Market Overview

Radian Reports Third Quarter 2012 Financial Results

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PHILADELPHIA--(BUSINESS WIRE)--

Radian Group Inc. (NYSE: 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. (NYSE: 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

46,368 532,451
Other liabilities

305,227

  303,358   254,932  
Total liabilities 5,126,104   5,474,474   5,957,849  
 
Common stock 151 151 151
Additional paid-in capital 1,075,151 1,074,513 1,074,201
Retained (deficit) earnings (177,939 ) 96,227 218,095
Accumulated other comprehensive income (loss) 17,890   11,400   (4,011 )
Total common stockholders' equity 915,253   1,182,291   1,288,436  
Total liabilities and stockholders' equity $ 6,041,357   $ 6,656,765   $ 7,246,285  
 
Book value per share $ 6.85 $ 8.88 $ 9.67
 
 

               
 

 

Radian Group Inc. and Subsidiaries

Segment Information

Quarter Ended September 30, 2012

Exhibit C

 
 
Mortgage Financial

(In thousands)

Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 209,890   $ (613 ) $ 209,277  
 
Net premiums earned - insurance $ 178,685 $ 12,278 $ 190,963
Net investment income 14,758 10,877 25,635
Net gains on investments 43,379 41,280 84,659
Net impairment losses recognized in earnings
Change in fair value of derivative instruments (1 ) (41,055 ) (41,056 )
Net (losses) gains on other financial instruments (1,960 ) 1,220 (740 )
Other income 1,280   48   1,328  
Total revenues 236,141   24,648   260,789  
 
Expenses:
Provision for losses 171,805 4,547 176,352
Change in reserve for premium deficiency 966 966
Policy acquisition costs 10,126 2,801 12,927
Other operating expenses 40,250 10,179 50,429
Interest expense 1,910   10,610   12,520  
Total expenses 225,057   28,137   253,194  
 
Equity in net loss of affiliates      
 
Pretax income (loss) 11,084 (3,489 ) 7,595
Income tax (benefit) provision (20,316 ) 13,586   (6,730 )
 
Net income (loss) $ 31,400   $ (17,075 ) $ 14,325  
 
Cash and investments $ 3,192,341 $ 2,099,454 $ 5,291,795
Deferred policy acquisition costs 39,148 52,123 91,271
Total assets 3,651,849 2,389,508 6,041,357
Unearned premiums 333,144 281,311 614,455
Reserve for losses and loss adjustment expenses 3,046,706 72,891 3,119,597
VIE debt 9,448 100,203 109,651
Derivative liabilities 267,323 267,323
 
 

               
 

 

 

Radian Group Inc. and Subsidiaries

Segment Information

Quarter Ended September 30, 2011

Exhibit D

 
 
Mortgage Financial

(In thousands)

Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 178,215   $ 72   $ 178,287  
 
Net premiums earned - insurance $ 163,436 $ 16,219 $ 179,655
Net investment income 21,642 17,121 38,763
Net gains on investments 53,263 28,377 81,640
Net impairment losses recognized in earnings (20 ) (20 )
Change in fair value of derivative instruments 200 125,808 126,008
Net gains on other financial instruments 2,486 78,116 80,602
Other income 1,357   47   1,404  
Total revenues 242,364   265,688   508,052  
 
Expenses:
Provision for losses 276,599 (27,001 ) 249,598
Change in reserve for premium deficiency (1,942 ) (1,942 )
Policy acquisition costs 7,834 3,615 11,449
Other operating expenses 36,082 9,158 45,240
Interest expense 2,015   12,079   14,094  
Total expenses 320,588   (2,149 ) 318,439  
 
Equity in net income of affiliates      
 
Pretax (loss) income (78,224 ) 267,837 189,613
Income tax (benefit) provision (36,033 ) 42,078   6,045  
 
Net (loss) income $ (42,191 ) $ 225,759   $ 183,568  
 
Cash and investments $ 3,176,860 $ 2,759,726 $ 5,936,586
Deferred policy acquisition costs 47,863 91,099 138,962
Total assets 3,731,978 3,514,307 7,246,285
Unearned premiums 206,477 421,923 628,400
Reserve for losses and loss adjustment expenses 3,214,854 45,702 3,260,556
VIE debt 31,164 242,215 273,379
Derivative liabilities 188,921 188,921
 
 

               
 

 

 

Radian Group Inc. and Subsidiaries

Segment Information

Nine Months Ended September 30, 2012

Exhibit E

 
 
 
Mortgage Financial

(In thousands)

Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 589,261   $ (120,374 ) $ 468,887  
 
Net premiums earned - insurance $ 522,899 $ 22,208 $ 545,107
Net investment income 50,377 40,848 91,225
Net gains on investments 102,219 76,318 178,537
Net impairment losses recognized in earnings
Change in fair value of derivative instruments (32 ) (146,905 ) (146,937 )
Net losses on other financial instruments (2,627 ) (77,827 ) (80,454 )
Gain on sale of affiliate 7,708 7,708
Other income 3,928   235   4,163  
Total revenues 676,764   (77,415 ) 599,349  
 
Expenses:
Provision for losses 614,612 38,762 653,374
Change in reserve for premium deficiency 1,505 1,505
Policy acquisition costs 26,662 25,116 51,778
Other operating expenses 107,787 32,989 140,776
Interest expense 5,355   33,894   39,249  
Total expenses 755,921   130,761   886,682  
 
