News Column

Radian Announces First Quarter 2014 Financial Results and Agreement to Acquire Clayton Holdings

May 6, 2014

-- Reports net income of $203 million or $0.94 per diluted share --

-- Grows industry-leading mortgage insurance in force to $162 billion --

-- Executes growth and diversification strategy through acquisition of Clayton, a leading provider of outsourced solutions to mortgage industry --

PHILADELPHIA--(BUSINESS WIRE)-- Radian Group Inc. (NYSE: RDN) today announced results for the quarter ended March 31, 2014, and the acquisition of Clayton Holdings LLC.

FIRST QUARTER FINANCIAL RESULTS

Radian Group reported net income for the quarter ended March 31, 2014, of $202.8 million, or $0.94 per diluted share, which included combined gains from the change in fair value of derivatives and other financial instruments of $50.8 million and net gains on investments of $64.5 million. This compares to a net loss for the quarter ended March 31, 2013, of $187.5 million, or $1.30 per diluted share, which included combined losses from the change in fair value of derivatives and other financial instruments of $173.3 million and net losses on investments of $5.5 million. Book value per share at March 31, 2014, was $6.10.

Adjusted pretax operating income for the quarter ended March 31, 2014, was $91.1 million, consisting of $101.3 million of income from the mortgage insurance segment and a loss of $10.2 million from the financial guaranty segment. This compares to an adjusted pretax operating loss for the quarter ended March 31, 2013, of $15.2 million, consisting of a loss of $11.4 million from the mortgage insurance segment and a loss of $3.8 million from the financial guaranty segment.

ACQUISITION OF CLAYTON HOLDINGS

Radian Group also announced today that it has entered into a purchase agreement to acquire Clayton Holdings, a leading provider of outsourced solutions to the mortgage industry. This action is consistent with Radian’s growth and diversification strategy to pursue alternatives for providing credit-based services to the mortgage finance market.

Under the agreement, Radian Group will pay aggregate cash consideration of $305 million, which includes repayment of Clayton’s outstanding debt, to purchase all of the outstanding equity interests in Clayton, subject to customary purchase price adjustments. Radian Group expects to finance the entire purchase price and related expenses, as well as redeem Radian’s $54.5 million principal amount of outstanding debt due in June 2015, through public issuances of both debt and equity.

In 2013, Clayton had annual revenue of $135.0 million and net income of $9.1 million. Included in expenses was the non-cash amortization of intangible assets of $10.8 million. From an accretion/dilution standpoint, the company expects that the transaction will be approximately breakeven in 2014, and will be modestly accretive excluding the non-cash amortization of intangible assets. The acquisition is expected to close during the summer of 2014, subject to satisfaction of customary closing conditions. After the transaction is complete, Clayton will become a subsidiary of Radian Group, therefore cash flows from Clayton are expected to provide an unregulated source of funds to Radian Group.

Following the completion of the transaction, Clayton will serve as a complement to Radian’s existing mortgage-related products and services. Clayton is headquartered in Shelton, Connecticut, and employs approximately 700 people. Clayton Chief Executive Officer Paul Bossidy, President and Chief Operating Officer Joseph D’Urso and the Clayton management team have built a strong, market-leading franchise in each of the mortgage services areas where they participate. As part of Radian, they will focus on serving their clients and growing their business, as well as exploring additional opportunities to market new and existing services to Radian’s established customer base.

“Radian’s strong financial performance in the first quarter along with today’s acquisition announcement represent our team’s success in executing on our strategic vision – to emerge from the downturn as a stronger company and to grow and diversify for future success,” said Radian’s Chief Executive Officer S.A. Ibrahim. “We’ve had outstanding success in strengthening our mortgage insurance franchise and returning to profitability. We look forward to continuing down this path, while also taking a step to help diversify our revenue stream and position Radian for new opportunities as the U.S. housing market evolves.”

“The future looks bright for Clayton and we are delighted to become part of the Radian team,” said Clayton’s Chief Executive Officer Paul T. Bossidy. “Radian and Clayton are leaders in our respective industries, and we look forward to working together to create new opportunities for growth and expansion that we simply could not achieve on our own.”

CAPITAL AND LIQUIDITY UPDATE

As of March 31, 2014, Radian Guaranty’s risk-to-capital ratio was 19.2:1 and Radian Group maintained approximately $615 million of available liquidity.

  • The improvement in the risk-to-capital ratio from December 31, 2013, was primarily driven by the company’s net income, partially offset by an increase to net risk in force.
  • As of March 31, 2014, Radian Guaranty’s statutory capital was $1,414 million compared to $1,341 million at December 31, 2013, and $1,106 million a year ago.
  • In 2012, Radian Guaranty entered into two quota share reinsurance agreements with the same third-party reinsurance provider, in order to proactively manage its risk-to-capital position. On April 1, 2013, Radian reduced the amount of new business ceded under these reinsurance agreements on a prospective basis from 20 percent to 5 percent. As of March 31, 2014, a total of $2.7 billion of risk in force had been ceded under those agreements. Radian will have the option to recapture a portion of the ceded risk outstanding on December 31, 2014, and on December 31, 2015.

