-- GAAP net income of $135.1 million, or $0.70
per diluted share --
-- New Insurance Written of $33.3 billion,
setting company record for quarterly flow mortgage insurance --
-- Primary new defaults decrease 67.5%
quarter-over-quarter to 20,508, default rate declines to 5.9%
--
-- PMIERs Available Assets of $4.5 billion, or
$970.3 million (or 28% ) in excess of Minimum Required Assets
--
-- Total Holding Company Liquidity of $1.4
billion --
-- Book value per share grows 11%
year-over-year to $21.52 --
-- In October 2020, enhanced risk profile and
improved capital position with closing of $390.3 million ILN
transaction --
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended September 30, 2020, of $135.1 million, or $0.70 per
diluted share. This compares to net income for the quarter ended
September 30, 2019, of $173.4 million, or $0.83 per diluted
share.
Key Financial Highlights (dollars in millions, except
per-share data)
Quarter Ended
Quarter Ended
Quarter Ended
September 30, 2020
June 30, 2020
September 30, 2019
Net income (loss) (1)
$135.1
$(30.0)
$173.4
Diluted net income (loss) per
share
$0.70
$(0.15)
$0.83
Consolidated pretax income
(loss)
$161.2
$(42.2)
$217.7
Adjusted pretax operating income
(loss) (2)
$145.0
$(88.5)
$212.7
Adjusted diluted net operating
income (loss) per share (2)
$0.59
$(0.36)
$0.81
Return on equity (1)(3)
13.3%
(3.1)%
18.0%
Adjusted net operating return on
equity (2)
11.3%
(7.1)%
17.4%
Book value per share (4)
$21.52
$20.82
$19.40
PMIERs Available Assets (5)
$4,468.5
$4,228.9
$3,371.0
PMIERs excess Available Assets
(6)
$970.3
$1,002.4
$652.0
Total Holding Company Liquidity
(7)
$1,375.6
$1,403.1
$998.2
Excess Available Resources to
Support PMIERs (8)
$2,310.9
$2,370.5
$1,616.0
Total investments
$6,584.6
$6,431.4
$5,533.7
New Insurance Written (NIW) -
mortgage insurance
$33,320
$25,459
$22,037
Primary mortgage insurance in
force
$245,467
$241,306
$237,158
Net premiums earned - mortgage
insurance
$283.4
$247.6
$277.6
New defaults (9)
20,508
63,005
10,562
Percentage of primary loans in
default (10)
5.9%
6.5%
1.9%
Provision for losses - mortgage
insurance
$87.8
$304.0
$29.1
Mortgage insurance loss
reserves
$821.7
$735.0
$394.1
(1)
Net income for the third quarter of 2020
includes a $17.7 million pretax net gain on investments and other
financial instruments. 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 third quarter of 2019
includes: (i) a $5.9 million loss on extinguishment of debt and
(ii) a $13.0 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 (loss) 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 $1.21 per share as of
September 30, 2020, $1.11 per share as of June 30, 2020 and $0.62
per share as of September 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)
Represents new defaults in the number of
loans reported during the period on loans related to primary
mortgage insurance policies.
(10)
Represents the number of primary loans in
default as a percentage of the total number of insured primary
loans.
Adjusted pretax operating income for the quarter ended September
30, 2020, was $145.0 million, compared to $212.7 million adjusted
pretax operating income for the quarter ended September 30, 2019.
Adjusted diluted net operating income per share for the quarter
ended September 30, 2020, was $0.59, compared to adjusted diluted
net operating income per share of $0.81 for the quarter ended
September 30, 2019.
Book value as of September 30, 2020, was $4.1 billion, an
increase of 5 percent compared to $3.9 billion as of September 30,
2019. Book value per share as of September 30, 2020 was $21.52, an
increase of 11 percent compared to $19.40 as of September 30,
2019.
“Our results for the third quarter were again impacted by the
challenging COVID-19 pandemic environment, however we are
encouraged by signs of improvement in the economy, the strength of
the overall housing market and continued positive default trends
within our mortgage insurance portfolio," said Radian’s Chief
Executive Officer Rick Thornberry. "We reported net income of $135
million, wrote record volume of new primary mortgage insurance
business of $33 billion and grew book value per share by 11%
year-over-year, which reflects the strength and momentum of our
businesses as well as the commitment of our team during this
unprecedented time.”
Thornberry added, "While we expect the timeline for the ultimate
resolution of pandemic-related defaults to span multiple years, we
believe that our current capital resources combined with the
continued future financial contribution from our valuable insurance
portfolio positions us well both today and in the future. At Radian
we are proud of being able to support the real estate and mortgage
markets as the pandemic has not eased the need for affordable
mortgage options or the desire for many Americans to realize the
dream of homeownership.”
