Radian Group Inc. · NYSE:RDN
Radian — Q3 2014 Earnings Presentation
36 slides from Radian's earnings presentation, 2014
Slide 1: Financial Results Third Quarter 2014
Financial Results Third Quarter 2014
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 Exchange Act and the U.S. Privat
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 re
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 deficiencies assessed by the IRS resulting from the examination of our 2000 through 2007 tax years, which we are currently contesting; • the po
Slide 5: Who Is Radian?
Who Is Radian? 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 NYSE: RDN homebuyer
Slide 6: Who Is Radian? Segment Overview
Who Is Radian? Segment Overview Mortgage and Real Estate Services $2,880 Million(1) Mortgage Insurance $1,392 Million Financial Guaranty Total Statutory Claims Paying Resources as of September 30, 2014 (1) Excludes $1.0 billion of Financial Guaranty statutory surplus. 6
Slide 7: Q3 Highlights
Q3 Highlights Net income of $154 Adjusted pretax Approximately $760 Strong share of Clayton total million, or $0.67 net operating income million of currently high-quality new gross revenues income per diluted of $147 million(1) available holding mortgage insurance of $42 million share company liquid
Slide 8: Q3 Highlights
Q3 Highlights Improved Industry-leading Continued decline Mortgage insurance Total mortgage composition of MI mortgage insurance in number of loss provision of insurance net portfolio in force grows to mortgage insurance $49 million claims paid of $169 billion defaults $174 million New business writ
Slide 9: Financial Highlights
Financial Highlights Radian Group Inc. Consolidated ($ in millions, except per share amounts) September 30, 2014 December 31, 2013 September 30, 2013 Total assets $ 5,959.7 $ 5,621.7 $ 5,758.6 Loss reserves $ 1,620.4 $ 2,185.4 $ 2,346.9 Unearned premiums $ 796.7 $ 768.9 $ 751.6 Long-term debt $ 1,20
Slide 10: Mortgage Insurance
MORTGAGE INSURANCE RADIAN
Slide 11: Improved Composition of MI Portfolio
(1) Improved Composition of MI Portfolio NIW since 2009 and HARP volume combined now represent 78% of Radian’s mortgage insurance primary risk in force as of Q3 2014 2006-2007 (HARP) 2006-2007 (Non-HARP) 5.2% 10.8% 2009-2014 Other Vintages (Non-HARP) 11.6% 67.0% 5.4% Other Vintages (HARP) Approximat
Slide 12: Profitability of Newer Vintages Improving Performance of MI Portfolio
Profitability of Newer Vintages Improving Performance of MI Portfolio Gross Primary Risk in Force Earned Premiums Less Incurred Losses ($ in billions) ($ in millions)(1) $352 $337 $28 $24 $210 2009 and $15 Later $135 $8 Vintages $103 $6 17.8% 27.6% 44.6% 60.1% 66.9% Dec-31-10 Dec-31-11 Dec-31-12 Dec
Slide 13: First-Lien Mortgage Insurance: 2014 Performance by Vintage
First-Lien Mortgage Insurance: 2014 Performance by Vintage ($ in millions) Nine Months Ended September 30, 2014 Three Months Ended September 30, 2014 Vintage Premiums Earned(1) Incurred Losses(1) Net Net 2005 and Prior $ 79.6 $ (8.7) $ 88.3 $ 32.7 2006 47.4 43.4 4.0 2.6 2007 84.6 91.0 (6.4) (0.8) 20
Slide 14: Net Fair Value Liability of Derivatives and VIEs
Net Fair Value Liability of Derivatives and VIEs ($ in millions) September 30, 2014 FG Derivatives Balance Sheet NIMs and Other Total and VIEs Other invested assets $ - $ 82.5 $ 82.5 Derivative assets 18.1 6.1 24.2 Other assets - 88.2 88.2 Total assets 18.1 176.8 194.9 Derivative liabilities (includ
Slide 15: 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 32.2 3,247.9 3,083.6 $1,500 2,990.0 $1,000 2,164.3 1,894.0 1,714.7 1,588.1 $500 $0 2008 2009 2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Mortgage Insurance Financial Guara
Slide 16: Components of Provision for Losses
Components of Provision for Losses ($ in millions) Three Months Ended September 30, 2014 September 30, 2013 New defaults $ 72.4 $ 112.0 (1) Existing defaults, Second-lien, LAE and Other (23.8) 40.0 Provision for Losses $48.6 $152.0 (1) Represents the provision for losses attributable to loans that w
Slide 17: Primary Loans in Default
Primary Loans in Default September 30, 2014 ($ in thousands) Foreclosure Cure % During Stage Reserve for Total the 3rd % of Reserve Defaulted Losses Quarter Loans Missed payments # % # % $ % 3 payments or fewer 11,437 24.4% 207 30.6% $132,652 10.8% 4-11 payments 10,213 21.8 701 16.3 197,662 16.0 12
Slide 18: Primary Loans in Default: Payments Made in Quarter
Primary Loans in Default: Payments Made in Quarter 39% made at least one monthly payment in Q3 2014 but remained in default Defaults that Made at Least One Payment in Q3 2014 86.8% 73.6% 60.0% 51.7% 48.3% 41.2% 33.8% 31.1% 30.1% 27.8% 11.8% D60 D90 D120 D150 D180 D210 D240 D270 D300 D330 D360+ Statu
Slide 19: Primary Loans in Default: Frequency of Re-default Activity
Primary Loans in Default: Frequency of Re-default Activity Nearly 78% of New Defaults in Q3 2014 Were Previously Delinquent New Defaults by Number of Times Previously in Default (%) Total # of new defaults 18,709 18,204 14,846 14,646 15,330 13,755 12,113 11,454 12,339 26% 27% 28% 32% 27% 32% 34% 35%
Slide 20: Primary Loans in Default: Aging Breakdown of 12M+ Bucket
Primary Loans in Default: Aging Breakdown of 12 Months (1) and Greater (12M+) Bucket 52% of 12M+ Defaults Are Greater Than Three Years Old 12-23M 48M + 30.4% 38.1% 17.6% 13.9% 24-35M 36-47M (1) Includes pending claims. 20
Slide 21: Direct Primary Risk in Force and Reserves by Vintage
Direct Primary Risk in Force and Reserves by Vintage September 30, 2014 December 31, 2013 September, 2013 Reserve for Reserve for Reserve for Risk in Force Risk in Force Risk in Force Losses Losses Losses 2005 and prior 8.8% 34.1% 11.1% 32.9% 12.2% 32.7% 2006 4.9 18.2 5.8 18.0 6.2 18.1 2007 11.1 33.