    FIRST QUARTER HIGHLIGHTS

  • New mortgage insurance written (NIW) was $6.8 billion for the quarter, compared to $9.3 billion in the fourth quarter of 2013 and $10.9 billion in the prior-year quarter. Radian wrote an additional $2.84 billion in NIW in April 2014, compared to $4.1 billion in April 2013.
  • The Home Affordable Refinance Program (HARP) accounted for $0.6 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $0.9 billion in the fourth quarter of 2013 and $2.5 billion in the prior-year quarter. As of March 31, 2014, more than 11 percent of the company’s total primary mortgage insurance risk in force had successfully completed a HARP refinance.
  • Of the $6.8 billion in new business written in the first quarter of 2014, 73 percent was written with monthly premiums and 27 percent with single premiums. This compares to a mix of 64 percent monthly premiums and 36 percent single premiums in the first quarter of 2013.
  • NIW continued to consist of loans with excellent risk characteristics.
  • The mortgage insurance provision for losses was $49.2 million in the first quarter of 2014, compared to $144.3 million in the fourth quarter of 2013, and $132.0 million in the prior-year period.
  • The loss ratio in the first quarter was 24.7 percent, compared to 72.0 percent in the fourth quarter of 2013 and 72.1 percent in the first quarter of 2013.
  • Mortgage insurance loss reserves were $1.9 billion as of March 31, 2014, compared to $2.2 billion as of December 31, 2013, and $2.9 billion as of March 31, 2013.
  • Primary reserves (excluding IBNR and other reserves) per default were $26,509 as of March 31, 2014. This compares to primary reserves per default of $26,717 as of December 31, 2013, and $27,517 as of March 31, 2013.
  • The total number of primary delinquent loans decreased by 13 percent in the first quarter from the fourth quarter of 2013, and by 38 percent from the first quarter of 2013. In addition, the total number of primary delinquent loans decreased by 4 percent in April 2014. Additional details related to the company’s delinquency inventory in April 2014 may be found on Slide 21 of the first quarter presentation slides. The primary mortgage insurance delinquency rate decreased to 6.3 percent in the first quarter of 2014, compared to 7.3 percent in the fourth quarter of 2013, and 10.9 percent in the first quarter of 2013.
  • Total mortgage insurance claims paid were $306.9 million in the first quarter, compared to $283.4 million in the fourth quarter of 2013, and $309.9 million in the first quarter of 2013. Claims paid in the first quarter of 2014 exclude $49.5 million of claims processed in the quarter in accordance with the terms of the Freddie Mac Agreement, for which no cash payment was necessary. The company expects mortgage insurance net claims paid in the $900 million to $1.0 billion range for the full-year 2014.
  • Other operating expenses were $59.9 million in the first quarter, compared to $72.5 million in the fourth quarter of 2013, and $80.1 million in the first quarter of last year. In the quarter, $13.6 million represented long-term incentive compensation, compared to $11.8 million in the fourth quarter of 2013. The compensation expense in both periods was impacted by an increase in the fair value of cash-settled awards. The component of the fair value change that resulted from the stock price increase was $7.8 million in the first quarter of 2014, compared to $1.5 million in the fourth quarter of 2013.
  • Radian Asset Assurance Inc. continues to serve as an important source of capital support for Radian Guaranty and is expected to continue to provide Radian Guaranty with dividends over time.
  • As of March 31, 2014, Radian Asset had approximately $1.2 billion in statutory surplus with an additional $0.4 billion in claims-paying resources.
  • Since June 30, 2008, Radian Asset has successfully reduced its total net par exposure by 80 percent to $22.7 billion as of March 31, 2014, including large declines in many of the riskier segments of the portfolio.

    CONFERENCE CALL

    Radian will discuss first quarter financial results and the strategic acquisition of Clayton in its conference call tomorrow, Wednesday, May 7, 2014, 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 800.230.1096 inside the U.S., or 612.332.0226 for international callers, using passcode 324499 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 324499.

    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 MEASURE

    Radian believes that adjusted pretax operating income (a non-GAAP measure) facilitates evaluation of the company’s fundamental financial performance and provides relevant and meaningful information to investors about the ongoing operating results of the company. This measure is not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as an alternative to a GAAP measure of performance. The measure described below has been established in order to increase transparency for the purpose of evaluating the company’s core operating trends and enable 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 GAAP measure. See Exhibit E or Radian’s website for a description of these items, as well as a reconciliation of adjusted pretax operating income (loss) to “pretax income (loss).”

    ABOUT RADIAN

    Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. Additional information may be found at www.radian.biz.

    FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)

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

     
    Exhibit A: Condensed Consolidated Statements of Income
    Exhibit B: Net Income (Loss) Per Share
    Exhibit C: Condensed Consolidated Balance Sheets
    Exhibit D: Segment Information Quarter Ended March 31, 2014 and
    Quarter Ended March 31, 2013
    Exhibit E: Reconciliation of Consolidated Non-GAAP Financial Measure
    Exhibit F: Financial Guaranty Supplemental Information
    Exhibit G: Mortgage Insurance Supplemental Information
    New Insurance Written
    Exhibit H: Mortgage Insurance Supplemental Information
    Insurance in Force and Risk in Force by Product
    Exhibit I: Mortgage Insurance Supplemental Information
    Risk in Force by FICO, LTV and Policy Year
    Exhibit J: Mortgage Insurance Supplemental Information
    Pool and Other Risk in Force, Risk-to-Capital
    Exhibit K: Mortgage Insurance Supplemental Information
    Claims, Reserves and Reserve per Default
    Exhibit L: Mortgage Insurance Supplemental Information
    Default Statistics
    Exhibit M: Mortgage Insurance Supplemental Information
    Captives, QSR and Persistency
    Exhibit N: Segment Trend Information
    Exhibit O: Trend Information: Reconciliation of Consolidated Non-GAAP Financial Measure


     

    Radian Group Inc. and Subsidiaries

    Condensed Consolidated Statements of Income

    Exhibit A

     
     

    Quarter Ended

    March 31,

    (In thousands, except per-share data)

    2014   2013
     
    Revenues:
    Net premiums written - insurance$213,706   $ 207,185  
     
    Net premiums earned - insurance$205,665 $ 192,588
    Net investment income24,229 26,873
    Net gains (losses) on investments64,451 (5,505 )
    Change in fair value of derivative instruments50,086 (167,670 )
    Net gains (losses) on other financial instruments698 (5,675 )
    Other income1,127   1,771  
    Total revenues346,256   42,382  
     
    Expenses:
    Provision for losses54,809 132,059
    Change in reserve for premium deficiency466 (629 )
    Policy acquisition costs8,614 17,195
    Other operating expenses59,909 80,100
    Interest expense19,927   15,881  
    Total expenses143,725   244,606  
     
    Equity in net (loss) income of affiliates(13) 1  
     
    Pretax income (loss)202,518 (202,223 )
    Income tax benefit(241) (14,723 )
     
    Net income (loss)$202,759   $ (187,500 )
     
    Diluted net income (loss) per share$0.94   $ (1.30 )
     


    For Trend Information, refer to our Quarterly Financial Statistics on Radian's website.


