Radian Reports Second Quarter 2013 Financial Results

Radian Reports Second Quarter 2013 Financial Results

- MI business achieves profitability, absent the impact of fair value gains and losses -

- New mortgage insurance written jumps 60% year-over-year to $13.4 billion -


- MI business written after 2008 outweighs legacy book; represents 53% of total portfolio -

PHILADELPHIA--(BUSINESS WIRE)-- Radian Group Inc. (NYS: RDN) today reported a net loss for the quarter ended June 30, 2013, of $33.2 million, or $0.19 per diluted share, which included net losses on investments of $130.3 million and combined net gains from the change in fair value of derivatives and other financial instruments of $87.7 million. This compares to a net loss for the quarter ended June 30, 2012, of $119.3 million, or $0.90 per diluted share, which included net gains on investments of $26.4 million and combined net losses from the change in fair value of derivatives and other financial instruments of $95.0 million. Book value per share at June 30, 2013, was $5.22.

"We are pleased with our improved financial results in the quarter and the first half of the year," said Chief Executive Officer S.A. Ibrahim. "Compared to the second quarter of last year, our new mortgage insurance business written grew 60% and we reduced our inventory of primary delinquent loans by 21%. The loss ratio for our mortgage insurance business was approximately 70% for the second consecutive quarter, and the mortgage insurance loss provision for the first half of 2013 reached its lowest level since the first half of 2007."

Ibrahim continued, "Also in the second quarter, we achieved an important milestone with our high quality, profitable new business written after 2008 now representing 53% of our primary risk in force, outweighing our legacy mortgage insurance book. This improved composition has helped our mortgage insurance business achieve profitability, absent the impact of fair value gains and losses, for the quarter and six months."

CAPITAL AND LIQUIDITY UPDATE

  • Radian Guaranty's risk-to-capital ratio was 19.7:1 as of June 30, 2013.

    • The increase in the risk-to-capital ratio from March 31, 2013, was primarily driven by the increase to the company's net risk in force resulting from strong volume of new, high-quality mortgage insurance business.

    • In 2012, Radian Guaranty entered into two quota share reinsurance agreements with the same third-party reinsurance provider, in order to proactively manage its risk-to-capital position. On April 1, 2013, Radian reduced the amount of new business ceded to the reinsurer on a prospective basis from 20 percent to 5 percent. As of June 30, 2013, a total of $2.5 billion of risk in force had been ceded under those agreements. On December 31, 2014, and on December 31, 2015, Radian will have the option to recapture a portion of the business that has been reinsured.

    • As of June, 2013, Radian Guaranty's statutory capital was $1.2 billion compared to $1.1 billion at March 31, 2013, and $0.9 billion a year ago.

  • Radian Group maintains approximately $816 million of currently available liquidity.

SECOND QUARTER HIGHLIGHTS

  • New mortgage insurance written (NIW) grew to $13.4 billion during the quarter, compared to $10.9 billion in the first quarter of 2013 and $8.3 billion in the second quarter of 2012.

    • The Home Affordable Refinance Program (HARP) accounted for $2.4 billion of insurance not included in Radian Guaranty's NIW total for the quarter. This compares to $2.5 billion in the first quarter of 2013, and $2.4 billion in the second quarter of 2012.

    • NIW continued to consist of loans with excellent risk characteristics.

  • The net loss for the second quarter was $33.2 million which included net losses on investments of $130.3 million and combined net gains from the change in fair value of derivatives and other financial instruments of $87.7 million. Included in the net losses on investments were net unrealized losses of $139.1 million, driven by rising interest rates, which reduced the market value of the company's fixed-income portfolio.

  • The mortgage insurance provision for losses was $136.4 million in the second quarter of 2013, compared to $132.0 million in the first quarter of 2013, and $208.1 million in the second quarter of 2012. The loss ratio in the second quarter for Radian Guaranty was 68.9 percent, compared to 72.1 percent in the first quarter of 2013, and 121.9 percent in the second quarter of 2012. Mortgage insurance loss reserves were approximately $2.7 billion as of June 30, 2013, which decreased from $2.9 billion in the first quarter of 2013, and from $3.2 billion a year ago. First-lien reserves per primary default were $30,932 as of June 30, 2013, compared to $30,426 as of March 31, 2013, and $28,410 as of June 30, 2012.

  • The total number of primary delinquent loans decreased by 8 percent in the second quarter from the first quarter of 2013, and by 21 percent from the second quarter of 2012. The primary mortgage insurance delinquency rate decreased to 9.7 percent in the second quarter of 2013, compared to 10.9 percent in the first quarter of 2013, and 13.3 percent in the second quarter of 2012.

  • Total mortgage insurance claims paid were $326.4 million, compared to $309.9 million in the first quarter of 2013, and $263.4 million in the second quarter of 2012. The company continues to expect mortgage insurance net claims paid of approximately $1.4 billion for the full-year 2013.

  • $19.0 million of other operating expenses in the second quarter represented long-term incentive compensation, compared to $38.0 million in the first quarter of 2013. The expense in both periods was impacted by an increase in the liability for cash-settled awards, which was driven primarily by an increase in the company's stock price and represented $7.0 million in the second quarter, compared to $32.3 million in the first quarter of 2013.

