Market Overview

Radian Announces Second Quarter 2018 Financial Results

Share:

-- GAAP net income increases to $208.9 million; diluted net income
per share grows to $0.96 --

-- Adjusted diluted net operating income per share increases 44%
year-over-year to $0.69 --

-- Writes new MI business of $16.4 billion, setting a company record
for highest quarterly volume of flow MI; MI in force increases 10%
year-over-year to $210.7 billion --

-- Book value per share grows 11% year-over-year --

Radian Group Inc. (NYSE:RDN) today reported net income for the quarter
ended June 30, 2018, of $208.9 million, or $0.96 per diluted share,
which includes the impact of tax benefits related to the previously
disclosed expected settlement with the IRS as well as the reversal of
certain previously accrued state and local tax liabilities. This
compares to a net loss for the quarter ended June 30, 2017, of $27.3
million, or $0.13 per diluted share.

 

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

                   
     

Quarter Ended
June 30, 2018

   

Quarter Ended
June 30, 2017

   

Percent
Change

Net income (loss) (1)     $208.9     $(27.3)     N/M (2)
Diluted net income (loss) per share     $0.96     $(0.13)     N/M (2)
Consolidated pretax income (loss)     $180.6     $(35.5)     N/M (2)
Adjusted pretax operating income (3)     $191.0     $163.7     17%

Adjusted diluted net operating income per share(3) (4)

    $0.69     $0.48     44%
Net premiums earned - mortgage insurance     $249.0     $229.1     9%
MI New Insurance Written (NIW)     $16,417     $14,342     14%
MI primary insurance in force     $210,741     $191,637     10%
Book value per share     $15.01     $13.54     11%
Tangible book value per share (3)     $14.73     $13.22     11%
Return on Equity (5)     26.7%     (3.7)%     N/M (2)
Adjusted Net Operating Return on Equity (3)     19.3%     14.6%     32%
           
(1)  

Net income for the second quarter of 2018 includes the impact
of tax benefits related to the previously disclosed settlement
with the IRS and the reversal of certain related previously
accrued state and local tax liabilities, as well as a pretax net
loss on investments and other financial instruments of $7.4
million and $0.9 million of pretax restructuring and other exit
costs related to the Mortgage and Real Estate Services segment.

(2)

N/M - Calculation results are not meaningful. The net loss in
the second quarter of 2017 was attributed to after-tax, non-cash
impairment charges of $130.9 million associated with an impairment
of goodwill and other intangible assets related to the Mortgage
and Real Estate Services segment.

(3)

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

(4)

Adjusted diluted net operating income per share is calculated
using the company's statutory tax rates of 21 percent in 2018 and
35 percent in 2017.

(5)

Calculated by dividing annualized net income by average
stockholders' equity, based on the average of the beginning and
ending balances for each period presented.

 

Adjusted pretax operating income for the quarter ended June 30, 2018,
was $191.0 million, compared to $163.7 million for the quarter ended
June 30, 2017. Adjusted diluted net operating income per share for the
quarter ended June 30, 2018, was $0.69, an increase of 44 percent
compared to $0.48 for the quarter ended June 30, 2017.

Book value per share at June 30, 2018, was $15.01, an increase of 6
percent compared to $14.16 at March 31, 2018, and an increase of 11
percent compared to $13.54 at June 30, 2017. Tangible book value per
share at June 30, 2018, was $14.73, an increase of 6 percent compared to
$13.88 at March 31, 2018, and an increase of 11 percent compared to
$13.22 at June 30, 2017.

"We reported outstanding financial results for the second quarter, with
net income of $209 million, adjusted net operating ROE of 19%,
record-breaking NIW of $16.4 billion, growth in our Services segment,
10% growth in MI insurance in force and 11% growth in book value," said
Radian's Chief Executive Officer Rick Thornberry. "These results reflect
the success of our business strategy as one Radian, the breadth and
depth of our customer relationships, the strength and flexibility of our
financial position, the value of our $211 billion insurance portfolio
and the hard work of our outstanding team."

SECOND QUARTER HIGHLIGHTS AND RECENT EVENTS

Mortgage Insurance

  • Mortgage insurance new insurance written (NIW) was $16.4 billion for
    the quarter, representing record volume of NIW on a flow basis for the
    company, and an increase of 41 percent compared to $11.7 billion in
    the first quarter of 2018 as well as an increase of 14 percent
    compared to $14.3 billion in the prior-year quarter. Purchase
    originations accounted for 95 percent of total NIW in the second
    quarter of 2018, compared to 89 percent in the first quarter of 2018,
    and 91 percent a year ago.
  • Total primary mortgage insurance in force as of June 30, 2018, grew to
    $210.7 billion, an increase of 3 percent compared to $204.0 billion as
    of March 31, 2018, and an increase of 10 percent compared to $191.6
    billion as of June 30, 2017.
    • The composition of Radian's mortgage insurance portfolio continues
      to improve, with 93 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 80.9 percent as of
      June 30, 2018, compared to 81.0 percent as of March 31, 2018, and
      78.5 percent as of June 30, 2017.
    • Annualized persistency for the three months ended June 30, 2018,
      was 82.3 percent, compared to 84.3 percent for the three months
      ended March 31, 2018, and 82.8 percent for the three months ended
      June 30, 2017.
  • Net mortgage insurance premiums earned were $249.0 million for the
    quarter ended June 30, 2018, compared to $242.6 million for the
    quarter ended March 31, 2018, and $229.1 million for the quarter ended
    June 30, 2017.
    • Mortgage insurance in force premium yield was 48.4 basis points in
      the second quarter of 2018, a slight decrease compared to 48.7
      basis points in the first quarter of 2018 and in the second
      quarter of 2017.
    • Total net mortgage insurance premium yield, which includes the
      impact of ceded premiums and accrued profit commission, was 48.0
      basis points in the second quarter of 2018, compared to 47.9 basis
      points in the first quarter of 2018, and 48.5 basis points in the
      second quarter of 2017.
    • Additional details regarding notable variable items impacting
      premiums earned may be found in Exhibit D.
  • The mortgage insurance provision for losses was $19.4 million in the
    second quarter of 2018, compared to $37.4 million in the first quarter
    of 2018, and $17.7 million in the prior-year quarter.
    • The number of primary delinquent loans was 22,088 as of June 30,
      2018, a decrease of 10 percent compared to 24,597 as of March 31,
      2018 and a decrease of 7 percent compared to 23,755 as of June 30,
      2017.
      • Excluding the impact of delinquent loans from areas affected
        by major 2017 hurricanes, the total number of primary
        delinquent loans of 17,956 decreased by 15 percent from 21,006
        as of June 30, 2017. Based on past experience, the company
        continues to expect that these delinquencies will not result
        in a material number of new paid claims.
    • The primary mortgage insurance delinquency rate decreased to 2.2
      percent in the second quarter of 2018, compared to 2.5 percent in
      the first quarter of 2018, and 2.6 percent in the second quarter
      of 2017.
    • The loss ratio in the second quarter of 2018 was 7.8 percent,
      compared to 15.4 percent in the first quarter of 2018, and 7.7
      percent in the second quarter of 2017.
    • Mortgage insurance loss reserves were $448.1 million as of
      June 30, 2018, compared to $485.2 million as of March 31, 2018,
      and $651.6 million as of June 30, 2017.
  • Total mortgage insurance claims paid were $56.5 million in the second
    quarter of 2018, compared to $59.9 million in the first quarter of
    2018, and $91.3 million in the second quarter of 2017. In addition,
    the company's pending claim inventory declined 43 percent from
    June 30, 2017.