     

    Radian Group Inc. and Subsidiaries

    Net Income (Loss) Per Share

    Exhibit B

     

    The calculation of basic and diluted net income (loss) per share was as follows:

     

    Quarter Ended

    March 31,

    (In thousands, except per share amounts)

    2014   2013
    Net income (loss)—basic

    $

    202,759 $ (187,500 )
    Adjustment for dilutive Convertible Senior Notes due 2019 (1)5,455  
    Net income (loss)—diluted$208,214

    $

    (187,500 )
     
    Average common shares outstanding—basic

    173,165

    144,355
    Dilutive effect of Convertible Senior Notes due 2017 (2)9,003
    Dilutive effect of Convertible Senior Notes due 201937,736
    Dilutive effect of stock-based compensation arrangements (3)2,764  
    Adjusted average common shares outstanding—diluted222,668 144,355  
     
    Net income (loss) per share—basic$1.17 $ (1.30 )
    Net income (loss) per share—diluted$0.94 $ (1.30 )
     
     

    (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.

    (2)

    Does not include the anti-dilutive impact of 6,112,498 shares due to capped call transactions related to the Convertible Senior Notes due 2017. Such transactions were designed to offset the potential dilution of the notes up to a stock price of approximately $14.11 per share.

    (3)

    For the three months ended March 31, 2014, 946,400 shares of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of diluted net income per share as of such date because they were anti-dilutive.

     


       

    Radian Group Inc. and Subsidiaries

    Condensed Consolidated Balance Sheets

    Exhibit C

     
    March 31,December 31,

    (In thousands, except per-share data)

    2014 2013
     
    Assets:
    Cash and investments$4,901,908 $ 4,977,542
    Deferred policy acquisition costs63,708 66,926
    Deferred income taxes, net 17,902
    Reinsurance recoverables31,033 46,846
    Derivative assets14,466 16,642
    Other assets517,870   495,833  
    Total assets$5,528,985   $ 5,621,691  
     
    Liabilities and stockholders' equity:
    Unearned premiums$774,788 $ 768,871
    Reserve for losses and loss adjustment expenses1,923,711 2,185,421
    Long-term debt938,390 930,072
    VIE debt95,580 94,645
    Derivative liabilities257,717 307,185
    Other liabilities392,216   395,852  
    Total liabilities4,382,402   4,682,046  
     
    Equity component of currently redeemable convertible senior notes91,016    
     
    Common stock191 191
    Additional paid-in capital1,363,499 1,454,297
    Retained deficit(349,467) (552,226 )
    Accumulated other comprehensive income41,344   37,383  
    Total common stockholders’ equity1,055,567   939,645  
    Total liabilities and stockholders’ equity$5,528,985   $ 5,621,691  
     
    Shares outstanding, end of period173,167 173,100
     
    Book value per share$6.10 $ 5.43
     


     

    Radian Group Inc. and Subsidiaries

    Segment Information

    Exhibit D (page 1 of 3)

     


    Summarized financial information concerning our operating segments and reconciliations to consolidated pretax income (loss) and consolidated net income (loss), as of and for the periods indicated, is as follows:

     
    Three Months Ended March 31, 2014
    Mortgage   Financial  

    (In thousands)

    InsuranceGuarantyTotal
    Net premiums written - insurance$212,953   $753   $213,706  
    Net premiums earned - insurance$198,762$6,903$205,665
    Net premiums earned on derivatives (1)3,4453,445
    Net investment income14,02110,20824,229
    Other income1,057   70   1,127  
    Total revenues213,840   20,626   234,466  
     
    Provision for losses49,1595,65054,809
    Estimated present value of net credit losses (recoveries) incurred (1)139(501)(362)
    Change in reserve for premium deficiency466466
    Policy acquisition costs7,0171,5978,614
    Other operating expenses50,3589,55159,909
    Interest expense5,372   14,555   19,927  
    Total expenses112,511   30,852   143,363  
     
    Equity in net loss of affiliates   (13)(13)
     
    Adjusted pretax operating income (loss)$101,329   $(10,239)$91,090  
     
    Cash and investments$2,735,809$2,166,099$4,901,908
    Deferred policy acquisition costs27,87035,83863,708
    Total assets3,136,5372,392,4485,528,985
    Unearned premiums580,453194,335774,788
    Reserve for losses and loss adjustment expenses1,893,96029,7511,923,711
    VIE Debt3,14492,43695,580
    Derivative liabilities257,717257,717
     


    (1) Please see Exhibit E (page 1 of 2) for the definition of this line item.


     

    Radian Group Inc. and Subsidiaries

    Segment Information

    Exhibit D (page 2 of 3)

     
    Three Months Ended March 31, 2013
    Mortgage   Financial  

    (In thousands)

    InsuranceGuarantyTotal
    Net premiums written - insurance $ 217,286   $ (10,101 ) $ 207,185  
    Net premiums earned - insurance $ 182,992 $ 9,596 $ 192,588
    Net premiums earned on derivatives (1) 4,992 4,992
    Net investment income 15,102 11,771 26,873
    Other income 1,712   59   1,771  
    Total revenues 199,806   26,418   226,224  
     
    Provision for losses 131,956 103 132,059
    Estimated present value of net credit recoveries incurred (1) (299 ) (2,845 ) (3,144 )
    Change in reserve for premium deficiency (629 ) (629 )
    Policy acquisition costs 11,732 5,463 17,195
    Other operating expenses 65,780 14,320 80,100
    Interest expense 2,669   13,212   15,881  
    Total expenses 211,209   30,253   241,462  
     
    Equity in net income of affiliates   1   1  
     
    Adjusted pretax operating loss $ (11,403 ) $ (3,834 ) $ (15,237 )
     
    Cash and investments $ 3,186,871 $ 2,486,017 $ 5,672,888
    Deferred policy acquisition costs 29,920 44,681 74,601
    Total assets 3,663,552 2,707,397 6,370,949
    Unearned premiums 428,574 245,275 673,849
    Reserve for losses and loss adjustment expenses 2,894,500 24,573 2,919,073
    VIE Debt 11,062 96,339 107,401
    Derivative liabilities 430,898 430,898
     


    (1) Please see Exhibit E (page 1 of 2) for the definition of this line item.


