RDN Radian Group Inc

Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended September 30, 2011, of $183.6 million, or $1.37 per diluted share, which included combined net gains from the change in fair value of derivatives and other financial instruments of $206.6 million. This compares to net income of $112.2 million, or $0.84 per diluted share, for the prior-year quarter, which included combined net gains from the change in fair value of derivatives and other financial instruments of $234.7 million. Book value per share at September 30, 2011, was $9.67.

“Our top priorities at Radian are to grow our mortgage insurance business and to effectively manage our legacy risk,” said Chief Executive Officer S.A. Ibrahim. “We are encouraged by our ability to significantly increase Radian’s volume of profitable new business while maintaining our sharp focus on loss mitigation.”

Ibrahim added, “We will continue to leverage our competitive strength, customer relationships and financial flexibility to best manage through this prolonged uncertainty.”

THIRD QUARTER HIGHLIGHTS

• Net income for the third quarter of $183.6 million was driven by the pre-tax gain recognized on derivatives and other financial instruments of $206.6 million. This unrealized gain resulted mainly from a widening of Radian’s credit spread that significantly reduced the fair value of the company’s derivative liabilities.
• The mortgage insurance provision for losses was $276.6 million in the third quarter, compared to $270.0 million in the second quarter of 2011 and $347.8 million in the prior-year period. Mortgage insurance loss reserves were approximately $3.2 billion as of September 30, 2011, a decrease from $3.3 billion in the second quarter of 2011, and $3.5 billion a year ago. First-lien reserves were $25,346 per primary default as of September 30, 2011, compared to $25,334 as of June 30, 2011, and $22,780 a year ago.
• The total number of primary delinquent loans decreased slightly from the second quarter of 2011, which was the seventh consecutive quarterly decline in delinquent loans.
• The risk-to-capital ratio for Radian Guaranty Inc., the company’s primary mortgage insurance subsidiary, was 21.4:1 at September 30, 2011, compared to a ratio of 19.8:1 at June 30, 2011, and 17.2:1 at September 30, 2010.
• New mortgage insurance written (NIW) increased to $4.1 billion in the third quarter, compared to $2.3 billion in the second quarter of 2011 and $3.2 billion a year ago, and continued to consist of loans with excellent risk characteristics. The company anticipates NIW for the fourth quarter of 2011 of more than $5 billion.
• Total mortgage insurance claims paid were $329.9 million for the third quarter, compared to $512.6 million ($459.0 million excluding termination impact) in the second quarter of 2011, and $494.2 million a year ago. The company expects mortgage insurance claims paid of approximately $400 million in the fourth quarter of 2011 and approximately $1.6 billion for the full-year 2011. For 2012, Radian expects mortgage insurance claims paid of approximately $1.3 billion.
• Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with cash infusions over time.

              --   Excluding gains and losses on derivatives and other financial instruments, the financial guaranty segment was again profitable on an operating basis in the third quarter of 2011. --

As of September 30, 2011, Radian Asset had approximately $1.0 billion in statutory surplus and an additional $1.1 billion in claims-paying resources.

-- Net par outstanding for Radian Asset was $71.9 billion as of September 30, 2011, compared to $74.7 billion as of June 30, 2011, and $79.9 billion as of September 30, 2010. -- Radian Asset is expected to pay an ordinary dividend of approximately $50 million to Radian Guaranty in 2012.  

CONFERENCE CALL

Radian will discuss each of these items in its conference call today, Tuesday, November 1, 2011, 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.biz. The call may also be accessed by dialing 800-288-8960 inside the U.S., or 612-332-0107 for international callers, using passcode 221288 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 221288.

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

About Radian

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

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 Income Exhibit B: Condensed Consolidated Balance Sheets Exhibit C: Segment Information Quarter Ended September 30, 2011 Exhibit D: Segment Information Quarter Ended September 30, 2010 Exhibit E: Segment Information Nine Months Ended September 30, 2011 Exhibit F: Segment Information Nine Months Ended September 30, 2010 Exhibit G: Financial Guaranty Supplemental Information Exhibit H: Financial Guaranty Supplemental Information Exhibit I: Mortgage Insurance Supplemental Information New Insurance Written Exhibit J: Mortgage Insurance Supplemental Information Insurance in Force and Risk in Force Exhibit K: Mortgage Insurance Supplemental Information Risk in Force by LTV and Policy Year and Other Risk in Force 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 Net Premiums Written and Earned, Captives and Persistency Exhibit O: Mortgage Insurance Supplemental Information Modified Pool          

