x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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23-2691170
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1601 Market Street, Philadelphia, PA
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19103
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Page
Number
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 6.
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•
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changes in general economic and political conditions, including high unemployment rates and continued weakness in the U.S. housing and mortgage credit markets, the U.S. economy reentering a recessionary period, a significant downturn in the global economy, a lack of meaningful liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, each of which may be accelerated or intensified by, among other things, further actual or threatened downgrades of U.S. credit ratings;
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•
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changes in the way customers, investors, regulators or legislators perceive the strength of private mortgage insurers or financial guaranty providers, in particular in light of developments in the private mortgage insurance and financial guaranty industries in which certain of our former competitors have ceased writing new insurance business and have been placed under supervision or receivership by insurance regulators;
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•
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catastrophic events or economic changes in geographic regions, including governments and municipalities, where our mortgage insurance exposure is more concentrated or where we have financial guaranty exposure;
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•
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our ability to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs, including in particular, the repayment of our long-term debt and additional capital contributions that may be required to support our mortgage insurance business;
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•
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a further reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, general reduced housing demand in the U.S. and potential risk retention requirements established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);
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•
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the potential adverse impact on the mortgage origination market and private mortgage insurers due to increases in capital requirements for banks and bank holding companies for mortgage loans under proposed interagency rules to implement the third Basel Capital Accord (“Basel III”), including in particular the possibility that loans insured by the Federal Housing Administration (“FHA”) will receive a more advantageous capital treatment than loans with private mortgage insurance;
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•
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our ability to maintain an adequate risk-to-capital position and surplus requirements in our mortgage insurance business, including if necessary, our ability to write new mortgage insurance while maintaining a capital position that is in excess of risk-based capital limitations imposed in certain states, either through waivers of these limitations or through use of another mortgage insurance subsidiary, and the possibility that state regulators could pursue regulatory actions or proceedings, including possible supervisory or receivership actions, against Radian Guaranty Inc. (“Radian Guaranty”), in the event Radian Guaranty’s risk-to-capital position exceeds levels that are acceptable to such regulators;
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•
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our ability to continue to effectively mitigate our mortgage insurance and financial guaranty losses;
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•
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the ability of our primary insurance customers in our financial guaranty reinsurance business to provide appropriate surveillance and to mitigate losses adequately with respect to our assumed insurance portfolio;
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•
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a more rapid than expected decrease in the level of insurance rescissions and claim denials from the current elevated levels, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials, or caused by the government-sponsored entities (“GSEs”) intervening in mortgage insurers' loss mitigation practices, including settlements of disputes;
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•
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the negative impact our insurance rescissions and claim denials or claim curtailments may have on our relationships with customers and potential customers, including the potential loss of business and the heightened risk of disputes and litigation;
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•
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the need, in the event that we are unsuccessful in defending our rescissions or denials, to increase our loss reserves for, and reassume risk on, rescinded or denied loans, and to pay additional claims;
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•
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any disruption in the servicing of mortgages covered by our insurance policies and poor servicer performance;
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•
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adverse changes in the severity or frequency of losses associated with certain products that we formerly offered (and currently insure) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
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•
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a decrease in persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income without a corresponding decrease in incurred losses;
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•
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an increase in the risk profile of our existing mortgage insurance portfolio due to the refinancing of existing mortgage loans for only the most qualified borrowers in the current mortgage and housing market;
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•
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changes in the criteria for assigning credit or similar ratings, further downgrades or threatened downgrades of, or other ratings actions with respect to, our credit ratings or the ratings assigned to any of our rated insurance subsidiaries at any time, including in particular, the credit ratings of Radian Group Inc. (“Radian Group”) and the financial strength ratings assigned to Radian Guaranty;
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•
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heightened competition for our mortgage insurance business from others such as the FHA, the Department of Veterans Affairs (“VA”) and other private mortgage insurers (in particular, the FHA and those private mortgage insurers that have been assigned higher ratings than we from the major rating agencies, that may have access to greater amounts of capital than we do, or that are new entrants to the industry and are therefore not burdened by legacy obligations);
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•
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changes in the charters or business practices of, or rules or regulations applicable to, Federal National Mortgage Association (“Fannie Mae”) and Freddie Mac, the largest purchasers of mortgage loans that we insure, and our ability to remain an eligible provider to both Fannie Mae and Freddie Mac;
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•
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changes to the current system of housing finance, including the possibility of a new system in which private mortgage insurers are not required or their products are significantly limited in scope;
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•
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the effect of the Dodd-Frank Act on the financial services industry in general and on our mortgage insurance and financial guaranty businesses in particular, including: (1) whether and to what extent loans with mortgage insurance are considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions or “qualified mortgages” for purposes of the ability to repay provisions of the Dodd-Frank Act, and the possibility that the ultimate definitions of “qualified residential mortgages” and “qualified mortgages” could reduce the size of the mortgage market and potentially reduce the number of insurable loans; and (2) the possibility that our financial guaranty business could be subject to additional registration, reporting, capital and margin requirements, including potentially, the posting of collateral for certain existing derivative contracts;
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•
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the application of existing federal or state consumer, lending, insurance, tax, securities and other applicable laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation any such results from: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations; and (ii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting our use of (or increasing requirements for) additional capital and the products we may offer, (c) affecting the form in which we execute credit protection, or (d) impacting our existing financial guaranty portfolio;
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•
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the amount and timing of potential payments or adjustments associated with federal or other tax examinations;
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•
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the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses or premium deficiencies for our mortgage insurance business, or to estimate accurately the fair value amounts of derivative instruments in determining gains and losses on these instruments;
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•
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volatility in our earnings caused by changes in the fair value of our assets and liabilities carried at fair value, including our derivative instruments, and our need to reevaluate the possibility of a premium deficiency in our mortgage insurance business on a quarterly basis;
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•
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our ability to realize the tax benefits associated with our gross deferred tax assets, which will depend on our ability to generate sufficient sustainable taxable income in future periods;
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•
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changes in accounting principles, rules and guidance, or their interpretation, from the Securities and Exchange Commission or the Financial Accounting Standards Board; and
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•
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legal and other limitations on amounts we may receive from our subsidiaries as dividends or through our tax- and expense-sharing arrangements with our subsidiaries.
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(In thousands, except share and per share amounts)
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June 30,
2012 |
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December 31,
2011 |
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ASSETS
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Investments
|
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Fixed-maturities held to maturity—at amortized cost (fair value $2,524 and $2,748)
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$
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2,470
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$
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2,640
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Fixed-maturities available for sale—at fair value (amortized cost $72,500 and $120,757)
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75,516
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118,733
|
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Equity securities available for sale—at fair value (cost $88,768 and $114,425)
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108,381
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128,424
|
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Trading securities—at fair value (including variable interest entity (“VIE”) securities of $0 and $94,521)
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4,228,522
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4,211,059
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Short-term investments—at fair value (including VIE investments of $0 and $149,981)
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705,744
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1,261,703
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Other invested assets (including VIE assets of $75,413 and $0)
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134,548
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61,000
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Total investments
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5,255,181
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|
|
5,783,559
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Cash
|
32,617
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35,589
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Restricted cash
|
26,185
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|
27,020
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Deferred policy acquisition costs
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99,386
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|
139,906
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Accrued investment income
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31,456
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32,262
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Accounts and notes receivable
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91,154
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|
102,647
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Property and equipment, at cost (less accumulated depreciation of $98,542 and $96,403)
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7,341
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11,044
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Derivative assets (including VIE derivative assets of $1,750 and $1,602)
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14,229
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17,212
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Deferred income taxes, net
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15,975
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15,975
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Reinsurance recoverables
|
103,143
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|
157,985
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|
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Other assets (including VIE other assets of $100,724 and $105,903)
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354,863
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|
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333,566
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|
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Total assets
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$
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6,031,530
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$
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6,656,765
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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|
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Unearned premiums
|
$
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588,431
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|
|
$
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637,372
|
|
Reserve for losses and loss adjustment expenses (“LAE”)
|
3,250,280
|
|
|
3,310,902
|
|
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Reserve for premium deficiency
|
4,183
|
|
|
3,644
|
|
||
Long-term debt
|
666,806
|
|
|
818,584
|
|
||
VIE debt—at fair value
|
107,833
|
|
|
228,240
|
|
||
Derivative liabilities (including VIE derivative liabilities of $75,413 and $19,501)
|
219,960
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|
|
126,006
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Payable for securities purchased
|
3,767
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|
|
46,368
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|
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Accounts payable and accrued expenses (including VIE accounts payable of $390 and $530)
|
289,382
|
|
|
303,358
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|
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Total liabilities
|
5,130,642
|
|
|
5,474,474
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Commitments and Contingencies (Note 16)
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|
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Stockholders’ equity
|
|
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Common stock: par value $.001 per share; 325,000,000 shares authorized; 151,001,568 and 150,666,446 shares issued at June 30, 2012 and December 31, 2011, respectively; 133,520,514 and 133,199,159 shares outstanding at June 30, 2012 and December 31, 2011, respectively
|
151
|
|
|
151
|
|
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Treasury stock, at cost: 17,481,054 and 17,467,287 shares at June 30, 2012, and December 31, 2011, respectively
|
(892,084
|
)
|
|
(892,052
|
)
|
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Additional paid-in capital
|
1,966,767
|
|
|
1,966,565
|
|
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Retained (deficit) earnings
|
(192,264
|
)
|
|
96,227
|
|
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Accumulated other comprehensive income
|
18,318
|
|
|
11,400
|
|
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Total stockholders’ equity
|
900,888
|
|
|
1,182,291
|
|
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Total liabilities and stockholders’ equity
|
$
|
6,031,530
|
|
|
$
|
6,656,765
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
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(In thousands, except per share amounts)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Revenues:
|
|
|
|
|
|
|
|
||||||||
Premiums written—insurance:
|
|
|
|
|
|
|
|
||||||||
Direct
|
$
|
214,349
|
|
|
$
|
174,008
|
|
|
$
|
418,102
|
|
|
$
|
364,849
|
|
Assumed
|
(1,028
|
)
|
|
(11,788
|
)
|
|
(88,516
|
)
|
|
(10,164
|
)
|
||||
Ceded
|
(31,389
|
)
|
|
(9,442
|
)
|
|
(69,976
|
)
|
|
(19,158
|
)
|
||||
Net premiums written
|
181,932
|
|
|
152,778
|
|
|
259,610
|
|
|
335,527
|
|
||||
Decrease in unearned premiums
|
4,847
|
|
|
36,156
|
|
|
94,534
|
|
|
56,430
|
|
||||
Net premiums earned—insurance
|
186,779
|
|
|
188,934
|
|
|
354,144
|
|
|
391,957
|
|
||||
Net investment income
|
30,877
|
|
|
43,823
|
|
|
65,590
|
|
|
86,063
|
|
||||
Net gains on investments
|
26,419
|
|
|
44,236
|
|
|
93,878
|
|
|
81,671
|
|
||||
Total other-than-temporary impairment (“OTTI”) losses
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
||||
Losses recognized in other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Net impairment losses recognized in earnings
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
||||
Change in fair value of derivative instruments
|
(33,124
|
)
|
|
188,726
|
|
|
(105,881
|
)
|
|
432,618
|
|
||||
Net (losses) gains on other financial instruments
|
(61,862
|
)
|
|
5,047
|
|
|
(79,714
|
)
|
|
80,298
|
|
||||
Gain on sale of affiliate
|
7,708
|
|
|
—
|
|
|
7,708
|
|
|
—
|
|
||||
Other income
|
1,395
|
|
|
1,196
|
|
|
2,835
|
|
|
2,644
|
|
||||
Total revenues
|
158,192
|
|
|
471,951
|
|
|
338,560
|
|
|
1,075,240
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
||||||||
Provision for losses
|
210,868
|
|
|
263,566
|
|
|
477,022
|
|
|
690,939
|
|
||||
Change in reserve for premium deficiency
|
559
|
|
|
(3,102
|
)
|
|
539
|
|
|
(4,485
|
)
|
||||
Policy acquisition costs
|
10,805
|
|
|
14,387
|
|
|
38,851
|
|
|
28,518
|
|
||||
Other operating expenses
|
40,193
|
|
|
45,954
|
|
|
90,347
|
|
|
92,173
|
|
||||
Interest expense
|
12,581
|
|
|
16,079
|
|
|
26,729
|
|
|
33,103
|
|
||||
Total expenses
|
275,006
|
|
|
336,884
|
|
|
633,488
|
|
|
840,248
|
|
||||
Equity in net (loss) income of affiliates
|
(2
|
)
|
|
—
|
|
|
(13
|
)
|
|
65
|
|
||||
Pretax (loss) income
|
(116,816
|
)
|
|
135,067
|
|
|
(294,941
|
)
|
|
235,057
|
|
||||
Income tax provision (benefit)
|
2,443
|
|
|
(2,048
|
)
|
|
(6,450
|
)
|
|
(5,064
|
)
|
||||
Net (loss) income
|
$
|
(119,259
|
)
|
|
$
|
137,115
|
|
|
$
|
(288,491
|
)
|
|
$
|
240,121
|
|
Basic net (loss) income per share
|
$
|
(0.90
|
)
|
|
$
|
1.04
|
|
|
$
|
(2.18
|
)
|
|
$
|
1.82
|
|
Diluted net (loss) income per share
|
$
|
(0.90
|
)
|
|
$
|
1.03
|
|
|
$
|
(2.18
|
)
|
|
$
|
1.80
|
|
Weighted-average number of common shares outstanding—basic
|
132,346
|
|
|
132,185
|
|
|
132,350
|
|
|
132,185
|
|
||||
Weighted-average number of common and common equivalent shares outstanding—diluted
|
132,346
|
|
|
133,614
|
|
|
132,350
|
|
|
133,724
|
|
||||
Dividends per share
|
$
|
0.0025
|
|
|
$
|
0.0025
|
|
|
$
|
0.0050
|
|
|
$
|
0.0050
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net (loss) income
|
$
|
(119,259
|
)
|
|
$
|
137,115
|
|
|
$
|
(288,491
|
)
|
|
$
|
240,121
|
|
Other comprehensive (loss) income, net of tax (see Note 12):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
||||||||
Unrealized foreign currency translation adjustment
|
(8
|
)
|
|
4,955
|
|
|
(8
|
)
|
|
6,520
|
|
||||
Less: Reclassification adjustment for net gains included in net (loss) income
|
—
|
|
|
28,246
|
|
|
—
|
|
|
27,954
|
|
||||
Net foreign currency translation adjustments
|
(8
|
)
|
|
(23,291
|
)
|
|
(8
|
)
|
|
(21,434
|
)
|
||||
Unrealized (losses) gains on investments:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding (losses) gains arising during the period
|
(1,419
|
)
|
|
5,549
|
|
|
15,795
|
|
|
13,615
|
|
||||
Less: Reclassification adjustment for net (losses) gains included in net (loss) income
|
(741
|
)
|
|
(35,016
|
)
|
|
8,869
|
|
|
(34,938
|
)
|
||||
Net unrealized (losses) gains on investments
|
(678
|
)
|
|
40,565
|
|
|
6,926
|
|
|
48,553
|
|
||||
Other comprehensive (loss) income
|
(686
|
)
|
|
17,274
|
|
|
6,918
|
|
|
27,119
|
|
||||
Comprehensive (loss) income
|
$
|
(119,945
|
)
|
|
$
|
154,389
|
|
|
$
|
(281,573
|
)
|
|
$
|
267,240
|
|
(In thousands)
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional Paid-in Capital
|
|
Retained
Earnings/(Deficit)
|
|
Foreign Currency Translation Adjustment
|
|
Unrealized Holding Gains (Losses)
|
|
Other
|
|
Total
|
|
||||||||
BALANCE, JANUARY 1, 2011
|
$
|
150
|
|
$
|
(892,012
|
)
|
$
|
1,963,092
|
|
$
|
(204,926
|
)
|
$
|
21,094
|
|
$
|
(27,857
|
)
|
$
|
239
|
|
$
|
859,780
|
|
Net income
|
—
|
|
—
|
|
—
|
|
240,121
|
|
—
|
|
—
|
|
—
|
|
240,121
|
|
||||||||
Net foreign currency translation adjustment, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
(21,434
|
)
|
—
|
|
—
|
|
(21,434
|
)
|
||||||||
Net unrealized gain on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
48,553
|
|
—
|
|
48,553
|
|
||||||||
Repurchases of common stock under incentive plans
|
—
|
|
(24
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(24
|
)
|
||||||||
Issuance of common stock under benefit plans
|
1
|
|
—
|
|
404
|
|
—
|
|
—
|
|
—
|
|
—
|
|
405
|
|
||||||||
Amortization of restricted stock
|
—
|
|
—
|
|
1,603
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,603
|
|
||||||||
Additional convertible debt issuance costs, net
|
—
|
|
—
|
|
(22
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(22
|
)
|
||||||||
Stock-based compensation expense
|
—
|
|
—
|
|
995
|
|
—
|
|
—
|
|
—
|
|
—
|
|
995
|
|
||||||||
Dividends declared
|
—
|
|
—
|
|
(333
|
)
|
(334
|
)
|
—
|
|
—
|
|
—
|
|
(667
|
)
|
||||||||
BALANCE, JUNE 30, 2011
|
$
|
151
|
|
$
|
(892,036
|
)
|
$
|
1,965,739
|
|
$
|
34,861
|
|
$
|
(340
|
)
|
$
|
20,696
|
|
$
|
239
|
|
$
|
1,129,310
|
|
BALANCE, JANUARY 1, 2012
|
$
|
151
|
|
$
|
(892,052
|
)
|
$
|
1,966,565
|
|
$
|
96,227
|
|
$
|
54
|
|
$
|
11,471
|
|
$
|
(125
|
)
|
$
|
1,182,291
|
|
Net loss
|
—
|
|
—
|
|
—
|
|
(288,491
|
)
|
—
|
|
—
|
|
—
|
|
(288,491
|
)
|
||||||||
Net foreign currency translation adjustment, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
(8
|
)
|
—
|
|
—
|
|
(8
|
)
|
||||||||
Net unrealized gain on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
6,926
|
|
—
|
|
6,926
|
|
||||||||
Repurchases of common stock under incentive plans
|
—
|
|
(32
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(32
|
)
|
||||||||
Issuance of common stock under benefit plans
|
—
|
|
—
|
|
213
|
|
—
|
|
—
|
|
—
|
|
—
|
|
213
|
|
||||||||
Amortization of restricted stock
|
—
|
|
—
|
|
1,101
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,101
|
|
||||||||
Stock-based compensation expense
|
—
|
|
—
|
|
(446
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(446
|
)
|
||||||||
Dividends declared
|
—
|
|
—
|
|
(666
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(666
|
)
|
||||||||
BALANCE, JUNE 30, 2012
|
$
|
151
|
|
$
|
(892,084
|
)
|
$
|
1,966,767
|
|
$
|
(192,264
|
)
|
$
|
46
|
|
$
|
18,397
|
|
$
|
(125
|
)
|
$
|
900,888
|
|
(In thousands)
|
Six Months Ended
June 30, |
||||||
2012
|
|
2011
|
|||||
Cash flows used in operating activities
|
$
|
(361,899
|
)
|
|
$
|
(608,917
|
)
|
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from sales of fixed-maturity investments available for sale
|
44,935
|
|
|
101,648
|
|
||
Proceeds from sales of equity securities available for sale
|
30,727
|
|
|
555
|
|
||
Proceeds from sales of trading securities
|
2,066,088
|
|
|
2,444,549
|
|
||
Proceeds from redemptions of fixed-maturity investments available for sale
|
3,738
|
|
|
28,032
|
|
||
Proceeds from redemptions of fixed-maturity investments held to maturity
|
250
|
|
|
3,195
|
|
||
Purchases of trading securities
|
(2,137,677
|
)
|
|
(2,206,653
|
)
|
||
Sales and redemptions of short-term investments, net
|
556,048
|
|
|
407,494
|
|
||
Purchases of other invested assets, net
|
(74,999
|
)
|
|
(2,717
|
)
|
||
Proceeds from sale of investment in affiliate
|
14,700
|
|
|
—
|
|
||
Purchases of property and equipment, net
|
(452
|
)
|
|
(5,729
|
)
|
||
Net cash provided by investing activities
|
503,358
|
|
|
770,374
|
|
||
Cash flows used in financing activities:
|
|
|
|
||||
Dividends paid
|
(666
|
)
|
|
(667
|
)
|
||
Redemption of long-term debt
|
(143,770
|
)
|
|
(160,000
|
)
|
||
Net cash used in financing activities
|
(144,436
|
)
|
|
(160,667
|
)
|
||
Effect of exchange rate changes on cash
|
5
|
|
|
(2
|
)
|
||
(Decrease) increase in cash
|
(2,972
|
)
|
|
788
|
|
||
Cash, beginning of period
|
35,589
|
|
|
20,334
|
|
||
Cash, end of period
|
$
|
32,617
|
|
|
$
|
21,122
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Income taxes paid (received)
|
$
|
1,498
|
|
|
$
|
(1,275
|
)
|
Interest paid
|
$
|
21,820
|
|
|
$
|
27,244
|
|
•
|
In January 2012, we made further progress in our strategic objective of reducing our financial guaranty risk by entering into a three-part transaction (the “Assured Transaction”) with subsidiaries of Assured Guaranty Ltd. (collectively, “Assured”) that included the commutation of
$13.8 billion
of financial guaranty net par outstanding that was reinsured by Radian Asset Assurance (the “Assured Commutation”), the cession of
$1.8 billion
of direct public finance business to Assured (the “Assured Cession”) and the sale of Municipal and Infrastructure Assurance Corporation (the “FG Insurance Shell”), a New York domiciled financial guaranty insurance company licensed to conduct business in
37
states and the District of Columbia. We completed the sale of the FG Insurance Shell in the second quarter of 2012. The Assured Transaction reduced our financial guaranty net par outstanding by
22.5%
and provided a statutory capital benefit to Radian Asset Assurance and Radian Guaranty of
$100.7 million
as of June 30, 2012. The following table shows the impact of the Assured Transaction on our unaudited condensed consolidated financial statements in the first
six
months of 2012.
|
Statement of Operations
|
|
||
(In millions)
|
|
||
Decrease in premiums written
|
$
|
(119.8
|
)
|
Decrease in net premiums earned
|
$
|
(22.2
|
)
|
Increase in change in fair value of derivative instruments—gain
|
1.4
|
|
|
Gain on sale of affiliate
|
7.7
|
|
|
Increase in amortization of policy acquisition costs
|
(15.7
|
)
|
|
Decrease in pre-tax income
|
$
|
(28.8
|
)
|
|
|
||
Balance Sheet
|
|
||
(In millions)
|
|
||
Decrease in:
|
|
||
Cash
|
$
|
93.6
|
|
Deferred policy acquisition costs
|
26.2
|
|
|
Accounts and notes receivable
|
1.1
|
|
|
Derivative assets
|
0.6
|
|
|
Unearned premiums
|
71.6
|
|
|
Derivative liabilities
|
2.1
|
|
|
Increase in other assets
|
19.1
|
|
•
|
During the first
six
months of 2012,
four
credit default swap (“CDS”) counterparties in our financial guaranty business exercised their termination rights with respect to
22
corporate collateralized debt obligations (“CDOs”) that we insured and an additional counterparty exercised its termination right with respect to
one
CDS of an investor-owned utility bond that we insured (collectively, the “2012 CDO Terminations”), which further reduced our financial guaranty net par outstanding by
$9.4 billion
in the aggregate.
|
•
|
Since December 31, 2011, we have purchased
$170.6 million
(
$158.7 million
as of June 30, 2012) of principal amount of our 2013 Notes, as discussed in more detail in Note 11.
|
•
|
On April 1, 2012, Radian Guaranty entered into a quota share reinsurance agreement with a third-party reinsurance provider (the “2012 Quota Share Reinsurance Transaction”). See Note 7 for further details.