     

    Radian Group Inc. and Subsidiaries

    Segment Information

    Exhibit D (page 3 of 3)

     

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

    and Consolidated Net Income (Loss)

     

    Three Months Ended March 31,

    2014   2013
    Adjusted pretax operating income (loss):
    Mortgage Insurance$101,329 $ (11,403 )
    Financial Guaranty(10,239) (3,834 )
    Total adjusted pretax operating income (loss)91,090   (15,237 )
     
    Change in fair value of derivative instruments50,086 (167,670 )
    Less: Estimated present value of net credit recoveries incurred362 3,144

    Less: Net premiums earned on derivatives

    3,445   4,992  
    Change in fair value of derivative instruments expected to reverse over time46,279   (175,806 )
    Net gains (losses) on investments64,451 (5,505 )
    Net gains (losses) on other financial instruments698   (5,675 )
    Consolidated pretax income (loss)202,518 (202,223 )
    Income tax benefit(241) (14,723 )
    Consolidated net income (loss)$202,759   $ (187,500 )
     


    On a consolidated basis, “adjusted pretax operating income (loss)” is a measure not determined in accordance with GAAP. Total adjusted pretax operating income (loss) is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP pretax income (loss). Our definition of adjusted pretax operating income (loss) may not be comparable to similarly-named measures reported by other companies. See Exhibit E for additional information on our consolidated non-GAAP financial measure.


     

    Radian Group Inc. and Subsidiaries

    Reconciliation of Consolidated Non-GAAP Financial Measure

    Exhibit E (page 1 of 2)

     


    Use of Non-GAAP Financial Measure. In addition to the traditional GAAP financial measures, we have presented a non-GAAP financial measure for the consolidated company, “adjusted pretax operating income,” among our key performance indicators to facilitate evaluation of our fundamental financial performance. This non-GAAP financial measure aligns with the way the Company’s business performance is evaluated by both management and the board of directors. This measure has been established in order to increase transparency for the purposes of evaluating our core operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis "adjusted pretax operating income (loss)" is a non-GAAP financial measure, we believe this measure aids in understanding the underlying performance of our operations. Our senior management, including our Chief Executive Officer (the Company’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to facilitate evaluation of the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.

    Adjusted pretax operating income adjusts GAAP pretax income to remove the effects of net gains (losses) on investments and other financial instruments and net impairment losses recognized in earnings. It also excludes gains and losses related to changes in fair value estimates on insured credit derivatives and includes the impact of changes in the present value of insurance claims and recoveries on insured credit derivatives, based on our ongoing insurance loss monitoring, as well as premiums earned on insured credit derivatives.

    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: (1) not viewed as part of the operating performance of our primary activities; or (2) not expected to result in an economic impact equal to the GAAP measure. These adjustments, along with the reasons for their treatment, are described below.

       
    (1)

    Change in fair value of derivative instruments. Gains and losses related to changes in the fair value of insured credit derivatives are subject to significant fluctuation based on changes in interest rates, credit spreads (of both the underlying collateral as well as our credit spread), credit ratings and other market, asset-class and transaction-specific conditions and factors that may be unrelated or only indirectly related to our obligation to pay future claims. With the exception of the estimated present value of net credit (losses) recoveries incurred and net premiums earned on derivatives, discussed in items 2 and 3 below, we believe these gains and losses will reverse over time and consequently these changes are not expected to result in economic gains or losses. Therefore, these gains and losses are excluded from our calculation of adjusted pretax operating income.

     
    (2)

    Estimated present value of net credit (losses) recoveries incurred. The change in present value of insurance claims we expect to pay or recover on insured credit derivatives represents the amount of the change in credit derivatives from item 1, above, that we expect to result in an economic loss or recovery based on our ongoing loss monitoring analytics. Therefore, this item is expected to have an economic impact and is included in our calculation of adjusted pretax operating income. Also included in this item is the expected recovery of miscellaneous operating expenses associated with our consolidated VIEs.

     
    (3)

    Net premiums earned on derivatives. The net premiums earned on insured credit derivatives are classified as part of the change in fair value of derivative instruments discussed in item 1 above. However, since net premiums earned on derivatives are considered part of our fundamental operating activities, these premiums are included in our calculation of adjusted pretax operating income.

     
    (4)

    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. These valuation adjustments may not necessarily result in economic gains or losses. We do not view them to be indicative of our fundamental operating activities. 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. Therefore, these items are excluded from our calculation of adjusted pretax operating income.

     
    (5)

    Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view them to be indicative of our fundamental operating activities. Therefore, these losses are excluded from our calculation of adjusted pretax operating income.

     


    Adjusted pretax operating income is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP pretax income. Our definition of adjusted pretax operating income may not be comparable to similarly-named measures reported by other companies.


     

    Radian Group Inc. and Subsidiaries

    Reconciliation of Consolidated Non-GAAP Financial Measure

    Exhibit E (page 2 of 2)

     


    The following table provides a reconciliation of our non-GAAP financial measure for the consolidated company, adjusted pretax operating income (loss), to the most comparable GAAP measure, pretax income (loss).

     

    Three Months Ended

    March 31,

    (In thousands)

    2014   2013
    Adjusted pretax operating income (loss):
    Mortgage Insurance$101,329 $ (11,403 )
    Financial Guaranty(10,239) (3,834 )
    Adjusted pretax operating income (loss)91,090   (15,237 )
     
    Change in fair value of derivative instruments50,086 (167,670 )
    Less: Estimated present value of net credit recoveries incurred362 3,144
    Less: Net premiums earned on derivatives3,445   4,992  
    Change in fair value of derivative instruments expected to reverse over time46,279   (175,806 )
     
    Net gains (losses) on investments64,451 (5,505 )
    Net gains (losses) on other financial instruments698   (5,675 )
    Pretax income (loss)$202,518   $ (202,223 )
     
     

    Radian Group Inc. and Subsidiaries

    Financial Guaranty SupplementalInformation

    Exhibit F

     

    Quarter Ended

    March 31,

    (In thousands)

    2014   2013
     
    Total Premiums Earned - insurance$6,903 $ 12,043
    Impact of commutations and reinsurance   (2,447 )
    Net Premiums Earned - insurance$6,903   $ 9,596  
     
    Refundings included in earned premium$2,117   $ 4,753  
     
    Claims paid$3,033   $ 41,858   (1)
     