Radian Group Inc. and Subsidiaries

Condensed Consolidated Statements of Income

Exhibit A Quarter Ended Nine Months Ended September 30 September 30 2011 2010 2011 2010 (In thousands, except per-share data)   Revenues: Net premiums written - insurance $ 178,287   $ 174,807   $ 513,814   $ 490,209     Net premiums earned - insurance $ 179,655 $ 203,937 $ 571,612 $ 605,651 Net investment income 38,763 46,554 124,826 140,531 Net gains on investments 81,640 94,258 163,311 209,468 Net impairment losses recognized in earnings (20 ) (34 ) (31 ) (90 ) Change in fair value of derivative instruments 126,008 229,783 558,626 (372,777 ) Net gains (losses) on other financial instruments 80,602 4,882 160,900 (159,882 ) Gain on sale of affiliate - - - 34,815 Other income   1,404     1,951     4,048     5,654   Total revenues   508,052     581,331     1,583,292     463,370       Expenses: Provision for losses 249,598 344,389 940,537 1,323,435 Change in reserve for premium deficiency (1,942 ) 8,628 (6,427 ) 43 Policy acquisition costs 11,449 11,054 39,967 42,719 Other operating expenses 45,240 43,052 137,413 143,273 Interest expense   14,094     9,502     47,197     28,551   Total expenses   318,439     416,625     1,158,687     1,538,021     Equity in net income of affiliates   -     -     65     14,668     Pretax income (loss) 189,613 164,706 424,670 (1,059,983 ) Income tax provision (benefit)   6,045     52,521     981     (386,733 )   Net income (loss) $ 183,568   $ 112,185   $ 423,689   $ (673,250 )   Diluted net income (loss) per share (1) $ 1.37   $ 0.84   $ 3.16   $ (6.20 )                    

(1) Weighted average shares outstanding (In thousands)

  Weighted average common shares outstanding 132,364 132,324 132,366 108,608 Increase in weighted average shares-common stock equivalents-diluted basis   1,149     1,196     1,501     -   Weighted average shares outstanding   133,513     133,520     133,867     108,608                      

For Trend Information, refer to our Quarterly Financial Statistics on Radian's (RDN) website.

       

Radian Group Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

Exhibit B   September 30 December 31 September 30 (In thousands, except per-share data) 2011 2010 2010   Assets: Cash and investments $ 5,936,586 $ 6,680,630 $ 6,438,904 Deferred policy acquisition costs 138,962 148,326 146,475 Deferred income taxes, net 19,244 27,531 728,230 Reinsurance recoverables 166,483 244,894 586,370 Derivative assets 20,315 26,212 26,995 Receivable for securities sold 504,584 160 134,539 Other assets   460,111     493,134     490,084     Total assets $ 7,246,285   $ 7,620,887   $ 8,551,597       Liabilities and stockholders' equity: Unearned premiums $ 628,400 $ 686,364 $ 707,265 Reserve for losses and loss adjustment expenses 3,260,556 3,596,735 3,592,973 Reserve for premium deficiency 4,309 10,736 25,399 Long-term debt 814,901 964,788 664,901 VIE debt 273,379 520,114 496,293 Derivative liabilities 188,921 723,579 530,688 Payable for securities purchased 532,451 9,112 282,477 Other liabilities   254,932     249,679     319,981     Total liabilities   5,957,849     6,761,107     6,619,977     Common stock 151 150 150 Additional paid-in capital 1,074,201 1,071,080 1,004,079 Retained earnings (deficit) 218,095 (204,926 ) 928,025 Accumulated other comprehensive loss   (4,011 )   (6,524 )   (634 )   Total common stockholders' equity   1,288,436     859,780     1,931,620     Total liabilities and stockholders' equity $ 7,246,285   $ 7,620,887   $ 8,551,597     Book value per share $ 9.67 $ 6.46 $ 14.53        