|
•
|
In the second quarter of 2012, Radian Asset Assurance entered into a commutation with one of its derivative counterparties (the “Counterparty”) to commute Radian Asset Assurance’s: (1) only CDO of asset-backed securities (“ABS”) exposure related to a directly insured tranche of an extremely distressed CDO of ABS transaction (the “CDO of ABS Transaction”), for which we expected to pay claims on substantially all of the
$450.2 million
net par outstanding; and (2) credit protection through CDS on
six
directly insured trust preferred securities (“TruPs”) CDO transactions, representing
$699.0 million
of net par outstanding at the time of the commutation (the “Terminated TruPs CDOs”). In consideration for these commutations, Radian Asset Assurance paid
$210.0 million
(the “Commutation Amount”), a significant portion of which (the “LPV Initial Capital”) has been deposited with a limited purpose vehicle (an “LPV”) to cover the Counterparty’s potential future losses on the TruPs bonds underlying the Terminated TruPs CDOs (the “Terminated TruPs Bonds”). The commutations described in this paragraph are referred to herein as the “Commutation Transactions.”
|
•
|
In the second quarter of 2012, Radian Asset Assurance released
$54.5 million
of contingency reserves, which benefited Radian Guaranty’s statutory surplus by an equal amount.
|
•
|
In July 2012, Radian Asset Assurance paid an ordinary dividend of
$54.0 million
to Radian Guaranty.
|
•
|
Potential adverse effects of the failure or significant delay of the U.S. economy to fully recover from the most recent recession and prolonged economic downturn, including ongoing high unemployment, uncertainty in the housing, municipal, foreign sovereign and related credit markets, which could increase our mortgage insurance or financial guaranty losses beyond existing expectations. (See Notes 8, 9 and 10).
|
•
|
Potential adverse effects if there are adverse developments with respect to our estimates related to the likelihood, magnitude and timing of losses in connection with establishing loss reserves or premium deficiency reserves for our mortgage insurance or financial guaranty businesses. (See Notes 8, 9 and 10).
|
•
|
Potential adverse effects on us if the capital and liquidity levels of Radian Group or our regulated subsidiaries’ statutory capital levels are deemed inadequate to support current business operations and strategies.
|
•
|
Potential adverse effects if Radian Guaranty’s regulatory risk-based capital position fails to comply with applicable state statutory or regulatory risk-based capital requirements, including if waivers or similar relief from the states that impose such statutory or regulatory risk-based capital requirements are not obtained or renewed, or are revoked. These risks include the possibility that: (i) insurance regulators or the GSEs may limit or cause Radian Guaranty to cease writing new mortgage insurance; (ii) the GSEs may terminate or otherwise restrict Radian Guaranty’s or RMAI’s eligibility to insure loans purchased by the GSEs; (iii) Radian Guaranty’s customers may decide not to insure loans with Radian Guaranty or may otherwise limit the type or amount of business done with Radian Guaranty; and (iv) state or federal regulators could pursue regulatory actions or proceedings, including possible supervision or receivership actions, against us in the future. (See Note 14 for additional information regarding our statutory capital).
|
•
|
Potential adverse effects if we fail to comply with applicable debt covenants, which could result in a default under our long-term debt and accelerate our obligation to repay our outstanding debt. Regulatory action that results in the appointment of a receiver for one or more of our significant insurance subsidiaries could constitute an event of default under our long-term debt.
|
•
|
Factors adversely affecting Radian Group’s capital and liquidity that could cause Radian Group to have insufficient sources of capital and liquidity to meet all of its expected obligations in the near-term, including
$79.4 million
of principal amount currently outstanding on our 2013 Notes that mature in February 2013, our failure to estimate accurately the likelihood and potential effects of the various risks and uncertainties described in this report and our other filings with the SEC, as well as potential regulatory, legal or other changes to our tax- or expense-allocation agreements among Radian Group and its subsidiaries.
|
•
|
Potential adverse effects resulting from the final determination or settlement of tax audits and examinations and any potential related litigation, as well as changes in tax laws, rates, regulations and policies, or interpretations of any of the foregoing that could have a material impact on our tax liabilities, tax assets and our results of operations or financial condition.
|
•
|
Potential adverse effects from legislative efforts to reform the housing finance market, including the possibility that new federal legislation could reduce or eliminate the requirement for private mortgage insurance or place additional significant obligations or restrictions on mortgage insurers.
|
•
|
Potential adverse effects on our businesses as a result of the implementation of regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), including whether and to what extent loans with mortgage insurance are considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions or “qualified mortgages” for purposes of the “ability to repay” provisions of the Dodd-Frank Act, and potential obligations to register as a “Major Security-Based Swap Participant” or to post collateral with respect to our existing insured derivatives portfolio.
|
•
|
Our businesses have been significantly affected by, and our future success may depend upon, legislative and regulatory developments impacting the housing finance industry. The GSEs are the primary beneficiaries of the majority of our mortgage insurance policies, and the Federal Housing Authority remains our primary competitor outside of the private mortgage insurance industry. The GSEs’ federal charters generally prohibit them from purchasing any mortgage with a loan amount that exceeds 80% of a home’s value, unless that mortgage is insured by a qualified insurer or the mortgage seller retains at least a 10% participation in the loan or agrees to repurchase the loan in the event of a default. As a result, high-loan-to-value (“LTV”) mortgages purchased by the GSEs generally are insured with private mortgage insurance. Changes in the charters or business practices of the GSEs, including pursuing new products for purchasing high-LTV loans that are not insured by private mortgage insurance, could reduce the number of mortgages they purchase that are insured by us and consequently diminish our franchise value. In September 2008, the Federal Housing Finance Agency was appointed as the conservator of the GSEs to control and direct the operations of the GSEs. The continued role of the conservator may increase the likelihood that the business practices of the GSEs will be changed in ways that may have a material adverse effect on us. In particular, if the private mortgage insurance industry does not have the ability, due to capital constraints, to continue to write sufficient business to meet the needs of the GSEs, the GSEs may seek alternatives other than private mortgage insurance to conduct their business.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Mortgage Insurance
|
|
|
|
|
|
|
|
||||||||
Net premiums written—insurance
|
$
|
182,518
|
|
|
$
|
164,194
|
|
|
$
|
379,371
|
|
|
$
|
345,040
|
|
Net premiums earned—insurance
|
$
|
170,763
|
|
|
$
|
164,325
|
|
|
$
|
344,214
|
|
|
$
|
350,459
|
|
Net investment income
|
17,608
|
|
|
24,853
|
|
|
35,619
|
|
|
51,686
|
|
||||
Net gains on investments
|
26,662
|
|
|
27,425
|
|
|
58,840
|
|
|
45,187
|
|
||||
Net impairment losses recognized in earnings
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
||||
Change in fair value of derivative instruments
|
(52
|
)
|
|
258
|
|
|
(31
|
)
|
|
(136
|
)
|
||||
Net gains (losses) on other financial instruments
|
42
|
|
|
(631
|
)
|
|
(667
|
)
|
|
1,835
|
|
||||
Gain on sale of affiliate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other income
|
1,304
|
|
|
1,124
|
|
|
2,648
|
|
|
2,524
|
|
||||
Total revenues
|
216,327
|
|
|
217,343
|
|
|
440,623
|
|
|
451,544
|
|
||||
Provision for losses
|
208,078
|
|
|
269,992
|
|
|
442,807
|
|
|
683,965
|
|
||||
Change in reserve for premium deficiency
|
559
|
|
|
(3,102
|
)
|
|
539
|
|
|
(4,485
|
)
|
||||
Policy acquisition costs
|
7,890
|
|
|
8,601
|
|
|
16,536
|
|
|
18,817
|
|
||||
Other operating expenses
|
31,272
|
|
|
33,913
|
|
|
67,537
|
|
|
68,050
|
|
||||
Interest expense
|
1,723
|
|
|
146
|
|
|
3,445
|
|
|
9,935
|
|
||||
Total expenses
|
249,522
|
|
|
309,550
|
|
|
530,864
|
|
|
776,282
|
|
||||
Equity in net (loss) income of affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Pretax loss
|
(33,195
|
)
|
|
(92,207
|
)
|
|
(90,241
|
)
|
|
(324,738
|
)
|
||||
Income tax (benefit) provision
|
(10,209
|
)
|
|
5,374
|
|
|
(22,008
|
)
|
|
8,875
|
|
||||
Net loss
|
$
|
(22,986
|
)
|
|
$
|
(97,581
|
)
|
|
$
|
(68,233
|
)
|
|
$
|
(333,613
|
)
|
Cash and investments
|
$
|
3,176,027
|
|
|
$
|
3,334,789
|
|
|
|
|
|
||||
Deferred policy acquisition costs
|
44,240
|
|
|
44,509
|
|
|
|
|
|
||||||
Total assets
|
3,388,524
|
|
|
3,688,720
|
|
|
|
|
|
||||||
Unearned premiums
|
290,880
|
|
|
191,737
|
|
|
|
|
|
||||||
Reserve for losses and LAE
|
3,155,343
|
|
|
3,268,582
|
|
|
|
|
|
||||||
VIE debt
|
7,500
|
|
|
56,239
|
|
|
|
|
|
||||||
Derivative liabilities
|
—
|
|
|
—
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||||
NIW (in millions)
|
$
|
8,335
|
|
|
$
|
2,280
|
|
|
$
|
14,800
|
|
|
$
|
4,866
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Financial Guaranty
|
|
|
|
|
|
|
|
||||||||
Net premiums written—insurance
|
$
|
(586
|
)
|
|
$
|
(11,416
|
)
|
|
$
|
(119,761
|
)
|
|
$
|
(9,513
|
)
|
Net premiums earned—insurance
|
$
|
16,016
|
|
|
$
|
24,609
|
|
|
$
|
9,930
|
|
|
$
|
41,498
|
|
Net investment income
|
13,269
|
|
|
18,970
|
|
|
29,971
|
|
|
34,377
|
|
||||
Net (losses) gains on investments
|
(243
|
)
|
|
16,811
|
|
|
35,038
|
|
|
36,484
|
|
||||
Net impairment losses recognized in earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Change in fair value of derivative instruments
|
(33,072
|
)
|
|
188,468
|
|
|
(105,850
|
)
|
|
432,754
|
|
||||
Net (losses) gains on other financial instruments
|
(61,904
|
)
|
|
5,678
|
|
|
(79,047
|
)
|
|
78,463
|
|
||||
Gain on sale of affiliate
|
7,708
|
|
|
—
|
|
|
7,708
|
|
|
—
|
|
||||
Other income
|
91
|
|
|
72
|
|
|
187
|
|
|
120
|
|
||||
Total revenues
|
(58,135
|
)
|
|
254,608
|
|
|
(102,063
|
)
|
|
623,696
|
|
||||
Provision for losses
|
2,790
|
|
|
(6,426
|
)
|
|
34,215
|
|
|
6,974
|
|
||||
Change in reserve for premium deficiency
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Policy acquisition costs
|
2,915
|
|
|
5,786
|
|
|
22,315
|
|
|
9,701
|
|
||||
Other operating expenses
|
8,921
|
|
|
12,041
|
|
|
22,810
|
|
|
24,123
|
|
||||
Interest expense
|
10,858
|
|
|
15,933
|
|
|
23,284
|
|
|
23,168
|
|
||||
Total expenses
|
25,484
|
|
|
27,334
|
|
|
102,624
|
|
|
63,966
|
|
||||
Equity in net (loss) income of affiliates
|
(2
|
)
|
|
—
|
|
|
(13
|
)
|
|
65
|
|
||||
Pretax (loss) income
|
(83,621
|
)
|
|
227,274
|
|
|
(204,700
|
)
|
|
559,795
|
|
||||
Income tax provision (benefit)
|
12,652
|
|
|
(7,422
|
)
|
|
15,558
|
|
|
(13,939
|
)
|
||||
Net (loss) income
|
$
|
(96,273
|
)
|
|
$
|
234,696
|
|
|
$
|
(220,258
|
)
|
|
$
|
573,734
|
|
Cash and investments
|
$
|
2,137,956
|
|
|
$
|
2,703,740
|
|
|
|
|
|
||||
Deferred policy acquisition costs
|
55,146
|
|
|
94,417
|
|
|
|
|
|
||||||
Total assets
|
2,643,006
|
|
|
3,240,076
|
|
|
|
|
|
||||||
Unearned premiums
|
297,551
|
|
|
438,076
|
|
|
|
|
|
||||||
Reserve for losses and LAE
|
94,937
|
|
|
75,042
|
|
|
|
|
|
||||||
VIE debt
|
100,333
|
|
|
337,501
|
|
|
|
|
|
||||||
Derivative liabilities
|
219,960
|
|
|
313,708
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Consolidated
|
|
|
|
|
|
|
|
||||||||
Net (loss) income:
|
|
|
|
|
|
|
|
||||||||
Mortgage Insurance
|
$
|
(22,986
|
)
|
|
$
|
(97,581
|
)
|
|
$
|
(68,233
|
)
|
|
$
|
(333,613
|
)
|
Financial Guaranty
|
(96,273
|
)
|
|
234,696
|
|
|
(220,258
|
)
|
|
573,734
|
|
||||
Total
|
$
|
(119,259
|
)
|
|
$
|
137,115
|
|
|
$
|
(288,491
|
)
|
|
$
|
240,121
|
|
(In millions)
|
June 30,
2012 |
|
December 31,
2011 |
||||
Balance Sheets
|
|
|
|
||||
Derivative assets:
|
|
|
|
||||
Financial Guaranty credit derivative assets
|
$
|
12.5
|
|
|
$
|
15.4
|
|
NIMS related and other
|
1.7
|
|
|
1.8
|
|
||
Total derivative assets
|
14.2
|
|
|
17.2
|
|
||
Derivative liabilities:
|
|
|
|
||||
Financial Guaranty credit derivative liabilities
|
144.6
|
|
|
106.5
|
|
||
Financial Guaranty VIE derivative liabilities
|
75.4
|
|
(1)
|
19.5
|
|
||
Total derivative liabilities
|
220.0
|
|
|
126.0
|
|
||
Total derivative liabilities, net
|
$
|
205.8
|
|
|
$
|
108.8
|
|
(1)
|
As a result of the Commutation Transactions described in Note 1, we established a VIE during the quarter ended June 30, 2012. See Note 5 for further details.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Statements of Operations
|
|
|
|
|
|
|
|
||||||||
Net premiums earned—derivatives
|
$
|
7.3
|
|
|
$
|
10.5
|
|
|
$
|
15.9
|
|
|
$
|
21.4
|
|
Financial Guaranty credit derivatives
|
(39.2
|
)
|
|
181.9
|
|
|
(119.4
|
)
|
|
416.5
|
|
||||
Financial Guaranty VIE derivatives
|
(1.2
|
)
|
|
(4.0
|
)
|
|
(2.4
|
)
|
|
(4.9
|
)
|
||||
NIMS related and other
|
—
|
|
|
0.3
|
|
|
—
|
|
|
(0.4
|
)
|
||||
Change in fair value of derivative instruments
|
$
|
(33.1
|
)
|
|
$
|
188.7
|
|
|
$
|
(105.9
|
)
|
|
$
|
432.6
|
|
($ in millions)
|
June 30, 2012
|
|||||||||
Number of
Contracts
|
|
Par/
Notional
Exposure
|
|
Total Net Asset/
(Liability)
|
||||||
Product
|
|
|
|
|
|
|||||
NIMS related and other (1)
|
—
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
Corporate CDOs
|
52
|
|
|
20,241.4
|
|
|
0.8
|
|
||
Non-Corporate CDOs and other derivative transactions:
|
|
|
|
|
|
|||||
TruPs
|
13
|
|
|
1,147.1
|
|
|
(9.9
|
)
|
||
CDOs of commercial mortgage-backed securities (“CMBS”)
|
4
|
|
|
1,831.0
|
|
|
(58.0
|
)
|
||
Other:
|
|
|
|
|
|
|||||
Structured finance
|
8
|
|
|
719.1
|
|
|
(26.7
|
)
|
||
Public finance
|
23
|
|
|
1,438.5
|
|
|
(22.6
|
)
|
||
Total Non-Corporate CDOs and other derivative transactions
|
48
|
|
|
5,135.7
|
|
|
(117.2
|
)
|
||
Assumed financial guaranty credit derivatives:
|
|
|
|
|
|
|||||
Structured finance
|
36
|
|
|
239.2
|
|
|
(14.6
|
)
|
||
Public finance
|
8
|
|
|
129.5
|
|
|
(1.1
|
)
|
||
Total Assumed
|
44
|
|
|
368.7
|
|
|
(15.7
|
)
|
||
Financial Guaranty VIE derivative liabilities (2)
|
1
|
|
|
75.4
|
|
|
(75.4
|
)
|
||
Grand Total
|
145
|
|
|
$
|
25,821.2
|
|
|
$
|
(205.8
|
)
|
(1)
|
Represents NIMS derivative assets related to consolidated NIMS VIEs. Also includes common stock warrants. Because none of these investments represent financial guaranty contracts that we issued, they cannot become liabilities, and therefore, do not represent additional par exposure.
|
(2)
|
Represents the fair value of a CDS included in a VIE which we consolidate relating to the Terminated TruPs CDOs. The assets in the VIE represent the only funds available to pay the CDS Counterparty for amounts due under the contract; therefore, the notional exposure presented for the CDS is limited to the current trust assets. See Notes 1 and 5 for information on the underlying reference securities and on our maximum exposure to loss from this consolidated financial guaranty transaction.
|
(In basis points)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|
December 31,
2010 |
|||
Radian Group’s five-year CDS spread
|
1,780
|
|
|
2,732
|
|
|
968
|
|
465
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian Non-Performance Risk June 30, 2012
|
|
|
Impact of Radian
Non-Performance Risk June 30, 2012
|
|
|
Fair Value (Asset) Liability
Recorded
June 30, 2012
|
|
|||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
258.4
|
|
|
$
|
259.2
|
|
|
$
|
(0.8
|
)
|
Non-Corporate CDO-related (1)
|
915.0
|
|
|
797.8
|
|
|
117.2
|
|
|||
NIMS-related (2)
|
13.0
|
|
|
7.2
|
|
|
5.8
|
|
|||
Total
|
$
|
1,186.4
|
|
|
$
|
1,064.2
|
|
|
$
|
122.2
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian Non-Performance Risk
December 31, 2011
|
|
|
Impact of Radian
Non-Performance Risk
December 31, 2011
|
|
|
Fair Value Liability
Recorded
December 31, 2011
|
|
|||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
463.1
|
|
|
$
|
458.0
|
|
|
$
|
5.1
|
|
Non-Corporate CDO-related (1)
|
1,520.2
|
|
|
1,405.3
|
|
|
114.9
|
|
|||
NIMS-related (2)
|
17.4
|
|
|
9.6
|
|
|
7.8
|
|
|||
Total
|
$
|
2,000.7
|
|
|
$
|
1,872.9
|
|
|
$
|
127.8
|
|
(1)
|
Includes the net fair value liability recorded within derivative assets and derivative liabilities, and the net fair value liabilities included in our consolidated VIEs.
|
(2)
|
Includes NIMS VIE debt and NIMS derivative assets.
|
Level I
|
— Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level II
|
— Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and
|
Level III
|
— Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
(In millions)
|
Fair Value June 30, 2012 (1)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range/ Weighted Average
|
||||||
Level III Investments:
|
|
|
|
|
|
|
|
|
|
||||
State and municipal obligations
|
$
|
19.6
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
Expected loss
|
|
|
|
19.0
|
%
|
|||
Other investments
|
75.4
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
2.3
|
%
|
||
|
|
|
|
|
Expected loss
|
|
|
|
—
|
%
|
|||
Level III Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||
Corporate CDOs
|
9.4
|
|
|
Base correlation model
|
Radian correlation to corporate index
|
|
|
|
85.0
|
%
|
|||
|
|
|
|
Average credit spread
|
0.2
|
%
|
-
|
4.2
|
%
|
||||
|
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
||
CDOs of CMBS
|
1.4
|
|
|
Discounted cash flow
|
|
Radian correlation to CMBS transaction index
|
|
72.0
|
%
|
-
|
85.0
|
%
|
|
|
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
||
TruPs CDOs
|
1.5
|
|
|
Discounted cash flow
|
|
Principal recovery
|
|
|
|
55.0
|
%
|
||
|
|
|
|
|
Principal recovery (stressed)
|
|
|
|
50.0
|
%
|
|||
|
|
|
|
|
Probability of conditional liquidity payment
|
|
0.4
|
%
|
-
|
32.0
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
||
NIMS derivative assets
|
1.7
|
|
|
Discounted cash flow
|
|
NIMS credit spread
|
|
|
|
43.0
|
%
|
||
|
|
|
|
|
Own credit spread
|
|
|
|
22.9
|
%
|
|||
Level III Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||
Corporate CDOs
|
8.6
|
|
|
Base correlation model
|
Radian correlation to corporate index
|
|
|
|
85.0
|
%
|
|||
|
|
|
|
Average credit spread
|
|
0.2
|
%
|
-
|
4.2
|
%
|
|||
|
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
||
CDOs of CMBS
|
59.4
|
|
|
Discounted cash flow
|
|
Radian correlation to CMBS transaction index
|
|
72.0
|
%
|
-
|
85.0
|
%
|
|
|
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
||
TruPs CDOs and TruPs-related VIE liabilities
|
86.8
|
|
|
Discounted cash flow
|
|
Principal recovery
|
|
|
|
55.0
|
%
|
||
|
|
|
|
|
Principal recovery (stressed)
|
|
|
|
50.0
|
%
|
|||
|
|
|
|
|
Probability of conditional liquidity payment
|
|
0.4
|
%
|
-
|
32.0
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
—
|
%
|
-
|
22.6
|
%
|
||
Other non-corporate CDOs and derivative transactions
|
65.0
|
|
|
Risk-based model
|
|
Average life (in years)
|
|
<1
|
-
|
20
|
|
||
|
|
|
|
Own credit spread (2)
|
|
12.7
|
%
|
-
|
22.6
|
%
|
|||
Level III VIE Liabilities:
|
|
|
|
|
|
|
|
|
|
||||
NIMS VIE
|
7.5
|
|
|
Discounted cash flow
|
|
NIMS credit spread
|
|
|
|
43.0
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
15.1
|
%
|
-
|
23.4
|
%
|
(1)
|
Excludes certain assets and liabilities for which we do not develop quantitative unobservable inputs. The fair value estimates for these assets and liabilities are developed using third-party pricing information, generally without adjustment.
|
(2)
|
Represents the range of our CDS spread that a typical market participant might use in the valuation analysis based on the remaining term of the investment.
|
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
Assets and Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
||||||||
Investment Portfolio:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
|
$
|
235.2
|
|
|
$
|
717.5
|
|
|
$
|
—
|
|
|
$
|
952.7
|
|
State and municipal obligations
|
|
—
|
|
|
834.4
|
|
|
19.6
|
|
|
854.0
|
|
||||
Money market instruments
|
|
468.9
|
|
|
—
|
|
|
—
|
|
|
468.9
|
|
||||
Corporate bonds and notes
|
|
—
|
|
|
836.0
|
|
|
—
|
|
|
836.0
|
|
||||
Residential mortgage-backed securities (“RMBS”)
|
|
—
|
|
|
968.7
|
|
|
—
|
|
|
968.7
|
|
||||
CMBS
|
|
—
|
|
|
185.2
|
|
|
—
|
|
|
185.2
|
|
||||
CDO
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Other ABS
|
|
—
|
|
|
128.9
|
|
|
4.8
|
|
|
133.7
|
|
||||
Foreign government securities
|
|
—
|
|
|
109.1
|
|
|
—
|
|
|
109.1
|
|
||||
Hybrid securities
|
|
—
|
|
|
353.9
|
|
|
—
|
|
|
353.9
|
|
||||
Equity securities (1)
|
|
94.5
|
|
|
156.0
|
|
|
2.0
|
|
|
252.5
|
|
||||
Other investments (2)
|
|
—
|
|
|
2.4
|
|
|
76.5
|
|
|
78.9
|
|
||||
Total Investments at Fair Value (3)
|
|
798.6
|
|
|
4,292.1
|
|
|
102.9
|
|
|
5,193.6
|
|
||||
Derivative Assets
|
|
—
|
|
|
—
|
|
|
14.2
|
|
|
14.2
|
|
||||
Other Assets (4)
|
|
—
|
|
|
—
|
|
|
100.7
|
|
|
100.7
|
|
||||
Total Assets at Fair Value
|
|
$
|
798.6
|
|
|
$
|
4,292.1
|
|
|
$
|
217.8
|
|
|
$
|
5,308.5
|
|
Derivative Liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
220.0
|
|
|
$
|
220.0
|
|
VIE debt (5)
|
|
—
|
|
|
—
|
|
|
107.8
|
|
|
107.8
|
|
||||
Total Liabilities at Fair Value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
327.8
|
|
|
$
|
327.8
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds included within Level I and various preferred and common stocks invested across numerous companies and industries included within Levels II and III.
