PHILADELPHIA--(BUSINESS WIRE)--Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended December 31, 2018, of $139.8 million, or $0.64 per diluted share. This compares with net income for the quarter ended December 31, 2017, of $6.8 million, or $0.03 per diluted share, which included an incremental tax provision of $102.6 million, representing the impact of tax reform enacted in the fourth quarter of 2017.
Net income for the full year 2018 was $606.0 million, or $2.77 per diluted share, which includes a tax benefit of approximately $73.6 million from the impact of the settlement with the IRS as well as the reversal of certain previously accrued state and local tax liabilities. This compares to net income for the full year 2017 of $121.1 million, or $0.55 per diluted share which, in addition to the incremental tax provision, included impairment of goodwill and other acquired intangible assets related to the Mortgage and Real Estate Services segment of $130.9 million, net of tax.
| Key Financial Highlights (dollars in millions, except per-share amounts) | |||||||||
| Year ended December 31, 2018 | Year ended December 31, 2017 | Percent Change | |||||||
| Net income (1) | $606.0 | $121.1 | N/M (2) | ||||||
| Diluted net income per share | $2.77 | $0.55 | N/M (2) | ||||||
| Consolidated pretax income | $684.2 | $346.7 | 97% | ||||||
| Adjusted pretax operating income (3) | $745.5 | $617.2 | 21% | ||||||
| Adjusted diluted net operating income per share(3) (4) | $2.69 | $1.82 | 48% | ||||||
| Net premiums earned - mortgage insurance | $1,006.7 | $932.8 | 8% | ||||||
| MI New Insurance Written (NIW) | $56,547 | $53,905 | 5% | ||||||
| MI primary insurance in force | $221,443 | $200,724 | 10% | ||||||
| Book value per share | $16.34 | $13.90 | 18% | ||||||
| Return on equity (1)(5) | 18.7% | 4.1% | N/M (2) | ||||||
| Adjusted net operating return on equity (3) | 18.2% | 13.7% | 33% | ||||||
| Quarter ended December 31, 2018 | Quarter ended December 31, 2017 | Percent Change | |
| Net income (1) | $139.8 | $6.8 | N/M (2) |
| Diluted net income per share | $0.64 | $0.03 | N/M (2) |
| Consolidated pretax income | $176.5 | $164.7 | 7% |
| Adjusted pretax operating income (3) | $193.7 | $172.5 | 12% |
| Adjusted diluted net operating income per share(3) (4) | $0.70 | $0.51 | 37% |
| Net premiums earned - mortgage insurance | $259.7 | $245.2 | 6% |
| MI New Insurance Written (NIW) | $12,737 | $14,383 | (11)% |
| Return on equity (1)(5) | 16.4% | 0.9% | N/M (2) |
| Adjusted net operating return on equity (3) | 17.9% | 15.0% | 19% |
| (1) | Net income for the full year 2018 includes the impact of tax benefits of $73.6 million, which includes both the impact of the settlement with the IRS as well as the reversal of certain previously accrued state and local tax liabilities. Additionally, net income for the fourth quarter and the full year 2018 includes a pretax net loss on investments and other financial instruments of $11.7 million and $42.5 million, respectively. Net income for the fourth quarter and full year 2017 includes an incremental tax provision of $102.6 million as a result of the remeasurement of net deferred tax assets to reflect lower enacted corporate tax rates. Additionally, net income for the full year 2017 includes pretax impairment of goodwill and other acquired intangible assets related to the Mortgage and Real Estate Services segment of $200.2 million and a $51.5 million pretax loss on induced conversion and debt extinguishment (incurred primarily to purchase the company's convertible debt prior to maturity). |
| (2) | N/M - Calculation results are not meaningful. |
| (3) | Adjusted results, including adjusted pretax operating income, adjusted diluted net operating income per share, and adjusted net operating return on equity are non-GAAP financial measures. For definitions and reconciliations of these measures to the comparable GAAP measures, see Exhibits F and G. |
| (4) | Adjusted diluted net operating income per share is calculated using the company’s statutory tax rates of 21 percent in 2018 and 35 percent in 2017. |
| (5) | Calculated by dividing annualized net income by average stockholders' equity, based on the average of the beginning and ending balances for each period presented. |
Adjusted pretax operating income for the quarter ended December 31, 2018, was $193.7 million, compared to $172.5 million for the quarter ended December 31, 2017. Adjusted diluted net operating income per share for the quarter ended December 31, 2018, was $0.70, an increase of 37 percent compared to $0.51 for the quarter ended December 31, 2017. Adjusted pretax operating income for the year ended December 31, 2018, was $745.5 million, compared to $617.2 million for the same period of 2017. Adjusted diluted net operating income per share for the year ended December 31, 2018, was $2.69, an increase of 48 percent compared to $1.82 for the same period of 2017.
