-- Fourth quarter GAAP net income of $6.8
million, or $0.03 per diluted share, and full year GAAP net income
of $121.1 million, or $0.55 per diluted share, includes expense of
$0.47 per diluted share representing the impact of tax reform
--
-- Adjusted diluted net operating income per
share for the fourth quarter of $0.51, an increase of 24%
year-over-year, and for the full year of $1.82, an increase of 17%
year-over-year --
-- Writes $53.9 billion in new MI business for
2017, sets company record for flow MI; MI in force increases 9%
year-over-year --
-- Increases PMIERs excess to $450 million, or
14% of Minimum Required Assets as of December 31, 2017 --
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended December 31, 2017, of $6.8 million, or $0.03 per
diluted share, which includes an incremental tax provision of
$102.6 million, representing the estimated impact of recently
enacted tax reform, as discussed below. Net income for the full
year 2017 was $121.1 million, or $0.55 per diluted share, which, in
addition to the incremental tax provision, includes impairment of
goodwill and other intangible assets related to the Mortgage and
Real Estate Services segment of $130.9 million, net of tax. This
compares to net income for the quarter ended December 31,
2016, of $61.1 million, or $0.27 per diluted share, and net income
for the full year 2016 of $308.3 million, or $1.37 per diluted
share.
The non-cash tax expense of $102.6 million in the fourth quarter
of 2017 represents the estimated impact of recently enacted tax
reform, as a result of the remeasurement of the company's net
deferred tax assets to reflect lower enacted corporate tax rates.
The impact of this remeasurement was a reduction of $0.47 per
diluted share in the fourth quarter and for the full year 2017.
Key Financial Highlights (dollars
in millions, except per-share data)
Year endedDecember 31, 2017
Year endedDecember 31, 2016
PercentChange
Net income (1) $121.1 $308.3 (61 )% Diluted
net income per share $0.55 $1.37 (60 )%
Consolidated pretax income $346.7 $483.7 (28
)% Adjusted pretax operating income (2) $617.2 $541.8
14 %
Adjusted diluted net operating income per
share(2) (3)
$1.82 $1.56 17 % Net premiums earned -
insurance $932.8 $921.8 1 % MI New Insurance
Written (NIW) $53,905 $50,530 7 % MI insurance
in force $200,724 $183,450 9 % Book value per
share $13.90 $13.39 4 % Tangible book value
per share (2) $13.60 $12.10 12 %
Quarter endedDecember 31, 2017
Quarter endedDecember 31, 2016
PercentChange
Net income (1) $6.8 $61.1 (89 )% Diluted net
income per share $0.03 $0.27 (89 )%
Consolidated pretax income $164.7 $97.8 68 %
Adjusted pretax operating income (2) $172.5 $140.2
23 %
Adjusted diluted net operating income per
share(2) (3)
$0.51 $0.41 24 % Net premiums earned -
insurance $245.2 $233.6 5 % MI New Insurance
Written (NIW) $14,383 $13,882 4 %
(1)
Net income for the fourth quarter and full
year 2017 includes an incremental tax provision of $102.6 million
as a result of the remeasurement of net deferred tax assets to
reflect lower enacted corporate tax rates and includes $5.2 million
for the fourth quarter and $17.3 million for the full year of
pretax restructuring and other exit costs related to the Mortgage
and Real Estate Services segment. Additionally, net income for the
full year 2017 includes pretax impairment of goodwill and other
intangible assets related to the Mortgage and Real Estate Services
segment of $200.2 million.
(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 reconciliations 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 2016 and 2017 statutory tax
rate of 35 percent.
Adjusted pretax operating income for the quarter ended
December 31, 2017, was $172.5 million, compared to $140.2
million for the quarter ended December 31, 2016. Adjusted
diluted net operating income per share for the quarter ended
December 31, 2017, was $0.51, an increase of 24 percent
compared to $0.41 for the quarter ended December 31, 2016.
Adjusted pretax operating income for the year ended
December 31, 2017, was $617.2 million, compared to $541.8
million for the same period of 2016. Adjusted diluted net operating
income per share for the year ended December 31, 2017, was
$1.82, an increase of 17 percent compared to $1.56 for the same
period of 2016.
Book value per share at December 31, 2017, was $13.90,
compared to $13.88 at September 30, 2017, and an increase of 4
percent compared to $13.39 at December 31, 2016. Tangible book
value per share at December 31, 2017, was $13.60, compared to
$13.57 at September 30, 2017, and an increase of 12 percent
compared to $12.10 at December 31, 2016.
“I am pleased to report on another quarter and year of excellent
operating results for Radian,” said Radian’s Chief Executive
Officer Rick Thornberry. “During my first year with the company, we
have made progress in positioning Radian to become an even
stronger, more diversified company and a more valued business
partner, while also improving our capital position, debt maturity
profile and financial flexibility.”
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS AND RECENT
EVENTS
Mortgage Insurance
- MI new insurance written (NIW) grew to
$53.9 billion for the full year 2017, an increase of 7 percent
compared to $50.5 billion for the prior year. NIW was $14.4 billion
for the fourth quarter, compared to $15.1 billion in the third
quarter of 2017 and an increase of 4 percent compared to $13.9
billion in the prior-year quarter.
- NIW for the full year 2017 represented
record volume written on a flow basis for the company.
- Of the $14.4 billion in NIW in the
fourth 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 (Single Premium
QSR), net single premiums were 15 percent of new business written
in the fourth quarter of 2017. However, as previously announced
effective December 31, 2017, the company amended its 2016 Single
Premium QSR to increase the amount of ceded risk for 2015 through
2017 vintages under the agreement from 35 percent to 65 percent.
After consideration of the increased cession percentage, net single
premiums represented 8 percent of new business written in the
fourth quarter of 2017.
- Purchase originations accounted for 88
percent of total NIW in the fourth quarter of 2017, compared to 91
percent in the third quarter of 2017, and 73 percent a year
ago.
- Total primary mortgage insurance in
force as of December 31, 2017, grew to $200.7 billion, an
increase of 2 percent compared to $196.5 billion as of
September 30, 2017, and an increase of 9 percent compared to
$183.5 billion as of December 31, 2016.
- The composition of Radian’s mortgage
insurance portfolio continues to improve, with 92 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 81.1 percent as of December 31, 2017, compared to
80.0 percent as of September 30, 2017 and 76.7 percent as of
December 31, 2016. Annualized persistency for the three months
ended December 31, 2017, was 79.4 percent, compared to 80.4
percent for the three months ended September 30, 2017, and
76.8 percent for the three months ended December 31,
2016.
- Total net premiums earned were $245.2
million for the quarter ended December 31, 2017, compared to
$236.7 million for the quarter ended September 30, 2017, and
$233.6 million for the quarter ended December 31, 2016.
- Accelerated revenue recognition due to
single premium policy cancellations was $21.2 million in the fourth
quarter, compared to $15.4 million in the third quarter of 2017,
and $26.7 million in the fourth quarter of 2016. Net of
reinsurance, accelerated revenue recognition due to single premium
policy cancellations was $11.1 million in the fourth quarter,
compared to $8.3 million in the third quarter of 2017, and $15.7
million in the fourth quarter of 2016.