|
(2)
|
Comprising TruPs (
$0.7 million
) and short-term CDs (
$1.7 million
) included within Level II, and lottery annuities (
$1.1 million
) and a guaranteed investment contract held by a consolidated VIE (
$75.4 million
) within Level III.
|
(3)
|
Does not include fixed-maturities held to maturity (
$2.5 million
) and certain other invested assets (
$59.1 million
), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.
|
(4)
|
Primarily comprising manufactured housing loan collateral related to
two
consolidated financial guaranty VIEs.
|
(5)
|
Comprising consolidated debt related to NIMS VIEs (
$7.5 million
) and amounts related to financial guaranty VIEs (
$100.3 million
).
|
(In millions)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
Assets and Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
||||||||
Investment Portfolio:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
|
$
|
386.9
|
|
|
$
|
723.6
|
|
|
$
|
—
|
|
|
$
|
1,110.5
|
|
State and municipal obligations
|
|
—
|
|
|
985.0
|
|
|
62.5
|
|
|
1,047.5
|
|
||||
Money market instruments
|
|
723.2
|
|
|
—
|
|
|
—
|
|
|
723.2
|
|
||||
Corporate bonds and notes
|
|
—
|
|
|
700.5
|
|
|
—
|
|
|
700.5
|
|
||||
RMBS
|
|
—
|
|
|
884.7
|
|
|
45.5
|
|
|
930.2
|
|
||||
CMBS
|
|
—
|
|
|
190.4
|
|
|
35.4
|
|
|
225.8
|
|
||||
CDO
|
|
—
|
|
|
—
|
|
|
5.5
|
|
|
5.5
|
|
||||
Other ABS
|
|
—
|
|
|
97.0
|
|
|
2.9
|
|
|
99.9
|
|
||||
Foreign government securities
|
|
—
|
|
|
102.9
|
|
|
—
|
|
|
102.9
|
|
||||
Hybrid securities
|
|
—
|
|
|
341.5
|
|
|
4.8
|
|
|
346.3
|
|
||||
Equity securities (1)
|
|
116.0
|
|
|
152.4
|
|
|
0.8
|
|
|
269.2
|
|
||||
Other investments (2)
|
|
—
|
|
|
151.6
|
|
|
6.8
|
|
|
158.4
|
|
||||
Total Investments at Fair Value (3)
|
|
1,226.1
|
|
|
4,329.6
|
|
|
164.2
|
|
|
5,719.9
|
|
||||
Derivative Assets
|
|
—
|
|
|
0.2
|
|
|
17.0
|
|
|
17.2
|
|
||||
Other Assets (4)
|
|
—
|
|
|
—
|
|
|
104.0
|
|
|
104.0
|
|
||||
Total Assets at Fair Value
|
|
$
|
1,226.1
|
|
|
$
|
4,329.8
|
|
|
$
|
285.2
|
|
|
$
|
5,841.1
|
|
Derivative Liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
126.0
|
|
|
$
|
126.0
|
|
VIE debt (5)
|
|
—
|
|
|
—
|
|
|
228.2
|
|
|
228.2
|
|
||||
Total Liabilities at Fair Value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
354.2
|
|
|
$
|
354.2
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds included within Level I and various preferred and common stocks invested across numerous companies and industries included within Levels II and III.
|
(2)
|
Comprising short-term commercial paper within Committed Preferred Custodial Trust Securities (“CPS”) trusts (
$150.0 million
) and short-term CDs (
$1.6 million
) included within Level II, and lottery annuities (
$1.6 million
) and TruPs held by consolidated VIEs (
$5.2 million
) included within Level III.
|
(3)
|
Does not include fixed-maturities held to maturity (
$2.6 million
) and other invested assets (
$61.0 million
), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.
|
(4)
|
Comprising manufactured housing loan collateral related to
two
consolidated financial guaranty VIEs.
|
(5)
|
Comprising consolidated debt related to NIMS VIEs (
$9.4 million
) and amounts related to financial guaranty VIEs (
$218.8 million
).
|
(In millions)
|
Beginning
Balance at
April 1, 2012
|
|
|
Realized and
Unrealized
Gains (Losses)
Recorded
in Earnings (1)
|
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of)
Level III (2)
|
|
Ending
Balance at
June 30, 2012
|
|
||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
State and municipal obligations
|
$
|
58.1
|
|
|
$
|
(10.7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(27.8
|
)
|
|
$
|
19.6
|
|
RMBS
|
51.2
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.1
|
|
|
—
|
|
|
—
|
|
||||||||
CMBS
|
24.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24.0
|
|
|
—
|
|
|
—
|
|
||||||||
CDO
|
6.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
||||||||
Other ABS
|
3.7
|
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
4.8
|
|
||||||||
Hybrid securities
|
0.2
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
||||||||
Equity securities
|
2.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
||||||||
Other investments
|
7.1
|
|
|
0.4
|
|
|
75.0
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
76.5
|
|
||||||||
Total Level III Investments
|
152.8
|
|
|
(10.5
|
)
|
|
80.3
|
|
|
—
|
|
|
—
|
|
|
91.6
|
|
|
(28.1
|
)
|
|
102.9
|
|
||||||||
NIMS derivative assets
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
||||||||
Other assets
|
101.3
|
|
|
5.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.5
|
|
|
—
|
|
|
100.7
|
|
||||||||
Total Level III Assets
|
$
|
255.8
|
|
|
$
|
(4.6
|
)
|
|
$
|
80.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
98.1
|
|
|
$
|
(28.1
|
)
|
|
$
|
205.3
|
|
Derivative liabilities, net
|
$
|
187.7
|
|
|
$
|
(33.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13.3
|
|
|
$
|
—
|
|
|
$
|
207.5
|
|
VIE debt
|
255.2
|
|
|
(68.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
215.8
|
|
(3)
|
—
|
|
|
107.8
|
|
||||||||
Total Level III Liabilities, net
|
$
|
442.9
|
|
|
$
|
(101.5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
229.1
|
|
|
$
|
—
|
|
|
$
|
315.3
|
|
(1)
|
Includes unrealized gains (losses) for the quarter ended
June 30, 2012
, relating to assets and liabilities still held at
June 30, 2012
, as follows:
$0.4 million
for investments,
$3.2 million
for other assets,
$(56.8) million
for derivative liabilities, and
$(3.8) million
for VIE debt.
|
(2)
|
Transfers are recognized at the end of the period as the availability of market observed inputs change from period to period. During the period pricing from a third-party pricing source became available for one bond, accounting for a majority of the transfer out of Level III and into Level II.
|
(3)
|
Primarily represents the settlement of our CDO of ABS.
|
(In millions)
|
Beginning
Balance at
January 1, 2012
|
|
|
Realized and
Unrealized
Gains (Losses)
Recorded
in Earnings (1)
|
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of)
Level III (2)
|
|
Ending
Balance at
June 30, 2012
|
|
||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
State and municipal obligations
|
$
|
62.5
|
|
|
$
|
(4.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.1
|
|
|
$
|
(27.8
|
)
|
|
$
|
19.6
|
|
RMBS
|
45.5
|
|
|
6.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51.6
|
|
|
—
|
|
|
—
|
|
||||||||
CMBS
|
35.4
|
|
|
(11.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24.0
|
|
|
—
|
|
|
—
|
|
||||||||
CDO
|
5.5
|
|
|
0.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
|
—
|
|
||||||||
Other ABS
|
2.9
|
|
|
0.8
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
4.8
|
|
||||||||
Hybrid securities
|
4.8
|
|
|
0.1
|
|
|
0.1
|
|
|
4.9
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
||||||||
Equity securities
|
0.8
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.7
|
|
|
2.0
|
|
||||||||
Other investments
|
6.8
|
|
|
1.2
|
|
|
75.0
|
|
|
0.5
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
76.5
|
|
||||||||
Total Level III Investments
|
164.2
|
|
|
(5.9
|
)
|
|
80.3
|
|
|
5.4
|
|
|
—
|
|
|
103.1
|
|
|
(27.2
|
)
|
|
102.9
|
|
||||||||
NIMS derivative assets
|
1.6
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
||||||||
Other assets
|
104.0
|
|
|
9.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.6
|
|
|
—
|
|
|
100.7
|
|
||||||||
Total Level III Assets
|
$
|
269.8
|
|
|
$
|
3.4
|
|
|
$
|
80.4
|
|
|
$
|
5.4
|
|
|
$
|
—
|
|
|
$
|
115.7
|
|
|
$
|
(27.2
|
)
|
|
$
|
205.3
|
|
Derivative liabilities, net
|
$
|
110.6
|
|
|
$
|
(105.9
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.0
|
|
|
$
|
—
|
|
|
$
|
207.5
|
|
VIE debt
|
228.2
|
|
|
(104.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
224.8
|
|
(3)
|
—
|
|
|
107.8
|
|
||||||||
Total Level III Liabilities, net
|
$
|
338.8
|
|
|
$
|
(210.3
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
233.8
|
|
|
$
|
—
|
|
|
$
|
315.3
|
|
(1)
|
Includes unrealized gains (losses) for the
six
months ended
June 30, 2012
, relating to assets and liabilities still held at
June 30, 2012
, as follows:
$1.0 million
for investments,
$3.8 million
for other assets,
$(140.2) million
for derivative liabilities, and
$(4.9) million
for VIE debt.
|
(2)
|
Transfers are recognized at the end of the period as the availability of market observed inputs change from period to period. During the period pricing from a third-party pricing source became available for one bond, accounting for a majority of the transfer out of Level III and into Level II.
|
(3)
|
Primarily represents the settlement of our CDO of ABS.
|
(In millions)
|
Balance at
April 1, 2011
|
|
|
Realized and
Unrealized
Gains (Losses)
Recorded
in Earnings (1)
|
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of)
Level III (2)
|
|
Ending
Balance at
June 30, 2011
|
|
||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
State and municipal obligations
|
$
|
23.2
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23.6
|
|
RMBS
|
55.3
|
|
|
7.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
61.4
|
|
||||||||
CMBS
|
24.0
|
|
|
5.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.4
|
|
||||||||
CDO
|
4.1
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.9
|
|
||||||||
Other ABS
|
4.7
|
|
|
(2.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
||||||||
Hybrid securities
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
||||||||
Equity securities
|
4.3
|
|
|
(0.7
|
)
|
|
2.1
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
||||||||
Other investments
|
3.9
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
||||||||
Total Level III Investments
|
119.5
|
|
|
12.2
|
|
|
2.1
|
|
|
1.6
|
|
|
—
|
|
|
(0.1
|
)
|
|
(0.6
|
)
|
|
131.7
|
|
||||||||
NIMS derivative assets
|
9.0
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
||||||||
Other assets
|
106.3
|
|
|
14.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.0
|
|
|
—
|
|
|
113.7
|
|
||||||||
Total Level III Assets
|
$
|
234.8
|
|
|
$
|
27.0
|
|
|
$
|
2.1
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
$
|
11.6
|
|
|
$
|
(0.6
|
)
|
|
$
|
250.1
|
|
Derivative liabilities, net
|
$
|
472.2
|
|
|
$
|
188.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7.6
|
)
|
|
$
|
—
|
|
|
$
|
291.5
|
|
VIE debt
|
373.0
|
|
|
(44.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23.3
|
|
|
—
|
|
|
393.7
|
|
||||||||
Total Level III Liabilities, net
|
$
|
845.2
|
|
|
$
|
144.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
|
$
|
—
|
|
|
$
|
685.2
|
|
(1)
|
Includes unrealized gains (losses) for the quarter ended
June 30, 2011
, relating to assets and liabilities still held at
June 30, 2011
, as follows:
$10.6 million
for investments,
$(1.5) million
for NIMS derivative assets,
$11.2 million
for other assets,
$173.4 million
for derivative liabilities, and
$(9.8) million
for VIE debt.
|
(2)
|
Transfers are recognized at the end of the period as the availability of market observed inputs change from period to period.
|
(In millions)
|
Beginning
Balance at
January 1, 2011
|
|
|
Realized and
Unrealized
Gains (Losses)
Recorded
in Earnings (1)
|
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of)
Level III (2)
|
|
Ending
Balance at
June 30, 2011
|
|
||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
State and municipal obligations
|
$
|
23.2
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
23.6
|
|
RMBS
|
52.5
|
|
|
11.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
61.4
|
|
||||||||
CMBS
|
23.0
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.4
|
|
||||||||
CDO
|
2.4
|
|
|
1.3
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
3.9
|
|
||||||||
Other ABS
|
3.3
|
|
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.0
|
|
||||||||
Hybrid securities
|
—
|
|
|
(0.1
|
)
|
|
0.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
||||||||
Equity securities
|
2.9
|
|
|
(0.3
|
)
|
|
3.2
|
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.6
|
|
||||||||
Other investments
|
4.6
|
|
|
2.0
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
5.8
|
|
||||||||
Total Level III Investments
|
111.9
|
|
|
20.0
|
|
|
3.9
|
|
|
2.2
|
|
|
—
|
|
|
1.3
|
|
|
(0.6
|
)
|
|
131.7
|
|
||||||||
NIMS derivative assets
|
11.7
|
|
|
(2.0
|
)
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
4.7
|
|
|
(0.4
|
)
|
|
4.7
|
|
||||||||
Other assets
|
109.7
|
|
|
18.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14.3
|
|
|
—
|
|
|
113.7
|
|
||||||||
Total Level III Assets
|
$
|
233.3
|
|
|
$
|
36.3
|
|
|
$
|
4.0
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
20.3
|
|
|
$
|
(1.0
|
)
|
|
$
|
250.1
|
|
Derivative liabilities, net
|
$
|
709.1
|
|
|
$
|
433.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(15.4
|
)
|
|
$
|
—
|
|
|
$
|
291.5
|
|
VIE debt
|
520.1
|
|
|
28.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
97.5
|
|
|
—
|
|
|
393.7
|
|
||||||||
Total Level III Liabilities, net
|
$
|
1,229.2
|
|
|
$
|
461.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82.1
|
|
|
$
|
—
|
|
|
$
|
685.2
|
|
(1)
|
Includes unrealized gains (losses) for the
six
months ended
June 30, 2011
, relating to assets and liabilities still held at
June 30, 2011
, as follows:
$18.1 million
for investments, $
(2.1) million
for NIMS derivative assets, $
12.0 million
for other assets, $
399.1 million
for derivative liabilities, and $
(17.1) million
for VIE debt.
|
(2)
|
Transfers are recognized at the end of the period as the availability of market observed inputs change from period to period.
|
|
June 30, 2012
|
|
December 31, 2011
|
||||||||||||
(In millions)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Fixed-maturities held to maturity (1)
|
$
|
2.5
|
|
|
$
|
2.5
|
|
|
$
|
2.6
|
|
|
$
|
2.7
|
|
Other invested assets (1)
|
59.1
|
|
|
64.8
|
|
|
61.0
|
|
|
62.8
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Long-term debt (1)
|
666.8
|
|
|
523.2
|
|
|
818.6
|
|
|
471.3
|
|
||||
Non-derivative financial guaranty liabilities (2)
|
280.4
|
|
|
314.0
|
|
|
342.3
|
|
|
425.7
|
|
(1)
|
These estimated fair values would be classified in Level II of the fair value hierarchy.
|
(2)
|
These estimated fair values would be classified in Level III of the fair value hierarchy.
|
|
Consolidated
|
|
Unconsolidated
|
||||||||||||
(In millions)
|
June 30, 2012
|
|
December 31, 2011
|
|
June 30, 2012
|
|
December 31, 2011
|
||||||||
Balance Sheet:
|
|
|
|
|
|
|
|
||||||||
Trading securities
|
$
|
—
|
|
|
$
|
94.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other invested assets
|
75.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Derivative assets
|
—
|
|
|
—
|
|
|
2.9
|
|
|
4.1
|
|
||||
Premiums receivable
|
—
|
|
|
—
|
|
|
3.2
|
|
|
3.6
|
|
||||
Other assets
|
100.7
|
|
|
105.9
|
|
|
—
|
|
|
—
|
|
||||
Unearned premiums
|
—
|
|
|
—
|
|
|
3.3
|
|
|
3.8
|
|
||||
Reserve for losses and LAE
|
—
|
|
|
—
|
|
|
14.5
|
|
|
7.9
|
|
||||
Derivative liabilities
|
75.4
|
|
|
19.5
|
|
|
119.3
|
|
|
79.5
|
|
||||
VIE debt—at fair value
|
100.3
|
|
|
218.8
|
|
|
—
|
|
|
—
|
|
||||
Accounts payable and accrued expenses
|
0.4
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Maximum exposure (1)
|
125.8
|
|
|
580.0
|
|
|
5,224.5
|
|
|
6,126.3
|
|
(1)
|
The difference between the carrying amounts of the net asset/liability position and maximum exposure related to VIEs is primarily due to the difference between the face amount of the obligation and the recorded fair values, which include an adjustment for our non-performance risk, as applicable. For those VIEs that have recourse to our general credit, the maximum exposure is based on the net par amount of our insured obligation. For any VIEs that do not have recourse to our general credit, the maximum exposure is generally based on the recorded net assets of the VIE, as of the reporting date.
|
|
Consolidated
|
|
Unconsolidated
|
||||||||||||
|
Six Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Statement of Operations:
|
|
|
|
|
|
|
|
||||||||
Premiums earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
|
$
|
1.6
|
|
Net investment income
|
2.4
|
|
|
4.1
|
|
|
—
|
|
|
—
|
|
||||
Net (loss) gain on investments
|
(2.9
|
)
|
|
20.0
|
|
|
—
|
|
|
—
|
|
||||
Change in fair value of derivative
instruments—(loss) gain
|
(2.4
|
)
|
|
(4.9
|
)
|
|
(114.4
|
)
|
|
330.0
|
|
||||
Net (loss) gain on other financial
instruments
|
(92.5
|
)
|
|
45.3
|
|
|
—
|
|
|
—
|
|
||||
Provision for losses—increase
|
—
|
|
|
—
|
|
|
5.7
|
|
|
(0.1
|
)
|
||||
Other operating expenses
|
1.3
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net Cash (Outflow) Inflow
|
(134.8
|
)
|
|
0.4
|
|
|
(71.8
|
)
|
|
3.8
|
|
(In millions)
|
June 30,
2012 |
|
December 31,
2011 |
||||
Balance Sheet:
|
|
|
|
||||
Derivative assets
|
$
|
1.7
|
|
|
$
|
1.6
|
|
VIE debt—at fair value
|
7.5
|
|
|
9.4
|
|
||
|
|
|
|
||||
Maximum exposure (1)
|
14.1
|
|
|
18.5
|
|
(1)
|
The difference between the carrying amounts of the net asset/liability position and maximum exposure related to VIEs is primarily due to the difference between the face amount of the obligation and the recorded fair values, which include an adjustment for our non-performance risk. The maximum exposure is based on the net par amount of our insured obligation as of the reporting date.
|
|
Six Months Ended
June 30, |
||||||
(In millions)
|
2012
|
|
2011
|
||||
Statement of Operations:
|
|
|
|
||||
Net investment income
|
$
|
0.3
|
|
|
$
|
0.3
|
|
Change in fair value of derivative instruments—loss
|
—
|
|
|
(1.5
|
)
|
||
Net (loss) gain on other financial instruments
|
(2.5
|
)
|
|
1.8
|
|
||
|
|
|
|
||||
Net Cash Outflow
|
4.4
|
|
|
78.1
|
|
|
June 30, 2012
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities held to maturity:
|
|
|
|
|
|
|
|
||||||||
Bonds and notes:
|
|
|
|
|
|
|
|
||||||||
State and municipal obligations
|
$
|
2,470
|
|
|
$
|
2,524
|
|
|
$
|
59
|
|
|
$
|
5
|
|
|
$
|
2,470
|
|
|
$
|
2,524
|
|
|
$
|
59
|
|
|
$
|
5
|
|
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
10,957
|
|
|
$
|
13,683
|
|
|
$
|
2,726
|
|
|
$
|
—
|
|
State and municipal obligations
|
42,971
|
|
|
42,930
|
|
|
696
|
|
|
737
|
|
||||
Corporate bonds and notes
|
16,232
|
|
|
16,329
|
|
|
637
|
|
|
540
|
|
||||
RMBS
|
56
|
|
|
58
|
|
|
3
|
|
|
1
|
|
||||
CMBS
|
244
|
|
|
244
|
|
|
2
|
|
|
2
|
|
||||
Other ABS
|
1,019
|
|
|
1,173
|
|
|
154
|
|
|
—
|
|
||||
Other investments
|
1,021
|
|
|
1,099
|
|
|
78
|
|
|
—
|
|
||||
|
$
|
72,500
|
|
|
$
|
75,516
|
|
|
$
|
4,296
|
|
|
$
|
1,280
|
|
Equity securities available for sale (1)
|
$
|
88,768
|
|
|
$
|
108,381
|
|
|
$
|
19,613
|
|
|
$
|
—
|
|
Total debt and equity securities
|
$
|
163,738
|
|
|
$
|
186,421
|
|
|
$
|
23,968
|
|
|
$
|
1,285
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds (
$94.5 million
fair value) and various preferred and common stocks invested across numerous companies and industries (
$13.9 million
fair value).
|
|
December 31, 2011
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities held to maturity:
|
|
|
|
|
|
|
|
||||||||
Bonds and notes:
|
|
|
|
|
|
|
|
||||||||
State and municipal obligations
|
$
|
2,640
|
|
|
$
|
2,748
|
|
|
$
|
115
|
|
|
$
|
7
|
|
|
$
|
2,640
|
|
|
$
|
2,748
|
|
|
$
|
115
|
|
|
$
|
7
|
|
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
10,931
|
|
|
$
|
13,630
|
|
|
$
|
2,699
|
|
|
$
|
—
|
|
State and municipal obligations
|
87,083
|
|
|
82,692
|
|
|
485
|
|
|
4,876
|
|
||||
Corporate bonds and notes
|
17,267
|
|
|
16,610
|
|
|
390
|
|
|
1,047
|
|
||||
RMBS
|
1,308
|
|
|
1,360
|
|
|
53
|
|
|
1
|
|
||||
CMBS
|
1,660
|
|
|
1,669
|
|
|
25
|
|
|
16
|
|
||||
Other ABS
|
1,019
|
|
|
1,177
|
|
|
158
|
|
|
—
|
|
||||
Other investments
|
1,489
|
|
|
1,595
|
|
|
106
|
|
|
—
|
|
||||
|
$
|
120,757
|
|
|
$
|
118,733
|
|
|
$
|
3,916
|
|
|
$
|
5,940
|
|
Equity securities available for sale (1)
|
$
|
114,425
|
|
|
$
|
128,424
|
|
|
$
|
14,868
|
|
|
$
|
869
|
|
Total debt and equity securities
|
$
|
237,822
|
|
|
$
|
249,905
|
|
|
$
|
18,899
|
|
|
$
|
6,816
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds (
$116.0 million
fair value) and various preferred and common stocks invested across numerous companies and industries (
$12.4 million
fair value).
