Radian Group Inc. · NYSE:RDN
Radian — Investor Presentation (September 2007)
42 slides from Radian's investor presentation, Sep 5, 2007
Slide 1: Investor Presentation September 5, 2007
Exhibit 99.3 Investor Presentation September 5, 2007
Slide 2: Forward Looking Statements – Safe Harbor Provisions
Forward Looking Statements – Safe Harbor Provisions All statements made during today’s investor call or included in the accompanying presentation that address events or developments that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27
Slide 3: Agenda
Agenda 1. Introduction S.A. Ibrahim, Chief Executive Officer 2. Finance Bob Quint, Executive Vice President and Chief Financial Officer 3. Mortgage Insurance Mark Casale, President, Mortgage Insurance 4. Financial Guaranty Steve Cooke, President, Financial Guaranty 5. Summary and Closing Remarks S.A
Slide 4: Introduction
Introduction
Slide 5: Situation Update
Situation Update • Market developments have led us to mutually conclude that focusing on managing our respective businesses has to be our most important priority • Management and employees remain fully committed to the business – Pre-deal executive team remains completely intact – Less than 5% of ke
Slide 6: Projected Book Value per Share Development
Projected Book Value per Share Development • Based on Radian’s expected case financial projections $65 $59.96 $54.46 $55 $51.53 $49.87 $46.90 $45 $35 (1) 6/30/2007 2007E 2008E 2009E 2010E (1) Assumes an estimated NIMS mark-to-market credit loss of $270 million pre-tax; actual estimate and timing of
Slide 7: Mortgage Update and Outlook
Mortgage Update and Outlook Recent Developments Mortgage Industry Reaction Outlook • Home price appreciation rate • Portfolio lenders benefit from • Growing market share for top- has decelerated nationally secondary market disruption tier lenders – Prices now declining in certain – Gain on sale mode
Slide 8: Mortgage Insurance – Industry Overview
Mortgage Insurance – Industry Overview • Strong fundamentals favoring the MI business as the market correction is highlighting the value and benefit of MI – Increased penetration – Higher persistency – Tightened underwriting guidelines – Improved risk-adjusted pricing • GSEs still command a huge pre
Slide 9: What This Means for Radian
What This Means for Radian • Our domestic Mortgage Insurance business is well positioned as large lenders will benefit from market turmoil in the long-run – Radian’s emphasis has been on customized solutions used by larger lenders – Consolidation of mortgage industry has benefited Radian’s core cust
Slide 10: Finance
Finance
Slide 11: Finance – Situation Update
Finance – Situation Update • Radian has been a public company since 1992 with a strong track record of earnings, return on equity and book value growth • Credit and liquidity disruption during 2007 has caused a significant increase in projected losses in the traditional MI portfolio • Radian has exp
Slide 12: Finance – Situation Update (continued)
Finance – Situation Update (continued) • As a result of these developments, between now and 2009 we expect: – Significant impairment to C-BASS investment to be recognized in the 3rd quarter of 2007 – Approximately $270 million in expected incremental credit losses (contained in mark-to-market) in NI
Slide 13: Projected Book Value Development
Projected Book Value Development • Expected case performance delivers profitability and book value growth through year-end 2010 Total Per Share 6/30/2007 Book Value $4.1B $51.53 C-BASS * (0.3B) (4.19) NIMS (0.2B) (2.18) Seconds (0.2B) (2.43) Core Business Performance: Traditional Mortgage Insurance
Slide 14: Capital Position and Initiatives
Capital Position and Initiatives • Strong capital / liquidity position – Radian has no current liquidity risk; claims will be paid over time – Investment portfolio of $6.0 billion at 6/30/07 consisting primarily of highly-rated liquid investments – Core businesses have adequate capital to support ri
Slide 15: Update on C-BASS and Sherman
Update on C-BASS and Sherman C-BASS Sherman • Sale remains a possibility • Strong cash flow with manageable leverage • Full impairment possible, but not a certainty • Continued strong earnings contribution from Sherman expected in 2007 and • Litton servicing platform intact and beyond clearly valuab
Slide 16: Mortgage Insurance
Mortgage Insurance
Slide 17: Radian’s Mortgage Insurance Segment Overview
Radian’s Mortgage Insurance Segment Overview Risk in Force • Radian’s business consists primarily of traditional MI Primary MI Flow • Traditional MI consists of contracts 71% which protect the mortgage holders from losses on a portion of the value of a mortgage – Increases liquidity of a loan – Esse
Slide 18: Net Interest Margin Securities (NIMS)
Net Interest Margin Securities (NIMS)
Slide 19: Net Interest Margin Securities (NIMS)
Net Interest Margin Securities (NIMS) • Outstanding insurance protection of $796 million as of 6/30/07 • NIMS risk in force continues to decline - RIF for NIMS has decreased by $54 million to $742 million during July and August Reflects the normal pay-down of the insured securities Two bonds paid of
Slide 20: NIMS Loss Estimation Methodology
NIMS Loss Estimation Methodology • NIMS are bonds whose source of repayment is the excess cash flows coming from other securitizations - Roughly equal to interest income less interest expense less credit losses - Higher losses and faster pre-payment of mortgages in the underlying securitizations dec
Slide 21: Estimated NIMS Economic Loss Development
