Market Overview

Radian Announces Third Quarter 2017 Financial Results

Share:

-- GAAP net income of $65.1 million or $0.30 per diluted share --

-- Adjusted diluted net operating income per share increases 12%
year-over-year to $0.46 --

-- New MI business written increases 5% over second quarter 2017; MI in
force increases 8% year-over-year --

-- Book value per share grows 3% and tangible book value per share grows
12% year-over-year --

Radian Group Inc. (NYSE:RDN) today reported net income for the quarter
ended September 30, 2017, of $65.1 million, or $0.30 per diluted share.
Results for the third quarter of 2017 include $45.8 million of pretax
loss on induced conversion and debt extinguishment as well as $12.0
million of pretax restructuring and other exit costs related to the
Mortgage and Real Estate Services segment. This compares to net income
for the quarter ended September 30, 2016, of $82.8 million, or $0.37 per
diluted share.

 

Key Financial Highlights (dollars in millions, except
per-share data)

   

Quarter Ended
September 30, 2017

 

Quarter Ended
September 30, 2016

 

Percent
Change

Net income (loss) (1)   $65.1   $82.8   (21)%
Diluted net income per share   $0.30   $0.37   (19)%
Consolidated pretax income   $102.8   $126.9   (19)%
Adjusted pretax operating income (2)   $155.6   $139.9   11%
Adjusted diluted net operating

income per share (2) (3)

  $0.46   $0.41   12%
Net premiums earned - insurance   $236.7   $238.1   (1)%
MI New Insurance Written (NIW)   $15,125   $15,656   (3)%
MI insurance in force   $196.5   $181.2   8%
Book value per share   $13.88   $13.47   3%
Tangible book value per share (2)   $13.57   $12.17   12%
     

(1)

 

Net income for the third quarter of 2017 includes $45.8 million
of pretax loss on induced conversion and debt extinguishment as
well as $12.0 million of pretax restructuring and other exit costs
related to the Mortgage and Real Estate Services segment.

(2)

Adjusted results, including adjusted pretax operating income
and adjusted diluted net operating income per share, as well as
tangible book value per share, are non-GAAP financial measures.
For definitions and a reconciliation of these measures to the
comparable GAAP measures, see Exhibits F and G.

(3)

Adjusted diluted net operating income per share is calculated
using the company's statutory tax rate of 35 percent.

 

Adjusted pretax operating income for the quarter ended September 30,
2017, was $155.6 million, compared to $139.9 million for the quarter
ended September 30, 2016. Adjusted diluted net operating income per
share for the quarter ended September 30, 2017, was $0.46, an increase
of 12 percent compared to $0.41 for the quarter ended September 30, 2016.

Book value per share at September 30, 2017, was $13.88, an increase of
3% compared to $13.54 at June 30, 2017, and $13.47 at September 30,
2016. Tangible book value per share at September 30, 2017, was $13.57,
an increase of 3% compared to $13.22 at June 30, 2017, and an increase
of 12% compared to $12.17 at September 30, 2016.

"We reported another quarter of excellent operating results for Radian
and took several actions that strengthened our financial position and
improved our capital structure," said Radian's Chief Executive Officer
Rick Thornberry. "We also completed a strategic review of our Services
business and finalized our restructuring plan, which is focused on
re-positioning the segment for sustained profitability. We believe the
changes we have made across our Services business will drive future
growth and profitability for Radian, and deliver even greater value to
our customers and stockholders."

THIRD QUARTER HIGHLIGHTS AND RECENT EVENTS

Mortgage Insurance

  • MI new insurance written (NIW) grew to $15.1 billion for the quarter,
    an increase of 5 percent compared to $14.3 billion in the second
    quarter of 2017 and a decrease of 3 percent compared to $15.7 billion
    in the prior-year quarter.
    • NIW for the month of August 2017 represented record monthly volume
      written on a flow basis for the company.
    • Of the $15.1 billion in NIW in the third quarter of 2017, 23
      percent was written with single premiums. After consideration of
      the 35 percent ceded under the Single Premium Quota Share
      Reinsurance Transaction, net single premiums were 15 percent of
      new business written in the third quarter of 2017.
    • Refinances accounted for 9 percent of total NIW in the third
      quarter of 2017, the same as the second quarter of 2017, and a
      decrease compared to 22 percent a year ago.
  • Total primary mortgage insurance in force as of September 30, 2017,
    grew to $196.5 billion, an increase of 3 percent compared to $191.6
    billion as of June 30, 2017, and an increase of 8 percent compared to
    $181.2 billion as of September 30, 2016.
    • The composition of Radian's mortgage insurance portfolio continues
      to improve, with 91 percent consisting of new business written
      after 2008, including those loans that successfully completed the
      Home Affordable Refinance Program (HARP).
    • Persistency, which is the percentage of mortgage insurance that
      remains in force after a 12-month period, was 80.0 percent as of
      September 30, 2017, compared to 78.5 percent as of June 30, 2017,
      and 78.4 percent as of September 30, 2016.
    • Annualized persistency for the three-months ended September 30,
      2017, was 80.4 percent, compared to 82.8 percent for the
      three-months ended June 30, 2017, and 75.3 percent for the
      three-months ended September 30, 2016.
  • Total net premiums earned were $236.7 million for the quarter ended
    September 30, 2017, compared to $229.1 million for the quarter ended
    June 30, 2017, and $238.1 million for the quarter ended September 30,
    2016.
    • Accelerated revenue recognition due to single premium policy
      cancellations was $15.4 million in the third quarter, compared to
      $13.3 million in the second quarter of 2017, and $30.6 million in
      the third quarter of 2016. Net of reinsurance, accelerated revenue
      recognition due to single premium policy cancellations was $8.3
      million in the third quarter, compared to $7.4 million in the
      second quarter of 2017, and $18.4 million in the third quarter of
      2016.
    • Ceded premiums of $13.8 million, $14.1 million and $19.9 million
      for the quarters ended September 30, 2017, June 30, 2017, and
      September 30, 2016, respectively, are net of accrued profit
      commission on reinsurance transactions of $7.4 million in the
      third quarter of 2017, compared to $6.7 million in the second
      quarter of 2017, and $8.9 million in the third quarter of 2016.
    • Direct mortgage insurance premium yield was 52 basis points in the
      third quarter, the same as the second quarter of 2017, and a
      decrease compared to 58 basis points in the third quarter of 2016.
    • Total net mortgage insurance premium yield, which includes the
      impact of ceded premiums and accrued profit commission, was 49
      basis points in the third quarter, compared to 49 basis points in
      the second quarter of 2017, and 53 basis points in the third
      quarter of 2016.
  • The mortgage insurance provision for losses was $36.0 million in the
    third quarter of 2017, compared to $17.7 million in the second quarter
    of 2017, and $56.2 million in the prior-year period.
    • The total number of primary delinquent loans was flat in the third
      quarter compared to the second quarter of 2017, and decreased by
      19 percent from the third quarter of 2016. The total number of
      primary new notices of default increased by 18 percent in the
      third quarter from the second quarter of 2017, and decreased by 4
      percent from the third quarter of 2016.
    • The primary mortgage insurance delinquency rate decreased to 2.5
      percent in the third quarter of 2017, compared to 2.6 percent in
      the second quarter of 2017, and 3.3 percent in the third quarter
      of 2016.
    • The loss ratio in the third quarter was 15.2 percent, compared to
      7.7 percent in the second quarter of 2017 and 23.6 percent in the
      third quarter of 2016.
    • Mortgage insurance loss reserves were $556.5 million as of
      September 30, 2017, compared to $651.6 million as of June 30,
      2017, and $821.9 million as of September 30, 2016.
    • Primary reserve per primary default (excluding IBNR and other
      reserves) was $21,367 as of September 30, 2017. This compares to
      primary reserve per primary default of $23,185 as of June 30,
      2017, and $24,049 as of September 30, 2016.
  • Total mortgage insurance claims paid were $131.5 million in the third
    quarter, compared to $91.3 million in the second quarter of 2017, and
    $82.7 million in the third quarter of 2016. Excluding the $55.0
    million impact of commutations and captive terminations (which
    includes payments that, as expected, were made during the third
    quarter in connection with the final settlement of the Freddie Mac
    agreement entered into in August 2013), claims paid were $76.5 million
    in the third quarter of 2017. In addition, the company's pending claim
    inventory declined 56 percent from the third quarter of 2016.
  • The company continues to focus on effectively managing its capital
    position in a cost-efficient manner, improving its return on capital
    and proactively managing the retained mix of single-premium business
    in its total MI portfolio. In October 2017, Radian Guaranty Inc., the
    MI subsidiary of Radian Group, agreed to terms for a new quota share
    reinsurance arrangement for single-premium MI business (Single Premium
    QSR) with a panel of eight third-party reinsurance providers in order
    to cede new single-premium MI business.  The terms of the new Single
    Premium QSR include a 65 percent cession of business written in 2018
    and 2019. Other terms of the new arrangement are substantially the
    same as our existing single premium reinsurance transaction.  The
    company's existing single premium reinsurance transaction, which was
    entered into in 2016, provides for a 35 percent cession of
    single-premium NIW through 2017.  The new Single Premium QSR and the
    company's related PMIERs credit under the program remain subject to
    GSE approval.

