-- GAAP net loss of $30.0 million, or $0.15 per
diluted share, driven by $304.4 million provision expense to
increase reserves --
-- New Insurance Written of $25.5 billion,
setting company record for quarterly flow mortgage insurance --
-- PMIERs Available Assets of $4.2 billion, or
$1.0 billion (or 31% ) in excess of Minimum Required Assets --
-- Total Holding Company Liquidity increases to
$1.4 billion --
-- Book value per share grows 13%
year-over-year to $20.82 --
Radian Group Inc. (NYSE: RDN) today reported a net loss for the
quarter ended June 30, 2020, of $30.0 million, or $0.15 per diluted
share. This compares to net income for the quarter ended June 30,
2019, of $166.7 million, or $0.78 per diluted share. The net loss
was driven by an elevated loss provision in response to the
increase in the number of new defaults, which include defaults of
loans subject to forbearance programs implemented in response to
the COVID-19 pandemic.
Key Financial Highlights (dollars in millions, except
per-share data)
Quarter Ended June 30, 2020
Quarter Ended June 30, 2019
Percent Change
Net income (loss) (1)
$(30.0)
$166.7
(118)%
Diluted net income (loss) per
share
$(0.15)
$0.78
(119)%
Consolidated pretax income
(loss)
$(42.2)
$209.5
(120)%
Adjusted pretax operating income
(loss) (2)
$(88.5)
$215.8
(141)%
Adjusted diluted net operating
income (loss) per share (2)
$(0.36)
$0.80
(145)%
Return on equity (1)(3)
(3.1)%
17.8%
(117)%
Adjusted net operating return on
equity (2)
(7.1)%
18.2%
(139)%
Book value per share (4)
$20.82
$18.42
13%
PMIERs Available Assets (5)
$4,228.9
$3,225.3
31%
PMIERs excess Available Assets
(6)
$1,002.4
$659.5
52%
Total Holding Company Liquidity
(7)
$1,403.1
$1,146.1
22%
Excess Available Resources to
Support PMIERs (8)
$2,371.0
$1,772.0
34%
Total investments
$6,431.4
$5,513.3
17%
New Insurance Written (NIW) -
mortgage insurance
$25,459
$18,539
37%
Primary mortgage insurance in
force
$241,306
$230,756
5%
Net premiums earned - mortgage
insurance (9)
$247.6
$296.3
(16)%
New defaults (10)
63,005
9,338
575%
Percentage of primary loans in
default (11)
6.5%
1.9%
242%
Provision for losses - mortgage
insurance
$304.0
$47.2
544%
Mortgage insurance loss
reserves
$735.0
$401.3
83%
(1)
Net loss for the second quarter of 2020
includes a $47.3 million pretax net gain on investments and other
financial instruments. Net income for the second quarter of 2019
includes: (i) a $16.8 million loss on extinguishment of debt and
(ii) a $12.5 million pretax net gain on investments and other
financial instruments.
(2)
Adjusted results, including adjusted
pretax operating income (loss), adjusted diluted net operating
income (loss) per share and adjusted net operating return on
equity, are non-GAAP financial measures. For definitions and a
reconciliation of these measures to the comparable GAAP measures,
see Exhibits F and G.
(3)
Calculated by dividing annualized net
income by average stockholder's equity, based on the average of the
beginning and ending balances for each period presented.
(4)
Accumulated other comprehensive income
(loss) impacted book value per share by $1.11 per share as of June
30, 2020, and $0.43 per share as of June 30, 2019.
(5)
Represents Radian Guaranty’s Available
Assets, calculated in accordance with the Private Mortgage Insurer
Eligibility Requirements (PMIERs) financial requirements in effect
for each date shown.
(6)
Represents Radian Guaranty’s excess or
"cushion" of Available Assets over its Minimum Required Assets,
calculated in accordance with the PMIERs financial requirements in
effect for each date shown.
(7)
Represents Radian Group's total liquidity,
including the $35 million minimum liquidity requirement and
available capacity under its unsecured revolving credit
facility.
(8)
Represents the sum of: (1) PMIERs excess
Available Assets and (2) Total Holding Company Liquidity, net of
the $35 million minimum liquidity requirement under the unsecured
revolving credit facility.
(9)
Includes a cumulative adjustment recorded
in the second quarter of 2019 related to an update to the
amortization rates used to recognize revenue for single premium
policies.
(10)
Represents new defaults in the number of
loans reported during the period on loans related to primary
mortgage insurance policies.
(11)
Represents the number of primary loans in
default as a percentage of the total number of insured primary
loans.
Adjusted pretax operating loss for the quarter ended June 30,
2020, was $88.5 million, compared to $215.8 million adjusted pretax
operating income for the quarter ended June 30, 2019. Adjusted
diluted net operating loss per share for the quarter ended June 30,
2020, was $0.36, compared to adjusted diluted net operating income
per share of $0.80 for the quarter ended June 30, 2019.
Book value as of June 30, 2020, was $4.0 billion, an increase of
5 percent compared to $3.8 billion as of June 30, 2019. Book value
per share as of June 30, 2020 was $20.82, an increase of 13 percent
compared to $18.42 as of June 30, 2019.
"Our results for the second quarter reflect the challenging
COVID-19 pandemic environment we are operating in today and the
resulting impact on our mortgage insurance portfolio," said
Radian’s Chief Executive Officer Rick Thornberry. "We continue to
be encouraged by the impact of the programs put in place to help
ease the burden of the crisis on homeowners, including mortgage
forbearance programs and loss mitigation workout options. We are
also pleased with the rebound in the housing market, which helped
us to write record volume of new primary mortgage insurance
business of $25.5 billion dollars in the second quarter."
Thornberry added, "While the ultimate financial impact to our
company will depend upon the depth and duration of this economic
cycle, we believe we are well prepared with a strong capital
position, significant holding company resources, a solid business
model, deep customer relationships and a dedicated and talented
team. I am very proud of the resilience of our businesses and the
strength and commitment of our One Radian unified team."
SECOND QUARTER HIGHLIGHTS
- NIW was $25.5 billion for the quarter, representing an increase
of 53 percent compared to $16.7 billion in the first quarter of
2020 and an increase of 37 percent compared to $18.5 billion in the
second quarter of 2019.
- Of the $25.5 billion in NIW in the second quarter of 2020, 85
percent was written with monthly and other recurring premiums,
compared to 81 percent in the first quarter of 2020, and 83 percent
in the second quarter of 2019.
- Refinances accounted for 44 percent of total NIW in the second
quarter of 2020, compared to 34 percent in the first quarter of
2020 and 10 percent in the second quarter of 2019.
- Total primary mortgage insurance in force decreased slightly to
$241.3 billion as of June 30, 2020, compared to $241.6 billion as
of March 31, 2020, and increased 5 percent compared to $230.8
billion as of June 30, 2019.
- Persistency, which is the percentage of mortgage insurance that
remains in force after a 12-month period, was 70.2 percent as of
June 30, 2020, compared to 75.4 percent as of March 31, 2020, and
83.4 percent as of June 30, 2019.
- Annualized persistency for the three months ended June 30, 2020
was 63.8 percent, compared to 76.5 percent for the three months
ended March 31, 2020, and 80.8 percent for the three months ended
June 30, 2019.
