-- GAAP net income of $65.1 million or $0.30
per diluted share --
-- Adjusted diluted net operating income per
share increases 12% year-over-year to $0.46 --
-- New MI business written increases 5% over
second quarter 2017; 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 net income for the
quarter ended September 30, 2017, of $65.1 million, or $0.30
per diluted share. Results for the third quarter of 2017 include
$45.8 million of pretax loss on induced conversion and debt
extinguishment as well as $12.0 million of pretax restructuring and
other exit costs related to the Mortgage and Real Estate Services
segment. This compares to net income for the quarter ended
September 30, 2016, of $82.8 million, or $0.37 per diluted
share.
Key Financial Highlights (dollars
in millions, except per-share data)
Quarter EndedSeptember 30, 2017
Quarter EndedSeptember 30, 2016
PercentChange
Net income (loss) (1) $65.1 $82.8 (21)%
Diluted net income per share $0.30 $0.37 (19)%
Consolidated pretax income $102.8 $126.9 (19)%
Adjusted pretax operating income (2) $155.6 $139.9
11% Adjusted diluted net operating
income per share (2) (3)
$0.46 $0.41 12% Net premiums earned -
insurance $236.7 $238.1 (1)% MI New Insurance
Written (NIW) $15,125 $15,656 (3)% MI
insurance in force $196.5 $181.2 8% Book value
per share $13.88 $13.47 3% Tangible book value
per share (2) $13.57 $12.17 12%
(1)
Net income for the third quarter of 2017
includes $45.8 million of pretax loss on induced conversion and
debt extinguishment as well as $12.0 million of pretax
restructuring and other exit costs related to the Mortgage and Real
Estate Services segment.
(2)
Adjusted results, including adjusted
pretax operating income and adjusted diluted net operating income
per share, as well as tangible book value per share, are non-GAAP
financial measures. For definitions and a reconciliation of these
measures to the comparable GAAP measures, see Exhibits F and G.
(3)
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 September
30, 2017, was $155.6 million, compared to $139.9 million for the
quarter ended September 30, 2016. Adjusted diluted net operating
income per share for the quarter ended September 30, 2017, was
$0.46, an increase of 12 percent compared to $0.41 for the quarter
ended September 30, 2016.
Book value per share at September 30, 2017, was $13.88, an
increase of 3% compared to $13.54 at June 30, 2017, and $13.47
at September 30, 2016. Tangible book value per share at
September 30, 2017, was $13.57, an increase of 3% compared to
$13.22 at June 30, 2017, and an increase of 12% compared to
$12.17 at September 30, 2016.
“We reported another quarter of excellent operating results for
Radian and took several actions that strengthened our financial
position and improved our capital structure,” said Radian’s Chief
Executive Officer Rick Thornberry. “We also completed a strategic
review of our Services business and finalized our restructuring
plan, which is focused on re-positioning the segment for sustained
profitability. We believe the changes we have made across our
Services business will drive future growth and profitability for
Radian, and deliver even greater value to our customers and
stockholders.”
THIRD QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- MI new insurance written (NIW) grew to
$15.1 billion for the quarter, an increase of 5 percent compared to
$14.3 billion in the second quarter of 2017 and a decrease of 3
percent compared to $15.7 billion in the prior-year quarter.
- NIW for the month of August 2017
represented record monthly volume written on a flow basis for the
company.
- Of the $15.1 billion in NIW in the
third 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 third quarter of
2017.
- Refinances accounted for 9 percent of
total NIW in the third quarter of 2017, the same as the second
quarter of 2017, and a decrease compared to 22 percent a year
ago.
- Total primary mortgage insurance in
force as of September 30, 2017, grew to $196.5 billion, an
increase of 3 percent compared to $191.6 billion as of
June 30, 2017, and an increase of 8 percent compared to $181.2
billion as of September 30, 2016.
- The composition of Radian’s mortgage
insurance portfolio continues to improve, with 91 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 12-month period,
was 80.0 percent as of September 30, 2017, compared to 78.5
percent as of June 30, 2017, and 78.4 percent as of
September 30, 2016.
- Annualized persistency for the
three-months ended September 30, 2017, was 80.4 percent,
compared to 82.8 percent for the three-months ended June 30,
2017, and 75.3 percent for the three-months ended
September 30, 2016.
- Total net premiums earned were $236.7
million for the quarter ended September 30, 2017, compared to
$229.1 million for the quarter ended June 30, 2017, and $238.1
million for the quarter ended September 30, 2016.
- Accelerated revenue recognition due to
single premium policy cancellations was $15.4 million in the third
quarter, compared to $13.3 million in the second quarter of 2017,
and $30.6 million in the third quarter of 2016. Net of reinsurance,
accelerated revenue recognition due to single premium policy
cancellations was $8.3 million in the third quarter, compared to
$7.4 million in the second quarter of 2017, and $18.4 million in
the third quarter of 2016.
- Ceded premiums of $13.8 million, $14.1
million and $19.9 million for the quarters ended September 30,
2017, June 30, 2017, and September 30, 2016,
respectively, are net of accrued profit commission on reinsurance
transactions of $7.4 million in the third quarter of 2017, compared
to $6.7 million in the second quarter of 2017, and $8.9 million in
the third quarter of 2016.