|
(In thousands)
|
June 30,
2012 |
|
December 31,
2011 |
||||
Trading securities:
|
|
|
|
||||
U.S. government and agency securities
|
$
|
703,786
|
|
|
$
|
710,006
|
|
State and municipal obligations
|
811,041
|
|
|
964,748
|
|
||
Corporate bonds and notes
|
819,654
|
|
|
683,864
|
|
||
RMBS
|
968,695
|
|
|
928,887
|
|
||
CMBS
|
184,917
|
|
|
224,180
|
|
||
CDO
|
—
|
|
|
5,467
|
|
||
Other ABS
|
132,563
|
|
|
98,729
|
|
||
Foreign government securities (1)
|
109,128
|
|
|
102,851
|
|
||
Hybrid securities
|
353,863
|
|
|
346,338
|
|
||
Equity securities
|
144,112
|
|
|
140,764
|
|
||
Other investments
|
763
|
|
|
5,225
|
|
||
Total
|
$
|
4,228,522
|
|
|
$
|
4,211,059
|
|
(1)
|
Our largest concentrations of foreign government securities as of
June 30, 2012
and December 31, 2011, were Germany (
$27.0 million
and
$42.6 million
fair value, respectively) and Japan (
$58.9 million
and
$28.0 million
fair value, respectively). As of
June 30, 2012
and December 31, 2011, nearly all of our foreign government securities were rated A or higher by a nationally recognized statistical rating organization. As of
June 30, 2012
and December 31, 2011, our trading portfolio included
no
securities of the
six
European countries (Portugal, Ireland, Italy, Greece, Spain, and Hungary) whose sovereign and sub-sovereign obligations have been under particular stress due to economic uncertainty, potential restructuring and ratings downgrades, or securities of any other countries under similar stress.
|
June 30, 2012:
($ in thousands) Description of Securities |
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|||||||||||||||||||||||||||
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|||||||||||||||||
State and municipal obligations
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
6
|
|
|
$
|
16,495
|
|
|
$
|
742
|
|
|
6
|
|
|
$
|
16,495
|
|
|
$
|
742
|
|
Corporate bonds and notes
|
|
2
|
|
|
930
|
|
|
28
|
|
|
12
|
|
|
6,266
|
|
|
512
|
|
|
14
|
|
|
7,196
|
|
|
540
|
|
||||||
RMBS
|
|
1
|
|
|
38
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
38
|
|
|
1
|
|
||||||
CMBS
|
|
1
|
|
|
90
|
|
|
—
|
|
|
1
|
|
|
77
|
|
|
2
|
|
|
2
|
|
|
167
|
|
|
2
|
|
||||||
Total
|
|
4
|
|
|
$
|
1,058
|
|
|
$
|
29
|
|
|
19
|
|
|
$
|
22,838
|
|
|
$
|
1,256
|
|
|
23
|
|
|
$
|
23,896
|
|
|
$
|
1,285
|
|
December 31, 2011:
($ in thousands)
Description of Securities
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|||||||||||||||||||||||||||
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|||||||||||||||||
State and municipal obligations
|
|
1
|
|
|
$
|
525
|
|
|
$
|
17
|
|
|
9
|
|
|
$
|
72,653
|
|
|
$
|
4,866
|
|
|
10
|
|
|
$
|
73,178
|
|
|
$
|
4,883
|
|
Corporate bonds and notes
|
|
6
|
|
|
2,457
|
|
|
97
|
|
|
18
|
|
|
8,902
|
|
|
950
|
|
|
24
|
|
|
11,359
|
|
|
1,047
|
|
||||||
RMBS
|
|
2
|
|
|
354
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
354
|
|
|
1
|
|
||||||
CMBS
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
527
|
|
|
16
|
|
|
1
|
|
|
527
|
|
|
16
|
|
||||||
Equity securities
|
|
1
|
|
|
9,284
|
|
|
869
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
9,284
|
|
|
869
|
|
||||||
Total
|
|
10
|
|
|
$
|
12,620
|
|
|
$
|
984
|
|
|
28
|
|
|
$
|
82,082
|
|
|
$
|
5,832
|
|
|
38
|
|
|
$
|
94,702
|
|
|
$
|
6,816
|
|
|
June 30, 2012
|
||||||||||||||
|
Held to Maturity
|
|
Available for Sale
|
||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
||||||||
Due in one year or less (1)
|
$
|
1,734
|
|
|
$
|
1,784
|
|
|
$
|
3,547
|
|
|
$
|
3,547
|
|
Due after one year through five years (1)
|
431
|
|
|
440
|
|
|
16,975
|
|
|
17,294
|
|
||||
Due after five years through ten years (1)
|
—
|
|
|
—
|
|
|
2,377
|
|
|
2,421
|
|
||||
Due after ten years (1)
|
305
|
|
|
300
|
|
|
48,282
|
|
|
50,779
|
|
||||
RMBS (2)
|
—
|
|
|
—
|
|
|
56
|
|
|
58
|
|
||||
CMBS (2)
|
—
|
|
|
—
|
|
|
244
|
|
|
244
|
|
||||
Other ABS (2)
|
—
|
|
|
—
|
|
|
1,019
|
|
|
1,173
|
|
||||
Total
|
$
|
2,470
|
|
|
$
|
2,524
|
|
|
$
|
72,500
|
|
|
$
|
75,516
|
|
(1)
|
Actual maturities may differ as a result of calls before scheduled maturity.
|
(2)
|
RMBS, CMBS and Other ABS are shown separately, as they are not due at a single maturity date.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net premiums written-insurance:
|
|
|
|
|
|
|
|
||||||||
Direct
|
$
|
214,349
|
|
|
$
|
174,008
|
|
|
$
|
418,102
|
|
|
$
|
364,849
|
|
Assumed
|
(1,028
|
)
|
|
(11,788
|
)
|
|
(88,516
|
)
|
|
(10,164
|
)
|
||||
Ceded
|
(31,389
|
)
|
|
(9,442
|
)
|
|
(69,976
|
)
|
|
(19,158
|
)
|
||||
Net premiums written-insurance
|
$
|
181,932
|
|
|
$
|
152,778
|
|
|
$
|
259,610
|
|
|
$
|
335,527
|
|
Net premiums earned-insurance:
|
|
|
|
|
|
|
|
||||||||
Direct
|
$
|
196,012
|
|
|
$
|
186,640
|
|
|
$
|
388,028
|
|
|
$
|
391,098
|
|
Assumed
|
1,704
|
|
|
12,064
|
|
|
(8,981
|
)
|
|
20,694
|
|
||||
Ceded
|
(10,937
|
)
|
|
(9,770
|
)
|
|
(24,903
|
)
|
|
(19,835
|
)
|
||||
Net premiums earned-insurance
|
$
|
186,779
|
|
|
$
|
188,934
|
|
|
$
|
354,144
|
|
|
$
|
391,957
|
|
(In thousands)
|
June 30,
2012 |
|
December 31,
2011 |
||||
Mortgage insurance reserves
|
$
|
3,155,343
|
|
|
$
|
3,247,900
|
|
Financial guaranty reserves
|
94,937
|
|
|
63,002
|
|
||
Total reserve for losses and LAE
|
$
|
3,250,280
|
|
|
$
|
3,310,902
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Balance at beginning of period
|
$
|
3,230,938
|
|
|
$
|
3,542,797
|
|
|
$
|
3,247,900
|
|
|
$
|
3,524,971
|
|
Less reinsurance recoverables (1)
|
118,071
|
|
|
192,258
|
|
|
151,569
|
|
|
223,254
|
|
||||
Balance at beginning of period, net of reinsurance recoverables
|
3,112,867
|
|
|
3,350,539
|
|
|
3,096,331
|
|
|
3,301,717
|
|
||||
Add losses and LAE incurred in respect of default notices reported and unreported in:
|
|
|
|
|
|
|
|
||||||||
Current year (2)
|
218,929
|
|
|
246,433
|
|
|
437,274
|
|
|
437,119
|
|
||||
Prior years
|
(10,851
|
)
|
|
23,559
|
|
|
5,533
|
|
|
246,846
|
|
||||
Total incurred
|
208,078
|
|
|
269,992
|
|
|
442,807
|
|
|
683,965
|
|
||||
Deduct paid claims and LAE related to:
|
|
|
|
|
|
|
|
||||||||
Current year (2)
|
273
|
|
|
1,364
|
|
|
273
|
|
|
2,201
|
|
||||
Prior years
|
263,174
|
|
|
511,249
|
|
|
481,367
|
|
|
875,563
|
|
||||
Total paid
|
263,447
|
|
|
512,613
|
|
|
481,640
|
|
|
877,764
|
|
||||
Balance at end of period, net of reinsurance recoverables
|
3,057,498
|
|
|
3,107,918
|
|
|
3,057,498
|
|
|
3,107,918
|
|
||||
Add reinsurance recoverables (1)
|
97,845
|
|
|
160,664
|
|
|
97,845
|
|
|
160,664
|
|
||||
Balance at end of period
|
$
|
3,155,343
|
|
|
$
|
3,268,582
|
|
|
$
|
3,155,343
|
|
|
$
|
3,268,582
|
|
(1)
|
Related to ceded losses on captive reinsurance transactions, Smart Home and quota share reinsurance transactions.
|
(2)
|
Related to underlying defaulted loans with a most recent date of default notice in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Rescissions—first loss position
|
$
|
51.8
|
|
|
$
|
126.6
|
|
|
$
|
91.9
|
|
|
$
|
220.4
|
|
Denials—first loss position
|
174.3
|
|
|
14.2
|
|
|
350.7
|
|
|
38.8
|
|
||||
Total first loss position (1)
|
226.1
|
|
|
140.8
|
|
|
442.6
|
|
|
259.2
|
|
||||
Rescissions—second loss position
|
12.9
|
|
|
41.2
|
|
|
25.5
|
|
|
72.2
|
|
||||
Denials—second loss position
|
18.4
|
|
|
11.0
|
|
|
54.4
|
|
|
13.7
|
|
||||
Total second loss position (2)
|
31.3
|
|
|
52.2
|
|
|
79.9
|
|
|
85.9
|
|
||||
Total first-lien claims submitted for payment that were rescinded or denied (3)
|
$
|
257.4
|
|
|
$
|
193.0
|
|
|
$
|
522.5
|
|
|
$
|
345.1
|
|
(1)
|
Related to claims from policies in which we were in a first loss position and would have paid the claim absent the rescission or denial.
|
(2)
|
Related to claims from policies in which we were in a second loss position. These claims may not have resulted in a claim payment obligation absent the rescission or denial, due to deductibles and other exposure limitations included in our policies.
|
(3)
|
Includes an amount related to a small number of submitted claims that were subsequently withdrawn by the insured.
|
(In millions)
|
As of June 30,
2012 |
||
First loss position
|
$
|
531.9
|
|
Second loss position
|
192.7
|
|
|
Total non-overturned rebuttals on rescinded first-lien claims
|
$
|
724.6
|
|
Claim
Received
Quarter
|
|
Projected Net Cumulative Rescission/Denial Rates for Each Quarter (1)
|
|
Percentage of
Claims Resolved (2)
|
Q4 2009
|
|
20.1%
|
|
100%
|
Q1 2010
|
|
18.1%
|
|
100%
|
Q2 2010
|
|
17.2%
|
|
99%
|
Q3 2010
|
|
15.5%
|
|
99%
|
Q4 2010
|
|
16.9%
|
|
99%
|
Q1 2011
|
|
20.4%
|
|
98%
|
Q2 2011
|
|
22.6%
|
|
94%
|
Q3 2011
|
|
25.5%
|
|
88%
|
Q4 2011
|
|
22.3%
|
|
79%
|
(1)
|
Projected net cumulative rescission/denial rates represent the ratio of claims rescinded or denied to claims received (by claim count). Rescissions and denials are net of actual reinstatements, plus our current estimate for expected reinstatements of previously rescinded or denied claims. These amounts represent the cumulative rates for each quarter as of
June 30, 2012
. Until all of the claims received during the periods shown have been internally resolved, the rescission/denial rates for each quarter will be subject to change. As discussed in footnote (2) below, these rates also will remain subject to change based on differences between estimated and actual reinstatements of previously rescinded policies or denied claims.
|
(2)
|
The percentage of claims resolved for each quarter presented in the table above, represents the number of claims that have been internally resolved as a percentage of the total number of claims received for that specific quarter. A claim is considered internally resolved when it is either paid or it is concluded that the claim should be denied or rescinded, though such denials or rescissions could be challenged and, potentially reinstated or overturned, respectively. For the first and second quarters of 2012, a significant portion of claims received for those quarters have not been internally resolved; therefore, we do not believe the cumulative rescission/denial rates for those periods are presently meaningful and therefore they are not presented.
|
|
Surveillance Categories
|
||||||||||||||||||
($ in millions)
|
Performing
|
|
Special
Mention
|
|
Intensified
Surveillance
|
|
Case
Reserve
|
|
Total
|
||||||||||
Number of policies
|
8
|
|
|
130
|
|
|
76
|
|
|
106
|
|
|
320
|
|
|||||
Remaining weighted-average contract period (in years)
|
9
|
|
|
19
|
|
|
20
|
|
|
25
|
|
|
20
|
|
|||||
Insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
||||||||||
Principal
|
$
|
18.9
|
|
|
$
|
1,156.6
|
|
|
$
|
529.3
|
|
|
$
|
336.8
|
|
|
$
|
2,041.6
|
|
Interest
|
3.5
|
|
|
723.2
|
|
|
292.4
|
|
|
169.6
|
|
|
1,188.7
|
|
|||||
Total
|
$
|
22.4
|
|
|
$
|
1,879.8
|
|
|
$
|
821.7
|
|
|
$
|
506.4
|
|
|
$
|
3,230.3
|
|
Gross claim liability
|
$
|
0.1
|
|
|
$
|
23.4
|
|
|
$
|
255.4
|
|
|
$
|
101.7
|
|
|
$
|
380.6
|
|
Less:
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross potential recoveries
|
0.1
|
|
|
7.8
|
|
|
238.8
|
|
|
75.4
|
|
|
322.1
|
|
|||||
Discount, net
|
—
|
|
|
—
|
|
|
(54.4
|
)
|
|
4.7
|
|
|
(49.7
|
)
|
|||||
Net claim liability (prior to reduction for unearned premium)
|
$
|
—
|
|
|
$
|
15.6
|
|
|
$
|
71.0
|
|
|
$
|
21.6
|
|
|
$
|
108.2
|
|
Unearned premium revenue
|
$
|
0.1
|
|
|
$
|
26.1
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
$
|
37.0
|
|
Net claim liability reported in the balance sheet
|
$
|
—
|
|
|
$
|
8.1
|
|
|
$
|
62.9
|
|
|
$
|
21.6
|
|
|
$
|
92.6
|
|
Reinsurance recoverables
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Refundings
|
$
|
10.5
|
|
|
$
|
9.3
|
|
|
$
|
18.7
|
|
|
$
|
14.1
|
|
Recaptures/commutations
|
—
|
|
|
2.8
|
|
|
(16.3
|
)
|
|
2.8
|
|
||||
Unearned premium acceleration upon establishment of case reserves
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
||||
Reinsurance agreements
|
—
|
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
||||
Foreign exchange revaluation, gross of commissions
|
(1.0
|
)
|
|
0.7
|
|
|
(0.8
|
)
|
|
2.0
|
|
||||
Adjustments to installment premiums, gross of commissions
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
||||
Total adjustment to premiums earned
|
$
|
9.5
|
|
|
$
|
14.2
|
|
|
$
|
(4.3
|
)
|
|
$
|
20.5
|
|
(In millions)
|
Ending Net
Unearned
Premiums
|
|
Unearned
Premium
Amortization
|
|
Accretion
|
|
Total
Premium
Revenue
|
||||||||
Third Quarter 2012
|
$
|
265.2
|
|
|
$
|
8.6
|
|
|
$
|
0.2
|
|
|
$
|
8.8
|
|
Fourth Quarter 2012
|
259.2
|
|
|
6.0
|
|
|
0.2
|
|
|
6.2
|
|
||||
2012
|
259.2
|
|
|
14.6
|
|
|
0.4
|
|
|
15.0
|
|
||||
2013
|
233.9
|
|
|
25.3
|
|
|
0.9
|
|
|
26.2
|
|
||||
2014
|
209.5
|
|
|
24.4
|
|
|
0.8
|
|
|
25.2
|
|
||||
2015
|
189.6
|
|
|
19.9
|
|
|
0.8
|
|
|
20.7
|
|
||||
2016
|
172.0
|
|
|
17.6
|
|
|
0.7
|
|
|
18.3
|
|
||||
2012 – 2016
|
172.0
|
|
|
101.8
|
|
|
3.6
|
|
|
105.4
|
|
||||
2017 – 2021
|
99.6
|
|
|
72.4
|
|
|
2.7
|
|
|
75.1
|
|
||||
2022 – 2026
|
50.8
|
|
|
48.8
|
|
|
1.8
|
|
|
50.6
|
|
||||
2027 – 2031
|
22.5
|
|
|
28.3
|
|
|
1.1
|
|
|
29.4
|
|
||||
After 2031
|
—
|
|
|
22.5
|
|
|
1.3
|
|
|
23.8
|
|
||||
Total
|
$
|
—
|
|
|
$
|
273.8
|
|
|
$
|
10.5
|
|
|
$
|
284.3
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net claim liability at beginning of period
|
$
|
83.0
|
|
|
$
|
80.6
|
|
|
$
|
60.5
|
|
|
$
|
67.4
|
|
Incurred losses and LAE:
|
|
|
|
|
|
|
|
||||||||
(Decrease)/increase in gross claim liability
|
(25.4
|
)
|
|
22.4
|
|
|
161.7
|
|
|
41.7
|
|
||||
Decrease/(increase) in gross potential recoveries
|
109.9
|
|
|
(30.0
|
)
|
|
(191.7
|
)
|
|
(33.2
|
)
|
||||
(Decrease)/increase in discount
|
(80.5
|
)
|
|
(2.5
|
)
|
|
66.1
|
|
|
(5.8
|
)
|
||||
(Decrease)/increase in unearned premiums
|
(1.2
|
)
|
|
3.4
|
|
|
(1.9
|
)
|
|
4.0
|
|
||||
Incurred losses and LAE
|
2.8
|
|
|
(6.7
|
)
|
|
34.2
|
|
|
6.7
|
|
||||
Paid losses and LAE:
|
|
|
|
|
|
|
|
||||||||
Current years
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
||||
Prior years
|
7.1
|
|
|
(2.9
|
)
|
|
(1.8
|
)
|
|
(3.1
|
)
|
||||
Paid losses and LAE:
|
6.8
|
|
|
(3.1
|
)
|
|
(2.1
|
)
|
|
(3.3
|
)
|
||||
Net claim liability at end of period
|
$
|
92.6
|
|
|
$
|
70.8
|
|
|
$
|
92.6
|
|
|
$
|
70.8
|
|
Components of incurred losses and LAE:
|
|
|
|
|
|
|
|
||||||||
Net claim liability established in current period
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Changes in existing claim liabilities
|
2.7
|
|
|
(6.7
|
)
|
|
34.1
|
|
|
6.7
|
|
||||
Total incurred losses and LAE
|
$
|
2.8
|
|
|
$
|
(6.7
|
)
|
|
$
|
34.2
|
|
|
$
|
6.7
|
|
Components of (decrease)/increase in discount:
|
|
|
|
|
|
|
|
||||||||
(Decrease)/increase in discount related to net claim liabilities established in current period
|
$
|
(84.9
|
)
|
|
$
|
—
|
|
|
$
|
65.7
|
|
|
$
|
(0.1
|
)
|
Increase/(decrease) in discount related to existing net claim liabilities
|
4.4
|
|
|
(2.5
|
)
|
|
0.4
|
|
|
(5.7
|
)
|
||||
Total (decrease)/increase in discount
|
$
|
(80.5
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
66.1
|
|
|
$
|
(5.8
|
)
|
June 30, 2012
|
1.95
|
%
|
December 31, 2011
|
2.80
|
%
|
June 30, 2011
|
3.97
|
%
|
December 31, 2010
|
3.69
|
%
|
(In thousands)
|
|
June 30,
2012 |
|
December 31,
2011 |
|||||
5.625
|
%
|
Senior Notes due 2013
|
$
|
91,800
|
|
|
$
|
252,267
|
|
5.375
|
%
|
Senior Notes due 2015
|
249,843
|
|
|
249,819
|
|
||
3.000
|
%
|
Convertible Senior Notes due 2017 (1)
|
325,163
|
|
|
316,498
|
|
||
|
Total Long-Term Debt
|
$
|
666,806
|
|
|
$
|
818,584
|
|
|
Three Months Ended June 30, 2012
|
|
Six Months Ended June 30, 2012
|
||||||||||||||||||||
(In thousands)
|
Before tax
|
|
Tax effect
|
|
Net of tax
|
|
Before tax
|
|
Tax effect
|
|
Net of tax
|
||||||||||||
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized foreign currency translation adjustment
|
$
|
(12
|
)
|
|
$
|
(4
|
)
|
|
$
|
(8
|
)
|
|
$
|
(12
|
)
|
|
$
|
(4
|
)
|
|
$
|
(8
|
)
|
Less: Reclassification adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Net foreign currency translation adjustments
|
(12
|
)
|
|
(4
|
)
|
|
(8
|
)
|
|
(12
|
)
|
|
(4
|
)
|
|
(8
|
)
|
||||||
Unrealized gains on investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized holding (losses) gains arising during the period
|
(2,183
|
)
|
|
(764
|
)
|
|
(1,419
|
)
|
|
24,300
|
|
|
8,505
|
|
|
15,795
|
|
||||||
Less: Reclassification adjustment for net (losses) gains included in net (loss) income
|
(1,140
|
)
|
|
(399
|
)
|
|
(741
|
)
|
|
13,645
|
|
|
4,776
|
|
|
8,869
|
|
||||||
Net unrealized (losses) gains on investments
|
(1,043
|
)
|
|
(365
|
)
|
|
(678
|
)
|
|
10,655
|
|
|
3,729
|
|
|
6,926
|
|
||||||
Other comprehensive (loss) income
|
$
|
(1,055
|
)
|
|
$
|
(369
|
)
|
|
$
|
(686
|
)
|
|
$
|
10,643
|
|
|
$
|
3,725
|
|
|
$
|
6,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Three Months Ended June 30, 2011
|
|
Six Months Ended June 30, 2011
|
||||||||||||||||||||
(In thousands)
|
Before tax
|
|
Tax effect
|
|
Net of tax
|
|
Before tax
|
|
Tax effect
|
|
Net of tax
|
||||||||||||
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized foreign currency translation adjustment
|
$
|
4,955
|
|
|
$
|
—
|
|
|
$
|
4,955
|
|
|
$
|
6,520
|
|
|
$
|
—
|
|
|
$
|
6,520
|
|
Less: Reclassification adjustment for net gains
|
39,863
|
|
|
11,617
|
|
|
28,246
|
|
|
39,571
|
|
|
11,617
|
|
|
27,954
|
|
||||||
Net foreign currency translation adjustments
|
(34,908
|
)
|
|
(11,617
|
)
|
|
(23,291
|
)
|
|
(33,051
|
)
|
|
(11,617
|
)
|
|
(21,434
|
)
|
||||||
Unrealized gains on investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized holding gains arising during the period
|
5,549
|
|
|
—
|
|
|
5,549
|
|
|
13,615
|
|
|
—
|
|
|
13,615
|
|
||||||
Less: Reclassification adjustment for net losses included in net income
|
(52,323
|
)
|
|
(17,307
|
)
|
|
(35,016
|
)
|
|
(52,245
|
)
|
|
(17,307
|
)
|
|
(34,938
|
)
|
||||||
Net unrealized gains on investments
|
57,872
|
|
|
17,307
|
|
|
40,565
|
|
|
65,860
|
|
|
17,307
|
|
|
48,553
|
|
||||||
Other comprehensive income
|
$
|
22,964
|
|
|
$
|
5,690
|
|
|
$
|
17,274
|
|
|
$
|
32,809
|
|
|
$
|
5,690
|
|
|
$
|
27,119
|
|
(In millions)
|
As of or for the Six Months Ended June 30, 2012
|
|
As of or for the Year Ended December 31, 2011
|
||||
Statutory net loss
|
$
|
(120.2
|
)
|
|
$
|
(545.1
|
)
|
Statutory surplus
|
923.5
|
|
|
843.2
|
|
|
June 30, 2012
|
|
December 31, 2011
|
||||
($ in millions)
|
|
|
|
||||
Risk in force, net (1)
|
$
|
19,412.0
|
|
|
$
|
18,095.7
|
|
Statutory surplus
|
923.5
|
|
|
843.2
|
|
||
Risk-to-capital
|
21.0
|
:1
|
|
21.5
|
:1
|
(1)
|
Risk in force is net of risk ceded through reinsurance contracts and also excludes risk in force on defaulted loans.
