Radian Announces Q1 2020 Financial Results

5/7/20

PHILADELPHIA--(BUSINESS WIRE)--Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended March 31, 2020, of $140.5 million, or $0.70 per diluted share. This compares to net income for the quarter ended March 31, 2019, of $171.0 million, or $0.78 per diluted share.

Adjusted pretax operating income for the quarter ended March 31, 2020, was $204.6 million, compared to $202.1 million for the quarter ended March 31, 2019. Adjusted diluted net operating income per share for the quarter ended March 31, 2020, was $0.80, an increase of 10 percent compared to $0.73 for the quarter ended March 31, 2019.

Book value as of March 31, 2020, was $3.9 billion, an increase of 5 percent compared to $3.7 billion as of March 31, 2019. Book value per share as of March 31, 2020 was $20.30, an increase of 16 percent compared to $17.49 as of March 31, 2019.

“I am pleased to report another quarter of strong operating results for Radian, with net income of $140.5 million, adjusted pretax operating income of $204.6 million and 16% year-over-year growth in book value. These results are a testament to the strength of our business model and the power of our One Radian unified team,” said Radian’s Chief Executive Officer Rick Thornberry. “As the COVID-19 pandemic began to impact both the macroeconomic and business environment toward the end of the first quarter, this same team demonstrated incredible resilience and commitment. Our business continuity plans were in place, our technology infrastructure was ready, and our employees migrated to a virtual work environment seamlessly, with minimal disruption to our customers and businesses.”

Thornberry added, “I believe we are well prepared for this economic environment with a strong capital position and significant holding company resources, and I am very proud of how our entire team at Radian has responded to this challenge.”

FIRST QUARTER HIGHLIGHTS

  • NIW was $16.7 billion for the quarter, representing a decrease of 17 percent compared to $20.0 billion in the fourth quarter of 2019 and an increase of 53 percent compared to $10.9 billion in the prior-year quarter.
    • Of the $16.7 billion in NIW in the first quarter of 2020, 81 percent was written with monthly and other recurring premiums, compared to 82 percent in the fourth quarter of 2019, and 83 percent in the first quarter of 2019.
    • Refinances accounted for 34 percent of total NIW in the first quarter of 2020, compared to 33 percent in the fourth quarter of 2019 and 8 percent in the first quarter of 2019.
  • Total primary mortgage insurance in force increased to $241.6 billion as of March 31, 2020, compared to $240.6 billion as of December 31, 2019, and an increase of 8 percent compared to $223.7 billion as of March 31, 2019.
    • Persistency, which is the percentage of mortgage insurance that remains in force after a 12-month period, was 75.4 percent as of March 31, 2020, compared to 78.2 percent as of December 31, 2019, and 83.4 percent as of March 31, 2019.
    • Annualized persistency for the three months ended March 31, 2020, was 76.5 percent, compared to 75.0 percent for the three months ended December 31, 2019, and 85.4 percent for the three months ended March 31, 2019.
  • Net mortgage insurance premiums earned were $275.0 million for the quarter ended March 31, 2020, compared to $298.5 million for the quarter ended December 31, 2019, and $261.8 million for the quarter ended March 31, 2019.
