Radian Reports Third Quarter 2012 Financial Results

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Radian Reports Third Quarter 2012 Financial Results

- Writes $10.6 billion of new MI business in the third quarter alone, compared to $9.0 billion written in the first nine months last year -

- Improved risk-to-capital ratio of 20.1:1 -


PHILADELPHIA--(BUSINESS WIRE)-- Radian Group Inc. (NYS: RDN) today reported net income for the quarter ended September 30, 2012, of $14.3 million, or $0.11 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $41.8 million and net gains on investments of $84.7 million. This compares to net income of $183.6 million, or $1.37 per diluted share, which included combined net gains from the change in fair value of derivatives and other financial instruments of $206.6 million and net gains on investments of $81.6 million, for the prior-year quarter. Book value per share at September 30, 2012, was $6.85.

"I am pleased with the strong progress we have made against our top priorities at Radian by writing new, high-quality mortgage insurance business and diligently managing our legacy risk," said Chief Executive Officer S.A. Ibrahim. "In the third quarter, we successfully improved our risk-to-capital position and wrote more new business than we did throughout the first nine months of last year."

Ibrahim continued, "Our new business volume coupled with the continued decline in our delinquent loan inventory has improved the credit composition of our mortgage insurance book and better positions Radian for a future return to profitability."

CAPITAL AND LIQUIDITY UPDATE

  • Radian Guaranty's risk-to-capital ratio improved to 20.1:1 as of September 30, 2012, compared to 21.0:1 as of June 30, 2012, and 20.6:1 as of March 31, 2012.
    • The improvement in the risk-to-capital ratio from June 30, 2012, was primarily driven by investment gains partially offset by a small level of operating losses.
    • Radian expects to remain below a 25:1 risk-to-capital ratio for the remainder of 2012. Based on this and existing waivers of other risk-based capital requirements in certain states, Radian expects to continue to write all of its mortgage insurance business in Radian Guaranty, its principal mortgage insurance subsidiary, during this period.
    • In order to proactively manage its risk-to-capital position, Radian Guaranty entered into a quota share reinsurance agreement earlier this year with a third-party reinsurance provider. Radian agreed to cede 20 percent of new insurance written beginning with the business written in the fourth quarter of 2011, which represented $1.4 billion of ceded risk in force as of September 30, 2012. In August, Radian and the reinsurer mutually agreed to increase the amount of mortgage insurance risk ceded under the agreement to approximately $1.6 billion and last week agreed to the terms of a new quota share arrangement with incremental ceded risk expected to range between $750 million and $2 billion. This new arrangement remains subject to Freddie Mac approval, as was the case with the previous agreement.
    • As of September 30, 2012, Radian Guaranty's statutory capital increased to $1.0 billion, compared to $923.5 million in the second quarter of 2012 and $919.9 million in the first quarter of 2012.

  • Radian Group maintains approximately $330 million of currently available liquidity. There is approximately $80 million of the company's outstanding debt due in February 2013.

THIRD QUARTER HIGHLIGHTS

  • New mortgage insurance written (NIW) was $10.6 billion for the quarter, compared to $8.3 billion in the second quarter of 2012 and $4.1 billion in the prior-year quarter.
    • The product mix of Radian's NIW has continued the recent shift to an increased level of monthly premium business. Of the $25.4 billion in new business written in the first nine months of 2012, 66 percent was written with monthly premiums and 34 percent with single premiums. This compares to a mix of 61 percent monthly premiums and 39 percent single premiums in the first nine months of 2011.
    • The Home Affordable Refinance Program (HARP) accounted for $2.7 billion of insurance not included in Radian Guaranty's NIW total for the quarter. This compares to $2.4 billion in the second quarter of 2012 and $762.0 million in the prior-year quarter. As of September 30, 2012, approximately eight percent of the company's total primary mortgage insurance risk in force had successfully completed a HARP refinance.
    • NIW continued to consist of loans with excellent risk characteristics.
  • The mortgage insurance provision for losses was $171.8 million in the third quarter of 2012, compared to $208.1 million in the second quarter and $276.6 million in the prior-year period. Mortgage insurance loss reserves were approximately $3.0 billion as of September 30, 2012, which was down from $3.2 billion as of June 30, 2012, and also as of September 30, 2011. First-lien reserves per primary default were $28,561 as of September 30, 2012, compared to $28,410 as of June 30, 2012, and $25,346 as of September 30, 2011.
  • The total number of primary delinquent loans decreased by 4 percent in the third quarter from the second quarter of 2012, and by 14 percent from the third quarter of 2011. The primary mortgage insurance delinquency rate decreased to 12.6 percent in the third quarter of 2012, compared to 13.3 percent in the second quarter and 15.2 percent in the third quarter of 2011. The company's primary risk in force on defaulted loans was $4.4 billion in the third quarter, compared to $4.6 billion in the second quarter and $5.2 billion in the third quarter of 2011.