|
(In thousands)
|
June 30,
2012 |
|
December 31, 2011
|
||||
Investment in subsidiaries, at equity in net assets
|
$
|
1,416,290
|
|
|
$
|
1,591,914
|
|
Total assets
|
1,691,317
|
|
|
2,231,138
|
|
||
Long-term debt
|
666,806
|
|
|
818,584
|
|
||
Total liabilities
|
790,429
|
|
|
1,048,847
|
|
||
Total stockholders’ equity
|
900,888
|
|
|
1,182,291
|
|
||
Total liabilities and stockholders’ equity
|
1,691,317
|
|
|
2,231,138
|
|
•
|
On December 30, 2011, a putative class action under RESPA titled White v. PNC Financial Services Group was filed in the United States District Court for the Eastern District of Pennsylvania. In this case, Radian Guaranty has insured the loan of one of the plaintiffs. Radian Guaranty intends to move to dismiss the complaint on a number of grounds.
|
•
|
On March 12, 2012, a putative class action under RESPA titled McCarn v. HSBC USA, Inc., et al. was filed in the United States District Court for the Eastern District of California. Radian Guaranty moved to dismiss this lawsuit for lack of standing because it did not insure the plaintiff’s loan. The court granted that motion on May 29, 2012, but gave the plaintiff permission to file an amended complaint to attempt to address his lack of standing. On July 30, 2012, the plaintiff filed this amended complaint. Radian Guaranty intends to file a new motion to dismiss this lawsuit on a number of grounds.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Riddle v. Bank of America Corporation, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure the plaintiff’s loan.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Manners, et al. v. Fifth Third Bank, et al. was filed in the United States District Court for the Western District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
•
|
On April 19, 2012, a putative class action under RESPA titled Rulison v. ABN AMRO Mortgage Group, Inc., et al. was filed in the United States District Court for the Southern District of New York. The plaintiff voluntarily dismissed this lawsuit on July 3, 2012.
|
•
|
On May 18, 2012, a putative class action under RESPA titled Hill, et al. v. Flagstar Bank FSB, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. In this case, Radian Guaranty has insured the loan of one of the plaintiffs. Radian Guaranty intends to move to dismiss the complaint on a number of grounds.
|
•
|
On May 31, 2012, a putative class action under RESPA titled Barlee, et al. v. First Horizon National Corporation, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
•
|
On June 28, 2012, a putative class action under RESPA titled Cunningham, et al v. M&T Bank Corporation, et al. was filed in the United States District Court for the Middle District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
•
|
Public Finance
—Insurance of public finance obligations, including tax-exempt and taxable indebtedness of states, counties, cities, special service districts, other political subdivisions, enterprises such as public and private higher education institutions and healthcare facilities and infrastructure, project finance and private finance initiative assets in sectors such as airports, education, healthcare and other infrastructure projects;
|
•
|
Structured Finance
—Insurance of structured finance obligations, including collateralized debt obligations (“CDOs”) and asset-backed securities (“ABS”), consisting of funded and non-funded (referred to herein as “synthetic”) executions that are payable from or tied to the performance of a specific pool of assets or covered reference entities. Examples of the pools of assets that collateralize or underlie structured finance obligations include corporate loans, bonds or other borrowed money, residential and commercial mortgage loans, trust preferred securities (“TruPs”), diversified payment rights (“DPRs”), a variety of consumer loans, equipment receivables, real and personal property leases, or a combination of asset classes or securities backed by one or more of these pools of assets;
|
•
|
Reinsurance
—Reinsurance of domestic and international public finance obligations, including those issued by sovereign and sub-sovereign entities, and structured finance obligations.
|
•
|
the commutation of $13.8 billion of financial guaranty net par outstanding that was reinsured by Radian Asset Assurance (the “Assured Commutation”);
|
•
|
the cession of $1.8 billion of public finance business to Assured (the “Assured Cession”); and
|
•
|
the sale of Municipal and Infrastructure Assurance Corporation (the “FG Insurance Shell”), a New York domiciled financial guaranty insurance company with licenses to conduct business in 37 states and the District of Columbia. The sale of the FG Insurance Shell was completed in the second quarter of 2012.
|
Statement of Operations
|
|
||
(In millions)
|
|
||
Decrease in premiums written
|
$
|
(119.8
|
)
|
Decrease in net premiums earned
|
$
|
(22.2
|
)
|
Increase in change in fair value of derivative instruments—gain
|
1.4
|
|
|
Gain on sale of affiliate
|
7.7
|
|
|
Increase in amortization of policy acquisition costs
|
(15.7
|
)
|
|
Decrease in pre-tax income
|
$
|
(28.8
|
)
|
|
|
||
Balance Sheet
|
|
||
(In millions)
|
|
||
Decrease in:
|
|
||
Cash
|
$
|
93.6
|
|
Deferred policy acquisition costs
|
26.2
|
|
|
Accounts and notes receivable
|
1.1
|
|
|
Derivative assets
|
0.6
|
|
|
Unearned premiums
|
71.6
|
|
|
Derivative liabilities
|
2.1
|
|
|
Increase in other assets
|
19.1
|
|
•
|
Defaults
. Our first-lien primary default rate at
June 30, 2012
was
13.3%
, compared to 15.2% at
December 31, 2011
. Our primary default inventory comprised
98,450
loans at
June 30, 2012
, compared to 103,027 loans and
110,861
loans at March 31, 2012 and December 31, 2011, respectively. Our primary default inventory declined slightly in July 2012. The reduction in our default inventory is the result of the total number of defaulted loans that have cured (“cures”), defaulted loans for which claim payments have been made, and defaulted loans that have resulted in insurance rescissions and claim denials collectively exceeding the total number of new defaults on insured loans. Despite this positive trend, our overall primary default rates continue to remain elevated compared to historical levels due to continued high unemployment and weakness in the U.S. housing and mortgage credit markets. We believe that a return to sustained profitability in our mortgage insurance business is dependent upon both a further reduction in the number of new defaults and an increase in the number of cures, particularly with respect to our older delinquent loans. Based on our projections, which are subject to significant risks and uncertainties, we expect improved operating results in our mortgage insurance business in 2012 compared to 2011, and while we expect an operating loss for our mortgage insurance business in 2012, we continue to expect to achieve marginal operating profitability in our mortgage insurance business in 2013. We are projecting a 15%-20% decrease in new defaults in 2012 compared to 2011, which compares to an 18% decrease in new defaults in 2011 compared to 2010. During the second quarter and first half of 2012, new defaults decreased 20% compared to the same periods of 2011.
|
•
|
Provision for Losses
. Our mortgage insurance provision for losses for the
second
quarter and first half of
2012
was
$208.1 million
and
$442.8 million
, respectively, and consisted primarily of reserves established on new defaults. In addition, our provision for losses has been impacted by an increase in the weighted average rate at which defaulted loans are expected to move to claim (the “default to claim rate”), due to a greater than anticipated impact from the aging of underlying defaulted loans. With continuing declines in home values in certain markets, persistently high unemployment and delays by servicers in either modifying loans or foreclosing on properties, the time it has taken to cure or otherwise resolve a delinquent loan has been prolonged. Consequently, in recent years, our default inventory has experienced an increase in its weighted average age, and because we apply higher estimated default to claim rates on our older delinquent loans, this has resulted in higher reserves. Our assumed aggregate weighted average default to claim rate (which incorporates the expected impact of rescissions and denials) was approximately
46%
and 43% as of
June 30, 2012
and December 31, 2011, respectively.
|
•
|
Claims Paid
. Total mortgage insurance claims paid in the
second
quarter and first half of
2012
were
$263.4 million
and
$481.6 million
, respectively. Foreclosure backlogs, servicer delays and loan modification programs have reduced the number of defaults going to claim. Our extensive review of all claims has slowed our internal claims payment process and has resulted in a significant increase in the number of denials in recent periods as a result of servicers failing to produce the documents necessary to perfect a claim submission. While this increasing trend has the effect of reducing claims paid in current periods, we expect a significant portion of denials to be resubmitted and ultimately paid, and our incurred loss and claims paid estimates reflect this expectation. We currently expect total claims paid in
2012
to increase throughout the year, and to total approximately
$1.1 billion
for 2012.
|
•
|
New Insurance Written
. We wrote
$8.3 billion
and
$14.8 billion
of new mortgage insurance in the
second
quarter and first half of
2012
, respectively, compared to
$2.3 billion
and $4.9 billion of insurance written in the corresponding periods of
2011
, respectively. The significant increase in NIW in the three and six months ended
June 30, 2012
, compared to the corresponding periods of 2011, is mainly attributable to an increase in the penetration rate of private mortgage insurance in the overall insured mortgage market, as well as an increase in our share of the insured private mortgage market. While the private mortgage insurance industry has made progress in recapturing business from the Federal Housing Administration (“FHA”), the FHA’s market share remains at historically high levels. We have been more aggressively marketing our product offerings that favorably compete with the FHA in order to regain market share from the FHA. In the second quarter of 2011, we implemented a series of changes to our underwriting guidelines and premium rates, including a more efficient underwriting process for loans conforming to the GSEs’ guidelines and lower premium rates for monthly mortgage insurance paid directly by borrowers, which also has had a positive impact on our 2012 NIW.
|
•
|
Statutory Capital.
Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a minimum amount of statutory capital relative to the level of RIF, or “risk-to-capital.” Sixteen states (the risk-based capital or “RBC States”) currently have a statutory or regulatory risk-based capital requirement (a “Statutory RBC Requirement”), the most common of which (imposed by 11 of the RBC States) is a requirement that a mortgage insurer’s risk-to-capital ratio may not exceed 25 to 1. Radian Guaranty’s risk-to-capital ratio improved to
21.0
to 1 as of
June 30, 2012
, compared to 21.5 to 1 at December 31, 2011, primarily as a result of: (1) an increase in Radian Guaranty’s statutory surplus resulting from the release of contingency reserves at Radian Asset Assurance due to the Assured Transaction; (2) gains from the sale of securities in our investment portfolio; and (3) the reduction in net risk in force due to the 2012 Quota Share Reinsurance Transaction discussed above.
|
•
|
Net Par Outstanding
. Our financial guaranty segment’s net par outstanding was
$41.5 billion
as of
June 30, 2012
, compared to
$69.2 billion
at
December 31, 2011
. This reduction in net par outstanding was primarily due to the Assured Transaction, the 2012 CDO Terminations and the Commutation Transactions, as well as the amortization or scheduled maturity of our insured portfolio and prepayments of public finance transactions. We expect our net par outstanding will continue to decrease over time as our financial guaranty portfolio matures and as we proactively seek to reduce our financial guaranty net par outstanding.
|
•
|
Credit Performance
. The percentage of internally rated AAA credits in our insured portfolio increased to
50.6%
of our net par outstanding at
June 30, 2012
, from 44.9% at
December 31, 2011
. In addition, the percentage of internally rated BBB credits increased to 27.5% of our net par outstanding at June 30, 2012, from 22.0% at December 31, 2011. The BIG exposure increased to 7.0% of our total portfolio as of
June 30, 2012
, from 5.9% as of December 31, 2011. These changes in the ratings mix of our financial guaranty segment’s insured portfolio were primarily due to the Assured Transaction, the Commutation Transactions and the 2012 CDO Terminations.
|
•
|
Public Finance.
Our public finance insured portfolio continues to experience some stress from the general economic downturn and slow economic recovery. As of
June 30, 2012
, approximately 10.1% of our total financial guaranty segment’s public finance net par outstanding consisted of credits rated BIG, compared to 4.5% as of December 31, 2011. The percentage of AA or A rated public finance credits declined from 47.5% to 21.1% between December 31, 2011 and
June 30, 2012
. The ratings mix shift in our public finance portfolio was primarily caused by the Assured Transaction, which reduced the public finance portfolio by $15.0 billion and removed 45% of public finance net par outstanding from our insured portfolio. The percentage of our total net par outstanding from public finance obligations decreased from 47.6% to 39.5% of our total net par outstanding between December 31, 2011 and
June 30, 2012
.
|
•
|
Structured Finance.
The percentage of internally rated AAA credits in our structured finance portfolio declined to 77.3% at
June 30, 2012
, from 79.5% at December 31, 2011, mainly due to the Commutation Transactions and the 2012 CDO Terminations. The Commutation Transactions, which removed $1.1 billion of BIG structured finance credits from our portfolio, improved the ratings mix of our structured finance portfolio by reducing the percentage of our BIG structured finance net par outstanding from 9.3% as of December 31, 2011, to 5.0% as of
June 30, 2012
. The 2012 CDO Terminations also reduced the net par outstanding of the corporate CDOs scheduled to mature in 2012, 2013 and 2014 by 63%, 29% and 31%, respectively.
|
(In millions)
|
NIMS
|
|
Financial
Guaranty
Derivatives
and VIEs
|
|
Total
|
||||||
Balance Sheet
|
|
|
|
|
|
||||||
Other invested assets
|
$
|
—
|
|
|
$
|
75.4
|
|
|
$
|
75.4
|
|
Derivative assets
|
1.7
|
|
|
12.5
|
|
|
14.2
|
|
|||
Other assets
|
—
|
|
|
100.7
|
|
|
100.7
|
|
|||
Total assets
|
1.7
|
|
|
188.6
|
|
|
190.3
|
|
|||
Derivative liabilities
|
—
|
|
|
220.0
|
|
|
220.0
|
|
|||
VIE debt-at fair value
|
7.5
|
|
|
100.3
|
|
|
107.8
|
|
|||
Accounts payable and accrued expenses
|
—
|
|
|
0.4
|
|
|
0.4
|
|
|||
Total liabilities
|
7.5
|
|
|
320.7
|
|
|
328.2
|
|
|||
Total fair value net liabilities
|
$
|
5.8
|
|
|
$
|
132.1
|
|
|
$
|
137.9
|
|
Present value of estimated credit loss payments (recoveries) (1)
|
$
|
14.5
|
|
|
$
|
(72.2
|
)
|
|
$
|
(57.7
|
)
|
(1)
|
Represents the present value of our estimated credit loss payments (net of estimated recoveries) for those transactions for which we currently anticipate paying net losses or receiving recoveries of losses already paid. In April 2012, as part of the Commutation Transactions, we made a payment with respect to the Terminated TruPs CDOs for which we currently expect a significant recovery. There are no significant credit loss payments expected on the remaining fair value derivatives or VIEs, and when combined with the recovery expected on the Terminated TruPs CDOs, this results in an aggregate net recovery as of June 30, 2012. The present value is calculated using a discount rate of
2.4%
, which represents our current investment yield.
|
|
Three Months Ended
June 30, |
|
% Change
|
|
Six Months Ended
June 30, |
|
% Change
|
||||||||||||||
($ in millions)
|
2012
|
|
2011
|
|
2012 vs. 2011
|
|
2012
|
|
2011
|
|
2012 vs. 2011
|
||||||||||
Net (loss) income
|
$
|
(119.3
|
)
|
|
$
|
137.1
|
|
|
n/m
|
|
|
$
|
(288.5
|
)
|
|
$
|
240.1
|
|
|
n/m
|
|
Net premiums written—insurance
|
181.9
|
|
|
152.8
|
|
|
19.0
|
%
|
|
259.6
|
|
|
335.5
|
|
|
(22.6
|
)%
|
||||
Net premiums earned—insurance
|
186.8
|
|
|
188.9
|
|
|
(1.1
|
)
|
|
354.1
|
|
|
392.0
|
|
|
(9.7
|
)
|
||||
Net investment income
|
30.9
|
|
|
43.8
|
|
|
(29.5
|
)
|
|
65.6
|
|
|
86.1
|
|
|
(23.8
|
)
|
||||
Net gains on investments
|
26.4
|
|
|
44.3
|
|
|
(40.4
|
)
|
|
93.9
|
|
|
81.7
|
|
|
14.9
|
|
||||
Change in fair value of derivative instruments
|
(33.1
|
)
|
|
188.7
|
|
|
n/m
|
|
|
(105.9
|
)
|
|
432.6
|
|
|
n/m
|
|
||||
Net (losses) gains on other financial instruments
|
(61.9
|
)
|
|
5.0
|
|
|
n/m
|
|
|
(79.7
|
)
|
|
80.3
|
|
|
n/m
|
|
||||
Gain on sale of affiliate
|
7.7
|
|
|
—
|
|
|
n/m
|
|
|
7.7
|
|
|
—
|
|
|
n/m
|
|
||||
Other income
|
1.4
|
|
|
1.2
|
|
|
16.7
|
|
|
2.8
|
|
|
2.6
|
|
|
7.7
|
|
||||
Provision for losses
|
210.9
|
|
|
263.6
|
|
|
(20.0
|
)
|
|
477.0
|
|
|
690.9
|
|
|
(31.0
|
)
|
||||
Change in reserve for premium deficiency
|
0.6
|
|
|
(3.1
|
)
|
|
n/m
|
|
|
0.5
|
|
|
(4.5
|
)
|
|
n/m
|
|
||||
Policy acquisition costs
|
10.8
|
|
|
14.4
|
|
|
(25.0
|
)
|
|
38.9
|
|
|
28.5
|
|
|
36.5
|
|
||||
Other operating expenses
|
40.2
|
|
|
46.0
|
|
|
(12.6
|
)
|
|
90.3
|
|
|
92.2
|
|
|
(2.1
|
)
|
||||
Interest expense
|
12.6
|
|
|
16.1
|
|
|
(21.7
|
)
|
|
26.7
|
|
|
33.1
|
|
|
(19.3
|
)
|
||||
Equity in net income of affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(100.0
|
)
|
||||
Income tax provision (benefit)
|
2.4
|
|
|
(2.0
|
)
|
|
n/m
|
|
|
(6.5
|
)
|
|
(5.1
|
)
|
|
27.5
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net unrealized (losses) gains related to change in fair value of trading securities
|
$
|
(15.1
|
)
|
|
$
|
51.0
|
|
|
$
|
15.0
|
|
|
$
|
76.7
|
|
Net realized gains (losses) on sales
|
41.5
|
|
|
(6.7
|
)
|
|
78.9
|
|
|
5.0
|
|
||||
Net gains on investments
|
$
|
26.4
|
|
|
$
|
44.3
|
|
|
$
|
93.9
|
|
|
$
|
81.7
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net premiums earned—derivatives
|
$
|
7.3
|
|
|
$
|
10.5
|
|
|
$
|
15.9
|
|
|
$
|
21.4
|
|
Financial Guaranty credit derivatives
|
(39.2
|
)
|
|
181.9
|
|
|
(119.4
|
)
|
|
416.5
|
|
||||
Financial Guaranty VIE derivatives
|
(1.2
|
)
|
|
(4.0
|
)
|
|
(2.4
|
)
|
|
(4.9
|
)
|
||||
NIMS related and other
|
—
|
|
|
0.3
|
|
|
—
|
|
|
(0.4
|
)
|
||||
Change in fair value of derivative instruments
|
$
|
(33.1
|
)
|
|
$
|
188.7
|
|
|
$
|
(105.9
|
)
|
|
$
|
432.6
|
|
(In basis points)
|
June 30,
2012 |
|
December 31, 2011
|
|
June 30,
2011 |
|
December 31, 2010
|
||||
Radian Group’s five-year CDS spread
|
1,780
|
|
|
2,732
|
|
|
968
|
|
|
465
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian
Non-Performance Risk
June 30, 2012
|
|
|
Impact of Radian
Non-Performance Risk
June 30, 2012
|
|
|
Fair Value (Asset) Liability
Recorded
June 30, 2012
|
|
|||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
258.4
|
|
|
$
|
259.2
|
|
|
$
|
(0.8
|
)
|
Non-Corporate CDO-related
|
915.0
|
|
|
797.8
|
|
|
117.2
|
|
|||
NIMS-related
|
13.0
|
|
|
7.2
|
|
|
5.8
|
|
|||
Total
|
$
|
1,186.4
|
|
|
$
|
1,064.2
|
|
|
$
|
122.2
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian
Non-Performance Risk
December 31,
2011
|
|
|
Impact of Radian
Non-Performance Risk
December 31,
2011
|
|
|
Fair Value Liability
Recorded
December 31,
2011
|
|
|||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
463.1
|
|
|
$
|
458.0
|
|
|
$
|
5.1
|
|
Non-Corporate CDO-related
|
1,520.2
|
|
|
1,405.3
|
|
|
114.9
|
|
|||
NIMS-related
|
17.4
|
|
|
9.6
|
|
|
7.8
|
|
|||
Total
|
$
|
2,000.7
|
|
|
$
|
1,872.9
|
|
|
$
|
127.8
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net (losses) gains related to NIMS VIE debt
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
1.8
|
|
(Losses) gains related to change in fair value of Financial Guaranty VIE debt
|
(68.3
|
)
|
|
(43.5
|
)
|
|
(101.8
|
)
|
|
27.0
|
|
||||
Gains related to other Financial Guaranty VIE assets
|
5.9
|
|
|
14.4
|
|
|
9.3
|
|
|
18.3
|
|
||||
Gain on the purchase of long-term debt
|
0.7
|
|
|
—
|
|
|
15.9
|
|
|
—
|
|
||||
Foreign currency gain related to the liquidation of a foreign subsidiary
|
—
|
|
|
39.6
|
|
|
—
|
|
|
39.6
|
|
||||
Other
|
(0.2
|
)
|
|
(4.9
|
)
|
|
(0.6
|
)
|
|
(6.4
|
)
|
||||
Net (losses) gains on other financial instruments
|
$
|
(61.9
|
)
|
|
$
|
5.0
|
|
|
$
|
(79.7
|
)
|
|
$
|
80.3
|
|
|
Three Months Ended
June 30, |
|
% Change
|
|
Six Months Ended
June 30, |
|
% Change
|
||||||||||||||
($ in millions)
|
2012
|
|
2011
|
|
2012 vs. 2011
|
|
2012
|
|
2011
|
|
2012 vs. 2011
|
||||||||||
Net loss
|
$
|
(23.0
|
)
|
|
$
|
(97.6
|
)
|
|
(76.4
|
)%
|
|
$
|
(68.2
|
)
|
|
$
|
(333.6
|
)
|
|
(79.6
|
)%
|
Net premiums written—insurance
|
182.5
|
|
|
164.2
|
|
|
11.1
|
|
|
379.4
|
|
|
345.0
|
|
|
10.0
|
|
||||
Net premiums earned—insurance
|
170.8
|
|
|
164.3
|
|
|
4.0
|
|
|
344.2
|
|
|
350.5
|
|
|
(1.8
|
)
|
||||
Net investment income
|
17.6
|
|
|
24.9
|
|
|
(29.3
|
)
|
|
35.6
|
|
|
51.7
|
|
|
(31.1
|
)
|
||||
Net gains on investments
|
26.7
|
|
|
27.5
|
|
|
(2.9
|
)
|
|
58.9
|
|
|
45.2
|
|
|
30.3
|
|
||||
Change in fair value of derivative instruments
|
(0.1
|
)
|
|
0.3
|
|
|
n/m
|
|
|
—
|
|
|
(0.1
|
)
|
|
(100.0
|
)
|
||||
Net (losses) gains on other financial instruments
|
—
|
|
|
(0.7
|
)
|
|
(100.0
|
)
|
|
(0.7
|
)
|
|
1.8
|
|
|
n/m
|
|
||||
Other income
|
1.3
|
|
|
1.1
|
|
|
18.2
|
|
|
2.6
|
|
|
2.5
|
|
|
4.0
|
|
||||
Provision for losses
|
208.1
|
|
|
270.0
|
|
|
(22.9
|
)
|
|
442.8
|
|
|
684.0
|
|
|
(35.3
|
)
|
||||
Change in reserve for premium deficiency
|
0.6
|
|
|
(3.1
|
)
|
|
n/m
|
|
|
0.5
|
|
|
(4.5
|
)
|
|
n/m
|
|
||||
Policy acquisition costs
|
7.9
|
|
|
8.6
|
|
|
(8.1
|
)
|
|
16.5
|
|
|
18.8
|
|
|
(12.2
|
)
|
||||
Other operating expenses
|
31.3
|
|
|
33.9
|
|
|
(7.7
|
)
|
|
67.5
|
|
|
68.1
|
|
|
(0.9
|
)
|
||||
Interest expense
|
1.7
|
|
|
0.1
|
|
|
n/m
|
|
|
3.4
|
|
|
9.9
|
|
|
(65.7
|
)
|
||||
Income tax (benefit) provision
|
(10.2
|
)
|
|
5.4
|
|
|
n/m
|
|
|
(22.0
|
)
|
|
8.9
|
|
|
n/m
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Premiums written
|
|
|
|
|
|
|
|
||||||||
Primary and Pool Insurance
|
$
|
181,996
|
|
|
$
|
163,556
|
|
|
$
|
378,317
|
|
|
$
|
343,813
|
|
Second-lien
|
482
|
|
|
592
|
|
|
993
|
|
|
1,212
|
|
||||
International
|
40
|
|
|
46
|
|
|
61
|
|
|
15
|
|
||||
Total premiums written—insurance
|
$
|
182,518
|
|
|
$
|
164,194
|
|
|
$
|
379,371
|
|
|
$
|
345,040
|
|
Premiums earned
|
|
|
|
|
|
|
|
||||||||
Primary and Pool Insurance
|
$
|
169,898
|
|
|
$
|
162,388
|
|
|
$
|
342,379
|
|
|
$
|
345,857
|
|
Second-lien
|
482
|
|
|
592
|
|
|
993
|
|
|
1,212
|
|
||||
International
|
383
|
|
|
1,345
|
|
|
842
|
|
|
3,390
|
|
||||
Total premiums earned—insurance
|
$
|
170,763
|
|
|
$
|
164,325
|
|
|
$
|
344,214
|
|
|
$
|
350,459
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net unrealized (losses) gains related to change in fair value of trading securities
|
$
|
(5.3
|
)
|
|
$
|
19.4
|
|
|
$
|
12.0
|
|
|
$
|
31.8
|
|
Net realized gains on sales
|
32.0
|
|
|
8.1
|
|
|
46.9
|
|
|
13.4
|
|
||||
Net gains on investments
|
$
|
26.7
|
|
|
$
|
27.5
|
|
|
$
|
58.9
|
|
|
$
|
45.2
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
New defaults
|
$
|
153.3
|
|
|
$
|
182.3
|
|
|
$
|
300.0
|
|
|
$
|
363.3
|
|
Existing defaults (1)
|
32.5
|
|
|
90.5
|
|
|
87.5
|
|
|
317.4
|
|
||||
Second-liens, Loss adjustment expense (“LAE”) and Other (2)
|
22.3
|
|
|
(2.8
|
)
|
|
55.3
|
|
|
3.3
|
|
||||
Provision for losses
|
$
|
208.1
|
|
|
$
|
270.0
|
|
|
$
|
442.8
|
|
|
$
|
684.0
|
|
(1)
|
Represents the provision for losses attributable to loans that were in default as of the beginning of each period indicated, including: (a) the change in reserves for loans that were in default status (including pending claims) as of both the beginning and end of each period indicated; (b) the net impact to provision for losses from loans that were in default as of the beginning of each period indicated but were either a cure, a prepayment, a paid claim or a rescission or denial during the period indicated; and (c) the impact to our IBNR reserve during the period related to changes in actual and estimated reinstatements of previously rescinded policies and denied claims.