Equity in net loss of affiliates   (13 ) (13 )
 
Pretax loss (79,157 ) (208,189 ) (287,346 )
Income tax (benefit) provision (42,324 ) 29,144   (13,180 )
 
Net loss $ (36,833 ) $ (237,333 ) $ (274,166 )
 
 

               
 

 

Radian Group Inc. and Subsidiaries

Segment Information

Nine Months Ended September 30, 2011

Exhibit F

 
 
Mortgage Financial

(In thousands)

Insurance Guaranty Total
Revenues:
Net premiums written - insurance $ 523,255   $ (9,441 ) $ 513,814  
 
Net premiums earned - insurance $ 513,895 $ 57,717 $ 571,612
Net investment income 73,328 51,498 124,826
Net gains on investments 98,450 64,861 163,311
Net impairment losses recognized in earnings (31 ) (31 )
Change in fair value of derivative instruments 64 558,562 558,626
Net gains on other financial instruments 4,321 156,579 160,900
Other income 3,881   167   4,048  
Total revenues 693,908   889,384   1,583,292  
 
Expenses:
Provision for losses 960,564 (20,027 ) 940,537
Change in reserve for premium deficiency (6,427 ) (6,427 )
Policy acquisition costs 26,651 13,316 39,967
Other operating expenses 104,132 33,281 137,413
Interest expense 11,950   35,247   47,197  
Total expenses 1,096,870   61,817   1,158,687  
 
Equity in net income of affiliates   65   65  
 
Pretax (loss) income (402,962 ) 827,632 424,670
Income tax (benefit) provision (27,158 ) 28,139   981  
 
Net (loss) income $ (375,804 ) $ 799,493   $ 423,689  
 
 

           
 

 

Radian Group Inc. and Subsidiaries

Financial Guaranty Supplemental Information

Exhibit G

 
Quarter Ended September 30 Nine Months Ended September 30

(In thousands)

2012 2011 2012   2011
 
Net Premiums Earned:
Public finance direct $ 8,644 $ 9,708 $ 33,004 $ 29,124
Public finance reinsurance 5,350 5,238 10,942 21,304
Structured direct 242 399 870 1,781
Structured reinsurance (1,958 ) 875 (342 ) 2,639
Trade credit reinsurance   (1 ) (2 ) 40
Net Premiums Earned - insurance 12,278 16,219 44,472 54,888
Impact of commutations and reinsurance     (22,264 ) 2,829
Total Net Premiums Earned - insurance $ 12,278   $ 16,219   $ 22,208   $ 57,717
 
Refundings included in earned premium $ 7,322   $ 4,597   $ 26,029   $ 18,728
 
Net premiums earned - derivatives (1) $ 7,169   $ 10,343   $ 23,041   $ 31,699
 
Claims paid $ 26,593   (2) $ 2,339   $ 28,873   $ 6,035
 
 

(1) Included in change in fair value of derivative instruments.

(2) Primarily represents the settlement of obligations related to our insured sovereign indebtedness to Greece.

 

The impact of the Assured Transaction for the Nine Months Ended September 30, 2012, was as follows:

(In millions)        

Statement of Operations

Decrease in premiums written $ (119.8 )
Decrease in premiums earned $ (22.2 )
Increase in change in fair value of derivative instruments—gain 1.4
Gain on sale of affiliate 7.7
Increase in amortization of policy acquisition costs (15.7 )
Decrease in pre-tax income $ (28.8 )
 

Balance Sheet

Decrease in:
Cash $ 93.6
Deferred policy acquisition costs 26.2
Accounts and notes receivable 1.1
Derivative assets 0.6
Unearned premiums 71.6
Derivative liabilities 2.1
Increase in other assets 19.1
 
 

             
 

 

Radian Group Inc. and Subsidiaries

Financial Guaranty Supplemental Information

Exhibit H

 
September 30 December 31 September 30

($ in thousands, except ratios)

2012 2011 2011
 

Statutory Information:

 
Capital and surplus $ 1,139,842 $ 974,874 $ 1,038,290
Contingency reserve 290,877   421,406   431,715
Qualified statutory capital 1,430,719 1,396,280 1,470,005
 
Unearned premium reserve 275,172 448,669 469,956
Loss and loss expense reserve (50,089 ) 161,287   13,026
Total statutory policyholders' reserves 1,655,802 2,006,236 1,952,987
 
Present value of installment premiums 107,046   148,641   162,766
Total statutory claims paying resources $ 1,762,848   $ 2,154,877   $ 2,115,753
 
Net debt service outstanding $ 48,302,271   $ 88,202,630   $ 91,717,192
 
Capital leverage ratio (1) 34 63 62
Claims paying leverage ratio (2) 27 41 43
 
Net par outstanding by product:
Public finance direct $ 10,288,776 $ 13,838,427 $ 14,530,364
Public finance reinsurance 5,590,189 19,097,057 19,789,862
Structured direct 22,360,606 34,760,869 35,939,194
Structured reinsurance 800,936   1,492,859   1,630,317
Total (3) $ 39,040,507   (4) $ 69,189,212   $ 71,889,737
 
 
 

(1)

 

The capital leverage ratio is derived by dividing net debt service outstanding by qualified statutory capital.

(2)

The claims paying leverage ratio is derived by dividing net debt service outstanding by total statutory claims paying

resources.