Mortgage and Real Estate Services

  • As previously announced, based on recent performance below
    expectations for its Services segment, the company committed to a
    restructuring plan and incurred related charges in the third quarter
    of $12 million. Additional pretax charges of approximately $8 million,
    including approximately $6 million in cash, are expected to be
    recognized within the next 12 months. The total charges of
    approximately $20 million are expected to consist of approximately $8
    million in asset impairments, approximately $7 million in employee
    severance and benefit costs, approximately $3 million in facility and
    lease termination costs, and approximately $2 million in contract
    termination and other restructuring costs.
  • Total revenues for the third quarter were $41.1 million, compared to
    $40.0 million for the second quarter of 2017, and $48.0 million for
    the third quarter of 2016.
  • The adjusted pretax operating loss before corporate allocations for
    the quarter ended September 30, 2017, was $4.7 million, compared to
    income of $1.2 million for the quarter ended June 30, 2017, and income
    of $4.8 million for the quarter ended September 30, 2016.
  • Adjusted earnings before interest, income taxes, depreciation and
    amortization (Services adjusted EBITDA) for the quarter ended
    September 30, 2017, was a loss of $3.6 million, compared to income of
    $2.0 million for the quarter ended June 30, 2017, and income of $5.7
    million for the quarter ended September 30, 2016. Additional details
    regarding the non-GAAP measure Services adjusted EBITDA may be found
    in Exhibits F and G.

Consolidated Expenses

Other operating expenses were $64.2 million in the third quarter,
compared to $68.8 million in the second quarter of 2017, and $62.1
million in the third quarter of last year. Details regarding notable
variable items impacting other operating expenses may be found in
Exhibit D.

CAPITAL AND LIQUIDITY UPDATE

  • Radian Group maintained approximately $300 million of available
    liquidity as of September 30, 2017.
  • On September 26, 2017, Radian completed its public offering of $450
    million principal amount of 4.500% Senior Notes due 2024, and
    announced the early tender results and upsizing of its tender offers
    to purchase for cash a portion of its 5.500% Senior Notes due 2019,
    its 5.250% Senior Notes due 2020, and its 7.000% Senior Notes due
    2021. These transactions will reduce the company's annual cash
    interest by approximately $4.3 million and extend the weighted average
    maturity of its outstanding debt by nearly two years. The company has
    no material debt maturities prior to June 2019.
  • As of September 30, 2017, Radian had only $0.5 million of convertible
    senior notes outstanding. Radian has provided notice that it will
    settle all remaining conversions in cash. The remaining outstanding
    convertible senior notes mature in November 2017.
  • On October 16, 2017, Radian entered into a three-year, $225 million
    unsecured revolving credit facility with a panel of seven banks.
    Borrowings under the credit facility may be used for working capital
    and general corporate purposes, including, without limitation, capital
    contributions to Radian's insurance and reinsurance subsidiaries as
    well as growth initiatives. Terms of the credit facility include an
    option to increase the capacity during the term of the agreement, up
    to a total of $300 million.

CONFERENCE CALL

Radian will discuss third quarter financial results in a conference call
today, Thursday, October 26, 2017, 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 800.230.1766 inside the U.S.,
or 612.332.0226 for international callers, using passcode 431859 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 431859.

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.

NON-GAAP FINANCIAL MEASURES

Radian believes that adjusted pretax operating income and adjusted
diluted net operating income per share (non-GAAP measures) facilitate
evaluation of the company's fundamental financial performance and
provide relevant and meaningful information to investors about the
ongoing operating results of the company. On a consolidated basis, these
measures are not recognized in accordance with accounting principles
generally accepted in the United States of America (GAAP) and should not
be considered in isolation or viewed as substitutes for GAAP measures of
performance. The measures described below have been established in order
to increase transparency for the purpose of evaluating the company's
operating trends and enabling more meaningful comparisons with Radian's
competitors.

Adjusted pretax operating income is defined as earnings excluding the
impact of certain items that are not viewed as part of the operating
performance of the company's primary activities, or not expected to
result in an economic impact equal to the amount reflected in pretax
income (loss). Adjusted pretax operating income adjusts GAAP pretax
income (loss) to remove the effects of: (i) net gains (losses) on
investments and other financial instruments; (ii) loss on induced
conversion and debt extinguishment; (iii) acquisition-related expenses;
(iv) amortization or impairment of goodwill and other intangible assets;
and (v) net impairment losses recognized in earnings. Adjusted diluted
net operating income per share represents a diluted net income per share
calculation using as its basis adjusted pretax operating income, net of
taxes at the company's statutory tax rate for the period.

The company has also presented a non-GAAP measure for tangible book
value per share, which represents book value per share less the
per-share impact of goodwill and other intangible assets, net. The
company uses this measure to assess the quality and growth of its
capital. Because tangible book value per share is a widely used
financial measure which focuses on the underlying fundamentals of the
company's financial position and operating trends without the impact of
goodwill and other intangible assets, the company believes that current
and prospective investors may find it useful in their analysis.

In addition to the above non-GAAP measures for the consolidated company,
the company also presents as supplemental information a non-GAAP measure
for the Services segment, representing earnings before interest, income
tax provision (benefit), depreciation and amortization (EBITDA).
Services adjusted EBITDA is calculated by using the Services segment's
adjusted pretax operating income as described above, further adjusted to
remove the impact of depreciation and corporate allocations for interest
and operating expenses. Services adjusted EBITDA is presented to
facilitate comparisons with other services companies, since it is a
widely accepted measure of performance in the services industry.

See Exhibit F or Radian's website for a description of these items, as
well as Exhibit G for reconciliations to the most comparable
consolidated GAAP measures.