THIRD QUARTER HIGHLIGHTS
- NIW was $33.3 billion for the quarter, representing an increase
of 31 percent compared to $25.5 billion in the second quarter of
2020 and an increase of 51 percent compared to $22.0 billion in the
third quarter of 2019.
- Of the $33.3 billion in NIW in the third quarter of 2020, 90
percent was written with monthly and other recurring premiums,
compared to 85 percent in the second quarter of 2020, and 85
percent in the third quarter of 2019.
- Refinances accounted for 30 percent of total NIW in the third
quarter of 2020, compared to 44 percent in the second quarter of
2020 and 19 percent in the third quarter of 2019.
- Primary mortgage insurance in force increased 1.7 percent to
$245.5 billion as of September 30, 2020, compared to $241.3 billion
as of June 30, 2020, and increased 3.5 percent compared to $237.2
billion as of September 30, 2019. The year over year increase
included a 10.0 percent increase in monthly premium insurance in
force and a 12.7 percent decline in single premium insurance in
force.
- Persistency, which is the percentage of mortgage insurance that
remains in force after a 12-month period, was 65.6 percent as of
September 30, 2020, compared to 70.2 percent as of June 30, 2020,
and 81.5 percent as of September 30, 2019.
- Annualized persistency for the three months ended September 30,
2020 was 60.0 percent, compared to 63.8 percent for the three
months ended June 30, 2020, and 75.5 percent for the three months
ended September 30, 2019.
- Net mortgage insurance premiums earned were $283.4 million for
the quarter ended September 30, 2020, compared to $247.6 million
for the quarter ended June 30, 2020, and $277.6 million for the
quarter ended September 30, 2019. Net mortgage insurance premiums
earned for the third quarter of 2020 increased as compared to the
second quarter primarily due to a decrease in ceded premiums, net
of profit commissions, of $23.9 million. This decrease in ceded
premiums was primarily related to an adjustment to accrued profit
commissions due to increased losses in the second quarter of 2020,
as well as an increase in single premium policy cancellations of
$15.6 million.
- Mortgage insurance in force premium yield was 43.2 basis points
in the third quarter of 2020, compared to 44.3 basis points in the
second quarter of 2020 and 47.4 basis points in the third quarter
of 2019.
- The impact of single premium cancellations on premium yield
before consideration of reinsurance represented 10.7 basis points
in the third quarter of 2020, compared to 8.2 basis points in the
second quarter of 2020, and 4.6 basis points in the third quarter
of 2019.
- Total net mortgage insurance premium yield, which includes the
impact of ceded premiums and accrued profit commission, was 46.6
basis points in the third quarter of 2020. This compares to 41.0
basis points in the second quarter of 2020, and 47.5 basis points
in the third quarter of 2019.
- Additional details regarding premiums earned may be found in
Exhibit D.
- Mortgage insurance provision for losses was $87.8 million in
the third quarter of 2020, compared to $304.0 million in the second
quarter of 2020 and $29.1 million in the third quarter of 2019. The
increase in the third quarter of 2020, compared to the third
quarter of 2019, was 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 new defaults increased significantly during
the second quarter of 2020, and while the new defaults during the
third quarter remained elevated compared to levels before the
pandemic, they decreased 67.5 percent from the prior quarter.
- The number of primary delinquent loans was 62,737 as of
September 30, 2020, compared to 69,742 as of June 30, 2020 and
20,184 as of September 30, 2019.
- The primary default rate was 5.9 percent in the third quarter
of 2020, compared to 6.5 percent in the second quarter of 2020, and
1.9 percent in the third quarter of 2019.
- The gross default to claim rate assumption for new primary
defaults was 8.5 percent at September 30, 2020, compared to 8.5
percent in the second quarter of 2020, and 7.5 percent in the third
quarter of 2019.
- The loss ratio in the third quarter of 2020 was 31.0 percent,
compared to 122.8 percent in the second quarter of 2020, and 10.5
percent in the third quarter of 2019.
- Mortgage insurance loss reserves were $821.7 million as of
September 30, 2020, compared to $735.0 million as of June 30, 2020,
and $394.1 million as of September 30, 2019.
- Total mortgage insurance claims paid were $10.8 million in the
third quarter of 2020, compared to $22.8 million in the second
quarter of 2020, and $36.7 million in the third 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 third quarter of
2020 were $33.3 million, compared to $26.1 million for the second
quarter of 2020, and $30.1 million for the third quarter of
2019.
- Adjusted earnings before interest, income taxes, depreciation
and amortization and corporate allocations (Real Estate adjusted
EBITDA) for the quarter ended September 30, 2020 was a loss of $1.4
million, compared to a loss of $0.7 million for the quarter ended
June 30, 2020, and income of $0.9 million for the quarter ended
September 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 $69.4 million in the third
quarter of 2020, compared to $60.6 million in the second quarter of
2020, and $76.4 million in the third quarter of 2019.