Mortgage and Real Estate Services

  • Total revenues for the second quarter of 2018 were $40.5 million,
    compared to $34.2 million for the first quarter of 2018, and $40.0
    million for the second quarter of 2017.
  • Adjusted pretax operating income before corporate allocations for the
    quarter ended June 30, 2018, was $1.0 million, which includes $1.1
    million in restructuring and other exit costs as well as a loss of
    $0.9 million related to Radian's recently aquired national title
    insurance and settlement company. This compares to a loss of $0.4
    million for the quarter ended March 31, 2018, which includes $0.5
    million in restructuring and other exit costs, and income of $1.2
    million for the quarter ended June 30, 2017.
  • Adjusted earnings before interest, income taxes, depreciation and
    amortization (Services adjusted EBITDA) for the quarter ended June 30,
    2018, was $2.0 million, which includes $1.1 million in restructuring
    and other exit costs as well as a loss of $0.9 million related to
    Radian's recently acquired national title insurance and settlement
    company. This compares to $0.5 million for the quarter ended March 31,
    2018, which includes $0.5 million in restructuring and other exit
    costs, and $2.0 million for the quarter ended June 30, 2017.
    Additional details regarding the non-GAAP measure Services adjusted
    EBITDA may be found in Exhibits E, F and G.

Consolidated Expenses and Operating Leverage

Other operating expenses were $70.2 million in the second quarter of
2018, compared to $63.2 million in the first quarter of 2018, and $68.8
million in the second quarter of 2017. Beginning in the second quarter
of 2018, operating expenses include expenses related to Radian's
national title insurance and settlement services company acquired in
March 2018, which were $3.7 million in the quarter. Additionally,
consistent with prior years, operating expenses in the second quarter
also include the seasonal impact associated with the annual grant of the
company's long-term equity awards.

Revenue in the second quarter of 2018 grew 5 percent year over year,
driven by a 10 percent increase in net premiums earned, while other
operating expenses increased 2 percent. These results are consistent
with Radian's long-term strategic objective of generating positive
operating leverage through accretive revenue growth and disciplined
expense management.

CAPITAL AND LIQUIDITY UPDATE

Radian Group maintained approximately $200 million of available
liquidity as of June 30, 2018, which excludes the $31 million expected
to be submitted to the U.S. Department of the Treasury for the IRS
settlement. Total liquidity, which includes the company's $225 million
unsecured revolving credit facility entered into in October 2017, was
approximately $425 million as of June 30, 2018. The company remains
focused on improving its capital position, enhancing its return on
capital, and increasing its financial flexibility, as well as
positioning Radian Group for a return to investment grade ratings.

  • During the second quarter, Radian repurchased 2,491,843 shares, or
    approximately $40 million, of Radian Group common stock.
  • As previously announced, in December 2017 Radian Guaranty received the
    proposed changes to the Private Mortgage Insurer Eligibility
    Requirements (PMIERs) of Fannie Mae and Freddie Mac (the GSEs),
    referred to as PMIERs 2.0. In June 2018, the company received
    revisions to PMIERs 2.0 that take into consideration, among other
    items, the comments previously provided by the private mortgage
    insurance industry to the GSEs and FHFA.
    • The company expects that PMIERs 2.0 will be finalized in the third
      quarter of 2018 and, after an implementation period, will become
      effective at the end of the first quarter of 2019.
    • Based on the most recent version of PMIERs 2.0, as of the
      effective date, Radian expects to be able to fully comply with
      PMIERs 2.0 and to maintain substantially the same excess of
      Available Assets over Minimum Required Assets under PMIERs 2.0 as
      it does today under the current PMIERs, without a need to take
      further actions to do so.
    • Radian's expectation is based on the company's current
      understanding of the most recent version of PMIERs 2.0, its
      forecasted NIW, its projections for ongoing positive operating
      results, its strong capital position and the benefits of its
      reinsurance programs.

CONFERENCE CALL

Radian will discuss second quarter financial results in a conference
call today, Thursday, July 26, 2018, 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 800.288.8976 inside the U.S.,
or 612.332.0228 for international callers, using passcode 451857 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 451857.

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, adjusted diluted
net operating income per share and adjusted net operating return on
equity (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 and losses from the
sale of business lines. 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. Adjusted net operating return on
equity is calculated by dividing annualized adjusted pretax operating
income, net of taxes computed using the company's statutory tax rate, by
average stockholders' equity, based on the average of the beginning and
ending balances for each period presented.

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. In addition, the company also has presented a
related non-GAAP measure, Services adjusted EBITDA margin, which is
calculated by dividing Services adjusted EBITDA by GAAP total revenue
for the Services segment. Services adjusted EBITDA and Services adjusted
EBITDA margin are presented to facilitate comparisons with other
services companies, since they are widely accepted measures of
performance in the services industry and are used internally as
supplemental measures to evaluate the performance of our Services
segment.

