-- Net GAAP loss of $27.3 million, or $0.13 per
diluted share, includes after-tax non-cash impairment charges
related to Services segment of $130.9 million–
-- Adjusted diluted net operating income per
share increases 26% year-over-year to $0.48 –
-- New MI business written increases 11% and MI
in force increases 8% year-over-year –
-- Book value per share grows 3% and tangible
book value per share grows 12% year-over-year –
Radian Group Inc. (NYSE: RDN) today reported a net loss for the
quarter ended June 30, 2017, of $27.3 million, or $0.13 per diluted
share. This compares to net income for the quarter ended June 30,
2016, of $98.1 million, or $0.44 per diluted share. The net loss in
the second quarter of 2017 was attributable to after-tax, non-cash
impairment charges of $130.9 million associated with an impairment
of goodwill and other intangible assets related to its Services
segment. While these impairment charges reduced the company’s
reported GAAP results, they did not impact cash flows or adjusted
pretax operating income and, despite these charges, book value per
share increased 3 percent from the prior-year period. Book value
per share at June 30, 2017, was $13.54, compared to $13.58 at March
31, 2017, and $13.09 at June 30, 2016. Tangible book value per
share at June 30, 2017, was $13.22, compared to $12.31 at March 31,
2017, and $11.77 at June 30, 2016.
The company determined, following a strategic review of the
segment’s business lines and in light of recent performance below
expectations, that an impairment of goodwill and other intangible
assets related to this segment was necessary. This impairment
resulted from a decrease in projected future cash flows based on
current market trends and changes to the Services segment’s
business strategy going forward.
Based on the strategic review of the Services business lines to
date, the company has determined to restructure this business and
currently expects to incur charges relating to the changes
necessary to reposition this business for sustained profitability.
While the company’s restructuring plans are not final and therefore
the company cannot provide an estimate of its total expected
restructuring charges at this time, the company currently expects
that such charges would not exceed $25 million on a pretax basis
and, depending on the finalization and implementation of its
restructuring plans, such charges could be materially less. The
company will provide an update during the third quarter, upon
completion of its strategic review.
Key Financial Highlights (dollars
in millions, except per share data)
Quarter Ended
June 30, 2017
Quarter Ended
June 30, 2016
Net income (loss) ($27.3)
$98.1
Diluted net income (loss) per share
($0.13)
$0.44
Consolidated pretax income (loss) ($35.5)
$156.5
Adjusted pretax operating income (1)
$163.7
$131.4
Adjusted diluted net operating
income per share (1) (2)
$0.48
$0.38
Net premiums earned – insurance $229.1
$229.1
New Mortgage Insurance Written (NIW) $14,342
$12,921
Mortgage insurance in force $191.6
$177.7
Book value per share $13.54
$13.09
Tangible book value per share (1)
$13.22
$11.77
(1)
Adjusted results, including adjusted
pretax operating income, adjusted diluted net operating income per
share and tangible book value per share, are non-GAAP financial
measures. For definitions and a reconciliation of the adjusted
results to the comparable GAAP measures, see Exhibits F and G.
(2)
Adjusted diluted net operating income per
share is calculated using the company’s statutory tax rate of 35
percent.
Adjusted pretax operating income for the quarter ended June 30,
2017, was $163.7 million, compared to $131.4 million for the
quarter ended June 30, 2016. Adjusted diluted net operating income
per share for the quarter ended June 30, 2017, was $0.48, a 26
percent increase compared to $0.38 for the quarter ended June 30,
2016.
“I am pleased to report on our strong operating performance in
the second quarter, including a 26% increase in adjusted diluted
net operating income per share, 8% growth in our mortgage insurance
in force and a 12% increase in tangible book value per share,” said
Radian’s Chief Executive Officer Rick Thornberry. “I continue to be
excited about the opportunities ahead for Radian. We have a unique
opportunity to leverage our market-leading Mortgage Insurance
franchise combined with our core capabilities across the Services
segment to deliver high-value and relevant products and services.
Successfully capturing these opportunities will enable us to
further deepen customer relationships, grow sustainable revenues
and profitability and increase stockholder value.”
SECOND QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- New mortgage insurance written (NIW)
grew to $14.3 billion for the quarter, an increase of 43 percent
compared to $10.1 billion in the first quarter of 2017 and an
increase of 11 percent compared to $12.9 billion in the prior-year
quarter.
- NIW for the month of June 2017
represented record monthly volume written on a flow basis for the
company.
- Of the $14.3 billion in new business
written in the second quarter of 2017, 23 percent was written with
single premiums. After consideration of the 35 percent ceded under
the Single Premium Quota Share Reinsurance Transaction, net single
premiums were 15 percent of new business written in the second
quarter of 2017.
- Refinances accounted for 9 percent of
total NIW in the second quarter of 2017, compared to 16 percent in
the first quarter of 2017, and 18 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force as of June 30, 2017, grew to $191.6 billion, an increase of 3
percent compared to $185.9 billion as of March 31, 2017, and an
increase of 8 percent compared to $177.7 billion as of June 30,
2016.
- The composition of Radian’s mortgage
insurance portfolio continues to improve, with 90 percent
consisting of new business written after 2008, including those
loans that successfully completed the Home Affordable Refinance
Program (HARP).
- Persistency, which is the percentage of
mortgage insurance that remains in force after a twelve-month
period, was 78.5 percent as of June 30, 2017, compared to 77.1
percent as of March 31, 2017, and 79.9 percent as of June 30,
2016.
- Annualized persistency for the
three-months ended June 30, 2017, was 82.8 percent, compared to
84.4 percent for the three-months ended March 31, 2017, and 78.0
percent for the three-months ended June 30, 2016.
- Total net premiums earned were $229.1
million for the quarter ended June 30, 2017, compared to $221.8
million for the quarter ended March 31, 2017, and $229.1 million
for the quarter ended June 30, 2016.
- Accelerated revenue recognition due to
Single Premium Policy cancellations was $13.3 million in the second
quarter, compared to $10.4 million in the first quarter of 2017,
and $24.0 million in the second quarter of 2016. Net of
reinsurance, accelerated revenue recognition due to Single Premium
Policy cancellations was $7.4 million in the second quarter,
compared to $5.9 million in the first quarter of 2017, and $14.8
million in the second quarter of 2016.
- Ceded premiums of $14.1 million, $14.3
million and $19.9 million for the quarters ended June 30, 2017,
March 31, 2017, and June 30, 2016, respectively, are net of accrued
profit commission on reinsurance transactions of $6.7 million in
the second quarter of 2017, compared to $5.9 million in the first
quarter of 2017, and $7.9 million in the second quarter of
2016.