Radian Group Inc. and Subsidiaries

Segment Information

Quarter Ended September 30, 2011

Exhibit C   Mortgage Financial (In thousands) Insurance Guaranty Total Revenues: Net premiums written - insurance $ 178,215   $ 72   $ 178,287     Net premiums earned - insurance $ 163,436 $ 16,219 $ 179,655 Net investment income 21,642 17,121 38,763 Net gains on investments 53,263 28,377 81,640 Net impairment losses recognized in earnings (20 ) - (20 ) Change in fair value of derivative instruments 200 125,808 126,008 Net gains on other financial instruments 2,486 78,116 80,602 Other income   1,357     47     1,404   Total revenues   242,364     265,688     508,052     Expenses: Provision for losses 276,599 (27,001 ) 249,598 Change in reserve for premium deficiency (1,942 ) - (1,942 ) Policy acquisition costs 7,834 3,615 11,449 Other operating expenses 36,082 9,158 45,240 Interest expense   2,015     12,079     14,094   Total expenses   320,588     (2,149 )   318,439     Equity in net income of affiliates   -     -     -     Pretax income (loss) (78,224 ) 267,837 189,613   Income tax provision (benefit)   (36,033 )   42,078     6,045     Net income (loss) $ (42,191 ) $ 225,759   $ 183,568     Cash and investments $ 3,176,860 $ 2,759,726 $ 5,936,586 Deferred policy acquisition costs 47,863 91,099 138,962 Total assets 3,731,978 3,514,307 7,246,285 Unearned premiums 206,477 421,923 628,400 Reserve for losses and loss adjustment expenses 3,214,854 45,702 3,260,556 VIE debt 31,164 242,215 273,379 Derivative liabilities - 188,921 188,921        

Radian Group Inc. and Subsidiaries

Segment Information

Quarter Ended September 30, 2010

Exhibit D   Mortgage Financial (In thousands) Insurance Guaranty Total Revenues: Net premiums written - insurance $ 174,419   $ 388   $ 174,807     Net premiums earned - insurance $ 181,731 $ 22,206 $ 203,937 Net investment income 26,658 19,896 46,554 Net gains on investments 62,326 31,932 94,258 Net impairment losses recognized in earnings (34 ) - (34 ) Change in fair value of derivative instruments 6,772 223,011 229,783 Net gains (losses) on other financial instruments (6,591 ) 11,473 4,882 Gain on sale of affiliate - - - Other income   1,870     81     1,951   Total revenues   272,732     308,599     581,331     Expenses: Provision for losses 347,800 (3,411 ) 344,389 Change in reserve for premium deficiency 8,628 - 8,628 Policy acquisition costs 6,444 4,610 11,054 Other operating expenses 31,690 11,362 43,052 Interest expense   3,251     6,251     9,502   Total expenses   397,813     18,812     416,625     Pretax income (loss) (125,081 ) 289,787 164,706   Income tax provision (benefit)   (50,090 )   102,611     52,521     Net income (loss) $ (74,991 ) $ 187,176   $ 112,185     Cash and investments $ 3,722,189 $ 2,716,715 $ 6,438,904 Deferred policy acquisition costs 37,144 109,331 146,475 Total assets 5,293,768 3,257,829 8,551,597 Unearned premiums 199,764 507,501 707,265 Reserve for losses and loss adjustment expenses 3,504,181 88,792 3,592,973 VIE debt 156,811 339,482 496,293 Derivative liabilities 178 530,510 530,688        

Radian Group Inc. and Subsidiaries

Segment Information

Nine Months Ended September 30, 2011

Exhibit E   Mortgage Financial (In thousands) Insurance Guaranty Total Revenues: Net premiums written - insurance $ 523,255   $ (9,441 ) $ 513,814     Net premiums earned - insurance $ 513,895 $ 57,717 $ 571,612 Net investment income 73,328 51,498 124,826 Net gains on investments 98,450 64,861 163,311 Net impairment losses recognized in earnings (31 ) - (31 ) Change in fair value of derivative instruments 64 558,562 558,626 Net gains on other financial instruments 4,321 156,579 160,900 Other income   3,881     167     4,048   Total revenues   693,908     889,384     1,583,292     Expenses: Provision for losses 960,564 (20,027 ) 940,537 Change in reserve for premium deficiency (6,427 ) - (6,427 ) Policy acquisition costs 26,651 13,316 39,967 Other operating expenses 104,132 33,281 137,413 Interest expense   11,950     35,247     47,197   Total expenses   1,096,870     61,817     1,158,687     Equity in net income of affiliates   -     65     65     Pretax income (loss) (402,962 ) 827,632 424,670   Income tax provision (benefit)   (27,158 )   28,139     981     Net income (loss) $ (375,804 ) $ 799,493   $ 423,689            

