Radian Reports Fourth Quarter and Full Year 2012 Financial Results

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Radian Reports Fourth Quarter and Full Year 2012 Financial Results

- Writes $37.1 billion of new MI business in 2012, compared to $15.5 billion in 2011 -

- Risk-to-capital ratio of 20.8:1; Expects to remain below 25:1 through 2013 -


PHILADELPHIA--(BUSINESS WIRE)-- Radian Group Inc. (NYS: RDN) today reported a net loss for the quarter ended December 31, 2012, of $177.3 million, or $1.34 per diluted share, which included minimal net gains on investments and combined net gains from the change in fair value of derivatives and other financial instruments as well as an income tax provision of $20.5 million. This compares to a net loss for the quarter ended December 31, 2011, of $121.5 million, or $0.92 per diluted share, which included net gains on investments of $38.9 million, combined net gains from the change in fair value of derivatives and other financial instruments of $102.2 million and an income tax provision of $65.4 million. The net loss for the full year 2012 was $451.5 million, or $3.41 per diluted share, which included net gains on investments of $184.9 million and combined net loss from the change in fair value of derivatives and other financial instruments of $226.3 million as well as an income tax provision of $7.3 million. This compares to net income for the year ended December 31, 2011, of $302.2 million, or $2.26 per diluted share, which included net gains on investments of $202.2 million and combined net gains from the change in fair value of derivatives and other financial instruments of $821.7 million as well as an income tax provision of $66.4 million. Book value per share at December 31, 2012, was $5.51.

"In 2012, we took advantage of every opportunity to position Radian for future success, including growing our volume of new, high-quality mortgage insurance business each quarter, reducing our portfolio of delinquent loans by 16%, maintaining a competitive risk-to-capital ratio and reducing our financial guaranty exposure by 51%," said Chief Executive Officer S.A. Ibrahim. "Although our fourth quarter results were impacted by the continuing challenge of our legacy portfolio, our ability to write new, profitable business remains undiminished."

Ibrahim added, "We hit the ground running in 2013 with $4 billion of new business written in January and another decline in our delinquent loan inventory, which better positions Radian for a return to operating profitability."

CAPITAL AND LIQUIDITY UPDATE

  • Radian Guaranty's risk-to-capital ratio was 20.8:1 as of December 31, 2012, compared to 20.1:1 as of September 30, 2012, and 21.5:1 as of December 31, 2011.

    • The change in the risk-to-capital ratio from September 30, 2012, was primarily driven by operating losses and an increase to the company's gross risk in force resulting from strong, new mortgage insurance business volume, partially offset by external and intercompany reinsurance which decreased net risk in force.
    • The company expects to remain below a 25:1 risk-to-capital ratio through 2013 including, if necessary, by contributing from currently available holding company funds.
    • In order to proactively manage its risk-to-capital position, Radian Guaranty entered into two quota share reinsurance agreements in 2012 with the same third-party reinsurance provider. As of December 31, 2012, a total of $1.9 billion was ceded under those agreements.
    • The company also managed risk to capital through a new intercompany reinsurance agreement, which reduced Radian Guaranty's net risk in force by $2.6 billion in the fourth quarter.
    • As of December 31, 2012, Radian Guaranty's statutory capital was $926 million compared to $843 million a year ago.
  • Radian Group maintains approximately $336 million of currently available liquidity, before the repayment this month of $79 million of outstanding debt. After completion of the company's debt exchange in January, the company has approximately $55 million of outstanding debt due in June 2015, with the balance of debt maturing in 2017.

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

  • New mortgage insurance written (NIW) was $11.7 billion for the quarter, compared to $10.6 billion in the third quarter of 2012 and $6.5 billion in the prior-year quarter. Radian wrote an additional $4 billion in NIW in January 2013, compared to $2 billion in January 2012.