- Net mortgage insurance premiums earned were $247.6 million for
the quarter ended June 30, 2020, compared to $275.0 million for the
quarter ended March 31, 2020, and $296.3 million for the quarter
ended June 30, 2019. Net mortgage insurance premiums earned for the
second quarter of 2020 were reduced by $28.2 million related to an
adjustment to accrued profit commission due to increased losses,
compared to profit commission increases of $8.6 million for the
first quarter of 2020 and $21.7 million for the second quarter of
2019.
- Mortgage insurance in force premium yield was 44.3 basis points
in the second quarter of 2020, compared to 46.1 basis points in the
first quarter of 2020 and 55.9 basis points in the second quarter
of 2019. Net mortgage insurance premiums earned for the second
quarter of 2019 included an increase of $32.9 million as a result
of a cumulative adjustment to unearned premiums related to an
update to the amortization rates used to recognize revenue for
single premium policies. Excluding the impact of this adjustment,
in force premium yield was 47.9 basis points in the second quarter
of 2019.
- The impact of single premium cancellations on premium yield
before consideration of reinsurance represented 8.2 basis points in
the second quarter of 2020, compared to 4.0 basis points in the
first quarter of 2020, and 2.8 basis points in the second quarter
of 2019.
- Total net mortgage insurance premium yield, which includes the
impact of ceded premiums and accrued profit commission, was 41.0
basis points in the second quarter of 2020. This compares to 45.6
basis points in the first quarter of 2020, and 52.2 basis points in
the second quarter of 2019, or 46.4 basis points excluding the
impact of the updates to single premium policy amortization rates
described above.
- Additional details regarding premiums earned may be found in
Exhibit D.
- The mortgage insurance provision for losses was $304.0 million
in the second quarter of 2020, compared to $35.2 million in the
first quarter of 2020 and $47.2 million in the second quarter of
2019. The increase in the second quarter of 2020 is primarily
related to the increase in the number of new defaults, which
include defaults of loans subject to forbearance programs
implemented in response to the COVID-19 pandemic.
- The number of primary delinquent loans was 69,742 as of June
30, 2020, compared to 19,781 as of March 31, 2020 and 19,643 as of
June 30, 2019.
- The primary default rate was 6.5 percent in the second quarter
of 2020, compared to 1.8 percent in the first quarter of 2020, and
1.9 percent in the second quarter of 2019.
- The gross default to claim rate assumption for new primary
defaults was 8.5 percent at June 30, 2020, compared to 7.5 percent
in the first quarter of 2020, and 8.0 percent in the second quarter
of 2019.
- The loss ratio in the second quarter of 2020 was 122.8 percent,
compared to 12.8 percent in the first quarter of 2020, and 15.9
percent in the second quarter of 2019.
- Mortgage insurance loss reserves were $735.0 million as of June
30, 2020, compared to $414.7 million as of March 31, 2020, and
$401.3 million as of June 30, 2019.
- Total mortgage insurance claims paid were $22.8 million in the
second quarter of 2020, compared to $23.4 million in the first
quarter of 2020, and $32.4 million in the second quarter of
2019.
- Radian's Real Estate segment offers a broad array of title,
valuation, asset management and other real estate services to
market participants across the real estate value chain.
- Total Real Estate segment revenues for the second quarter of
2020 were $26.1 million, compared to $28.6 million for the first
quarter of 2020, and $27.6 million for the second quarter of
2019.
- Adjusted earnings before interest, income taxes, depreciation
and amortization and corporate allocations (Real Estate adjusted
EBITDA) for the quarter ended June 30, 2020 was a loss of $0.7
million, compared to a loss of $0.4 million for the quarter ended
March 31, 2020, and a loss of $0.5 million for the quarter ended
June 30, 2019. Additional details regarding the non-GAAP measure
Real Estate adjusted EBITDA may be found in Exhibits F and G.
- Other operating expenses were $60.6 million in the second
quarter of 2020, compared to $69.1 million in the first quarter of
2020, and $70.0 million in the second quarter of 2019.
- The decrease in operating expenses in the second quarter of
2020, compared to the first quarter of 2020, was driven primarily
by lower share-based incentive compensation expense as well as
higher ceding commissions. The decrease in operating expenses in
the second quarter of 2020, compared to the second quarter of 2019,
was driven primarily by lower share-based compensation expense as
well as lower technology related expense.
CAPITAL AND LIQUIDITY UPDATE
- At June 30, 2020, Excess Available Resources to Support PMIERs
were $2.4 billion, or 73 percent above Radian Guaranty's Minimum
Required Assets of approximately $3.2 billion. During the three
months ended June 30, 2020, Excess Available Resources to Support
PMIERs increased by $361 million.
Radian Group
- As of June 30, 2020, Radian Group maintained $1.1 billion of
available liquidity. Total liquidity, which includes the company’s
existing $267.5 million unsecured revolving credit facility, was
$1.4 billion as of June 30, 2020. Both available liquidity and
total liquidity include the minimum liquidity requirement under the
Company's unsecured revolving credit facility of $35 million. On
May 6, 2020, Radian Group entered into an amendment to its $267.5
million unsecured revolving credit facility which extended the
maturity date of the credit facility to January 18, 2022.
- In May 2020, Radian Group issued $525 million aggregate
principal amount of Senior Notes due 2025 and received net proceeds
after expenses of $515.6 million. These notes mature on March 15,
2025 and bear interest at a rate of 6.625% per annum, payable
semi-annually on March 15 and September 15 of each year, with
interest payments commencing on September 15, 2020.
- On May 13, 2020, Radian Group’s board of directors authorized a
regular quarterly dividend on its common stock in the amount of
$0.125 per share and the dividend was paid on June 5, 2020.
Radian Guaranty
- At June 30, 2020, Radian Guaranty’s Available Assets under the
Private Mortgage Insurer Eligibility Requirements (PMIERs) totaled
approximately $4.2 billion, resulting in an excess or “cushion” of
approximately $1.0 billion, or 31 percent above its Minimum
Required Assets of approximately $3.2 billion. During the three
months ended June 30, 2020, Radian Guaranty's PMIERs cushion
decreased by $127 million.
- As of June 30, 2020, 61.0% of Radian Guaranty's primary
mortgage insurance risk in force is subject to some form of risk
distribution, providing a $1.5 billion reduction of Minimum
Required Assets under PMIERs.
RECENT EVENTS
Radian Guaranty Operating Statistics for July 2020
The information includes total new primary defaults, which
include defaults under forbearance programs in response to the
COVID-19 pandemic, as well as cures, claims paid and
rescissions/denials. The information regarding new defaults and
cures is reported to Radian Guaranty from loan servicers. We
consider a loan to be in default for financial statement and
internal tracking purposes upon receipt of notification by
servicers that a borrower has missed two monthly payments. Default
reporting, particularly on a monthly basis, may be affected by
several factors, including the date on which the loan servicer’s
report is generated and transmitted to Radian Guaranty, the impact
of updated information submitted by servicers and the timing of
servicing transfers.
July 2020
June 2020
May 2020
Beginning Primary Default Inventory (#
of loans)
69,742
55,103
22,790
Plus: New Defaults
8,477
20,862
35,915
Less: Cures
10,678
6,119
3,424
Less: Claims Paid (1)
92
107
176
Less: Rescissions and Claim
Denials, net (2)
16
(3
)
2
Ending Defaults
67,433
69,742
55,103
(1)
Includes those charged to a
deductible or captive reinsurance transactions, as well as
commutations.