Radian Group Inc. and Subsidiaries

Segment Information

Nine Months Ended September 30, 2010

Exhibit F   Mortgage Financial Financial (In thousands) Insurance Guaranty Services Total Revenues: Net premiums written - insurance $ 499,360   $ (9,151 ) $ - $ 490,209     Net premiums earned - insurance $ 539,062 66,589 $ - $ 605,651 Net investment income 81,561 58,970 - 140,531 Net gains on investments 125,548 83,920 - 209,468 Net impairment losses recognized in earnings (90 ) - - (90 ) Change in fair value of derivative instruments 5,739 (378,516 ) - (372,777 ) Net losses on other financial instruments (44,764 ) (115,118 ) - (159,882 ) Gain on sale of affiliate - - 34,815 34,815 Other income   5,292     299     63   5,654   Total revenues   712,348     (283,856 )   34,878   463,370     Expenses: Provision for losses 1,304,513 18,922 - 1,323,435 Change in reserve for premium deficiency 43 - - 43 Policy acquisition costs 29,061 13,658 - 42,719 Other operating expenses 103,562 39,511 200 143,273 Interest expense   6,920     21,631     -   28,551   Total expenses   1,444,099     93,722     200   1,538,021     Equity in net income of affiliates   -     78     14,590   14,668     Pretax (loss) income (731,751 ) (377,500 ) 49,268 (1,059,983 )   Income tax (benefit) provision   (267,700 )   (136,278 )   17,245   (386,733 )   Net (loss) income $ (464,051 ) $ (241,222 ) $ 32,023 $ (673,250 )          

Radian Group Inc.

Financial Guaranty Supplemental Information

Exhibit G

 

Quarter Ended Nine Months Ended (In thousands) September 30 September 30 2011 2010 2011 2010   Net Premiums Earned: Public finance direct $ 9,708 $ 12,603 $ 29,124 $ 40,836 Public finance reinsurance 5,238 7,826 21,304 20,935 Structured direct 399 895 1,781 2,055 Structured reinsurance 875 882 2,639 2,729 Trade credit reinsurance   (1 )   -     40   51   Net Premiums Earned - insurance 16,219 22,206 54,888 66,606 Impact of commutations   -     -     2,829   (17 ) Total Net Premiums Earned - insurance $ 16,219   $ 22,206   $ 57,717 $ 66,589       Refundings included in earned premium $ 4,597   $ 8,602   $ 18,728 $ 28,340       Net premiums earned - derivatives (1) $ 10,343 $ 11,335 $ 31,699 $ 35,172   Claims paid: Trade credit reinsurance $ 82 $ (6 ) $ 343 $ 1,078 Financial Guaranty   2,257     32,298     5,692   57,496   Total $ 2,339   $ 32,292   $ 6,035 $ 58,574       (1) Included in change in fair value of derivative instruments.        

Radian Group Inc.

Financial Guaranty Supplemental Information

Exhibit H   ($ in thousands, except ratios) September 30 December 31 September 30 2011 2010 2010 Statutory Information:   Capital and surplus $ 1,038,290 $ 1,049,664 $ 1,056,140 Contingency reserve   431,715   392,589   374,944 Qualified statutory capital 1,470,005 1,442,253 1,431,084   Unearned premium reserve 469,956 517,516 534,356 Loss and loss expense reserve   13,026   70,129   76,936 Total statutory policyholders' reserves 1,952,987 2,029,898 2,042,376   Present value of installment premiums 162,766 202,386 217,341 Soft capital facilities   -   -   150,000 Total statutory claims paying resources $ 2,115,753 $ 2,232,284 $ 2,409,717   Net debt service outstanding $ 91,717,192 $ 101,168,759 $ 100,702,721   Capital leverage ratio (1) 62 70 70 Claims paying leverage ratio (2) 43 45 42   Net par outstanding by product: Public finance direct $ 14,530,364 $ 15,727,252 $ 16,312,594 Public finance reinsurance 19,789,862 21,907,290 22,030,001 Structured direct 35,939,194 39,315,801 39,680,382 Structured reinsurance   1,630,317   1,805,295   1,854,456 Total (3) $ 71,889,737 $ 78,755,638 $ 79,877,433     (1) The capital leverage ratio is derived by dividing net debt service outstanding by qualified statutory capital. (2) The claims paying leverage ratio is derived by dividing net debt service outstanding by total statutory claims paying resources. (3) Included in public finance net par outstanding is $1.6 billion, $1.9 billion and $1.8 billion at September 30, 2011, December 31, 2010 and September 30, 2010, respectively, for legally defeased bond issues where our financial guaranty policy has not been extinguished but cash or securities have been deposited in an escrow account for the benefit of bondholders.                  