(3)

Included in public finance net par outstanding is $0.9 billion, $1.4 billion and $1.6 billion at September 30, 2012,

December 31, 2011, and September 30, 2011, respectively, for legally defeased bond issues where our financial guaranty policy has

not been extinguished but cash or securities have been deposited in an escrow account for the benefit of bondholders.

(4)

Reductions in par caused by the following: $15.6 billion in connection with the Assured Transaction, $10.2 billion in connection

with the CDO terminations, and $1.2 billion in connection with the Commutation Transactions.

 
 

           
 

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit I

 
Quarter Ended Nine Months Ended
September 30   September 30  
2012       2011   2012       2011  

($ in millions)

$     % $     % $     % $     %

Primary new insurance written

               
Prime $ 10,594 100.0 % $ 4,104 99.9 % $ 25,384 99.9 % $ 8,967 99.9 %
Alt-A 1 2
A minus and below 3         3       0.1   12       0.1   6       0.1  
Total Flow $ 10,598       100.0 % $ 4,107       100.0 % $ 25,398       100.0 % $ 8,973       100.0 %
 

Total primary new insurance written by FICO score

>=740 $ 8,067 76.1 % $ 3,164 77.0 % $ 19,313 76.0 % $ 7,091 79.0 %
680-739 2,259 21.3 892 21.7 5,475 21.6 1,828 20.4
620-679 272       2.6   51       1.3   610       2.4   54       0.6  
Total Flow $ 10,598       100.0 % $ 4,107       100.0 % $ 25,398       100.0 % $ 8,973       100.0 %
 

Percentage of primary new insurance written

Monthly premiums 66 % 56 % 66 % 61 %
Single premiums 34 % 44 % 34 % 39 %
Refinances 35 % 28 % 38 % 34 %
LTV
95.01% and above 1.3 % 2.2 % 1.4 % 1.7 %
90.01% to 95.00% 42.5 % 38.0 % 41.5 % 35.3 %
ARMS
Less than 5 years

<1%

<1

%

<1

%

<1

%
5 years and longer 1.7 % 6.0 % 2.2 % 5.9 %
 
 

             
 

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit J

 
September 30 September 30
2012   2011  

($ in millions)

$     % $     %

Primary insurance in force

Flow $ 123,438 91.4 % $ 111,493 89.5 %
Structured 11,622       8.6   13,143       10.5  
Total Primary $ 135,060       100.0 % $ 124,636       100.0 %
 
Prime $ 117,509 87.0 % $ 104,185 83.6 %
Alt-A 10,883 8.1 12,775 10.2
A minus and below 6,668       4.9   7,676       6.2  
Total Primary $ 135,060       100.0 % $ 124,636       100.0 %
 

Primary risk in force

Flow $ 30,480 92.3 % $ 27,473 90.7 %
Structured 2,540       7.7   2,825       9.3  
Total Primary $ 33,020       100.0 % $ 30,298       100.0 %
 
Flow
Prime $ 27,372 89.8 % $ 23,813 86.7 %
Alt-A 1,928 6.3 2,275 8.3
A minus and below 1,180       3.9   1,385       5.0  
Total Flow $ 30,480       100.0 % $ 27,473       100.0 %
 
Structured
Prime $ 1,482 58.3 % $ 1,651 58.4 %
Alt-A 571 22.5 641 22.7
A minus and below 487       19.2   533       18.9  
Total Structured $ 2,540       100.0 % $ 2,825       100.0 %
 
Total
Prime $ 28,854 87.4 % $ 25,464 84.1 %
Alt-A 2,499 7.6 2,916 9.6
A minus and below 1,667       5.0   1,918       6.3  
Total Primary $ 33,020       100.0 % $ 30,298       100.0 %
 
 

           
 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit K

 
September 30 September 30
2012 2011

($ in millions)

$     % $     %

Total primary risk in force by FICO score

       
Flow
>=740 $ 15,141 49.7 % $ 11,566 42.1 %
680-739 9,449 31.0 9,213 33.5
620-679 5,022 16.5 5,671 20.7
<=619 868       2.8   1,023       3.7  
Total Flow $ 30,480       100.0 % $ 27,473       100.0 %
 
Structured
>=740 $ 674 26.5 % $ 752 26.6 %
680-739 736 29.0 822 29.1
620-679 678 26.7 756 26.8
<=619 452       17.8   495       17.5  
Total Structured $ 2,540       100.0 % $ 2,825       100.0 %
 
Total
>=740 $ 15,815 47.9 % $ 12,318 40.7 %
680-739 10,185 30.8 10,035 33.1
620-679 5,700 17.3 6,427 21.2
<=619 1,320       4.0   1,518       5.0  
Total Primary $ 33,020       100.0 % $ 30,298       100.0 %
 

Total primary risk in force by LTV

85.00% and below $ 3,092 9.3 % $ 2,731 9.0 %
85.01% to 90.00% 12,679 38.4 11,717 38.7
90.01% to 95.00% 12,473 37.8 10,390 34.3
95.01% and above 4,776       14.5   5,460       18.0  
Total $ 33,020       100.0 % $ 30,298       100.0 %
 

Total primary risk in force by policy year

2005 and prior $ 5,947 18.0 % $ 7,207 23.8 %
2006 2,827 8.6 3,276 10.8
2007 6,239 18.9 7,175 23.7
2008 4,715 14.3 5,376 17.7
2009 2,200 6.7 2,812 9.3
2010 1,887 5.7 2,354 7.8
2011 3,181 9.6 2,098 6.9
2012 6,024       18.2          
Total $ 33,020       100.0 % $ 30,298       100.0 %
 