- Ceded premiums of $15.0 million, $13.8
million and $18.2 million for the quarters ended December 31,
2017, September 30, 2017, and December 31, 2016,
respectively, are net of accrued profit commission on reinsurance
transactions of $7.9 million in the fourth quarter of 2017,
compared to $7.4 million in the third quarter of 2017, and $8.5
million in the fourth quarter of 2016.
- Direct mortgage insurance premium yield
was 52 basis points in the fourth quarter, compared to 52 basis
points in the third quarter of 2017, and 55 basis points in the
fourth 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 both the fourth and third
quarters of 2017, compared to 51 basis points in the fourth quarter
of 2016.
- The mortgage insurance provision for
losses was $35.3 million in the fourth quarter of 2017, compared to
$36.0 million in the third quarter of 2017, and $54.7 million in
the prior-year period.
- The total number of primary delinquent
loans was 27,922 in the fourth quarter, an increase of 17 percent
compared to 23,826 in the third quarter of 2017, primarily driven
by new notices of default from areas affected by major 2017
hurricanes. The total number of primary delinquent loans included
7,051 from hurricane-affected areas in the fourth quarter of 2017,
compared to 2,934 in the third quarter of 2017. The company
believes that these hurricane-related delinquencies have reached
their peak and, based on past experience, continues to expect that
these delinquencies will not result in a material number of new
paid claims.
- The total number of primary delinquent
loans decreased by 4 percent from 29,105 in the fourth quarter of
2016. Excluding the impact from hurricane-affected areas, the total
number of primary delinquent loans decreased by 19 percent from
25,784 in the fourth quarter of 2016.
- The total number of primary new notices
of default increased by 49 percent in the fourth quarter from the
third quarter of 2017, and increased by 38 percent from the fourth
quarter of 2016. Excluding the new notices of default from
hurricane-affected areas, the total number of primary new notices
of default increased by 3 percent in the fourth quarter from the
third quarter of 2017, and decreased by 7 percent from the fourth
quarter of 2016.
- The primary mortgage insurance
delinquency rate was 2.9 percent in the fourth quarter of 2017,
compared to 2.5 percent in the third quarter of 2017, and 3.2
percent in the fourth quarter of 2016.
- The loss ratio in the fourth quarter
was 14.4 percent, compared to 15.2 percent in the third quarter of
2017 and 23.4 percent in the fourth quarter of 2016.
- Mortgage insurance loss reserves were
$507.6 million as of December 31, 2017, compared to $556.5
million as of September 30, 2017, and $760.3 million as of
December 31, 2016.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $17,103 as of
December 31, 2017. Excluding the impact of reserves and
defaults related to hurricane-affected areas, the primary reserve
per primary default would have been approximately $20,500. This
compares to primary reserve per primary default of $21,367 as of
September 30, 2017, and $22,503 as of December 31, 2016.
- Total mortgage insurance claims paid
were $85.5 million in the fourth quarter, compared to $131.5
million in the third quarter of 2017, and $116.5 million in the
fourth quarter of 2016. Excluding the impact of commutations and
captive terminations, claims paid were $58.9 million in the fourth
quarter of 2017, and $76.5 million in the third quarter of 2017. In
addition, the company’s pending claim inventory declined 38 percent
from the fourth quarter of 2016. For the full year 2017, total net
claims paid were $390.4 million, compared to $417.6 million for the
full year 2016.
Mortgage and Real Estate Services
- As previously announced, the company
committed to a restructuring plan in October 2017, and incurred
related charges in the fourth quarter of $5.2 million and $17.3
million for the full-year 2017. Additional pretax charges of
approximately $4 million, primarily in cash, are expected to be
recognized within the next twelve months.
- The estimated total restructuring
charges of $21 million are expected to consist of $11 million in
asset impairments and loss on sale, $7 million in employee
severance and benefit costs, $2 million in facility and lease
termination costs, and $1 million in contract termination and other
costs.
- Total revenues for the fourth quarter
were $40.7 million, compared to $41.1 million for the third quarter
of 2017, and $52.6 million for the fourth quarter of 2016. Total
revenues for the full year 2017 were $161.8 million, compared to
$177.2 million for the same period of 2016.
- The adjusted pretax operating income
before corporate allocations for the quarter ended
December 31, 2017, which includes $1.4 million in
restructuring and other exit costs, was $2.9 million, compared to a
loss of $4.7 million for the quarter ended September 30, 2017, and
income of $3.6 million for the quarter ended December 31,
2016. The adjusted pretax operating loss before corporate
allocations for the full year 2017, which includes $6.8 million in
restructuring and other exit costs, was $1.8 million, compared to
income of $6.1 million for the prior year.
- Adjusted earnings before interest,
income taxes, depreciation and amortization (Services adjusted
EBITDA) for the quarter ended December 31, 2017, which
includes $1.4 million in restructuring and other exit costs, was
income of $3.8 million, compared to a loss of $3.6 million for the
quarter ended September 30, 2017, and income of $4.4 million for
the quarter ended December 31, 2016. Services adjusted EBITDA
for the full year 2017, which includes $6.8 million in
restructuring and other exit costs, was $2.0 million, compared to
$9.2 million for the prior year period. Additional details
regarding the non-GAAP measure Services adjusted EBITDA may be
found in Exhibits F and G.
Consolidated Expenses
Other operating expenses were $66.0 million in the fourth
quarter, compared to $64.2 million in the third quarter of 2017,
and $62.4 million in the fourth quarter of last year. Details
regarding notable variable items impacting other operating expenses
may be found in Exhibit D.
CAPITAL AND LIQUIDITY UPDATE
Radian took several actions in 2017 in order to improve its
capital position, increase liquidity, enhance its return on
capital, increase its financial flexibility and cost-effectively
strengthen the financial position of Radian Guaranty under the
Private Mortgage Insurer Eligibility Requirements (PMIERs). As of
December 31, 2017, Radian Group maintained $229 million of
available liquidity. Total liquidity, which includes the company’s
$225 million unsecured revolving credit facility entered into in
October 2017, was $454 million as of December 31, 2017.
- During the fourth quarter of 2017 and
consistent with its capital plan, Radian settled all of its
remaining convertible senior notes outstanding.
- In addition, as previously announced:
- Radian Guaranty, the principal MI
subsidiary of Radian Group, agreed with its reinsurance providers
to increase the cession of business for its first single-premium MI
quota share reinsurance arrangement, which was entered into in
2016. The cession of business increased from 35 to 65 percent for
single-premium policies with effective dates in 2015-2017. This
increased cession, which was effective December 31, 2017, improved
Radian Guaranty’s PMIERs position at December 31, 2017, and has
been approved by Fannie Mae and Freddie Mac (GSEs).
- On December 28, 2017, Radian Group
transferred $100 million of cash and marketable securities to
Radian Guaranty in exchange for a surplus note. The intercompany
surplus note has a 0 percent interest rate and a stated maturity
date of December 31, 2027. The surplus note may be redeemed at any
time upon 30 days prior notice, subject to the approval of the
Pennsylvania Insurance Department. Any redemption of the surplus
note increases holding company liquidity by the corresponding
amount of the redemption.
- As discussed above, Radian Guaranty
experienced a recent increase in reported delinquencies in
hurricane-affected areas. Given that the PMIERs require Radian to
maintain significantly more Minimum Required Assets for delinquent
loans than for performing loans, the company’s Minimum Required
Assets from hurricane-affected areas increased by approximately
$100 million as of December 31, 2017, as compared to September 30,
2017. The company expects these Minimum Required Assets to decrease
given the expectation that substantially all of the
hurricane-related defaults will cure within the next six to twelve
months.