- Direct mortgage insurance premium yield
was 52 basis points in the third quarter, the same as the second
quarter of 2017, and a decrease compared to 58 basis points in the
third quarter of 2016.
- Total net mortgage insurance premium
yield, which includes the impact of ceded premiums and accrued
profit commission, was 49 basis points in the third quarter,
compared to 49 basis points in the second quarter of 2017, and 53
basis points in the third quarter of 2016.
- The mortgage insurance provision for
losses was $36.0 million in the third quarter of 2017, compared to
$17.7 million in the second quarter of 2017, and $56.2 million in
the prior-year period.
- The total number of primary delinquent
loans was flat in the third quarter compared to the second quarter
of 2017, and decreased by 19 percent from the third quarter of
2016. The total number of primary new notices of default increased
by 18 percent in the third quarter from the second quarter of 2017,
and decreased by 4 percent from the third quarter of 2016.
- The primary mortgage insurance
delinquency rate decreased to 2.5 percent in the third quarter of
2017, compared to 2.6 percent in the second quarter of 2017, and
3.3 percent in the third quarter of 2016.
- The loss ratio in the third quarter was
15.2 percent, compared to 7.7 percent in the second quarter of 2017
and 23.6 percent in the third quarter of 2016.
- Mortgage insurance loss reserves were
$556.5 million as of September 30, 2017, compared to $651.6
million as of June 30, 2017, and $821.9 million as of
September 30, 2016.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $21,367 as of
September 30, 2017. This compares to primary reserve per
primary default of $23,185 as of June 30, 2017, and $24,049 as
of September 30, 2016.
- Total mortgage insurance claims paid
were $131.5 million in the third quarter, compared to $91.3 million
in the second quarter of 2017, and $82.7 million in the third
quarter of 2016. Excluding the $55.0 million impact of commutations
and captive terminations (which includes payments that, as
expected, were made during the third quarter in connection with the
final settlement of the Freddie Mac agreement entered into in
August 2013), claims paid were $76.5 million in the third quarter
of 2017. In addition, the company’s pending claim inventory
declined 56 percent from the third quarter of 2016.
- The company continues to focus on
effectively managing its capital position in a cost-efficient
manner, improving its return on capital and proactively managing
the retained mix of single-premium business in its total MI
portfolio. In October 2017, Radian Guaranty Inc., the MI subsidiary
of Radian Group, agreed to terms for a new quota share reinsurance
arrangement for single-premium MI business (Single Premium QSR)
with a panel of eight third-party reinsurance providers in order to
cede new single-premium MI business. The terms of the new
Single Premium QSR include a 65 percent cession of business written
in 2018 and 2019. Other terms of the new arrangement are
substantially the same as our existing single premium reinsurance
transaction. The company's existing single premium
reinsurance transaction, which was entered into in 2016, provides
for a 35 percent cession of single-premium NIW through 2017.
The new Single Premium QSR and the company's related PMIERs credit
under the program remain subject to GSE approval.
Mortgage and Real Estate Services
- As previously announced, based on
recent performance below expectations for its Services segment, the
company committed to a restructuring plan and incurred related
charges in the third quarter of $12 million. Additional pretax
charges of approximately $8 million, including approximately $6
million in cash, are expected to be recognized within the next 12
months. The total charges of approximately $20 million are expected
to consist of approximately $8 million in asset impairments,
approximately $7 million in employee severance and benefit costs,
approximately $3 million in facility and lease termination costs,
and approximately $2 million in contract termination and other
restructuring costs.
- Total revenues for the third quarter
were $41.1 million, compared to $40.0 million for the second
quarter of 2017, and $48.0 million for the third quarter of
2016.
- The adjusted pretax operating loss
before corporate allocations for the quarter ended
September 30, 2017, was $4.7 million, compared to income of
$1.2 million for the quarter ended June 30, 2017, and income
of $4.8 million for the quarter ended September 30, 2016.
- Adjusted earnings before interest,
income taxes, depreciation and amortization (Services adjusted
EBITDA) for the quarter ended September 30, 2017, was a loss
of $3.6 million, compared to income of $2.0 million for the quarter
ended June 30, 2017, and income of $5.7 million for the
quarter ended September 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 $64.2 million in the third
quarter, compared to $68.8 million in the second quarter of 2017,
and $62.1 million in the third 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
$300 million of available liquidity as of September 30,
2017.
- On September 26, 2017, Radian completed
its public offering of $450 million principal amount of 4.500%
Senior Notes due 2024, and announced the early tender results and
upsizing of its tender offers to purchase for cash a portion of its
5.500% Senior Notes due 2019, its 5.250% Senior Notes due 2020, and
its 7.000% Senior Notes due 2021. These transactions will reduce
the company’s annual cash interest by approximately $4.3 million
and extend the weighted average maturity of its outstanding debt by
nearly two years. The company has no material debt maturities prior
to June 2019.
- As of September 30, 2017, Radian
had only $0.5 million of convertible senior notes outstanding.
Radian has provided notice that it will settle all remaining
conversions in cash. The remaining outstanding convertible senior
notes mature in November 2017.
- On October 16, 2017, Radian entered
into a three-year, $225 million unsecured revolving credit facility
with a panel of seven banks. Borrowings under the credit facility
may be used for working capital and general corporate purposes,
including, without limitation, capital contributions to Radian’s
insurance and reinsurance subsidiaries as well as growth
initiatives. Terms of the credit facility include an option to
increase the capacity during the term of the agreement, up to a
total of $300 million.