(2)
Net of any previous Rescissions
and Claim Denials that were reinstated during the period. Such
reinstated Rescissions and Claim Denials may ultimately result in a
paid claim.
CONFERENCE CALL
Radian will discuss second quarter financial results in a
conference call on Monday, August 10, 2020, at 10:00 a.m. Eastern
time. The conference call will be broadcast live over the Internet
at https://radian.com/who-we-are/for-investors/webcasts or at
www.radian.com. The call may also be accessed by dialing
866.436.9172 inside the U.S., or 630.691.2760 for international
callers, using passcode 49847107.
A digital replay of the webcast will be available on Radian’s
website approximately two hours after the live broadcast ends for a
period of two weeks at
https://radian.com/who-we-are/for-investors/webcasts, using
passcode 49847107.
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 at www.radian.com, under
Investors.
NON-GAAP FINANCIAL MEASURES
Radian believes that adjusted pretax operating income, adjusted
diluted net operating income per share and adjusted net operating
return on equity (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 (loss) 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 extinguishment of debt; (iii) amortization and impairment
of goodwill and other acquired intangible assets; and (iv)
impairment of other long-lived assets and other non-operating
items, such as gains (losses) from the sale of lines of business
and acquisition-related income and expenses. Adjusted diluted net
operating income (loss) per share is calculated by dividing (i)
adjusted pretax operating income (loss) attributable to common
stockholders, 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. Adjusted net operating return on equity is calculated
by dividing annualized adjusted pretax operating income (loss), net
of taxes computed using the Company’s statutory tax rate, by
average stockholders’ equity, based on the average of the beginning
and ending balances for each period presented.
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 Real Estate segment, representing a
measure of earnings before interest, income tax provision
(benefit), depreciation and amortization (“EBITDA”). We calculate
Real Estate 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. In addition, Real Estate adjusted EBITDA margin is
calculated by dividing Real Estate adjusted EBITDA by GAAP total
revenue for the Real Estate segment. Real Estate adjusted EBITDA
and Real Estate adjusted EBITDA margin are used to facilitate
comparisons with other services companies, since they are widely
accepted measures of performance in the services industry and are
used internally as supplemental measures to evaluate the
performance of our Real Estate segment.
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) is ensuring the American dream of
homeownership responsibly and sustainably through products and
services that include industry-leading mortgage insurance and a
comprehensive suite of mortgage, risk, title, valuation, asset
management and other real estate services. We are powered by
technology, informed by data and driven to deliver new and better
ways to transact and manage risk. Visit www.radian.com to learn
more about how Radian is shaping the future of mortgage and real
estate services.
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
Exhibit E:
Segment Information
Exhibit F:
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit G:
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit H:
Mortgage Supplemental Information
New Insurance Written
Exhibit I:
Mortgage Supplemental Information
Primary Insurance in Force and Risk in
Force
Exhibit J:
Mortgage Supplemental Information
Claims and Reserves
Exhibit K:
Mortgage Supplemental Information
Default Statistics
Exhibit L:
Mortgage Supplemental Information
Reinsurance Programs
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of
Operations Trend Schedule
Exhibit A
2020
2019
(In thousands,
except per-share amounts)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Revenues:
Net premiums earned
$
249,295
$
277,415
$
301,486
$
281,185
$
299,166
Services revenue
28,075
31,927
40,031
42,509
39,303
Net investment income
38,723
40,944
41,432
42,756
43,761
Net gains (losses) on investments and
other financial instruments
47,276
(22,027)
4,257
13,009
12,540
Other income
1,072
822
818
879
194
Total revenues
364,441
329,081
388,024
380,338
394,964
Expenses:
Provision for losses
304,418
35,951
34,619
29,231
47,427
Policy acquisition costs
6,015
7,413
6,783
6,435
6,203
Cost of services
17,972
22,141
27,278
29,044
27,845
Other operating expenses
60,582
69,110
80,894
76,384
70,046
Interest expense
16,699
12,194
12,160
13,492
14,961
Loss on extinguishment of debt
—
—
—
5,940
16,798
Impairment of goodwill
—
—
4,828
—
—
Amortization and impairment of other
acquired intangible assets
979
979
15,823
2,139
2,139
Total expenses
406,665
147,788
182,385
162,665
185,419
Pretax income (loss)
(42,224)
181,293
205,639
217,673
209,545
Income tax provision (benefit)
(12,273)
40,832
44,455
44,235
42,815
Net income (loss)
$
(29,951)
$
140,461
$
161,184
$
173,438
$
166,730
Diluted net income (loss) per
share
$
(0.15)
$
0.70
$
0.79
$
0.83
$
0.78
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:
2020
2019
(In thousands,
except per-share amounts)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Net income (loss)—basic and
diluted
$
(29,951)
$
140,461
$
161,184
$
173,438
$
166,730
Average common shares outstanding—basic
(1)
193,299
200,161
203,431
203,107
208,097
Dilutive effect of share-based
compensation arrangements (2)
—
1,658
1,734
5,584
5,506
Adjusted average common shares
outstanding—diluted
193,299
201,819
205,165
208,691
213,603
Basic net income (loss) per
share
$
(0.15)
$
0.70
$
0.79
$
0.85
$
0.80
Diluted net income (loss) per
share
$
(0.15)
$
0.70
$
0.79
$
0.83
$
0.78
(1)
Includes the impact of fully vested
shares under our share-based compensation programs.
(2)
There were no dilutive shares for the
three months ended June 30, 2020, 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
were not included in the calculation of diluted net income (loss)
per share because they were anti-dilutive:
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Shares of common stock
equivalents
2,295
132
—
—
168
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
June 30,
March 31,
December 31,
September 30,
June 30,
(In thousands,
except per-share amounts)
2020
2020
2019
2019
2019
Assets:
Investments
$
6,431,350
$
5,608,627
$
5,658,747
$
5,533,724
$
5,513,319
Cash
68,387
54,108
92,729
49,393
74,111
Restricted cash
16,279
7,817
3,545
2,853
5,007
Accounts and notes receivable
110,722
123,381
93,630
144,113
122,104
Deferred income taxes, net
—
—
—
—
6,872
Goodwill and other acquired intangible
assets, net
26,229
27,208
28,187
52,533
54,672
Prepaid reinsurance premium
330,476
356,104
363,856
374,339
385,805
Other assets
585,866
513,187
567,619
513,647
430,236
Total assets
$
7,569,309
$
6,690,432
$
6,808,313
$
6,670,602
$
6,592,126
Liabilities and stockholders’
equity:
Unearned premiums
$
561,280
$
605,045
$
626,822
$
647,856
$
666,354
Reserve for losses and loss adjustment
expense
738,885
418,202
404,765
398,141
405,278
Senior notes
1,403,857
887,584
887,110
886,643
982,890
FHLB advances
175,122
173,760
134,875
104,492
106,382
Reinsurance funds withheld
312,350
302,551
291,829
352,532
339,641
Other liabilities
391,810
438,782
414,189
358,431
308,337
Total liabilities
3,583,304
2,825,924
2,759,590
2,748,095
2,808,882
Common stock
210
208
219
220
223
Treasury stock
(909,738)
(902,024)
(901,657)
(901,556)
(901,419)
Additional paid-in capital
2,232,949
2,231,670
2,449,884
2,469,097
2,539,803
Retained earnings
2,450,423
2,504,853
2,389,789
2,229,107
2,056,175
Accumulated other comprehensive
income
212,161
29,801
110,488
125,639
88,462
Total stockholders’ equity
3,986,005
3,864,508
4,048,723
3,922,507
3,783,244
Total liabilities and stockholders’
equity
$
7,569,309
$
6,690,432
$
6,808,313
$
6,670,602
$
6,592,126
Shares outstanding
191,492
190,387
201,164
202,219
205,399
Book value per share
$
20.82
$
20.30
$
20.13
$
19.40
$
18.42
Debt to capital ratio (1)
26.0
%
18.7
%
18.0
%
18.4
%
20.6
%
Risk to capital ratio-Radian Guaranty
only
13.3:1
13.8:1
13.6:1
14.2:1
14.6:1
(1)
Calculated as senior notes divided by
senior notes and stockholders’ equity.