Radian Group Inc.

Mortgage Insurance Supplemental Information

Exhibit I   Quarter Ended Nine Months Ended ($ in millions) September 30 September 30 2011   %   2010   % 2011   %   2010   %  

Primary new insurance written

Prime $ 4,104 99.9 % $ 3,225 100.0 % $ 8,967 99.9 % $ 7,774 100.0 % A minus and below   3     0.1 %     1     -     6     0.1 %     3     -   Total Flow $ 4,107     100.0 %   $ 3,226     100.0 % $ 8,973     100.0 %   $ 7,777     100.0 %    

Total primary new insurance written by FICO score

>=740 $ 3,164 77.0 % $ 2,621 81.2 % $ 7,091 79.0 % $ 6,182 79.5 %

680-739

892 21.7 % 605 18.8 % 1,828 20.4 % 1,592 20.5 %

620-679

  51     1.3 %     -     -     54     0.6 %     3     -   Total Flow $ 4,107     100.0 %   $ 3,226     100.0 % $ 8,973     100.0 %   $ 7,777     100.0 %    

Percentage of primary new insurance written

Refinances 28 % 44 % 34 % 34 % LTV 95.01% and above 2.2 % 0.2 % 1.7 % 0.3 % 90.01% to 95.00% 38.0 % 29.6 % 35.3 % 29.4 % ARMs Less than 5 years 0.1 % 0.1 % 0.1 % 0.1 % 5 years and longer 6.0 % 5.3 % 5.9 % 5.8 %          

Radian Group Inc.

Mortgage Insurance Supplemental Information

Exhibit J   ($ in millions) September 30   September 30 2011   %   2010   %

Primary insurance in force

Flow $ 111,493 89.5 % $ 116,971 88.9 % Structured   13,143     10.5 %     14,587     11.1 % Total Primary $ 124,636     100.0 %   $ 131,558     100.0 %   Prime $ 104,185 83.6 % $ 107,469 81.7 % Alt-A 12,775 10.2 % 15,204 11.6 % A minus and below   7,676     6.2 %     8,885     6.7 % Total Primary $ 124,636     100.0 %   $ 131,558     100.0 %  

Primary risk in force

Flow Prime $ 23,813 86.7 % $ 24,413 84.8 % Alt-A 2,275 8.3 % 2,743 9.5 % A minus and below   1,385     5.0 %     1,634     5.7 % Total Flow $ 27,473     100.0 %   $ 28,790     100.0 %   Structured Prime $ 1,651 58.4 % $ 1,865 58.7 % Alt-A 641 22.7 % 727 22.9 % A minus and below   533     18.9 %     587     18.4 % Total Structured $ 2,825     100.0 %   $ 3,179     100.0 %   Total Prime $ 25,464 84.1 % $ 26,278 82.2 % Alt-A 2,916 9.6 % 3,470 10.9 % A minus and below   1,918     6.3 %     2,221     6.9 % Total Primary $ 30,298     100.0 %   $ 31,969     100.0 %  

Total primary risk in force by FICO score

Flow >=740 $ 11,566 42.1 % $ 10,865 37.7 %

680-739

9,213 33.5 % 10,109 35.1 %

620-679

5,671 20.7 % 6,620 23.0 % =740 $ 752 26.6 % $ 869 27.3 %

680-739

822 29.1 % 927 29.2 %

620-679

756 26.8 % 840 26.4 % =740 $ 12,318 40.7 % $ 11,734 36.7 %

680-739

10,035 33.1 % 11,036 34.6 %

620-679

6,427 21.2 % 7,460 23.3 %