- The increase in operating expenses in the third quarter of
2020, compared to the second quarter of 2020, was driven primarily
by an adjustment in the second quarter which reduced share-based
incentive compensation expense for that period. The decrease in
operating expenses in the third quarter of 2020, compared to the
third quarter of 2019, was driven primarily by an increase in
ceding commissions as well as lower incentive compensation
expense.
CAPITAL AND LIQUIDITY UPDATE
- At September 30, 2020, Excess Available Resources to Support
PMIERs were $2.3 billion, or 67 percent above Radian Guaranty's
Minimum Required Assets of approximately $3.5 billion.
Radian Group
- As of September 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 September 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 August 12, 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 September
4, 2020.
Radian Guaranty
- At September 30, 2020, Radian Guaranty’s Available Assets under
the Private Mortgage Insurer Eligibility Requirements (PMIERs)
totaled approximately $4.5 billion, resulting in an excess or
“cushion” of approximately $970.3 million, or 28 percent above its
Minimum Required Assets of approximately $3.5 billion.
- As of September 30, 2020, 53 percent of Radian Guaranty's
primary mortgage insurance risk in force is subject to some form of
risk distribution, providing a $1.3 billion reduction of Minimum
Required Assets under PMIERs.
RECENT EVENTS
Insurance-Linked-Note
As previously announced, in October 2020, Radian Guaranty
entered into its fourth fully collateralized mortgage
insurance-linked-note (ILN) reinsurance transaction, in which the
company obtained $390.3 million of credit risk protection from
Eagle Re 2020-2 Ltd. (Eagle Re) through the issuance by Eagle Re of
ILNs to eligible third-party capital markets investors in an
unregistered private offering. Eagle Re is a special purpose
insurer domiciled in Bermuda and is not a subsidiary or affiliate
of Radian Guaranty. Radian Guaranty's related PMIERs credit under
this ILN transaction remains subject to GSE approval. As of
September 30, 2020, after consideration of the October ILN
transaction described above:
- Radian Guaranty's Minimum Required Assets would have decreased
to approximately $3.1 billion, which would have resulted in an
increase in PMIERs excess Available Assets or "cushion" to $1.3
billion, or 42 percent.
- Radian Guaranty's primary mortgage insurance risk in force that
is subject to some form of risk distribution would have increased
to 74 percent, providing a $1.7 billion reduction of Minimum
Required Assets under PMIERs.
Radian Guaranty Operating Statistics for October 2020
The information below 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.
October
2020
September
2020
August
2020
July
2020
Beginning primary default inventory (#
of loans)
62,737
64,888
67,433
69,742
New defaults
5,086
5,858
6,173
8,477
Cures
(8,140
)
(7,935
)
(8,670)
(10,678)
Claims paid (1)
(78
)
(85
)
(63)
(92)
Rescissions and Claim Denials, net
(2)
(1
)
11
15
(16)
Ending primary default
inventory
59,604
62,737
64,888
67,433
(1)
Includes those charged to a deductible
under pool insurance arrangements, 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 third quarter financial results in a
conference call on Thursday, November 5, 2020, at 1:00 p.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
800.447.0521 inside the U.S., or 847.413.3238 for international
callers, using passcode 49984800.
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 49984800.
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 CONTENT (Unaudited)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Revenues:
Net premiums earned
$
286,471
$
249,295
$
277,415
$
301,486
$
281,185
Services revenue
33,943
28,075
31,927
40,031
42,509
Net investment income
36,255
38,723
40,944
41,432
42,756
Net gains (losses) on investments and
other financial instruments
17,652
47,276
(22,027
)
4,257
13,009
Other income
913
1,072
822
818
879
Total revenues
375,234
364,441
329,081
388,024
380,338
Expenses:
Provision for losses
88,084
304,418
35,951
34,619
29,231
Policy acquisition costs
10,166
6,015
7,413
6,783
6,435
Cost of services
24,353
17,972
22,141
27,278
29,044
Other operating expenses
69,377
60,582
69,110
80,894
76,384
Interest expense
21,088
16,699
12,194
12,160
13,492
Loss on extinguishment of debt
—
—
—
—
5,940
Impairment of goodwill
—
—
—
4,828
—