Radian Group Inc. and
Subsidiaries
Net Premiums Earned
Exhibit D
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Premiums earned:
Direct - Mortgage:
Premiums earned, excluding revenue from
cancellations
$
263,468
$
274,647
$
295,845
(1)
$
274,595
$
315,109
(2)
Single Premium Policy
cancellations
50,023
24,133
26,479
27,254
15,793
Total direct - Mortgage
313,491
298,780
322,324
(1)
301,849
330,902
(2)
Assumed - Mortgage: (1) (3)
3,197
3,456
2,837
2,614
2,481
Ceded - Mortgage:
Premiums earned, excluding revenue from
cancellations
(26,493)
(28,609)
(28,055)
(28,457)
(53,948)
(2)
Single Premium Policy cancellations
(4)
(14,424)
(7,183)
(7,843)
(8,137)
(4,833)
Profit commission - other (5)
(28,175)
8,555
9,241
9,729
21,732
(2)
Total ceded premiums, net of profit
commission - Mortgage (6)
(69,092)
(27,237)
(26,657)
(26,865)
(37,049)
(2)
Net premiums earned - Mortgage
247,596
274,999
298,504
(1)
277,598
296,334
(2)
Net premiums earned - Real
Estate
1,699
2,416
2,982
3,587
2,832
Net premiums earned
$
249,295
$
277,415
$
301,486
(1)
$
281,185
$
299,166
(2)
(1)
Includes a cumulative impact related to
the recognition of deferred initial premiums on monthly
policies.
(2)
Includes a cumulative adjustment to
unearned premiums related to an update to the amortization rates
used to recognize revenue for Single Premium Policies.
(3)
Includes premiums earned from our
participation in certain credit risk transfer programs.
(4)
Includes the impact of related profit
commissions.
(5)
The amounts represent the profit
commission on the Single Premium QSR Program, excluding the impact
of Single Premium Policy cancellations.
(6)
See Exhibit L for additional
information on ceded premiums for our various reinsurance
programs.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 1 of 3)
Summarized financial information
concerning our reportable operating segments and all other
activities as of and for the periods indicated is as follows. For a
definition of adjusted pretax operating income (loss) and Real
Estate adjusted EBITDA, along with reconciliations to consolidated
GAAP measures, see Exhibits F and G.
Mortgage
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Net premiums written (1)
$
229,458
$
260,974
$
287,952
(2)
$
270,567
$
265,345
(Increase) decrease in unearned
premiums
18,138
14,025
10,552
7,031
30,989
(3)
Net premiums earned
247,596
274,999
298,504
277,598
296,334
Services revenue (4)
3,918
3,216
2,936
2,375
1,895
Net investment income (4)
34,708
36,198
37,818
37,032
37,871
Other income (4)
721
671
719
641
544
Total (4)
286,943
315,084
339,977
317,646
336,644
Provision for losses
304,021
35,246
34,411
29,053
47,165
Policy acquisition costs
6,015
7,413
6,783
6,435
6,203
Cost of services (4)
2,133
1,757
1,713
1,621
1,128
Other operating expenses before
corporate allocations (4) (5)
18,705
23,733
32,604
30,773
28,089
Interest expense before corporate
allocations (6)
3,064
680
688
682
625
Total (4) (7)
333,938
68,829
76,199
68,564
83,210
Adjusted pretax operating income (loss)
before corporate allocations (4)
(46,995)
246,255
263,778
249,082
253,434
Allocation of corporate operating
expenses
25,191
29,074
27,394
26,671
24,388
Allocation of corporate interest
expense
16,135
11,514
11,472
12,810
14,336
Adjusted pretax operating income (loss)
(4)
$
(88,321)
$
205,667
$
224,912
$
209,601
$
214,710
Real Estate
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Net premiums earned
$
1,699
$
2,416
$
2,982
$
3,587
$
2,832
Services revenue (4) (7)
24,267
26,042
23,826
26,375
25,026
Net investment income
126
125
144
177
177
Other income
—
—
—
—
(408)
Total (4)
26,092
28,583
26,952
30,139
27,627
Provision for losses
426
743
238
211
318
Cost of services (4)
15,893
17,933
16,275
18,155
17,773
Other operating expenses before
corporate allocations (4) (5)
11,251
10,938
11,972
11,404
10,649
Total (4)
27,570
29,614
28,485
29,770
28,740
Adjusted pretax operating income (loss)
before corporate allocations (4) (8)
(1,478)
(1,031)
(1,533)
369
(1,113)
Allocation of corporate operating
expenses (4)
3,339
3,836
2,987
2,910
2,659
Adjusted pretax operating income (loss)
(4)
$
(4,817)
$
(4,867)
$
(4,520)
$
(2,541)
$
(3,772)
Radian Group Inc. and SubsidiariesSegment Information
Exhibit E (page 2 of 3)
All Other (4) (9)
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Services revenue (7)
$
—
$
2,861
$
13,559
$
14,027
$
12,748
Net investment income
6,389
4,621
3,470
5,547
5,713
Other income
104
151
99
238
58
Total
6,493
7,633
17,128
19,812
18,519
Cost of services
(35)
2,556
9,500
9,387
9,113
Other operating expenses
1,889
1,278
4,037
4,742
4,505
Adjusted pretax operating
income
$
4,639
$
3,799
$
3,591
$
5,683
$
4,901
(1)
Net of ceded premiums written under the
QSR Programs and the Excess-of-Loss Program. See Exhibit L for
additional information.
(2)
Includes a cumulative impact related to
the recognition of deferred initial premiums on monthly
policies.
(3)
Includes a cumulative adjustment to
unearned premiums related to an update to the amortization rates
used to recognize revenue for Single Premium Policies.
(4)
Certain organizational changes
implemented in the first quarter of 2020 caused the composition of
our reportable segments to change. These changes to our reportable
segments have been reflected in our segment operating results for
all periods presented.
(5)
Does not include impairment of other
long-lived assets and other non-operating items, which are not
considered components of adjusted pretax operating income
(loss).
(6)
Primarily relates to FHLB borrowings
made by our mortgage insurance subsidiaries. Prior to March 31,
2020, this amount had been presented in allocation of corporate
interest expense. All prior periods have been restated to reflect
the current presentation.