CONFERENCE CALL
Radian will discuss third quarter financial results in a
conference call today, Thursday, October 26, 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 612.332.0226
for international callers, using passcode 431859 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 431859.
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
Holdings LLC, 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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Revenues: Net premiums earned - insurance $
236,702 $ 229,096 $ 221,800 $ 233,585 $ 238,149
Services
revenue 39,571 37,802 38,027 49,905 45,877
Net
investment income 32,540 30,071 31,032 28,996 28,430
Net gains (losses) on investments and other financial
instruments 2,480 5,331 (2,851 ) (38,773 ) 7,711
Other income 760 612 746 736
716
Total revenues 312,053
302,912 288,754 274,449 320,883
Expenses: Provision for losses 35,841 17,222
46,913 54,287 55,785
Policy acquisition costs 5,554
6,123 6,729 5,579 6,119
Cost of services 27,240
25,635 28,375 33,812 29,447
Other operating expenses
64,195 68,750 68,377 62,416 62,119
Restructuring and
other exit costs 12,038 — — — —
Interest expense
15,715 16,179 15,938 17,269 19,783
Loss on induced
conversion and debt extinguishment 45,766 1,247 4,456 —
17,397
Impairment of goodwill — 184,374 — — —
Amortization and impairment of other intangible assets
2,890 18,856 3,296 3,290 3,292
Total expenses 209,239 338,386
174,084 176,653 193,942
Pretax
income (loss) 102,814 (35,474 ) 114,670 97,796 126,941
Income tax provision (benefit) 37,672 (8,132 )
38,198 36,707 44,138
Net income (loss)
$ 65,142 $ (27,342 ) $ 76,472 $ 61,089
$ 82,803
Diluted net income (loss) per
share $ 0.30 $ (0.13 ) $ 0.34 $ 0.27 $ 0.37
Selected Mortgage Insurance Key Ratios Loss ratio
(1) 15.2 % 7.7 % 21.3 % 23.4 % 23.6 %
Expense
ratio (1) 22.9 % 26.2 % 27.1 % 22.7 % 22.7 %
(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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net
income (loss)—basic $ 65,142 $ (27,342 ) $ 76,472
$ 61,089 $ 82,803
Adjustment for dilutive Convertible Senior
Notes due 2019, net of tax (1) — — (215 )
665 848
Net income (loss)—diluted $
65,142 $ (27,342 ) $ 76,257 $ 61,754 $
83,651
Average common shares outstanding—basic
215,279 215,152 214,925 214,481 214,387
Dilutive effect
of Convertible Senior Notes due 2017 (2) 16 — 701 421
178
Dilutive effect of Convertible Senior Notes due 2019
— — 1,854 6,417 8,274
Dilutive effect of stock-based
compensation arrangements (2) 4,096 —
4,017 3,457 3,129
Adjusted average common shares
outstanding—diluted 219,391 215,152
221,497 224,776 225,968
Basic net income
(loss) per share $ 0.30 $ (0.13 ) $ 0.36 $ 0.28 $
0.39
Diluted net income (loss) per share $
0.30 $ (0.13 ) $ 0.34 $ 0.27 $ 0.37
(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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Shares
of common stock equivalents 676 5,975 445 1,042 1,045
Shares of Convertible Senior Notes due 2017 — 509 — —
—
Radian Group Inc. and
Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C September 30, June 30, March 31,
December 31, September 30,
(In thousands,
except per-share data)
2017 2017 2017 2016 2016
Assets:
Investments (1) $ 4,546,664 $ 4,583,842 $
4,437,716 $ 4,462,430 $ 4,565,748
Cash 61,917 56,918
73,701 52,149 46,356
Restricted cash 36,888 25,486
12,689 9,665 10,312
Accounts and notes receivable
97,020 78,540 73,794 77,631 94,692
Deferred income taxes,
net 356,181 389,759 369,209 411,798 401,442
Goodwill
and other intangible assets, net 66,967 69,857 273,068
276,228 279,400
Prepaid reinsurance premium 239,620
235,349 230,148 229,438 229,754
Other assets 439,016
377,355 357,435 343,835 422,123
Total assets $ 5,844,273 $ 5,817,106
$ 5,827,760 $ 5,863,174 $ 6,049,827
Liabilities and stockholders’ equity: Unearned
premiums $ 717,589 $ 702,210 $ 684,797 $ 681,222
$ 680,973
Reserve for losses and loss adjustment expense
556,488 651,591 726,169 760,269 821,934
Long-term
debt 1,026,806 989,010 1,008,777 1,069,537 1,067,666
Reinsurance funds withheld 194,353 180,991 167,427
158,001 177,147
Other liabilities 360,835
379,144 319,282 321,859 413,401
Total liabilities 2,856,071 2,902,946
2,906,452 2,990,888 3,161,121
Equity
component of currently redeemable convertible senior notes
— 16 883 — —
Common stock 233 233 233
232 232
Treasury stock (893,754 ) (893,531 )
(893,372 ) (893,332 ) (893,197 )
Additional paid-in capital
2,747,393 2,743,872 2,743,594 2,779,891 2,778,860
Retained earnings 1,110,057 1,045,453 1,073,333
997,890 937,338
Accumulated other comprehensive income
(loss) 24,273 18,117 (3,363 ) (12,395 )
65,473
Total stockholders’ equity 2,988,202
2,914,144 2,920,425 2,872,286 2,888,706
Total liabilities and stockholders’ equity $
5,844,273 $ 5,817,106 $ 5,827,760 $
5,863,174 $ 6,049,827
Shares
outstanding 215,299 215,175 215,091 214,521 214,405
Book value per share $ 13.88 $ 13.54 $
13.58 $ 13.39 $ 13.47
Tangible book value per share (See
Exhibit G) $ 13.57 $ 13.22 $ 12.31 $ 12.10 $
12.17
Statutory Capital Ratios Risk to capital
ratio-Radian Guaranty only 14.4 :1
(2)
14.3 :1 14.3 :1 13.5 :1 13.7 :1
Risk to capital ratio-Mortgage
Insurance combined 13.4 :1
(2)
13.4 :1 13.4 :1 13.6 :1 13.9 :1
(1)
September 30, 2017 includes $36,782 of
reinvested cash collateral under securities lending
agreements.