|
(2)
|
Includes the effect of reinsurance recoveries from captive and Smart Home transactions (including a $40 million write-down of Smart Home recoverables for the first half of 2012), second-lien activity, LAE and other miscellaneous loss-related activity.
|
(In millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||
Decrease to our loss reserve due to estimated future rescissions and denials
|
$
|
532
|
|
|
$
|
631
|
|
|
$
|
655
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Rescissions—first loss position
|
$
|
51.8
|
|
|
$
|
126.6
|
|
|
$
|
91.9
|
|
|
$
|
220.4
|
|
Denials—first loss position
|
174.3
|
|
|
14.2
|
|
|
350.7
|
|
|
38.8
|
|
||||
Total first loss position (1)
|
226.1
|
|
|
140.8
|
|
|
442.6
|
|
|
259.2
|
|
||||
Rescissions—second loss position
|
12.9
|
|
|
41.2
|
|
|
25.5
|
|
|
72.2
|
|
||||
Denials—second loss position
|
18.4
|
|
|
11.0
|
|
|
54.4
|
|
|
13.7
|
|
||||
Total second loss position (2)
|
31.3
|
|
|
52.2
|
|
|
79.9
|
|
|
85.9
|
|
||||
Total first-lien claims submitted for payment that were rescinded or denied (3)
|
$
|
257.4
|
|
|
$
|
193.0
|
|
|
$
|
522.5
|
|
|
$
|
345.1
|
|
(1)
|
Related to claims from policies in which we were in a first loss position and would have paid the claim absent the rescission or denial.
|
(2)
|
Related to claims from policies in which we were in a second loss position. These claims may not have resulted in a claim payment obligation absent the rescission or denial, due to deductibles and other exposure limitations included in our policies.
|
(3)
|
Includes an amount related to a small number of submitted claims that were subsequently withdrawn by the insured.
|
Claim
Received
Quarter
|
|
Projected Net Cumulative
Rescission/Denial Rates
for Each Quarter (1)
|
|
Percentage of
Claims Resolved (2)
|
Q4 2009
|
|
20.1%
|
|
100%
|
Q1 2010
|
|
18.1%
|
|
100%
|
Q2 2010
|
|
17.2%
|
|
99%
|
Q3 2010
|
|
15.5%
|
|
99%
|
Q4 2010
|
|
16.9%
|
|
99%
|
Q1 2011
|
|
20.4%
|
|
98%
|
Q2 2011
|
|
22.6%
|
|
94%
|
Q3 2011
|
|
25.5%
|
|
88%
|
Q4 2011
|
|
22.3%
|
|
79%
|
(1)
|
Projected net cumulative rescission/denial rates represent the ratio of claims rescinded or denied to claims received (by claim count). Rescissions and denials are net of actual reinstatements, plus our current estimate for expected reinstatements of previously rescinded or denied claims. These amounts represent the cumulative rates for each quarter as of
June 30, 2012
. Until all of the claims received during the periods shown have been internally resolved, the rescission/denial rates for each quarter will be subject to change. As discussed in footnote (2) below, these rates also will remain subject to change based on differences between estimated and actual reinstatements of previously rescinded policies or denied claims.
|
(2)
|
The percentage of claims resolved for each quarter presented in the table above, represents the number of claims that have been internally resolved as a percentage of the total number of claims received for that specific quarter. A claim is considered internally resolved when it is either paid or it is concluded that the claim should be denied or rescinded, though such denials or rescissions could be challenged and, potentially reinstated or overturned, respectively. For the first and second quarters of 2012, a significant portion of claims received for those quarters have not been internally resolved; therefore, we do not believe the cumulative rescission/denial rates for those periods are presently meaningful and therefore they are not presented.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||
($ in millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||||||||||||||
Primary NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Prime
|
$
|
8,330
|
|
|
99.9
|
%
|
|
$
|
2,280
|
|
|
100.0
|
%
|
|
$
|
14,790
|
|
|
99.9
|
%
|
|
$
|
4,863
|
|
|
99.9
|
%
|
Alternative-A (“Alt-A”)
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
A minus and below
|
4
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
0.1
|
|
|
3
|
|
|
0.1
|
|
||||
Total Primary
|
$
|
8,335
|
|
|
100.0
|
%
|
|
$
|
2,280
|
|
|
100.0
|
%
|
|
$
|
14,800
|
|
|
100.0
|
%
|
|
$
|
4,866
|
|
|
100.0
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||
($ in millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||||||||||||||
Total primary NIW by FICO (1) Score
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
>=740
|
$
|
6,326
|
|
|
75.9
|
%
|
|
$
|
1,846
|
|
|
81.0
|
%
|
|
$
|
11,246
|
|
|
76.0
|
%
|
|
$
|
3,927
|
|
|
80.7
|
%
|
680-739
|
1,816
|
|
|
21.8
|
|
|
434
|
|
|
19.0
|
|
|
3,216
|
|
|
21.7
|
|
|
936
|
|
|
19.2
|
|
||||
620-679
|
193
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
|
338
|
|
|
2.3
|
|
|
3
|
|
|
0.1
|
|
||||
Total Primary
|
$
|
8,335
|
|
|
100.0
|
%
|
|
$
|
2,280
|
|
|
100.0
|
%
|
|
$
|
14,800
|
|
|
100.0
|
%
|
|
$
|
4,866
|
|
|
100.0
|
%
|
(1)
|
FICO credit scoring model.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Percentage of primary NIW
|
|
|
|
|
|
|
|
||||
Refinances
|
34
|
%
|
|
23
|
%
|
|
39
|
%
|
|
38
|
%
|
LTV (2)
|
|
|
|
|
|
|
|
||||
95.01% and above
|
1.3
|
%
|
|
1.4
|
%
|
|
1.5
|
%
|
|
1.3
|
%
|
90.01% to 95.00%
|
42.6
|
%
|
|
35.5
|
%
|
|
40.9
|
%
|
|
33.1
|
%
|
Adjustable Rate Mortgages (“ARMs”)
|
|
|
|
|
|
|
|
||||
Less than five years
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
|
0.1
|
%
|
Five years and longer
|
2.5
|
%
|
|
6.9
|
%
|
|
2.5
|
%
|
|
5.8
|
%
|
(2)
|
LTV ratios: The ratio of the original loan amount to the original value of the property.
|
($ in millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|||||||||||||||
Primary insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
$
|
118,420
|
|
|
90.8
|
%
|
|
$
|
113,438
|
|
|
89.9
|
%
|
|
$
|
111,510
|
|
|
89.1
|
%
|
Structured
|
11,991
|
|
|
9.2
|
|
|
12,747
|
|
|
10.1
|
|
|
13,600
|
|
|
10.9
|
|
|||
Total Primary
|
$
|
130,411
|
|
|
100.0
|
%
|
|
$
|
126,185
|
|
|
100.0
|
%
|
|
$
|
125,110
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
112,112
|
|
|
86.0
|
%
|
|
$
|
106,407
|
|
|
84.3
|
%
|
|
$
|
103,860
|
|
|
83.0
|
%
|
Alt-A
|
11,383
|
|
|
8.7
|
|
|
12,344
|
|
|
9.8
|
|
|
13,318
|
|
|
10.7
|
|
|||
A minus and below
|
6,916
|
|
|
5.3
|
|
|
7,434
|
|
|
5.9
|
|
|
7,932
|
|
|
6.3
|
|
|||
Total Primary
|
$
|
130,411
|
|
|
100.0
|
%
|
|
$
|
126,185
|
|
|
100.0
|
%
|
|
$
|
125,110
|
|
|
100.0
|
%
|
Primary risk in force
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
25,951
|
|
|
88.9
|
%
|
|
$
|
24,401
|
|
|
87.3
|
%
|
|
$
|
23,637
|
|
|
86.1
|
%
|
Alt-A
|
2,022
|
|
|
6.9
|
|
|
2,200
|
|
|
7.9
|
|
|
2,374
|
|
|
8.7
|
|
|||
A minus and below
|
1,227
|
|
|
4.2
|
|
|
1,336
|
|
|
4.8
|
|
|
1,437
|
|
|
5.2
|
|
|||
Total Flow
|
$
|
29,200
|
|
|
100.0
|
%
|
|
$
|
27,937
|
|
|
100.0
|
%
|
|
$
|
27,448
|
|
|
100.0
|
%
|
Structured
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
1,520
|
|
|
58.2
|
%
|
|
$
|
1,610
|
|
|
58.4
|
%
|
|
$
|
1,702
|
|
|
58.4
|
%
|
Alt-A
|
589
|
|
|
22.6
|
|
|
625
|
|
|
22.7
|
|
|
665
|
|
|
22.8
|
|
|||
A minus and below
|
500
|
|
|
19.2
|
|
|
520
|
|
|
18.9
|
|
|
546
|
|
|
18.8
|
|
|||
Total Structured
|
$
|
2,609
|
|
|
100.0
|
%
|
|
$
|
2,755
|
|
|
100.0
|
%
|
|
$
|
2,913
|
|
|
100.0
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
27,471
|
|
|
86.4
|
%
|
|
$
|
26,011
|
|
|
84.8
|
%
|
|
$
|
25,339
|
|
|
83.5
|
%
|
Alt-A
|
2,611
|
|
|
8.2
|
|
|
2,825
|
|
|
9.2
|
|
|
3,039
|
|
|
10.0
|
|
|||
A minus and below
|
1,727
|
|
|
5.4
|
|
|
1,856
|
|
|
6.0
|
|
|
1,983
|
|
|
6.5
|
|
|||
Total Primary
|
$
|
31,809
|
|
|
100.0
|
%
|
|
$
|
30,692
|
|
|
100.0
|
%
|
|
$
|
30,361
|
|
|
100.0
|
%
|
($ in millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|||||||||||||||
Total primary risk in force by FICO Score
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
13,868
|
|
|
47.5
|
%
|
|
$
|
12,242
|
|
|
43.8
|
%
|
|
$
|
11,196
|
|
|
40.8
|
%
|
680-739
|
9,265
|
|
|
31.7
|
|
|
9,205
|
|
|
33.0
|
|
|
9,327
|
|
|
34.0
|
|
|||
620-679
|
5,162
|
|
|
17.7
|
|
|
5,503
|
|
|
19.7
|
|
|
5,865
|
|
|
21.4
|
|
|||
<=619
|
905
|
|
|
3.1
|
|
|
987
|
|
|
3.5
|
|
|
1,060
|
|
|
3.8
|
|
|||
Total Flow
|
$
|
29,200
|
|
|
100.0
|
%
|
|
$
|
27,937
|
|
|
100.0
|
%
|
|
$
|
27,448
|
|
|
100.0
|
%
|
Structured
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
690
|
|
|
26.4
|
%
|
|
$
|
732
|
|
|
26.6
|
%
|
|
$
|
776
|
|
|
26.6
|
%
|
680-739
|
757
|
|
|
29.0
|
|
|
802
|
|
|
29.1
|
|
|
848
|
|
|
29.1
|
|
|||
620-679
|
698
|
|
|
26.8
|
|
|
738
|
|
|
26.8
|
|
|
781
|
|
|
26.8
|
|
|||
<=619
|
464
|
|
|
17.8
|
|
|
483
|
|
|
17.5
|
|
|
508
|
|
|
17.5
|
|
|||
Total Structured
|
$
|
2,609
|
|
|
100.0
|
%
|
|
$
|
2,755
|
|
|
100.0
|
%
|
|
$
|
2,913
|
|
|
100.0
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
14,558
|
|
|
45.8
|
%
|
|
$
|
12,974
|
|
|
42.3
|
%
|
|
$
|
11,972
|
|
|
39.4
|
%
|
680-739
|
10,022
|
|
|
31.5
|
|
|
10,007
|
|
|
32.6
|
|
|
10,175
|
|
|
33.5
|
|
|||
620-679
|
5,860
|
|
|
18.4
|
|
|
6,241
|
|
|
20.3
|
|
|
6,646
|
|
|
21.9
|
|
|||
<=619
|
1,369
|
|
|
4.3
|
|
|
1,470
|
|
|
4.8
|
|
|
1,568
|
|
|
5.2
|
|
|||
Total Primary
|
$
|
31,809
|
|
|
100.0
|
%
|
|
$
|
30,692
|
|
|
100.0
|
%
|
|
$
|
30,361
|
|
|
100.0
|
%
|
Percentage of primary risk in force
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Refinances
|
32
|
%
|
|
|
|
32
|
%
|
|
|
|
31
|
%
|
|
|
||||||
ARMs
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Less than five years
|
4
|
%
|
|
|
|
5
|
%
|
|
|
|
5
|
%
|
|
|
||||||
Five years and longer
|
6
|
%
|
|
|
|
7
|
%
|
|
|
|
7
|
%
|
|
|
($ in millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|||||||||||||||
Total primary risk in force by LTV
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
85.00% and below
|
$
|
2,936
|
|
|
9.2
|
%
|
|
$
|
2,772
|
|
|
9.0
|
%
|
|
$
|
2,753
|
|
|
9.1
|
%
|
85.01% to 90.00%
|
12,265
|
|
|
38.6
|
|
|
11,861
|
|
|
38.6
|
|
|
11,722
|
|
|
38.6
|
|
|||
90.01% to 95.00%
|
11,648
|
|
|
36.6
|
|
|
10,735
|
|
|
35.0
|
|
|
10,268
|
|
|
33.8
|
|
|||
95.01% and above
|
4,960
|
|
|
15.6
|
|
|
5,324
|
|
|
17.4
|
|
|
5,618
|
|
|
18.5
|
|
|||
Total Primary
|
$
|
31,809
|
|
|
100.0
|
%
|
|
$
|
30,692
|
|
|
100.0
|
%
|
|
$
|
30,361
|
|
|
100.0
|
%
|
($ in millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|||||||||||||||
Pool risk in force
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
1,471
|
|
|
76.8
|
%
|
|
$
|
1,601
|
|
|
77.4
|
%
|
|
$
|
1,676
|
|
|
75.6
|
%
|
Alt-A
|
113
|
|
|
5.9
|
|
|
122
|
|
|
5.9
|
|
|
132
|
|
|
6.0
|
|
|||
A minus and below
|
331
|
|
|
17.3
|
|
|
345
|
|
|
16.7
|
|
|
408
|
|
|
18.4
|
|
|||
Total pool risk in force
|
$
|
1,915
|
|
|
100.0
|
%
|
|
$
|
2,068
|
|
|
100.0
|
%
|
|
$
|
2,216
|
|
|
100.0
|
%
|
(In millions)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||
Other risk in force
|
|
|
|
|
|
||||||
Second-lien
|
|
|
|
|
|
||||||
1
st
loss
|
$
|
91
|
|
|
$
|
102
|
|
|
$
|
109
|
|
2
nd
loss
|
25
|
|
|
29
|
|
|
33
|
|
|||
NIMS
|
14
|
|
|
19
|
|
|
59
|
|
|||
1st loss-Hong Kong primary mortgage insurance
|
49
|
|
|
64
|
|
|
89
|
|
|||
Total other risk in force
|
$
|
179
|
|
|
$
|
214
|
|
|
$
|
290
|
|
|
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||||||||
|
|
Risk in Force
|
|
Reserve for Losses
|
|
Risk in Force
|
|
Reserve for Losses
|
|
Risk in Force
|
|
Reserve for Losses
|
||||||
2005 and prior
|
|
19.7
|
%
|
|
31.9
|
%
|
|
22.4
|
%
|
|
32.1
|
%
|
|
24.7
|
%
|
|
32.2
|
%
|
2006
|
|
9.3
|
|
|
18.3
|
|
|
10.3
|
|
|
18.6
|
|
|
11.2
|
|
|
19.4
|
|
2007
|
|
20.3
|
|
|
36.4
|
|
|
22.7
|
|
|
36.8
|
|
|
24.5
|
|
|
37.1
|
|
2008
|
|
15.3
|
|
|
12.2
|
|
|
17.0
|
|
|
11.6
|
|
|
18.3
|
|
|
10.8
|
|
2009
|
|
7.4
|
|
|
0.9
|
|
|
8.7
|
|
|
0.8
|
|
|
9.6
|
|
|
0.5
|
|
2010
|
|
6.4
|
|
|
0.2
|
|
|
7.3
|
|
|
0.1
|
|
|
8.0
|
|
|
—
|
|
2011
|
|
10.5
|
|
|
0.1
|
|
|
11.6
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
2012
|
|
11.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||||||||
|
Risk in Force
|
|
Reserve for Losses
|
|
Risk in Force
|
|
Reserve for Losses
|
|
Risk in Force
|
|
Reserve for Losses
|
||||||
Top Ten States
|
|
|
|
|
|
|
|
|
|
|
|
||||||
California
|
12.3
|
%
|
|
11.1
|
%
|
|
11.8
|
%
|
|
11.8
|
%
|
|
11.5
|
%
|
|
12.7
|
%
|
Florida
|
7.3
|
|
|
18.5
|
|
|
7.7
|
|
|
18.0
|
|
|
8.0
|
|
|
18.3
|
|
Texas
|
6.2
|
|
|
2.9
|
|
|
6.1
|
|
|
3.2
|
|
|
6.2
|
|
|
3.1
|
|
Illinois
|
5.5
|
|
|
6.6
|
|
|
5.4
|
|
|
6.1
|
|
|
5.2
|
|
|
5.8
|
|
Georgia
|
4.5
|
|
|
3.9
|
|
|
4.6
|
|
|
4.2
|
|
|
4.7
|
|
|
4.2
|
|
Ohio
|
4.1
|
|
|
3.1
|
|
|
4.2
|
|
|
3.0
|
|
|
4.3
|
|
|
2.9
|
|
New Jersey
|
4.0
|
|
|
5.7
|
|
|
3.9
|
|
|
5.2
|
|
|
3.8
|
|
|
4.9
|
|
New York
|
3.9
|
|
|
5.6
|
|
|
4.0
|
|
|
5.3
|
|
|
4.1
|
|
|
5.1
|
|
Pennsylvania
|
3.3
|
|
|
2.7
|
|
|
3.2
|
|
|
2.5
|
|
|
3.1
|
|
|
3.2
|
|
Arizona
|
3.1
|
|
|
3.4
|
|
|
3.2
|
|
|
3.2
|
|
|
3.0
|
|
|
2.4
|
|
Total
|
54.2
|
%
|
|
63.5
|
%
|
|
54.1
|
%
|
|
62.5
|
%
|
|
53.9
|
%
|
|
62.6
|
%
|
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
|||
Default Statistics—Primary Insurance:
|
|
|
|
|
|
|||
Flow
|
|
|
|
|
|
|||
Prime
|
|
|
|
|
|
|||
Number of insured loans
|
588,335
|
|
|
569,190
|
|
|
564,839
|
|
Number of loans in default
|
57,961
|
|
|
65,238
|
|
|
64,143
|
|
Percentage of loans in default
|
9.85
|
%
|
|
11.46
|
%
|
|
11.36
|
%
|
Alt-A
|
|
|
|
|
|
|||
Number of insured loans
|
40,976
|
|
|
44,355
|
|
|
47,491
|
|
Number of loans in default
|
13,001
|
|
|
14,481
|
|
|
15,329
|
|
Percentage of loans in default
|
31.73
|
%
|
|
32.65
|
%
|
|
32.28
|
%
|
A minus and below
|
|
|
|
|
|
|||
Number of insured loans
|
37,755
|
|
|
40,884
|
|
|
43,597
|
|
Number of loans in default
|
11,688
|
|
|
13,560
|
|
|
14,098
|
|
Percentage of loans in default
|
30.96
|
%
|
|
33.17
|
%
|
|
32.34
|
%
|
Total Flow
|
|
|
|
|
|
|||
Number of insured loans
|
667,066
|
|
|
654,429
|
|
|
655,927
|
|
Number of loans in default
|
82,650
|
|
|
93,279
|
|
|
93,570
|
|
Percentage of loans in default
|
12.39
|
%
|
|
14.25
|
%
|
|
14.27
|
%
|
Structured
|
|
|
|
|
|
|||
Prime
|
|
|
|
|
|
|||
Number of insured loans
|
39,278
|
|
|
41,248
|
|
|
43,429
|
|
Number of loans in default
|
5,608
|
|
|
6,308
|
|
|
6,248
|
|
Percentage of loans in default
|
14.28
|
%
|
|
15.29
|
%
|
|
14.39
|
%
|
Alt-A
|
|
|
|
|
|
|||
Number of insured loans
|
17,435
|
|
|
18,484
|
|
|
19,600
|
|
Number of loans in default
|
5,053
|
|
|
5,563
|
|
|
5,930
|
|
Percentage of loans in default
|
28.98
|
%
|
|
30.10
|
%
|
|
30.26
|
%
|
A minus and below
|
|
|
|
|
|
|||
Number of insured loans
|
14,816
|
|
|
15,477
|
|
|
16,159
|
|
Number of loans in default
|
5,139
|
|
|
5,711
|
|
|
5,686
|
|
Percentage of loans in default
|
34.69
|
%
|
|
36.90
|
%
|
|
35.19
|
%
|
Total Structured
|
|
|
|
|
|
|||
Number of insured loans
|
71,529
|
|
|
75,209
|
|
|
79,188
|
|
Number of loans in default
|
15,800
|
|
|
17,582
|
|
|
17,864
|
|
Percentage of loans in default
|
22.09
|
%
|
|
23.38
|
%
|
|
22.56
|
%
|
Total Primary Insurance
|
|
|
|
|
|
|||
Prime
|
|
|
|
|
|
|||
Number of insured loans
|
627,613
|
|
|
610,438
|
|
|
608,268
|
|
Number of loans in default
|
63,569
|
|
|
71,546
|
|
|
70,391
|
|
Percentage of loans in default
|
10.13
|
%
|
|
11.72
|
%
|
|
11.57
|
%
|
Alt-A
|
|
|
|
|
|
|||
Number of insured loans
|
58,411
|
|
|
62,839
|
|
|
67,091
|
|
Number of loans in default
|
18,054
|
|
|
20,044
|
|
|
21,259
|
|
Percentage of loans in default
|
30.91
|
%
|
|
31.90
|
%
|
|
31.69
|
%
|
A minus and below
|
|
|
|
|
|
|||
Number of insured loans
|
52,571
|
|
|
56,361
|
|
|
59,756
|
|
Number of loans in default
|
16,827
|
|
|
19,271
|
|
|
19,784
|
|
Percentage of loans in default
|
32.01
|
%
|
|
34.19
|
%
|
|
33.11
|
%
|
Total Primary
|
|
|
|
|
|
|||
Number of insured loans
|
738,595
|
|
|
729,638
|
|
|
735,115
|
|
Number of loans in default
|
98,450
|
|
|
110,861
|
|
|
111,434
|
|
Percentage of loans in default
|
13.33
|
%
|
|
15.19
|
%
|
|
15.16
|
%
|
Default Statistics—Pool insurance:
|
|
|
|
|
|
|||
Number of loans in default
|
19,336
|
|
|
21,685
|
|
|
26,016
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Beginning default inventory
|
103,027
|
|
|
116,896
|
|
|
110,861
|
|
|
125,470
|
|
Plus: New defaults (1)
|
17,945
|
|
|
22,421
|
|
|
36,604
|
|
|
45,769
|
|
Less: Cures (1)
|
(13,486
|
)
|
|
(17,642
|
)
|
|
(32,883
|
)
|
|
(41,466
|
)
|
Less: Claims paid (2)
|
(5,190
|
)
|
|
(8,049
|
)
|
|
(9,012
|
)
|
|
(14,829
|
)
|
Less: Rescissions (3)
|
(785
|
)
|
|
(1,644
|
)
|
|
(1,461
|
)
|
|
(2,939
|
)
|
Less: Denials (4)
|
(3,061
|
)
|
|
(548
|
)
|
|
(5,659
|
)
|
|
(571
|
)
|
Ending default inventory
|
98,450
|
|
|
111,434
|
|
|
98,450
|
|
|
111,434
|
|
(1)
|
Amounts reflected are compiled on a monthly basis consistent with reports received from loan servicers. The number of new defaults and cures presented includes the following number of monthly defaults that defaulted and cured within the periods indicated:
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Intra-period new defaults
|
5,379
|
|
|
6,696
|
|
|
17,780
|
|
|
21,636
|
|
(2)
|
Includes those charged to a deductible or captive.