- As a result of capital actions taken in
the fourth quarter of 2017 and as described above, at December 31,
2017, Radian Guaranty’s Available Assets under the PMIERs were
approximately $3.7 billion and its Minimum Required Assets under
the PMIERs were approximately $3.2 billion, resulting in an excess
of approximately $450 million, or 14 percent. This compares to an
excess of approximately $237 million, or 7 percent, at September
30, 2017.
- Radian Guaranty received a summary of
proposed changes to the PMIERs on December 18, 2017, that are being
recommended to the Federal Housing Finance Agency by the GSEs.
Based on this initial summary, which remains subject to comment by
the private mortgage insurance industry, Radian expects to be able
to fully comply with the proposed PMIERs and to maintain an excess
of Available Assets over Minimum Required Assets under the PMIERs
as of the expected effective date in late 2018, without a need to
take further actions to do so. The company’s expectation is not
dependent upon the existing surplus note and is based on its
projections for positive operating results in 2018, its strong
capital position, and the benefits of its reinsurance
programs.
CONFERENCE CALL
Radian will discuss fourth quarter and year-end 2017 financial
results in a conference call today, Thursday, February 1, 2018, 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 800.230.1093 inside the U.S., or 612.332.0226
for international callers, using passcode 443361 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 443361.
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 and losses from the sale of lines of
business. 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, Other Operating
Expenses and Restructuring and Other Exit Costs 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 (page 1 of 2) 2017 2016
(In thousands,
except per-share amounts)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Revenues: Net premiums earned - insurance $
245,175 $ 236,702 $ 229,096 $ 221,800 $ 233,585
Services
revenue 39,703 39,571 37,802 38,027 49,905
Net
investment income 33,605 32,540 30,071 31,032 28,996
Net gains (losses) on investments and other financial
instruments (1,339 ) 2,480 5,331 (2,851 ) (38,773
)
Other income 768 760 612 746
736
Total revenues 317,912
312,053 302,912 288,754 274,449
Expenses: Provision for losses 35,178 35,841
17,222 46,913 54,287
Policy acquisition costs 5,871
5,554 6,123 6,729 5,579
Cost of services 23,349
27,240 25,635 28,375 33,812
Other operating expenses
65,999 64,195 68,750 68,377 62,416
Restructuring and
other exit costs 5,230 12,038 — — —
Interest
expense 14,929 15,715 16,179 15,938 17,269
Loss on
induced conversion and debt extinguishment — 45,766
1,247 4,456 —
Impairment of goodwill — — 184,374 — —
Amortization and impairment of other intangible assets
2,629 2,890 18,856 3,296 3,290
Total expenses 153,185 209,239
338,386 174,084 176,653
Pretax
income (loss) 164,727 102,814 (35,474 ) 114,670 97,796
Income tax provision (benefit) 157,911 37,672
(8,132 ) 38,198 36,707
Net income
(loss) $ 6,816 $ 65,142 $ (27,342 )
$ 76,472 $ 61,089
Diluted net income (loss)
per share $ 0.03 $ 0.30 $ (0.13 ) $ 0.34 $ 0.27
Selected Mortgage Insurance Key
Ratios
Loss ratio (1) 14.4 % 15.2 % 7.7 % 21.3 % 23.4
%
Expense ratio (1) 23.0 % 22.9 % 26.2 % 27.1
% 22.7 %
(1)
Calculated on a GAAP basis using net
premiums earned.
Radian Group Inc. and Subsidiaries Condensed
Consolidated Statements of Operations Exhibit A (page 2 of
2) Year EndedDecember 31,
(In thousands,
except per-share data)
2017 2016
Revenues: Net premiums
earned - insurance $ 932,773 $ 921,769
Services revenue 155,103 168,894
Net investment
income 127,248 113,466
Net gains (losses) on
investments and other financial instruments 3,621 30,751
Other income 2,886 3,572
Total
revenues 1,221,631 1,238,452
Expenses: Provision for losses 135,154 202,788
Policy acquisition costs 24,277 23,480
Cost of
services 104,599 114,174
Other operating expenses
267,321 244,896
Restructuring and other exit costs
17,268 —
Interest expense 62,761 81,132
Loss on induced conversion and debt extinguishment
51,469 75,075
Impairment of goodwill 184,374 —
Amortization and impairment of other intangible assets
27,671 13,221
Total expenses
874,894 754,766
Pretax income
346,737 483,686
Income tax provision 225,649
175,433
Net income $ 121,088
$ 308,253
Diluted net income per share
$ 0.55 $ 1.37
Selected Mortgage Insurance Key
Ratios
Loss ratio (1) 14.6 % 22.2 %
Expense ratio
(1) 24.7 % 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 (page 1 of
2) The calculation of basic and diluted net income
per share was as follows: 2017 2016
(In thousands,
except per-share amounts)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net
income (loss): Net income (loss)—basic $
6,816 $ 65,142 $ (27,342 ) $ 76,472 $ 61,089
Adjustment
for dilutive Convertible Senior Notes due 2019, net of tax (1)
— — — (215 ) 665
Net income
(loss)—diluted $ 6,816 $ 65,142 $
(27,342 ) $ 76,257 $ 61,754
Average common shares
outstanding—basic 215,623 215,279 215,152 214,925
214,481
Dilutive effect of Convertible Senior Notes due 2017
(2) 9 16 — 701 421
Dilutive effect of Convertible
Senior Notes due 2019 — — — 1,854 6,417
Dilutive
effect of stock-based compensation arrangements (2)
4,618 4,096 — 4,017 3,457
Adjusted average common shares outstanding—diluted
220,250 219,391 215,152 221,497
224,776
Basic net income (loss) per share: $
0.03 $ 0.30 $ (0.13 ) $ 0.36 $ 0.28
Diluted net income (loss) per share: $
0.03 $ 0.30 $ (0.13 ) $ 0.34 $ 0.27
(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
obligation 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 stock-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 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Shares of common stock equivalents 170 676
5,975 445 1,042
Shares of Convertible Senior Notes due 2017
— — 509 — —
Radian Group Inc. and
Subsidiaries Net Income Per Share Exhibit B (page 2
of 2) Year Ended December 31,
(In thousands,
except per-share amounts)
2017 2016
Net income: Net income -
basic $ 121,088 $ 308,253
Adjustment for
dilutive Convertible Senior Notes due 2019, net of tax (1)
(215 ) 5,816
Net income - diluted $
120,873 $ 314,069
Average common shares
outstanding—basic 215,321 211,789
Dilutive effect of
Convertible Senior Notes due 2017 323 207
Dilutive
effect of Convertible Senior Notes due 2019 457 14,263
Dilutive effect of stock-based compensation arrangements (2)
4,305 2,999
Adjusted average common shares
outstanding—diluted 220,406 229,258
Basic net income per share: $ 0.56 $
1.46
Diluted net income per share: $
0.55 $ 1.37
(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.