(2)
Preliminary.
Radian Group Inc. and Subsidiaries Net
Premiums Earned - Insurance and Other Operating Expenses
Exhibit D
2017
2016
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Premiums earned - insurance: Direct $
250,541 $ 243,229 $ 236,062 $ 251,751 $ 258,074
Assumed 7 7 7 8 9
Ceded (13,846
) (14,140 ) (14,269 ) (18,174 ) (19,934 )
Net premiums
earned - insurance $ 236,702 $ 229,096
$ 221,800 $ 233,585 $ 238,149
Notable variable items: (1) Single Premium Policy
cancellations, direct $ 15,415 $ 13,346 $ 10,415
$ 26,707 $ 30,631
Single Premium Policy cancellations, ceded
(7,085 ) (5,898 ) (4,536 ) (11,005 ) (12,183 )
Profit commission - reinsurance (2) 7,373
6,682 5,888 8,458 8,922
Total
$ 15,703 $ 14,130 $ 11,767 $
24,160 $ 27,370
Other operating
expenses $ 64,195 $ 68,750 $ 68,377
$ 62,416 $ 62,119
Notable variable
items: (3) Technology upgrade project (4) $
3,569 $ 5,121 $ 3,512 $ 3,648 $ 2,440
Employee severance
and related benefit costs 101 386 977 902 1,195
Retirement and consulting agreement (5) 927 867 3,622
— —
Incentive compensation (6) (7) 6,950 9,641 7,447
9,072 12,652
Ceding commissions (7) (4,231 )
(4,064 ) (3,864 ) (5,105 ) (5,460 )
Total $
7,316 $ 11,951 $ 11,694 $ 8,517
$ 10,827
Restructuring and other exit costs:
(8) Employee severance, related benefits and other exit
costs (9) $ 5,463 $ — $ — $ — $ —
Impairment
of other long-lived assets (10) 6,575 — —
— —
Total restructuring and other exit
costs $ 12,038 $ — $ — $ —
$ —
(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)
Shown net of deferred policy
acquisition costs.
(8)
For the three months ended September
30, 2017, includes charges associated with our plan to restructure
the Services business.
(9)
Employee severance, related benefits
and other exit costs is a component of adjusted pretax operating
income.
(10)
Impairment of other long-lived assets
is not a component of adjusted pretax operating income.
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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net premiums written
- insurance $ 247,810 $ 241,307 $ 224,665 $
234,172 $ 240,999
(Increase) decrease in unearned premiums
(11,108 ) (12,211 ) (2,865 )
(587 ) (2,850 )
Net premiums earned -
insurance 236,702 229,096 221,800 233,585 238,149
Net
investment income 32,540 30,071 31,032 28,996 28,430
Other income 760 612
746 736 716
Total
270,002 259,779 253,578
263,317 267,295
Provision for losses 35,980 17,714 47,232 54,675
56,151
Policy acquisition costs 5,554 6,123 6,729
5,579 6,119
Other operating expenses before corporate
allocations 36,941 37,939
39,289 37,773 35,940
Total (1) 78,475 61,776
93,250 98,027 98,210
Adjusted pretax operating income before corporate
allocations 191,527 198,003 160,328 165,290 169,085
Allocation of corporate operating expenses 11,737
15,894 14,186 9,652 11,911
Allocation of interest expense
11,282 11,748 11,509
12,843 15,360
Adjusted pretax
operating income $ 168,508 $ 170,361
$ 134,633 $ 142,795 $ 141,814
Services 2017 2016
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Services revenue (1)
$ 41,062 $ 39,975 $ 40,089 $
52,558 $ 48,033
Cost of services
27,544 25,962 28,690 34,130 29,655
Other operating
expenses before corporate allocations 12,781 12,803
12,604 14,842 13,575
Restructuring and other exit costs (2)
5,463 — — —
—
Total 45,788
38,765 41,294 48,972
43,230
Adjusted pretax operating income (loss)
before corporate allocations (3) (4,726 ) 1,210
(1,205 ) 3,586 4,803
Allocation of corporate operating
expenses 3,730 3,404 3,718 1,738 2,265
Allocation of
interest expense 4,433 4,431
4,429 4,426 4,423
Adjusted pretax operating income (loss) $
(12,889 ) $ (6,625 ) $ (9,352 ) $ (2,578 ) $ (1,885 )
(1) Inter-segment information:
2017 2016
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Inter-segment expense included in Mortgage Insurance segment
$ 1,491 $ 2,173 $ 2,062 $ 2,653 $ 2,156
Inter-segment revenue included in Services segment
1,491 2,173 2,062 2,653 2,156
Radian Group Inc.
and Subsidiaries Segment Information Exhibit E (page
2 of 2)
(2)
Primarily includes employee severance
and related benefit costs. Does not include impairment of
long-lived assets, which is not considered a component of adjusted
pretax operating income.