Slide 22: Primary Insurance in Force: Default Rollforward
Primary Insurance in Force: Default Rollforward Q3 14 Q2 14 Q1 14 Q4 13 Q3 13 Beginning Default Inventory 48,904 53,119 60,909 65,239 78,257 New Defaults (1) 12,339 11,454 12,113 13,755 15,330 Cures (1) (10,777) (10,930) (13,645) (12,440) (13,706) Claims Paid (2) (3) (3,067) (4,698) (6,049) (5,407)
Slide 23: 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% 6.8% 7.3% 6.3% 5.8% 5.6% 5.4% 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 (1) Q4 13 (1) Q1 14 (1) Q2 14 (1) Q3 14 (1) (1) Insured loans subject to the Freddie Mac Agr
Slide 24: 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 2013 2008 2H 2009 0 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 25: Primary New Claims Submitted by Quarter
Primary New Claims Submitted by Quarter Number of Claims Submitted by Quarter(1) 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 3,030 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 Q
Slide 26: Financial Guaranty
FINANCIAL GUARANTY 26
Slide 27: Financial Guaranty Net Par Outstanding by Product
Financial Guaranty Net Par Outstanding by Product ($ in billions) $19.4 billion as of September 30, 2014 12.8 10.9 8.6 8.1 7.9 6.9 4.8 4.9 4.6 Reinsurance Direct Public Finance Direct Structured 9/30/2013 12/31/2013 9/30/2014 27
Slide 28: Financial Guaranty Product Line and Sector Mix
Financial Guaranty Product Line and Sector Mix $19.4 billion in Net Par Outstanding Public Finance as of September 30, 2014 Sector Dollars (in billions) Percentage General and Tax-Supported Obligations $4.8 24.7% Healthcare & Long-Term Care 2.2 11.3 Utilities 1.1 5.7 Education 1.0 5.2 Transportation
Slide 29: Financial Guaranty Risk Reduction Since June 2008
Financial Guaranty Risk Reduction Since June 2008 Net Par Outstanding of $19.4 billion Public Finance as of September 30, 2014 compared Sector Change in Net Par O/S Percentage to $115.2 billion as of June 30, 2008 (in billions) General and Tax-Supported Obligations $(20.6) -80% Healthcare & Long-Ter
Slide 30: Financial Guaranty CDO Portfolio
Financial Guaranty CDO Portfolio ($ in billions) $7.8 billion Net Par Outstanding as of September 30, 2014 Asset Type Distribution* $6.1 78.2% $0.8 $0.4 $0.4 $0.1 10.3% 5.1% 5.1% 1.3% CDO-Corporate CDO-CMBS Assumed CDOs CLO-Corporate Loan CDO - Trust Preferred * Total CDO Exposure written on a direc
Slide 31: Financial Guaranty CDO Portfolio
Financial Guaranty CDO Portfolio ($ in billions) Number of CDO Percentage of CDO Ratings(1) Net Par Outstanding Contracts/Policies Net Par Outstanding AAA 22 $5.6 71.8% AA 2 0.2 2.6 A 7 0.8 10.2 BBB 4 0.7 9.0 BIG (2) 3 0.5 6.4 Total 38 $7.8 100.0% (1) Ratings are based on Radian Asset’s internal rat
Slide 32: Financial Guaranty Corporate CDO Portfolio
Financial Guaranty Corporate CDO Portfolio Credit Exposure to Direct Corporate CDOs as of September 30, 2014 ($ in billions) Average # of Initial Average # of Current Average # of Minimum # of Year of Scheduled Number of CDO Aggregate Net Par Current Sustainable Credit Sustainable Credit Sustainable
Slide 33: Mortgage and Real Estate Services
MORTGAGE AND REAL ESTATE SERVICES 33
Slide 34: Revenues by Line of Business
Revenues by Line of Business ($ in thousands) Three Months Ended September 30, 2014 Services revenue: Loan review and due diligence $16,671 Component services 9,790 REO management 6,614 Surveillance 6,400 EuroRisk 2,768 Total 42,243 Direct cost of services 23,896 Gross profit on services $18,347 34
Slide 35: Clayton Expands Radian's Participation in Mortgage Value Chain
Clayton Expands Radian’s Participation in Mortgage Value Chain Surveillance/ Asset Monetization/ Origination Securitization Monitoring Valuation Mortgage insurance Servicer surveillance credit products Contract underwriting Internal surveillance function Radian Solutions Quality control
Slide 36: Radian
RADIAN Ensuring the American Dream®