�Diluted net income per share of $1.03 in the quarter includes impact of fair value gains �
� Sixth consecutive quarterly decline in MI delinquencies �
PHILADELPHIA–(BUSINESS WIRE)– Radian Group Inc. (NYSE:RDN) today reported net income for the quarter ended June 30, 2011, of $137.1 million, or $1.03 per diluted share, which included combined gains from the change in fair value of derivatives and other financial instruments of $193.8 million. This compares to a net loss of $475.1 million, or $4.31 per diluted share, for the prior-year quarter, which included combined net losses from the change in fair value of derivatives and other financial instruments of $587.8 million. Book value per share at June 30, 2011, was $8.48.
�As we face an uncertain U.S. economy and housing market, we believe that Radian�s risk-to-capital ratio of 19.8 to 1 and the financial flexibility of our holding company cash position provide a competitive advantage for our mortgage insurance business,� said Chief Executive Officer S.A. Ibrahim. �We were pleased with the continued drop in mortgage insurance delinquencies in the quarter and another period of operating profitability for our financial guaranty business.�
SECOND QUARTER HIGHLIGHTS
The mortgage insurance provision for losses was $270.0 million in the second quarter, compared to $414.0 million in the first quarter of 2011 and $427.6 million in the prior-year period, which reflected the relative improvement in the aging and composition of Radian�s delinquent loans. Mortgage insurance loss reserves were approximately $3.3 billion as of June 30, 2011, a decrease from $3.5 billion in the first quarter of 2011, and $3.7 billion a year ago. First-lien reserves were $25,334 per primary default as of June 30, 2011, compared to $25,535 as of March 31, 2011, and $22,957 a year ago.
The total number of primary delinquent loans decreased by 5 percent from the first quarter of 2011, which was the sixth consecutive quarterly decline in delinquent loans. In addition, new delinquencies declined slightly in July.
Consistent with Radian�s strategy of actively managing its legacy portfolio and reducing non-core risk, the company terminated four structured mortgage insurance transactions in the quarter that eliminated more than 2,200 loans from its delinquent inventory and reduced pool risk in force by $45 million.
The risk-to-capital ratio for Radian Guaranty Inc., the company�s primary mortgage insurance subsidiary, declined to 19.8:1 at June 30, 2011, compared to a ratio of 20.3:1 at March 31, 2011, and 17.9:1 at June 30, 2010.
New mortgage insurance written (NIW) was $2.3 billion in the second quarter, compared to $2.6 billion in the first quarter of 2011, and continued to consist of loans with excellent risk characteristics. The company estimates market share of 18-19 percent in the second quarter.
Total mortgage insurance claims paid were $512.6 million for the second quarter, compared to $365.2 million in the first quarter of 2011 and $337.3 million a year ago. Excluding the $53.6 million impact from terminations, claims paid were $459.0 million. For 2011, the company continues to expect mortgage insurance claims paid to be approximately $1.7 billion. The company believes that claims paid have peaked and will generally trend down slowly over time.
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 cash infusions over time.
— Excluding gains and losses on derivatives and other financial instruments, the financial guaranty segment was again profitable on an operating basis in the second quarter of 2011.
— As of June 30, 2011, Radian Asset had approximately $1.0 billion in statutory surplus with an additional $1.2 billion in claims-paying resources.
— In June, Radian Asset paid an ordinary dividend of $53.4 million to Radian Guaranty and expects to pay another dividend in 2012.
— On June 16, 2011, Radian Asset successfully completed the acquisition of Municipal and Infrastructure Assurance Corporation (MIAC), following approval from the New York State Insurance Department.
CONFERENCE CALL
Radian will discuss each of these items in its conference call today, Tuesday, August 2, 2011, 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 800-230-1093 inside the U.S., or 612-288-0337 for international callers, using passcode 210097 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 210097.
In addition to the information provided in the company’s earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, will be available on Radian’s website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.
About Radian
Radian Group Inc., 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.
FORWARD-LOOKING STATEMENTS
All statements in this press release that address events, developments or results that we expect or anticipate may occur in the future are �forward-looking statements� within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the United States (�U.S.�) Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as �anticipate,� �may,� �will,� �could,� �should,� �would,� �expect,� �intend,� �plan,� �goal,� �contemplate,� �believe,� �estimate,� �predict,� �project,� �potential,� �continue,� or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management�s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking information. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties, including the following:
changes in general financial and political conditions, such as a failure of the U.S. economy to fully recover from the most recent recession or the U.S. economy reentering a recessionary period, a lack of meaningful liquidity in the capital markets or in the credit markets, a prolonged period of high unemployment rates and limited home price appreciation or further depreciation (which has resulted in some borrowers voluntarily defaulting on their mortgages when their mortgage balances exceed the value of their homes), changes or volatility in interest rates or consumer confidence, and changes in credit spreads, each of which may be accelerated or intensified by the actual or threatened downgrade of U.S. credit ratings or other consequences of a failure of the U.S. Congress to increase the U.S. debt ceiling or as a result of any legislation resulting from such Congressional debates.