(3)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F):
2017 2016
Qtr 3 Qtr 2 Qtr
1 Qtr 4 Qtr 3
Adjusted pretax operating income (loss)
before corporate allocations $ (4,726 ) $
1,210 $ (1,205 ) $ 3,586 $ 4,803
Depreciation and
amortization 1,172 835 858 829
884
Services adjusted EBITDA $ (3,554
) $ 2,045 $ (347 ) $ 4,415 $ 5,687
Selected balance sheet information for
our segments, as of the periods indicated, is as follows:
At September 30, 2017
(In
thousands)
MortgageInsurance
Services (1) Total Total assets
$ 5,630,687 $ 213,586 $
5,844,273 At December 31, 2016
(In
thousands)
MortgageInsurance
Services (1) Total
Total assets $ 5,506,338 $ 356,836 $
5,863,174
(1)
The decrease in total assets for the
Services segment at September 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).
(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).
Radian Group Inc. and Subsidiaries Definition of
Consolidated Non-GAAP Financial Measures Exhibit F (page 2
of 2)
(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
and the impairment of other long-lived assets does not result in a
cash payment and can vary significantly in both amount and
frequency, depending on market credit cycles and other factors. 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 3)
Reconciliation of Consolidated Pretax
Income (Loss) to Adjusted Pretax Operating Income
2017 2016
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Consolidated pretax income (loss) $ 102,814 $
(35,474 ) $ 114,670 $ 97,796 $ 126,941
Less income (expense)
items: Net gains (losses) on investments and other financial
instruments 2,480 5,331 (2,851 ) (38,773 ) 7,711
Loss
on induced conversion and debt extinguishment (45,766
) (1,247 ) (4,456 ) — (17,397 )
Acquisition-related
expenses (1) (54 ) (64 ) (8 ) (358 ) (10 )
Impairment of goodwill — (184,374 ) — — —
Amortization and impairment of other intangible assets
(2,890 ) (18,856 ) (3,296 ) (3,290 ) (3,292 )
Impairment of other long-lived assets (2) (6,575
) — — — —
Total adjusted
pretax operating income (3) $ 155,619 $
163,736 $ 125,281 $ 140,217 $ 139,929
(1)
Please see Exhibit F for the definition
of this line item. This item is included within other operating
expenses on the Condensed Consolidated Statement of Operations in
Exhibit A.
(2)
This item is included within
restructuring and other exit costs on the Condensed Consolidated
Statement of Operations in Exhibit A.
(3)
Total adjusted pretax operating income
consists of adjusted pretax operating income (loss) for each
segment as follows:
2017 2016
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Adjusted pretax operating income (loss): Mortgage
Insurance $ 168,508 $ 170,361 $ 134,633 $ 142,795
$ 141,814
Services (12,889 ) (6,625 ) (9,352 )
(2,578 ) (1,885 )
Total adjusted pretax operating income
$ 155,619 $ 163,736 $ 125,281 $
140,217 $ 139,929
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 2 of 3)
Reconciliation of Diluted Net Income
(Loss) Per Share to Adjusted Diluted Net Operating Income Per
Share
2017 2016
Qtr 3 Qtr 2 Qtr 1 Qtr
4 Qtr 3
Diluted net income (loss) per share $
0.30 $ (0.13 ) $ 0.34 $ 0.27 $ 0.37
Less per-share impact of debt items: Loss
on induced conversion and debt extinguishment (0.21
) (0.01 ) (0.02 ) — (0.08 )
Income tax provision
(benefit) (1) (0.07 ) — (0.01 ) —
(0.03 )
Per-share impact of debt items (0.14 )
(0.01 ) (0.01 ) — (0.05 )
Less per-share impact of
other income (expense) items: Net gains (losses) on
investments and other financial instruments 0.01 0.02
(0.01 ) (0.17 ) 0.03
Acquisition-related expenses — —
— — —
Impairment of goodwill — (0.86 ) — — —
Amortization and impairment of other intangible assets
(0.01 ) (0.09 ) (0.01 ) (0.02 ) (0.01 )
Impairment
of other long-lived assets (0.03 ) — — —
Income tax provision (benefit) on other income (expense) items
(2) (0.01 ) (0.32 ) (0.01 ) (0.07 ) 0.01
Difference between statutory and effective tax rate —
— (0.01 ) (0.02 ) —
Per-share impact of
other income (expense) items (0.02 ) (0.61 )
(0.02 ) (0.14 ) 0.01
Add per-share impact of share
dilution — (0.01 ) — — —
Adjusted diluted net operating income per share (2) $
0.46 $ 0.48 $ 0.37 $ 0.41 $ 0.41
(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%.