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, as well as Entitle Direct, 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 Restructuring and Other Exit
Costs
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 Transactions,
Captives and Persistency
 

 
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend Schedule
Exhibit A
 
  2018   2017

(In thousands, except per-share amounts)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
 
Revenues:
Net premiums earned - insurance $ 251,344 $ 242,550 $ 245,175 $ 236,702 $ 229,096
Services revenue 36,828 33,164 39,703 39,571 37,802
Net investment income 37,473 33,956 33,605 32,540 30,071
Net gains (losses) on investments and other financial instruments (7,404 ) (18,887 ) (1,339 ) 2,480 5,331
Other income   1,016     807     768     760     612  
Total revenues   319,257     291,590     317,912     312,053     302,912  
 
Expenses:
Provision for losses 19,337 37,283 35,178 35,841 17,222
Policy acquisition costs 5,996 7,117 5,871 5,554 6,123
Cost of services 24,205 23,126 23,349 27,240 25,635
Other operating expenses 70,184 63,243 65,999 64,195 68,750
Restructuring and other exit costs 925 551 5,230 12,038
Interest expense 15,291 15,080 14,929 15,715 16,179
Loss on induced conversion and debt extinguishment 45,766 1,247
Impairment of goodwill 184,374
Amortization and impairment of other intangible assets   2,748     2,748     2,629     2,890     18,856  
Total expenses   138,686     149,148     153,185     209,239     338,386  
 
Pretax income (loss) 180,571 142,442 164,727 102,814 (35,474 )
Income tax provision (benefit)   (28,378 )   27,956     157,911     37,672     (8,132 )
Net income (loss) $ 208,949   $ 114,486   $ 6,816   $ 65,142   $ (27,342 )
 
Diluted net income (loss) per share $ 0.96 $ 0.52 $ 0.03 $ 0.30 $ (0.13 )
 
Selected Mortgage Insurance Key Ratios
Loss ratio (1) 7.8 % 15.4 % 14.4 % 15.2 % 7.7 %
Expense ratio (1) 23.9 % 23.7 % 23.0 % 22.9 % 26.2 %
 

(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:
   
2018 2017

(In thousands, except per-share amounts)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Net income (loss)—basic and diluted $ 208,949 $ 114,486 $ 6,816 $ 65,142 $ (27,342 )
 
Average common shares outstanding—basic 213,976 215,967 215,623 215,279 215,152
Dilutive effect of Convertible Senior Notes due 2017 (1) 9 16
Dilutive effect of stock-based compensation arrangements (1)   3,854   3,916   4,618   4,096    
Adjusted average common shares outstanding—diluted   217,830   219,883   220,250   219,391   215,152  
 
Basic net income (loss) per share $ 0.98 $ 0.53 $ 0.03 $ 0.30 $ (0.13 )
 
Diluted net income (loss) per share $ 0.96 $ 0.52 $ 0.03 $ 0.30 $ (0.13 )
 

(1)

 

There are no Convertible Senior Notes outstanding at December
31, 2017, or in subsequent periods. 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:

 
        2018   2017

(In thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Shares of common stock equivalents 484 170 170 676 5,975
Shares of Convertible Senior Notes due 2017 509
 

 
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit C
 

(In thousands, except per-share data)

  June 30,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
 
Assets:
Investments $ 4,873,919 $ 4,668,217 $ 4,643,942 $ 4,546,664 $ 4,583,842
Cash 95,573 122,481 80,569 61,917 56,918
Restricted cash 9,152 7,623 15,675 36,888 25,486
Accounts and notes receivable 94,848 80,068 72,558 97,020 78,540
Deferred income taxes, net 171,293 253,381 229,567 356,181 389,759
Goodwill and other intangible assets, net 59,179 61,465 64,212 66,967 69,857
Prepaid reinsurance premium 405,447 390,241 386,509 239,620 235,349
Other assets   430,077       426,773       407,849       439,016       377,355    
Total assets $ 6,139,488     $ 6,010,249     $ 5,900,881     $ 5,844,273     $ 5,817,106    
 
Liabilities and stockholders' equity:
Unearned premiums $ 741,296 $ 723,100 $ 723,938 $ 717,589 $ 702,210
Reserve for losses and loss adjustment expense 451,542 488,656 507,588 556,488 651,591
Senior notes 1,028,687 1,027,875 1,027,074 1,026,806 989,010
Reinsurance funds withheld 331,776 305,409 288,398 194,353 180,991
Other liabilities   385,051    

 

  412,793       353,845       360,835       379,144    
Total liabilities   2,938,352       2,957,833       2,900,843       2,856,071       2,902,946    
 
Equity component of currently redeemable convertible senior notes 16
 
Common stock 231 233 233 233 233
Treasury stock (894,610 ) (894,191 ) (893,888 ) (893,754 ) (893,531 )
Additional paid-in capital 2,715,426 2,748,233 2,754,275 2,747,393 2,743,872
Retained earnings 1,438,032 1,229,616 1,116,333 1,110,057 1,045,453
Accumulated other comprehensive income (loss)   (57,943 )     (31,475 )     23,085       24,273       18,117    
Total stockholders' equity   3,201,136       3,052,416       3,000,038       2,988,202       2,914,144    
Total liabilities and stockholders' equity $ 6,139,488     $ 6,010,249     $ 5,900,881     $ 5,844,273     $ 5,817,106    
 
Shares outstanding 213,232 215,543 215,814 215,299 215,175
 
Book value per share $ 15.01 $ 14.16 $ 13.90 $ 13.88 $ 13.54
 
Tangible book value per share (See Exhibit G) $ 14.73 $ 13.88 $ 13.60 $ 13.57 $ 13.22
 
Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only

12.5

 

:1

(1)

12.6

 

:1

12.8

:1

14.4

:1

14.3

:1

Risk to capital ratio-Mortgage Insurance combined

11.8

 

:1

(1)

11.9

:1

12.1

:1

13.4

:1

13.4

:1

 

(1)

 

Preliminary.