Primary risk in force on defaulted loans $ 4,417   $ 5,210  
 
 

           
 

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit L

 
September 30 September 30
2012 2011

($ in millions)

$     % $     %
     

Percentage of primary risk in force

Refinances 31 % 31 %
ARMS
Less than 5 years 4 % 5 %
5 years and longer 5 % 7 %
 

Pool risk in force

Prime $ 1,432 76.8 % $ 1,652 76.6 %
Alt-A 108 5.8 126 5.9
A minus and below 324       17.4   378       17.5  
Total $ 1,864       100.0 % $ 2,156       100.0 %
 

Total pool risk in force by policy year

2005 and prior $ 1,684 90.3 % $ 1,877 87.1 %

 2006

79 4.2 113 5.2

 2007

89 4.8 134 6.2

 2008

12       0.7   32       1.5  
Total pool risk in force $ 1,864       100.0 % $ 2,156       100.0 %
 

Other risk in force

Second-lien
1st loss $ 85 $ 107
2nd loss 23 31
NIMS 14 38
1st loss-Hong Kong primary mortgage insurance 45   72  
Total other risk in force $ 167   $ 248  
 
Risk to capital ratio-Radian Guaranty only 20.1:1

(1)

 

21.4:1
 
(1) Preliminary

           
 

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit M

 
Quarter Ended Nine Months Ended
September 30 September 30

($ in thousands)

2012     2011 2012     2011
 
Net claims paid
Prime $ 169,641 $ 180,523 $ 467,093 $ 644,738
Alt-A 45,058 57,244 121,970 220,514
A minus and below 28,042   37,015   85,234   134,394  
Total primary claims paid 242,741 274,782 674,297 999,646
Pool 26,546 52,771 71,846 145,470
Second-lien and other 3,111   2,342   8,043   8,961  
Subtotal 272,398 329,895 754,186 1,154,077
Impact of first-lien terminations 38,198
Impact of captive terminations (148 ) (1,166 )
Impact of second-lien terminations       16,550  
Total $ 272,398   $ 329,895   $ 754,038   $ 1,207,659  
 
Average claim paid (1)
Prime $ 48.0 $ 51.3 $ 48.6 $ 49.6
Alt-A 59.9 61.8 58.6 61.1
A minus and below 38.1 43.1 38.0 40.1
Total primary average claims paid 48.4 51.8 47.9 50.1
Pool 66.2 79.8 66.6 77.1
Second-lien and other 29.6 25.7 27.5 28.0
Total $ 49.3 $ 54.4 $ 48.8 $ 52.1
 
Average primary claim paid (2) (3) $ 50.8 $ 55.8 $ 50.5 $ 55.1
Average total claim paid (2) (3) $ 51.5 $ 57.9 $ 51.2 $ 56.5
 
Loss ratio - GAAP basis 96.1 % 169.2 % 117.5 % 186.9 %
Expense ratio - GAAP basis 28.2 % 26.9 % 25.7 % 25.4 %
124.3 % 196.1 % 143.2 % 212.3 %
 
Reserve for losses by category
Prime $ 1,693,579 $ 1,655,992
Alt-A 570,055 622,568
A minus and below 355,018 368,034
Reinsurance recoverable (4) 89,801   160,233  
Total primary reserves 2,708,453 2,806,827
Pool insurance 327,020   397,919  
Total 1st lien reserves 3,035,473 3,204,746
Second lien 8,203 10,074
Other 3,030   34  
Total reserves $ 3,046,706   $ 3,214,854  
 
1st lien reserve per default (5)
Primary reserve per primary default $ 28,561 $ 25,346
Primary reserve per default excluding IBNR 26,100 24,436
Pool reserve per pool default (6) 17,538 15,325
Total 1st lien reserve per default 26,750 23,443
 
 
 

(1)

Calculated net of reinsurance recoveries and without giving effect to the impact of first-lien, second-lien and captive terminations.

(2)

Calculated without giving effect to the impact of terminations of captive reinsurance and first- and second-lien transactions.

(3)

Before reinsurance recoveries.

(4)

Represents ceded losses on captive transactions and Smart Home.

(5)

Calculated as total reserves divided by total defaults.

(6)

If calculated before giving effect to deductibles and stop losses in pool transactions, the pool reserve per default at September 30,

2012 and 2011, would be $27,842 and $26,513, respectively.

 
 

     
 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit N

 
September 30 December 31 September 30
2012 2011 2011

Default Statistics

Primary Insurance:

 
Flow

Prime

Number of insured loans 608,765 569,190 563,226
Number of loans in default 55,859 65,238 64,426
Percentage of loans in default 9.18 % 11.46 % 11.44 %
 

Alt-A

Number of insured loans 39,274 44,355 45,818
Number of loans in default 12,254 14,481 14,832
Percentage of loans in default 31.20 % 32.65 % 32.37 %
 

A minus and below

Number of insured loans 36,347 40,884 42,246
Number of loans in default 11,273 13,560 13,749
Percentage of loans in default 31.01 % 33.17 % 32.55 %
 
Total Flow
Number of insured loans 684,386 654,429 651,290
Number of loans in default 79,386 93,279 93,007
Percentage of loans in default 11.60 % 14.25 % 14.28 %
 