(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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Book value per share $
13.88 $ 13.54 $ 13.58 $ 13.39 $ 13.47
Less: Goodwill and other
intangible assets, net per share 0.31 0.32 1.27
1.29 1.30
Tangible book value per share $
13.57 $ 13.22 $ 12.31 $ 12.10 $ 12.17
(1)
All book value per share items are
calculated based on the number of shares outstanding at the end of
each respective period.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 3 of 3) Reconciliation of Net
Income (Loss) to Services Adjusted EBITDA 2017
2016
(In
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net income (loss) $ 65,142 $ (27,342 ) $
76,472 $ 61,089 $ 82,803
Less income (expense) items: Net
gains (losses) on investments and other financial instruments
2,480 5,331 (2,851 ) (38,773 ) 7,711
Loss on induced
conversion and debt extinguishment (45,766 )
(1,247 ) (4,456 ) — (17,397 )
Acquisition-related expenses
(54 ) (64 ) (8 ) (358 ) (10 )
Impairment of
goodwill — (184,374 ) — — —
Amortization and
impairment of other intangible assets (2,890 )
(18,856 ) (3,296 ) (3,290 ) (3,292 )
Impairment of other
long-lived assets (6,575 ) — — — —
Income tax
provision (benefit) 37,672 (8,132 ) 38,198 36,707 44,138
Mortgage Insurance adjusted pretax operating income
168,508 170,361 134,633 142,795
141,814
Services adjusted pretax operating income
(loss) (12,889 ) (6,625 ) (9,352 ) (2,578 )
(1,885 )
Less income (expense) items: Allocation
of corporate operating expenses to Services (3,730
) (3,404 ) (3,718 ) (1,738 ) (2,265 )
Allocation of
corporate interest expense to Services (4,433 )
(4,431 ) (4,429 ) (4,426 ) (4,423 )
Services depreciation and
amortization (1,172 ) (835 ) (858 ) (829 ) (884 )
Services adjusted EBITDA $ (3,554 )
$ 2,045 $ (347 ) $
4,415 $ 5,687 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 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Total primary new insurance written $ 15,125
$ 14,342 $ 10,055 $ 13,882 $ 15,656
Percentage of
primary new insurance written by FICO score
>=740 61.1 % 61.6 % 61.3 % 63.4 % 64.2 %
680-739 32.5 32.6 32.7 31.4 30.4
620-679
6.4 5.8 6.0 5.2 5.4
Total Primary 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Direct monthly and other premiums 77 % 77 % 75
% 73 % 73 %
Direct single premiums 23 % 23 %
25 % 27 % 27 %
Net single premiums (1) 15
% 15 % 16 % 17 % 17 %
Refinances 9
% 9 % 16 % 27 % 22 %
LTV 95.01% and
above 14.3 % 12.8 % 9.2 % 7.4 % 6.0 %
90.01%
to 95.00% 45.7 % 47.3 % 47.3 % 43.6 % 47.1 %
85.01% to 90.00% 28.1 % 28.8 % 30.3 % 32.3 %
31.4 %
85.00% and below 11.9 % 11.1 % 13.2 %
16.7 % 15.5 %
(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
September 30, June 30, March 31, December 31,
September 30,
($ in millions) 2017 2017 2017 2016
2016
Primary insurance
in force (1)
Prime $ 189,340 $ 183,886 $ 177,702 $ 174,927
$ 172,178
Alt-A 4,327 4,602 4,842 5,064 5,363
A
minus and below 2,874 3,149 3,315
3,459 3,624
Total Primary $
196,541 $ 191,637 $ 185,859 $ 183,450
$ 181,165
Primary risk in
force (1) (2)
Prime $ 48,516 $ 47,075 $ 45,442 $ 44,708 $
44,075
Alt-A 998 1,062 1,118 1,168 1,241
A minus
and below 723 792 834 865
906
Total Primary $ 50,237 $
48,929 $ 47,394 $ 46,741 $ 46,222
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) 24
% 25 % 25 % 25 % 25 %
Percentage of
primary risk in force by FICO score
>=740 58.8 % 58.3 % 57.9 % 57.6 % 57.4 %
680-739 31.3 31.1 31.1 31.0 30.9
620-679
8.8 9.3 9.6 9.9 10.2
<=619 1.1 1.3
1.4 1.5 1.5
Total Primary
100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 8.6 % 8.0 % 7.6 % 7.4 % 7.2 %
90.01% to 95.00% 53.1 52.9 52.6 52.3 52.1
85.01%
to 90.00% 31.1 31.7 32.2 32.5 32.8
85.00% and
below 7.2 7.4 7.6 7.8 7.9
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior 3.6 % 4.1 % 4.4 % 4.8 % 5.1 %
2006 2.3 2.5 2.8 2.9 3.1
2007 5.6 6.2
6.7 7.0 7.4
2008 3.7 4.2 4.6 4.8 5.2
2009
0.7 0.8 0.9 1.0 1.2
2010 0.6 0.7 0.8 0.9 1.0
2011 1.5 1.7 1.8 2.0 2.2
2012 6.1 6.7
7.4 8.0 8.8
2013 9.8 10.7 11.8 12.6 13.9
2014
9.3 10.2 11.2 12.0 13.4
2015 14.9 16.1 17.3
18.1 19.4
2016 22.5 23.7 25.0 25.9 19.3
2017
19.4 12.4 5.3 — —
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Primary risk in force on defaulted loans (4) $
1,137 $ 1,124 $ 1,224 $ 1,363 $ 1,381
(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 (page 1 of 2) 2017 2016
($ in
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Net claims paid: (1) Prime $ 47,541 $