changes in the way customers, investors or regulators perceive the strength of private mortgage insurers or financial guaranty providers, or investor concern over the credit quality and specific risks faced by the particular businesses, municipalities or pools of assets covered by our insurance;
catastrophic events or further economic changes in geographic regions where our mortgage insurance or financial guaranty insurance exposure is more concentrated;
our ability to successfully execute upon our capital plan for our mortgage insurance business (which depends, in part, on the performance of our financial guaranty portfolio), and if necessary, to obtain additional capital to support our mortgage insurance business and the long-term liquidity needs of our holding company;
a further reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, the risk retention requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the �Dodd-Frank Act�) and the decrease in housing demand throughout the U.S.;
our ability to maintain adequate risk-to-capital ratios and surplus requirements in our mortgage insurance business in light of ongoing losses in this business and further deterioration in our financial guaranty portfolio which, in the absence of new capital, could depend on our ability to execute strategies for which regulatory and other approvals are required and may not be obtained;
our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
reduced opportunities for loss mitigation in markets where housing values do not appreciate or continue to decline;
a more rapid than expected decrease in the level of insurance rescissions and claim denials from the current elevated levels (including as a result of successful challenges to previously rescinded policies or claim denials), which rescissions and denials have materially mitigated our paid losses and resulted in a significant reduction in our loss reserves;
the negative impact our insurance rescissions and claim denials may have on our relationships with customers and potential customers, including the potential loss of business and the heightened risk of disputes and litigation; the need, in the event that we are unsuccessful in defending our rescissions or denials, to reestablish loss reserves for, and reassume risk on, rescinded loans and pay additional claims;
the concentration of our mortgage insurance business among a relatively small number of large customers;
the disruption in the servicing of mortgages covered by our insurance policies;
the aging of our mortgage insurance portfolio and changes in severity or frequency of losses associated with certain of our products that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
the performance of our insured portfolio of higher risk loans, such as Alternative-A and subprime loans, and of adjustable rate products, such as adjustable rate mortgages and interest-only mortgages;
a decrease in persistency rates of our mortgage insurance policies;
an increase in the risk profile of our existing mortgage insurance portfolio due to the availability of mortgage refinancing to only the most qualified borrowers in the current mortgage and housing market;
further downgrades or threatened downgrades of, or other ratings actions with respect to, our credit ratings or the ratings assigned by the major rating agencies to any of our rated insurance subsidiaries at any time (in particular, the credit rating of Radian Group Inc. and the financial strength rating assigned to Radian Guaranty Inc.);
heightened competition for our mortgage insurance business from others such as the Federal Housing Administration (the �FHA�), the Veterans’ Administration and private mortgage insurers (in particular, the FHA and those private mortgage insurers that have been assigned higher ratings from the major rating agencies or new entrants to the industry that are not burdened by legacy obligations);
changes in the charters or business practices of, or rules or regulations applicable to, Federal National Mortgage Association (�Fannie Mae�) and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to remain an eligible provider to both Freddie Mac and Fannie Mae;
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 scope;
the effect of the Dodd-Frank Act on the financial services industry in general, and on our mortgage insurance and financial guaranty businesses in particular, including whether and to what extent loans with mortgage insurance are considered �qualified residential mortgages� for purposes of the Dodd-Frank Act securitization provisions or �qualified mortgages� for purposes of the ability to repay provisions and potential obligations to post collateral on our existing insured derivatives portfolio;
the application of existing federal or state consumer, lending, insurance, tax, securities and other applicable laws and regulations, or changes in these laws and regulations or the way they are interpreted; including, without limitation: (i) the outcome of existing, or the possibility of additional, lawsuits or investigations, and (ii) legislative and regulatory changes (a) affecting demand for private mortgage insurance, (b) limiting or restricting our use of (or increasing requirements for) additional capital and the products we may offer, or (c) affecting the form in which we execute credit protection or affecting our existing financial guaranty portfolio;
the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses or premium deficiencies for our mortgage insurance business, or to estimate accurately the fair value amounts of derivative instruments in our mortgage insurance and financial guaranty businesses in determining gains and losses on these contracts;
the ability of our primary insurance customers in our financial guaranty reinsurance business to provide appropriate surveillance and to mitigate losses adequately with respect to our assumed insurance portfolio;
volatility in our earnings caused by changes in the fair value of our derivative instruments and our need to reevaluate the possibility of a premium deficiency in our mortgage insurance business on a quarterly basis;
our ability to realize the tax benefits associated with our deferred tax assets, which will depend on our ability to generate sufficient sustainable taxable income in future periods;
our ability to obtain the necessary regulatory approval to consummate our purchase of Municipal and Infrastructure Assurance Corporation (the �FG Insurance Shell�) and to successfully develop and implement a strategy to utilize the FG Insurance Shell in the public finance financial guaranty market, which strategy may depend on, among other items, our ability to obtain further necessary regulatory or other approvals, to attract third-party capital and to obtain ratings sufficient to support such a strategy;
changes in accounting guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board; and
legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries.
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2010 and in Item 1A of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we filed this press release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements made in this press release to reflect new information or future events or for any other reason.
Source: Radian Group, Inc.
Contact:
Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.biz
THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITY!
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