Radian Reports Third Quarter 2012 Financial Results

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 30

Nine Months Ended September 30

(In thousands, except per-share data)

2012

2011

2012

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 income

25,635

38,763

91,225

124,826

Net gains on investments

84,659

81,640

178,537

163,311

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 affiliate

7,708

Other income

1,328

1,404

4,163

4,048

Total revenues

260,789

508,052

599,349

1,583,292

Expenses:

Provision for losses

176,352

249,598

653,374

940,537

Change in reserve for premium deficiency

966

(1,942

)

1,505

(6,427

)

Policy acquisition costs

12,927

11,449

51,778

39,967

Other operating expenses

50,429

45,240

140,776

137,413

Interest expense

12,520

14,094

39,249

47,197

Total expenses

253,194

318,439

886,682

1,158,687

Equity in net (loss) income of affiliates

(13

)

65

Pretax income (loss)

7,595

189,613

(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 outstanding

132,521

132,364

132,530

132,366

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

1,512

1,149

1,501

Weighted average shares outstanding

134,033

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 30

December 31

September 30

(In thousands, except per-share data)

2012

2011

2011

Assets:

Cash and investments

$

5,291,795

$

5,846,168

$

5,936,586

Deferred policy acquisition costs

91,271

139,906

138,962

Deferred income taxes, net

15,975

15,975

19,244

Reinsurance recoverables

94,584

157,985

166,483

Derivative assets

14,857

17,212

20,315

Receivable for securities sold

52,438

18,702

504,584

Other assets

480,437

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 expenses

3,119,597

3,310,902

3,260,556

Reserve for premium deficiency

5,149

3,644

4,309

Long-term debt

659,119

818,584

814,901

VIE debt

109,651

228,240

273,379

Derivative liabilities

267,323

126,006

188,921

Payable for securities purchased

45,583