- Direct mortgage insurance premium yield
was 52 basis points in the second quarter, compared to 51 basis
points in the first quarter of 2017, and 56 basis points in the
second quarter of 2016. The increase in direct premium yield in the
second quarter, compared to the first quarter of 2017, is primarily
due to the $2.9 million increase in Single Premium Policy
cancellations.
- Total net mortgage insurance premium
yield, which includes the impact of ceded premiums and accrued
profit commission, was 49 basis points in the second quarter,
compared to 48 basis points in the first quarter of 2017, and 52
basis points in the second quarter of 2016.
- The mortgage insurance provision for
losses was $17.7 million in the second quarter of 2017, compared to
$47.2 million in the first quarter of 2017, and $50.1 million in
the prior-year period.
- The provision for losses in the second
quarter benefited from positive reserve development on prior-period
defaults as well as a modest reduction in the company’s default to
claim rate assumption for new notices of default.
- The total number of primary delinquent
loans decreased by 8 percent in the second quarter from the first
quarter of 2017, and by 20 percent from the second quarter of 2016.
The total number of primary new notices of default decreased by 7
percent in the second quarter from the first quarter of 2017, and
by 10 percent from the second quarter of 2016.
- The primary mortgage insurance
delinquency rate decreased to 2.6 percent in the second quarter of
2017, compared to 2.8 percent in the first quarter of 2017, and 3.4
percent in the second quarter of 2016.
- The loss ratio in the second quarter
was 7.7 percent, compared to 21.3 percent in the first quarter of
2017 and 21.9 percent in the second quarter of 2016.
- Mortgage insurance loss reserves were
$651.6 million as of June 30, 2017, compared to $726.2 million as
of March 31, 2017, and $848.4 million as of June 30, 2016.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $23,185 as of June 30,
2017. This compares to primary reserve per primary default of
$24,230 as of March 31, 2017, and $24,609 as of June 30, 2016.
- Total mortgage insurance claims paid
were $91.3 million in the second quarter, compared to $82.1 million
in the first quarter of 2017, and $90.7 million in the second
quarter of 2016. Excluding the $21.5 million impact of commutations
and captive terminations, claims paid were $69.8 million in the
second quarter of 2017. In addition, the company’s pending claim
inventory declined 31 percent from the second quarter of 2016.
Mortgage and Real Estate Services
- The Services segment provides analytics
and outsourced services, including residential loan due diligence
and underwriting, valuations, servicing surveillance, title and
escrow, and consulting services for buyers and sellers of, and
investors in, mortgage- and real estate-related loans and
securities. These services and solutions are provided primarily
through Clayton and its subsidiaries, including Green River
Capital, Red Bell Real Estate and ValuAmerica.
- Total revenues for the second quarter
were $40.0 million, compared to $40.1 million for the first quarter
of 2017, and $42.2 million for the second quarter of 2016.
- The adjusted pretax operating income
before corporate allocations for the quarter ended June 30, 2017,
was $1.2 million, compared to a loss of $1.2 million for the
quarter ended March 31, 2017, and income of $1.5 million for the
quarter ended June 30, 2016.
- Services adjusted earnings before
interest, income taxes, depreciation and amortization (Services
adjusted EBITDA) for the quarter ended June 30, 2017, was $2.0
million, compared to a loss of $0.3 million for the quarter ended
March 31, 2017, and income of $2.2 million for the quarter ended
June 30, 2016. Additional details regarding the non-GAAP measure
Services adjusted EBITDA may be found in Exhibits F and G.
Consolidated Expenses
Other operating expenses were $68.8 million in the second
quarter, compared to $68.4 million in the first quarter of 2017,
and $63.2 million in the second quarter of last year. Details
regarding notable variable items impacting other operating expenses
may be found in Exhibit D.
CAPITAL AND LIQUIDITY UPDATE
- Radian Group maintained approximately
$360 million of available liquidity as of June 30, 2017.
- During the second quarter, Radian
completed negotiated purchases of aggregate principal amounts of
approximately $21.6 million of the company’s outstanding 3.00%
Convertible Senior Notes due 2017, for cash consideration of $31.6
million. As of June 30, 2017, Radian had only $0.6 million of
convertible senior notes outstanding. Radian has provided notice
that it will settle all remaining conversions in cash.
- The company purchased a de minimis
number of shares in the second quarter under its share repurchase
program, which expired on June 30, 2017.
- Radian Group has no material debt
maturities prior to June 2019.
CONFERENCE CALL
Radian will discuss second quarter financial results in a
conference call today, Tuesday, August 1, 2017, 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
800.230.1766 inside the U.S., or 612.288.0329 for international
callers, using passcode 427090 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 427090.
In addition to the information provided in the company's
earnings news release, other statistical and financial information,
which is expected to be referred to during the conference call,
will be available on Radian's website under Investors >Quarterly
Results, or by clicking on
http://www.radian.biz/page?name=QuarterlyResults.
NON-GAAP FINANCIAL MEASURES
Radian believes that adjusted pretax operating income and
adjusted diluted net operating income per share (non-GAAP measures)
facilitate evaluation of the company’s fundamental financial
performance and provide relevant and meaningful information to
investors about the ongoing operating results of the company. On a
consolidated basis, these measures are not recognized in accordance
with accounting principles generally accepted in the United States
of America (GAAP) and should not be considered in isolation or
viewed as substitutes for GAAP measures of performance. The
measures described below have been established in order to increase
transparency for the purpose of evaluating the company’s operating
trends and enabling more meaningful comparisons with Radian’s
competitors.
Adjusted pretax operating income is defined as earnings
excluding the impact of certain items that are not viewed as part
of the operating performance of the company’s primary activities,
or not expected to result in an economic impact equal to the amount
reflected in pretax income (loss). Adjusted pretax operating income
adjusts GAAP pretax income (loss) to remove the effects of: (i) net
gains (losses) on investments and other financial instruments; (ii)
loss on induced conversion and debt extinguishment; (iii)
acquisition-related expenses; (iv) amortization or impairment of
goodwill and other intangible assets; and (v) net impairment losses
recognized in earnings. 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
company’s statutory tax rate for the period.
The company has also presented a non-GAAP measure for tangible
book value per share, which represents book value per share less
the per-share impact of goodwill and other intangible assets, net.
The company uses this measure to assess the quality and growth of
its capital. Because tangible book value per share is a widely used
financial measure which focuses on the underlying fundamentals of
the company’s financial position and operating trends without the
impact of goodwill and other intangible assets, the company
believes that current and prospective investors may find it useful
in their analysis.