 

 
Radian Group Inc. and Subsidiaries
Net Premiums Earned - Insurance and Restructuring and Other Exit
Costs
Exhibit D
 
  2018   2017

(In thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
 

Premiums earned - insurance: (1)

Direct $ 267,957 $ 258,743 $ 260,184 $ 250,541 $ 243,229
Assumed 7 6 7 7 7
Ceded   (16,620 )   (16,199 )   (15,016 )   (13,846 )   (14,140 )
Net premiums earned - insurance $ 251,344   $ 242,550   $ 245,175   $ 236,702   $ 229,096  
 

Notable variable items: (2)

Single Premium Policy cancellations, direct $ 14,776 $ 12,335 $ 21,172 $ 15,415 $ 13,346

Single Premium Policy cancellations, ceded (3)

  (4,046 )   (3,301 )   (3,934 )   (3,075 )   (2,622 )
Single Premium Policy cancellations, net $ 10,730   $ 9,034   $ 17,238   $ 12,340   $ 10,724  
 

Profit commission - other (4)

$ 7,917   $ 7,405   $ 4,272   $ 4,876   $ 4,521  
 

Restructuring and other exit costs: (5)

Employee severance, related benefits and other exit costs (6)

$ 1,055 $ 525 $ 1,365 $ 5,463 $

Impairment of other long-lived assets and loss from the sale of
a business line (7)

  (130 )   26     3,865     6,575      
Total restructuring and other exit costs $ 925   $ 551   $ 5,230   $ 12,038   $  
 

(1)

 

These amounts are related to our Mortgage Insurance segment.

(2)

These amounts are included in net premiums earned - insurance,
in our Mortgage Insurance segment.

(3)

Includes the impact of related profit commissions.

(4)

The amounts represent the profit commission on the Single
Premium QSR Program, excluding the impact of Single Premium Policy
cancellations.

(5)

Represents the charges associated with our plan to restructure
the Services business.

(6)

Employee severance, related benefits and other exit costs are
components of adjusted pretax operating income.

(7)

Impairment of other long-lived assets and loss from the sale of
a business line are not components of adjusted pretax operating
income. The amounts for the three months ended June 30, 2018 and
December 31, 2017 primarily relate to the loss on the sale of our
EuroRisk business, which was completed during the fourth quarter
of 2017. The amounts for the three months ended March 31, 2018 and
September 30, 2017 relate to the impairment of other long-lived
assets. See Exhibit F for additional information on our non-GAAP
financial measures.

 

 
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
2018   2017

(In thousands)

Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Net premiums written - insurance $ 251,958 $ 237,980 $ 104,635 (1 ) $ 247,810 $ 241,307
(Increase) decrease in unearned premiums   (2,990 )   4,570     140,540     (11,108 )   (12,211 )
Net premiums earned - insurance 248,968 242,550 245,175 236,702 229,096
Net investment income 37,447 33,956 33,605 32,540 30,071
Other income   621     807     768     760     612  
Total   287,036     277,313     279,548     270,002     259,779  
 
Provision for losses 19,362 37,391 35,257 35,980 17,714
Policy acquisition costs 5,996 7,117 5,871 5,554 6,123
Other operating expenses before corporate allocations   33,262     31,888     36,806     36,941     37,939  
Total (2)   58,620     76,396     77,934     78,475     61,776  
Adjusted pretax operating income before corporate allocations 228,416 200,917 201,614 191,527 198,003
Allocation of corporate operating expenses 20,136 18,577 13,624 11,737 15,894
Allocation of interest expense   10,840     10,629     10,477     11,282     11,748  
Adjusted pretax operating income $ 197,440   $ 171,711   $ 177,513   $ 168,508   $ 170,361  
 
Services
2018 2017

(In thousands)

Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net premiums earned - insurance $ 2,376 $ $ $ $
Services revenue (2) 37,713 34,166 40,707 41,062 39,975
Net investment income 26
Other income   395                  
Total   40,510     34,166     40,707     41,062     39,975  
 
Provision for losses 53
Cost of services 24,357 23,270 23,616 27,544 25,962
Other operating expenses before corporate allocations 14,015 10,744 12,781 12,781 12,803
Restructuring and other exit costs (3)   1,055     525     1,365     5,463      
Total   39,480     34,539     37,762     45,788     38,765  
Adjusted pretax operating income (loss) before corporate
allocations (4)
1,030 (373 ) 2,945 (4,726 ) 1,210
Allocation of corporate operating expenses 3,010 2,784 3,467 3,730 3,404
Allocation of interest expense   4,451     4,451     4,452     4,433     4,431  
Adjusted pretax operating income (loss)

$

(6,431

)

$

(7,608

)

$ (4,974 ) $ (12,889 ) $ (6,625 )
 

(1)

 

Effective December 31, 2017, we amended the 2016 Single Premium
QSR Agreement to increase the amount of ceded risk for 2015
through 2017 vintages under the agreement from 35% to 65%,
resulting in a reduction of $145.7 million in net premiums written
for the fourth quarter of 2017.

 

See notes continued on next page.

 

Radian Group Inc. and Subsidiaries

Segment Information

Exhibit E (page 2 of 2)

 

Notes continued from prior page.

 
     

(2)

Inter-segment information:

 
2018 2017
Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Inter-segment expense included in Mortgage Insurance segment $ 885 $ 1,002 $ 1,004 $ 1,491 $ 2,173
Inter-segment revenue included in Services segment 885 1,002 1,004 1,491 2,173
 

(3)

 

Primarily includes employee severance and related benefit
costs. Does not include impairment of long-lived assets and loss
from the sale of a business line, which are not considered
components of adjusted pretax operating income (loss).

(4)

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

 
        2018   2017
Qtr 2   Qtr 1 Qtr 4   Qtr 3   Qtr 2
Adjusted pretax operating income (loss) before corporate
allocations
$ 1,030 $ (373 ) $ 2,945 $ (4,726 ) $ 1,210
Depreciation and amortization   920   867     893   1,172     835
Services adjusted EBITDA $ 1,950 $ 494   $ 3,838 $ (3,554 ) $ 2,045

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

 
    At June 30, 2018

(In thousands)

Mortgage
Insurance

  Services   Total
Total assets $ 5,949,845 $ 189,643 $ 6,139,488
 
 
At December 31, 2017

(In thousands)

Mortgage
Insurance

Services Total
Total assets $ 5,733,918 $ 166,963 $ 5,900,881
 

   

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," "adjusted diluted net
operating income per share" and "adjusted net operating return on
equity," 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," "adjusted diluted net operating
income per share" and "adjusted net operating return on equity" 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 consolidated
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 and losses from the sale of lines of
business. 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. Adjusted net
operating return on equity is calculated by dividing annualized
adjusted pretax operating income, net of taxes computed using the
company's statutory tax rate, by average stockholders' equity, based
on the average of the beginning and ending balances for each period
presented.
 