(2)
The following number of shares of our
common stock equivalents issued under our stock-based compensation
arrangements were not included in the calculation of diluted net
income per share because they were anti-dilutive:
Year Ended
December 31,
(In
thousands)
2017 2016
Shares of common stock equivalents
353 1,042
Radian Group Inc. and Subsidiaries Condensed Consolidated
Balance Sheets Exhibit C December 31,
September 30, June 30, March 31, December 31,
(In thousands,
except per-share data)
2017 2017 2017 2017 2016
Assets:
Investments $ 4,643,942 $ 4,546,664 $
4,583,842 $ 4,437,716 $ 4,462,430
Cash 80,569 61,917
56,918 73,701 52,149
Restricted cash 15,675 36,888
25,486 12,689 9,665
Accounts and notes receivable
72,558 97,020 78,540 73,794 77,631
Deferred income taxes,
net 229,567 356,181 389,759 369,209 411,798
Goodwill
and other intangible assets, net 64,212 66,967 69,857
273,068 276,228
Prepaid reinsurance premium 386,509
239,620 235,349 230,148 229,438
Other assets 407,849
439,016 377,355 357,435 343,835
Total assets $ 5,900,881 $ 5,844,273
$ 5,817,106 $ 5,827,760 $ 5,863,174
Liabilities and stockholders’ equity: Unearned
premiums $ 723,938 $ 717,589 $ 702,210 $ 684,797
$ 681,222
Reserve for losses and loss adjustment expense
507,588 556,488 651,591 726,169 760,269
Long-term
debt 1,027,074 1,026,806 989,010 1,008,777 1,069,537
Reinsurance funds withheld 288,398 194,353 180,991
167,427 158,001
Other liabilities 353,845
360,835 379,144 319,282 321,859
Total liabilities 2,900,843 2,856,071
2,902,946 2,906,452 2,990,888
Equity
component of currently redeemable convertible senior notes
— — 16 883 —
Common stock 233 233 233
233 232
Treasury stock (893,888 ) (893,754 )
(893,531 ) (893,372 ) (893,332 )
Additional paid-in capital
2,754,275 2,747,393 2,743,872 2,743,594 2,779,891
Retained earnings 1,116,333 1,110,057 1,045,453
1,073,333 997,890
Accumulated other comprehensive income
(loss) 23,085 24,273 18,117 (3,363
) (12,395 )
Total stockholders’ equity 3,000,038
2,988,202 2,914,144 2,920,425 2,872,286
Total liabilities and stockholders’ equity $
5,900,881 $ 5,844,273 $ 5,817,106 $
5,827,760 $ 5,863,174
Shares
outstanding 215,814 215,299 215,175 215,091 214,521
Book value per share $ 13.90 $ 13.88 $
13.54 $ 13.58 $ 13.39
Tangible book value per share (See
Exhibit G) $ 13.60 $ 13.57 $ 13.22 $ 12.31 $
12.10
Statutory Capital
Ratios
Risk to capital ratio-Radian Guaranty only 12.8
:1 (1) 14.4 :1 14.3 :1 14.3 :1 13.5 :1
Risk to
capital ratio-Mortgage Insurance combined 12.1 :1
(1) 13.4 :1 13.4 :1 13.4 :1 13.6 :1
(1)
Preliminary.
Radian Group Inc. and Subsidiaries Net
Premiums Earned - Insurance, Other Operating Expenses and
Restructuring and Other Exit Costs Exhibit D (page 1 of
2) 2017 2016
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Premiums earned - insurance: Direct $
260,184 $ 250,541 $ 243,229 $ 236,062 $ 251,751
Assumed 7 7 7 7 8
Ceded (15,016
) (13,846 ) (14,140 ) (14,269 ) (18,174 )
Net premiums
earned - insurance $ 245,175 $ 236,702
$ 229,096 $ 221,800 $ 233,585
Notable variable items: (1) Single Premium Policy
cancellations, direct $ 21,172 $ 15,415 $ 13,346
$ 10,415 $ 26,707
Single Premium Policy cancellations, ceded
(10,057 ) (7,085 ) (5,898 ) (4,536 ) (11,005 )
Profit commission - reinsurance (2) 7,871
7,373 6,682 5,888 8,458
Total
$ 18,986 $ 15,703 $ 14,130 $
11,767 $ 24,160
Other operating
expenses $ 65,999 $ 64,195 $ 68,750
$ 68,377 $ 62,416
Notable variable
items: (3) Technology upgrade project (4) $
3,086 $ 3,569 $ 5,121 $ 3,512 $ 3,648
Employee severance
and related benefit costs 662 101 386 977 902
Retirement and consulting agreement (5) 1,168 927 867
3,622 —
Incentive compensation (6) (7) 8,981 6,950
9,641 7,447 9,072
Ceding commissions (7) (4,624
) (4,231 ) (4,064 ) (3,864 ) (5,105 )
Total
$ 9,273 $ 7,316 $ 11,951 $
11,694 $ 8,517
Restructuring and other exit
costs: (8) Employee severance, related benefits and other
exit costs (9)
$
1,365
$ 5,463 $ — $ — $ —
Impairment of other long-lived assets and
loss from the sale of a business line (10) 3,865
6,575 — — —
Total restructuring and
other exit costs $ 5,230 $ 12,038 $
— $ — $ —
(1)
These amounts are included in net
premiums earned - insurance.
(2)
The amounts represent the profit
commission on the 2016 Single Premium QSR Transaction.
(3)
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 consulting agreements entered into in
February 2017 with our former CEO. A portion of current expenses
are subject to change, based on the Company's and 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)
Represents the charges associated with
our plan to restructure the Service business.
(9)
Employee severance, related benefits
and other exit costs are components of adjusted pretax operating
income.
(10)
Impairment of other long-lived assets
and loss from the sale of a business line are not components of
adjusted pretax operating income. The amount for the three months
ended December 31, 2017 primarily relates to the loss on the sale
of our EuroRisk business, which was completed during the fourth
quarter of 2017. The amount for the three months ended September
30, 2017 relates to the impairment of other long-lived assets. See
Exhibit F for additional information on our non-GAAP financial
measures.
Radian Group Inc. and Subsidiaries Net Premiums
Earned - Insurance, Other Operating Expenses and Restructuring and
Other Exit Costs Exhibit D (page 2 of 2) Year
EndedDecember 31,
(In
thousands)
2017 2016
Premiums earned - insurance:
Direct $ 990,016 $ 999,093
Assumed
28 35
Ceded (57,271 ) (77,359 )
Net
premiums earned - insurance $ 932,773 $
921,769
Notable variable items: (1) Single
Premium Policy cancellations, direct $ 60,348 $
96,824
Single Premium Policy cancellations, ceded
(27,576 ) (38,050 )
Profit commission -
reinsurance (2) 27,814 31,405
Total
$ 60,586 $ 90,179
Other
operating expenses $ 267,321 $ 244,896
Notable variable items: (3) Technology
upgrade project (4) $ 15,288 $ 10,802
Employee
severance and related benefit costs 2,126 5,342
Retirement and consulting agreement (5) 6,584 —
Incentive compensation (6) (7) 33,019 42,142
Ceding commissions (7) (16,783 ) (19,984 )
Total $ 40,234 $ 38,302
Restructuring and other exit costs: (8) Employee
severance, related benefits and other exit costs (9)
$
6,828
$ — Impairment of other long-lived assets and loss
from the sale of a business line (10) 10,440
— Total restructuring and other exit costs
$ 17,268 $ —
(1)
These amounts are included in net
premiums earned - insurance.