    • The product mix of Radian's NIW in 2012 shifted to an increased level of monthly premium business. Of the $37.1 billion in new business written in 2012, 65 percent was written with monthly premiums and 35 percent with single premiums. This compares to a mix of 59 percent monthly premiums and 41 percent single premiums in 2011.
    • The Home Affordable Refinance Program (HARP) accounted for $2.9 billion of insurance not included in Radian Guaranty's NIW total for the quarter. This compares to $2.7 billion in the third quarter of 2012 and $0.7 billion in the prior-year quarter. As of December 31, 2012, approximately 9 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, with 76 percent consisting of loans with FICO scores of 740 or greater.
  • The mortgage insurance provision for losses was $306.9 million in the fourth quarter of 2012, compared to $171.8 million in the third quarter and $333.3 million in the prior-year period. Mortgage insurance loss reserves were approximately $3.1 billion as of December 31, 2012, which was up slightly from $3.0 billion as of September 30, 2012, and down from $3.2 billion as of December 31, 2011. First-lien reserves per primary default were $29,510 as of December 31, 2012, compared to $28,561 as of September 30, 2012, and $26,007 as of December 31, 2011.
  • The total number of primary delinquent loans decreased by 2 percent in the fourth quarter from the third quarter of 2012, and by 16 percent from the fourth quarter of 2011. In addition, the total number of primary delinquent loans decreased by 2 percent in January. The primary mortgage insurance delinquency rate decreased to 12.1 percent in the fourth quarter of 2012, compared to 12.6 percent in the third quarter and 15.2 percent in the fourth quarter of 2011. The company's primary risk in force on defaulted loans was $4.3 billion in the fourth quarter, compared to $4.4 billion in the third quarter and $5.2 billion in the fourth quarter of 2011.
  • Total mortgage insurance claims paid were $263.4 million in the fourth quarter, compared to $272.4 million in the third quarter and $291.6 million in the fourth quarter of 2011. The company expects mortgage insurance net claims paid for the full-year 2013 of $900 million to $1.0 billion.
  • 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 December 31, 2012, Radian Asset had approximately $1.1 billion in statutory surplus with an additional $700 million in claims-paying resources.
    • In November, Radian Asset agreed to the commutation of its remaining reinsurance risk from Financial Guaranty Insurance Corporation (FGIC), which reduced the company's total reinsurance portfolio by 13 percent. The commutation of the $822 million reinsurance portfolio was completed in January 2013.
    • Last week, Radian Asset received regulatory approval to release $61 million of contingency reserves, which will benefit Radian Guaranty's statutory capital position. The reserve release was based on a reduction in Radian Asset's net par outstanding, resulting from the maturing of exposures and other terminations of coverage. The company had anticipated the majority of the reserve release and has included its impact in its projections of Radian Guaranty's risk-to-capital during 2013.
  • Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $35 million in 2013.
  • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 71 percent to $33.7 billion as of December 31, 2012, including large declines in many of the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Monday, February 11, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800-230-1092 inside the U.S., or 612-234-9960 for international callers, using passcode 280218 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 280218.

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 December 31, 2012
Exhibit D:Segment Information Quarter Ended December 31, 2011
Exhibit E:Segment Information Year Ended December 31, 2012
Exhibit F:Segment Information Year Ended December 31, 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 Reserve 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 EndedYear Ended
December 31December 31
(In thousands except per-share data)2012 20112012 2011
 
Revenues:
Net premiums written - insurance$217,743 $193,433 $686,630 $707,247 
 
Net premiums earned - insurance$193,875$184,413$738,982$756,025
Net investment income23,11238,694114,337163,520
Net gains on investments6,35138,866184,888202,177
Net impairment losses recognized in earnings(3)(1,171)(3)(1,202)
Change in fair value of derivative instruments2,91269,769(144,025)628,395
Net (losses) gains on other financial instruments(1,815)32,429(82,269)193,329
Gain on sale of affiliate7,708
Other income1,627 1,551 5,790 5,599 
Total revenues226,059 364,551 825,408 1,947,843 
 
Expenses:
Provision for losses305,797355,984959,1711,296,521
Change in reserve for premium deficiency(1,464)(665)41(7,092)
Policy acquisition costs10,09812,79661,87652,763
Other operating expenses55,89638,397196,672175,810
Interest expense12,583 14,197 51,832 61,394 
Total expenses382,910 420,709 1,269,592 1,579,396 
 
Equity in net (loss) income of affiliates  (13)65 
 
Pretax (loss) income(156,851)(56,158)(444,197)368,512
Income tax provision20,451 65,381 7,271 66,362 
 
Net (loss) income$(177,302)$(121,539)$(451,468)$302,150 
 
Diluted net (loss) income per share (1)$(1.34)$(0.92)$(3.41)$2.26 
 

(1) Weighted average shares outstanding (in thousands)

 

Weighted average common shares outstanding

132,525

132,369

132,533

132,372

Increase in weighted average shares-common stock equivalents-diluted basis

 

  

  

  

1,491

 

Weighted average shares outstanding

 

132,525

  

132,369

  

132,533

  

133,863

 
 

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
 
December 31December 31
(In thousands, except per-share data)20122011
 
Assets:
Cash and investments$5,208,199$5,846,168
Deferred policy acquisition costs88,202139,906
Deferred income taxes, net15,975
Reinsurance recoverables89,204157,985
Derivative assets13,60917,212
Other assets503,986 479,519
Total assets$5,903,200 $6,656,765
 
Liabilities and stockholders' equity:
Unearned premiums$648,682$637,372
Reserve for losses and loss adjustment expenses3,149,9363,310,902
Reserve for premium deficiency3,6853,644
Long-term debt663,571818,584
VIE debt108,858228,240
Derivative liabilities266,873126,006
Other liabilities325,270 349,726
Total liabilities5,166,875 5,474,474
 
Common stock151151
Additional paid-in capital1,075,3201,074,513
Retained (deficit) earnings(355,241)96,227
Accumulated other comprehensive income16,095 11,400
Total common stockholders' equity736,325 1,182,291
Total liabilities and stockholders' equity$5,903,200 $6,656,765
 
Book value per share$5.51$8.88
 
   
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended December 31, 2012
Exhibit C
 
MortgageFinancial
(In thousands)InsuranceGuarantyTotal
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