Radian Group Inc. · NYSE:RDN
Radian — Q2 2014 Earnings Presentation
33 slides from Radian's earnings presentation, 2014
Slide 1: Second Quarter 2014 Financial Results
Second Quarter 2014 Financial Results
Slide 2: Safe Harbor Statements
Safe Harbor 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 Securities Exchange Act of 1934
Slide 3: Safe Harbor Statements (Continued)
Safe Harbor Statements (Continued) • changes in the charters or business practices of, or rules or regulations applicable to, the GSEs, including the adoption of the PMIERs, which in their current proposed form: (1) would require Radian Guaranty to hold significantly more capital than is currently r
Slide 4: Safe Harbor Statements (Continued)
Safe Harbor Statements (Continued) • 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
Slide 5: Who Is Radian?
Who Is Radian? Overview Radian Group Inc., headquartered in Philadelphia, provides private mortgage insurance, risk management products and real estate services to financial institutions. For more than 35 years, our services have helped promote and preserve homeownership opportunities for homebuyers
Slide 6: Who Is Radian? Segment Overview
Who Is Radian? Segment Overview Total Statutory Claims Paying Resources as of June 30, 2014 $2,695.8 On June 30, 2014, Radian Mortgage Insurance million(1) completed the acquisition of Clayton Holdings LLC. Results of operations for Clayton will be reported in a new Mortgage and Real Estate Services
Slide 7: Q2 Highlights
Q2 Highlights Net income of $175 million, or $0.78 net income per Strong share of high-quality new MI business diluted share • NIW of $9.3 billion compared to $13.4 billion in Q2 2013 • Includes $104.7 million of combined net gains from the • 100% Prime; 62% with FICO of 740 or above change in fair
Slide 8: Financial Highlights
Financial Highlights Radian Group Inc. Consolidated ($ in millions, except per share amounts) June 30, 2014 December 31, 2013 June 30, 2013 Total assets $ 5,932.6 $ 5,621.7 $ 6,054.0 Loss reserves $ 1,749.4 $ 2,185.4 $ 2,716.5 Unearned premiums $ 781.7 $ 768.9 $ 712.7 Long-term debt $ 1,192.4 $ 930.
Slide 9: Improved Composition of MI Portfolio
(1) Improved Composition of MI Portfolio NIW since 2009 and HARP volume combined now represent 76% of Radian’s mortgage insurance primary risk in force as of Q2 2014 2006-2007 (HARP) 5.4% 2006-2007 (Non-HARP) 11.7% 2009-2014 Other Vintages (Non-HARP) 64.5% 12.7% Other Vintages Approximately 70% of (
Slide 10: Profitability of Newer Vintages Improving Performance of MI Portfolio
Profitability of Newer Vintages Improving Performance of MI Portfolio Earned Premiums Gross Primary Risk in Force ($ in billions) Less Incurred Losses ($ in millions) (1) $337 $26 $24 $227 $15 $210 2009 and Later $8 $135 Vintages $6 $103 Dec-31-10 Dec-31-11 Dec-31-12 Dec-31-13 Jun-30-14 Year Ended Y
Slide 11: First-Lien Mortgage Insurance – 2014 Performance by Vintage
First-Lien Mortgage Insurance – 2014 Performance by Vintage ($ in millions) Six Months Ended June 30, 2014 Three Months Ended June 30, 2014 Vintage Premiums Earned(1) Incurred Losses(1) Net YTD Net QTD 2005 and Prior $ 55.4 $ (0.2) $ 55.6 $ 22.3 2006 30.4 29.0 1.4 (2.7) 2007 54.7 60.3 (5.6) (3.2) 20
Slide 12: Net Fair Value Liability of Derivatives and VIEs
Net Fair Value Liability of Derivatives and VIEs ($ in millions) June 30, 2014 NIMs FG Derivatives Balance Sheet Total and Other and VIEs Other invested assets $ - $ 82.3 $ 82.3 Derivative assets 15.6 6.4 22.0 Other assets - 90.6 90.6 Total assets 15.6 179.3 194.9 Derivative liabilities (including V