(2)
The amounts represent the profit
commission on the 2016 Single Premium QSR Transaction.
(3)
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. A portion of the current
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)
Represents the charges associated with
our plan to restructure the Service 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
and loss from the sale of a business line are not components of
adjusted pretax operating income. See Exhibit F for additional
information on our non-GAAP financial measures.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 3)
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 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net
premiums written - insurance $ 104,635 (1)
$ 247,810 $ 241,307 $ 224,665 $ 234,172
(Increase) decrease in
unearned premiums 140,540 (11,108 ) (12,211 )
(2,865 ) (587 )
Net premiums earned - insurance
245,175 236,702 229,096 221,800 233,585
Net investment
income 33,605 32,540 30,071 31,032 28,996
Other
income 768 760 612 746 736
Total 279,548 270,002 259,779
253,578 263,317
Provision for
losses 35,257 35,980 17,714 47,232 54,675
Policy
acquisition costs 5,871 5,554 6,123 6,729 5,579
Other
operating expenses before corporate allocations 36,806
36,941 37,939 39,289 37,773
Total (2) 77,934 78,475 61,776
93,250 98,027
Adjusted pretax operating income
before corporate allocations 201,614 191,527 198,003
160,328 165,290
Allocation of corporate operating expenses
13,624 11,737 15,894 14,186 9,652
Allocation of interest
expense 10,477 11,282 11,748 11,509
12,843
Adjusted pretax operating income
$ 177,513 $ 168,508 $ 170,361 $
134,633 $ 142,795
Services 2017
2016
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Services revenue (2) $ 40,707 $ 41,062
$ 39,975 $ 40,089 $ 52,558
Cost of services 23,616 27,544 25,962 28,690 34,130
Other operating expenses before corporate allocations
12,781 12,781 12,803 12,604 14,842
Restructuring and
other exit costs (3) 1,365 5,463 —
— —
Total 37,762 45,788
38,765 41,294 48,972
Adjusted pretax
operating income (loss) before corporate allocations (4)
2,945 (4,726 ) 1,210 (1,205 ) 3,586
Allocation of
corporate operating expenses 3,467 3,730 3,404 3,718
1,738
Allocation of interest expense 4,452
4,433 4,431 4,429 4,426
Adjusted
pretax operating income (loss) $ (4,974 )
$ (12,889 ) $ (6,625 ) $ (9,352 ) $ (2,578 )
(1)
Effective December 31, 2017, we amended
the 2016 Single Premium QSR Transaction to increase the amount of
ceded risk for 2015 through 2017 vintages under the agreement from
35% to 65%, resulting in a reduction of $145.7 million in net
premiums written for the fourth quarter of 2017.
See notes continued on next
page.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 3)
Notes continued from prior
page.
(2)
Inter-segment information:
2017 2016
Qtr 4
Qtr 3 Qtr 2 Qtr 1 Qtr 4
Inter-segment
expense included in Mortgage Insurance segment $
1,004 $ 1,491 $ 2,173 $ 2,062 $ 2,653
Inter-segment
revenue included in Services segment 1,004 1,491 2,173
2,062 2,653
(3)
Primarily includes employee severance
and related benefit costs. Does not include impairment of
long-lived assets and loss from the sale of a business line, which
are not considered components of adjusted pretax operating
income.
(4)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F):
2017 2016
Qtr 4
Qtr 3 Qtr 2 Qtr 1 Qtr 4
Adjusted pretax
operating income (loss) before corporate allocations $
2,945 $ (4,726 ) $ 1,210 $ (1,205 ) $ 3,586
Depreciation and amortization 893 1,172
835 858 829
Services adjusted EBITDA $
3,838 $ (3,554 ) $ 2,045 $ (347 ) $ 4,415
Mortgage Insurance Year EndedDecember
31,
(In
thousands)
2017 2016
Net premiums written - insurance (1)
$ 818,417 $ 733,834
Decrease in unearned
premiums 114,356 187,935
Net premiums earned -
insurance 932,773 921,769
Net investment income
127,248 113,466
Other income 2,886
3,572
Total 1,062,907 1,038,807
Provision for losses 136,183 204,175
Policy
acquisition costs 24,277 23,480
Other operating
expenses before corporate allocations 150,975
140,624
Total (2) 311,435 368,279
Adjusted
pretax operating income before corporate allocations
751,472 670,528
Allocation of corporate operating
expenses 55,441 45,178
Allocation of interest
expense 45,016 63,439
Adjusted pretax
operating income $ 651,015 $ 561,911
Table continued on next page.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 3 of 3)
Table continued from prior
page.
Services Year EndedDecember 31,
(In
thousands)
2017 2016
Services revenue (2) $
161,833 $ 177,249
Cost of
services 105,812 115,369
Other operating expenses
before corporate allocations 50,969 55,815
Restructuring and other exit costs (3) 6,828 —
Total 163,609 171,184
Adjusted pretax operating income (loss) before corporate
allocations (4) (1,776 ) 6,065
Allocation of
corporate operating expenses 14,319 8,533
Allocation
of interest expense 17,745 17,693
Adjusted pretax operating income (loss) $
(33,840 ) $ (20,161 )
(1)
Net of ceded premiums written under the
QSR Transactions and the 2016 Single Premium QSR Transaction. See
Exhibit L for additional information.
(2)
Inter-segment information:
Year EndedDecember 31,
2017 2016
Inter-segment expense included in
Mortgage Insurance segment $ 6,730 $ 8,355
Inter-segment revenue included in Services segment
6,730 8,355
(3)
Primarily includes employee severance
and related benefit costs. Does not include impairment of
long-lived assets and loss from the sale of a business line, which
are not considered components of adjusted pretax operating
income.
(4)
Supplemental information for Services
adjusted EBITDA (see definition in Exhibit F)
Year EndedDecember 31,
2017 2016
Adjusted pretax operating income (loss)
before corporate allocations $ (1,776 ) $
6,065
Depreciation and amortization 3,758
3,125
Services adjusted EBITDA $ 1,982
$ 9,190
Selected balance sheet information for
our segments, as of the periods indicated, is a follows:
At December 31, 2017
(In
thousands)
MortgageInsurance
Services Total Total assets
$ 5,733,918 $ 166,963 $
5,900,881 At December 31, 2016
(In
thousands)
MortgageInsurance
Services Total Total assets $ 5,506,338 $
356,836 $ 5,863,174
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 consolidated 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 and losses
from the sale of lines of business. 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. 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).