ABOUT RADIAN

Radian Group Inc. (NYSE:RDN), headquartered in Philadelphia, provides
private mortgage insurance, risk management products and real estate
services to financial institutions. Radian offers products and services
through two business segments:

  • Mortgage Insurance, through its principal mortgage insurance
    subsidiary Radian Guaranty Inc. This private mortgage insurance helps
    protect lenders from default-related losses, facilitates the sale of
    low-downpayment mortgages in the secondary market and enables
    homebuyers to purchase homes more quickly with downpayments less than
    20%.
  • Mortgage and Real Estate Services, through its principal
    services subsidiary Clayton Holdings LLC, as well as Green River
    Capital, Red Bell Real Estate and ValuAmerica. These solutions include
    information and services that financial institutions, investors and
    government entities use to evaluate, acquire, securitize, service and
    monitor loans and asset-backed securities.

Additional information may be found at www.radian.biz.

FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)

For historical trend information, refer to Radian's quarterly financial
statistics at http://www.radian.biz/page?name=FinancialReportsCorporate.

   
Exhibit A: Condensed Consolidated Statements of Operations Trend Schedule
Exhibit B: Net Income (Loss) Per Share Trend Schedule
Exhibit C: Condensed Consolidated Balance Sheets
Exhibit D: Net Premiums Earned - Insurance and Other Operating Expenses
Exhibit E: Segment Information
Exhibit F: Definition of Consolidated Non-GAAP Financial Measures
Exhibit G: Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit H: Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit I: Mortgage Insurance Supplemental Information
Primary Insurance in Force and Risk in Force
Exhibit J: Mortgage Insurance Supplemental Information
Claims and Reserves
Exhibit K: Mortgage Insurance Supplemental Information
Default Statistics
Exhibit L: Mortgage Insurance Supplemental Information
QSR Transaction, Captives and Persistency
 

   
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend Schedule
Exhibit A
 
2017 2016

(In thousands, except per-share amounts)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 
Revenues:
Net premiums earned - insurance $ 236,702 $ 229,096 $ 221,800 $ 233,585 $ 238,149
Services revenue 39,571 37,802 38,027 49,905 45,877
Net investment income 32,540 30,071 31,032 28,996 28,430
Net gains (losses) on investments and other financial instruments 2,480 5,331 (2,851 ) (38,773 ) 7,711
Other income 760   612   746   736   716  
Total revenues 312,053   302,912   288,754   274,449   320,883  
 
Expenses:
Provision for losses 35,841 17,222 46,913 54,287 55,785
Policy acquisition costs 5,554 6,123 6,729 5,579 6,119
Cost of services 27,240 25,635 28,375 33,812 29,447
Other operating expenses 64,195 68,750 68,377 62,416 62,119
Restructuring and other exit costs 12,038
Interest expense 15,715 16,179 15,938 17,269 19,783
Loss on induced conversion and debt extinguishment 45,766 1,247 4,456 17,397
Impairment of goodwill 184,374
Amortization and impairment of other intangible assets 2,890   18,856   3,296   3,290   3,292  
Total expenses 209,239   338,386   174,084   176,653   193,942  
 
Pretax income (loss) 102,814 (35,474 ) 114,670 97,796 126,941
Income tax provision (benefit) 37,672   (8,132 ) 38,198   36,707   44,138  
Net income (loss) $ 65,142   $ (27,342 ) $ 76,472   $ 61,089   $ 82,803  
 
Diluted net income (loss) per share $ 0.30 $ (0.13 ) $ 0.34 $ 0.27 $ 0.37
 
Selected Mortgage Insurance Key Ratios
Loss ratio (1) 15.2 % 7.7 % 21.3 % 23.4 % 23.6 %
Expense ratio (1) 22.9 % 26.2 % 27.1 % 22.7 % 22.7 %

(1)

 

Calculated on a GAAP basis using net premiums earned.

   
Radian Group Inc. and Subsidiaries
Net Income (Loss) Per Share Trend Schedule
Exhibit B
 
The calculation of basic and diluted net income (loss) per share
was as follows:
 
2017 2016

(In thousands, except per-share amounts)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Net income (loss)—basic $ 65,142 $ (27,342 ) $ 76,472 $ 61,089 $ 82,803
Adjustment for dilutive Convertible Senior Notes due 2019, net of
tax (1)
    (215 ) 665   848
Net income (loss)—diluted $ 65,142   $ (27,342 ) $ 76,257   $ 61,754   $ 83,651
 
Average common shares outstanding—basic 215,279 215,152 214,925 214,481 214,387
Dilutive effect of Convertible Senior Notes due 2017 (2) 16 701 421 178
Dilutive effect of Convertible Senior Notes due 2019 1,854 6,417 8,274
Dilutive effect of stock-based compensation arrangements (2) 4,096     4,017   3,457   3,129
Adjusted average common shares outstanding—diluted 219,391   215,152   221,497   224,776   225,968
 
Basic net income (loss) per share $ 0.30 $ (0.13 ) $ 0.36 $ 0.28 $ 0.39
 
Diluted net income (loss) per share $ 0.30 $ (0.13 ) $ 0.34 $ 0.27 $ 0.37

(1)

 

As applicable, includes coupon interest, amortization of
discount and fees, and other changes in income or loss that would
result from the assumed conversion. Included in the three months
ended March 31, 2017 is a benefit related to our adjustment of
estimated accrued expense to actual amounts, as a result of the
January 2017 settlement of our obligations on the remaining
Convertible Senior Notes due 2019.

(2)

There were no dilutive shares for the three months ended June
30, 2017, as a result of our net loss for the period. The
following number of shares of our common stock equivalents issued
under our share-based compensation arrangements and our
convertible debt were not included in the calculation of diluted
net income (loss) per share because they were anti-dilutive:

  2017   2016

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Shares of common stock equivalents 676 5,975 445 1,042 1,045
Shares of Convertible Senior Notes due 2017 509

       
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit C
 
September 30, June 30, March 31, December 31, September 30,

(In thousands, except per-share data)

2017 2017 2017 2016 2016
 
Assets:
Investments (1) $ 4,546,664 $ 4,583,842 $ 4,437,716 $ 4,462,430 $ 4,565,748
Cash 61,917 56,918 73,701 52,149 46,356
Restricted cash 36,888 25,486 12,689 9,665 10,312
Accounts and notes receivable 97,020 78,540 73,794 77,631 94,692
Deferred income taxes, net 356,181 389,759 369,209 411,798 401,442
Goodwill and other intangible assets, net 66,967 69,857 273,068 276,228 279,400
Prepaid reinsurance premium 239,620 235,349 230,148 229,438 229,754
Other assets 439,016   377,355   357,435   343,835   422,123  
Total assets $ 5,844,273   $ 5,817,106   $ 5,827,760   $ 5,863,174   $ 6,049,827  
 
Liabilities and stockholders' equity:
Unearned premiums $ 717,589 $ 702,210 $ 684,797 $ 681,222 $ 680,973
Reserve for losses and loss adjustment expense 556,488 651,591 726,169 760,269 821,934
Long-term debt 1,026,806 989,010 1,008,777 1,069,537 1,067,666
Reinsurance funds withheld 194,353 180,991 167,427 158,001 177,147
Other liabilities 360,835   379,144   319,282   321,859   413,401  
Total liabilities 2,856,071   2,902,946   2,906,452   2,990,888   3,161,121  
 
Equity component of currently redeemable convertible senior notes 16 883
 
Common stock 233 233 233 232 232
Treasury stock (893,754 ) (893,531 ) (893,372 ) (893,332 ) (893,197 )
Additional paid-in capital 2,747,393 2,743,872 2,743,594 2,779,891 2,778,860
Retained earnings 1,110,057 1,045,453 1,073,333 997,890 937,338
Accumulated other comprehensive income (loss) 24,273   18,117   (3,363 ) (12,395 ) 65,473  
Total stockholders' equity 2,988,202   2,914,144   2,920,425   2,872,286   2,888,706  
Total liabilities and stockholders' equity $ 5,844,273   $ 5,817,106   $ 5,827,760   $ 5,863,174   $ 6,049,827  
 
Shares outstanding 215,299 215,175 215,091 214,521 214,405
 
Book value per share $ 13.88 $ 13.54 $ 13.58 $ 13.39 $ 13.47
 
Tangible book value per share (See Exhibit G) $ 13.57 $ 13.22 $ 12.31 $ 12.10 $ 12.17
 
Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only 14.4 :1

(2)

14.3 :1 14.3 :1 13.5 :1 13.7 :1
Risk to capital ratio-Mortgage Insurance combined 13.4 :1

(2)

13.4 :1 13.4 :1 13.6 :1 13.9 :1

(1)

 

September 30, 2017 includes $36,782 of reinvested cash
collateral under securities lending agreements.