In addition to the above non-GAAP measures for the consolidated
company, the company also presents as supplemental information a
non-GAAP measure for the Services segment, representing earnings
before interest, income tax provision (benefit), depreciation and
amortization (EBITDA). Services adjusted EBITDA is calculated by
using the Services segment’s adjusted pretax operating income as
described above, further adjusted to remove the impact of
depreciation and corporate allocations for interest and operating
expenses. Services adjusted EBITDA is presented to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
See Exhibit F or Radian’s website for a description of these
items, as well as Exhibit G for reconciliations to the most
comparable consolidated GAAP measures.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia,
provides private mortgage insurance, risk management products and
real estate services to financial institutions. Radian offers
products and services through two business segments:
- Mortgage Insurance, through its
principal mortgage insurance subsidiary Radian Guaranty Inc. This
private mortgage insurance helps protect lenders from
default-related losses, facilitates the sale of low-downpayment
mortgages in the secondary market and enables homebuyers to
purchase homes more quickly with downpayments less than 20%.
- Mortgage and Real Estate
Services, through its principal services subsidiary Clayton, as
well as Green River Capital, Red Bell Real Estate and ValuAmerica.
These solutions include information and services that financial
institutions, investors and government entities use to evaluate,
acquire, securitize, service and monitor loans and asset-backed
securities.
Additional information may be found at www.radian.biz.
FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS
(Unaudited)
For historical trend information, 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 (Loss) Per Share
Trend Schedule Exhibit C: Condensed Consolidated Balance Sheets
Exhibit D: Net Premiums Earned – Insurance and Other Operating
Expenses Exhibit E: Segment Information Exhibit F: Definition of
Consolidated Non-GAAP Financial Measures Exhibit G: Consolidated
Non-GAAP Financial Measure Reconciliations Exhibit H: Mortgage
Insurance Supplemental Information New Insurance Written Exhibit I:
Mortgage Insurance Supplemental Information Primary Insurance in
Force and Risk in Force Exhibit J: Mortgage Insurance Supplemental
Information Claims and Reserves Exhibit K: Mortgage Insurance
Supplemental Information Default Statistics Exhibit L: Mortgage
Insurance Supplemental Information QSR Transaction, Captives and
Persistency
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations Trend Schedule
Exhibit A
2017 2016
(In thousands,
except per-share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3
Qtr 2
Revenues: Net premiums earned -
insurance $ 229,096 $ 221,800 $ 233,585 $ 238,149
$ 229,085
Services revenue 37,802 38,027 49,905
45,877 40,263
Net investment income 30,071 31,032
28,996 28,430 28,839
Net gains (losses) on investments and other
financial instruments 5,331 (2,851 ) (38,773 ) 7,711
30,527
Other income 612 746
736 716 1,454
Total revenues 302,912 288,754
274,449 320,883 330,168
Expenses: Provision for losses
17,222 46,913 54,287 55,785 49,725
Policy acquisition
costs 6,123 6,729 5,579 6,119 5,393
Cost of
services 25,635 28,375 33,812 29,447 27,365
Other
operating expenses 68,750 68,377 62,416 62,119 63,173
Interest expense 16,179 15,938 17,269 19,783 22,546
Loss on induced conversion and debt extinguishment
1,247 4,456 — 17,397 2,108
Impairment of goodwill
184,374 — — — —
Amortization and impairment of other
intangible assets 18,856 3,296
3,290 3,292 3,311
Total expenses 338,386 174,084
176,653 193,942 173,621
Pretax income (loss) (35,474 )
114,670 97,796 126,941 156,547
Income tax provision
(benefit) (8,132 ) 38,198
36,707 44,138 58,435
Net income (loss) $ (27,342 ) $ 76,472
$ 61,089 $ 82,803 $ 98,112
Diluted net income (loss) per share $ (0.13
) $ 0.34 $ 0.27 $ 0.37 $ 0.44
Selected Mortgage
Insurance Key Ratios Loss ratio (1) 7.7 %
21.3 % 23.4 % 23.6 % 21.9 %
Expense ratio (1) 26.2
% 27.1 % 22.7 % 22.7 % 23.6 %
(1) Calculated on a GAAP basis using
net premiums earned.
Radian Group Inc. and
Subsidiaries
Net Income (Loss) Per Share Trend
Schedule
Exhibit B
The calculation of basic and diluted
net income (loss) per share was as follows:
2017 2016
(In thousands,
except per-share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net income (loss):
Net income (loss)—basic $ (27,342 ) $
76,472 $ 61,089 $ 82,803 $ 98,112
Adjustment for dilutive
Convertible Senior Notes due 2019, net of tax (1)
— (215 ) 665 848 913
Net income (loss)—diluted $ (27,342 ) $
76,257 $ 61,754 $ 83,651 $ 99,025
Average common
shares outstanding—basic 215,152 214,925 214,481 214,387
214,274
Dilutive effect of Convertible Senior Notes due 2017
(2) — 701 421 178 12
Dilutive effect of Convertible
Senior Notes due 2019 — 1,854 6,417 8,274 8,928
Dilutive effect of stock-based compensation arrangements (2)
— 4,017 3,457
3,129 2,989
Adjusted average common shares
outstanding—diluted 215,152 221,497
224,776 225,968 226,203
Basic
net income (loss) per share $ (0.13 ) $
0.36 $ 0.28 $ 0.39 $ 0.46
Diluted net income (loss) per
share $ (0.13 ) $ 0.34 $ 0.27 $ 0.37 $
0.44
(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.
Included in the three months ended March 31, 2017 is a benefit
related to our adjustment of estimated accrued expense to actual
amounts, as a result of the January 2017 settlement of our
obligations on the remaining Convertible Senior Notes due
2019.