Book value per share at December 31, 2018, was $16.34, compared to $15.69 at September 30, 2018, and an increase of 18 percent compared to $13.90 at December 31, 2017.
“I am pleased to report that 2018 was another outstanding year for Radian, with net income of $606 million, return on equity of 18.7%, 10% growth in mortgage insurance in force and record volume of flow mortgage insurance business,” said Radian’s Chief Executive Officer Rick Thornberry. “We are delivering on our strategy of becoming an even stronger company across all of our businesses, from Mortgage Insurance and Risk Services to Title, Mortgage and Real Estate Services, while also strengthening our capital position and increasing our financial flexibility.”
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
- MI new insurance written (NIW) grew to $56.5 billion for the full year 2018, an increase of 5 percent compared to $53.9 billion for the prior year. NIW was $12.7 billion for the fourth quarter, compared to $15.8 billion in the third quarter of 2018 and $14.4 billion in the prior-year quarter.
- NIW for the full year 2018 represented record volume written on a flow basis for the company.
- Of the $12.7 billion in NIW in the fourth quarter of 2018, 83 percent was written with monthly premiums, compared to 78 percent in the third quarter of 2018, and 77 percent a year ago.
- Borrower-paid originations accounted for 94 percent of total NIW in the fourth quarter of 2018, compared to 91 percent in the third quarter of 2018, and 79 percent a year ago.
- Purchase originations accounted for 95 percent of total NIW in the fourth quarter of 2018, compared to 96 percent in the third quarter of 2018, and 88 percent a year ago.
- Total primary mortgage insurance in force as of December 31, 2018, grew to $221.4 billion, an increase of 2 percent compared to $217.1 billion as of September 30, 2018, and an increase of 10 percent compared to $200.7 billion as of December 31, 2017.
- The composition of Radian’s mortgage insurance portfolio continues to improve, with 94 percent consisting of new business written after 2008, including those loans that successfully completed the Home Affordable Refinance Program (HARP).
- Persistency, which is the percentage of mortgage insurance that remains in force after a twelve-month period, was 83.1 percent for the twelve months ended December 31, 2018, compared to 81.4 percent for the twelve months ended September 30, 2018 and 81.1 percent for the twelve months ended December 31, 2017.
- Annualized persistency for the three months ended December 31, 2018, was 85.5 percent, compared to 83.4 percent for the three months ended September 30, 2018, and 79.4 percent for the three months ended December 31, 2017.
- Net mortgage insurance premiums earned were $259.7 million for the quarter ended December 31, 2018, compared to $255.5 million for the quarter ended September 30, 2018, and $245.2 million for the quarter ended December 31, 2017.
- Mortgage insurance in force portfolio yield was 49.0 basis points in the fourth quarter, compared to 48.6 basis points in the third quarter of 2018, and 48.1 basis points in the fourth quarter of 2017.
- Total net mortgage insurance premium yield, which includes the impact of ceded premiums and accrued profit commission, was 47.4 basis points in the fourth quarter, compared to 47.8 basis points in the third quarter of 2018, and 49.4 basis points in the fourth quarter of 2017.
- Additional details regarding notable variable items impacting premiums earned may be found in Exhibit D.
- The mortgage insurance provision for losses was $27.1 million in the fourth quarter of 2018, compared to $20.7 million in the third quarter of 2018, and $35.3 million in the fourth quarter of 2017.
- The number of primary delinquent loans was 21,093 as of December 31, 2018, an increase of 2 percent compared to 20,770 as of September 30, 2018 and a decrease of 24 percent compared to 27,922 as of December 31, 2017. The elevated number of primary delinquent loans as of December 31, 2017 was driven by new notices of default from areas affected by major 2017 hurricanes. Based on past experience, the company continues to expect that these delinquencies will not result in a material number of new paid claims.
- The primary mortgage insurance delinquency rate was 2.1 percent in the fourth quarter of 2018, compared to 2.1 percent in the third quarter of 2018, and 2.9 percent in the fourth quarter of 2017.
- The loss ratio in the fourth quarter was 10.4 percent, compared to 8.1 percent in the third quarter of 2018 and 14.4 percent in the fourth quarter of 2017.
- Mortgage insurance loss reserves were $397.9 million as of December 31, 2018, compared to $409.0 million as of September 30, 2018, and $507.6 million as of December 31, 2017.
- Total mortgage insurance claims paid were $39.7 million in the fourth quarter, compared to $59.8 million in the third quarter of 2018, and $85.5 million in the fourth quarter of 2017. Excluding the impact of commutations and captive terminations, claims paid were $35.4 million in the fourth quarter of 2018, compared to $47.1 million in the third quarter of 2018 and $58.9 million in the fourth quarter of 2017. For the full year 2018, total net claims paid were $215.9 million, compared to $390.4 million for the full year 2017. Claims paid for the full year 2017 included the payment of $54.8 million made in connection with the scheduled final settlement of the Freddie Mac Agreement entered into in August 2013. In addition, the company’s pending claim inventory declined 8 percent from the fourth quarter of 2017.