(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).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
(5)
Net impairment losses recognized in
earnings and losses from the sale of lines of business. 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. Losses from
the sale of lines of business are highly discretionary as a result
of strategic restructuring decisions, and generally do not occur in
the normal course of our business. We do not view these 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 5)
Reconciliation of Consolidated Pretax Income (Loss) to Adjusted
Pretax Operating Income 2017 2016
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Consolidated pretax income (loss) $ 164,727 $
102,814 $ (35,474 ) $ 114,670 $ 97,796
Less income (expense)
items: Net gains (losses) on investments and other financial
instruments (1,339 ) 2,480 5,331 (2,851 ) (38,773
)
Loss on induced conversion and debt extinguishment
— (45,766 ) (1,247 ) (4,456 ) —
Acquisition-related
expenses (1) 21 (54 ) (64 ) (8 ) (358 )
Impairment of
goodwill — — (184,374 ) — —
Amortization and
impairment of other intangible assets (2,629 )
(2,890 ) (18,856 ) (3,296 ) (3,290 )
Impairment of other
long-lived assets and loss from the sale of a business line (2)
(3,865 ) (6,575 ) — — —
Total
adjusted pretax operating income (3) $ 172,539
$ 155,619 $ 163,736 $ 125,281 $ 140,217
(1)
Please see Exhibit F for the definition
of this line item. This line 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 for each segment as
follows:
2017 2016
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Adjusted pretax operating income (loss): Mortgage
Insurance $ 177,513 $ 168,508 $ 170,361 $ 134,633
$ 142,795
Services (4,974 ) (12,889 ) (6,625 )
(9,352 ) (2,578 )
Total adjusted pretax operating income
$ 172,539 $ 155,619 $ 163,736 $
125,281 $ 140,217
Radian Group Inc.
and Subsidiaries Consolidated Non-GAAP Financial Measure
Reconciliations Exhibit G (page 2 of 5)
Reconciliation of Diluted Net Income
(Loss) Per Share to Adjusted Diluted Net Operating Income Per
Share
2017 2016
Qtr 4 Qtr 3 Qtr
2 Qtr 1 Qtr 4
Diluted net income (loss) per share
$ 0.03 $ 0.30 $ (0.13 ) $ 0.34 $
0.27
Less per-share impact of debt items:
Loss on induced conversion and debt extinguishment —
(0.21 ) (0.01 ) (0.02 ) —
Income tax provision (benefit) (1)
— (0.07 ) — (0.01 ) —
Per-share
impact of debt items — (0.14 ) (0.01 ) (0.01 ) —
Less per-share impact of other income (expense)
items: Net gains (losses) on investments and other financial
instruments (0.01 ) 0.01 0.02 (0.01 ) (0.17 )
Acquisition-related expenses — — — — —
Impairment
of goodwill — — (0.86 )
— —
Amortization and impairment of intangible assets
(0.01 ) (0.01 ) (0.09 ) (0.01 ) (0.02 )
Impairment
of other long-lived assets and loss from the sale of a business
line (0.02 ) (0.03 ) —
—
—
Income tax provision (benefit) on other income (expense) items
(2) (0.01 ) (0.01 ) (0.32 ) (0.01 ) (0.07 )
Difference between statutory and effective tax rate (3)
(0.45 ) — — (0.01 ) (0.02 )
Per-share impact of other income (expense) items
(0.48 ) (0.02 ) (0.61 ) (0.02 ) (0.14 )
Add
per-share impact of share dilution — — $
(0.01 ) — —
Adjusted diluted net operating income
per share (2) $ 0.51 $ 0.46 $ 0.48
$ 0.37 $ 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.
(2)
Calculated using the company’s federal
statutory tax rate. Any permanent tax adjustments and state income
taxes on these items have been deemed immaterial and are not
included.
(3)
The three months ended December 31,
2017 includes $0.47 in additional tax expense related to the
remeasurement of our net deferred tax assets as a result of the Tax
Cuts and Jobs Act enacted in December 2017.
Reconciliation of Book Value Per Share to Tangible
Book Value Per Share (1)
2017 2016
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Book value
per share
$
13.90
$ 13.88 $ 13.54 $ 13.58 $ 13.39
Less: Goodwill and other
intangible assets, net per share
0.30
0.31 0.32 1.27 1.29
Tangible book
value per share
$
13.60
$ 13.57 $ 13.22 $ 12.31 $ 12.10
(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 5) Reconciliation of Net
Income (Loss) to Services Adjusted EBITDA
2017 2016
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net
income (loss) $ 6,816 $ 65,142 $ (27,342 ) $
76,472 $ 61,089
Less income (expense) items: Net gains
(losses) on investments and other financial instruments
(1,339 ) 2,480 5,331 (2,851 ) (38,773 )
Loss on
induced conversion and debt extinguishment — (45,766 )
(1,247 ) (4,456 ) —
Acquisition-related expenses 21
(54 ) (64 ) (8 ) (358 )
Impairment of goodwill — —
(184,374 ) — —
Amortization and impairment of other intangible
assets (2,629 ) (2,890 ) (18,856 ) (3,296 )
(3,290 )
Impairment of other long-lived assets and loss from the
sale of a business line (3,865 ) (6,575 ) — — —
Income tax provision (benefit) 157,911 37,672 (8,132
) 38,198 36,707
Mortgage Insurance adjusted pretax operating
income 177,513 168,508 170,361
134,633 142,795
Services adjusted pretax operating
income (loss) (4,974 ) (12,889 ) (6,625 ) (9,352
) (2,578 )
Less income (expense) items: Allocation of
corporate operating expenses to Services (3,467 )
(3,730 ) (3,404 ) (3,718 ) (1,738 )
Allocation of corporate
interest expenses to Services (4,452 ) (4,433 )
(4,431 ) (4,429 ) (4,426 )
Services depreciation and
amortization (893 ) (1,172 ) (835 ) (858 ) (829 )
Services adjusted EBITDA $ 3,838 $
(3,554 ) $ 2,045 $ (347 ) $ 4,415
Reconciliation of Consolidated Pretax
Income to Adjusted Pretax Operating Income
Year EndedDecember 31,
(In
thousands)
2017 2016
Consolidated pretax income $
346,737 $ 483,686
Less income (expense) items: Net
gains on investments and other financial instruments
3,621 30,751
Loss on induced conversion and debt
extinguishment (51,469 ) (75,075 )
Acquisition-related expenses (1) (105 ) (519 )
Impairment of goodwill (184,374 ) —
Amortization and impairment of intangible assets
(27,671 ) (13,221 )
Impairment of other long-lived
assets and loss from the sale of a business line (2)
(10,440 ) —
Total adjusted pretax operating
income (3) $ 617,175 $ 541,750
(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.
See notes continued on next
page.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 4 of 5)
Notes continued from prior
page.
(3)
Total adjusted pretax operating income
consists of adjusted pretax operating income for each segment as
follows:
Year EndedDecember 31,
(In
thousands)
2017 2016
Adjusted pretax operating income
(loss): Mortgage Insurance $ 651,015 $
561,911
Services (33,840 ) (20,161 )
Total
adjusted pretax operating income $ 617,175
$ 541,750
Reconciliation of Diluted Net Income
Per Share to Adjusted Diluted Net Operating Income Per
Share
Year EndedDecember 31,
2017 2016
Diluted net income per share
$ 0.55 $ 1.37
Less per-share
impact of debt items: Loss on induced conversion and debt
extinguishment (0.23 ) (0.33 )
Income tax
provision (benefit) (1) (0.08 ) (0.07 )
Per-share impact of debt items (0.15 ) (0.26 )
Less per-share impact of other income (expense)
items: Net gains (losses) on investments and other financial
instruments 0.02 0.14
Acquisition-related
expenses
—
—
Impairment of goodwill (0.84 ) —
Amortization and impairment of intangible assets
(0.13 ) (0.06 )
Impairment of other long-lived
assets and loss from the sale of a business line (0.05
)
—
Income tax provision (benefit) on other income (expense) items
(2) (0.35 ) 0.03
Difference between statutory
and effective tax rate (3) (0.47 ) 0.02
Per-share impact of other income (expense) items
(1.12 ) 0.07
Adjusted diluted net operating
income per share (2) $ 1.82 $ 1.56
(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.