       
    March 31,December 31,

    ($ in thousands, except ratios)

    2014 2013
     

    Statutory Information:

     
    Capital and surplus$1,186,267 $ 1,198,034
    Contingency reserve271,827   263,963  
    Qualified statutory capital1,458,094 1,461,997
     
    Unearned premium reserve192,156 195,303
    Loss and loss expense reserve(174,361) (180,168 )
    Total statutory policyholders' reserves1,475,889 1,477,132
     
    Present value of installment premiums86,156   90,852  
    Total statutory claims paying resources$1,562,045   $ 1,567,984  
     
    Net debt service outstanding$29,608,845   $ 30,778,401  
     
    Capital leverage ratio (2)20 21
    Claims paying leverage ratio (3)19 20
     
    Net par outstanding by product:
    Public finance direct$7,859,899 $ 8,051,124
    Public finance reinsurance4,341,177 4,383,643
    Structured direct9,990,785 10,872,379
    Structured reinsurance533,211   547,733  
    Total (4)$22,725,072   $ 23,854,879  
     
     

    (1)

    Primarily related to commutation of reinsurance business.

    (2)

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

    (3)

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

    (4)

    Included in public finance net par outstanding is $0.8 billion and $0.9 billion at March 31, 2014 and December 31, 2013, respectively, for legally defeased bond issues where our financial guaranty policy has not been extinguished but cash or securities have been deposited in an escrow account for the benefit of bondholders.

     


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit G

    Quarter Ended
    March 31,
    2014   2013

    ($ in millions)

    $   % $   %

    Primary new insurance written

       
    Prime$6,807100.0% $ 10,905 100.0 %
    Alt -A and A minus and below1       1      
    Total Flow$6,808     100.0% $ 10,906     100.0 %
     

    Total primary new insurance written by FICO score

    >=740$4,34563.8% $ 8,210 75.3 %
    680-7392,04130.0 2,398 22.0
    620-679422     6.2   298     2.7  
    Total Flow$6,808     100.0% $ 10,906     100.0 %
     

    Percentage of primary new insurance written

    Monthly premiums73% 64 %
    Single premiums27% 36 %
     
    Refinances18% 48 %
    LTV
    95.01% and above0.9% 1.7 %
    90.01% to 95.00%51.8% 39.8 %
    85.01% to 90.00%34.4% 39.3 %
    85.00% and below12.9% 19.2 %
     


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit H

       
    March 31,March 31,
    2014 2013

    ($ in millions)

    $

     

    % $   %

    Primary insurance in force (1)

     
    Flow$152,73194.1% $ 133,693 92.4 %
    Structured9,637     5.9   10,950     7.6  
    Total Primary$162,368     100.0% $ 144,643     100.0 %
     
    Prime$148,73691.6% $ 128,361

    88.8

    %
    Alt-A8,3175.1 10,027 6.9
    A minus and below5,315     3.3   6,255     4.3  
    Total Primary$162,368     100.0% $ 144,643     100.0 %
     

    Primary risk in force (1)

    Flow$38,25294.6% $ 33,027 93.2 %
    Structured2,180     5.4     2,419     6.8  
    Total Primary$40,432     100.0% $ 35,446     100.0 %
     
    Flow
    Prime$35,86793.8% $ 30,146 91.3 %
    Alt-A1,474

    3.8

    1,780 5.4
    A minus and below911     2.4   1,101     3.3  
    Total Flow$38,252     100.0% $ 33,027     100.0 %
     
    Structured
    Prime$1,29259.3% $ 1,419 58.7 %
    Alt-A46521.3 535 22.1
    A minus and below423     19.4     465     19.2  
    Total Structured$2,180     100.0% $ 2,419     100.0 %
     
    Total
    Prime$37,15991.9% $ 31,565 89.1 %
    Alt-A1,9394.8 2,315 6.5
    A minus and below1,334     3.3   1,566     4.4  
    Total Primary$40,432     100.0% $ 35,446     100.0 %
     


    (1) Includes amounts related to the Freddie Mac Agreement.


       

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit I

     
    March 31,March 31,
    2014 2013

    ($ in millions)

    $   % $   %

    Total primary risk in force by FICO score

       
    Flow
    >=740$21,976

    57.4

    % $ 17,556 53.2 %
    680-73911,15829.2 9,865 29.9
    620-6794,45911.7 4,801 14.5
    659     1.7   805     2.4  
    Total Flow$38,252     100.0% $ 33,027     100.0 %
     
    Structured
    >=740$59027.1% $ 647 26.7 %
    680-73962428.6 698 28.9
    620-67957226.2 642 26.5
    394     18.1   432     17.9  
    Total Structured$2,180     100.0% $ 2,419     100.0 %
     
    Total
    >=740$22,56655.8% $ 18,203

    51.3

    %
    680-73911,78229.1 10,563 29.8
    620-6795,031

    12.5

    5,443 15.4
    1,053     2.6   1,237     3.5  
    Total Primary$40,432     100.0% $ 35,446     100.0 %
     

    Total primary risk in force by LTV

    95.01% and above$4,0089.9% $ 4,494 12.7 %
    90.01% to 95.00%17,767

    44.0

    13,988 39.5
    85.01% to 90.00%14,80736.6 13,473 38.0
    85.00% and below3,850     9.5   3,491     9.8  
    Total$40,432     100.0% $ 35,446     100.0 %
     

    Total primary risk in force by policy year

      2005 and prior

    $4,20910.4% $ 5,362 15.1 %

     2006

    2,243

    5.6

    2,635 7.4

     2007

    5,06412.5 5,876 16.6

     2008

    3,8109.4 4,436 12.5

     2009

    1,3633.4 1,855 5.2

     2010

    1,1442.8 1,573

    4.5

     2011

    2,1655.4 2,735 7.7

     2012

    7,51118.6 8,397 23.7

     2013

    11,21027.7 2,577 7.3

     2014

    1,713     4.2        
    Total$40,432     100.0% $ 35,446     100.0 %
     
    Primary risk in force on defaulted loans$2,466

     (1)

     

    $ 3,953
     


    (1) Excludes risk related to loans subject to the Freddie Mac Agreement.