Amortization and impairment of other
acquired intangible assets
961
979
979
15,823
2,139
Total expenses
214,029
406,665
147,788
182,385
162,665
Pretax income (loss)
161,205
(42,224
)
181,293
205,639
217,673
Income tax provision (benefit)
26,102
(12,273
)
40,832
44,455
44,235
Net income (loss)
$
135,103
$
(29,951
)
$
140,461
$
161,184
$
173,438
Diluted net income (loss) per
share
$
0.70
$
(0.15
)
$
0.70
$
0.79
$
0.83
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net income (loss)—basic and diluted
$
135,103
$
(29,951
)
$
140,461
$
161,184
$
173,438
Average common shares outstanding—basic (1)
193,176
193,299
200,161
203,431
203,107
Dilutive effect of share-based compensation arrangements (2)
980
—
1,658
1,734
5,584
Adjusted average common shares outstanding—diluted
194,156
193,299
201,819
205,165
208,691
Basic net income (loss) per share
$
0.70
$
(0.15
)
$
0.70
$
0.79
$
0.85
Diluted net income (loss) per share
$
0.70
$
(0.15
)
$
0.70
$
0.79
$
0.83
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Shares of common stock equivalents
710
2,295
132
—
—
Radian Group Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
Exhibit C
(In thousands, except per-share
amounts)
September 30,
June 30,
March 31,
December 31,
September 30,
2020
2020
2020
2019
2019
Assets:
Investments
$
6,584,577
$
6,431,350
$
5,608,627
$
5,658,747
$
5,533,724
Cash
82,020
68,387
54,108
92,729
49,393
Restricted cash
4,424
16,279
7,817
3,545
2,853
Accounts and notes receivable
145,164
110,722
123,381
93,630
144,113
Goodwill and other acquired intangible
assets, net
25,268
26,229
27,208
28,187
52,533
Prepaid reinsurance premium
295,062
330,476
356,104
363,856
374,339
Other assets
640,830
585,866
513,187
567,619
513,647
Total assets
$
7,777,345
$
7,569,309
$
6,690,432
$
6,808,313
$
6,670,602
Liabilities and stockholders’
equity:
Unearned premiums
$
501,787
$
561,280
$
605,045
$
626,822
$
647,856
Reserve for losses and loss adjustment
expense
825,792
738,885
418,202
404,765
398,141
Senior notes
1,404,759
1,403,857
887,584
887,110
886,643
FHLB advances
141,058
175,122
173,760
134,875
104,492
Reinsurance funds withheld
318,773
312,350
302,551
291,829
352,532
Other liabilities
462,797
391,810
438,782
414,189
358,431
Total liabilities
3,654,966
3,583,304
2,825,924
2,759,590
2,748,095
Common stock
210
210
208
219
220
Treasury stock
(909,745
)
(909,738
)
(902,024
)
(901,657
)
(901,556
)
Additional paid-in capital
2,238,869
2,232,949
2,231,670
2,449,884
2,469,097
Retained earnings
2,561,076
2,450,423
2,504,853
2,389,789
2,229,107
Accumulated other comprehensive
income
231,969
212,161
29,801
110,488
125,639
Total stockholders’ equity
4,122,379
3,986,005
3,864,508
4,048,723
3,922,507
Total liabilities and stockholders’
equity
$
7,777,345
$
7,569,309
$
6,690,432
$
6,808,313
$
6,670,602
Shares outstanding
191,556
191,492
190,387
201,164
202,219
Book value per share
$
21.52
$
20.82
$
20.30
$
20.13
$
19.40
Debt to capital ratio (1)
25.4
%
26.0
%
18.7
%
18.0
%
18.4
%
Risk to capital ratio-Radian Guaranty
only
13.2:1
13.3:1
13.8:1
13.6:1
14.2:1
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Premiums earned:
Direct - Mortgage:
Premiums earned, excluding revenue from
cancellations
$
259,889
$
263,468
$
274,647
$
295,845
(1)
$
274,595
Single Premium Policy
cancellations
65,667
50,023
24,133
26,479
27,254
Total direct - Mortgage
325,556
313,491
298,780
322,324
(1)
301,849
Assumed - Mortgage: (2)
2,946
3,197
3,456
2,837
2,614
Ceded - Mortgage:
Premiums earned, excluding revenue from
cancellations
(25,120
)
(26,493
)
(28,609
)
(28,055
)
(28,457
)
Single Premium Policy cancellations
(3)
(18,679
)
(14,424
)
(7,183
)
(7,843
)
(8,137
)
Profit commission - other (4)
(1,347
)
(28,175
)
8,555
9,241
9,729
Total ceded premiums, net of profit
commission - Mortgage (5)
(45,146
)
(69,092
)
(27,237
)
(26,657
)
(26,865
)
Net premiums earned - Mortgage
283,356
247,596
274,999
298,504
(1)
277,598
Net premiums earned - Real
Estate
3,115
1,699
2,416
2,982
3,587
Net premiums earned
$
286,471
$
249,295
$
277,415
$
301,486
(1)
$
281,185
(1)
Includes a cumulative impact related to
the recognition of deferred initial premiums on monthly
policies.
(2)
Includes premiums earned from our
participation in certain credit risk transfer programs.
(3)
Includes the impact of related profit
commissions.
(4)
The amounts represent the profit
commission on the Single Premium QSR Program, excluding the impact
of Single Premium Policy cancellations.