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 or equity
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 and losses from
the sale of lines of business.
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. Losses from the sale of lines of
business are highly discretionary as a result of strategic
restructuring decisions, and generally do not occur in the normal
course of our business. We do not view these 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. In addition, we also have presented a related non-GAAP
measure, Services adjusted EBITDA margin, which we calculate by
dividing Services adjusted EBITDA by GAAP total revenue for the
Services segment. We have presented Services adjusted EBITDA and
Services adjusted EBITDA margin to facilitate comparisons with other
services companies, since they are widely accepted measures of
performance in the services industry and are used internally as
supplemental measures to evaluate the performance of our Services
segment.
 
See Exhibit G for the reconciliation of the most comparable GAAP
measures, consolidated pretax income (loss), diluted net income
(loss) per share, return on equity 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, adjusted net operating return on equity, 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, adjusted net operating return on equity,
tangible book value per share, Services adjusted EBITDA and Services
adjusted EBITDA margin should not be considered in isolation or
viewed as substitutes for GAAP pretax income (loss), diluted net
income (loss) per share, return on equity, book value per share or
net income (loss). Our definitions of adjusted pretax operating
income, adjusted diluted net operating income per share, adjusted
net operating return on equity, tangible book value per share,
Services adjusted EBITDA or Services adjusted EBITDA margin 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 4)
 
Reconciliation of Consolidated Pretax Income (Loss) to Adjusted
Pretax Operating Income
 
    2018     2017

(In thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
Consolidated pretax income (loss) $ 180,571 $ 142,442 $ 164,727 $ 102,814 $ (35,474 )
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments (7,404 ) (18,887 ) (1,339 ) 2,480 5,331
Loss on induced conversion and debt extinguishment (45,766 ) (1,247 )
Acquisition-related expenses (1) (416 ) 21 (54 ) (64 )
Impairment of goodwill (184,374 )
Amortization and impairment of other intangible assets (2,748 ) (2,748 ) (2,629 ) (2,890 ) (18,856 )
Impairment of other long-lived assets and loss from the sale of a
business line (2)
  130  

 

  (26 )   (3,865 )   (6,575 )    

Total adjusted pretax operating income (3)

$ 191,009   $ 164,103   $ 172,539   $ 155,619   $ 163,736  
 

(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:

 
            2018     2017

(In thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
Adjusted pretax operating income (loss) (1):
Mortgage Insurance $ 197,440 $ 171,711 $ 177,513 $ 168,508 $ 170,361
Services (2)   (6,431 )   (7,608 )   (4,974 )   (12,889 )   (6,625 )
Total adjusted pretax operating income $ 191,009   $ 164,103   $ 172,539   $ 155,619   $ 163,736  
 

(1)

 

Please see Exhibit E for additional segment-level detail.

(2)

Please see Exhibit G, page 4 of 4, for Services Adjusted
EBITDA, a supplemental metric used to facilitate comparisons with
other services companies.

 

 
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 2 of 4)
 
Reconciliation of Diluted Net Income (Loss) Per Share to Adjusted
Diluted Net Operating Income Per Share
 
    2018     2017
Qtr 2   Qtr 1 Qtr 4   Qtr 3     Qtr 2
Diluted net income (loss) per share $ 0.96   $ 0.52   $ 0.03   $ 0.30   $ (0.13 )
 
Less per-share impact of reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments (0.03 ) (0.09 ) (0.01 ) 0.01 0.02
Loss on induced conversion and debt extinguishment (0.14 ) (0.01 )
Acquisition-related expenses
Impairment of goodwill (0.86 )
Amortization and impairment of other intangible assets (0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.09 )
Impairment of other long-lived assets and loss from the sale of a
business line
(0.02 ) (0.03 )
Income tax provision (benefit) on reconciling income (expense)
items (1)
(0.01 ) (0.02 ) (0.01 ) (0.01 ) (0.32 )
Difference between statutory and effective tax rate   0.30   (2)   0.01     (0.45 ) (3)        
Per-share impact of reconciling income (expense) items   0.27     (0.07 )   (0.48 )   (0.16 )   (0.62 )
Add per-share impact of share dilution                   (0.01 )
Adjusted diluted net operating income per share (1) $ 0.69   $ 0.59   $ 0.51   $ 0.46   $ 0.48  
 

(1)

 

Calculated using the company's federal statutory tax rates of
21% and 35% for 2018 and 2017, respectively. Any permanent tax
adjustments and state income taxes on these items have been deemed
immaterial and are not included.

(2)

Includes $0.34 of tax benefit related to the settlement of the
IRS Matter, which includes both the impact of the settlement with
the IRS as well as the reversal of certain related previously
accrued state and local tax liabilities.

(3)

Includes $0.47 in additional tax expense related to the
remeasurement of our net deferred tax assets as a result of the
Tax Cuts and Jobs Act enacted in December 2017.

 

                 
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 3 of 4)
 
Reconciliation of Return on Equity to Adjusted Net Operating
Return on Equity (1)
 
2018 2017
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Return on equity (1) 26.7 % 15.1 % 0.9 % 8.8 % (3.7 )%
Less impact of reconciling income (expense) items: (2)
Net gains (losses) on investments and other financial instruments (0.9 ) (2.5 ) (0.2 ) 0.3 0.7
Loss on induced conversion and debt extinguishment (6.2 ) (0.2 )
Acquisition-related expenses (0.1 )
Impairment of goodwill (25.3 )
Amortization and impairment of other intangible assets (0.4 ) (0.4 ) (0.4 ) (0.4 ) (2.6 )
Impairment of other long-lived assets and loss from the sale of a
business line
(0.5 ) (0.9 )
Income tax provision (benefit) on reconciling income (expense)
items (3)
(0.3 ) (0.6 ) (0.4 ) (2.5 ) (9.6 )
Difference between statutory and effective tax rate 8.5   (4) 0.3   (13.4 ) (0.2 ) (0.5 )
Impact of reconciling income (expense) items 7.4   (2.0 ) (14.1 ) (4.9 ) (18.3 )
Adjusted net operating return on equity 19.3 % 17.1 % 15.0 % 13.7 % 14.6 %
 

(1)

 

Calculated by dividing annualized net income by average
stockholders' equity, based on the average of the beginning and
ending balances for each period presented.