(7)
Inter-segment information:
2020
2019
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Inter-segment revenue included
in:
Mortgage
$
—
$
83
$
160
$
35
$
23
Real Estate
110
109
88
111
133
All Other
2,500
(a)
—
42
122
210
Total inter-segment revenue
$
2,610
$
192
$
290
$
268
$
366
Inter-segment expense included
in:
Mortgage
$
2,591
(a)
$
87
$
79
$
150
$
196
Real Estate
19
22
16
(1)
(18)
All Other
—
83
195
119
188
Total inter-segment expense
$
2,610
$
192
$
290
$
268
$
366
(a)
Primarily relates to interest on the
$200.0 million 3% intercompany surplus note issued by Radian
Guaranty to Radian Group.
(8)
Supplemental information for Real
Estate adjusted EBITDA (see definition in Exhibit F):
2020
2019
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Adjusted pretax operating income (loss)
before corporate allocations
$
(1,478)
$
(1,031)
$
(1,533)
$
369
$
(1,113)
Depreciation and amortization
776
666
553
560
616
Real Estate adjusted EBITDA
$
(702)
$
(365)
$
(980)
$
929
$
(497)
(9)
All Other activities include
income (losses) from assets held by our holding company, related
general corporate operating expenses not attributable or allocated
to our reportable segments and, for all periods through the first
quarter of 2020, income and expenses related to Clayton
prior to its sale on January 21, 2020.
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 3 of 3)
Selected Mortgage Key
Ratios
2020
2019
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Loss ratio (1)
122.8
%
12.8
%
11.5
%
10.5
%
15.9
%
Expense ratio (1)
20.2
%
21.9
%
22.4
%
23.0
%
19.8
%
(1)
Calculated on a GAAP basis using net
premiums earned.
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 (loss),” “adjusted diluted net operating income
(loss) per share” and “adjusted net operating return on equity,”
which are 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 (loss),” “adjusted diluted net
operating income (loss) per share” and “adjusted net operating
return on equity” 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 (loss) 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
extinguishment of debt; (iii) amortization and impairment of
goodwill and other acquired intangible assets; and (iv) impairment
of other long-lived assets and other non-operating items, such as
gains (losses) from the sale of lines of business and
acquisition-related income and expenses. Adjusted diluted net
operating income (loss) per share is calculated by dividing (i)
adjusted pretax operating income (loss) attributable to common
stockholders, 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. Adjusted net operating return on equity is calculated
by dividing annualized adjusted pretax operating income (loss), net
of taxes computed using the Company’s statutory tax rate, by
average stockholders’ equity, based on the average of the beginning
and ending balances for each period presented. Although adjusted
pretax operating income (loss) 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 gains
and losses arise primarily from changes in the market value of our
investments that are classified as trading or equity 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 and changes in fair value of other financial instruments. We
do not view them to be indicative of our fundamental operating
activities.
(2)
Loss on extinguishment of debt. Gains or
losses on early extinguishment of debt and losses incurred to
purchase our 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.
(3)
Amortization and impairment of goodwill
and other acquired intangible assets. Amortization of acquired
intangible assets represents the periodic expense required to
amortize the cost of acquired intangible assets over their
estimated useful lives. Acquired intangible assets are also
periodically reviewed for potential impairment, and impairment
adjustments are made whenever appropriate. We do not view these
charges as part of the operating performance of our primary
activities.
(4)
Impairment of other long-lived assets and
other non-operating items. Includes activities that we do not view
to be indicative of our fundamental operating activities, such as:
(i) gains (losses) from the sale of lines of business and (ii)
acquisition-related expenses.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measures
Exhibit F (page 2 of 2)
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 Real Estate segment, representing a
measure of earnings before interest, income tax provision
(benefit), depreciation and amortization (“EBITDA”). We calculate
Real Estate adjusted EBITDA by using adjusted pretax operating
income (loss) as described above, further adjusted to remove the
impact of depreciation and corporate allocations for interest and
operating expenses. In addition, Real Estate adjusted EBITDA margin
is calculated by dividing Real Estate adjusted EBITDA by GAAP total
revenue for the Real Estate segment. Real Estate adjusted EBITDA
and Real Estate adjusted EBITDA margin are used to facilitate
comparisons with other services companies, since they are widely
accepted measures of performance in the services industry and are
used internally as supplemental measures to evaluate the
performance of our Real Estate segment. See Exhibit G for the
reconciliation of the most comparable GAAP measures, consolidated
pretax income (loss), diluted net income (loss) per share, return
on equity and book value per share, to our non-GAAP financial
measures for the consolidated company, adjusted pretax operating
income (loss) , adjusted diluted net operating income (loss) per
share and adjusted net operating return on equity, respectively.
Exhibit G also contains the reconciliation of the most comparable
GAAP measure, net income (loss), to Real Estate adjusted EBITDA.
Total adjusted pretax operating income (loss), adjusted diluted net
operating income (loss) per share, adjusted net operating return on
equity, Real Estate adjusted EBITDA and Real Estate adjusted EBITDA
margin should not be considered in isolation or viewed as
substitutes for GAAP pretax income (loss), diluted net income
(loss) per share, return on equity, book value per share or net
income (loss). Our definitions of adjusted pretax operating income
(loss), adjusted diluted net operating income (loss) per share,
adjusted net operating return on equity, Real Estate adjusted
EBITDA or Real Estate adjusted EBITDA margin 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
(Loss)
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Consolidated pretax income
(loss)
$
(42,224)
$
181,293
$
205,639
$
217,673
$
209,545
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
47,276
(22,027)
4,257
13,009
12,540
Loss on extinguishment of debt
—
—
—
(5,940)
(16,798)
Impairment of goodwill
—
—
(4,828)
—
—
Amortization and impairment of other
acquired intangible assets
(979)
(979)
(15,823)
(2,139)
(2,139)
Impairment of other long-lived assets
and other non-operating items (1)
(22)
(300)
(1,950)
—
103
Total adjusted pretax operating income
(loss) (2)
$
(88,499)
$
204,599
$
223,983
$
212,743
$
215,839
(1)
The amounts for all the periods are
included in other operating expenses on the Condensed Consolidated
Statement of Operations in Exhibit A and primarily relate to
impairments of other long-lived assets.
(2)
Total adjusted pretax operating income
(loss) consists of adjusted pretax operating income (loss) for each
reportable segment and All Other activities as follows:
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Adjusted pretax operating income
(loss):
Mortgage segment
$
(88,321)
$
205,667
$
224,912
$
209,601
$
214,710
Real Estate segment
(4,817)
(4,867)
(4,520)
(2,541)
(3,772)
All Other activities
4,639
3,799
3,591
5,683
4,901
Total adjusted pretax operating income
(loss)
$
(88,499)
$
204,599
$
223,983
$
212,743
$
215,839
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
(Loss) Per Share
2020
2019
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Diluted net income (loss) per
share
$
(0.15)
$
0.70
$
0.79
$
0.83
$
0.78
Less per-share impact of reconciling
income (expense) items:
Net gains (losses) on investments and
other financial instruments
0.24
(0.11)
0.02
0.06
0.06
Loss on extinguishment of debt
—
—
—
(0.03)
(0.08)
Impairment of goodwill
—
—
(0.02)
—
—
Amortization and impairment of other
acquired intangible assets
(0.01)
—
(0.08)
(0.01)
(0.01)
Impairment of other long-lived assets
and other non-operating items
—
—
(0.01)
—
—
Income tax (provision) benefit on
reconciling income (expense) items (1)
(0.05)
0.02
0.02
—
0.01
Difference between statutory and
effective tax rates
0.03
(0.01)
—
—
—
Per-share impact of reconciling income
(expense) items
0.21
(0.10)
(0.07)
0.02
(0.02)
Adjusted diluted net operating income
(loss) per share (1)
$
(0.36)
$
0.80
$
0.86
$
0.81
$
0.80
(1)
Calculated using the company’s
federal statutory tax rate of 21%. Any permanent tax adjustments
and state income taxes on these items have been deemed immaterial
and are not included.
