaim any duty or obligation to, update or
revise any forward-looking statements made in this release to
reflect new information or future events or for any other reason.
DATASOURCE: Radian Group Inc. CONTACT: Investors, Terri
Williams-Perry, +1-215-231-1486, , or Media, Rick Gillespie,
+1-215-231-1061, , both of Radian Group Inc. Web site:
http://www.radian.biz/
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