(2)

Annualized, as a percentage of average stockholders' equity.

(3)

Calculated using the company's federal statutory tax rates of
21% and 35% for 2018 and 2017, respectively. Any permanent tax
adjustments and state income taxes on these items have been deemed
immaterial and are not included.

(4)

Includes 9.4% of tax benefit related to the settlement of the
IRS Matter, which includes both the impact of the settlement with
the IRS as well as the reversal of certain related previously
accrued state and local tax liabilities.

 
 
Reconciliation of Book Value Per Share to Tangible Book Value Per
Share (1)
                   
2018 2017
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Book value per share $ 15.01 $ 14.16 $ 13.90 $ 13.88 $ 13.54
Less: Goodwill and other intangible assets, net per share   0.28   0.28   0.30   0.31   0.32
Tangible book value per share $ 14.73 $ 13.88 $ 13.60 $ 13.57 $ 13.22
 

(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 4 of 4)
 
Reconciliation of Net Income (Loss) to Services Adjusted EBITDA
 
    2018     2017

(In thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
 
Net income (loss) $ 208,949 $ 114,486 $ 6,816 $ 65,142 $ (27,342 )
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments (7,404 ) (18,887 ) (1,339 ) 2,480 5,331
Loss on induced conversion and debt extinguishment (45,766 ) (1,247 )
Acquisition-related expenses (416 ) 21 (54 ) (64 )
Impairment of goodwill (184,374 )
Amortization and impairment of other intangible assets (2,748 ) (2,748 ) (2,629 ) (2,890 ) (18,856 )
Impairment of other long-lived assets and loss from the sale of a
business line
130

 

(26 ) (3,865 ) (6,575 )
Income tax provision (benefit) (28,378 ) 27,956 157,911 37,672 (8,132 )
Mortgage Insurance adjusted pretax operating income   197,440     171,711     177,513     168,508     170,361  
Services adjusted pretax operating income (loss) (6,431 ) (7,608 ) (4,974 ) (12,889 ) (6,625 )
 
Less reconciling income (expense) items:
Allocation of corporate operating expenses to Services (3,010 ) (2,784 ) (3,467 ) (3,730 ) (3,404 )
Allocation of corporate interest expense to Services (4,451 ) (4,451 ) (4,452 ) (4,433 ) (4,431 )
Services depreciation and amortization   (920 )   (867 )   (893 )   (1,172 )   (835 )
Services adjusted EBITDA $ 1,950   $ 494   $ 3,838   $ (3,554 ) $ 2,045  
 
On a consolidated basis, "adjusted pretax operating income,"
"adjusted diluted net operating income per share," "adjusted net
operating return on equity" and "tangible book value per share" are
measures not determined in accordance with GAAP. "Services adjusted
EBITDA" and "Services adjusted EBITDA margin" are also non-GAAP
measures. These measures should not be considered in isolation or
viewed as substitutes for GAAP pretax income (loss), diluted net
income (loss) per share, return on equity, book value per share or
net income (loss). Our definitions of adjusted pretax operating
income, adjusted diluted net operating income per share, adjusted
net operating return on equity, tangible book value per share,
Services adjusted EBITDA or Services adjusted EBITDA margin 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
 
    2018     2017

($ in millions)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
 
Total primary new insurance written $ 16,417   $ 11,664   $ 14,383   $ 15,125   $ 14,342  
 

Percentage of primary new insurance
written by FICO score

>=740

60.8 % 61.0 % 60.4 % 61.1 % 61.6 %

680-739

32.5 32.6 33.1 32.5 32.6

620-679

  6.7     6.4     6.5     6.4     5.8  
Total Primary   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 

Percentage of primary new insurance
written

Direct monthly and other premiums 76 % 79 % 77 % 77 % 77 %
Direct single premiums:
Lender-paid 10 % 16 % 20 % 21 % 21 %
Borrower-paid (1) 14 % 5 % 3 % 2 % 2 %
 
Net single premiums (2) 8 % 7 % 15 % 15 % 15 %
 
NIW for purchases 95 % 89 % 88 % 91 % 91 %
NIW for refinances 5 % 11 % 12 % 9 % 9 %
 
LTV
95.01% and above 16.3 % 15.4 % 15.4 % 14.3 % 12.8 %
90.01% to 95.00% 45.3 % 44.5 % 43.9 % 45.7 % 47.3 %
85.01% to 90.00% 27.5 % 27.5 % 27.4 % 28.1 % 28.8 %
85.00% and below 10.9 % 12.6 % 13.3 % 11.9 % 11.1 %
 

(1)

 

Borrower-paid Single Premium Policies have lower Minimum
Required Assets under PMIERs as compared to lender-paid Single
Premium Policies.

(2)

Represents the percentage of direct Single Premium Policies
written, after consideration of the Single Premium NIW ceded under
the Single Premium QSR Program (for NIW after the effective dates
of the respective agreements). Effective December 31, 2017, we
amended the 2016 Single Premium QSR Agreement to increase the
amount of ceded risk for 2015 through 2017 vintages under the
agreement from 35% to 65%.

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Primary Insurance
in Force and Risk in Force
Exhibit I (page 1 of 2)
 
    June 30,     March 31,     December 31,     September 30,     June 30,
($ in millions) 2018 2018 2017 2017 2017

Primary insurance in force (1)

Prime $ 204,537 $ 197,589 $ 193,949 $ 189,340 $ 183,886
Alt-A and A minus and below   6,204     6,436     6,775     7,201     7,751  
Total Primary $ 210,741   $ 204,025   $ 200,724   $ 196,541   $ 191,637  
 

Primary risk in force (1) (2)

Prime $ 52,446 $ 50,623 $ 49,674 $ 48,516 $ 47,075
Alt-A and A minus and below   1,476     1,530     1,614     1,721     1,854  
Total Primary $ 53,922   $ 52,153   $ 51,288   $ 50,237   $ 48,929  
 

Percentage of primary risk in force

Direct monthly and other premiums 70 % 69 % 69 % 69 % 69 %
Direct single premiums 30 % 31 % 31 % 31 % 31 %
 