(5)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net premiums written (1)
$
259,278
$
229,458
$
260,974
$
287,952
(2)
$
270,567
(Increase) decrease in unearned
premiums
24,078
18,138
14,025
10,552
7,031
Net premiums earned
283,356
247,596
274,999
298,504
277,598
Services revenue (3)
3,914
3,918
3,216
2,936
2,375
Net investment income (3)
32,054
34,708
36,198
37,818
37,032
Other income (3)
689
721
671
719
641
Total (3)
320,013
286,943
315,084
339,977
317,646
Provision for losses
87,753
304,021
35,246
34,411
29,053
Policy acquisition costs
10,166
6,015
7,413
6,783
6,435
Cost of services (3)
2,908
2,133
1,757
1,713
1,621
Other operating expenses before
corporate allocations (3) (4)
21,327
18,705
23,733
32,604
30,773
Interest expense before corporate
allocations (5)
1,983
3,064
680
688
682
Total (3) (6)
124,137
333,938
68,829
76,199
68,564
Adjusted pretax operating income (loss)
before corporate allocations (3)
195,876
(46,995
)
246,255
263,778
249,082
Allocation of corporate operating
expenses
29,435
25,191
29,074
27,394
26,671
Allocation of corporate interest
expense
20,605
16,135
11,514
11,472
12,810
Adjusted pretax operating income (loss)
(3)
$
145,836
$
(88,321
)
$
205,667
$
224,912
$
209,601
Real Estate
2020
2019
(In thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net premiums earned
$
3,115
$
1,699
$
2,416
$
2,982
$
3,587
Services revenue (3) (6)
30,146
24,267
26,042
23,826
26,375
Net investment income
67
126
125
144
177
Total (3)
33,328
26,092
28,583
26,952
30,139
Provision for losses
370
426
743
238
211
Cost of services (3)
21,464
15,893
17,933
16,275
18,155
Other operating expenses before
corporate allocations (3) (4)
13,617
11,251
10,938
11,972
11,404
Total (3)
35,451
27,570
29,614
28,485
29,770
Adjusted pretax operating income (loss)
before corporate allocations (3) (7)
(2,123
)
(1,478
)
(1,031
)
(1,533
)
369
Allocation of corporate operating
expenses (3)
3,818
3,339
3,836
2,987
2,910
Adjusted pretax operating income (loss)
(3)
$
(5,941
)
$
(4,817
)
$
(4,867
)
$
(4,520
)
$
(2,541
)
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 2 of 3)
All Other (3) (8)
2020
2019
(In thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Services revenue (6)
$
—
$
—
$
2,861
$
13,559
$
14,027
Net investment income
5,634
6,389
4,621
3,470
5,547
Other income
224
104
151
99
238
Total
5,858
6,493
7,633
17,128
19,812
Cost of services
—
(35
)
2,556
9,500
9,387
Other operating expenses
773
1,889
1,278
4,037
4,742
Total
773
1,854
3,834
13,537
14,129
Adjusted pretax operating
income
$
5,085
$
4,639
$
3,799
$
3,591
$
5,683
(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)
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.
(4)
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).
(5)
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.
(6)
Inter-segment information:
2020
2019
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Inter-segment revenue included in:
Mortgage
$
—
$
—
$
83
$
160
$
35
Real Estate
117
110
109
88
111
All Other
1,500
2,500
(a)
—
42
122
Total inter-segment revenue
$
1,617
$
2,610
$
192
$
290
$
268
Inter-segment expense included in:
Mortgage
$
1,598
$
2,591
(a)
$
87
$
79
$
150
Real Estate
19
19
22
16
(1
)
All Other
—
—
83
195
119
Total inter-segment expense
$
1,617
$
2,610
$
192
$
290
$
268
(a)
Primarily relates to interest on the
$200.0 million 3% intercompany surplus note issued by Radian
Guaranty to Radian Group.