    • Mortgage insurance in force premium yield was 46.1 basis points in the first quarter of 2020, compared to 50.0 basis points in the fourth quarter of 2019 and 48.6 basis points in the first quarter of 2019. Net mortgage insurance premiums earned in the fourth quarter of 2019 included an increase of $17.4 million for the cumulative recognition of deferred initial premiums on monthly policies. Excluding the impact of this adjustment, in force premium yield was 47.1 basis points in the fourth quarter of 2019.
    • The impact of single premium cancellations before consideration of reinsurance represented 4.0 basis points in the first quarter of 2020, compared to 4.4 basis points in the fourth quarter of 2019, and 1.8 basis points in the first quarter of 2019.
    • Total net mortgage insurance premium yield, which includes the impact of ceded premiums and accrued profit commission, was 45.6 basis points in the first quarter of 2020. This compares to 50.0 basis points in the fourth quarter of 2019, or 47.1 basis points excluding the impact of the premium adjustment described above, and 47.0 basis points in the first quarter of 2019.
    • Additional details regarding premiums earned may be found in Exhibit D.
  • The mortgage insurance provision for losses was $35.2 million in the first quarter of 2020, compared to $34.4 million in the fourth quarter of 2019, and $20.8 million in the prior-year quarter.
    • The number of primary delinquent loans was 19,781 as of March 31, 2020, a decrease of 7 percent compared to 21,266 as of December 31, 2019 and a decrease of 2 percent compared to 20,122 as of March 31, 2019.
    • The primary mortgage insurance delinquency rate was 1.8 percent in the first quarter of 2020, compared to 2.0 percent in the fourth quarter of 2019, and 2.0 percent in the first quarter of 2019.
    • The loss ratio in the first quarter of 2020 was 12.8 percent, compared to 11.5 percent in the fourth quarter of 2019, and 8.0 percent in the first quarter of 2019.
    • Mortgage insurance loss reserves were $414.7 million as of March 31, 2020, compared to $401.3 million as of December 31, 2019, and $385.4 million as of March 31, 2019.
    • Total mortgage insurance claims paid were $23.4 million in the first quarter of 2020, compared to $28.5 million in the fourth quarter of 2019, and $34.6 million in the first quarter of 2019.
  • Radian's Real Estate segment offers a broad array of title, valuation, asset management and other real estate services to market participants across the real estate value chain.
    • Total Real Estate segment revenues for the first quarter of 2020 were $28.6 million, compared to $27.0 million for the fourth quarter of 2019, and $23.0 million for the first quarter of 2019.
    • Adjusted earnings before interest, income taxes, depreciation and amortization and corporate allocations (Real Estate adjusted EBITDA) for the quarter ended March 31, 2020 was a loss of $(0.4) million, compared to $(1.0) million for the quarter ended December 31, 2019, and a loss of $(0.5) million for the quarter ended March 31, 2019. Additional details regarding the non-GAAP measure Real Estate adjusted EBITDA may be found in Exhibits F and G.
  • Other operating expenses were $69.1 million in the first quarter of 2020, compared to $80.9 million in the fourth quarter of 2019, and $78.8 million in the first quarter of 2019.
    • The decrease in the first quarter of 2020, compared to the fourth quarter of 2019, was driven primarily by lower incentive compensation expense compared to the fourth quarter of 2019. The decrease in the first quarter of 2020, compared to the first quarter of 2019, is due to lower legal and other professional services expense as well as higher ceding commissions.