Net single premiums (3) 18 % 19 % 19 % 24 % 25 %
 

Percentage of primary risk in force by
FICO score

>=740 59.3 % 59.2 % 58.9 % 58.8 % 58.3 %

680-739

31.5 31.4 31.4 31.3 31.1

620-679

8.3 8.4 8.6 8.8 9.3
<=619   0.9     1.0     1.1     1.1     1.3  
Total Primary   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 

Percentage of primary risk in force by LTV

95.01% and above 10.3 % 9.7 % 9.2 % 8.6 % 8.0 %
90.01% to 95.00% 53.3 53.2 53.2 53.1 52.9
85.01% to 90.00% 29.7 30.2 30.6 31.1 31.7
85.00% and below   6.7     6.9     7.0     7.2     7.4  
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 

Percentage of primary risk in force by
policy year

2005 and prior 2.8 % 3.0 % 3.3 % 3.6 % 4.1 %

2006

1.8 2.0 2.1 2.3 2.5

2007

4.4 4.8 5.2 5.6 6.2

2008

2.9 3.2 3.4 3.7 4.2

2009

0.4 0.5 0.6 0.7 0.8

2010

0.4 0.5 0.5 0.6 0.7

2011

1.0 1.2 1.3 1.5 1.7

2012

4.5 5.1 5.5 6.1 6.7

2013

7.4 8.2 8.9 9.8 10.7

2014

7.1 7.9 8.5 9.3 10.2

2015

11.9 13.0 13.8 14.9 16.1

2016

19.2 20.5 21.4 22.5 23.7

2017

23.2 24.5 25.5 19.4 12.4

2018

  13.0     5.6              
Total   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %
 
Primary risk in force on defaulted loans (4) $ 1,093 $ 1,223 $ 1,389 $ 1,137 $ 1,124
 

See notes on next page.

 

 

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information - Primary Insurance
in Force and Risk in Force

Exhibit I (page 2 of 2)

 

Notes to table on preceding page,

 

(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 1.0% 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. Effective December 31, 2017, we
amended the 2016 Single Premium QSR Agreement to increase the
amount of ceded risk for 2015 through 2017 vintages under the
agreement from 35% to 65%, resulting in a reduction of $2.5
billion in net RIF on Single Premium Policies at December 31, 2017.

(4)

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

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance ("MI") Supplemental Information - Claims and
Reserves
Exhibit J (page 1 of 2)
 
    2018     2017

($ in thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
 
Net claims paid: (1)
Prime $ 30,936 $ 37,142 $ 37,191 $ 47,541 $ 45,562
Alt-A and A minus and below   17,156   21,416     19,384     26,807   24,286  
Total primary claims paid 48,092 58,558 56,575 74,348 69,848
Pool 954 1,152 2,458 2,148 1,901
Second-lien and other   157   148     (110 )   32   (1,937 )
Subtotal 49,203 59,858 58,923 76,528 69,812
Impact of captive terminations (36 ) 645
Impact of commutations (2)   7,331   104     26,590     54,956   20,838  
Total net claims paid $ 56,534 $ 59,926   $ 85,513   $ 131,484 $ 91,295  
 
Average net claims paid: (1) (3)
Prime $ 50.1 $ 50.0 $ 49.7 $ 48.4 $ 48.2
Alt-A and A minus and below 65.7 63.0 56.5 56.3 51.0
Total average net primary claims paid 54.8 54.1 51.8 51.0 49.1
Pool 73.4 52.4 102.4 59.7 47.5
Total average net claims paid $ 54.1 $ 53.2 $ 52.3 $ 51.0 $ 47.3
 
Average direct primary claims paid (3) (4) $ 55.5 $ 54.5 $ 52.2 $ 51.4 $ 49.4
Average total direct claims paid (3) (4) $ 54.8 $ 53.6 $ 52.7 $ 51.4 $ 47.6
 

(1)

 

Net of reinsurance recoveries.

(2)

Includes payments to commute mortgage insurance coverage on
certain performing and non-performing loans. 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 ("MI") Supplemental Information - Claims and
Reserves
Exhibit J (page 2 of 2)
 

($ in thousands, except primary reserve
per primary default amounts)

June 30,

2018

March 31,

2018

December 31,

2017

September 30,

2017

June 30,

2017

 
MI Reserve for losses by category
Prime $ 255,284 $ 274,595 $ 285,022 $ 296,885 $ 318,169
Alt-A and A minus and below 144,379 158,612 170,873 190,081 209,760
IBNR and other (1) 14,246 17,164 16,021 13,085 69,620
LAE 12,228 13,440 13,349 14,687 15,492
Reinsurance recoverable (2)   9,317   8,953   8,315   7,445   7,341
Total primary reserves   435,454   472,764   493,580   522,183   620,382
Pool insurance 11,674 11,387 12,794

 

18,630 29,099
IBNR and other 172 226 278 14,576 658
LAE 327 319 356 550 843
Reinsurance recoverable (2)   24   20   35   25   30
Total pool reserves   12,197   11,952   13,463   33,781   30,630
Total 1st lien reserves 447,651 484,716 507,043 555,964 651,012
Second-lien and other   443   476   545   524   579
Total MI reserves $ 448,094 $ 485,192 $ 507,588 $ 556,488 $ 651,591
 
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other $ 19,070

(3)

$ 18,523

(3)

$ 17,103 (3) $ 21,367 $ 23,185
 

(1)

 

At June 30, 2017, 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.

(3)

Includes the impact of reserves and defaults related to areas
designated as individual assistance disaster areas by FEMA ("FEMA
Designated Areas") associated with Hurricanes Harvey and Irma.
Excluding the impact from defaults received subsequent to
Hurricanes Harvey and Irma in these FEMA Designated Areas, this
amount would be approximately $20,656, $21,512 and $20,500 at June
30, 2018, March 31, 2018 and December 31, 2017, respectively.

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Default Statistics
Exhibit K
 
    June 30,     March 31,     December 31,     September 30,     June 30,
2018 2018 2017 2017 2017

Default Statistics

Primary Insurance:

Prime

Number of insured loans 947,165 925,648 913,408 897,253 879,926
Number of loans in default 15,849 17,887 20,269 15,953 15,664
Percentage of loans in default 1.67 % 1.93 % 2.22 % 1.78 % 1.78 %
 

Alt-A and A minus and below

Number of insured loans 38,892 40,661 42,318 45,555 48,953
Number of loans in default 6,239 6,710 7,653 7,873 8,091
Percentage of loans in default 16.04 % 16.50 % 18.08 % 17.28 % 16.53 %
 
Total Primary
Number of insured loans 986,057 966,309 955,726 942,808 928,879
Number of loans in default (1) 22,088 24,597 27,922 23,826 23,755
Percentage of loans in default 2.24 % 2.55 % 2.92 % 2.53 % 2.56 %
 

(1)

 

Included in this amount at June 30, 2018, March 31, 2018 and
December 31, 2017 are 4,132, 5,780 and 7,051 defaults,
respectively, related to the FEMA Designated Areas associated with
Hurricanes Harvey and Irma.