(7)
Supplemental information for Real
Estate adjusted EBITDA (see definition in Exhibit F):
2020
2019
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Adjusted pretax operating income (loss)
before corporate allocations
$
(2,123
)
$
(1,478
)
$
(1,031
)
$
(1,533
)
$
369
Depreciation and amortization
683
776
666
553
560
Real Estate adjusted EBITDA
$
(1,440
)
$
(702
)
$
(365
)
$
(980
)
$
929
(8)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Loss ratio (1)
31.0
%
122.8
%
12.8
%
11.5
%
10.5
%
Expense ratio (1)
21.5
%
20.2
%
21.9
%
22.4
%
23.0
%
(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 and return on equity 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 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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Consolidated pretax income
(loss)
$
161,205
$
(42,224
)
$
181,293
$
205,639
$
217,673
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
17,652
47,276
(22,027
)
4,257
13,009
Loss on extinguishment of debt
—
—
—
—
(5,940
)
Impairment of goodwill
—
—
—
(4,828
)
—
Amortization and impairment of other
acquired intangible assets
(961
)
(979
)
(979
)
(15,823
)
(2,139
)
Impairment of other long-lived assets
and other non-operating items (1)
(466
)
(22
)
(300
)
(1,950
)
—
Total adjusted pretax operating income
(loss) (2)
$
144,980
$
(88,499
)
$
204,599
$
223,983
$
212,743
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Adjusted pretax operating income
(loss):
Mortgage segment
$
145,836
$
(88,321
)
$
205,667
$
224,912
$
209,601
Real Estate segment
(5,941
)
(4,817
)
(4,867
)
(4,520
)
(2,541
)
All Other activities
5,085
4,639
3,799
3,591
5,683
Total adjusted pretax operating income
(loss)
$
144,980
$
(88,499
)
$
204,599
$
223,983
$
212,743
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Diluted net income (loss) per
share
$
0.70
$
(0.15
)
$
0.70
$
0.79
$
0.83
Less per-share impact of reconciling
income (expense) items:
Net gains (losses) on investments and
other financial instruments
0.09
0.24
(0.11
)
0.02
0.06
Loss on extinguishment of debt
—
—
—
—
(0.03
)
Impairment of goodwill
—
—
—
(0.02
)
—
Amortization and impairment of other
acquired intangible assets
—
(0.01
)
—
(0.08
)
(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)
(0.02
)
(0.05
)
0.02
0.02
—
Difference between statutory and
effective tax rates
0.04
0.03
(0.01
)
—
—
Per-share impact of reconciling income
(expense) items
0.11
0.21
(0.10
)
(0.07
)
0.02
Adjusted diluted net operating income
(loss) per share (1)
$
0.59
$
(0.36
)
$
0.80
$
0.86
$
0.81
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Return on equity (1)
13.3
%
(3.1
)%
14.2
%
16.2
%
18.0
%
Less impact of reconciling income
(expense) items: (2)
Net gains (losses) on investments and
other financial instruments
1.7
4.8
(2.2
)
0.4
1.4
Loss on extinguishment of debt
—
—
—
—
(0.6
)
Impairment of goodwill
—
—
—
(0.5
)
—
Amortization and impairment of other
acquired intangible assets
(0.1
)
(0.1
)
(0.1
)
(1.6
)
(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)
(0.3
)
(1.0
)
0.5
0.4
(0.1
)
Difference between statutory and
effective tax rates
0.7
0.3
(0.3
)
(0.1
)
0.1
Impact of reconciling income (expense)
items
2.0
4.0
(2.1
)
(1.6
)
0.6
Adjusted net operating return on
equity
11.3
%
(7.1
)%
16.3
%
17.8
%
17.4
%
(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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net income (loss)
$
135,103
$
(29,951
)
$
140,461
$
161,184
$
173,438
Less reconciling income (expense)
items:
Net gains (losses) on investments and
other financial instruments
17,652
47,276
(22,027
)
4,257
13,009
Loss on extinguishment of debt
—
—
—
—
(5,940
)
Impairment of goodwill
—
—
—
(4,828
)
—
Amortization and impairment of other
acquired intangible assets
(961
)
(979
)
(979
)
(15,823
)
(2,139
)
Impairment of other long-lived assets
and other non-operating items
(466
)
(22
)
(300
)
(1,950
)
—
Income tax (provision) benefit
(26,102
)
12,273
(40,832
)
(44,455
)
(44,235
)
Mortgage adjusted pretax operating
income (loss)
145,836
(88,321
)
205,667
224,912
209,601
All Other adjusted pretax operating
income
5,085
4,639
3,799
3,591
5,683
Real Estate adjusted pretax operating
income (loss)
(5,941
)
(4,817
)
(4,867
)
(4,520
)