  • Total mortgage insurance claims paid were $272.4 million in the third quarter, compared to $263.4 million in the second quarter and $329.9 million in the third quarter of 2011. The company expects mortgage insurance net claims paid of approximately $250 million in the fourth quarter and $1.0 billion for the full-year 2012.
  • Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
    • As of September 30, 2012, Radian Asset had approximately $1.1 billion in statutory surplus with an additional $700 million in claims-paying resources.
    • Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $40 million in 2013.
    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 66 percent to $39 billion as of September 30, 2012, including large declines in the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Thursday, November 1, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800-398-9386 inside the U.S., or 612-332-0523 for international callers, using passcode 267306 or by referencing Radian.

A replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two and a half hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800-475-6701 inside the U.S., or 320-365-3844 for international callers, passcode 267306.

In addition to the information provided in the company's earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, will be available on Radian's website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.

ABOUT RADIAN

Radian Group Inc. (NYS: RDN) , headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. Additional information may be found at www.radian.biz.

Financial Results and Supplemental Information Contents (Unaudited)

For trend information on all schedules, refer to Radian's quarterly financial statistics at http://www.radian.biz/page?name=FinancialReportsCorporate.

   
Exhibit A:Condensed Consolidated Statements of Income
Exhibit B:Condensed Consolidated Balance Sheets
Exhibit C:Segment Information Quarter Ended September 30, 2012
Exhibit D:Segment Information Quarter Ended September 30, 2011
Exhibit E:Segment Information Nine Months Ended September 30, 2012
Exhibit F:Segment Information Nine Months Ended September 30, 2011
Exhibit G:Financial Guaranty Supplemental Information
Exhibit H:Financial Guaranty Supplemental Information

Exhibit I:

Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit J:Mortgage Insurance Supplemental Information
Insurance in Force and Risk in Force by Product
Exhibit K:Mortgage Insurance Supplemental Information
Risk in Force by FICO, LTV and Policy Year
Exhibit L:Mortgage Insurance Supplemental Information
Primary, Pool and Other Risk in Force
Exhibit M:Mortgage Insurance Supplemental Information
Claims, Reserves and Reserves per Default
Exhibit N:Mortgage Insurance Supplemental Information
Default Statistics
Exhibit O:Mortgage Insurance Supplemental Information

Net Premiums Written and Earned, Captives, QSR and Persistency

 

   
 

 

Radian Group Inc. and Subsidiaries

Condensed Consolidated Statements of Income


Exhibit A

 
 
Quarter Ended September 30Nine Months Ended September 30

(In thousands, except per-share data)

2012 20112012 2011
 
Revenues:
Net premiums written - insurance$209,277 $178,287 $468,887 $513,814 
 
Net premiums earned - insurance$190,963$179,655$545,107$571,612
Net investment income25,63538,76391,225124,826
Net gains on investments84,65981,640178,537163,311
Net impairment losses recognized in earnings(20)(31)
Change in fair value of derivative instruments(41,056)126,008(146,937)558,626
Net (losses) gains on other financial instruments(740)80,602(80,454)160,900
Gain on sale of affiliate7,708
Other income1,328 1,404 4,163 4,048 
Total revenues260,789 508,052 599,349 1,583,292 
 
Expenses:
Provision for losses176,352249,598653,374940,537
Change in reserve for premium deficiency966(1,942)1,505(6,427)
Policy acquisition costs12,92711,44951,77839,967
Other operating expenses50,42945,240140,776137,413
Interest expense12,520 14,094 39,249 47,197 
Total expenses253,194 318,439 886,682 1,158,687 
 
Equity in net (loss) income of affiliates  (13)65 
 
Pretax income (loss)7,595189,613(287,346)424,670
Income tax (benefit) provision(6,730)6,045 (13,180)981 
 
Net income (loss)$14,325 $183,568 $(274,166)$423,689 
 
Diluted net income (loss) per share (1)$0.11 $1.37 $(2.07)$3.16 
 
 
(1) Weighted average shares outstanding (in thousands)

 

        
    
Weighted average common shares outstanding132,521132,364132,530132,366
Increase in weighted average shares-common stock equivalents-diluted basis1,512 1,149  1,501
Weighted average shares outstanding134,033 133,513 132,530 133,867
 
 

For Trend Information, refer to our Quarterly Financial Statistics on Radian's (RDN) website.

        
 

 

 

Radian Group Inc. and Subsidiaries


Condensed Consolidated Balance Sheets

Exhibit B

 
 
September 30December 31September 30

(In thousands, except per-share data)

201220112011
 
Assets:
Cash and investments$5,291,795$5,846,168$5,936,586
Deferred policy acquisition costs91,271139,906138,962
Deferred income taxes, net15,97515,97519,244
Reinsurance recoverables94,584157,985166,483
Derivative assets14,85717,21220,315
Receivable for securities sold52,43818,702504,584
Other assets480,437 460,817 460,111 
Total assets$6,041,357 $6,656,765 $7,246,285 
 
Liabilities and stockholders' equity:
Unearned premiums$614,455$637,372$628,400
Reserve for losses and loss adjustment expenses3,119,5973,310,9023,260,556
Reserve for premium deficiency5,1493,6444,309
Long-term debt659,119818,584814,901
VIE debt109,651228,240273,379
Derivative liabilities267,323126,006188,921
Payable for securities purchased

45,583

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