CAPITAL AND LIQUIDITY UPDATE

Radian Group

  • As of March 31, 2020, Radian Group maintained $648.2 million of available liquidity. Total liquidity, which includes the company’s existing $267.5 million unsecured revolving credit facility, was $915.7 million as of March 31, 2020. The minimum liquidity requirement under the Company's unsecured revolving credit facility is $35 million. On May 6, 2020, Radian Group entered into an amendment to its $267.5 million unsecured revolving credit facility which extended the maturity date of the credit facility to January 18, 2022.
  • On February 13, 2020, Radian Group’s board of directors authorized an increase to the Company’s quarterly cash dividend to $0.125 per share and paid the dividend on March 6, 2020.
  • During the first quarter of 2020, Radian repurchased approximately 11.0 million shares of Radian Group common stock, or approximately $226.3 million, including commissions. On March 25, 2020, the Company announced the suspension of its share repurchase program and cancelled its current 10b5-1 plan effective March 19, 2020. Radian may initiate a new 10b5-1 plan at its discretion in the future, during an open trading window and in accordance with SEC rules. Purchase authority of up to $198.9 million remains available under the existing program. The current share repurchase authorization expires on August 31, 2021.

Radian Guaranty

  • At March 31, 2020, Radian Guaranty’s Available Assets under the Private Mortgage Insurer Eligibility Requirements (PMIERs) totaled approximately $4.1 billion, resulting in an excess or “cushion” of approximately $1.1 billion, or 38 percent above its Minimum Required Assets of approximately $2.9 billion. During the three months ended March 31, 2020, Radian Guaranty's PMIERs cushion increased by $324.5 million.
  • During the first quarter of 2020, the company continued to use risk distribution as a capital and risk management tool to lower the risk profile and financial volatility of our mortgage insurance portfolio through economic cycles.
    • As previously announced, in January 2020, Radian Guaranty entered into a new quota share reinsurance arrangement for single-premium mortgage insurance business (Single Premium QSR) with a panel of eight third-party reinsurance providers in order to cede 65% of new single-premium mortgage insurance business. The 2020 Single Premium QSR Agreement is ceding NIW for policies issued between January 1, 2020 and December 31, 2021.
    • As previously announced, in February 2020, Radian Guaranty entered into its third fully collateralized mortgage insurance-linked note (ILN) transaction, in which the company obtained $488.4 million of credit risk protection from Eagle Re 2020-1 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 Guaranty.
    • As of March 31, 2020, 68.0% of Radian Guaranty's primary mortgage insurance risk in force is subject to some form of risk distribution, providing a $1.6 billion reduction of Minimum Required Assets under PMIERs.
  • As previously announced, in connection with the company’s plan to streamline operations and reposition capital by eliminating the intercompany reinsurance agreement between Radian Guaranty and Radian Reinsurance, another MI subsidiary of Radian Group, the Pennsylvania Insurance Department approved the following actions during the first quarter of 2020:
    • The termination of the intercompany reinsurance agreement, resulted in the transfer of $6.0 billion in risk in force from Radian Reinsurance to Radian Guaranty;
    • A $465.0 million return of capital from Radian Reinsurance to Radian Group, which was paid on January 31, 2020, from Radian Reinsurance’s gross paid in and contributed surplus; and
    • The transfer of $200 million of cash and marketable securities from Radian Group to Radian Guaranty in exchange for a surplus note.

OTHER MATTERS

Impact of COVID-19

  • While the company reported favorable results for the first quarter of 2020, Radian expects that the unprecedented and rapidly changing social and economic impacts associated with the COVID-19 pandemic will negatively impact its business and financial results in the second quarter of 2020 and in future periods. The company has taken a number of actions to support its people, customers and communities, including successfully activating business continuity plans to transition to a virtual work environment; connecting with employees and customers through phone and web-based meetings versus in-person; increasing the company’s risk-based pricing and making adjustments to underwriting guidelines to account for the increased risk and uncertainty in the market while supporting customers with competitive rates; aligning its businesses with the temporary underwriting and servicing guidelines announced by the GSEs; and supporting Radian’s communities through increased matching gift levels and charitable contributions focused on first responders and healthcare workers. Further actions to respond to the COVID-19 pandemic and comply with governmental regulations and government and GSE programs adopted in response to the pandemic may be necessary as conditions continue to evolve.
  • Despite the risks and uncertainties posed by the COVID-19 pandemic, the company believes that it is well positioned to manage through potential challenges posed by the pandemic based on the steps it has taken to prepare for an economic downturn, such as improving its debt maturity profile and enhancing financial flexibility, implementing greater risk-based granularity into pricing, increasing the use of risk distribution strategies to lower the risk profile and financial volatility of the company’s mortgage insurance portfolio and transforming our digital culture and capabilities. For more information regarding risks that we face associated with COVID-19, see ”The COVID-19 pandemic has adversely impacted our business, and its ultimate impact on our business and financial results will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.” and the other risk factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 6, 2020.

Segment Reporting

  • Subsequent to the sale of Clayton in January 2020, the company made certain changes in organizational structure that caused the composition of its reportable segments to change. This realignment resulted in a change in the determination of the company’s two reportable segments from Mortgage Insurance and Services, to Mortgage and Real Estate. As part of this change, in addition to the Mortgage segment's prior components, the segment now includes contract underwriting services. In addition, the company now reports as “All Other” activities income (losses) from assets held by our holding company, related general corporate operating expenses not attributable or allocated to our reportable segments and, for all periods through the first quarter of 2020, income and expenses related to Clayton prior to its sale in January 2020.
  • These segment reporting changes align with the recent changes in personnel reporting lines, management oversight and branding following the sale of Clayton, and are consistent with the way the performance of the company’s two reportable segments and all other business activities are evaluated beginning in the first quarter of 2020. See Exhibit E for additional information on the Company’s segments. These changes to reportable segments have been reflected in the segment operating results for all periods presented.


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.