Reconciliation of Return on
Equity to Adjusted Net Operating Return on Equity (1)
2020
2019
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Return on equity (1)
(3.1)
%
14.2
%
16.2
%
18.0
%
17.8
%
Less impact of reconciling income
(expense) items: (2)
Net gains (losses) on investments and
other financial instruments
4.8
(2.2)
0.4
1.4
1.3
Loss on extinguishment of debt
—
—
—
(0.6)
(1.8)
Impairment of goodwill
—
—
(0.5)
—
—
Amortization and impairment of other
acquired intangible assets
(0.1)
(0.1)
(1.6)
(0.2)
(0.2)
Impairment of other long-lived assets
and other non-operating items
—
—
(0.2)
—
—
Income tax (provision) benefit on
reconciling income (expense) items (3)
(1.0)
0.5
0.4
(0.1)
0.1
Difference between statutory and
effective tax rates
0.3
(0.3)
(0.1)
0.1
0.2
Impact of reconciling income (expense)
items
4.0
(2.1)
(1.6)
0.6
(0.4)
Adjusted net operating return on
equity
(7.1)
%
16.3
%
17.8
%
17.4
%
18.2
%
(1)
Calculated by dividing annualized net
income (loss) by average stockholders’ equity, based on the
average of the beginning and ending balances for each period
presented.
(2)
Annualized, as a percentage of average
stockholders’ equity.
(3)
Calculated using the company’s
federal statutory tax rate of 21%. Any permanent tax adjustments
and state income taxes on these items have been deemed immaterial
and are not included.
Radian Group Inc. and
Subsidiaries
Consolidated Non-GAAP Financial Measure
Reconciliations
Exhibit G (page 3 of 3)
Reconciliation of Net Income
(Loss) to Real Estate Adjusted EBITDA
2020
2019
(In
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Net income (loss)
$
(29,951)
$
140,461
$
161,184
$
173,438
$
166,730
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
47,276
(22,027)
4,257
13,009
12,540
Loss on extinguishment of debt
—
—
—
(5,940)
(16,798)
Impairment of goodwill
—
—
(4,828)
—
—
Amortization and impairment of other
acquired intangible assets
(979)
(979)
(15,823)
(2,139)
(2,139)
Impairment of other long-lived assets
and other non-operating items
(22)
(300)
(1,950)
—
103
Income tax (provision) benefit
12,273
(40,832)
(44,455)
(44,235)
(42,815)
Mortgage adjusted pretax operating
income (loss)
(88,321)
205,667
224,912
209,601
214,710
All Other adjusted pretax operating
income
4,639
3,799
3,591
5,683
4,901
Real Estate adjusted pretax operating
income (loss)
(4,817)
(4,867)
(4,520)
(2,541)
(3,772)
Less reconciling income (expense)
items:
Allocation of corporate operating
expenses to Real Estate
(3,339)
(3,836)
(2,987)
(2,910)
(2,659)
Real Estate depreciation and
amortization
(776)
(666)
(848)
(865)
(976)
Real Estate adjusted EBITDA
$
(702)
$
(365)
$
(685)
$
1,234
$
(137)
On a consolidated basis, “adjusted pretax
operating income (loss),” “adjusted diluted net operating income
(loss) per share” and “adjusted net operating return on equity” are
measures not determined in accordance with GAAP. “Real Estate
adjusted EBITDA” and “Real Estate adjusted EBITDA margin” are also
non-GAAP measures. These measures should not be considered in
isolation or viewed as substitutes for GAAP pretax income (loss),
diluted net income (loss) per share, return on equity, book value
per share or net income (loss). Our definitions of adjusted pretax
operating income (loss), adjusted diluted net operating income
(loss) per share, adjusted net operating return on equity, Real
Estate adjusted EBITDA or Real Estate adjusted EBITDA margin 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 Supplemental Information - New
Insurance Written
Exhibit H
2020
2019
($ in
millions)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Total primary new insurance
written
$
25,459
$
16,706
$
19,953
$
22,037
$
18,539
Percentage of
primary new insurance written by FICO score (1)
>=740
67.3
%
65.7
%
66.3
%
64.1
%
62.2
%
680-739
30.1
31.1
30.5
31.5
32.5
620-679
2.6
3.2
3.2
4.4
5.3
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of
primary new insurance written
Borrower-paid
97.8
%
96.7
%
97.4
%
97.1
%
96.5
%
Percentage by
premium type
Direct monthly and other recurring
premiums
84.7
%
81.1
%
82.1
%
85.0
%
83.3
%
Direct single premiums: (2)
Borrower-paid (3)
13.6
16.5
16.0
13.1
14.2
Lender-paid
1.7
2.4
1.9
1.9
2.5
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary new insurance written for
purchases
56.4
%
66.2
%
67.5
%
80.7
%
89.8
%
Primary new insurance written for
refinances
43.6
%
33.8
%
32.5
%
19.3
%
10.2
%
Percentage by
LTV
95.01% and above
8.3
%
9.9
%
11.5
%
16.8
%
20.5
%
90.01% to 95.00%
36.4
37.6
35.8
37.4
38.1
85.01% to 90.00%
29.8
30.3
30.0
27.4
26.9
85.00% and below
25.5
22.2
22.7
18.4
14.5
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
(1)
For loans with multiple borrowers, the
percentage of primary new insurance written by FICO score
represents the lowest of the borrowers’ FICO scores.
(2)
Percentages exclude the impact of
reinsurance.
(3)
Borrower-paid Single Premium Policies
have lower Minimum Required Assets under PMIERs as compared to
lender-paid Single Premium Policies.
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Primary Insurance in Force and Risk in Force
Exhibit I (page 1 of 2)
June 30,
March 31,
December 31,
September 30,
June 30,
($ in
millions)
2020
2020
2019
2019
2019
Primary insurance in force (1)
Prime
$
236,835
$
236,958
$
235,742
$
232,086
$
225,443
Alt-A and A minus and below
4,471
4,628
4,816
5,072
5,313
Total Primary
$
241,306
$
241,586
$
240,558
$
237,158
$
230,756
Primary risk in force (1) (2)
Prime
$
59,253
$
59,827
$
59,780
$
59,217
$
57,795
Alt-A and A minus and below
1,058
1,096
1,141
1,203
1,262
Total Primary
$
60,311
$
60,923
$
60,921
$
60,420
$
59,057
Percentage of primary risk in
force
Direct monthly and other recurring
premiums
73.8
%
72.6
%
72.4
%
72.0
%
71.2
%
Direct single premiums
26.2
%
27.4
%
27.6
%
28.0
%
28.8
%
Percentage of primary risk in force by
FICO score (3)
>=740
57.4
%
57.2
%
56.9
%
56.2
%
55.7
%
680-739
34.3
34.2
34.2
34.5
34.6
620-679
7.7
8.0
8.2
8.6
8.9
<=619
0.6
0.6
0.7
0.7
0.8
Total Primary
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by
LTV
95.01% and above
14.2
%
14.3
%
14.2
%
13.9
%
13.2
%
90.01% to 95.00%
50.4
51.0
51.3
51.9
52.5
85.01% to 90.00%
28.1
27.9
27.9
27.9
28.2
85.00% and below
7.3
6.8
6.6
6.3
6.1
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by
policy year
2008 and prior
7.2
%
7.5
%
7.8
%
8.4
%
8.9
%
2009 - 2012
2.8
3.0
3.3
3.5
4.1
2013
3.5
3.9
4.2
4.6
5.2
2014
3.6
4.0
4.3
4.8
5.3
2015
6.1
6.9
7.4
8.1
8.9
2016
10.6
11.7
12.5
13.5
14.8
2017
13.0
14.8
16.0
17.4
18.9
2018
14.0
16.4
17.9
19.7
21.8
2019
23.3
25.4
26.6
20.0
12.1
2020
15.9
6.4
—
—
—
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary risk in force on defaulted
loans
$
4,263
$
1,001
$
1,061
$
1,012
$
986
Table continued on next page.