(2)
Calculated using the company’s federal
statutory tax rate. Any permanent tax adjustments and state income
taxes on these items have been deemed immaterial and are not
included.
(3)
All of the 2017 amount represents the
incremental tax provision related to the remeasurement of our net
deferred tax assets as a result of the Tax Cuts and Jobs Act
enacted in December 2017.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 5 of 5) Reconciliation of
Net Income to Services Adjusted EBITDA
Year EndedDecember 31,
(In
thousands)
2017 2016
Net income $ 121,088 $
308,253
Less income (expense) items: Net gains (losses)
on investments and other financial instruments 3,621
30,751
Loss on induced conversion and debt extinguishment
(51,469 ) (75,075 )
Acquisition-related
expenses (105 ) (519 )
Impairment of
goodwill (184,374 ) —
Amortization and
impairment of other intangible assets (27,671 )
(13,221 )
Impairment of other long-lived assets and loss from
the sale of a business line (10,440 ) —
Income
tax provision (benefit) 225,649 175,433
Mortgage
Insurance adjusted pretax operating income 651,015
561,911
Services adjusted pretax operating income
(loss) (33,840 ) (20,161 )
Less income
(expense) items: Allocation of corporate operating expenses
to Services (14,319 ) (8,533 )
Allocation of
corporate interest expenses to Services (17,745 )
(17,693 )
Services depreciation and amortization
(3,758 ) (3,125 )
Services adjusted EBITDA
$ 1,982 $ 9,190 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 4 Qtr 3 Qtr 2
Qtr 1 Qtr 4
Total primary new insurance written
$ 14,383 $ 15,125 $ 14,342 $
10,055 $ 13,882
Percentage of
primary new insurance written by FICO score
>=740 60.4 % 61.1 % 61.6 % 61.3 % 63.4 %
680-739
33.1 32.5 32.6 32.7 31.4
620-679
6.5 6.4 5.8 6.0 5.2
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 % 77
% 75 % 73 %
Direct single premiums 23 % 23 %
23 % 25 % 27 %
Net single premiums (1) 15
% 15 % 15 % 16 % 17 %
NIW for purchases
88 % 91 % 91 % 84 % 73 %
NIW for refinances
12 % 9 % 9 % 16 % 27 %
LTV 95.01%
and above 15.4 % 14.3 % 12.8 % 9.2 % 7.4 %
90.01% to 95.00% 43.9 % 45.7 % 47.3 % 47.3 %
43.6 %
85.01% to 90.00% 27.4 % 28.1 % 28.8 %
30.3 % 32.3 %
85.00% and below 13.3 % 11.9 %
11.1 % 13.2 % 16.7 %
(1)
Represents the percentage of direct
single premiums written, after consideration of the 35% single
premium NIW ceded under the 2016 Single Premium QSR Transaction.
However, effective December 31, 2017, we amended the 2016 Single
Premium QSR Transaction to increase the amount of ceded risk for
2015 through 2017 vintages under the agreement from 35% to 65%.
After consideration of this increase in the cession percentage, net
single premiums represented 8% of NIW during the fourth quarter of
2017.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 1 of 2)
December 31,
September 30,
June 30,
March 31, December 31,
($ in millions) 2017 2017 2017
2017 2016
Primary insurance
in force (1)
Prime $ 193,949 $ 189,340 $ 183,886 $ 177,702
$ 174,927
Alt-A 4,052 4,327 4,602 4,842 5,064
A
minus and below 2,723 2,874 3,149
3,315 3,459
Total Primary $
200,724 $ 196,541 $ 191,637 $ 185,859
$ 183,450
Primary risk in
force (1) (2)
Prime $ 49,674 $ 48,516 $ 47,075 $ 45,442 $
44,708
Alt-A 929 998 1,062 1,118 1,168
A minus and
below 685 723 792 834 865
Total Primary $ 51,288 $ 50,237
$ 48,929 $ 47,394 $ 46,741
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) 19 % 24
% 25 % 25 % 25 %
Percentage of
primary risk in force by FICO score
>=740 58.9 % 58.8 % 58.3 % 57.9 % 57.6 %
680-739
31.4 31.3 31.1 31.1 31.0
620-679
8.6 8.8 9.3 9.6 9.9
<=619 1.1 1.1
1.3 1.4 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 9.2 % 8.6 % 8.0 % 7.6 % 7.4 %
90.01% to 95.00% 53.2 53.1 52.9 52.6 52.3
85.01%
to 90.00% 30.6 31.1 31.7 32.2 32.5
85.00% and
below 7.0 7.2 7.4 7.6 7.8
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior 3.3 % 3.6 % 4.1 % 4.4 % 4.8 %
2006
2.1 2.3 2.5 2.8 2.9
2007
5.2 5.6 6.2 6.7 7.0
2008
3.4 3.7 4.2 4.6 4.8
2009
0.6 0.7 0.8 0.9 1.0
2010
0.5 0.6 0.7 0.8 0.9
2011
1.3 1.5 1.7 1.8 2.0
2012
5.5 6.1 6.7 7.4 8.0
2013
8.9 9.8 10.7 11.8 12.6
2014
8.5 9.3 10.2 11.2 12.0
2015
13.8 14.9 16.1 17.3 18.1
2016
21.4 22.5 23.7 25.0 25.9
2017
25.5 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) $
1,389 $ 1,137 $ 1,124 $ 1,224 $ 1,363
See notes on next page.
Radian Group Inc. and
Subsidiaries
Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 2 of 2)
Notes to table on preceding
page.
(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 1.0% 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.
Effective December 31, 2017, we amended the 2016 Single Premium QSR
Transaction to increase the amount of ceded risk for 2015 through
2017 vintages under the agreement from 35% to 65%, resulting in a
reduction of $2.5 billion in net RIF on Single Premium Policies at
December 31, 2017.