  • Radian Asset Assurance Inc. serves 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 June 30, 2013, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.4 billion in claims-paying resources.

    • In July 2013, Radian Asset paid a dividend of $36 million to Radian Guaranty. Since 2008, Radian Asset has paid a total of $420 million in dividends to Radian Guaranty.

    • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 76 percent to $27.3 billion as of June 30, 2013, including large declines in the riskier segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Wednesday, July 24, 2013, 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 800-230-1074 inside the U.S., or 612-234-9959 for international callers, using passcode 297533 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 297533.

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 June 30, 2013

Exhibit D:

Segment Information Quarter Ended June 30, 2012

Exhibit E:

Segment Information Six Months Ended June 30, 2013

Exhibit F:

Segment Information Six Months Ended June 30, 2012

Exhibit G:

Financial Guaranty Supplemental Information

Exhibit H:

Mortgage Insurance Supplemental Information

New Insurance Written

Exhibit I:

Mortgage Insurance Supplemental Information

Insurance in Force and Risk in Force by Product

Exhibit J:

Mortgage Insurance Supplemental Information

Risk in Force by FICO, LTV and Policy Year

Exhibit K:

Mortgage Insurance Supplemental Information

Pool and Other Risk in Force, Risk-to-Capital

Exhibit L:

Mortgage Insurance Supplemental Information

Claims, Reserves and Reserve per Default

Exhibit M:

Mortgage Insurance Supplemental Information

Default Statistics

Exhibit N:

Mortgage Insurance Supplemental Information

Captives, QSR and Persistency

Radian Group Inc. and Subsidiaries

Condensed Consolidated Statements of Income

Exhibit A

Quarter Ended

Six Months Ended

June 30,

June 30,

(In thousands, except per-share data)

2013

2012

2013

2012

Revenues:

Net premiums written - insurance

$

251,229

$

181,932

$

458,414

$

259,610

Net premiums earned - insurance

$

213,124

$

186,779

$

405,712

$

354,144

Net investment income

27,615

30,877

54,488

65,590

Net (losses) gains on investments

(130,254

)

26,419

(135,759

)

93,878

Change in fair value of derivative instruments

86,535

(33,124

)

(81,135

)

(105,881

)

Net gains (losses) on other financial instruments

1,188

(61,862

)

(4,487

)

(79,714

)

Gain on sale of affiliate

7,708

7,708

Other income

2,234

1,395

4,005

2,835

Total revenues

200,442

158,192

242,824

338,560

Expenses:

Provision for losses

140,291

210,868

272,350

477,022

Change in reserve for premium deficiency

1,251

559

622

539

Policy acquisition costs

10,006

10,805

27,201

38,851

Other operating expenses

60,981

40,193

141,081

90,347

Interest expense

19,420

12,581

35,301

26,729

Total expenses

231,949

275,006

476,555

633,488

Equity in net (loss) income of affiliates

(2

)

1

(13

)

Pretax loss

(31,507

)

(116,816

)

(233,730

)

(294,941

)

Income tax provision (benefit)

1,665

2,443

(13,058

)

(6,450

)

Net loss

$

(33,172

)

$

(119,259

)

$

(220,672

)

$

(288,491

)

Diluted net loss per share

$

(0.19

)

$

(0.90

)

$

(1.40

)

$

(2.18

)

Weighted average shares outstanding (in thousands)

171,783

132,346

158,180

132,350

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

June 30,

December 31,

(In thousands, except per-share data)

2013

2012

Assets:

Cash and investments

$

5,366,633

$

5,208,199

Deferred policy acquisition costs

70,427

88,202

Deferred income taxes, net

17,902

Reinsurance recoverables

65,750

89,204

Derivative assets

9,379

13,609

Other assets

523,909

503,986

Total assets

$

6,054,000

$

5,903,200

Liabilities and stockholders' equity:

Unearned premiums

$

712,706

$

648,682

Reserve for losses and loss adjustment expenses

2,716,490

3,149,936

Reserve for premium deficiency

4,308

3,685

Long-term debt

913,952

663,571

VIE debt

106,767

108,858

Derivative liabilities

350,576

266,873

Other liabilities

346,335

325,270

Total liabilities

5,151,134

5,166,875

Common stock

191

151

Additional paid-in capital

1,454,122

1,075,320

Retained deficit

(575,913

)

(355,241

)

Accumulated other comprehensive income

24,466

16,095

Total common stockholders' equity

902,866

736,325

Total liabilities and stockholders' equity

$

6,054,000

$

5,903,200

Book value per share

$

5.22

$

5.51

Radian Group Inc. and Subsidiaries

Segment Information

Quarter Ended June 30, 2013

Exhibit C

Mortgage

Financial

(In thousands)

Insurance

Guaranty

Total

Revenues:

Net premiums written - insurance

$

251,159

$

70

$

251,229

Net premiums earned - insurance

$

197,952

$

15,172

$

213,124

Net investment income

15,266

12,349

27,615

Net losses on investments

(83,386

)

(46,868

)

(130,254

)

Change in fair value of derivative instruments

86,535

86,535

Net gains on other financial instruments

74

1,114

1,188

Other income

2,159