Radian Reports First Quarter 2013 Financial Results

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Radian Reports First Quarter 2013 Financial Results

- Writes $10.9 billion of new MI business in the first quarter -

- Improves risk-to-capital ratio to 18.6:1; More than $800 million of currently available holding company liquidity -


- Total number of primary delinquent loans declines by 17% from first quarter of 2012 -

PHILADELPHIA--(BUSINESS WIRE)-- Radian Group Inc. (NYS: RDN) today reported a net loss for the quarter ended March 31, 2013, of $187.5 million, or $1.30 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $173.3 million. This compares to a net loss for the quarter ended March 31, 2012, of $169.2 million, or $1.28 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $90.6 million. Book value per share at March 31, 2013, was $5.39.

"We took the opportunity this quarter to significantly improve our capital and liquidity positions, providing a competitive advantage for Radian in an extremely attractive business environment," said Chief Executive Officer S.A. Ibrahim. "Building on our momentum with a strong risk-to-capital ratio, financial flexibility at the holding company, and the number one mortgage insurance market share position in the fourth quarter of last year, we kicked off 2013 with a 69% jump in new mortgage insurance business written year-over-year."

Ibrahim continued, "As our strong new business volume continues, our delinquency inventory decreases and the mix of profitable new business begins to outweigh our legacy mortgage insurance book, we are positioning Radian for a return to operating profitability."

CAPITAL AND LIQUIDITY UPDATE

In March, Radian improved its capital and liquidity position through a successful capital raise, resulting in net proceeds of approximately $689 million. As previously reported, Radian Group contributed $115 million of capital to Radian Guaranty in the first quarter, in order to support the company's strong risk-to-capital position. Radian Guaranty's risk-to-capital ratio was 18.6:1 as of March 31, 2013. After the above-mentioned contribution of $115 million to Radian Guaranty, Radian Group maintains approximately $815 million of currently available liquidity.

  • Radian expects to maintain a risk-to-capital ratio of 20:1 or below at Radian Guaranty for the foreseeable future.
  • The improvement in the risk-to-capital ratio from December 31, 2012, was primarily driven by the $115 million capital contribution from Radian Group and a release of Radian Asset's contingency reserves of $68 million, partially offset by an increase to the company's net risk in force resulting from strong, new mortgage insurance business volume.
  • 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 March 31, 2013, a total of $2.4 billion of risk in force was ceded under those agreements. Beginning April 1, the company reduced the amount of new business that will be ceded to the reinsurer on a prospective basis from 20 percent to 5 percent. On December 31, 2014, and on December 31, 2015, Radian has the ability, at its option, to recapture a portion of the business that was reinsured.
  • As of March 31, 2013, Radian Guaranty's statutory capital was $1.1 billion compared to $926 million at year-end 2012, and $920 million a year ago.

FIRST QUARTER HIGHLIGHTS

  • New mortgage insurance written (NIW) was $10.9 billion for the quarter, compared to $11.7 billion in the fourth quarter of 2012 and $6.5 billion in the prior-year quarter. Radian wrote an additional $4.1 billion in NIW in April 2013, compared to $2.5 billion in April 2012.

    • The Home Affordable Refinance Program (HARP) accounted for $2.5 billion of insurance not included in Radian Guaranty's NIW total for the quarter. This compares to $2.9 billion in the fourth quarter of 2012 and $929.9 million in the prior-year quarter. As of March 31, 2013, more than 10 percent of the company's total primary mortgage insurance risk in force had successfully completed a HARP refinance.

    • Of the $10.9 billion in new business written in the first quarter of 2013, 64 percent was written with monthly premiums and 36 percent with single premiums.
    • NIW continued to consist of loans with excellent risk characteristics, with 75 percent consisting of loans with FICO scores of 740 or greater.
  • The mortgage insurance provision for losses was $132.0 million in the first quarter of 2013, compared to $306.9 million in the fourth quarter of 2012, and $234.7 million in the prior-year period. The loss ratio in the first quarter for Radian Guaranty was 72.1 percent, compared to 171.0 in the fourth quarter of 2012 and 135.3 percent in the first quarter of 2012. Mortgage insurance loss reserves were approximately $2.9 billion as of March 31, 2013, which decreased from $3.1 billion as of December 31, 2012, and from $3.2 billion as of March 31, 2012. First-lien reserves per primary default increased to $30,426 as of March 31, 2013, compared to $29,510 as of December 31, 2012, and $27,833 as of March 31, 2012.
  • The total number of primary delinquent loans decreased by 9 percent in the first quarter from the fourth quarter of 2012, and by 17 percent from the first quarter of 2012. The primary mortgage insurance delinquency rate decreased to 10.9 percent in the first quarter of 2013, compared to 12.1 percent in the fourth quarter of 2012, and 14.1 percent in the first quarter of 2012. The company's primary risk in force on defaulted loans was $4.0 billion in the first quarter, compared to $4.3 billion in the fourth quarter of 2012, and $4.9 billion in the first quarter of 2012.
  • Total mortgage insurance claims paid were $309.9 million in the first quarter, compared to $263.4 million in the fourth quarter, and $218.2 million in the first quarter of 2012.