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit J

     
      March 31,   March 31,

    ($ in millions)

    2014 2013
    $   % $   %

    Pool risk in force

     
    Prime$1,26378.9% $ 1,393 77.3 %
    Alt-A684.3 99 5.5
    A minus and below269     16.8   309     17.2  
    Total$1,600     100.0% $ 1,801     100.0 %
     

    Total pool risk in force by policy year

      2005 and prior

    $1,516

    94.7

    % $ 1,646 91.4 %

      2006

    191.2 68 3.8

      2007

    644.0 80 4.4

      2008

    1     0.1   7     0.4  
    Total pool risk in force$1,600     100.0% $ 1,801     100.0 %
     

    Other risk in force

    Second-lien
    1st loss$54 $ 75
    2nd loss16 12
    NIMS5 14
    1st loss-Hong Kong primary mortgage insurance18   33  
    Total other risk in force$93   $ 134  
     
    Risk to capital ratio-Radian Guaranty only19.2:1

    (1)

     

    18.6 :1
    Risk to capital ratio-Mortgage Insurance combined23.0:1

    (1)

     

    25.7 :1
     
    (1) Preliminary
     


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit K

     
      Quarter Ended
    March 31,

    ($ in thousands)

    2014   2013
     
    Net claims paid
    Prime$194,718 $ 200,517
    Alt-A46,191 49,091
    A minus and below33,286   27,486  
    Total primary claims paid274,195 277,094
    Pool30,863 30,949
    Second-lien and other727   1,884  
    Subtotal305,785 309,927
    Impact of captive terminations1,156    
    Total$306,941   $ 309,927  
     
    Average claim paid (1)
    Prime$44.1 $ 49.0
    Alt-A54.9 60.1
    A minus and below36.7 37.6
    Total primary average claims paid44.5 49.1
    Pool60.3 73.5
    Second-lien and other20.8 22.2
    Total$45.6 $ 50.4
     
    Average primary claim paid (2)$46.2 $ 51.4
    Average total claim paid (2)$47.2 $ 52.6
     
    Loss ratio - GAAP basis24.7% 72.1 %
    Expense ratio - GAAP basis28.9% 42.4 %
    53.6% 114.5 %
     
    Reserve for losses by category
    Prime$790,529 $ 1,438,940
    Alt-A351,695 474,312
    A minus and below189,453 296,892
    IBNR and other347,674 247,526
    LAE50,684 59,739
    Reinsurance recoverable (3)25,751   72,101  
    Total primary reserves1,755,786   2,589,510  
    Pool insurance123,596 260,341
    IBNR and other5,679 28,228
    LAE4,517   6,714  
    Total pool reserves133,792   295,283  
    Total 1st lien reserves1,889,578   2,884,793  
    Second lien and other4,382   9,707  
    Total reserves$1,893,960   $ 2,894,500  
     
    1st lien reserve per default (4)
    Primary reserve per primary default excluding IBNR and other26,509 27,517
    Pool reserve per pool default excluding IBNR and other13,054 15,944
     
     

    (1)

    Net of reinsurance recoveries and without giving effect to captive terminations.

    (2)

    Before reinsurance recoveries and without giving effect to captive terminations.

    (3)

    Represents ceded losses on captive transactions and quota share reinsurance transactions, and Smart Home in 2013.

    (4)

    If calculated before giving effect to deductibles and stop losses in pool transactions, this would be $22,172 and $28,402 at March 31, 2014 and 2013, respectively.

     


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit L

     
      March 31,   December 31,   March 31,
    2014 2013 2013

    Default Statistics

    Primary Insurance:
     

    Prime

    Number of insured loans746,598 741,554 683,227
    Number of loans in default32,708 37,932 55,490
    Percentage of loans in default4.38% 5.12 % 8.12 %
     

    Alt-A

    Number of insured loans43,018 44,905 51,981
    Number of loans in default10,173 11,209 14,833
    Percentage of loans in default23.65% 24.96 % 28.54 %
     

    A minus and below

    Number of insured loans39,338 40,930 47,656
    Number of loans in default10,238 11,768 14,786
    Percentage of loans in default26.03% 28.75 % 31.03 %
     
    Total Primary
    Number of insured loans839,802(1) 839,249 (1) 782,864
    Number of loans in default53,119(2) 60,909 (2) 85,109
    Percentage of loans in default6.33% 7.26 % 10.87 %
     
    Pool insurance
    Number of loans in default9,814 11,921 16,750
     
     

    (1)

    Includes 10,848 and 11,860 insured loans subject to the Freddie Mac Agreement at March 31, 2014 and December 31, 2013, respectively.

    (2)

    Excludes 6,022 and 7,221 loans subject to the Freddie Mac Agreement that are in default at March 31, 2014 and December 31, 2013, respectively, as we no longer have claims exposure on these loans.

     


     

    Radian Group Inc. and Subsidiaries

    Mortgage Insurance Supplemental Information

    Exhibit M

     
      Quarter Ended

    March 31

    ($ in thousands)

    2014   2013
     

    1st Lien Captives

    Premiums ceded to captives$3,508 $ 5,152
    % of total premiums1.6% 2.6 %
    IIF included in captives (1)3.5% 5.8 %
    RIF included in captives (1)3.3% 5.7 %
     

    Initial Quota Share Reinsurance ("QSR") Transaction

    QSR ceded premiums written$5,304 $ 6,122
    % of premiums written2.3% 2.5 %
    QSR ceded premiums earned$6,807 $ 7,833
    % of premiums earned3.2% 4.0 %
    Ceding commissions$1,326 $ 1,530
    RIF included in QSR (2)$1,289,856 $ 1,471,580
     

    Second QSR Transaction

    QSR ceded premiums written$7,293 $ 16,440
    % of premiums written3.2% 6.7 %
    QSR ceded premiums earned$6,585 $ 2,838
    % of premiums earned3.1% 1.4 %
    Ceding commissions$2,553 $ 5,754
    RIF included in QSR (2)$1,360,651 $ 900,378
     
    Persistency (twelve months ended March 31)82.3% 80.9 %
     
     

    (1)

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

    (2)

    Included in primary risk in force.