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Primary Insurance in Force and Risk in Force
Exhibit I (page 2 of 2)
Table continued from prior
page.
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
Persistency Rate (12 months
ended)
70.2
%
75.4
%
78.2
%
81.5
%
83.4
%
Persistency Rate (quarterly,
annualized) (4)
63.8
%
76.5
%
75.0
%
75.5
%
80.8
%
(1)
Excludes the impact of premiums ceded
under our reinsurance agreements.
(2)
Does not include pool risk in force or
other risk in force, which combined represent approximately 1.0% of
our total risk in force for all periods presented.
(3)
For loans with multiple borrowers, the
percentage of primary risk in force by FICO score represents the
lowest of the borrowers’ FICO scores.
(4)
The Persistency Rate on a quarterly,
annualized basis is calculated based on loan-level detail for the
quarter ending as of the date shown. It may be impacted by
seasonality or other factors, including the level of refinance
activity during the applicable periods, and may not be indicative
of full-year trends.
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Claims and Reserves
Exhibit J
2020
2019
($ in
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Net claims paid: (1)
Total primary claims paid
$
22,144
$
24,358
$
24,267
$
28,981
$
31,940
Total pool and other
639
(911)
559
901
472
Subtotal
22,783
23,447
24,826
29,882
32,412
Impact of commutations and settlements
(2)
—
(56)
3,691
6,812
15
Total net claims paid
$
22,783
$
23,391
$
28,517
$
36,694
$
32,427
Total average net primary claim paid
(1) (3)
$
47.9
$
50.3
$
50.9
$
47.0
$
50.1
Average direct primary claim paid (3)
(4)
$
49.0
$
51.4
$
52.1
$
48.1
$
51.1
(1)
Net of reinsurance recoveries.
(2)
Includes payments to commute mortgage
insurance coverage on certain performing and non-performing
loans.
(3)
Calculated without giving effect to the
impact of captive reinsurance terminations and other
commutations.
(4)
Before reinsurance recoveries.
($ in thousands, except primary
reserve
June 30,
March 31,
December 31,
September 30,
June 30,
per primary
default amounts)
2020
2020
2019
2019
2019
Reserve for losses by category
(1)
Mortgage reserves
Prime
$
573,463
$
264,694
$
248,727
$
236,382
$
242,378
Alt-A and A minus and below
86,646
88,481
91,093
95,723
104,863
IBNR and other (2)
43,342
40,583
40,920
42,117
33,888
LAE
16,807
9,216
8,918
9,000
9,070
Total primary reserves
720,258
402,974
389,658
383,222
390,199
Total pool reserves
14,398
11,297
11,322
10,605
10,816
Total 1st lien reserves
734,656
414,271
400,980
393,827
401,015
Other
335
407
293
260
279
Total Mortgage reserves
734,991
414,678
401,273
394,087
401,294
Real Estate reserves
3,894
3,524
3,492
4,054
3,984
Total reserves
$
738,885
$
418,202
$
404,765
$
398,141
$
405,278
1st lien reserve per default
Primary reserve per primary default
excluding IBNR and other
$
9,706
$
18,320
$
16,399
$
16,900
$
18,139
(1)
Includes ceded losses on reinsurance
transactions, which are expected to be recovered and are included
in the reinsurance recoverables reported in other assets in our
condensed consolidated balance sheets.
(2)
For the quarters ended September 30,
2019 and June 30, 2019, includes increases of $11.8 million and
$19.4 million, respectively, in the Company’s IBNR reserve estimate
related to previously disclosed legal proceedings involving
challenges from certain servicers regarding loss mitigation
activities.
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Default Statistics
Exhibit K
June 30,
March 31,
December 31,
September 30,
June 30,
2020
2020
2019
2019
2019
Default
Statistics
Primary Insurance:
Prime
Number of insured loans
1,040,964
1,049,974
1,049,954
1,040,520
1,018,715
Number of loans in default
64,648
15,497
16,532
15,345
14,521
Percentage of loans in default
6.21
%
1.48
%
1.57
%
1.47
%
1.43
%
Alt-A and A minus
and below
Number of insured loans
28,357
29,375
30,439
32,163
33,609
Number of loans in default
5,094
4,284
4,734
4,839
5,122
Percentage of loans in default
17.96
%
14.58
%
15.55
%
15.05
%
15.24
%
Total Primary
Number of insured loans
1,069,321
1,079,349
1,080,393
1,072,683
1,052,324
Number of loans in default
69,742
19,781
21,266
20,184
19,643
Percentage of loans in default
6.52
%
1.83
%
1.97
%
1.88
%
1.87
%
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Reinsurance Programs
Exhibit L
2020
2019
($ in
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Quota Share
Reinsurance (“QSR”) and Single Premium QSR Programs
Ceded premiums written (1)
$
35,821
$
6,687
$
9,217
$
8,408
$
588
% of premiums written
13.0
%
2.4
%
3.0
%
2.9
%
2.2
%
Ceded premiums earned
$
60,652
$
18,712
$
19,428
$
19,295
$
29,212
(2)
% of premiums earned
19.2
%
6.2
%
6.1
%
6.3
%
8.7
%
Ceding commissions written
$
(5,304)
$
8,413
$
6,836
$
6,778
$
6,861
Ceding commissions earned (3)
$
13,453
$
9,966
$
12,055
$
12,153
$
16,353
(2)
Profit commission
$
(10,649)
$
16,405
$
17,792
$
18,346
$
26,476
(2)
Ceded losses
$
39,635
$
1,962
$
1,533
$
771
$
1,868
Excess-of-Loss
Program
Ceded premiums written
$
7,525
$
12,678
$
6,834
$
6,878
$
13,468
% of premiums written
2.7
%
4.5
%
2.2
%
2.4
%
4.8
%
Ceded premiums earned
$
8,321
$
8,405
$
7,104
$
7,452
$
7,662
% of premiums earned
2.6
%
2.8
%
2.2
%
2.4
%
2.3
%
Ceded RIF
(4)
QSR Program
$
532,743
$
596,166
$
644,512
$
702,201
$
768,554
Single Premium QSR Program
8,173,756
8,580,047
8,582,067
8,538,363
8,495,651
Excess-of-Loss Program
1,170,200
1,230,000
850,800
974,800
1,017,440
Total Ceded RIF
$
9,876,699
$
10,406,213
$
10,077,379
$
10,215,364
$
10,281,645
PMIERs impact -
reduction in Minimum Required Assets (5)
QSR Program
$
30,837
$
31,638
$
35,382
$
38,227
$
41,873
Single Premium QSR Program
517,028
501,668
511,695
513,832
516,468
Excess-of-Loss Program
970,294
1,066,464
738,386
834,072
926,640
Total PMIERs impact
$
1,518,159
$
1,599,770
$
1,285,463
$
1,386,131
$
1,484,981
(1)
Net of profit commission, where
applicable.