(2)

Preliminary.

   
Radian Group Inc. and Subsidiaries
Net Premiums Earned - Insurance and Other Operating Expenses
Exhibit D
 

2017

2016

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 
Premiums earned - insurance:
Direct $ 250,541 $ 243,229 $ 236,062 $ 251,751 $ 258,074
Assumed 7 7 7 8 9
Ceded (13,846 ) (14,140 ) (14,269 ) (18,174 ) (19,934 )
Net premiums earned - insurance $ 236,702   $ 229,096   $ 221,800   $ 233,585   $ 238,149  
 
Notable variable items: (1)
Single Premium Policy cancellations, direct $ 15,415 $ 13,346 $ 10,415 $ 26,707 $ 30,631
Single Premium Policy cancellations, ceded (7,085 ) (5,898 ) (4,536 ) (11,005 ) (12,183 )
Profit commission - reinsurance (2) 7,373   6,682   5,888   8,458   8,922  
Total $ 15,703   $ 14,130   $ 11,767   $ 24,160   $ 27,370  
 
Other operating expenses $ 64,195   $ 68,750   $ 68,377   $ 62,416   $ 62,119  
 
Notable variable items: (3)
Technology upgrade project (4) $ 3,569 $ 5,121 $ 3,512 $ 3,648 $ 2,440
Employee severance and related benefit costs 101 386 977 902 1,195
Retirement and consulting agreement (5) 927 867 3,622
Incentive compensation (6) (7) 6,950 9,641 7,447 9,072 12,652
Ceding commissions (7) (4,231 ) (4,064 ) (3,864 ) (5,105 ) (5,460 )
Total $ 7,316   $ 11,951   $ 11,694   $ 8,517   $ 10,827  
 
Restructuring and other exit costs: (8)
Employee severance, related benefits and other exit costs (9) $ 5,463 $ $ $ $
Impairment of other long-lived assets (10) 6,575          
Total restructuring and other exit costs $ 12,038   $   $   $   $  

(1)

 

Affecting net premiums earned - insurance. These amounts are
included in net premiums earned - insurance.

(2)

The amounts represent the profit commission on the Single
Premium QSR Transaction.

(3)

Affecting other operating expenses. These amounts are included
in other operating expenses.

(4)

Represents the expense impact of certain costs incurred in our
initiative to significantly upgrade our technology systems.

(5)

The amount represents expenses associated with retirement and
consulting agreements entered into in February 2017 with our
former CEO. Additional expenses are expected to be recognized
throughout the year. A portion of both the current and future
expenses are subject to change, based on the Company's and the
former CEO's future performance.

(6)

The expense relates to short- and long-term incentive programs.

(7)

Shown net of deferred policy acquisition costs.

(8)

For the three months ended September 30, 2017, includes charges
associated with our plan to restructure the Services business.

(9)

Employee severance, related benefits and other exit costs is a
component of adjusted pretax operating income.

(10)

Impairment of other long-lived assets is not a component of
adjusted pretax operating income.

     

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit E (page 1 of 2)

 

Summarized financial information concerning our operating segments
as of and for the periods indicated is as follows. For a
definition of adjusted pretax operating income and Services
adjusted EBITDA, along with reconciliations to consolidated GAAP
measures, see Exhibits F and G.

 
Mortgage Insurance
2017   2016

(In thousands)

Qtr 3 Qtr 2 Qtr 1 Qtr 4   Qtr 3
Net premiums written - insurance $ 247,810 $ 241,307 $ 224,665 $ 234,172 $ 240,999
(Increase) decrease in unearned premiums   (11,108 )   (12,211 )   (2,865 )   (587 )   (2,850 )
Net premiums earned - insurance 236,702 229,096 221,800 233,585 238,149
Net investment income 32,540 30,071 31,032 28,996 28,430
Other income   760     612     746     736     716  
Total   270,002     259,779     253,578     263,317     267,295  
 
Provision for losses 35,980 17,714 47,232 54,675 56,151
Policy acquisition costs 5,554 6,123 6,729 5,579 6,119
Other operating expenses before corporate allocations   36,941     37,939     39,289     37,773     35,940  
Total (1)   78,475     61,776     93,250     98,027     98,210  
Adjusted pretax operating income before corporate allocations 191,527 198,003 160,328 165,290 169,085
Allocation of corporate operating expenses 11,737 15,894 14,186 9,652 11,911
Allocation of interest expense   11,282     11,748     11,509     12,843     15,360  
Adjusted pretax operating income $ 168,508   $ 170,361   $ 134,633   $ 142,795   $ 141,814  
 
Services
2017 2016

(In thousands)

Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Services revenue (1) $ 41,062   $ 39,975   $ 40,089   $ 52,558   $ 48,033  
 
Cost of services 27,544 25,962 28,690 34,130 29,655
Other operating expenses before corporate allocations 12,781 12,803 12,604 14,842 13,575
Restructuring and other exit costs (2)   5,463                  
Total   45,788     38,765     41,294     48,972     43,230  
Adjusted pretax operating income (loss) before corporate
allocations (3)
(4,726 ) 1,210 (1,205 ) 3,586 4,803
Allocation of corporate operating expenses 3,730 3,404 3,718 1,738 2,265
Allocation of interest expense   4,433     4,431     4,429     4,426     4,423  
Adjusted pretax operating income (loss) $ (12,889 ) $ (6,625 ) $ (9,352 ) $ (2,578 ) $ (1,885 )
 

(1) Inter-segment information:

 
2017 2016
Qtr 3   Qtr 2 Qtr 1 Qtr 4 Qtr 3
Inter-segment expense included in Mortgage Insurance segment $ 1,491 $ 2,173 $ 2,062 $ 2,653 $ 2,156
Inter-segment revenue included in Services segment 1,491 2,173 2,062 2,653 2,156
 

Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
 

(2)

 

Primarily includes employee severance and related benefit
costs. Does not include impairment of long-lived assets, which is
not considered a component of adjusted pretax operating income.

(3)

Supplemental information for Services adjusted EBITDA (see
definition in Exhibit F):

  2017   2016
Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Adjusted pretax operating income (loss) before corporate
allocations
$ (4,726 ) $ 1,210 $ (1,205 ) $ 3,586 $ 4,803
Depreciation and amortization 1,172   835   858   829   884
Services adjusted EBITDA $ (3,554 ) $ 2,045   $ (347 ) $ 4,415   $ 5,687

Selected balance sheet information for our segments, as of the
periods indicated, is as follows:

 
At September 30, 2017

(In thousands)

Mortgage
Insurance

  Services (1)   Total
Total assets $ 5,630,687 $ 213,586 $ 5,844,273
 
At December 31, 2016

(In thousands)

Mortgage
Insurance

Services (1) Total
Total assets $ 5,506,338 $ 356,836 $ 5,863,174

(1)

 

The decrease in total assets for the Services segment at
September 30, 2017, as compared to total assets at December 31,
2016, is primarily due to the impairment of goodwill and other
intangible assets.