(2)
There were no dilutive shares for the
three months ended June 30, 2017, as a result of our net loss for
the period. The following number of shares of our common stock
equivalents issued under our share-based compensation arrangements
and our convertible debt were not included in the calculation of
diluted net income (loss) per share because they were
anti-dilutive:
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3
Qtr 2
Shares of common stock equivalents 5,975
445 1,042 1,045 1,042
Shares of Convertible Senior Notes due
2017 509 — — — —
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
June 30, March 31,
December 31, September 30,
June 30,
(In thousands,
except per-share data)
2017 2017 2016 2016 2016
Assets:
Investments $ 4,583,842 $ 4,437,716 $
4,462,430 $ 4,565,748 $ 4,636,914
Cash 56,918 73,701
52,149 46,356 55,062
Restricted cash 25,486 12,689
9,665 10,312 9,298
Accounts and notes receivable
78,540 73,794 77,631 94,692 77,170
Deferred income taxes,
net 389,759 369,209 411,798 401,442 444,513
Goodwill
and other intangible assets, net 69,857 273,068 276,228
279,400 282,703
Prepaid reinsurance premium 235,349
230,148 229,438 229,754 229,231
Other assets
377,355 357,435 343,835
422,123 332,372
Total assets
$ 5,817,106 $ 5,827,760 $ 5,863,174
$ 6,049,827 $ 6,067,263
Liabilities
and stockholders’ equity: Unearned premiums $
702,210 $ 684,797 $ 681,222 $ 680,973 $ 677,599
Reserve
for losses and loss adjustment expense 651,591 726,169
760,269 821,934 848,379
Long-term debt 989,010
1,008,777 1,069,537 1,067,666 1,278,051
Reinsurance funds
withheld 180,991 167,427 158,001 177,147 163,360
Other liabilities 379,144
319,282 321,859 413,401
294,507
Total liabilities 2,902,946
2,906,452 2,990,888
3,161,121 3,261,896
Equity component
of currently redeemable convertible senior notes 16 883
— — —
Common stock 233 233 232 232 232
Treasury stock (893,531 ) (893,372 ) (893,332
) (893,197 ) (893,176 )
Additional paid-in capital
2,743,872 2,743,594 2,779,891 2,778,860 2,781,136
Retained earnings 1,045,453 1,073,333 997,890 937,338
855,070
Accumulated other comprehensive income (loss)
18,117 (3,363 ) (12,395 ) 65,473
62,105
Total stockholders’ equity
2,914,144 2,920,425
2,872,286 2,888,706 2,805,367
Total liabilities and stockholders’ equity $
5,817,106 $ 5,827,760 $ 5,863,174 $
6,049,827 $ 6,067,263
Shares
outstanding 215,175 215,091 214,521 214,405 214,284
Book value per share $ 13.54 $ 13.58 $
13.39 $ 13.47 $ 13.09
Tangible book value per share (See
Exhibit G) $ 13.22 $ 12.31 $ 12.10 $ 12.17 $
11.77
Statutory Capital Ratios Risk to capital
ratio-Radian Guaranty only
14.3:1
(1) 14.3:1 13.5:1 13.7:1 14.0:1
Risk to capital
ratio-Mortgage Insurance combined
13.4:1
(1) 13.4:1 13.6:1 13.9:1 14.2:1
(1) Preliminary.
Radian Group Inc. and
Subsidiaries
Net Premiums Earned - Insurance and
Other Operating Expenses
Exhibit D
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3
Qtr 2
Premiums earned - insurance:
Direct $ 243,229 $ 236,062 $ 251,751 $ 258,074
$ 248,938
Assumed 7 7 8 9 9
Ceded
(14,140 ) (14,269 ) (18,174 )
(19,934 ) (19,862 )
Net premiums earned - insurance
$ 229,096 $ 221,800 $ 233,585 $
238,149 $ 229,085
Notable variable items:
(1) Single Premium Policy cancellations, direct $
13,346 $ 10,415 $ 26,707 $ 30,631 $ 24,019
Single Premium
Policy cancellations, ceded (5,898 ) (4,536 )
(11,005 ) (12,183 ) (9,178 )
Profit commission - reinsurance
(2) 6,682 5,888 8,458
8,922 7,891
Total
$ 14,130 $ 11,767 $ 24,160 $
27,370 $ 22,732
Other operating
expenses $ 68,750 $ 68,377 $ 62,416
$ 62,119 $ 63,173
Notable variable
items: (3) Technology upgrade project (4) $
5,121 $ 3,512 $ 3,648 $ 2,440 $ 2,443
Severance costs
382 961 888 1,137 277
Retirement and consulting agreement
(5) 867 3,622 — — —
Incentive compensation (6)
(7) 9,641 7,447 9,072 12,652 14,183
Ceding
commissions (8) (4,064 ) (3,864 )
(5,105 ) (5,460 ) (5,006 )
Total
$ 11,947 $ 11,678 $ 8,503 $
10,769 $ 11,897
(1)
Affecting net premiums earned -
insurance. These amounts are included in net premiums earned -
insurance.
(2)
The amounts represent the profit
commission on the Single Premium QSR Transaction.
(3)
Affecting other operating expenses.
These amounts are included in other operating expenses.
(4)
Represents the expense impact of
certain costs incurred in our initiative to significantly upgrade
our technology systems.
(5)
The amount represents expenses
associated with retirement and consulting agreements entered into
in February 2017 with our former CEO. Additional expenses are
expected to be recognized throughout the year. A portion of both
the current and future expenses are subject to change, based on the
Company's and the former CEO's future performance.
(6)
The expense relates to short- and
long-term incentive programs.
(7)
Incentive compensation expense is shown
net of deferred policy acquisition costs.
(8)
Ceding commissions are shown net of
deferred policy acquisition costs.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information
concerning our operating segments as of and for the periods
indicated is as follows. For a definition of adjusted pretax
operating income and Services adjusted EBITDA, along with
reconciliations to consolidated GAAP measures, see Exhibits F and
G.