Slide 13: Total Loss Reserves
Total Loss Reserves ($ in millions) $4,000 128.4 71.7 $3,500 63.0 234.5 66.3 $3,000 $2,500 21.1 $2,000 29.7 34.7 3,450.5 3,525.0 3,247.9 3,083.6 $1,500 2,990.0 $1,000 2,164.3 1,894.0 1,714.7 $500 $0 2008 2009 2010 2011 2012 2013 Q1 2014 Q2 2014 Mortgage Insurance Financial Guaranty 13
Slide 14: Components of Provision for Losses – Mortgage Insurance
Components of Provision for Losses – Mortgage Insurance ($ in millions) Three Months Ended June 30, 2014 June 30, 2013 New defaults $ 74.4 $ 116.3 Existing defaults, Second-lien, LAE and Other (1) (10.1) 20.1 Provision for Losses $ 64.3 $ 136.4 (1) Represents the provision for losses attributable to
Slide 15: Primary Loans In Default
Primary Loans In Default June 30, 2014 ($ in thousands) Projected Default to Claim Rate Cure % (1) (2) Reserve for % of Gross Net During the 2nd Quarter Losses Reserve Missed payments # % % % % $ % 3 payments or fewer 11,129 22.7% 23% 21% 32.4% $108,904 8.9% 4-11 payments 10,404 21.3 48 43 17.8 211,
Slide 16: Primary Loans in Default – Payments Made in Quarter
Primary Loans in Default – Payments Made in Quarter 38% Made at Least One Monthly Payment in Q2 2014 But Remained in Default Defaults that Made at Least One Payment in Q2 2014 100% 90% 88.0% 80% 77.0% 70.5% 70% 60.6% 60% 52.1% 48.3% 50% 37.4% 36.0% 40% 33.1% 31.6% 30% 26.5% 20% 11.8% 10% 0% *Current
Slide 17: Primary Loans in Default – Frequency of Re-default Activity
Primary Loans in Default – Frequency of Re-default Activity Nearly 79% of New Defaults in Q2 2014 Were Previously Delinquent New Defaults by Number of Times Previously in Default (%) 1 2 3 4 5 6+ Total # of new 17,945 18,709 18,204 14,846 14,646 15,330 13,755 12,113 11,454 defaults 25% 26% 27% 28% 2
Slide 18: Primary Loans in Default – Aging Breakdown of 12M+ Bucket
Primary Loans in Default – Aging Breakdown of 12 (1) Months and Greater (12M+) Bucket 51% of 12M+ Defaults Are Greater Than Three Years Old 36.0% 30.6% 18.3% 15.1% 12-23M 24-35M 36-47M 48M+ • The company is working with servicers to evaluate whether foreclosure timelines dictated by its Master Polic
Slide 19: Direct Primary Risk in Force and Reserves by Vintage
Direct Primary Risk in Force and Reserves by Vintage June 30, 2014 December 31, 2013 June 30, 2013 Risk in Reserve for Risk in Reserve for Risk in Reserve for Force Losses Force Losses Force Losses 2005 and prior 9.5% 33.6% 11.1% 32.9% 13.6% 31.8% 2006 5.2 18.2 5.8 18.0 6.8 17.9 2007 11.8 33.8 13.1
Slide 20: Quarterly Denial Reinstatement Rates
Quarterly Denial Reinstatement Rates as of June 30, 2014 77% 71% 68% 68% 64% 64% 63% 63% 62% 60% 60% 60% 55% 52% 51% 45% 12% Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 (1) Denial Quarter (1) For the second quarter of 2014, a significant port
Slide 21: Primary Insurance In Force – Default Rollforward
Primary Insurance In Force – Default Rollforward Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 July 14 Beginning Default Inventory 85,109 78,257 65,239 60,909 53,119 48,904 New Defaults (1) 14,646 15,330 13,755 12,113 11,454 3,966 Cures (1) (13,464) (13,706) (12,440) (13,645) (10,930) (3,722) Claims Paid (2) (3) (6
Slide 22: Primary Mortgage Insurance Default Rates
Primary Mortgage Insurance Default Rates 18.0% 16.5% 15.2% 12.0% 12.1% 10.9% 9.7% 7.8% 7.3% 6.8% 6.3% 5.8% 5.6% 5.4% 4.8% Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 (1) Primary Total (1) Includes 10,072 insured loans in the denominator and excl