45,562 $ 52,044 $ 70,151 $ 51,964
Alt-A 16,035 13,700
16,165 27,558 16,334
A minus and below 10,772
10,586 9,460 13,760 9,615
Total
primary claims paid 74,348 69,848 77,669 111,469 77,913
Pool 2,148 1,901 4,180 4,788 4,492
Second-lien and
other 32 (1,937 ) 78 (264 ) (234 )
Subtotal 76,528 69,812 81,927 115,993 82,171
Impact of captive terminations — 645 — 492 (171 )
Impact of commutations (2) 54,956 20,838
161 — 705
Total net claims paid
$ 131,484 $ 91,295 $ 82,088 $
116,485 $ 82,705
Average net claims paid: (1)
(3)
Prime $ 48.4 $ 48.2 $ 50.5 $ 45.5 $ 48.3
Alt-A 69.4 61.7 67.1 65.5 65.3
A minus and
below 44.0 41.7 39.6 37.7 41.3
Total average net
primary claims paid 51.0 49.1 51.4 47.9 50.0
Pool
59.7 47.5 49.2 45.6 51.0
Total average net claims
paid $ 51.0 $ 47.3 $ 50.9 $ 47.6 $ 49.7
Average direct primary claims paid (3) (4) $
51.4 $ 49.4 $ 51.6 $ 48.2 $ 50.3
Average total direct
claims paid (3) (4) $ 51.4 $ 47.6 $ 51.1 $ 47.9 $
50.0
(1)
Net of reinsurance recoveries.
(2)
Includes the impact of commutations and
captive terminations. For the three months ended September 30,
2017, primarily includes payments made under the Freddie Mac
agreement, as the final settlement date was reached during the
quarter.
(3)
Calculated without giving effect to the
impact of the termination of captive transactions and
commutations.
(4)
Before reinsurance recoveries.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Claims and Reserves
Exhibit J (page 2 of 2)
($ in thousands,
except primary reserve per
September 30, June 30, March 31, December 31, September 30,
primary default
amounts)
2017 2017 2017 2016 2016
Reserve for losses by
category Prime $ 296,885 $ 318,169 $
362,804 $ 379,845 $ 409,438
Alt-A 112,033 124,477
140,543 148,006 166,349
A minus and below 78,048
85,283 96,373 101,653 106,678
IBNR and other (1)
13,085 69,620 70,651 71,107 73,057
LAE 14,687
15,492 17,551 18,630 21,255
Reinsurance recoverable (2)
7,445 7,341 7,680 6,816 6,448
Total primary reserves 522,183 620,382
695,602 726,057 783,225
Pool insurance
18,630 29,099 28,453 31,853 36,065
IBNR and other
14,576 658 603 673 823
LAE 550 843 822 932
1,112
Reinsurance recoverable (2) 25 30
28 35 36
Total pool reserves 33,781
30,630 29,906 33,493 38,036
Total
1st lien reserves 555,964 651,012 725,508 759,550
821,261
Second-lien and other 524 579
661 719 673
Total reserves $
556,488 $ 651,591 $ 726,169 $ 760,269
$ 821,934
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other
$ 21,367 $ 23,185 $ 24,230 $ 22,503 $ 24,049
(1)
At June 30, 2017 and prior, primarily
related to expected payments under the Freddie Mac Agreement.
However, during the third quarter of 2017, the final settlement
date under the Freddie Mac Agreement was reached. Therefore, except
for loans with loss mitigation and claims activity already in
process, most of the loans subject to the Freddie Mac Agreement
were removed from RIF and IIF, because the insurance no longer
remains in force.
(2)
Represents ceded losses on captive
transactions and quota share reinsurance transactions.
Radian Group Inc. and
Subsidiaries Mortgage Insurance Supplemental Information -
Default Statistics Exhibit K September 30,
June 30, March 31, December 31, September 30,
2017 2017 2017
2016 2016
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 897,253 879,926 858,248
849,227 840,534
Number of loans in default 15,953
15,664 16,981 19,101 19,100
Percentage of loans in default
1.78 % 1.78 % 1.98 % 2.25 % 2.27 %
Alt-A
Number of insured loans 22,643 24,089 25,425 26,536
28,080
Number of loans in default 3,166 3,366 3,812
4,193 4,545
Percentage of loans in default 13.98
% 13.97 % 14.99 % 15.80 % 16.19 %
A minus and
below
Number of insured loans 22,912 24,864 26,043 27,115
28,313
Number of loans in default 4,707 4,725 5,000
5,811 5,885
Percentage of loans in default 20.54
% 19.00 % 19.20 % 21.43 % 20.79 %
Total Primary
Number of insured loans 942,808 928,879 909,716
902,878 896,927
Number of loans in default (1) 23,826
23,755 25,793 29,105 29,530
Percentage of loans in default
2.53 % 2.56 % 2.84 % 3.22 % 3.29 %
(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:
September 30, June 30, March 31,
December 31, September 30,
2017 2017 2017 2016 2016
Number of loans in default (a) 118 1,305 1,395 1,639
1,888
(a)
During the third quarter of 2017, the
final settlement date under the Freddie Mac Agreement was reached.