Structured

Prime

Number of insured loans 38,427 41,248 42,249
Number of loans in default 5,510 6,308 6,229
Percentage of loans in default 14.34 % 15.29 % 14.74 %
 

Alt-A

Number of insured loans 16,893 18,484 18,990
Number of loans in default 4,809 5,563 5,745
Percentage of loans in default 28.47 % 30.10 % 30.25 %
 

A minus and below

Number of insured loans 14,505 15,477 15,807
Number of loans in default 5,126 5,711 5,759
Percentage of loans in default 35.34 % 36.90 % 36.43 %
 
Total Structured
Number of insured loans 69,825 75,209 77,046
Number of loans in default 15,445 17,582 17,733
Percentage of loans in default 22.12 % 23.38 % 23.02 %
 
Total Primary Insurance

Prime

Number of insured loans 647,192 610,438 605,475
Number of loans in default 61,369 71,546 70,655
Percentage of loans in default 9.48 % 11.72 % 11.67 %
 

Alt-A

Number of insured loans 56,167 62,839 64,808
Number of loans in default 17,063 20,044 20,577
Percentage of loans in default 30.38 % 31.90 % 31.75 %
 

A minus and below

Number of insured loans 50,852 56,361 58,053
Number of loans in default 16,399 19,271 19,508
Percentage of loans in default 32.25 % 34.19 % 33.60 %
 
Total Primary
Number of insured loans 754,211 729,638 728,336
Number of loans in default 94,831 110,861 110,740
Percentage of loans in default 12.57 % 15.19 % 15.20 %
 
Pool insurance
Number of loans in default 18,646 21,685 25,966
 
 

           
 

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit O

 

 

Quarter Ended Nine Months Ended
September 30 September 30

($ in thousands)

2012     2011 2012     2011
 

Net Premiums Written

Primary and Pool Insurance $ 209,445 $ 177,642 $ 587,762 $ 521,455
Second-lien 452 565 1,445 1,777
International (7 ) 8   54   23  
Total Net Premiums Written - Insurance $ 209,890   $ 178,215   $ 589,261   $ 523,255  
 

Net Premiums Earned

Primary and Pool Insurance $ 177,929 $ 161,779 $ 520,308 $ 507,636
Second-lien 452 565 1,445 1,777
International 304   1,092   1,146   4,482  
Total Net Premiums Earned - Insurance $ 178,685   $ 163,436   $ 522,899   $ 513,895  
 

1st Lien Captives

Premiums ceded to captives $ 5,327 $ 7,068 $ 18,045 $ 21,921
% of total premiums 2.8 % 4.1 % 3.3 % 4.1 %
IIF included in captives (1) 7.1 % 9.5 %
RIF included in captives (1) 6.9 % 9.3 %
 

Quota Share Reinsurance ("QSR")

QSR ceded premiums written $ 16,378 $ 41,855
% of premiums written 7.1 % 6.5 %
QSR ceded premiums earned $ 5,291 $ 8,389
% of premiums earned 2.8 % 1.5 %
Ceding commissions $ 4,095 $ 10,464
RIF included in QSR (2) $ 1,408,078
 
Persistency (twelve months ended September 30) 82.7 % 85.0 %

(1)

 

Radian reinsures the middle layer risk positions, while retaining a significant portion of the total risk comprising the first loss and most remote risk positions.

(2)

Included in primary risk in force.

 
 

FORWARD-LOOKING STATEMENTS

All statements in this press release that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as “anticipate,” “may,” “will,” “could,” “should,” “would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking information. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including:

  • Losses in our mortgage insurance and financial guaranty businesses have reduced Radian Guaranty's statutory surplus and increased Radian Guaranty's risk-to-capital ratio; additional losses in these businesses, without a corresponding increase in new capital or capital relief, would further negatively impact this ratio, which could limit Radian Guaranty's ability to write new insurance and increase restrictions and requirements placed on Radian Guaranty.

We and our insurance subsidiaries are subject to comprehensive, detailed regulation by the insurance departments in the states where our insurance subsidiaries are licensed to transact business. These regulations are principally designed for the protection of our insured policyholders rather than for the benefit of investors. Insurance laws vary from state to state, but generally grant broad supervisory powers to state agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including the power to revoke or restrict an insurance company's ability to write new business.

The GSEs and state insurance regulators impose various capital requirements on our insurance subsidiaries. These include risk-to-capital ratios, risk-based capital measures and surplus requirements that potentially limit the amount of insurance that each of our insurance subsidiaries may write. The GSEs and our state insurance regulators also possess significant discretion with respect to our insurance subsidiaries. Our failure to maintain adequate levels of capital, among other things, could lead to intervention by the various insurance regulatory authorities or the GSEs, which could materially and adversely affect our business, business prospects and financial condition.

Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a minimum amount of statutory capital relative to the level of risk in force, or “risk-to-capital.” Sixteen states (the risk-based capital or “RBC States”) currently impose a statutory risk-based capital requirement (the “Statutory RBC Requirement”), the most common of which requires that a mortgage insurer's risk-to-capital ratio not exceed 25 to 1. In some of the RBC States (the “MPP States”), Radian Guaranty is required to maintain a minimum policyholder position (the “MPP Requirement”). Unless an RBC State grants a waiver or other form of relief, if a mortgage insurer is not in compliance with the Statutory RBC Requirement of an RBC State, it may be prohibited from writing new mortgage insurance business in that state. Radian Guaranty's domiciliary state, Pennsylvania, is not one of the RBC States. In 2011, and during the nine months ended September 30, 2012, the RBC States accounted for approximately 50.5% and 54.7%, respectively, of Radian Guaranty's total primary new insurance written.