Slide 23: Primary Default Count by Vintages 2001 - 2014
Primary Default Count by Vintages 2001 - 2014 60,000 2007 50,000 40,000 2006 30,000 20,000 2001 - 2004 2005 10,000 2008 1H 2014 2012 2011 2010 2008 2H 2013 0 2009 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 # of quarters since origination • Second half of 2008 was a turning
Slide 24: Primary New Claims Submitted by Quarter
Primary New Claims Submitted by Quarter 11,000 10,127 9,911 9,133 9,000 8,548 8,059 8,090 7,655 7,726 7,786 7,577 7,000 6,786 5,858 5,752 5,000 4,776 4,074 3,628 3,382 3,000 1,000 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 (1) Number of Clai
Slide 25: Financial Guaranty Net Par Outstanding by Product
Financial Guaranty Net Par Outstanding by Product $20.2 billion as of June 30, 2014 ($ in billions) 13.2 10.9 9.1 8.1 7.9 7.5 5.0 4.9 4.8 Reinsurance Direct Public Finance Direct Structured 6/30/2013 12/31/2013 6/30/2014 25
Slide 26: Financial Guaranty Product Line and Sector Mix
Financial Guaranty Product Line and Sector Mix $20.2 billion in Net Par Outstanding as of June 30, 2014 Public Finance Structured Finance Sector Dollars (in billions) Percentage Sector Dollars (in billions) Percentage General and Tax- $ 5.1 25.2% Supported Obligations CDOs $ 7.8 38.6% Healthcare & 2
Slide 27: Financial Guaranty Risk Reduction Since June 2008
Financial Guaranty Risk Reduction Since June 2008 Net Par Outstanding of $20.2 billion as of June 30, 2014 compared to $115.2 billion as of June 30, 2008 Public Finance Structured Finance Change in Net Par O/S Change in Net Par O/S Sector % Change Sector % Change (in billions) (in billions) General
Slide 28: Financial Guaranty CDO Portfolio
Financial Guaranty CDO Portfolio $7.8 billion Net Par Outstanding as of June 30, 2014 Asset Type Distribution* ($ in billions) CDO-CMBS $0.4 5.1% Assumed CDOs $0.1 1.3% CDO-Corporate CLO-Corporate Loan $6.1 $0.4 78.2% 5.1% CDO-Trust Preferred $0.8 10.3% * Total CDO Exposure written on a direct basis
Slide 29: Financial Guaranty CDO Portfolio
Financial Guaranty CDO Portfolio Ratings Distribution for CDOs: $7.8 billion Net Par Outstanding as of June 30, 2014 ($ in billions) Number of CDO Percentage of CDO Net Ratings (1) Net Par Outstanding Contracts/Policies Par Outstanding AAA 21 $ 5.3 67.9% AA 1 0.0 0.1 A 8 1.1 14.1 BBB 5 0.9 11.5 BIG
Slide 30: Financial Guaranty Corporate CDO Portfolio
Financial Guaranty Corporate CDO Portfolio Credit Exposure to Direct Corporate CDOs as of June 30, 2014 ($ in billions) Year of Number of CDO Initial Average # of Current Average # Minimum # of Average # of Current Aggregate Net Scheduled Contracts / Sustainable Credit of Sustainable Sustainable Cre
Slide 31: Overview of Clayton Acquisition
Overview of Clayton Acquisition A leading provider of comprehensive outsourced solutions to the mortgage industry Technology-enabled, fee-for-service business model Combines proprietary technology, industry expertise and independence to deliver value-added services to a full array of mortgage
Slide 32: Clayton Expands Radian's Participation in Mortgage Value Chain
Clayton Expands Radian’s Participation in Mortgage Value Chain Asset Surveillance / Origination Securitization Monetization Monitoring / Valuation Mortgage insurance N/A Servicer N/A credit surveillance Radian Contract products Solutions underwriting Internal surveillance function Qual
Slide 33: RADIAN
RADIAN Ensuring the American Dream®