     


     

    Radian Group Inc. and Subsidiaries

    Segment Trend Information

    Exhibit N (page 1 of 2)

     


    Summarized financial information concerning our operating segments and reconciliations to consolidated pretax (loss) income and consolidated net (loss) income for the periods indicated, is as follows:

       

    Mortgage Insurance

    Three Months EndedYear Ended

    (In thousands)

    March 31, 2013   June 30, 2013   September 30, 2013   December 31, 2013December 31, 2013
    Net premiums written - insurance $ 217,286   $ 251,159   $ 250,799   $ 231,754   $ 950,998  
    Net premiums earned - insurance $ 182,992 $ 197,952 $ 200,120 $ 200,356 $ 781,420
    Net premiums earned on derivatives (1)
    Net investment income 15,102 15,266 14,868 16,379 61,615
    Other income 1,712   2,159   1,250   903   6,024  
    Total revenues 199,806   215,377   216,238   217,638   849,059  
     
    Provision for losses 131,956 136,410 152,012 144,270 564,648
    Estimated present value of net credit (recoveries) losses incurred (1) (299 ) 323 (74 ) 29 (21 )
    Change in reserve for premium deficiency (629 ) 1,251 (2,325 ) (198 ) (1,901 )
    Policy acquisition costs 11,732 6,501 5,839 4,413 28,485
    Other operating expenses 65,780 51,295 59,590 60,294 236,959
    Interest expense 2,669   3,704   4,447   7,175   17,995  
    Total expenses 211,209   199,484   219,489   215,983   846,165  
     
    Equity in net income of affiliates          
     
    Adjusted pretax operating (loss) income $ (11,403 ) $ 15,893   $ (3,251 ) $ 1,655   $ 2,894  
     
       

    Financial Guaranty

    Three Months EndedYear Ended

    (In thousands)

    March 31, 2013   June 30, 2013   September 30, 2013   December 31, 2013December 31, 2013
    Net premiums written - insurance $ (10,101 ) $ 70   $ 43   $ (193 ) $ (10,181 )
    Net premiums earned - insurance $ 9,596 $ 15,172 $ 11,864 $ 12,842 $ 49,474
    Net premiums earned on derivatives (1) 4,992 4,857 4,170 3,879 17,898
    Net investment income 11,771 12,349 11,864 10,489 46,473
    Other income 59   75   64   13   211  
    Total revenues 26,418   32,453   27,962   27,223   114,056  
     
    Provision for losses 103 3,881 5,162 (6,660 ) 2,486
    Estimated present value of net credit (recoveries) losses incurred (1) (2,845 ) (618 ) 3,347 (393 ) (509 )
    Change in reserve for premium deficiency
    Policy acquisition costs 5,463 3,505 2,119 2,092 13,179
    Other operating expenses 14,320 9,686 11,384 12,179 47,569
    Interest expense 13,212   15,716   15,123   12,572   56,623  
    Total expenses 30,253   32,170   37,135   19,790   119,348  
     
    Equity in net income of affiliates 1         1  
     
    Adjusted pretax operating (loss) income $ (3,834 ) $ 283   $ (9,173 ) $ 7,433   $ (5,291 )
     


    (1) Please see Exhibit E (page 1 of 2) for the definition of this line item.


     

    Radian Group Inc. and Subsidiaries

    Segment Trend Information

    Exhibit N (page 2 of 2)

     

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

    and Consolidated Net Income (Loss)


     

    Consolidated

      Three Months Ended   Year Ended

    (In thousands)

    March 31, 2013   June 30, 2013   September 30, 2013   December 31, 2013December 31, 2013
    Adjusted pretax operating (loss) income:
    Mortgage insurance $ (11,403 ) $ 15,893 $ (3,251 ) $ 1,655 $ 2,894
    Financial guaranty (3,834 ) 283   (9,173 ) 7,433   (5,291 )
    Total adjusted pretax operating (loss) income (15,237 ) 16,176   (12,424 ) 9,088   (2,397 )
     
    Change in fair value of derivative instruments (167,670 ) 86,535 10,778 38,586 (31,771 )
    Less: Estimated present value of net credit recoveries (losses) incurred 3,144 295 (3,273 ) 364 530
    Less: Net premiums earned on derivatives 4,992   4,857   4,170   3,879   17,898  
    Change in fair value of derivative instruments expected to reverse over time (175,806 ) 81,383   9,881   34,343   (50,199 )
     
    Net losses on investments (5,505 ) (130,254 ) (7,132 ) (6,829 ) (149,720 )
    Net impairment losses recognized in earnings (3 ) (3 )
    Net (losses) gains on other financial instruments (5,675 ) 1,188   902   (1,151 ) (4,736 )
    Consolidated pretax (loss) income (202,223 ) (31,507 ) (8,773 ) 35,448 (207,055 )
    Income tax (benefit) provision (14,723 ) 1,665   3,909   (921 ) (10,070 )
    Consolidated net (loss) income $ (187,500 ) $ (33,172 ) $ (12,682 ) $ 36,369   $ (196,985 )
     


     

    Radian Group Inc. and Subsidiaries

    Trend Information: Reconciliation of Consolidated Non-GAAP Financial Measure (1)

    Exhibit O

     


    The following table provides a reconciliation of our non-GAAP financial measure for the consolidated company, adjusted pretax operating income (loss), to the most comparable GAAP measure, pretax income (loss).

       
    Three Months EndedYear Ended

    (In thousands)

    March 31, 2013

      June 30, 2013   September 30, 2013   December 31, 2013December 31, 2013
    Adjusted pretax operating (loss) income:
    Mortgage Insurance $ (11,403 ) $ 15,893 $ (3,251 ) $ 1,655 $ 2,894
    Financial Guaranty (3,834 ) 283   (9,173 ) 7,433   (5,291 )
    Adjusted pretax operating (loss) income (15,237 ) 16,176   (12,424 ) 9,088   (2,397 )
     
    Change in fair value of derivative instruments (167,670 ) 86,535 10,778 38,586 (31,771 )
    Less: Estimated present value of net credit recoveries (losses) incurred 3,144 295 (3,273 ) 364 530
    Less: Net premiums earned on derivatives 4,992   4,857   4,170   3,879   17,898  
    Change in fair value of derivative instruments expected to reverse over time (175,806 ) 81,383   9,881   34,343   (50,199 )
     
    Net losses on investments (5,505 ) (130,254 ) (7,132 ) (6,829 ) (149,720 )
    Net impairment losses recognized in earnings (3 ) (3 )
    Net (losses) gains on other financial instruments (5,675 ) 1,188   902   (1,151 ) (4,736 )
    Pretax (loss) income $ (202,223 ) $ (31,507 ) $ (8,773 ) $ 35,448   $ (207,055 )
     


    (1) Please see Exhibit E for an explanation of operating income adjustments and the use of a non-GAAP measure.