As a result of ongoing losses, Radian Guaranty's risk-to-capital ratio has increased to 20.1 to 1 as of September 30, 2012. The ultimate amount of losses we incur and the timing of these losses will depend, in part, on general economic conditions and other factors, including the health of credit markets, home prices and unemployment rates, all of which are difficult to predict and beyond our control. Based on our current projections, we expect Radian Guaranty's risk-to-capital ratio to continue to increase. Absent any further risk-to-capital support, we expect Radian Guaranty to exceed the 25 to 1 risk-to-capital ratio requirement during 2013 and the MPP Requirement in two states as early as of the end of 2012. Each of the MPP States has issued to Radian Guaranty a waiver of its MPP Requirement, subject to certain conditions discussed below.

Our mortgage insurance incurred losses are driven primarily by new mortgage insurance defaults and adverse development in the assumptions used to determine our loss reserves. Establishing loss reserves in our businesses requires significant judgment by management with respect to the likelihood, magnitude and timing of anticipated losses. This judgment has been made more difficult in the current period of prolonged economic uncertainty. Our estimate of the percentage of defaults that ultimately will result in a paid claim (the “default to claim rate”) is a significant assumption in our reserving methodology. Our assumed aggregate weighted average default to claim rate (which incorporates the expected impact of rescissions and denials) was approximately 43% for 2011 and 46% as of September 30, 2012. Assuming all other factors remain constant, for each 1% increase in our aggregate weighted average default to claim rate as of September 30, 2012, incurred losses would increase by approximately $56 million. Radian Guaranty's statutory capital would be reduced by the after-tax impact of these incurred losses. Our level of incurred losses is also dependent on our estimate of anticipated rescissions and denials, including our estimate of the likely number of successful challenges to previously rescinded policies or claim denials, among other assumptions. If the actual losses we ultimately realize are in excess of the loss estimates we use in establishing loss reserves, we may be required to take unexpected charges to income, which could adversely affect our statutory capital position and increase Radian Guaranty's risk-to-capital ratio.

If Radian Guaranty is not in compliance with a state's applicable Statutory RBC Requirement, it may be prohibited from writing new business in that state until it is back in compliance or it receives a waiver of or similar relief from the requirement from the applicable state insurance regulator, as discussed in more detail below. In those states that do not have a Statutory RBC Requirement, it is not clear what actions the applicable state regulators would take if a mortgage insurer fails to meet the Statutory RBC Requirement established by another state. Accordingly, if Radian Guaranty fails to meet the Statutory RBC Requirement in one or more states, it could be required to suspend writing business in some or all of the states in which it does business. In addition, the GSEs and our mortgage lending customers may decide not to conduct new business with Radian Guaranty (or may reduce current business levels) or impose restrictions on Radian Guaranty while its risk-to-capital ratio remained at elevated levels. The franchise value of our mortgage insurance business would likely be significantly diminished if we were prohibited from writing new business or restricted in the amount of new business we could write in one or more states.

Radian Guaranty's risk-to-capital position also is dependent on the performance of our financial guaranty portfolio. During the third quarter of 2008, we contributed our ownership interest in Radian Asset Assurance to Radian Guaranty. While this reorganization provided Radian Guaranty with substantial regulatory capital and dividends, it also makes the capital adequacy of our mortgage insurance business dependent, to a significant degree, on the successful run-off of our financial guaranty business. Any decrease in the capital support from our financial guaranty business would therefore have a negative impact on Radian Guaranty's risk-to-capital position and its ability to remain in compliance with the Statutory RBC Requirements. If our financial guaranty portfolio performs worse than anticipated, including if we are required to establish (or increase) statutory reserves on defaulted obligations that we have insured, or if we make net commutation payments to terminate insured financial guaranty obligations in excess of the then established statutory reserves for such obligations, the statutory capital of Radian Guaranty also would be negatively impacted.

We actively manage Radian Guaranty's risk-to-capital position in various ways, including: (1) through internal and external reinsurance arrangements; (2) by seeking opportunities to reduce our risk exposure through commutations or other negotiated transactions; (3) by contributing additional capital from Radian Group to our mortgage insurance subsidiaries; and (4) by realizing gains in our investment portfolio through open market sales of securities. Radian Group had unrestricted cash and liquid investments of $368.3 million as of September 30, 2012, which amount includes approximately $38.7 million of future expected corporate expenses and interest payments that have been accrued for and paid by certain subsidiaries to Radian Group as of that date. Radian Group currently has $79.4 million of outstanding debt that will come due in February 2013 and an additional $250 million of outstanding debt due in 2015. Our remaining available liquidity may be used to further support Radian Guaranty's risk-to-capital position. Depending on the extent of our future statutory incurred losses in our mortgage insurance subsidiaries and in Radian Asset Assurance, as well as the level of new insurance written and other factors, the amount of capital contributions required for Radian Guaranty to remain in compliance with the Statutory RBC Requirements could be substantial and could exceed amounts available at Radian Group.