Estimated NIMS Economic Loss Development NIMS – Loss and Paydown schedule ($ in millions) To Date, as of Total Post- Q2 2007 Q2 2007 Total Premium Income $240 $86 $326 Write-Downs (70) (270) (340) 170 (184) (14) Risk in Force 795 0 0 Claims Paid $0 ($340) ($340) 21
Slide 22: Second Lien Portfolio
Second Lien Portfolio
Slide 23: Second Lien Business – Risk in Force
Second Lien Business – Risk in Force Summary Risk in Force as of 6/30/07 Remaining Transaction A Portfolio $508 $500 47% 46% Transaction B $77 7% 23
Slide 24: Second Lien Business – Expected Future Losses
Second Lien Business – Expected Future Losses • Total Projected Claims through 2010 (in millions) Transaction A $184 Transaction B 77 Remaining Portfolio 40 Total $301 Transaction A Transaction B ($ in millions) ($ in millions) Radian Risk in Force $508 Radian Risk in Force $77 Original Principal Ba
Slide 25: Estimated Seconds Economic Loss Development
Estimated Seconds Economic Loss Development Second Lien Risk – Loss and Paydown schedule ($ in millions) Q3 - Q4 Total 2007 2008 2009 2010 Q3 2007 - 2010 Initial RIF $1,063 $911 $581 $379 $1,063 Paydown (100) (230) (112) (220) (662) Claims Paid (52) (100) (90) (59) (301) Ending RIF $911 $581 $379 $1
Slide 26: Traditional Business
Traditional Business
Slide 27: Risk in Force – FICO Breakdown
Risk in Force – FICO Breakdown • Beginning in 2006, Radian focused on writing higher FICO business 2005 Vintage Risk in Force 2007 Vintage Risk in Force (1) 660+ 660+ 67% 75% 620-659 21% 620-659 18% 570-619 9% <570 570-619 <570 3% 6% 1% 2005 Vintage RIF: $5.6 billion 2007 Vintage RIF: $6.1 billion (
Slide 28: Primary MI Portfolio Compared with the MI Industry
Primary MI Portfolio Compared with the MI Industry (As of June 30, 2007) Attribute Radian Industry Primary IIF $128B $730B Primary RIF $27B $162B FL Primary RIF (%) 9% 10% CA Primary RIF (%) 8% 6% TX Primary RIF (%) 6% 7% 620+ FICO - % of Primary RIF 91% 90% Alt-A - % of Primary RIF 19% 16% Interest
Slide 29: Primary MI Book Current Expected Loss Parameters
Primary MI Book Current Expected Loss Parameters ($ in millions) Expected Performance on Current Balance Cumulative Cumulative Cumulative Claim Rate on Severity on Loss Rate on Total Loss on (1) (2) (3) Vintage IIF RIF % of RIF % ARM Balance Balance Balance Balance Total / Average $73,647 $18,085 66
Slide 30: MI Business Outlook
MI Business Outlook
Slide 31: Mortgage Insurance Go-Forward Strategy
Mortgage Insurance Go-Forward Strategy • Capitalize on established relationships with top mortgage lenders Build Upon • Continue to leverage creative structuring capabilities, but channel towards more Core traditional products (primary / pool) Strengths • Selectively target middle market lenders usi
Slide 32: Radian’s Customers Will Benefit from Market Turmoil Long-Term
Radian’s Customers Will Benefit from Market Turmoil Long-Term • Radian’s emphasis has been on customized solutions used by larger Radian New Insurance Written - 2005 well capitalized lenders ($ in billions) Flow Radian % of • Consolidation of mortgage industry NIW ($) Market Share Radian NIW into fe
Slide 33: Strong Trends in Traditional MI
Strong Trends in Traditional MI Primary New Insurance Written Persistency ($ in billions) (12 months ended) $18.0 75.0% $16.9 71.1% $16.0 69.5% 70.0% 67.3% $14.0 $13.2 65.7% $12.9 $12.7 $12.8 65.0% $11.5 62.8% $12.0 $10.9 $10.0 60.0% 58.4% 58.2% 58.6% 56.9% 57.1% $8.2 $8.0 $7.6 55.0% $6.0 $6.0 50.0%
Slide 34: Financial Guaranty
Financial Guaranty
Slide 35: Financial Guaranty
Financial Guaranty • Operates three product lines – Global Structured Products, US Public Finance and Reinsurance • Established track record serving distinct mix of clients • Focus on insuring obligations that are investment grade Global Structured US Public Finance Reinsurance Products Provider of
Slide 36: Financial Strength and Liquidity
Financial Strength and Liquidity • Qualified Statutory Capital of $1.4 billion • Claims Paying Resources of $2.8 billion • Unearned Premium Reserve of $844.6 million and $364.5 million of future installments provides substantial earnings stream • Financial Guaranty does not enter into Credit Support
Slide 37: Highly Rated, Diversified Insured Portfolio
Highly Rated, Diversified Insured Portfolio • $110.5 billion Net Par Outstanding as of June 30, 2007 • Public finance exposure accounts for over 50% of the portfolio • Diversified book of over 7,000 credits; more than 40% derived from reinsurance with the AAA insurers • 44% of Radian’s insured portf
Slide 38: Financial Guaranty – US RMBS Exposure as of 6/30/07
Financial Guaranty – US RMBS Exposure as of 6/30/07 • US RMBS exposure totals $960.4 million (0.9% of par) – Lowest par amount in industry and well below industry average of $18.8 billion – Lowest percent in industry and well below industry average of 6.7% – Source: Operating Supplements of each ins
Slide 39: Financial Guaranty Go-Forward Strategy
Financial Guaranty Go-Forward Strategy • Bolster market confidence by highlighting financial strength, portfolio quality and franchise value • Maximize growth areas / opportunities in new markets – Expand new products (e.g., soft capital solutions and project finance) – Expand client base (e.g., fro
Slide 40: Conclusion
Conclusion
Slide 41: Summary
Summary • Market developments have led us to mutually conclude that focusing on managing our respective businesses has to be our most important priority • Management and employees remain fully committed to the business – Pre-deal executive team remains completely intact – Less than 5% of key employe
Slide 42: RADIAN
RADIAN Changing the nature of risk”
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