Legacy Book Hurts Radian Result

Radian Group Inc., Philadelphia, lost $177.3 million in 4Q12 and $451.5 million for the full year, both down from the same periods in 2011, a loss of $121.5 million and profits of $302.2 million. The losses are due to issues involving the legacy book of business.

However, its initiatives to produce more new insurance written bore fruit as volume for year totaled $37.1 billion more than doubled the $15.5 billion produced in 2011. Of that total, $11.7 billion came during the fourth quarter alone.

Approximately 65% of NIW is monthly premium product and 35% single premium.

Radian did not include HARP loans in the NIW total; those totaled $2.9 billion. Radian, like other private MIs, considers HARP to be a modification of coverage. However, the Mortgage Insurance Cos. of America puts HARP data into its NIW calculations.

Radian paid $263.4 million of claims in 4Q12, down from $291.6 million one year prior. For the full year, it paid $1 billion in claims, down from $1.5 billion in 2011. It is predicting between $900 million and $1 billion of claims to be paid in 2013.

CEO S.A. Ibrahim said in a press release, “In 2012, we took advantage of every opportunity to position Radian for future success, including growing our volume of new, high-quality mortgage insurance business each quarter, reducing our portfolio of delinquent loans by 16%, maintaining a competitive risk-to-capital ratio and reducing our financial guaranty exposure by 51%. Although our fourth-quarter results were impacted by the continuing challenge of our legacy portfolio, our ability to write new, profitable business remains undiminished.”

He also commented on the company’s January statistics, stating it did $4 billion of NIW during the month and that its delinquent loan inventory declined again. In December, Radian did $3.85 billion of NIW.

Radian Guaranty has a risk-to-capital ratio of 20.8-to-1, a slight increase from 20.1-to-1 at the end of the third quarter. The change was caused by the operating losses and an increase to the company’s gross risk in force due to the increase in NIW last year.

It expects it should remain below the 25-to-1 threshold during 2013. This includes, if needed, Radian Group funneling holding company funds to Radian Guaranty.

Another way to reduce risk-to-capital is to enter into reinsurance agreements. Radian has entered into two agreements in the past year with the same third-party provider and it ceded $1.9 billion of risk. An intercompany reinsurance agreement reduced Radian Guaranty’s net risk-in-force by $2.6 billion in 4Q12.

In an event subsequent to the end of 4Q12, Radian Asset Assurance has received regulatory approval to release $61 million of contingency reserves and this action will help Radian Guaranty’s statutory capital position to stay below the 25-to-1 level. Overall, RAA is expected to pay a dividend of $35 million to Radian Guaranty in 2013.