Our ability to continue to reduce Radian Guaranty's risk through affiliated reinsurance arrangements may be limited. These arrangements are subject to regulation by state insurance regulators who could decide to limit, or require the termination of, such arrangements. In addition, certain of these affiliated reinsurance companies currently are operating at or near minimum capital levels and have required, and may continue to require, additional capital contributions from Radian Group in the future. One of these affiliated insurance companies, which provides reinsurance to Radian Guaranty for coverage in excess of 25% of certain loans insured by Radian Guaranty, is a sister company of Radian Guaranty, and therefore, any contributions to this insurer would not be consolidated with Radian Guaranty's capital for purposes of calculating Radian Guaranty's risk-to-capital position. In addition, we must obtain prior approval from one or both of the GSEs to enter into new, or to modify existing, reinsurance arrangements. If we are limited in, or prohibited from, using reinsurance arrangements to reduce Radian Guaranty's risk, it would adversely affect Radian Guaranty's risk-to-capital position.

In order to maximize our financial flexibility, we have applied for waivers or similar relief for Radian Guaranty in each of the RBC States. Of the 16 RBC states, New York does not possess the regulatory authority to grant waivers and Iowa, Kansas and Ohio have declined to grant waivers to Radian Guaranty. In addition, Oregon has indicated that it will not consider our waiver application until such time that Radian Guaranty has exceeded its Statutory RBC Requirement. Of the remaining 11 RBC States, Radian Guaranty has received waivers or similar relief from the following ten states: Illinois, Kentucky, Wisconsin, Arizona, Missouri, New Jersey, North Carolina, California, Florida and Texas. Certain of these waivers contain conditions, including requirements that Radian Guaranty's risk-to-capital ratio may not exceed a revised maximum ratio, ranging from 30 to 1 up to 35 to 1. Radian Guaranty has one remaining application that is pending in Idaho. There can be no assurance that: (1) Radian Guaranty will be granted a waiver in Idaho or Oregon, the remaining RBC States; (2) for any waiver granted, such regulator will not revoke or terminate the waiver, which the regulator generally has the authority to do at any time; (3) for any waiver granted, it will be renewed or extended after its original expiration date, which in the case of four of these waivers is December 31, 2012; or (4) additional requirements will not be imposed as a condition to such waivers or their renewal or extension and, if so, whether we will be able to comply with such conditions.

In addition to filing for waivers in the RBC States, we intend to write new first-lien mortgage insurance business in Radian Mortgage Assurance Inc. (“RMAI”) in any RBC State that does not permit Radian Guaranty to continue writing insurance while it is out of compliance with applicable Statutory RBC Requirements. RMAI is a wholly-owned subsidiary of Radian Guaranty and is licensed to write mortgage insurance in each of the fifty states and the District of Columbia. In February 2012, RMAI received approval from Fannie Mae to write new mortgage insurance business in any RBC State where Radian Guaranty would be prohibited from writing new business if it were not in compliance with the state's Statutory RBC Requirement without a waiver or other similar relief (the “Fannie Mae Approval”). Also in February 2012, Freddie Mac approved RMAI (the “Freddie Mac Approval” and together with the Fannie Mae Approval, the “GSE Approvals”) to write business in those RBC States for which we have been denied a waiver (New York, Ohio, Iowa, Kansas and Oregon, subject to our filing for a waiver in Oregon upon breach of the Statutory RBC Requirement in that state). Because our application for a waiver is pending in Idaho, Freddie Mac has not yet authorized RMAI to write business in that state.

These approvals are temporary (the Fannie Mae Approval expires on December 31, 2013, and the Freddie Mac Approval expires on December 31, 2012) and are conditioned upon our compliance with a broad range of conditions and restrictions, including without limitation, minimum capital and liquidity requirements, a maximum risk-to-capital ratio of 20 to 1 for RMAI, restrictions on the payment of dividends and restrictions on affiliate transactions involving Radian Guaranty or RMAI. Under the GSE approvals, Radian Group is also required to contribute $50 million of additional capital to RMAI (which may be made on or before February 27, 2013 under the current terms of the Fannie Mae Approval) if Radian Guaranty's risk-to-capital ratio exceeds applicable Statutory RBC Requirements. There can be no assurance that: (1) we will be able to comply with the conditions imposed by the GSEs' approval for RMAI; (2) the GSEs will not revoke or terminate their approvals, which they generally have the authority to do at any time; (3) the approvals will be renewed or extended after their original expiration dates; or (4) additional requirements will not be imposed as a condition to such on-going approvals, including their renewal or extension.

The GSE Approvals are limited to the RBC States. It is possible that if Radian Guaranty were not able to comply with the Statutory RBC Requirements of one or more states, the insurance regulatory authorities in states other than the RBC States could prevent Radian Guaranty from continuing to write new business in such states. If this were to occur, we would need to seek approval from the GSEs to expand the scope of their approvals to allow RMAI to write business in states other than the RBC States.

Our existing capital resources may not be sufficient to successfully manage Radian Guaranty's risk-to-capital ratio. Our ability to utilize waivers and RMAI to continue to write business if our risk to capital position is not in compliance with Statutory RBC Requirements is subject to conditions that we may be unable to satisfy. As a result, even if we are successful in implementing this strategy, additional capital contributions or other risk-to-capital support or relief could be necessary, which we may not have the ability to provide. Further, regardless of the waivers and the GSEs' approval of RMAI, we may choose to use our existing capital at Radian Group to maintain compliance with the Statutory RBC Requirements. Depending on the extent of our future incurred losses along with other factors, the amount of capital contributions that may be required to maintain compliance with the Statutory RBC Requirements could be significant and could exceed all of our remaining available capital. In the event we contribute a significant amount of Radian Group's available capital to Radian Guaranty and RMAI, our financial flexibility would be significantly reduced, making it more difficult for Radian Group to meet its obligations in the future, including future principal payments on our outstanding debt.