Mortgage Insurance 2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net premiums written -
insurance $ 241,307 $ 224,665 $ 234,172 $ 240,999
$ 232,353
(Increase) decrease in unearned premiums
(12,211 ) (2,865 ) (587 ) (2,850
) (3,268 )
Net premiums earned - insurance
229,096 221,800 233,585 238,149 229,085
Net investment
income 30,071 31,032 28,996 28,430 28,839
Other
income 612 746 736
716 1,454
Total
259,779 253,578 263,317
267,295 259,378
Provision for
losses 17,714 47,232 54,675 56,151 50,074
Policy
acquisition costs 6,123 6,729 5,579 6,119 5,393
Other
operating expenses before corporate allocations
37,939 39,289 37,773
35,940 34,365
Total (1)
61,776 93,250 98,027
98,210 89,832
Adjusted pretax
operating income before corporate allocations 198,003
160,328 165,290 169,085 169,546
Allocation of corporate
operating expenses 15,894 14,186 9,652 11,911 14,286
Allocation of interest expense 11,748
11,509 12,843 15,360
18,124
Adjusted pretax operating income
$ 170,361 $ 134,633 $ 142,795 $
141,814 $ 137,136
Services
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Services revenue (1)
$ 39,975 $ 40,089 $ 52,558 $
48,033 $ 42,210
Cost of services
25,962 28,690 34,130 29,655 27,730
Other operating
expenses before corporate allocations 12,803
12,604 14,842 13,575
13,030
Total 38,765
41,294 48,972 43,230
40,760
Adjusted pretax operating income
(loss) before corporate allocations (2) 1,210 (1,205 )
3,586 4,803 1,450
Allocation of corporate operating expenses
3,404 3,718 1,738 2,265 2,779
Allocation of interest
expense 4,431 4,429
4,426 4,423 4,422
Adjusted
pretax operating income (loss) $ (6,625 )
$ (9,352 ) $ (2,578
)
$
(1,885)
$ (5,751 )
(1) Inter-segment information:
2017 2016
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Inter-segment expense included in Mortgage Insurance segment
$ 2,173 $ 2,062 $ 2,653 $ 2,156 $ 1,947
Inter-segment revenue included in Services segment
2,173 2,062 2,653 2,156 1,947
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
(2) Supplemental information for
Services adjusted EBITDA (see definition in Exhibit F):
2017 2016
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted pretax operating income (loss) before corporate
allocations $ 1,210 $ (1,205 ) $ 3,586 $ 4,803 $
1,450
Depreciation and amortization 835
858 829 884 749
Services adjusted
EBITDA $ 2,045 $ (347 ) $ 4,415 $ 5,687 $ 2,199
Selected balance sheet information for
our segments, as of the periods indicated, is as follows:
At June 30, 2017
(In
thousands)
Mortgage
Insurance
Services (1)
Total Total assets $
5,605,607 $ 211,499 $ 5,817,106
At December 31, 2016
(In
thousands)
Mortgage
Insurance
Services Total
Total assets $ 5,506,338 $ 356,836 $
5,863,174
(1)
The decrease in total assets for the
Services segment at June 30, 2017, as compared to total assets at
December 31, 2016, is primarily due to the impairment of goodwill
and other intangible assets.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measures
In addition to the traditional GAAP financial measures, we have
presented “adjusted pretax operating income” and “adjusted diluted
net operating income per share,” non-GAAP financial measures for
the consolidated company, 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 operating
trends and enabling more meaningful comparisons with our peers.
Although on a consolidated basis “adjusted pretax operating income”
and “adjusted diluted net operating income 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 (Radian'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 is defined as GAAP pretax
income (loss) excluding the effects of: (i) net gains (losses) on
investments and other financial instruments; (ii) loss on induced
conversion and debt extinguishment; (iii) acquisition-related
expenses; (iv) amortization or impairment of goodwill and other
intangible assets; and (v) net impairment losses recognized in
earnings. Adjusted diluted net operating income per share is
calculated by dividing (i) adjusted pretax operating income
attributable to common shareholders, net of taxes computed using
the company’s statutory 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 share-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 excludes certain items
that have occurred in the past and are expected to occur in the
future, the excluded items represent those that are: (i) not viewed
as part of the operating performance of our primary activities or
(ii) not expected to result in an economic impact equal to the
amount reflected in pretax income (loss). 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
securities. These valuation adjustments may not necessarily result
in realized economic gains or losses.
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. We do not view
them to be indicative of our fundamental operating activities.
Therefore, these items are excluded from our calculation of
adjusted pretax operating income (loss). (2)
Loss on induced conversion and debt
extinguishment. Gains or losses on early extinguishment of debt and
losses incurred to purchase our convertible debt prior to maturity
are discretionary activities that are undertaken in order to take
advantage of market opportunities to strengthen our financial and
capital positions; therefore, we do not view these activities as
part of our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
(3)
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).
(4)
Amortization or impairment of goodwill and
other 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).
(5)
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).
We have also presented a non-GAAP measure for tangible book
value per share, which represents book value per share less the
per-share impact of goodwill and other intangible assets, net. We
use this measure to assess the quality and growth of our capital.
Because tangible book value per share is a widely-used financial
measure which focuses on the underlying fundamentals of our
financial position and operating trends without the impact of
goodwill and other intangible assets, we believe that current and
prospective investors may find it useful in their analysis of the
Company.
In addition to the above non-GAAP measures for the consolidated
company, we also have presented as supplemental information a
non-GAAP measure for our Services segment, representing a measure
of earnings before interest, income tax provision (benefit),
depreciation and amortization (“EBITDA”). We calculate Services
adjusted EBITDA by using adjusted pretax operating income as
described above, further adjusted to remove the impact of
depreciation and corporate allocations for interest and operating
expenses. We have presented Services adjusted EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
See Exhibit G for the reconciliation of the most comparable GAAP
measures, consolidated pretax income (loss), diluted net income
(loss) per share and book value per share, to our non-GAAP
financial measures for the consolidated company, adjusted pretax
operating income, adjusted diluted net operating income per share
and tangible book value per share, respectively. Exhibit G also
contains the reconciliation of the most comparable GAAP measure,
net income (loss), to Services adjusted EBITDA.
Total adjusted pretax operating income, adjusted diluted net
operating income per share, tangible book value per share and
Services adjusted EBITDA should not be considered in isolation or
viewed as substitutes for GAAP pretax income (loss), diluted net
income (loss) per share, book value per share or net income (loss).
Our definitions of adjusted pretax operating income, adjusted
diluted net operating income per share, tangible book value per
share or Services adjusted EBITDA 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 (page 1 of 2)
Reconciliation of Consolidated Pretax
Income (Loss) to Adjusted Pretax Operating Income
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3
Qtr 2
Consolidated pretax income (loss) $
(35,474 ) $ 114,670 $ 97,796 $ 126,941 $ 156,547
Less income (expense) items: Net gains (losses) on
investments and other financial instruments 5,331 (2,851
) (38,773 ) 7,711 30,527
Loss on induced conversion and debt
extinguishment (1,247 ) (4,456 ) — (17,397 )
(2,108 )
Acquisition-related expenses (1) (64
) (8 ) (358 ) (10 ) 54
Impairment of goodwill
(184,374 ) — — — —
Amortization and impairment of
other intangible assets (18,856 )
(3,296 ) (3,290 ) (3,292 ) (3,311 )
Total
adjusted pretax operating income (2) $ 163,736
$ 125,281 $ 140,217 $ 139,929 $ 131,385
(1) Please see Exhibit F for the
definition of this line item.