(2,541
)
Less reconciling income (expense)
items:
Allocation of corporate operating
expenses to Real Estate
(3,818
)
(3,339
)
(3,836
)
(2,987
)
(2,910
)
Real Estate depreciation and
amortization
(683
)
(776
)
(666
)
(553
)
(560
)
Real Estate adjusted EBITDA
$
(1,440
)
$
(702
)
$
(365
)
$
(980
)
$
929
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 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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Total primary new insurance
written
$
33,320
$
25,459
$
16,706
$
19,953
$
22,037
Percentage of
primary new insurance written by FICO score (1)
>=740
66.2
%
67.3
%
65.7
%
66.3
%
64.1
%
680-739
30.7
30.1
31.1
30.5
31.5
620-679
3.1
2.6
3.2
3.2
4.4
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of
primary new insurance written
Borrower-paid
98.5
%
97.8
%
96.7
%
97.4
%
97.1
%
Percentage by
premium type
Direct monthly and other recurring
premiums
90.0
%
84.7
%
81.1
%
82.1
%
85.0
%
Borrower-paid (2) (3)
9.0
13.6
16.5
16.0
13.1
Lender-paid (2)
1.0
1.7
2.4
1.9
1.9
Direct single premiums
10.0
15.3
18.9
17.9
15.0
Total primary new insurance
written
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary new insurance written for
purchases
70.5
%
56.4
%
66.2
%
67.5
%
80.7
%
Primary new insurance written for
refinances
29.5
%
43.6
%
33.8
%
32.5
%
19.3
%
Percentage by
LTV
95.01% and above
9.7
%
8.3
%
9.9
%
11.5
%
16.8
%
90.01% to 95.00%
39.6
36.4
37.6
35.8
37.4
85.01% to 90.00%
28.3
29.8
30.3
30.0
27.4
85.00% and below
22.4
25.5
22.2
22.7
18.4
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)
September 30,
June 30,
March 31,
December 31,
September 30,
($ in millions)
2020
2020
2020
2019
2019
Primary insurance in force (1)
Prime
$
241,166
$
236,835
$
236,958
$
235,742
$
232,086
Alt-A and A minus and below
4,301
4,471
4,628
4,816
5,072
Total Primary
$
245,467
$
241,306
$
241,586
$
240,558
$
237,158
Primary risk in force (1) (2)
Prime
$
59,972
$
59,253
$
59,827
$
59,780
$
59,217
Alt-A and A minus and below
1,017
1,058
1,096
1,141
1,203
Total Primary
$
60,989
$
60,311
$
60,923
$
60,921
$
60,420
Percentage of primary risk in
force
Direct monthly and other recurring
premiums
76.8
%
73.8
%
72.6
%
72.4
%
72.0
%
Direct single premiums
23.2
%
26.2
%
27.4
%
27.6
%
28.0
%
Percentage of primary risk in force by
FICO score (3)
>=740
57.6
%
57.4
%
57.2
%
56.9
%
56.2
%
680-739
34.3
34.3
34.2
34.2
34.5
620-679
7.5
7.7
8.0
8.2
8.6
<=619
0.6
0.6
0.6
0.7
0.7
Total Primary
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by
LTV
95.01% and above
14.3
%
14.2
%
14.3
%
14.2
%
13.9
%
90.01% to 95.00%
50.1
50.4
51.0
51.3
51.9
85.01% to 90.00%
27.9
28.1
27.9
27.9
27.9
85.00% and below
7.7
7.3
6.8
6.6
6.3
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by
policy year
2008 and prior
6.6
%
7.2
%
7.5
%
7.8
%
8.4
%
2009 - 2012
2.3
2.8
3.0
3.3
3.5
2013
2.9
3.5
3.9
4.2
4.6
2014
3.0
3.6
4.0
4.3
4.8
2015
5.1
6.1
6.9
7.4
8.1
2016
8.9
10.6
11.7
12.5
13.5
2017
10.7
13.0
14.8
16.0
17.4
2018
11.7
14.0
16.4
17.9
19.7
2019
20.6
23.3
25.4
26.6
20.0
2020
28.2
15.9
6.4
—
—
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary risk in force on defaulted
loans
$
3,747
$
4,263
$
1,001
$
1,061
$
1,012
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.
September 30,
June 30,
March 31,
December 31,
September 30,
2020
2020
2020
2019
2019
Persistency Rate (12 months
ended)
65.6
%(4)
70.2
%
75.4
%
78.2
%
81.5
%
Persistency Rate (quarterly,
annualized) (5)
60.0
%(4)
63.8
%
76.5
%
75.0
%
75.5
%
(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 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.
(5)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Net claims paid: (1)
Total primary claims paid
$
11,331
$
22,144
$
24,358
$
24,267
$
28,981
Total pool and other
(230
)
639
(911
)
559
901
Subtotal
11,101
22,783
23,447
24,826
29,882
Impact of commutations and settlements
(2)
(267
)
—
(56
)
3,691
6,812
Total net claims paid
$
10,834
$
22,783
$
23,391
$
28,517
$
36,694
Total average net primary claim paid
(1) (3)
$
46.4
$
47.9
$
50.3
$
50.9
$
47.0
Average direct primary claim paid (3)
(4)
$
47.8
$
49.0
$
51.4
$
52.1
$
48.1
(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 other commutations.
(4)
Before reinsurance recoveries.