    FORWARD-LOOKING STATEMENTS

    All statements in this press release that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as “anticipate,” “may,” “will,” “could,” “should,” “would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “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. 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 including:

  • changes in general economic and political conditions, including unemployment rates, changes in the U.S. housing and mortgage credit markets (including declines in home prices and property values), the performance of the U.S. or global economies, the amount of liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, all of which may be impacted by, among other things, legislative activity or inactivity, actual or threatened downgrades of U.S. government credit ratings, or actual or threatened defaults on U.S. government obligations;
  • changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers or financial guaranty providers, in particular in light of the fact that certain of our former competitors have ceased writing new insurance business and have been placed under supervision or receivership by insurance regulators;
  • catastrophic events, municipal and sovereign or sub-sovereign bankruptcy filings or other economic changes in geographic regions where our mortgage insurance exposure is more concentrated or where we have financial guaranty exposure;
  • our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs;
  • a reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, or general reduced housing demand in the U.S., which may be exacerbated by regulations impacting home mortgage originations, including requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);
  • our ability to maintain an adequate risk-to-capital position, minimum policyholder position and other surplus requirements for Radian Guaranty Inc. (“Radian Guaranty”), our principal mortgage insurance subsidiary, and an adequate minimum policyholder position and surplus for our insurance subsidiaries that provide reinsurance or capital support to Radian Guaranty;
  • our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
  • a more rapid than expected decrease in the levels of mortgage insurance rescissions and claim denials, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in net rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials (including as part of one or more settlements of disputed rescissions or denials), or by Fannie Mae or Freddie Mac (the “Government-Sponsored Enterprises” or the “GSEs”) intervening in or otherwise limiting our loss mitigation practices, including settlements of disputes regarding loss mitigation activities;
  • the negative impact that our loss mitigation activities may have on our relationships with our customers and potential customers, including the potential loss of current or future business and the heightened risk of disputes and litigation;
  • the need, in the event that we are unsuccessful in defending our loss mitigation activities, to increase our loss reserves for, and reassume risk on, rescinded or cancelled loans or denied claims, and to pay additional claims, including amounts previously curtailed;
  • any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;
  • adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and which remain a small part of our insured portfolio) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
  • a substantial decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income on our monthly premium policies and could decrease the profitability of our mortgage insurance business;
  • heightened competition for our mortgage insurance business from others such as the Federal Housing Administration, the U.S. Department of Veterans Affairs and other private mortgage insurers, including with respect to other private mortgage insurers, those that have been assigned higher ratings than we have, that may have access to greater amounts of capital than we do, that are less dependent on capital support from their subsidiaries than we are or that are new entrants to the industry, and therefore, are not burdened by legacy obligations;
  • changes in requirements for Radian Guaranty to remain an eligible insurer to the GSEs (which are expected to be released in draft form for public comment as early as the second quarter of 2014, and to become effective following an implementation period), which may include, among other items, more onerous risk-to-capital ratio requirements, capital requirements based on a variety of risk characteristics and measures of credit quality and a limitation on the amount of capital credit available for Radian Guaranty’s equity in its subsidiaries, including capital attributable to our financial guaranty business; the form of the new eligibility requirements and the timeframe for their implementation remain uncertain, and we cannot give any assurances as to their potential impact on us;
  • changes in the charters or business practices of, or rules or regulations applicable to, the GSEs;
  • changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in effect or scope;
  • the effect of the Dodd-Frank Act on the financial services industry in general, and on our mortgage insurance and financial guaranty businesses in particular, including whether and to what extent loans with private mortgage insurance may be considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions;
  • the application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations (including in particular investigations and litigation relating to captive reinsurance arrangements under the Real Estate Settlement Procedures Act of 1974); (ii) changes to the Mortgage Guaranty Insurers Model Act (the “Model Act”) being considered by the National Association of Insurance Commissioners (“NAIC”) that could include more stringent capital and other requirements for Radian Guaranty in states that adopt the new Model Act in the future; and (iii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) otherwise impacting our existing businesses or future prospects;
  • the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including adjustments proposed by the Internal Revenue Service resulting from the 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 or financial guaranty businesses, or to estimate accurately the fair value amounts of derivative instruments in determining gains and losses on these instruments;
  • volatility in our earnings caused by changes in the fair value of our assets and liabilities carried at fair value, including our derivative instruments, substantially all of our investment portfolio and certain of our long-term incentive compensation awards;
  • our ability to realize some or all of the tax benefits associated with our gross deferred tax assets, which will depend, in part, on our ability to generate sufficient sustainable taxable income in future periods;
  • changes in accounting principles generally accepted in the United States of America or statutory accounting principles, rules and guidance, or their interpretation;
  • legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries; and
  • our pending acquisition of Clayton Holdings LLC (“Clayton”), including: the potential to not fully realize the benefits anticipated from the acquisition, or to not realize such benefits during the anticipated time frame, including as a result of a loss of customers and/or employees; the potential inability to successfully integrate Clayton’s business with our business or the inability to complete such integration during the anticipated time frame; the inability or decision to not complete the acquisition, or to not complete the acquisition on a timely basis; the potential distraction of management time and attention; the risk that we are not able to finance the acquisition as anticipated, or that, if the financing efforts are successful, we are not able to utilize the funds raised efficiently in the event that we do not complete the acquisition.

    For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013 and in our subsequent reports and registration statements 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.



    Radian Group Inc.

    Emily Riley,215-231-1035

    emily.riley@radian.biz



    Source: Radian Group Inc.


  • For more stories on investments and markets, please see HispanicBusiness' Finance Channel



    Source: Business Wire