|
(3)
|
Net of any previously rescinded policies that were reinstated during the period. Such reinstated rescissions may ultimately result in a paid claim.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Rescinded policies:
|
|
|
|
|
|
|
|
||||
Rescinded
|
(1,073
|
)
|
|
(1,812
|
)
|
|
(1,928
|
)
|
|
(3,282
|
)
|
Reinstated
|
288
|
|
|
168
|
|
|
467
|
|
|
343
|
|
Total net rescissions
|
(785
|
)
|
|
(1,644
|
)
|
|
(1,461
|
)
|
|
(2,939
|
)
|
(4)
|
Net of any denied claims that were reinstated during the period. Such previously denied but reinstated claims are generally reviewed for possible rescission prior to any claim payment. A significant number of denials in 2012 relate to one servicer.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||
Denied claims:
|
|
|
|
|
|
|
|
||||
Denied
|
(3,953
|
)
|
|
(1,347
|
)
|
|
(7,297
|
)
|
|
(2,824
|
)
|
Reinstated
|
892
|
|
|
799
|
|
|
1,638
|
|
|
2,253
|
|
Total net denials
|
(3,061
|
)
|
|
(548
|
)
|
|
(5,659
|
)
|
|
(571
|
)
|
|
June 30, 2012
|
||||||||||||||||||||
|
|
|
|
|
Projected Default to Claim Rate
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
Gross (1)
|
|
Net (2)
|
|
Cure % During the Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
||||||||
($ in thousands)
|
#
|
|
%
|
|
%
|
|
%
|
|
%
|
|
$
|
|
%
|
||||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Three payments or less
|
16,898
|
|
|
17.2
|
%
|
|
25
|
%
|
|
23
|
%
|
|
26.4
|
%
|
|
$
|
178,146
|
|
|
7.1
|
%
|
Four to eleven payments
|
23,243
|
|
|
23.6
|
|
|
48
|
|
|
44
|
|
|
10.2
|
|
|
508,725
|
|
|
20.3
|
|
|
Twelve payments or more
|
41,571
|
|
|
42.2
|
|
|
57
|
|
|
47
|
|
|
2.7
|
|
|
1,084,479
|
|
|
43.4
|
|
|
Pending claims
|
16,738
|
|
|
17.0
|
|
|
100
|
|
|
84
|
|
|
0.2
|
|
|
729,382
|
|
|
29.2
|
|
|
Total
|
98,450
|
|
|
100.0
|
%
|
|
56
|
%
|
|
48
|
%
|
|
|
|
2,500,732
|
|
|
100.0
|
%
|
||
IBNR
|
|
|
|
|
|
|
|
|
|
|
221,893
|
|
|
|
|||||||
LAE and Other
|
|
|
|
|
|
|
|
|
|
|
74,386
|
|
|
|
|||||||
Total primary reserves
|
|
|
|
|
|
|
|
|
|
|
$
|
2,797,011
|
|
|
|
|
June 30, 2011
|
||||||||||||||||||||
|
|
|
|
|
Projected Default to Claim Rate
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
Gross (1)
|
|
Net (2)
|
|
Cure % During the Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
||||||||
($ in thousands)
|
#
|
|
%
|
|
%
|
|
%
|
|
%
|
|
$
|
|
%
|
||||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Three payments or less
|
20,839
|
|
|
18.7
|
%
|
|
23
|
%
|
|
20
|
%
|
|
25.5
|
%
|
|
$
|
197,532
|
|
|
7.5
|
%
|
Four to eleven payments
|
30,297
|
|
|
27.2
|
|
|
48
|
|
|
41
|
|
|
11.2
|
|
|
617,151
|
|
|
23.2
|
|
|
Twelve payments or more
|
46,213
|
|
|
41.5
|
|
|
57
|
|
|
45
|
|
|
4.5
|
|
|
1,230,265
|
|
|
46.3
|
|
|
Pending claims
|
14,085
|
|
|
12.6
|
|
|
100
|
|
|
79
|
|
|
0.3
|
|
|
611,492
|
|
|
23.0
|
|
|
Total
|
111,434
|
|
|
100.0
|
%
|
|
53
|
%
|
|
44
|
%
|
|
|
|
2,656,440
|
|
|
100.0
|
%
|
||
IBNR
|
|
|
|
|
|
|
|
|
|
|
99,931
|
|
|
|
|||||||
LAE and Other
|
|
|
|
|
|
|
|
|
|
|
66,723
|
|
|
|
|||||||
Total primary reserves
|
|
|
|
|
|
|
|
|
|
|
$
|
2,823,094
|
|
|
|
(1)
|
Represents the weighted average default to claim rate before consideration of estimated rescissions and denials for each
|
(2)
|
Net of estimate of rescissions and denials.
|
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||
First-lien reserve per default (1)
|
|
|
|
|
|
||||||
Primary reserve per default
|
$
|
28,410
|
|
|
$
|
26,007
|
|
|
$
|
25,334
|
|
Primary reserve per default excluding IBNR
|
26,157
|
|
|
24,637
|
|
|
24,437
|
|
|||
Pool reserve per default (2)
|
18,012
|
|
|
16,305
|
|
|
16,795
|
|
|||
Total first-lien reserve per default
|
26,704
|
|
|
24,420
|
|
|
23,718
|
|
(1)
|
Calculated as total reserves divided by total defaults.
|
(2)
|
If calculated before giving effect to deductibles and stop losses in pool transactions, the pool reserve per default at
June 30, 2012
, December 31, 2011, and
June 30, 2011
, would have been $27,949, $25,402 and $28,277, respectively.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net claims paid (1):
|
|
|
|
|
|
|
|
||||||||
Prime
|
$
|
170,351
|
|
|
$
|
256,020
|
|
|
$
|
297,452
|
|
|
$
|
464,215
|
|
Alt-A
|
40,261
|
|
|
88,140
|
|
|
76,912
|
|
|
163,270
|
|
||||
A minus and below
|
31,112
|
|
|
52,794
|
|
|
57,192
|
|
|
97,379
|
|
||||
Total primary claims paid
|
241,724
|
|
|
396,954
|
|
|
431,556
|
|
|
724,864
|
|
||||
Pool
|
20,374
|
|
|
58,341
|
|
|
45,300
|
|
|
92,699
|
|
||||
Second-lien and other
|
1,349
|
|
|
3,736
|
|
|
4,932
|
|
|
6,619
|
|
||||
Subtotal
|
263,447
|
|
|
459,031
|
|
|
481,788
|
|
|
824,182
|
|
||||
Impact of first-lien terminations
|
—
|
|
|
38,198
|
|
|
—
|
|
|
38,198
|
|
||||
Impact of captive terminations
|
—
|
|
|
(1,166
|
)
|
|
(148
|
)
|
|
(1,166
|
)
|
||||
Impact of second-lien terminations
|
—
|
|
|
16,550
|
|
|
—
|
|
|
16,550
|
|
||||
Total net claims paid
|
$
|
263,447
|
|
|
$
|
512,613
|
|
|
$
|
481,640
|
|
|
$
|
877,764
|
|
Average net claim paid (1) (2):
|
|
|
|
|
|
|
|
||||||||
Prime
|
$
|
47.1
|
|
|
$
|
49.9
|
|
|
$
|
48.6
|
|
|
$
|
49.0
|
|
Alt-A
|
56.4
|
|
|
62.0
|
|
|
57.8
|
|
|
60.9
|
|
||||
A minus and below
|
36.0
|
|
|
40.8
|
|
|
38.0
|
|
|
39.0
|
|
||||
Total average net primary claim paid
|
46.6
|
|
|
50.6
|
|
|
47.6
|
|
|
49.5
|
|
||||
Pool
|
65.9
|
|
|
80.2
|
|
|
66.9
|
|
|
75.7
|
|
||||
Second-lien and other
|
24.5
|
|
|
27.7
|
|
|
26.2
|
|
|
28.9
|
|
||||
Total average net claim paid
|
$
|
47.4
|
|
|
$
|
52.7
|
|
|
$
|
48.5
|
|
|
$
|
51.2
|
|
Average direct primary claim paid (2) (3)
|
$
|
49.2
|
|
|
$
|
55.3
|
|
|
$
|
50.4
|
|
|
$
|
54.8
|
|
Average total direct claim paid (2) (3)
|
$
|
49.9
|
|
|
$
|
56.9
|
|
|
$
|
51.0
|
|
|
$
|
56.0
|
|
(1)
|
Net of reinsurance recoveries.
|
(2)
|
Calculated without giving effect to the impact of terminations of captive reinsurance transactions and first- and second-lien transactions.
|
(3)
|
Before reinsurance recoveries.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||||||||||||||
($ in thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||||||||||||||
States with highest direct claims paid (first-lien):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
California
|
$
|
45,396
|
|
|
17.2
|
%
|
|
$
|
84,868
|
|
|
16.6
|
%
|
|
$
|
78,033
|
|
|
16.2
|
%
|
|
$
|
147,362
|
|
|
16.8
|
%
|
Florida
|
33,100
|
|
|
12.6
|
|
|
70,389
|
|
|
13.7
|
|
|
62,131
|
|
|
12.9
|
|
|
133,491
|
|
|
15.2
|
|
||||
Arizona
|
22,179
|
|
|
8.4
|
|
|
44,858
|
|
|
8.8
|
|
|
42,912
|
|
|
8.9
|
|
|
78,341
|
|
|
8.9
|
|
||||
Illinois
|
15,861
|
|
|
6.0
|
|
|
23,628
|
|
|
4.6
|
|
|
27,271
|
|
|
5.7
|
|
|
40,315
|
|
|
4.6
|
|
||||
Georgia
|
14,228
|
|
|
5.4
|
|
|
26,631
|
|
|
5.2
|
|
|
25,545
|
|
|
5.3
|
|
|
47,131
|
|
|
5.4
|
|
||||
States with highest number of defaults:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Florida
|
16,967
|
|
|
17.2
|
%
|
|
18,586
|
|
|
16.7
|
%
|
|
|
|
|
|
|
|
|
||||||||
California
|
7,057
|
|
|
7.2
|
|
|
9,247
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
||||||||
Illinois
|
6,381
|
|
|
6.5
|
|
|
6,644
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
||||||||
Ohio
|
4,692
|
|
|
4.8
|
|
|
5,164
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
||||||||
New Jersey
|
4,519
|
|
|
4.6
|
|
|
4,189
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
June 30,
2012 |
|
December 31,
2011 |
|
June 30,
2011 |
||||||
Reserves for losses by category:
|
|
|
|
|
|
||||||
Prime
|
$
|
1,740,492
|
|
|
$
|
1,748,412
|
|
|
$
|
1,635,206
|
|
Alt-A
|
597,570
|
|
|
612,423
|
|
|
652,577
|
|
|||
A minus and below
|
361,104
|
|
|
370,806
|
|
|
374,647
|
|
|||
Reinsurance recoverable (1)
|
97,845
|
|
|
151,569
|
|
|
160,664
|
|
|||
Total primary reserves
|
2,797,011
|
|
|
2,883,210
|
|
|
2,823,094
|
|
|||
Pool
|
348,288
|
|
|
353,583
|
|
|
436,948
|
|
|||
Total first-lien reserves
|
3,145,299
|
|
|
3,236,793
|
|
|
3,260,042
|
|
|||
Second-lien (2)
|
9,970
|
|
|
11,070
|
|
|
8,522
|
|
|||
Other
|
74
|
|
|
37
|
|
|
18
|
|
|||
Total reserve for losses
|
$
|
3,155,343
|
|
|
$
|
3,247,900
|
|
|
$
|
3,268,582
|
|
Reserve for premium deficiency on second-liens
|
$
|
4,183
|
|
|
$
|
3,644
|
|
|
$
|
6,251
|
|
(1)
|
Represents ceded losses on captive transactions, Smart Home and quota share reinsurance transactions.
|
(2)
|
Does not include second-lien premium deficiency reserve (“PDR”).
|
|
As of and for the Three Months Ended June 30,
|
|
As of and for the Six Months Ended June 30,
|
||||||||||||
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
First-lien Captives
|
|
|
|
|
|
|
|
||||||||
Premiums ceded to captives (in thousands)
|
$
|
6,289
|
|
|
$
|
7,266
|
|
|
$
|
12,718
|
|
|
$
|
14,853
|
|
% of total premiums
|
3.5
|
%
|
|
4.2
|
%
|
|
3.6
|
%
|
|
4.1
|
%
|
||||
IIF (1) subject to captives
|
8.9
|
%
|
|
9.9
|
%
|
|
|
|
|
||||||
RIF (2) subject to captives
|
7.7
|
%
|
|
9.7
|
%
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||||
Quota Share Reinsurance (“QSR”)
|
|
|
|
|
|
|
|
||||||||
Ceded premiums written (in thousands)
|
25,477
|
|
|
|
|
|
|
|
|||||||
% of premiums written
|
12.0
|
%
|
|
|
|
|
|
|
|||||||
Ceded premiums earned (in thousands)
|
3,098
|
|
|
|
|
|
|
|
|||||||
% of total premiums
|
1.7
|
%
|
|
|
|
|
|
|
|||||||
RIF included in QSR (in thousands) (3)
|
922,497
|
|
|
|
|
|
|
|
|||||||
Ceding commissions (in thousands)
|
6,369
|
|
|
|
|
|
|
|
|||||||
Persistency
(12 months ended) (4)
|
83.9
|
%
|
|
82.5
|
%
|
|
|
|
|
(1)
|
Insurance in force (“IIF”) on captives as a percentage of primary IIF.
|
(2)
|
RIF on captives as a percentage of primary RIF.
|
(3)
|
RIF ceded under QSR included in primary RIF.
|
(4)
|
Reflects the impact of terminations of captive reinsurance transactions and first- and second-lien transactions.
|
|
Three Months Ended
June 30, |
|
% Change
|
|
Six Months Ended
June 30, |
|
% Change
|
||||||||||||||
($ in millions)
|
2012
|
|
2011
|
|
2012 vs. 2011
|
|
2012
|
|
2011
|
|
2012 vs. 2011
|
||||||||||
Net (loss) income
|
$
|
(96.3
|
)
|
|
$
|
234.7
|
|
|
n/m
|
|
|
$
|
(220.3
|
)
|
|
$
|
573.7
|
|
|
n/m
|
|
Net premiums written—insurance
|
(0.6
|
)
|
|
(11.4
|
)
|
|
(94.7
|
)%
|
|
(119.8
|
)
|
|
(9.5
|
)
|
|
n/m
|
|
||||
Net premiums earned—insurance
|
16.0
|
|
|
24.6
|
|
|
(35.0
|
)
|
|
9.9
|
|
|
41.5
|
|
|
(76.1
|
)%
|
||||
Net investment income
|
13.3
|
|
|
19.0
|
|
|
(30.0
|
)
|
|
30.0
|
|
|
34.4
|
|
|
(12.8
|
)
|
||||
Net (losses) gains on investments
|
(0.3
|
)
|
|
16.8
|
|
|
(101.8
|
)
|
|
35.0
|
|
|
36.5
|
|
|
(4.1
|
)
|
||||
Change in fair value of derivative instruments
|
(33.1
|
)
|
|
188.4
|
|
|
n/m
|
|
|
(105.9
|
)
|
|
432.7
|
|
|
n/m
|
|
||||
Net (losses) gains on other financial instruments
|
(61.9
|
)
|
|
5.7
|
|
|
n/m
|
|
|
(79.0
|
)
|
|
78.5
|
|
|
n/m
|
|
||||
Gain on sale of affiliate
|
7.7
|
|
|
—
|
|
|
n/m
|
|
|
7.7
|
|
|
—
|
|
|
n/m
|
|
||||
Other income
|
0.1
|
|
|
0.1
|
|
|
—
|
|
|
0.2
|
|
|
0.1
|
|
|
100.0
|
|
||||
Provision for losses
|
2.8
|
|
|
(6.4
|
)
|
|
n/m
|
|
|
34.2
|
|
|
7.0
|
|
|
n/m
|
|
||||
Policy acquisition costs
|
2.9
|
|
|
5.8
|
|
|
(50.0
|
)
|
|
22.3
|
|
|
9.7
|
|
|
129.9
|
|
||||
Other operating expenses
|
8.9
|
|
|
12.0
|
|
|
(25.8
|
)
|
|
22.8
|
|
|
24.1
|
|
|
(5.4
|
)
|
||||
Interest expense
|
10.9
|
|
|
15.9
|
|
|
(31.4
|
)
|
|
23.3
|
|
|
23.2
|
|
|
0.4
|
|
||||
Income tax provision (benefit)
|
12.7
|
|
|
(7.4
|
)
|
|
n/m
|
|
|
15.6
|
|
|
(13.9
|
)
|
|
n/m
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net premiums earned:
|
|
|
|
|
|
|
|
||||||||
Public finance direct
|
$
|
14,147
|
|
|
$
|
11,580
|
|
|
$
|
24,360
|
|
|
$
|
19,416
|
|
Public finance reinsurance
|
822
|
|
|
8,262
|
|
|
5,592
|
|
|
16,066
|
|
||||
Structured direct
|
246
|
|
|
941
|
|
|
628
|
|
|
1,382
|
|
||||
Structured reinsurance
|
803
|
|
|
955
|
|
|
1,616
|
|
|
1,764
|
|
||||
Trade credit reinsurance
|
(2
|
)
|
|
42
|
|
|
(2
|
)
|
|
41
|
|
||||
Total premiums earned—insurance
|
16,016
|
|
|
21,780
|
|
|
32,194
|
|
|
38,669
|
|
||||
Impact of commutations/reinsurance
|
—
|
|
|
2,829
|
|
|
(22,264
|
)
|
|
2,829
|
|
||||
Total net premiums earned—insurance
|
$
|
16,016
|
|
|
$
|
24,609
|
|
|
$
|
9,930
|
|
|
$
|
41,498
|
|
Refundings included in total net premiums earned
|
$
|
10,483
|
|
|
$
|
9,300
|
|
|
$
|
18,707
|
|
|
$
|
14,131
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net unrealized gains related to change in fair value of trading securities
|
$
|
(9.8
|
)
|
|
$
|
31.6
|
|
|
$
|
3.0
|
|
|
$
|
44.9
|
|
Net realized gains (losses) on sales
|
9.5
|
|
|
(14.8
|
)
|
|
32.0
|
|
|
(8.4
|
)
|
||||
Net gains on investments
|
$
|
(0.3
|
)
|
|
$
|
16.8
|
|
|
$
|
35.0
|
|
|
$
|
36.5
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net premiums earned—derivatives
|
$
|
7.3
|
|
|
$
|
10.5
|
|
|
$
|
15.9
|
|
|
$
|
21.4
|
|
Financial Guaranty credit derivatives
|
(39.2
|
)
|
|
181.9
|
|
|
(119.4
|
)
|
|
416.5
|
|
||||
Financial Guaranty VIE derivatives
|
(1.2
|
)
|
|
(4.0
|
)
|
|
(2.4
|
)
|
|
(4.9
|
)
|
||||
Put options on Committed Preferred Custodial Trust Securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
||||
Change in fair value of derivative instruments
|
$
|
(33.1
|
)
|
|
$
|
188.4
|
|
|
$
|
(105.9
|
)
|
|
$
|
432.7
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
(Losses) gains related to change in fair value of Financial Guaranty VIE debt
|
$
|
(68.3
|
)
|
|
$
|
(43.5
|
)
|
|
$
|
(101.8
|
)
|
|
$
|
27.0
|
|
Gain related to other Financial Guaranty VIE assets
|
5.9
|
|
|
14.4
|
|
|
9.3
|
|
|
18.3
|
|
||||
Gain on the purchase of long-term debt
|
0.7
|
|
|
—
|
|
|
14.0
|
|
|
—
|
|
||||
Foreign currency gain related to the liquidation of a foreign subsidiary
|
—
|
|
|
39.6
|
|
|
—
|
|
|
39.6
|
|
||||
Other
|
(0.2
|
)
|
|
(4.8
|
)
|
|
(0.5
|
)
|
|
(6.4
|
)
|
||||
Net (losses) gains on other financial instruments
|
$
|
(61.9
|
)
|
|
$
|
5.7
|
|
|
$
|
(79.0
|
)
|
|
$
|
78.5
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Total net claims paid (recoveries)
|
$
|
(6,720
|
)
|
|
$
|
3,430
|
|
|
$
|
2,280
|
|
|
$
|
3,696
|
|
(In thousands)
|
June 30,
2012 |
|
December 31, 2011
|
|
June 30,
2011 |
||||||
Total reserve for losses
|
$
|
94,937
|
|
|
$
|
63,002
|
|
|
$
|
75,042
|
|
|
June 30, 2012
|
|||||||||||||
|
Net Par
Outstanding (1)
|
|
% of Total
Net Par
Outstanding (1)
|
|
Net
Claim (Asset)
Liability (2)
|
|
Fair Value
Net (Asset)
Liability (3)
|
|||||||
Type of Obligation
|
(In billions)
|
|
|
|
(In millions)
|
|
(In millions)
|
|||||||
Public finance:
|
|
|
|
|
|
|
|
|||||||
General obligation and other tax supported (4)
|
$
|
6.6
|
|
|
15.9
|
%
|
|
$
|
28.9
|
|
|
$
|
0.1
|
|
Healthcare and long-term care
|
3.7
|
|
|
8.9
|
|
|
15.3
|
|
|
0.7
|
|
|||
Water/sewer/electric gas and investor-owned utilities
|
1.8
|
|
|
4.3
|
|
|
25.2
|
|
|
1.3
|
|
|||
Airports/transportation
|
1.1
|
|
|
2.7
|
|
|
1.7
|
|
|
21.0
|
|
|||
Education
|
1.5
|
|
|
3.6
|
|
|
(5.8
|
)
|
|
—
|
|
|||
Escrowed transactions (5)
|
1.0
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|||
Housing
|
0.1
|
|
|
0.2
|
|
|
0.3
|
|
|
—
|
|
|||
Other municipal (6)
|
0.6
|
|
|
1.5
|
|
|
(8.2
|
)
|
|
0.7
|
|
|||
Total public finance (7)
|
16.4
|
|
|
39.5
|
|
|
57.4
|
|
|
23.8
|
|
|||
Structured finance:
|
|
|
|
|
|
|
|
|||||||
CDO
|
24.0
|
|
|
57.8
|
|
|
5.6
|
|
|
93.8
|
|
|||
Asset-backed obligations
|
0.9
|
|
|
2.2
|
|
|
29.6
|
|
|
14.4
|
|
|||
Other structured (8)
|
0.2
|
|
|
0.5
|
|
|
—
|
|
|
0.1
|
|
|||
Total structured finance
|
25.1
|
|
|
60.5
|
|
|
35.2
|
|
|
108.3
|
|
|||
Total
|
$
|
41.5
|
|
|
100.0
|
%
|
|
$
|
92.6
|
|
|
$
|
132.1
|
|
|
December 31, 2011
|
|||||||||||||
|
Net Par
Outstanding (1)
|
|
% of Total
Net Par
Outstanding (1)
|
|
Net
Claim (Asset)
Liability (2)
|
|
Fair Value
Net (Asset)
Liability (3)
|
|||||||
Type of Obligation
|
(In billions)
|
|
|
|
(In millions)
|
|
(In millions)
|
|||||||
Public finance:
|
|
|
|
|
|
|
|
|||||||
General obligation and other tax supported (4)
|
$
|
15.8
|
|
|
22.8
|
%
|
|
$
|
6.1
|
|
|
$
|
0.3
|
|
Healthcare and long-term care
|
5.4
|
|
|
7.8
|
|
|
17.4
|
|
|
0.7
|
|
|||
Water/sewer/electric gas and investor-owned utilities
|
3.6
|
|
|
5.2
|
|
|
33.9
|
|
|
1.0
|
|
|||
Airports/transportation
|
3.3
|
|
|
4.8
|
|
|
0.4
|
|
|
7.9
|
|
|||
Education
|
2.2
|
|
|
3.2
|
|
|
(13.7
|
)
|
|
—
|
|
|||
Escrowed transactions (5)
|
1.4
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|||
Housing
|
0.3
|
|
|
0.4
|
|
|
0.4
|
|
|
—
|
|
|||
Other municipal (6)
|
0.9
|
|
|
1.3
|
|
|
(8.0
|
)
|
|
0.9
|
|
|||
Total public finance (7)
|
32.9
|
|
|
47.5
|
|
|
36.5
|
|
|
10.8
|
|
|||
Structured finance:
|
|
|
|
|
|
|
|
|||||||
CDO
|
35.1
|
|
|
50.7
|
|
|
1.5
|
|
|
111.9
|
|
|||
Asset-backed obligations
|
0.9
|
|
|
1.3
|
|
|
22.5
|
|
|
7.9
|
|
|||
Other structured (8)
|
0.3
|
|
|
0.5
|
|
|
—
|
|
|
(1.1
|
)
|
|||
Total structured finance
|
36.3
|
|
|
52.5
|
|
|
24.0
|
|
|
118.7
|
|
|||
Total
|
$
|
69.2
|
|
|
100.0
|
%
|
|
$
|
60.5
|
|
|
$
|
129.5
|
|
(1)
|
Represents our exposure to the aggregate outstanding principal on insured obligations.