Radian Group Inc. and Subsidiaries

Definition of Consolidated Non-GAAP Financial Measures

Exhibit F (page 1 of 2)

 

Use of Non-GAAP Financial Measures

 
In addition to the traditional GAAP financial measures, we have
presented "adjusted pretax operating income" and "adjusted diluted
net operating income per share," non-GAAP financial measures for the
consolidated company, among our key performance indicators to
evaluate our fundamental financial performance. These non-GAAP
financial measures align with the way the Company's business
performance is evaluated by both management and the board of
directors. These measures have been established in order to increase
transparency for the purposes of evaluating our operating trends and
enabling more meaningful comparisons with our peers. Although on a
consolidated basis "adjusted pretax operating income" and "adjusted
diluted net operating income per share" are non-GAAP financial
measures, we believe these measures aid in understanding the
underlying performance of our operations. Our senior management,
including our Chief Executive Officer (Radian's chief operating
decision maker), uses adjusted pretax operating income (loss) as our
primary measure to evaluate the fundamental financial performance of
the Company's business segments and to allocate resources to the
segments.
 
Adjusted pretax operating income is defined as GAAP pretax income
(loss) excluding the effects of: (i) net gains (losses) on
investments and other financial instruments; (ii) loss on induced
conversion and debt extinguishment; (iii) acquisition-related
expenses; (iv) amortization or impairment of goodwill and other
intangible assets; and (v) net impairment losses recognized in
earnings. Adjusted diluted net operating income per share is
calculated by dividing (i) adjusted pretax operating income
attributable to common shareholders, net of taxes computed using the
company's statutory tax rate, by (ii) the sum of the weighted
average number of common shares outstanding and all dilutive
potential common shares outstanding. Interest expense on convertible
debt, share dilution from convertible debt and the impact of
share-based compensation arrangements have been reflected in the per
share calculations consistent with the accounting standard regarding
earnings per share, whenever the impact is dilutive.
 
Although adjusted pretax operating income excludes certain items
that have occurred in the past and are expected to occur in the
future, the excluded items represent those that are: (i) not viewed
as part of the operating performance of our primary activities or
(ii) not expected to result in an economic impact equal to the
amount reflected in pretax income (loss). These adjustments, along
with the reasons for their treatment, are described below.

(1)

 

Net gains (losses) on investments and other financial
instruments.
The recognition of realized investment gains or
losses can vary significantly across periods as the activity is
highly discretionary based on the timing of individual securities
sales due to such factors as market opportunities, our tax and
capital profile and overall market cycles. Unrealized investment
gains and losses arise primarily from changes in the market value
of our investments that are classified as trading securities.
These valuation adjustments may not necessarily result in realized
economic gains or losses.

Trends in the profitability of our fundamental operating activities
can be more clearly identified without the fluctuations of these
realized and unrealized gains or losses. We do not view them to be
indicative of our fundamental operating activities. Therefore, these
items are excluded from our calculation of adjusted pretax operating
income (loss).
(2)

Loss on induced conversion and debt extinguishment. Gains
or losses on early extinguishment of debt and losses incurred to
purchase our convertible debt prior to maturity are discretionary
activities that are undertaken in order to take advantage of
market opportunities to strengthen our financial and capital
positions; therefore, we do not view these activities as part of
our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).

(3)

Acquisition-related expenses. Acquisition-related expenses
represent the costs incurred to effect an acquisition of a
business (i.e., a business combination). Because we pursue
acquisitions on a strategic and selective basis and not in the
ordinary course of our business, we do not view
acquisition-related expenses as a consequence of a primary
business activity. Therefore, we do not consider these expenses to
be part of our operating performance and they are excluded from
our calculation of adjusted pretax operating income (loss).

Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measures
Exhibit F (page 2 of 2)
 

(4)

Amortization or impairment of goodwill and other intangible
assets.
Amortization of intangible assets represents the
periodic expense required to amortize the cost of intangible
assets over their estimated useful lives. Intangible assets with
an indefinite useful life are also periodically reviewed for
potential impairment, and impairment adjustments are made whenever
appropriate. These charges are not viewed as part of the operating
performance of our primary activities and therefore are excluded
from our calculation of adjusted pretax operating income (loss).

(5)

Net impairment losses recognized in earnings. The
recognition of net impairment losses on investments and the
impairment of other long-lived assets does not result in a cash
payment and can vary significantly in both amount and frequency,
depending on market credit cycles and other factors. We do not
view these impairment losses to be indicative of our fundamental
operating activities. Therefore, whenever these losses occur, we
exclude them from our calculation of adjusted pretax operating
income (loss).

We have also presented a non-GAAP measure for tangible book value
per share, which represents book value per share less the per-share
impact of goodwill and other intangible assets, net. We use this
measure to assess the quality and growth of our capital. Because
tangible book value per share is a widely-used financial measure
which focuses on the underlying fundamentals of our financial
position and operating trends without the impact of goodwill and
other intangible assets, we believe that current and prospective
investors may find it useful in their analysis of the Company.
 
In addition to the above non-GAAP measures for the consolidated
company, we also have presented as supplemental information a
non-GAAP measure for our Services segment, representing a measure of
earnings before interest, income tax provision (benefit),
depreciation and amortization ("EBITDA"). We calculate Services
adjusted EBITDA by using adjusted pretax operating income as
described above, further adjusted to remove the impact of
depreciation and corporate allocations for interest and operating
expenses. We have presented Services adjusted EBITDA to facilitate
comparisons with other services companies, since it is a widely
accepted measure of performance in the services industry.
 
See Exhibit G for the reconciliation of the most comparable GAAP
measures, consolidated pretax income (loss), diluted net income
(loss) per share and book value per share, to our non-GAAP financial
measures for the consolidated company, adjusted pretax operating
income, adjusted diluted net operating income per share and tangible
book value per share, respectively. Exhibit G also contains the
reconciliation of the most comparable GAAP measure, net income
(loss), to Services adjusted EBITDA.
 
Total adjusted pretax operating income, adjusted diluted net
operating income per share, tangible book value per share and
Services adjusted EBITDA should not be considered in isolation or
viewed as substitutes for GAAP pretax income (loss), diluted net
income (loss) per share, book value per share or net income (loss).
Our definitions of adjusted pretax operating income, adjusted
diluted net operating income per share, tangible book value per
share or Services adjusted EBITDA may not be comparable to
similarly-named measures reported by other companies.

Radian Group Inc. and Subsidiaries

Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 1 of 3)
   

Reconciliation of Consolidated Pretax Income (Loss) to Adjusted
Pretax Operating Income

 
2017 2016

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Consolidated pretax income (loss) $ 102,814 $ (35,474 ) $ 114,670 $ 97,796 $ 126,941
Less income (expense) items:
Net gains (losses) on investments and other financial instruments 2,480 5,331 (2,851 ) (38,773 ) 7,711
Loss on induced conversion and debt extinguishment (45,766 ) (1,247 ) (4,456 ) (17,397 )
Acquisition-related expenses (1) (54 ) (64 ) (8 ) (358 ) (10 )
Impairment of goodwill (184,374 )
Amortization and impairment of other intangible assets (2,890 ) (18,856 ) (3,296 ) (3,290 ) (3,292 )
Impairment of other long-lived assets (2) (6,575 )        
Total adjusted pretax operating income (3) $ 155,619   $ 163,736   $ 125,281   $ 140,217   $ 139,929  

(1)

 

Please see Exhibit F for the definition of this line item. This
item is included within other operating expenses on the Condensed
Consolidated Statement of Operations in Exhibit A.