(2) Total adjusted pretax operating
income consists of adjusted pretax operating income (loss) for each
segment as follows:
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted pretax operating
income (loss): Mortgage Insurance $
170,361 $ 134,633 $ 142,795 $ 141,814 $ 137,136
Services (6,625 ) (9,352 )
(2,578 ) (1,885 ) (5,751 )
Total adjusted
pretax operating income $ 163,736 $
125,281 $ 140,217 $ 139,929 $ 131,385
Reconciliation of Diluted Net Income
(Loss) Per Share to Adjusted Diluted Net Operating Income Per
Share
2017 2016
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Diluted net income (loss) per share $ (0.13
) $ 0.34 $ 0.27 $ 0.37 $ 0.44
Less per-share impact of debt items: Loss on
induced conversion and debt extinguishment (0.01
) (0.02 ) — (0.08 ) (0.01 )
Income tax provision
(benefit) (1) — (0.01 ) —
(0.03 ) —
Per-share impact of debt
items (0.01 ) (0.01 ) —
(0.05 ) (0.01 )
Less per-share
impact of other income (expense) items: Net gains (losses)
on investments and other financial instruments 0.02
(0.01 ) (0.17 ) 0.03 0.13
Acquisition-related expenses
— — — — —
Impairment of goodwill (0.86
) — — — —
Amortization and impairment of other intangible
assets (0.09 ) (0.01 ) (0.02 ) (0.01 ) (0.01 )
Income tax provision (benefit) on other income (expense) items
(2) (0.32 ) (0.01 ) (0.07 ) 0.01 0.04
Difference between statutory and effective tax rate
— (0.01 ) (0.02 ) —
(0.01 )
Per-share impact of other income (expense)
items (0.61 ) (0.02 ) (0.14
) 0.01 0.07
Add per-share impact of share
dilution
(0.01 ) — —
— —
Adjusted diluted net operating income
per share (2) $ 0.48 $ 0.37 $ 0.41
$ 0.41 $ 0.38
(1)
A portion of the loss on induced
conversion and debt extinguishment is non-deductible for tax
purposes. The income tax benefit is based on the tax deductible
loss using the company's federal statutory tax rate of 35%.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 2 of 2)
(2)
Calculated using the company’s federal
statutory tax rate of 35%. Any permanent tax adjustments and state
income taxes on these items have been deemed immaterial and are not
included.
Reconciliation of Book Value Per Share
to Tangible Book Value Per Share (1)
2017 2016
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Book value per share $ 13.54 $ 13.58 $ 13.39 $ 13.47 $ 13.09
Less: Goodwill and other intangible
assets, net per share
0.32 1.27 1.29
1.30 1.32
Tangible book value per share
$ 13.22 $ 12.31 $ 12.10 $ 12.17 $ 11.77
(1) All book value per share items are
calculated based on the number of shares outstanding at the end of
each respective period.
Reconciliation of Net Income (Loss) to
Services Adjusted EBITDA
2017 2016
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net income
(loss) $ (27,342 ) $ 76,472 $ 61,089 $
82,803 $ 98,112
Less income (expense) items: Net gains
(losses) on investments and other financial instruments
5,331 (2,851 ) (38,773 ) 7,711 30,527
Loss on induced
conversion and debt extinguishment (1,247 )
(4,456 ) — (17,397 ) (2,108 )
Acquisition-related expenses
(64 ) (8 ) (358 ) (10 ) 54
Impairment of
goodwill (184,374 ) — — — —
Amortization and
impairment of other intangible assets (18,856 )
(3,296 ) (3,290 ) (3,292 ) (3,311 )
Income tax provision
(benefit) (8,132 ) 38,198 36,707 44,138 58,435
Mortgage Insurance adjusted pretax operating income
170,361 134,633 142,795
141,814 137,136
Services adjusted
pretax operating income (loss) (6,625 ) (9,352 )
(2,578 ) (1,885 ) (5,751 )
Less income (expense)
items: Allocation of corporate operating expenses to
Services (3,404 ) (3,718 ) (1,738 ) (2,265 )
(2,779 )
Allocation of corporate interest expense to
Services (4,431 ) (4,429 ) (4,426 ) (4,423 )
(4,422 )
Services depreciation and amortization
(835 ) (858 ) (829 ) (884 )
(749 )
Services adjusted EBITDA $ 2,045
$ (347 ) $ 4,415
$ 5,687 $ 2,199
On a consolidated basis, “adjusted pretax operating income,”
“adjusted diluted net operating income per share” and “tangible
book value per share” are measures not determined in accordance
with GAAP. “Services adjusted EBITDA” is also a non-GAAP measure.
These measures should not be considered in isolation or viewed as
substitutes for GAAP pretax income (loss), diluted net income
(loss) per share, book value per share or net income (loss). Our
definitions of adjusted pretax operating income, adjusted diluted
net operating income per share, tangible book value per share or
Services adjusted EBITDA 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 - New Insurance Written
Exhibit H 2017 2016
($ in
millions)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Total primary new insurance written $ 14,342
$ 10,055 $ 13,882 $ 15,656 $ 12,921
Percentage of
primary new insurance written by FICO score
>=740 61.6 % 61.3 % 64.2 % 64.2 % 60.9 %
680-739
32.6 32.7 31.4 30.4 32.2
620-679
5.8 6.0 5.2 5.4 6.9
Total Primary 100.0 % 100.0 % 100.8 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Direct monthly and other premiums 77 % 75 % 73
% 73 % 74 %
Direct single premiums 23 % 25 %
27 % 27 % 26 %