As of September 30, 2017, the remaining loans subject to the
Freddie Mac Agreement were those with Loss Mitigation and pending
claims activity already in process but not yet finalized.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - QSR Transactions, Captives and
Persistency Exhibit L 2017 2016
($ in
thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Quota Share
Reinsurance (“QSR”) Transactions
QSR ceded premiums written (1) $ 4,621 $ 5,059
$ 5,457 $ 6,049 $ 6,730
% of premiums written 1.7
% 1.9 % 2.3 % 2.4 % 2.6 %
QSR ceded premiums earned
(1) $ 6,826 $ 7,404 $ 7,834 $ 9,421 $ 10,597
%
of premiums earned 2.7 % 3.1 % 3.3 % 3.8 % 4.1 %
Ceding commissions written $ 1,323 $ 1,446 $
1,559 $ 1,728 $ 1,922
Ceding commissions earned (2) $
2,925 $ 3,379 $ 3,894 $ 4,374 $ 3,974
Profit
commission $ — $ — $ — $ — $ —
RIF included in
QSR Transactions (3) $ 1,298,954 $ 1,393,038 $
1,488,972 $ 1,578,300 $ 1,718,031
Single Premium
QSR Transaction
QSR ceded premiums written (1) $ 13,248 $
13,856 $ 8,960 $ 11,121 $ 13,004
% of premiums written
5.0 % 5.3 % 3.7 % 4.4 % 5.0 %
QSR ceded premiums
earned (1) $ 6,771 $ 6,311 $ 5,859 $ 8,060 $
8,608
% of premiums earned 2.7 % 2.6 % 2.5 %
3.2 % 3.3 %
Ceding commissions written $ 5,156
$ 5,134 $ 3,712 $ 4,895 $ 5,482
Ceding commissions earned
(2) $ 3,536 $ 3,248 $ 2,937 $ 4,130 $ 4,382
Profit commission $ 7,373 $ 6,682 $ 5,888 $
8,458 $ 8,922
RIF included in Single Premium QSR Transaction
(3) $ 4,286,529 $ 4,103,410 $ 3,904,402 $
3,761,648 $ 3,621,993
Total RIF included in QSR
Transactions and Single Premium QSR Transaction $
5,585,483 $ 5,496,448 $ 5,393,374 $ 5,339,948 $ 5,340,024
1st Lien
Captives
Premiums earned ceded to captives $ 68 $ 242 $
389 $ 503 $ 537
% of total premiums earned 0.0
% 0.1 % 0.2 % 0.2 % 0.2 %
Persistency Rate (12
months ended) (4) 80.0 % 78.5 % 77.1 % 76.7 %
78.4 %
Persistency Rate (quarterly, annualized) (4) (5)
80.4 % 82.8 % 84.4 % 76.8 % 75.3 %
(1)
Net of profit commission.
(2)
Includes amounts reported in policy
acquisition costs and other operating expenses.
(3)
Included in primary RIF.
(4)
During the third quarter of 2017, the
final settlement date under the Freddie Mac Agreement was reached,
resulting in a negative impact to the Persistency Rate due to the
removal from RIF and IIF of most of the loans subject to the
Freddie Mac Agreement. If these loans remained in force, the
Persistency Rate for the 12 months ended September 30, 2017 would
have been 80.5% and the quarterly annualized Persistency Rate for
the quarter ended September 30, 2017 would have been 82.0%.
(5)
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 in particular unemployment rates,
interest rates and changes in housing and mortgage credit markets,
that impact the size of the insurable market, the credit
performance of our insured portfolio, and the business
opportunities in our Services segment;
- changes in the way customers,
investors, ratings agencies, regulators or legislators perceive our
performance, financial strength and future prospects;
- Radian Guaranty Inc.’s ability to
remain eligible under the PMIERs and other applicable requirements
imposed by the Federal Housing Finance Agency and by Fannie Mae and
Freddie Mac (collectively, the “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,
including temporary reductions in liquidity resulting from federal
alternative minimum tax (“AMT”) payments that we are currently
required to make and future federal income tax payments that we
expect to make once our NOLs are fully utilized, which we
anticipate occurring within the next 12 months;
- our ability to successfully execute and
implement our business plans and strategies, including plans and
strategies to reposition our Services segment as well as plans and
strategies that require GSE and/or regulatory approvals and
licenses;
- 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 (the “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 Veterans Affairs and other forms of credit
enhancement;
- the effect of the Dodd-Frank Wall
Street Reform and Consumer Protection Act on the financial services
industry in general, and on our businesses in particular;
- legislative and regulatory activity (or
inactivity), including the adoption of (or failure to adopt) new
laws and regulations, or changes in existing laws and regulations,
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 Internal
Revenue Service 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 “GAAP” (accounting
principles generally accepted in the U.S.) or “SAP” (statutory
accounting practices including those required or permitted, if
applicable, by the insurance departments of the respective states
of domicile of our insurance subsidiaries) 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/20171026005313/en/
Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz
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