(2)

This item is included within restructuring and other exit costs
on the Condensed Consolidated Statement of Operations in Exhibit A.

(3)

Total adjusted pretax operating income consists of adjusted
pretax operating income (loss) for each segment as follows:

  2017   2016

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Adjusted pretax operating income (loss):
Mortgage Insurance $ 168,508 $ 170,361 $ 134,633 $ 142,795 $ 141,814
Services (12,889 ) (6,625 ) (9,352 ) (2,578 ) (1,885 )
Total adjusted pretax operating income $ 155,619   $ 163,736   $ 125,281   $ 140,217   $ 139,929  

Radian Group Inc. and Subsidiaries

Consolidated Non-GAAP Financial Measure Reconciliations

Exhibit G (page 2 of 3)

   

Reconciliation of Diluted Net Income (Loss) Per Share to
Adjusted Diluted Net Operating Income Per Share

 
2017 2016
Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
Diluted net income (loss) per share $ 0.30   $ (0.13 ) $ 0.34   $ 0.27   $ 0.37  
 
Less per-share impact of debt items:
Loss on induced conversion and debt extinguishment (0.21 ) (0.01 ) (0.02 ) (0.08 )
Income tax provision (benefit) (1) (0.07 )   (0.01 )   (0.03 )
Per-share impact of debt items (0.14 ) (0.01 ) (0.01 )   (0.05 )
 
Less per-share impact of other income (expense) items:
Net gains (losses) on investments and other financial instruments 0.01 0.02 (0.01 ) (0.17 ) 0.03
Acquisition-related expenses
Impairment of goodwill (0.86 )
Amortization and impairment of other intangible assets (0.01 ) (0.09 ) (0.01 ) (0.02 ) (0.01 )
Impairment of other long-lived assets (0.03 )
Income tax provision (benefit) on other income (expense) items (2) (0.01 ) (0.32 ) (0.01 ) (0.07 ) 0.01
Difference between statutory and effective tax rate     (0.01 ) (0.02 )  
Per-share impact of other income (expense) items (0.02 ) (0.61 ) (0.02 ) (0.14 ) 0.01  
Add per-share impact of share dilution   (0.01 )      
Adjusted diluted net operating income per share (2) $ 0.46   $ 0.48   $ 0.37   $ 0.41   $ 0.41  

(1)

 

A portion of the loss on induced conversion and debt
extinguishment is non-deductible for tax purposes. The income tax
benefit is based on the tax deductible loss using the company's
federal statutory tax rate of 35%.

(2)

Calculated using the company's federal statutory tax rate of
35%. Any permanent tax adjustments and state income taxes on these
items have been deemed immaterial and are not included.

Reconciliation of Book Value Per Share to Tangible Book Value Per
Share (1)
       
2017 2016
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3
Book value per share $ 13.88 $ 13.54 $ 13.58 $ 13.39 $ 13.47
Less: Goodwill and other intangible assets, net per share 0.31   0.32   1.27   1.29   1.30
Tangible book value per share $ 13.57   $ 13.22   $ 12.31   $ 12.10   $ 12.17

(1)

 

All book value per share items are calculated based on the
number of shares outstanding at the end of each respective period.

   
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 3 of 3)
 
Reconciliation of Net Income (Loss) to Services Adjusted EBITDA
 
2017 2016

(In thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 
Net income (loss) $ 65,142 $ (27,342 ) $ 76,472 $ 61,089 $ 82,803
Less income (expense) items:
Net gains (losses) on investments and other financial instruments 2,480 5,331 (2,851 ) (38,773 ) 7,711
Loss on induced conversion and debt extinguishment (45,766 ) (1,247 ) (4,456 ) (17,397 )
Acquisition-related expenses (54 ) (64 ) (8 ) (358 ) (10 )
Impairment of goodwill (184,374 )
Amortization and impairment of other intangible assets (2,890 ) (18,856 ) (3,296 ) (3,290 ) (3,292 )
Impairment of other long-lived assets (6,575 )
Income tax provision (benefit) 37,672 (8,132 ) 38,198 36,707 44,138
Mortgage Insurance adjusted pretax operating income 168,508   170,361   134,633   142,795   141,814  
Services adjusted pretax operating income (loss) (12,889 ) (6,625 ) (9,352 ) (2,578 ) (1,885 )
 
Less income (expense) items:
Allocation of corporate operating expenses to Services (3,730 ) (3,404 ) (3,718 ) (1,738 ) (2,265 )
Allocation of corporate interest expense to Services (4,433 ) (4,431 ) (4,429 ) (4,426 ) (4,423 )
Services depreciation and amortization (1,172 ) (835 ) (858 ) (829 ) (884 )
Services adjusted EBITDA $ (3,554 ) $ 2,045   $ (347 ) $ 4,415   $ 5,687  
On a consolidated basis, "adjusted pretax operating income,"
"adjusted diluted net operating income per share" and "tangible book
value per share" are measures not determined in accordance with
GAAP. "Services adjusted EBITDA" is also a non-GAAP measure. These
measures should not be considered in isolation or viewed as
substitutes for GAAP pretax income (loss), diluted net income (loss)
per share, book value per share or net income (loss). Our
definitions of adjusted pretax operating income, adjusted diluted
net operating income per share, tangible book value per share or
Services adjusted EBITDA may not be comparable to similarly-named
measures reported by other companies. See Exhibit F for additional
information on our consolidated non-GAAP financial measures.

   

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information - New Insurance
Written
Exhibit H
 
2017 2016

($ in millions)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 
Total primary new insurance written $ 15,125   $ 14,342   $ 10,055   $ 13,882   $ 15,656  
 

Percentage of primary new insurance
written by FICO score

>=740 61.1 % 61.6 % 61.3 % 63.4 % 64.2 %
680-739 32.5 32.6 32.7 31.4 30.4
620-679 6.4   5.8   6.0   5.2   5.4  
Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 

Percentage of primary new insurance
written

Direct monthly and other premiums 77 % 77 % 75 % 73 % 73 %
Direct single premiums 23 % 23 % 25 % 27 % 27 %
 
Net single premiums (1) 15 % 15 % 16 % 17 % 17 %
 
Refinances 9 % 9 % 16 % 27 % 22 %
 
LTV
95.01% and above 14.3 % 12.8 % 9.2 % 7.4 % 6.0 %
90.01% to 95.00% 45.7 % 47.3 % 47.3 % 43.6 % 47.1 %
85.01% to 90.00% 28.1 % 28.8 % 30.3 % 32.3 % 31.4 %
85.00% and below 11.9 % 11.1 % 13.2 % 16.7 % 15.5 %

(1)

 

Represents the percentage of direct single premiums written,
after consideration of the 35% single premium NIW ceded under the
Single Premium QSR Transaction.