Net single premiums (1) 15
% 16 % 17 % 17 % 17 %
Refinances 9
% 16 % 27 % 22 % 18 %
LTV 95.01% and
above 12.8 % 9.2 % 7.4 % 6.0 % 4.8 %
90.01% to
95.00% 47.3 % 47.3 % 43.6 % 47.1 % 50.2 %
85.01% to 90.00% 28.8 % 30.3 % 32.3 % 31.4 %
31.8 %
85.00% and below 11.1 % 13.2 % 16.7 %
15.5 % 13.2 %
(1)
Represents the percentage of direct
single premiums written, after consideration of the 35% single
premium NIW ceded under the Single Premium QSR Transaction.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Primary Insurance in Force and
Risk in Force Exhibit I June 30,
March 31, December 31, September 30,
June 30,
($ in millions) 2017 2017 2016 2016 2016
Primary insurance in force
(1)
Prime $ 183,886 $ 177,702 $ 174,927 $ 172,178
$ 168,259
Alt-A 4,602 4,842 5,064 5,363 5,627
A
minus and below 3,149 3,315 3,459
3,624 3,786
Total Primary $
191,637 $ 185,859 $ 183,450 $ 181,165
$ 177,672
Primary risk in
force (1) (2)
Prime $ 47,075 $
45,442
$ 44,708 $ 44,075 $ 43,076
Alt-A 1,062 1,118 1,168
1,241 1,302
A minus and below 792 834
865 906 946
Total Primary $
48,929 $ 47,394 $ 46,741 $ 46,222
$ 45,324
Percentage of
primary risk in force
Direct monthly and other premiums 69 % 69 % 69
% 69 % 69 %
Direct single premiums 31 % 31 %
31 % 31 % 31 %
Net single premiums (3) 25
% 25 % 25 % 25 % 25 %
Percentage of
primary risk in force by FICO score
>=740 58.3 % 57.9 % 57.6 % 57.4 % 57.1 %
680-739 31.1 31.1 31.0 30.9 30.8
620-679
9.3 9.6 9.9 10.2 10.5
<=619 1.3 1.4
1.5 1.5 1.6
Total Primary
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 8.0 % 7.6 % 7.4 % 7.2 % 7.1 %
90.01% to 95.00% 52.9 52.6 52.3 52.1 51.6
85.01%
to 90.00% 31.7 32.2 32.5 32.8 33.3
85.00% and
below 7.4 7.6 7.8 7.9 8.0
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior 4.1 % 4.4 % 4.8 % 5.1 % 5.5 %
2006
2.5 2.8 2.9 3.1 3.4
2007
6.2 6.7 7.0 7.4 7.9
2008
4.2 4.6 4.8 5.2 5.6
2009
0.8 0.9 1.0 1.2 1.3
2010
0.7 0.8 0.9 1.0 1.2
2011
1.7 1.8 2.0 2.2 2.5
2012
6.7 7.4 8.0 8.8 9.7
2013
10.7 11.8 12.6 13.9 15.5
2014
10.2 11.2 12.0 13.4 14.9
2015
16.1 17.3 18.1 19.4 21.0
2016
23.7 25.0 25.9 19.3 11.5
2017
12.4 5.3 — — —
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Primary risk in force on defaulted loans (4) $
1,124 $ 1,224 $ 1,363 $ 1,381 $ 1,398
(1)
Includes amounts ceded under our
reinsurance agreements, as well as amounts related to the Freddie
Mac Agreement.
(2)
Does not include pool risk in force or
other risk in force, which combined represent less than 3.0% of our
total risk in force for all periods presented.
(3)
Represents the percentage of Single
Premium RIF, after giving effect to all reinsurance ceded.
(4)
Excludes risk related to loans subject
to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Claims and Reserves
Exhibit J 2017 2016
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net claims paid: (1) Prime $ 45,562 $
52,044 $ 70,151 $ 51,964 $ 56,036
Alt-A 13,700 16,165
27,558 16,334 18,349
A minus and below 10,586
9,460 13,760 9,615 12,315
Total
primary claims paid 69,848 77,669 111,469 77,913 86,700
Pool 1,901 4,180 4,788 4,492 5,451
Second-lien and
other (1,937 ) 78 (264 ) (234 ) (231 )
Subtotal 69,812 81,927 115,993 82,171 91,920
Impact of captive terminations 645 — 492 (171 )
(2,619 )
Impact of commutations 20,838 161
— 705 1,400
Total net claims
paid $ 91,295 $ 82,088 $ 116,485
$ 82,705 $ 90,701
Average net claims
paid: (2) Prime $ 48.2 $ 50.5 $ 45.5 $
48.3 $ 48.6
Alt-A 61.7 67.1 65.5 65.3 63.5
A minus
and below 41.7 39.6 37.7 41.3 39.9
Total average net
primary claims paid 49.1 51.4 47.9 50.0 49.5
Pool
47.5 49.2 45.6 51.0 58.0
Total average net claims
paid $ 47.3 $ 50.9 $ 47.6 $ 49.7 $ 49.6
Average direct primary claims paid (2) (3) $
49.4 $ 51.6 $ 48.2 $ 50.3 $ 49.9
Average total direct
claims paid (2) (3) $ 47.6 $ 51.1 $ 47.9 $ 50.0 $
50.0
June 30, March 31, December 31, September 30, June 30,
($ in thousands,
except primary reserve per primary default amounts)
2017 2017 2016 2016 2016
Reserve for losses by
category Prime $ 318,169 $ 362,804 $
379,845 $ 409,438 $ 420,281
Alt-A 124,477 140,543
148,006 166,349 173,284
A minus and below 85,283
96,373 101,653 106,678 112,001
IBNR and other 69,620
70,651 71,107 73,057 74,639
LAE 15,492 17,551 18,630
21,255 22,389
Reinsurance recoverable (4) 7,341
7,680 6,816 6,448 6,044
Total
primary reserves 620,382 695,602 726,057
783,225 808,638
Pool insurance
29,099 28,453 31,853 36,065 36,982
IBNR and other
658 603 673 823 897
LAE 843 822 932 1,112
1,163
Reinsurance recoverable (4) 30 28
35 36 33
Total pool reserves
30,630 29,906 33,493 38,036
39,075
Total 1st lien reserves 651,012 725,508
759,550 821,261 847,713
Second-lien and other 579
661 719 673 666
Total
reserves $ 651,591 $ 726,169 $
760,269 $ 821,934 $ 848,379
1st lien
reserve per default Primary reserve per primary default
excluding IBNR and other $ 23,185 $ 24,230 $
22,503 $ 24,049 $ 24,609
(1)
Net of reinsurance recoveries.
(2)
Calculated without giving effect to the
impact of the termination of captive transactions and
commutations.
(3)
Before reinsurance recoveries.