 

 
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR Transactions,
Captives and Persistency
Exhibit L
 
    2018     2017

($ in thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
 

Quota Share Reinsurance ("QSR") Program

QSR ceded premiums written (1) $ 3,516 $ 3,931 $ 4,219 $ 4,621 $ 5,059
% of premiums written 1.2 % 1.5 % 1.6 % 1.7 % 1.9 %
QSR ceded premiums earned (1) $ 5,258 $ 5,612 $ 6,439 $ 6,826 $ 7,404
% of premiums earned 2.0 % 2.2 % 2.5 % 2.7 % 3.1 %
Ceding commissions written $ 1,012 $ 1,128 $ 1,208 $ 1,323 $ 1,446
Ceding commissions earned (2) $ 2,896 $ 3,548 $ 2,924 $ 2,925 $ 3,379
Profit commission $ $ $ $ $
RIF included in QSR Program (3) $ 1,044,463 $ 1,135,597 $ 1,207,426 $ 1,298,954 $ 1,393,038
 

Single Premium QSR Program

QSR ceded premiums written (1) (4) $ 28,107 $ 15,791 $ 157,453 $ 13,248 $ 13,856
% of premiums written 9.8 % 6.1 % 59.5 % 5.0 % 5.3 %
QSR ceded premiums earned (1) $ 11,160 $ 10,377 $ 8,342 $ 6,771 $ 6,311
% of premiums earned 4.2 % 4.0 % 3.2 % 2.7 % 2.6 %
Ceding commissions written $ 9,880 $ 6,621 $ 41,331 $ 5,156 $ 5,134
Ceding commissions earned (2) $ 5,643 $ 5,268 $ 4,053 $ 3,536 $ 3,248
Profit commission $ 11,414 $ 10,693 $ 7,870 $ 7,373 $ 6,682
RIF included in Single Premium QSR Program (3) (4) $ 7,614,614 $ 7,176,662 $ 6,941,781 $ 4,286,529 $ 4,103,410
 
Total RIF included in QSR Program and Single Premium QSR Program $ 8,659,077 $ 8,312,259 $ 8,149,207 $ 5,585,483 $ 5,496,448
 

1st Lien Captives

Premiums earned ceded to captives $ 31 $ 35 $ 57 $ 68 $ 242
% of total premiums earned 0.0 % 0.1 % 0.0 % 0.1 % 0.1 %
 
Persistency Rate (12 months ended) (5) (6) 80.9 % 81.0 % 81.1 % 80.0 % 78.5 %
Persistency Rate (quarterly, annualized) (5) (6) (7) 82.3 % 84.3 % 79.4 % 80.4 % 82.8 %
 

(1)

 

Net of profit commission.

(2)

Includes amounts reported in policy acquisition costs and other
operating expenses. Operating expenses include the following
ceding commissions, net of deferred policy acquisition costs, for
the periods indicated:

 
               
2018 2017

($ in thousands)

Qtr 2     Qtr 1 Qtr 4     Qtr 3     Qtr 2
 
Ceding commissions $ (6,085 ) $ (5,812 ) $ (4,624 ) $ (4,231 ) $ (4,064 )
 

(3)

 

Included in primary RIF.

(4)

Effective December 31, 2017, we amended the 2016 Single Premium
QSR Agreement to increase the amount of ceded risk for 2015
through 2017 vintages under the agreement from 35% to 65%,
resulting in ceded premiums written of $145.7 million for the
fourth quarter of 2017 and an increase of $2.5 billion in ceded
RIF at December 31, 2017.

(5)

During the fourth quarter of 2017, the Persistency Rate was
reduced by an increase in cancellations of single premium policies
due to increased cancellations identified by our ongoing servicer
monitoring process for Single Premium Policies.

(6)

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.

(7)

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 report 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 economic and political conditions that impact the size of
    the insurable market, the credit performance of our insured portfolio,
    and our business prospects;
  • changes in the way customers, investors, ratings agencies, regulators
    or legislators perceive our performance, financial strength and future
    prospects;
  • Radian Guaranty's ability to remain eligible under the PMIERs and
    other applicable requirements imposed by the FHFA and by 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;
  • 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, which may include
    changes in the requirements to remain an approved insurer to the GSEs,
    the GSEs' interpretation and application of the PMIERs, as well as
    potential future changes to the PMIERs requirements which, among other
    things, may be impacted by the general economic environment and
    housing market, as well as the proposed Conservator Capital Framework
    ("CCF") that would establish capital requirements for the GSEs, if and
    when the CCF is finalized;
  • changes in the current housing finance system in the U.S., including
    the role of 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 on monthly premium products;
  • competition in our mortgage insurance business, including price
    competition and competition from the FHA and VA as well as from 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, including interpretations and guidance pertaining to recently
    enacted tax reform legislation;
  • 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 settlements, payments or
    adjustments associated with federal or other tax examinations,
    including, with respect to the IRS matter, our ability to obtain
    approval from the U.S. Tax court for the settlement terms and the
    possibility that our estimated liability may not be accurate due to,
    among other things, the IRS assessing interest at an amount that is
    different than our current estimated liability and potential
    additional true-ups of the settlement amounts;
  • the possibility that we may fail to estimate accurately the
    likelihood, magnitude and timing of losses in establishing loss
    reserves for our mortgage insurance business or in assessing our
    ability to comply with the proposed PMIERs when implemented, including
    the accuracy of our estimates of our Available Assets and Minimum
    Required Assets under the proposed PMIERs, which will be impacted by,
    among other things, the size and mix of our IIF, the level of defaults
    in our portfolio, and the level of cash flow generated by our
    insurance operations;
  • 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 or SAPP 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 2017 Form 10-K, and to subsequent
reports filed from time to time with the SEC. 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 report. 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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