         
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Primary Insurance
in Force and Risk in Force

Exhibit I

 
September 30, June 30, March 31, December 31, September 30,
($ in millions) 2017 2017 2017 2016 2016

Primary insurance in force (1)

Prime $ 189,340 $ 183,886 $ 177,702 $ 174,927 $ 172,178
Alt-A 4,327 4,602 4,842 5,064 5,363
A minus and below 2,874   3,149   3,315   3,459   3,624  
Total Primary $ 196,541   $ 191,637   $ 185,859   $ 183,450   $ 181,165  
 

Primary risk in force (1) (2)

Prime $ 48,516 $ 47,075 $ 45,442 $ 44,708 $ 44,075
Alt-A 998 1,062 1,118 1,168 1,241
A minus and below 723   792   834   865   906  
Total Primary $ 50,237   $ 48,929   $ 47,394   $ 46,741   $ 46,222  
 

Percentage of primary risk in force

Direct monthly and other premiums 69 % 69 % 69 % 69 % 69 %
Direct single premiums 31 % 31 % 31 % 31 % 31 %
 
Net single premiums (3) 24 % 25 % 25 % 25 % 25 %
 

Percentage of primary risk in force by
FICO score

>=740 58.8 % 58.3 % 57.9 % 57.6 % 57.4 %
680-739 31.3 31.1 31.1 31.0 30.9
620-679 8.8 9.3 9.6 9.9 10.2
<=619 1.1   1.3   1.4   1.5   1.5  
Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 

Percentage of primary risk in force by LTV

95.01% and above 8.6 % 8.0 % 7.6 % 7.4 % 7.2 %
90.01% to 95.00% 53.1 52.9 52.6 52.3 52.1
85.01% to 90.00% 31.1 31.7 32.2 32.5 32.8
85.00% and below 7.2   7.4   7.6   7.8   7.9  
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 

Percentage of primary risk in force by
policy year

2005 and prior 3.6 % 4.1 % 4.4 % 4.8 % 5.1 %
2006 2.3 2.5 2.8 2.9 3.1
2007 5.6 6.2 6.7 7.0 7.4
2008 3.7 4.2 4.6 4.8 5.2
2009 0.7 0.8 0.9 1.0 1.2
2010 0.6 0.7 0.8 0.9 1.0
2011 1.5 1.7 1.8 2.0 2.2
2012 6.1 6.7 7.4 8.0 8.8
2013 9.8 10.7 11.8 12.6 13.9
2014 9.3 10.2 11.2 12.0 13.4
2015 14.9 16.1 17.3 18.1 19.4
2016 22.5 23.7 25.0 25.9 19.3
2017 19.4   12.4   5.3      
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
 
Primary risk in force on defaulted loans (4) $ 1,137 $ 1,124 $ 1,224 $ 1,363 $ 1,381

(1)

 

Includes amounts ceded under our reinsurance agreements, as
well as amounts related to the Freddie Mac Agreement.

(2)

Does not include pool risk in force or other risk in force,
which combined represent less than 3.0% of our total risk in force
for all periods presented.

(3)

Represents the percentage of Single Premium RIF, after giving
effect to all reinsurance ceded.

(4)

Excludes risk related to loans subject to the Freddie Mac
Agreement.

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Claims and Reserves
Exhibit J (page 1 of 2)
 
2017 2016

($ in thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 
Net claims paid: (1)
Prime $ 47,541 $ 45,562 $ 52,044 $ 70,151 $ 51,964
Alt-A 16,035 13,700 16,165 27,558 16,334
A minus and below 10,772   10,586   9,460   13,760   9,615  
Total primary claims paid 74,348 69,848 77,669 111,469 77,913
Pool 2,148 1,901 4,180 4,788 4,492
Second-lien and other 32   (1,937 ) 78   (264 ) (234 )
Subtotal 76,528 69,812 81,927 115,993 82,171
Impact of captive terminations 645 492 (171 )
Impact of commutations (2) 54,956   20,838   161     705  
Total net claims paid $ 131,484   $ 91,295   $ 82,088   $ 116,485   $ 82,705  
 

Average net claims paid: (1) (3)

Prime $ 48.4 $ 48.2 $ 50.5 $ 45.5 $ 48.3
Alt-A 69.4 61.7 67.1 65.5 65.3
A minus and below 44.0 41.7 39.6 37.7 41.3
Total average net primary claims paid 51.0 49.1 51.4 47.9 50.0
Pool 59.7 47.5 49.2 45.6 51.0
Total average net claims paid $ 51.0 $ 47.3 $ 50.9 $ 47.6 $ 49.7
 
Average direct primary claims paid (3) (4) $ 51.4 $ 49.4 $ 51.6 $ 48.2 $ 50.3
Average total direct claims paid (3) (4) $ 51.4 $ 47.6 $ 51.1 $ 47.9 $ 50.0

(1)

 

Net of reinsurance recoveries.

(2)

Includes the impact of commutations and captive terminations.
For the three months ended September 30, 2017, primarily includes
payments made under the Freddie Mac agreement, as the final
settlement date was reached during the quarter.

(3)

Calculated without giving effect to the impact of the
termination of captive transactions and commutations.

(4)

Before reinsurance recoveries.

         

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information - Claims and
Reserves

Exhibit J (page 2 of 2)

 

($ in thousands, except primary reserve
per

September 30, June 30, March 31, December 31, September 30,

primary default amounts)

2017 2017 2017 2016 2016
 
Reserve for losses by category
Prime $ 296,885 $ 318,169 $ 362,804 $ 379,845 $ 409,438
Alt-A 112,033 124,477 140,543 148,006 166,349
A minus and below 78,048 85,283 96,373 101,653 106,678
IBNR and other (1) 13,085 69,620 70,651 71,107 73,057
LAE 14,687 15,492 17,551 18,630 21,255
Reinsurance recoverable (2) 7,445   7,341   7,680   6,816   6,448
Total primary reserves 522,183   620,382   695,602   726,057   783,225
Pool insurance 18,630 29,099 28,453 31,853 36,065
IBNR and other 14,576 658 603 673 823
LAE 550 843 822 932 1,112
Reinsurance recoverable (2) 25   30   28   35   36
Total pool reserves 33,781   30,630   29,906   33,493   38,036
Total 1st lien reserves 555,964 651,012 725,508 759,550 821,261
Second-lien and other 524   579   661   719   673
Total reserves $ 556,488   $ 651,591   $ 726,169   $ 760,269   $ 821,934
 
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other $ 21,367 $ 23,185 $ 24,230 $ 22,503 $ 24,049

(1)

 

At June 30, 2017 and prior, primarily related to expected
payments under the Freddie Mac Agreement. However, during the
third quarter of 2017, the final settlement date under the Freddie
Mac Agreement was reached. Therefore, except for loans with loss
mitigation and claims activity already in process, most of the
loans subject to the Freddie Mac Agreement were removed from RIF
and IIF, because the insurance no longer remains in force.

(2)

Represents ceded losses on captive transactions and quota share
reinsurance transactions.

         
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Default Statistics
Exhibit K
 
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016

Default Statistics

Primary Insurance:

Prime

Number of insured loans 897,253 879,926 858,248 849,227 840,534
Number of loans in default 15,953 15,664 16,981 19,101 19,100
Percentage of loans in default 1.78 % 1.78 % 1.98 % 2.25 % 2.27 %
 

Alt-A

Number of insured loans 22,643 24,089 25,425 26,536 28,080
Number of loans in default 3,166 3,366 3,812 4,193 4,545
Percentage of loans in default 13.98 % 13.97 % 14.99 % 15.80 % 16.19 %
 

A minus and below

Number of insured loans 22,912 24,864 26,043 27,115 28,313
Number of loans in default 4,707 4,725 5,000 5,811 5,885
Percentage of loans in default 20.54 % 19.00 % 19.20 % 21.43 % 20.79 %
 

Total Primary

Number of insured loans 942,808 928,879 909,716 902,878 896,927
Number of loans in default (1) 23,826 23,755 25,793 29,105 29,530
Percentage of loans in default 2.53 % 2.56 % 2.84 % 3.22 % 3.29 %

(1)

 

Excludes the following number of loans subject to the Freddie
Mac Agreement that are in default as we no longer have claims
exposure on these loans:

  September 30,   June 30,   March 31,   December 31,   September 30,
2017 2017 2017 2016 2016
Number of loans in default (a) 118 1,305 1,395 1,639 1,888

(a)

 

During the third quarter of 2017, the final settlement date
under the Freddie Mac Agreement was reached. As of September 30,
2017, the remaining loans subject to the Freddie Mac Agreement
were those with Loss Mitigation and pending claims activity
already in process but not yet finalized.