(2)
Includes a cumulative adjustment to
unearned premiums related to an update to the amortization rates
used to recognize revenue for Single Premium Policies.
(3)
Includes amounts reported in policy
acquisition costs and other operating expenses. Operating expenses
include the following ceding commissions, net of deferred policy
acquisition costs, for the periods indicated:
2020
2019
($ in
thousands)
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Qtr 2
Ceding commissions
$
(10,406)
$
(7,967)
$
(7,973)
$
(8,160)
$
(12,408)
(4)
Included in primary RIF.
(5)
Excludes the impact of intercompany
reinsurance.
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
Securities Exchange Act of 1934 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, including
management’s current views regarding the likely impacts of the
COVID-19 pandemic. 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, particularly those associated with
the COVID 19 pandemic, which has had wide-ranging and continually
evolving effects. 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:
- the COVID-19 pandemic, which has significantly impacted the
global economy, disrupted global supply chains, lowered equity
market valuations, created significant volatility and disruption in
financial markets, disrupted the housing finance system and real
estate markets and increased unemployment levels. In addition, the
pandemic has resulted in travel restriction, stay-at-home,
quarantine and similar orders, which have resulted in the closures
of many businesses and, for those permitted to open, numerous
operating limitations such as social distancing and other extensive
health and safety measures. As a result, the demand for certain of
our products and services has been impacted, and this impact may
continue for an unknown period and could expand in scope. We expect
that the COVID-19 pandemic and measures taken to reduce its spread
will pervasively impact our business and subject us to certain
risks, including those discussed in “Item 1A. Risk Factors-The
COVID-19 pandemic has adversely impacted our business, and its
ultimate impact on our business and financial results will depend
on future developments, which are highly uncertain and cannot be
predicted, including the scope and duration of the pandemic and
actions taken by governmental authorities in response to the
pandemic.” and the other risk factors in our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2020 and in our
subsequent reports and registration statements filed from time to
time with the U.S. Securities and Exchange Commission;
- further changes in economic and political conditions, including
those resulting from COVID-19, that impact the size of the
insurable market, the credit performance of our insured portfolio,
and our business prospects;
- changes in the way customers, investors, ratings agencies,
regulators or legislators perceive our performance, financial
strength and future prospects;
- Radian Guaranty Inc.’s (“Radian Guaranty”) ability to remain
eligible under the Private Mortgage Insurer Eligibility
Requirements (the “PMIERs”), including potential future changes to
the PMIERs, and other applicable requirements imposed by the
Federal Housing Finance Agency (the "FHFA") and by Fannie Mae and
Freddie Mac (collectively, the “GSEs”) to insure loans purchased by
the GSEs;
- the proposed Enterprise Regulatory Capital Framework that
would, among other items, establish significant capital
requirements for the GSEs once finalized, which could impact the
GSEs' operations and the size of the insurable mortgage insurance
market, and which may form the basis for future versions of the
PMIERs;
- our ability to successfully execute and implement our capital
plans, including our risk distribution strategy through the capital
markets and reinsurance markets, and to maintain sufficient holding
company liquidity to meet our liquidity needs;
- our ability to successfully execute and implement our business
plans and strategies, including plans and strategies that require
GSE and/or regulatory approvals and various licenses and complex
compliance requirements;
- our ability to maintain an adequate level of capital in our
insurance subsidiaries to satisfy existing and future regulatory
requirements, including the PMIERs and any changes thereto, as
discussed above, and potential changes to the Mortgage Guaranty
Insurance Model Act currently under consideration;
- changes in the charters or business practices of, or rules or
regulations imposed by or applicable to, the GSEs, which may
include changes in the requirements to remain an approved insurer
to the GSEs, the GSEs’ interpretation and application of the
PMIERs, as well as changes impacting loans purchased by the GSEs,
including changes to the GSEs’ business practices in response to
the COVID-19 pandemic;
- changes in the current housing finance system in the United
States, including the role of the Federal Housing Administration
(the "FHA"), the GSEs and private mortgage insurers in this
system;
- uncertainty from the expected discontinuance of LIBOR and
transition to one or more alternative benchmarks that could cause
interest rate volatility and, among other things, impact our
investment portfolio, cost of debt and cost of reinsurance through
mortgage insurance-linked notes transactions;
- any disruption in the servicing of mortgages covered by our
insurance policies, as well as poor servicer performance, which
could result from the significant financial and operational
challenges many servicers are facing due to the impact of the
COVID-19 pandemic;
- a decrease in the “Persistency Rates” (the percentage of
insurance in force that remains in force over a period of time) of
our mortgage insurance on monthly premium products;
- competition in our mortgage insurance business, including price
competition and competition from the FHA and U.S. Department of
Veterans Affairs as well as from other forms of credit enhancement,
including GSE-sponsored alternatives to traditional mortgage
insurance;
- 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, including the proposed changes to
the "qualified mortgages" (QM) loan requirements which currently
are being considered by the Consumer Financial Protection
Bureau;
- 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 the enactment of the Coronavirus
Aid, Relief, and Economic Security (“CARES”) Act and the adoption,
interpretation or application of laws and regulations in response
to COVID-19;
- 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, new or
increased reserves or have other effects on our business;
- the amount and timing of potential settlements, payments or
adjustments associated with federal or other tax examinations;
- the possibility that we may fail to estimate accurately,
especially in the event of an extended economic downturn or a
period of extreme market volatility and uncertainty such as we are
currently experiencing due to the COVID-19 pandemic, the
likelihood, magnitude and timing of losses in establishing loss
reserves for our mortgage insurance business or to accurately
calculate and/or project our Available Assets and Minimum Required
Assets under the PMIERs, which will be impacted by, among other
things, the size and mix of our insurance in force, the level of
defaults in our portfolio, the reported status of defaults in our
portfolio, including whether they are subject to forbearance, a
repayment plan or a trial period under a loan modification in
response to COVID-19, the level of cash flow generated by our
insurance operations and our risk distribution strategies;
- volatility in our financial results caused by changes in the
fair value of our assets and liabilities, including our investment
portfolio;
- changes in “GAAP” (accounting principles generally accepted in
the U.S.) or “SAPP” (statutory accounting principles and 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 amounts we may receive from our
subsidiaries, including dividends or ordinary course distributions
under our internal tax- and expense-sharing arrangements.
For more information regarding these risks and uncertainties as
well as certain additional risks that we face, you should refer to
“Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020 and “Item 1A. Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2019,
and to subsequent reports and registration statements 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.
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For Investors: John Damian - Phone: 215.231.1383 email:
john.damian@radian.com
For Media: Rashi Iyer - Phone 215.231.1167 email:
rashi.iyer@radian.com
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