(4)
Excludes risk related to loans subject
to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Claims and Reserves
Exhibit J (page 1 of 2) 2017 2016
($ in
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
Net claims paid: (1) Prime $ 37,191 $
47,541 $ 45,562 $ 52,044 $ 70,151
Alt-A 11,155 16,035
13,700 16,165 27,558
A minus and below 8,229
10,772 10,586 9,460 13,760
Total
primary claims paid 56,575 74,348 69,848 77,669 111,469
Pool 2,458 2,148 1,901 4,180 4,788
Second-lien and
other (110 ) 32 (1,937 ) 78 (264 )
Subtotal 58,923 76,528 69,812 81,927 115,993
Impact of captive terminations — — 645 — 492
Impact of commutations (2) 26,590 54,956
20,838 161 —
Total net claims
paid $ 85,513 $ 131,484 $ 91,295
$ 82,088 $ 116,485
Average net
claims paid (1) (3) Prime $ 49.7 $ 48.4 $
48.2 $ 50.5 $ 45.5
Alt-A 69.7 69.4 61.7 67.1 65.5
A minus and below 45.0 44.0 41.7 39.6 37.7
Total
average net primary claims paid 51.8 51.0 49.1 51.4 47.9
Pool 102.4 59.7 47.5 49.2 45.6
Total average net
claims paid $ 52.3 $ 51.0 $ 47.3 $ 50.9 $ 47.6
Average direct primary claims paid (3) (4) $
52.2 $ 51.4 $ 49.4 $ 51.6 $ 48.2
Average total direct
claims paid (3) (4) $ 52.7 $ 51.4 $ 47.6 $ 51.1 $
47.9
(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 primary default amounts)
December 31,2017 September 30,2017 June 30,2017 March
31,2017 December 31,2016
Reserve for losses by
category Prime $ 285,022 $ 296,885 $
318,169 $ 362,804 $ 379,845
Alt-A 101,755 112,033
124,477 140,543 148,006
A minus and below 69,118
78,048 85,283 96,373 101,653
IBNR and other (1)
16,021 13,085 69,620 70,651 71,107
LAE 13,349
14,687 15,492 17,551 18,630
Reinsurance recoverable (2)
8,315 7,445 7,341 7,680 6,816
Total primary reserves 493,580 522,183
620,382 695,602 726,057
Pool insurance
12,794 18,630 29,099 28,453 31,853
IBNR and other
278 14,576 658 603 673
LAE 356 550 843 822 932
Reinsurance recoverable (2) 35 25 30
28 35
Total pool reserves 13,463
33,781 30,630 29,906 33,493
Total 1st lien
reserves 507,043 555,964 651,012 725,508 759,550
Second-lien and other 545 524 579
661 719
Total reserves $ 507,588
$ 556,488 $ 651,591 $ 726,169 $ 760,269
1st lien reserve per default Primary reserve per
primary default excluding IBNR and other $ 17,103
(3) $ 21,367 $ 23,185 $ 24,230 $ 22,503
(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.
(3)
Includes the impact of reserves and
defaults related to areas designated as individual assistance
disaster areas by FEMA ("FEMA Designated Areas") associated with
Hurricanes Harvey and Irma. Excluding the impact from new defaults
received subsequent to Hurricanes Harvey and Irma in these FEMA
Designated Areas, this amount would be approximately
$20,500.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Default Statistics
Exhibit K
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2017 2016
Default
Statistics
Primary Insurance:
Prime
Number of insured loans 913,408 897,253 879,926
858,248 849,227
Number of loans in default 20,269
15,953 15,664 16,981 19,101
Percentage of loans in default
2.22 % 1.78 % 1.78 % 1.98 % 2.25 %
Alt-A
Number of insured loans 20,602 22,643 24,089 25,425
26,536
Number of loans in default 3,002 3,166 3,366
3,812 4,193
Percentage of loans in default 14.57
% 13.98 % 13.97 % 14.99 % 15.80 %
A minus and
below
Number of insured loans 21,716 22,912 24,864 26,043
27,115
Number of loans in default 4,651 4,707 4,725
5,000 5,811
Percentage of loans in default 21.42
% 20.54 % 19.00 % 19.20 % 21.43 %
Total
Primary Number of insured loans 955,726 942,808
928,879 909,716 902,878
Number of loans in default
27,922 (1) 23,826 23,755 25,793 29,105
Percentage
of loans in default 2.92 % 2.53 % 2.56 % 2.84 %
3.22 %
(1)
Included in this amount is 7,051
defaults related to the FEMA Designated Areas associated with
Hurricanes Harvey and Irma, an increase of 4,117 as compared to
September 30, 2017.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - QSR Transactions, Captives and
Persistency Exhibit L 2017 2016
($ in
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1
Qtr 4
Quota Share
Reinsurance "QSR" Transactions
QSR ceded premiums written (1) $ 4,219 $ 4,621
$ 5,059 $ 5,457 $ 6,049
% of premiums written 1.6
% 1.7 % 1.9 % 2.3 % 2.4 %
QSR ceded premiums earned
(1) $ 6,439 $ 6,826 $ 7,404 $ 7,834 $ 9,421
%
of premiums earned 2.5 % 2.7 % 3.1 % 3.3 % 3.8 %
Ceding commissions written $ 1,208 $ 1,323 $
1,446 $ 1,559 $ 1,728
Ceding commissions earned (2) $
2,924 $ 2,925 $ 3,379 $ 3,894 $ 4,374
Profit
commission $ — $ — $ — $ — $ —
RIF included in
QSR Transactions (3) $ 1,207,426 $ 1,298,954 $
1,393,038 $ 1,488,972 $ 1,578,300
2016 Single
Premium QSR Transaction
QSR ceded premiums written (1) (4) $ 157,453 $
13,248 $ 13,856 $ 8,960 $ 11,121
% of premiums written
59.5 % 5.0 % 5.3 % 3.7 % 4.4 %
QSR ceded premiums
earned (1) $ 8,342 $ 6,771 $ 6,311 $ 5,859 $
8,060
% of premiums earned 3.2 % 2.7 % 2.6 %
2.5 % 3.2 %
Ceding commissions written $
41,331 $ 5,156 $ 5,134 $ 3,712 $ 4,895
Ceding commissions
earned (2) $ 4,053 $ 3,536 $ 3,248 $ 2,937 $
4,130
Profit commission $ 7,870 $ 7,373 $
6,682 $ 5,888 $ 8,458
RIF included in 2016 Single Premium QSR
Transaction (3) (4) $ 6,941,781 $ 4,286,529 $
4,103,410 $ 3,904,402 $ 3,761,648
Total RIF included in QSR
Transactions and 2016 Single Premium QSR Transaction $
8,149,207 $ 5,585,483 $ 5,496,448 $ 5,393,374 $ 5,339,948
1st Lien
Captives
Premiums earned ceded to captives $ 57 $ 68 $
242 $ 389 $ 503
% of total premiums earned 0.0
% 0.0 % 0.1 % 0.2 % 0.2 %
Persistency Rate (twelve months
ended) 81.1 % (5) (6) 80.0 %
(6)
78.5 % 77.1 % 76.7 %
Persistency Rate (quarterly, annualized)
(7) 79.4 % (5) 80.4 %
(6) 82.8 %
84.4 % 76.8 %
(1)
Net of profit commission.
(2)
Includes amounts reported in policy
acquisition costs and other operating expenses.
(3)
Included in primary RIF.
(4)
Effective December 31, 2017, we amended
the 2016 Single Premium QSR Transaction to increase the amount of
ceded risk for 2015 through 2017 vintages under the agreement from
35% to 65%, resulting in ceded premiums written of $145.7 million
for the fourth quarter of 2017 and an increase of $2.5 billion in
ceded RIF at December 31, 2017.
(5)
The Persistency Rate was reduced by an
increase in cancellations of single premium policies due to
increased cancellations identified by our ongoing servicer
monitoring process for Single Premium Policies.
(6)
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.
(7)
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 economic and political
conditions that impact the size of the insurable market, the credit
performance of our insured portfolio, and the business prospects of
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;
- 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 and the proposed changes to the PMIERs;
- 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 on monthly premium
products;
- 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, including
interpretations and guidance pertaining to recently enacted tax
reform legislation;
- 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 or in establishing the assumptions that have
formed the basis for our expectations regarding our ability to
comply with the proposed PMIERs when implemented;
- volatility in our results of operations
caused by changes in the fair value of our assets and liabilities,
including a significant portion of our investment portfolio, and
potential volatility in our Available Assets under the PMIERs as a
result of a new requirement in the proposed changes to the PMIERs
to mark certain of our Available Assets to fair value;
- 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; and
- 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/20180201005220/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
Radian (NYSE:RDN)
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