   
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR Transactions,
Captives and Persistency
Exhibit L
 
2017 2016

($ in thousands)

Qtr 3   Qtr 2   Qtr 1 Qtr 4   Qtr 3
 

Quota Share Reinsurance ("QSR")
Transactions

QSR ceded premiums written (1) $ 4,621 $ 5,059 $ 5,457 $ 6,049 $ 6,730
% of premiums written 1.7 % 1.9 % 2.3 % 2.4 % 2.6 %
QSR ceded premiums earned (1) $ 6,826 $ 7,404 $ 7,834 $ 9,421 $ 10,597
% of premiums earned 2.7 % 3.1 % 3.3 % 3.8 % 4.1 %
Ceding commissions written $ 1,323 $ 1,446 $ 1,559 $ 1,728 $ 1,922
Ceding commissions earned (2) $ 2,925 $ 3,379 $ 3,894 $ 4,374 $ 3,974
Profit commission $ $ $ $ $
RIF included in QSR Transactions (3) $ 1,298,954 $ 1,393,038 $ 1,488,972 $ 1,578,300 $ 1,718,031
 

Single Premium QSR Transaction

QSR ceded premiums written (1) $ 13,248 $ 13,856 $ 8,960 $ 11,121 $ 13,004
% of premiums written 5.0 % 5.3 % 3.7 % 4.4 % 5.0 %
QSR ceded premiums earned (1) $ 6,771 $ 6,311 $ 5,859 $ 8,060 $ 8,608
% of premiums earned 2.7 % 2.6 % 2.5 % 3.2 % 3.3 %
Ceding commissions written $ 5,156 $ 5,134 $ 3,712 $ 4,895 $ 5,482
Ceding commissions earned (2) $ 3,536 $ 3,248 $ 2,937 $ 4,130 $ 4,382
Profit commission $ 7,373 $ 6,682 $ 5,888 $ 8,458 $ 8,922
RIF included in Single Premium QSR Transaction (3) $ 4,286,529 $ 4,103,410 $ 3,904,402 $ 3,761,648 $ 3,621,993
 
Total RIF included in QSR Transactions and Single Premium QSR
Transaction
$ 5,585,483 $ 5,496,448 $ 5,393,374 $ 5,339,948 $ 5,340,024
 

1st Lien Captives

Premiums earned ceded to captives $ 68 $ 242 $ 389 $ 503 $ 537
% of total premiums earned 0.0 % 0.1 % 0.2 % 0.2 % 0.2 %
 
Persistency Rate (12 months ended) (4) 80.0 % 78.5 % 77.1 % 76.7 % 78.4 %
Persistency Rate (quarterly, annualized) (4) (5) 80.4 % 82.8 % 84.4 % 76.8 % 75.3 %

(1)

 

Net of profit commission.

(2)

Includes amounts reported in policy acquisition costs and other
operating expenses.

(3)

Included in primary RIF.

(4)

During the third quarter of 2017, the final settlement date
under the Freddie Mac Agreement was reached, resulting in a
negative impact to the Persistency Rate due to the removal from
RIF and IIF of most of the loans subject to the Freddie Mac
Agreement. If these loans remained in force, the Persistency Rate
for the 12 months ended September 30, 2017 would have been 80.5%
and the quarterly annualized Persistency Rate for the quarter
ended September 30, 2017 would have been 82.0%.

(5)

The Persistency Rate on a quarterly, annualized basis may be
impacted by seasonality or other factors, and may not be
indicative of full-year trends.

 

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 Exchange Act and the 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," "seek," "strategy,"
"future," "likely" 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
statement. These statements speak only as of the date they were made,
and we undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. We operate in a changing environment where new risks emerge
from time to time and it is not possible for us to predict all risks
that may affect us. 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. These risks and uncertainties include,
without limitation:

  • changes in general economic and political conditions, including in
    particular unemployment rates, interest rates and changes in housing
    and mortgage credit markets, that impact the size of the insurable
    market, the credit performance of our insured portfolio, and the
    business opportunities in our Services segment;
  • changes in the way customers, investors, ratings agencies, regulators
    or legislators perceive our performance, financial strength and future
    prospects;
  • Radian Guaranty Inc.'s ability to remain eligible under the PMIERs and
    other applicable requirements imposed by the Federal Housing Finance
    Agency and by Fannie Mae and Freddie Mac (collectively, the "GSEs") to
    insure loans purchased by the GSEs;
  • our ability to successfully execute and implement our capital plans
    and to maintain sufficient holding company liquidity to meet our
    short- and long-term liquidity needs, including temporary reductions
    in liquidity resulting from federal alternative minimum tax ("AMT")
    payments that we are currently required to make and future federal
    income tax payments that we expect to make once our NOLs are fully
    utilized, which we anticipate occurring within the next 12 months;
  • our ability to successfully execute and implement our business plans
    and strategies, including plans and strategies to reposition our
    Services segment as well as plans and strategies that require GSE
    and/or regulatory approvals and licenses;
  • our ability to maintain an adequate level of capital in our insurance
    subsidiaries to satisfy existing and future state regulatory
    requirements;
  • changes in the charters or business practices of, or rules or
    regulations imposed by or applicable to, the GSEs, including the GSEs'
    interpretation and application of the PMIERs to our mortgage insurance
    business;
  • changes in the current housing finance system in the U.S., including
    the role of the Federal Housing Administration (the "FHA"), the GSEs
    and private mortgage insurers in this system;
  • any disruption in the servicing of mortgages covered by our insurance
    policies, as well as poor servicer performance;
  • a significant decrease in the Persistency Rates of our mortgage
    insurance policies;
  • competition in our mortgage insurance business, including price
    competition and competition from the FHA, U.S. Department of Veterans
    Affairs and other forms of credit enhancement;
  • the effect of the Dodd-Frank Wall Street Reform and Consumer
    Protection Act on the financial services industry in general, and on
    our businesses in particular;
  • legislative and regulatory activity (or inactivity), including the
    adoption of (or failure to adopt) new laws and regulations, or changes
    in existing laws and regulations, or the way they are interpreted or
    applied;
  • legal and regulatory claims, assertions, actions, reviews, audits,
    inquiries and investigations that could result in adverse judgments,
    settlements, fines, injunctions, restitutions or other relief that
    could require significant expenditures or have other effects on our
    business;
  • the amount and timing of potential payments or adjustments associated
    with federal or other tax examinations, including deficiencies
    assessed by the Internal Revenue Service resulting from its
    examination of our 2000 through 2007 tax years, which we are currently
    contesting;
  • 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 business;
  • volatility in our results of operations caused by changes in the fair
    value of our assets and liabilities, including a significant portion
    of our investment portfolio;
  • potential future impairment charges related to our goodwill and other
    intangible assets, and uncertainties regarding our ability to execute
    our restructuring plans within expected costs;
  • changes in "GAAP" (accounting principles generally accepted in the
    U.S.) or "SAP" (statutory accounting practices including those
    required or permitted, if applicable, by the insurance departments of
    the respective states of domicile of our insurance subsidiaries) rules
    and guidance, or their interpretation;
  • our ability to attract and retain key employees; and
  • legal and other limitations on dividends and other amounts we may
    receive from 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 our Annual Report on Form 10-K for the
year ended December 31, 2016, and subsequent reports filed from time to
time with the U.S. Securities and Exchange Commission. We caution you
not to place undue reliance on these forward-looking statements, which
are current only as of the date on which we issued this press release.
We do not intend to, and we disclaim any duty or obligation to, update
or revise any forward-looking statements to reflect new information or
future events or for any other reason.

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