Other risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements include the following:

  • changes in general economic and political conditions, including high unemployment rates and continued weakness in the U.S. housing and mortgage credit markets, the U.S. economy reentering a recessionary period, a significant downturn in the global economy, a lack of meaningful liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, each of which may be accelerated or intensified by, among other things, legislative activity or inactivity or further actual or threatened downgrades of U.S. credit ratings;
  • changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers or financial guaranty providers, in particular in light of developments in the private mortgage insurance and financial guaranty industries in which certain of our former competitors have ceased writing new insurance business and have been placed under supervision or receivership by insurance regulators;
  • catastrophic events or economic changes in geographic regions, including governments and municipalities, where our mortgage insurance exposure is more concentrated or where we have financial guaranty exposure;
  • our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs, including in particular, the repayment of our long-term debt and additional capital contributions that may be required to support our mortgage insurance business;
  • a further reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, and general reduced housing demand in the U.S., which may be further exacerbated by regulations impacting home mortgage originations, including the risk retention requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);
  • the potential adverse impact on the mortgage origination market and private mortgage insurers due to increases in capital requirements for banks and bank holding companies for mortgage loans under proposed interagency rules to implement the third Basel Capital Accord (“Basel III”), including in particular, the possibility that loans insured by the Federal Housing Administration (“FHA”) will receive a more advantageous capital treatment than loans with private mortgage insurance;

  • our ability to maintain an adequate risk-to-capital position and surplus requirements in our mortgage insurance business, including if necessary, our ability to write new mortgage insurance while maintaining a capital position that is in excess of risk-based capital limitations imposed in certain states, either through waivers of these limitations or through use of another mortgage insurance subsidiary, and the possibility that state regulators could pursue regulatory actions or proceedings, including possible supervisory or receivership actions, against Radian Guaranty Inc. (“Radian Guaranty”), in the event Radian Guaranty's risk-to-capital position exceeds levels that are acceptable to such regulators;
  • our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
  • the ability of our primary insurance customers in our financial guaranty reinsurance business to provide appropriate surveillance and to mitigate losses adequately with respect to our assumed insurance portfolio;
  • a more rapid than expected decrease in the level of insurance rescissions and claim denials from the current elevated levels, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials, or caused by the government-sponsored entities (“GSEs”) intervening in mortgage insurers' loss mitigation practices, including settlements of disputes;
  • the negative impact our insurance rescissions and claim denials or claim curtailments may have on our relationships with customers and potential customers, including the potential loss of business and the heightened risk of disputes and litigation;
  • the need, in the event that we are unsuccessful in defending our rescissions, denials or claim curtailments, to increase our loss reserves for, and reassume risk on, rescinded or denied loans, and to pay additional claims, including amounts previously curtailed;
  • any disruption in the servicing of mortgages covered by our insurance policies and poor servicer performance;
  • adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and which remain in our insured portfolio) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
  • a decrease in persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income without a corresponding decrease in incurred losses;
  • an increase in the risk profile of our existing mortgage insurance portfolio due to the refinancing of existing mortgage loans for only the most qualified borrowers in the current mortgage and housing market;
  • changes in the criteria for assigning credit or similar ratings, further downgrades or threatened downgrades of, or other ratings actions with respect to, our credit ratings or the ratings assigned to any of our rated insurance subsidiaries at any time, including in particular, the credit ratings of Radian Group Inc. (“Radian Group”) and the financial strength ratings assigned to Radian Guaranty;
  • heightened competition for our mortgage insurance business from others such as the FHA, the Department of Veterans Affairs (“VA”) and other private mortgage insurers (in particular, the FHA and those private mortgage insurers that have been assigned higher ratings than we have, that may have access to greater amounts of capital than we do, or that are new entrants to the industry and are therefore not burdened by legacy obligations);
  • changes in the charters or business practices of, or rules or regulations applicable to, Federal National Mortgage Association (“Fannie Mae”) and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to remain an eligible provider to both Fannie Mae and Freddie Mac;
  • changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in effect or scope;

  • the effect of the Dodd-Frank Act on the financial services industry in general and on our mortgage insurance and financial guaranty businesses in particular, including whether and to what extent loans with mortgage insurance are considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions or “qualified mortgages” for purposes of the ability to repay provisions of the Dodd-Frank Act, and the possibility that the ultimate definitions of “qualified residential mortgages” and “qualified mortgages” could reduce the size of the mortgage market and potentially reduce the number of insurable loans;
  • the application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations; and (ii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) impacting our existing financial guaranty portfolio;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations;
  • the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses or premium deficiencies for our mortgage insurance business, or to estimate accurately the fair value amounts of derivative instruments in determining gains and losses on these instruments;
  • volatility in our earnings caused by changes in the fair value of our assets and liabilities carried at fair value, including our derivative instruments;
  • our ability to realize the tax benefits associated with our gross deferred tax assets, which will depend on our ability to generate sufficient sustainable taxable income in future periods;
  • changes in accounting principles, rules and guidance, or their interpretation; and
  • legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission.

Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.biz

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