(4)
Represents ceded losses on captive
transactions and quota share reinsurance transactions.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Default Statistics
Exhibit K June 30, March 31,
December 31, September 30, June 30,
2017 2017 2016 2016 2016
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 879,926 858,248 849,227
840,534 826,511
Number of loans in default 15,664
16,981 19,101 19,100 19,025
Percentage of loans in default
1.78 % 1.98 % 2.25 % 2.27 % 2.30 %
Alt-A
Number of insured loans 24,089 25,425 26,536 28,080
29,445
Number of loans in default 3,366 3,812 4,193
4,545 4,820
Percentage of loans in default 13.97
% 14.99 % 15.80 % 16.19 % 16.37 %
A minus and
below
Number of insured loans 24,864 26,043 27,115 28,313
29,450
Number of loans in default 4,725 5,000 5,811
5,885 5,982
Percentage of loans in default 19.00
% 19.20 % 21.43 % 20.79 % 20.31 %
Total
Primary Number of insured loans 928,879 909,716
902,878 896,927 885,406
Number of loans in default (1)
23,755 25,793 29,105 29,530 29,827
Percentage of loans in
default 2.56 % 2.84 % 3.22 % 3.29 % 3.37 %
(1)
Excludes the following number of loans
subject to the Freddie Mac Agreement that are in default as we no
longer have claims exposure on these loans:
June 30, March 31,
December 31, September 30, June 30,
2017 2017 2016 2016 2016
Number of loans in default 1,305 1,395 1,639 1,888
2,180
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - QSR Transactions, Captives and Persistency
Exhibit L
2017 2016
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3
Qtr 2
Quota Share
Reinsurance (“QSR”) Transactions
QSR ceded premiums written (1) $ 5,059 $ 5,457
$ 6,049 $ 6,730 $ 7,356
% of premiums written 1.9
% 2.3 % 2.4 % 2.6 % 2.9 %
QSR ceded premiums earned
(1) $ 7,404 $ 7,834 $ 9,421 $ 10,597 $ 11,172
% of premiums earned 3.1 % 3.3 % 3.8 % 4.1 %
4.5 %
Ceding commissions written $ 1,446 $
1,559 $ 1,728 $ 1,922 $ 2,099
Ceding commissions earned (2)
$ 3,379 $ 3,894 $ 4,374 $ 3,974 $ 3,779
Profit
commission $ — $ — $ — $ — $ —
RIF included in
QSR Transactions (3) $ 1,393,038 $ 1,488,972 $
1,578,300 $ 1,718,031 $ 1,872,017
Single Premium
QSR Transaction
QSR ceded premiums written (1) $ 13,856 $
8,960 $ 11,121 $ 13,004 $ 11,488
% of premiums written
5.3 % 3.7 % 4.4 % 5.0 % 4.6 %
QSR ceded premiums
earned (1) $ 6,311 $ 5,859 $ 8,060 $ 8,608 $
7,146
% of premiums earned 2.6 % 2.5 % 3.2 %
3.3 % 2.9 %
Ceding commissions written $ 5,134
$ 3,712 $ 4,895 $ 5,482 $ 4,844
Ceding commissions earned
(2) $ 3,248 $ 2,937 $ 4,130 $ 4,382 $ 3,759
Profit commission $ 6,682 $ 5,888 $ 8,458 $
8,922 $ 7,891
RIF included in Single Premium QSR Transaction
(3) $ 4,103,410 $ 3,904,402 $ 3,761,648 $
3,621,993 $ 3,461,464
Total RIF included in QSR
Transactions and Single Premium QSR Transaction $
5,496,448 $ 5,393,374 $ 5,339,948 $ 5,340,024 $ 5,333,481
1st Lien
Captives
Premiums earned ceded to captives $ 242 $ 389
$ 503 $ 537 $ 1,346
% of total premiums earned 0.1
% 0.2 % 0.2 % 0.2 % 0.5 %
Persistency Rate (twelve
months ended) 78.5 % 77.1 % 76.7 % 78.4 % 79.9 %
Persistency Rate (quarterly, annualized) (4) 82.8
% 84.4 % 76.8 % 75.3 % 78.0 %
(1)
Net of profit commission.
(2)
Includes amounts reported in policy
acquisition costs and other operating expenses.
(3)
Included in primary RIF.
(4)
The Persistency Rate on a quarterly,
annualized basis may be impacted by seasonality or other factors,
and may not be indicative of full-year trends.
FORWARD-LOOKING STATEMENTS
All statements in this press 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
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 where 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. These risks and uncertainties include,
without limitation:
- changes in general economic and
political conditions, including unemployment rates, interest rates
and changes in housing and mortgage credit markets, that impact the
size of the insurable market and the credit performance of our
insured portfolio;
- changes in the way customers,
investors, ratings agencies, regulators or legislators perceive our
performance, financial strength and future prospects;
- Radian Guaranty’s ability to remain
eligible under the Private Mortgage Insurance Eligibility
Requirements (“PMIERs”) and other applicable requirements imposed
by the Federal Housing Finance Agency and by the
Government-Sponsored Enterprises (“GSEs”) to insure loans purchased
by the GSEs;
- our ability to successfully execute and
implement our capital plans and to maintain sufficient holding
company liquidity to meet our short- and long-term liquidity
needs;
- our ability to successfully execute and
implement our business plans and strategies, including plans and
strategies to reposition our Services business as well as plans and
strategies that require GSE and/or regulatory approvals;
- our ability to maintain an adequate
level of capital in our insurance subsidiaries to satisfy existing
and future state regulatory requirements;
- changes in the charters or business
practices of, or rules or regulations imposed by or applicable to
the GSEs, including the GSEs’ interpretation and application of the
PMIERs to our mortgage insurance business;
- changes in the current housing finance
system in the U.S., including the role of the Federal Housing
Administration (“FHA”), the GSEs and private mortgage insurers in
this system;
- any disruption in the servicing of
mortgages covered by our insurance policies, as well as poor
servicer performance;
- a significant decrease in the
Persistency Rates of our mortgage insurance policies;
- competition in our mortgage insurance
business, including price competition and competition from the FHA,
U.S. Department of Veteran Affairs and other forms of credit
enhancement;
- the effect of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (“Dodd-Frank Act”) on the
financial services industry in general, and on our businesses in
particular;
- the adoption of new laws and
regulations, or changes in existing laws and regulations (including
to the Dodd-Frank Act), or the way they are interpreted or
applied;
- legal and regulatory claims,
assertions, actions, reviews, audits, inquiries and investigations
that could result in adverse judgments, settlements, fines,
injunctions, restitutions or other relief that could require
significant expenditures or have other effects on our
business;
- the amount and timing of potential
payments or adjustments associated with federal or other tax
examinations, including deficiencies assessed by the IRS resulting
from its 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 business;
- 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;
- potential future impairment charges
related to our goodwill and other intangible assets, and
uncertainties regarding our ability to execute our restructuring
plans within expected costs;
- changes in accounting principles
generally accepted in the U.S. (“GAAP”) or statutory accounting
principles and practices (“SAPP”) rules and guidance, or their
interpretation;
- our ability to attract and retain key
employees; and
- legal and other limitations on
dividends and other amounts we may receive from our
subsidiaries.
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 our Annual Report on Form
10-K for the year ended December 31, 2016, and subsequent reports
filed from time to time with the U.S. Securities and Exchange
Commission. We caution you not to place undue reliance on these
forward-looking statements, which are current only as of the date
on which we issued this press release. We do not intend to, and we
disclaim any duty or obligation to, update or revise any
forward-looking statements to reflect new information or future
events or for any other reason.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170801005500/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
Radian (NYSE:RDN)
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