  • $38.0 million of other operating expenses in the first quarter represented compensation expenses related to an increase in the estimated future value of performance awards that are impacted by changes in the company's stock price. This increased compensation expense primarily reflects Radian's higher stock price in the first quarter. In 2012, such compensation expenses were $13.5 million in the fourth quarter and $8.0 million in the first quarter.
  • 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 March 31, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.5 billion in claims-paying resources.
    • In January, Radian Asset completed the commutation of its remaining reinsurance risk from Financial Guaranty Insurance Corporation (FGIC) of $822 million, which resulted in a $7 million contingency reserve release in the first quarter.
    • In February, Radian Asset received regulatory approval to release an additional $61 million of contingency reserves, which benefited Radian Guaranty's statutory capital position in the first quarter. 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.
    • Radian Asset has paid a total of $384 million in dividends to Radian Guaranty since 2008, and expects to pay another dividend of approximately $37 million in 2013.
    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 76 percent to $28.2 billion as of March 31, 2013, including large declines in many of the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, May 1, 2013, at 11:00 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 800-230-1096 inside the U.S., or 612-288-0329 for international callers, using passcode 290876 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 290876.

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 March 31, 2013
Exhibit D:Segment Information Quarter Ended March 31, 2012
Exhibit E:Financial Guaranty Supplemental Information
Exhibit F:Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit G:Mortgage Insurance Supplemental
Information Insurance in Force and Risk in Force by Product
Exhibit H:Mortgage Insurance Supplemental Information
Risk in Force by FICO, LTV and Policy Year
Exhibit I:Mortgage Insurance Supplemental Information
Pool and Other Risk in Force, Risk-to-Capital
Exhibit J:Mortgage Insurance Supplemental Information
Claims, Reserves and Reserve per Default
Exhibit K:Mortgage Insurance Supplemental Information
Default Statistics
Exhibit L:Mortgage Insurance Supplemental Information
Captives, QSR and Persistency
 

 
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Exhibit A
  
Quarter Ended
March 31,

(In thousands, except per-share data)

2013  2012
 
Revenues:
Net premiums written - insurance$207,185 $77,678 
 
Net premiums earned - insurance$192,588$167,365
Net investment income26,87334,713
Net (losses) gains on investments(5,505)67,459
Change in fair value of derivative instruments(167,670)(72,757)
Net losses on other financial instruments(5,675)(17,852)
Other income1,771 1,440 
Total revenues42,382 180,368 
 
Expenses:
Provision for losses132,059266,154
Change in reserve for premium deficiency(629)(20)
Policy acquisition costs17,19528,046
Other operating expenses80,10050,154
Interest expense15,881 14,148 
Total expenses244,606 358,482 
 
Equity in net income (loss) of affiliates1 (11)
 
Pretax loss(202,223)(178,125)
Income tax benefit(14,723)(8,893)
 
Net loss$(187,500)$(169,232)
 
Diluted net loss per share (1)$(1.30)$(1.28)
 
 
 
(1) Weighted average shares outstanding (in thousands)
     
Weighted average common shares outstanding132,625132,465
Increase in weighted average shares - common stock offering11,730 
Weighted average shares outstanding144,355 132,465
        

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
    
March 31December 31

(In thousands, except per-share data)

20132012
 
Assets:
Cash and investments$5,672,888$5,208,199
Deferred policy acquisition costs74,60188,202
Deferred income taxes, net17,902
Reinsurance recoverables78,77089,204
Derivative assets6,42913,609
Other assets520,359 503,986 
Total assets$6,370,949 $5,903,200 
 
Liabilities and stockholders' equity:
Unearned premiums$673,849$648,682
Reserve for losses and loss adjustment expenses2,919,0733,149,936
Reserve for premium deficiency3,0563,685
Long-term debt906,105663,571
VIE debt107,401108,858
Derivative liabilities430,898266,873
Payable for securities purchased37,491697
Other liabilities362,030 324,573 
Total liabilities5,439,903 5,166,875 
 
Common stock190151
Additional paid-in capital1,450,0571,075,320
Retained deficit(542,741)(355,241)
Accumulated other comprehensive income23,540 16,095 
Total common stockholders' equity931,046 736,325 
Total liabilities and stockholders' equity$6,370,949 $5,903,200 
 
Book value per share$5.39$5.51
 

 
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended March 31, 2013
Exhibit C
      
MortgageFinancial

(In thousands)

InsuranceGuarantyTotal
Revenues:
Net premiums written - insurance$217,286 $(10,101)

(1)

$207,185 
 
Net premiums earned - insurance$182,992$9,596

(1)

$192,588
Net investment income15,10211,77126,873
Net losses on investments(3,237)(2,268)(5,505)
Net impairment losses recognized in earnings
Change in fair value of derivative instruments(167,670)(167,670)
Net losses on other financial instruments(1,877)(3,798)(5,675)
Other income1,712 591,771 
Total revenues194,692 (152,310)42,382 
 
Expenses:
Provision for losses131,956
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