($ in thousands, except per default
amounts)
September 30,
June 30,
March 31,
December 31,
September 30,
2020
2020
2020
2019
2019
Reserve for losses by category
(1)
Mortgage reserves
Prime
$
655,754
$
573,463
$
264,694
$
248,727
$
236,382
Alt-A and A minus and below
88,879
86,646
88,481
91,093
95,723
IBNR and other (2)
43,153
43,342
40,583
40,920
42,117
LAE
18,745
16,807
9,216
8,918
9,000
Total primary reserves
806,531
720,258
402,974
389,658
383,222
Total pool reserves
14,779
14,398
11,297
11,322
10,605
Total 1st lien reserves
821,310
734,656
414,271
400,980
393,827
Other
398
335
407
293
260
Total Mortgage reserves
821,708
734,991
414,678
401,273
394,087
Real Estate reserves
4,084
3,894
3,524
3,492
4,054
Total reserves
$
825,792
$
738,885
$
418,202
$
404,765
$
398,141
1st lien reserve per default
Primary reserve per primary default
excluding IBNR and other
$
12,168
$
9,706
$
18,320
$
16,399
$
16,900
(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 quarter ended September 30, 2019
includes an increase of $11.8 million in the Company’s IBNR reserve
estimate related to previously disclosed legal proceedings
involving challenges from certain servicers regarding loss
mitigation activities.
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Default Statistics
Exhibit K
September 30,
June 30,
March 31,
December 31,
September 30,
2020
2020
2020
2019
2019
Default
Statistics
Primary Insurance:
Prime
Number of insured loans
1,043,450
1,040,964
1,049,974
1,049,954
1,040,520
Number of loans in default
58,057
64,648
15,497
16,532
15,345
Percentage of loans in default
5.56
%
6.21
%
1.48
%
1.57
%
1.47
%
Alt-A and A minus
and below
Number of insured loans
27,310
28,357
29,375
30,439
32,163
Number of loans in default
4,680
5,094
4,284
4,734
4,839
Percentage of loans in default
17.14
%
17.96
%
14.58
%
15.55
%
15.05
%
Total Primary
Number of insured loans
1,070,760
1,069,321
1,079,349
1,080,393
1,072,683
Number of loans in default
62,737
69,742
19,781
21,266
20,184
Percentage of loans in default
5.86
%
6.52
%
1.83
%
1.97
%
1.88
%
Radian Group Inc. and
Subsidiaries
Mortgage Supplemental Information -
Reinsurance Programs
Exhibit L
2020
2019
($ in thousands)
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Quota Share
Reinsurance (“QSR”) and Single Premium QSR Programs
Ceded premiums written (1)
$
2,119
$
35,821
$
6,687
$
9,217
$
8,408
% of premiums written
0.8
%
13.0
%
2.4
%
3.0
%
2.9
%
Ceded premiums earned
$
36,742
$
60,652
$
18,712
$
19,428
$
19,295
% of premiums earned
11.2
%
19.2
%
6.2
%
6.1
%
6.3
%
Ceding commissions written
$
(4,984
)
$
(5,304
)
$
8,413
$
6,836
$
6,778
Ceding commissions earned (2)
$
17,038
$
13,453
$
9,966
$
12,055
$
12,153
Profit commission
$
20,425
$
(10,649
)
$
16,405
$
17,792
$
18,346
Ceded losses
$
10,189
$
39,635
$
1,962
$
1,533
$
771
Excess-of-Loss
Program
Ceded premiums written
$
7,499
$
7,525
$
12,678
$
6,834
$
6,878
% of premiums written
2.8
%
2.7
%
4.5
%
2.2
%
2.4
%
Ceded premiums earned
$
8,290
$
8,321
$
8,405
$
7,104
$
7,452
% of premiums earned
2.5
%
2.6
%
2.8
%
2.2
%
2.4
%
Ceded RIF
(3)
QSR Program
$
454,585
$
532,743
$
596,166
$
644,512
$
702,201
Single Premium QSR Program
7,358,932
8,173,756
8,580,047
8,582,067
8,538,363
Excess-of-Loss Program
1,170,200
1,170,200
1,230,000
850,800
974,800
Total Ceded RIF
$
8,983,717
$
9,876,699
$
10,406,213
$
10,077,379
$
10,215,364
PMIERs impact -
reduction in Minimum Required Assets (4)
QSR Program
$
26,213
$
30,837
$
31,638
$
35,382
$
38,227
Single Premium QSR Program
469,625
517,028
501,668
511,695
513,832
Excess-of-Loss Program
783,842
970,294
1,066,464
738,386
834,072
Total PMIERs impact
$
1,279,680
$
1,518,159
$
1,599,770
$
1,285,463
$
1,386,131
(1)
Net of profit commission, where
applicable.
(2)
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 3
Qtr 2
Qtr 1
Qtr 4
Qtr 3
Ceding commissions
$
(12,337
)
$
(10,406
)
$
(7,967
)
$
(7,973
)
$
(8,160
)
(3)
Included in primary RIF.
(4)
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 certain
equity market valuations, created periods of significant volatility
and disruption in financial markets, required adjustments in the
housing finance system and real estate markets and increased
unemployment levels. In addition, the pandemic has resulted in
travel restrictions, 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 June 30, 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 the November 2020 elections and 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, such as
the application of the recent and temporary amendment that applies
a reduced capital charge nationwide for certain COVID-19-related
nonperforming loans, 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 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 loan modification 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 June 30, 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201104005730/en/
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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