- Total Mortgage and Real Estate Services Segment revenues for the fourth quarter were $41.5 million, compared to $40.9 million for the third quarter of 2018, and $40.7 million for the fourth quarter of 2017. Total revenues for the full year 2018 were $157.1 million, compared to $161.8 million for the same period of 2017. Adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) for the quarter ended December 31, 2018 was $3.2 million, compared to $0.6 million for the quarter ended September 30, 2018, and $3.8 million for the quarter ended December 31, 2017. Services adjusted EBITDA for the full year 2018 was $6.2 million, compared to $2.0 million for the prior year period. Additional details regarding the non-GAAP measure Services adjusted EBITDA may be found in Exhibits F and G.
- As previously announced and during the fourth quarter, Radian acquired Independent Settlement Services, a national appraisal and title management services company, and Five Bridges Advisors, LLC, a developer of proprietary software, data analytics and predictive models leveraging artificial intelligence, machine learning and traditional econometric techniques. While the financial terms of the transactions were immaterial to Radian, the acquisitions are consistent with the company's growth and diversification strategy, as well as its focus on the core product offerings of its Title, Mortgage and Real Estate Services businesses.
- Other operating expenses were $77.3 million in the fourth quarter, compared to $70.1 million in the third quarter of 2018, and $66.0 million in the fourth quarter of last year. The year-over-year increase was driven primarily by approximately $5.5 million in increased incentive compensation and benefits based on year-to-date performance and approximately $4.1 million of incremental expenses related to the operations of businesses acquired in 2018.
CAPITAL AND LIQUIDITY UPDATE
As of December 31, 2018, Radian Group maintained $714 million of available liquidity. Total liquidity, which includes the company’s $268 million unsecured revolving credit facility, was $982 million as of December 31, 2018. The company remains focused on optimizing its capital position, enhancing its return on capital, and increasing its financial flexibility.
- The Pennsylvania Insurance Department approved a $450 million return of capital from Radian Guaranty to Radian Group during the fourth quarter of 2018, which was paid on December 21, 2018 from Radian Guaranty's gross paid in and contributed statutory surplus. This strategic capital action improves Radian Group's financial flexibility. The company plans to use a portion of these proceeds to retire its $159 million in Senior Notes when due in June 2019.
- As previously announced, Radian executed the mortgage insurance industry's first simultaneous mortgage insurance linked notes (ILNs) and excess of loss (XOL) reinsurance placement during the fourth quarter of 2018. Radian Guaranty Inc., the principal mortgage insurance subsidiary of Radian Group, obtained $434 million of credit risk protection from Eagle Re 2018-1 Ltd. (Eagle Re) through the issuance by Eagle Re of ILNs to eligible third-party capital markets investors in an unregistered private offering. Eagle Re is a special purpose insurer domiciled in Bermuda and is not a subsidiary or affiliate of Radian. In addition, Radian Guaranty agreed to terms with a third-party global reinsurer on a separate XOL reinsurance agreement for $21 million of protection. The ILN-related reinsurance and XOL transfer risk on the same portfolio of eligible mortgage insurance policies issued by Radian Guaranty between January 2017 and December 2017, with the XOL covering a pro rata portion of the risk alongside certain classes of the ILNs.
- After consideration of the ILN and XOL reinsurance placement and the $450 million return of capital described above, as of December 31, 2018, Radian Guaranty had Available Assets under the Private Mortgage Insurer Eligibility Requirements (PMIERs 1.0) of approximately $3.5 billion, which resulted in an excess or “cushion” of approximately $567 million, or 19 percent, over its Minimum Required Assets of approximately $2.9 billion.
- If the new PMIERs (PMIERs 2.0) requirements were in effect, Radian Guaranty calculates that its Available Assets at December 31, 2018 would have resulted in a cushion of approximately $340 million, or 12 percent, over its Minimum Required Assets. The change in Radian's PMIERs cushion for PMIERs 2.0 as compared to PMIERs 1.0 is primarily due to the elimination in PMIERS 2.0 of any credit for future premiums that is currently allowed for insurance policies written prior to and including 2008. Radian continues to expect its PMIERs cushion to increase over time as a result of continued organic growth and ongoing risk distribution.
ABOUT RADIAN
Radian is ensuring the American dream of homeownership responsibly and sustainably through products and services that include industry-leading mortgage insurance and a comprehensive suite of mortgage, risk, real estate, and title services. We are powered by technology, informed by data and driven to deliver new and better ways to transact and manage risk. Learn more about Radian’s financial strength and flexibility at www.radian.biz and visit www.radian.com to see how Radian is shaping the future of mortgage and real estate services.