|
(2)
|
A net claim liability is recorded on the balance sheet when there is evidence that deterioration has occurred and the net present value of our expected losses for a particular policy exceeds the unearned premium reserve for that policy. The net claim liability reported is net of estimated salvage and subrogation, which may result in a net claim asset.
|
(3)
|
Represents either the net (asset) liability recorded within derivative assets or derivative liabilities for derivative contracts, or the net (asset) liability recorded within VIE debt and other financial statement line items for financial guaranty consolidated VIEs.
|
(4)
|
Includes $1.8 billion and $3.0 billion at
June 30, 2012
and December 31, 2011, respectively, of tax supported revenue bonds.
|
(5)
|
Legally defeased bond issuances where our financial guaranty policies have not been extinguished, but cash or securities in an amount sufficient to pay remaining obligations under such bonds have been deposited in an escrow account for the benefit of the bond holders.
|
(6)
|
Represents other types of municipal obligations, including human service providers, second-to-pay international public finance, non-profit institutions, project finance accommodations and stadiums, none of which individually constitutes a material amount of our financial guaranty net par outstanding.
|
(7)
|
Includes $2.8 billion and $3.2 billion at
June 30, 2012
and December 31, 2011, respectively, of international public finance obligations (which includes sovereign and sub-sovereign debt), of which $130.8 million and $143.8 million at
June 30, 2012
and December 31, 2011, respectively, was in the six Stressed European Countries, other than Ireland, for which we have no exposure.
|
(8)
|
Represents other types of structured finance obligations, including DPRs, collateralized guaranteed investment contracts or letters of credit, foreign commercial assets and life insurance securitizations, none of which individually constitutes a material amount of our financial guaranty net par outstanding.
|
TruPs Bond
|
|
CDS
Termination
Date
|
|
TruPs CDO
Maturity
Date
|
|
Net Par
Outstanding June 30, 2012
|
|
Subordination
after defaults
(%) June 30, 2012 (1)
|
|
Subordination after
defaults and deferrals
(%) (2)
|
|
Interest Coverage
Ratio (3)
|
|||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
(In millions)
|
|
|
|
June 30, 2012
|
|
March 31, 2012
|
|
June 30, 2012
|
|
March 31, 2012
|
|||||||
1
|
|
9/2016
|
(4)(5)
|
12/2036
|
|
$
|
74.8
|
|
|
47.5
|
%
|
|
31.5
|
%
|
|
30.2
|
%
|
|
294.4
|
%
|
|
290.6
|
%
|
2
|
|
10/2016
|
(4)(5)
|
7/2037
|
|
129.1
|
|
|
40.1
|
|
|
26.2
|
|
|
25.3
|
|
|
179.8
|
|
|
187.1
|
|
|
3
|
|
11/2016
|
(4)(5)
|
9/2037
|
|
73.5
|
|
|
46.6
|
|
|
38.5
|
|
|
34.9
|
|
|
326.9
|
|
|
207.4
|
|
|
|
|
11/2016
|
(4)
|
9/2037
|
|
106.8
|
|
|
46.6
|
|
|
38.5
|
|
|
34.9
|
|
|
326.9
|
|
|
207.4
|
|
|
4
|
|
12/2016
|
(4)
|
3/2037
|
|
119.3
|
|
|
39.7
|
|
|
30.3
|
|
|
29.8
|
|
|
241.9
|
|
|
251.8
|
|
|
5
|
|
3/2017
|
(4)(5)
|
9/2036
|
|
101.6
|
|
|
51.7
|
|
|
45.8
|
|
|
44.9
|
|
|
354.9
|
|
|
306.1
|
|
|
|
|
9/2036
|
|
9/2036
|
|
162.6
|
|
|
51.7
|
|
|
45.8
|
|
|
44.9
|
|
|
354.9
|
|
|
306.1
|
|
|
6
|
|
6/2036
|
|
6/2036
|
|
85.3
|
|
|
41.6
|
|
|
28.0
|
|
|
27.5
|
|
|
301.7
|
|
|
335.0
|
|
|
7
|
|
1/2033
|
|
1/2033
|
|
36.7
|
|
|
63.0
|
|
|
51.0
|
|
|
50.5
|
|
|
240.9
|
|
|
236.9
|
|
|
8
|
|
9/2033
|
|
9/2033
|
|
69.5
|
|
|
53.7
|
|
|
42.8
|
|
|
42.3
|
|
|
340.8
|
|
|
343.0
|
|
|
9
|
|
12/2033
|
|
12/2033
|
|
24.0
|
|
|
60.2
|
|
|
52.0
|
|
|
45.0
|
|
|
347.8
|
|
|
406.8
|
|
|
10
|
|
10/2034
|
|
10/2034
|
|
43.2
|
|
|
45.9
|
|
|
28.0
|
|
|
26.5
|
|
|
291.3
|
|
|
322.7
|
|
|
11
|
|
12/2036
|
|
12/2036
|
|
120.7
|
|
|
50.1
|
|
|
44.3
|
|
|
43.8
|
|
|
567.9
|
|
|
517.4
|
|
|
Total
|
|
|
|
|
|
$
|
1,147.1
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects the amount of principal subordination (expressed as a percentage of the principal of the total collateral pool) remaining beneath each insured TruPs bond, after giving effect to paydowns or redemptions (“amortization”) of collateral and actual defaults and assuming no recoveries of principal on the defaulted TruPs. Notwithstanding this principal subordination, it is possible that the remaining performing collateral in these transactions will not generate sufficient cash to pay interest on our insured TruPs bonds. In this event, we may be required to make a claim payment in respect of interest, even on transactions where subordination remains to cover principal payments.
|
(2)
|
Reflects the amount of principal subordination (expressed as a percentage of the principal of the total collateral pool) remaining beneath each insured TruPs bond, after giving effect to deferrals of interest payments on the TruPs collateral, as well as amortization and actual defaults, assuming no recoveries of principal on the defaulted or deferred TruPs.
|
(3)
|
Internally generated interest coverage ratio for each TruPs bond equal to the gross interest collections on the TruPs collateral minus transaction expenses as a percentage of the sum of hedge payments and interest payable on the TruPs bond and securities senior to, or pari passu with, the TruPs bond.
|
(4)
|
The transactions with a CDS Termination Date prior to the TruPs CDO Maturity Date provide for automatic annual one-year extensions (absent written notifications from our counterparty) until the TruPs CDO Maturity Date.
|
(5)
|
Pursuant to the terms of our CDS contracts covering these TruPs bonds, we could be required to pay our counterparties the outstanding par on our insured TruPs bond on the scheduled termination date of our CDS contract. For more information regarding this potential liquidity risk, see “Results of Operations—Liquidity and Capital Resources.”
|
|
Initial
|
|
As of June 30,
2012 |
||||
Pool of mortgages (par value)
|
$
|
5.9
|
billion
|
|
$
|
1.7
|
billion
|
Risk in force (par value)
|
$
|
1.4
|
billion
|
|
$
|
398.5
|
million
|
Notes sold to investors/risk ceded (principal amount)
|
$
|
229.5
|
million
|
|
$
|
149.7
|
million
|
|
Six Months Ended
June 30, |
||||||
(In thousands)
|
2012
|
|
2011
|
||||
Net (loss) income
|
$
|
(288,491
|
)
|
|
$
|
240,121
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
||||
Net losses (gains) on investments and other financial instruments, change in fair value of derivatives and net impairment losses recognized in earnings
|
91,717
|
|
|
(594,576
|
)
|
||
Net payments related to derivative contracts and VIE debt (1)
|
(4,709
|
)
|
|
(82,128
|
)
|
||
Net cash paid for commutations, terminations and recaptures (1)
|
(240,110
|
)
|
|
(54,225
|
)
|
||
Commutation-related charges
|
36,500
|
|
|
—
|
|
||
Gain on sale of affiliate
|
(7,708
|
)
|
|
—
|
|
||
Equity in loss (earnings) of affiliates
|
13
|
|
|
(65
|
)
|
||
Distribution from affiliates
|
92
|
|
|
—
|
|
||
Deferred tax benefit
|
(5,435
|
)
|
|
(6,055
|
)
|
||
Depreciation and amortization, net
|
30,761
|
|
|
33,130
|
|
||
Change in:
|
|
|
|
||||
Reserve for losses and LAE
|
(60,770
|
)
|
|
(198,667
|
)
|
||
Reserve for premium deficiency
|
539
|
|
|
(4,485
|
)
|
||
Unearned premiums
|
22,659
|
|
|
(55,695
|
)
|
||
Deferred policy acquisition costs
|
14,320
|
|
|
9,400
|
|
||
Reinsurance recoverables
|
52,446
|
|
|
64,459
|
|
||
Other assets
|
10,095
|
|
|
38,649
|
|
||
Accounts payable and accrued expenses
|
(13,818
|
)
|
|
1,220
|
|
||
Cash flows used in operating activities
|
$
|
(361,899
|
)
|
|
$
|
(608,917
|
)
|
(1)
|
Cash item.
|
(1)
|
Moody’s outlook for Radian Group and all our rated insurance subsidiaries is currently Negative.
|
(2)
|
S&P’s outlook for Radian Group and all our rated insurance subsidiaries is currently Negative.
|
(3)
|
Not currently rated.
|
Level I
|
— Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
|
Level II
|
— Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and
|
Level III
|
— Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
|
•
|
first, we define a tranche on the CDX index (defined below) that equates to the risk profile of our specific transaction (we refer to this tranche as an “equivalent-risk tranche”);
|
•
|
second, we determine the fair premium amount on the equivalent-risk tranche for those market participants engaged in trading on the CDX index (we refer to each of these participants as a “typical market participant”); and
|
•
|
third, we adjust the fair premium amount for a typical market participant to account for the difference between the non-performance or default risk of a typical market participant and the non-performance or default risk of a financial guarantor of similar credit quality to us (in each case, we refer to the risk of non-performance as “non-performance risk”).
|
•
|
the extent and the duration of the decline in value;
|
•
|
the reasons for the decline in value (e.g., credit event, interest related or market fluctuations); and
|
•
|
the financial position, access to capital and near term prospects of the issuer, including the current and future impact of any specific events.
|
Corporate CDOs ($ in millions)
|
|
|
|
|
|
||||||
Weighted average credit spread
|
1.02
|
%
|
|
|
|
|
|||||
Fair value of net assets
|
$
|
(0.8
|
)
|
|
|
|
|
||||
|
Increase/(Decrease) in Fair Value Asset based on:
|
||||||||||
|
10% tightening of CDO
credit spreads
|
|
0% change in CDO
credit spreads
|
|
10% widening of CDO
credit spreads
|
||||||
50% tightening of Radian Group’s CDS spread
|
$
|
(19.1
|
)
|
|
$
|
(23.0
|
)
|
|
$
|
(27.1
|
)
|
0 basis points change in Radian Group’s CDS spread
|
(0.3
|
)
|
|
—
|
|
|
(0.6
|
)
|
|||
50% widening of Radian Group’s CDS spread
|
0.2
|
|
|
(0.2
|
)
|
|
(0.6
|
)
|
|||
_______________________
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Non-Corporate CDO related (1) ($ in millions)
|
|
|
|
|
|
||||||
Weighted average credit spread
|
2.52
|
%
|
|
|
|
|
|||||
Fair value of net liabilities
|
$
|
117.2
|
|
|
|
|
|
||||
|
Increase/(Decrease) in Fair Value Liability based on:
|
||||||||||
|
10% tightening of CDO
credit spreads
|
|
0% change in CDO
credit spreads
|
|
10% widening of CDO
credit spreads
|
||||||
50% tightening of Radian Group’s CDS spread
|
$
|
95.4
|
|
|
$
|
119.0
|
|
|
$
|
143.2
|
|
0 basis points change in Radian Group’s CDS spread
|
(12.9
|
)
|
|
—
|
|
|
13.4
|
|
|||
50% widening of Radian Group’s CDS spread
|
(59.2
|
)
|
|
(51.8
|
)
|
|
(44.2
|
)
|
(1)
|
Includes TruPs, CDOs of CMBS, and other non-corporate CDOs.
|
•
|
On December 30, 2011, a putative class action under RESPA titled White v. PNC Financial Services Group was filed in the United States District Court for the Eastern District of Pennsylvania. In this case, Radian Guaranty has insured the loan of one of the plaintiffs. Radian Guaranty intends to move to dismiss the complaint on a number of grounds.
|
•
|
On March 12, 2012, a putative class action under RESPA titled McCarn v. HSBC USA, Inc., et al. was filed in the United States District Court for the Eastern District of California. Radian Guaranty moved to dismiss this lawsuit for lack of standing because it did not insure the plaintiff’s loan. The court granted that motion on May 29, 2012, but gave the plaintiff permission to file an amended complaint to attempt to address his lack of standing. On July 30, 2012, the plaintiff filed this amended complaint. Radian Guaranty intends to file a new motion to dismiss this lawsuit on a number of grounds.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Riddle v. Bank of America Corporation, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure the plaintiff’s loan.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Manners, et al. v. Fifth Third Bank, et al. was filed in the United States District Court for the Western District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
•
|
On April 19, 2012, a putative class action under RESPA titled Rulison v. ABN AMRO Mortgage Group, Inc., et al. was filed in the United States District Court for the Southern District of New York. The plaintiff voluntarily dismissed this lawsuit on July 3, 2012.
|
•
|
On May 18, 2012, a putative class action under RESPA titled Hill, et al. v. Flagstar Bank FSB, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. In this case, Radian Guaranty has insured the loan of one of the plaintiffs. Radian Guaranty intends to move to dismiss the complaint on a number of grounds.
|
•
|
On May 31, 2012, a putative class action under RESPA titled Barlee, et al. v. First Horizon National Corporation, et al. was filed in the United States District Court for the Eastern District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
•
|
On June 28, 2012, a putative class action under RESPA titled Cunningham, et al. v. M&T Bank Corporation, et al. was filed in the United States District Court for the Middle District of Pennsylvania. Radian Guaranty intends to move to dismiss this lawsuit for lack of standing because it did not insure any of the plaintiffs’ loans.
|
Exhibit No.
|
|
Exhibit Name
|
*+10.1
|
|
2012 Performance-Based Restricted Stock Unit Grant Letter under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and Sanford A. Ibrahim
|
*+10.2
|
|
2012 Stock Option Agreement under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and Sanford A. Ibrahim
|
*+10.3
|
|
2012 Performance-Based Restricted Stock Unit Grant Letter under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and C. Robert Quint
|
*+10.4
|
|
2012 Stock Option Agreement under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and C. Robert Quint
|
*+10.5
|
|
Form of 2012 Performance-Based Restricted Stock Unit Agreement under the 2008 Equity Compensation Plan
|
*+10.6
|
|
Form of 2012 Stock Option Agreement under the 2008 Equity Compensation Plan
|
*+10.7
|
|
Waiver Letter, dated May 30, 2012, under Employment Agreement between Radian Group Inc. and S.A. Ibrahim, dated April 5, 2011
|
*11
|
|
Statement re: Computation of Per Share Earnings
|
*31
|
|
Rule 13a – 14(a) Certifications
|
*32
|
|
Section 1350 Certifications
|
*101
|
|
Pursuant to Rule 405 of Regulation S-T, the following financial information from Radian Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, is formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2012, and December 31, 2011, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iv) Condensed Consolidated Statements of Changes in Common Stockholders’ Equity for the six months ended June 30, 2012 and 2011, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (vi) the Notes to Condensed Consolidated Financial Statements.
|
|
Radian Group Inc.
|
|
|
August 9, 2012
|
/s/ C. R
OBERT
Q
UINT
|
|
C. Robert Quint
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
/s/ C
ATHERINE
M. J
ACKSON
|
|
Catherine M. Jackson
|
|
Senior Vice President, Controller
|
Exhibit No.
|
|
Exhibit Name
|
*+10.1
|
|
2012 Performance-Based Restricted Stock Unit Grant Letter under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and Sanford A. Ibrahim
|
*+10.2
|
|
2012 Stock Option Agreement under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and Sanford A. Ibrahim
|
*+10.3
|
|
2012 Performance-Based Restricted Stock Unit Grant Letter under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and C. Robert Quint
|
*+10.4
|
|
2012 Stock Option Agreement under the 2008 Equity Compensation Plan, dated as of June 6, 2012, between Radian Group Inc. and C. Robert Quint
|
*+10.5
|
|
Form of 2012 Performance-Based Restricted Stock Unit Agreement under the 2008 Equity Compensation Plan
|
*+10.6
|
|
Form of 2012 Stock Option Agreement under the 2008 Equity Compensation Plan
|
*+10.7
|
|
Waiver Letter, dated May 30, 2012, under Employment Agreement between Radian Group Inc. and S.A. Ibrahim, dated April 5, 2011
|
*11
|
|
Statement re: Computation of Per Share Earnings
|
*31
|
|
Rule 13a – 14(a) Certifications
|
*32
|
|
Section 1350 Certifications
|
*101
|
|
Pursuant to Rule 405 of Regulation S-T, the following financial information from Radian Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, is formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011, (iv) Condensed Consolidated Statements of Changes in Common Stockholders’ Equity for the six months ended June 30, 2012 and 2011, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (vi) the Notes to Condensed Consolidated Financial Statements.
|
1.
|
Grant of Performance-Based Restricted Stock Units.
|
2.
|
Vesting.
|
4.
|
Conversion of Restricted Stock Units.
|
6.
|
Restrictive Covenants.
|
8.
|
Retention Rights.
|
9.
|
Cancellation or Amendment.
|
10.
|
Notice.
|
11.
|
Incorporation of Plan by Reference.
|
12.
|
Income Taxes; Withholding Taxes.
|
13.
|
Governing Law.
|
14.
|
Grant Subject to Applicable Laws and Company Policies.
|
15.
|
Assignment.
|
16.
|
Section 409A.
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 67%, the vesting percentage for the Restricted Stock Units will be 67%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 133%, the vesting percentage for the Restricted Stock Units will be 102%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 0%, no Restricted Stock Units will vest.
|
3.
|
Relative TSR Vesting Percentage.
|
Company TSR
|
Company TSR Vesting Percentage (Maximum Vesting)
|
225% or Greater
|
200%
|
200%
|
167%
|
175%
|
133%
|
150%
|
100%
|
125%
|
67%
|
100%
|
33%
|
75%
|
0%
|
Less than 75%
|
0%
|
5.
|
General Vesting Terms
. Any fractional Restricted Stock Unit resulting from the vesting of the Restricted Stock Units in accordance with this Grant Letter shall be rounded down to the nearest whole number. Any portion of the Restricted Stock Units that does not vest as of the end of the Performance Period shall be forfeited as of the end of the Performance Period.
|
Date
|
Vested Shares subject to the Option
|
Acknowledged and Agreed by Award Recipient:
Signature:_
/s/ Sanford A. Ibrahim
__________________
Print Name:
Sanford A. Ibrahim
___________________
Date:
July 19, 2012
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 67%, the vesting percentage for the Restricted Stock Units will be 67%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 133%, the vesting percentage for the Restricted Stock Units will be 102%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company TSR vesting percentage is 0%, no Restricted Stock Units will vest.
|
Company TSR
|
Company TSR Vesting Percentage (Maximum Vesting)
|
225% or Greater
|
200%
|
200%
|
167%
|
175%
|
133%
|
150%
|
100%
|
125%
|
67%
|
100%
|
33%
|
75%
|
0%
|
Less than 75%
|
0%
|
Date
|
Vested Shares subject to the Option
|
Acknowledged and Agreed by Award Recipient:
Signature:
/s/ C. Robert Quint
Print Name:
C. Robert Quint
Date:
July 20, 2012
|
|
•
|
If the relative TSR vesting percentage is 102% and the Company Absolute TSR vesting percentage is 67%, the vesting percentage for the Restricted Stock Units will be 67%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company Absolute TSR vesting percentage is 133%, the vesting percentage for the Restricted Stock Units will be 102%.
|
•
|
If the relative TSR vesting percentage is 102% and the Company Absolute TSR vesting percentage is 0%, no Restricted Stock Units will vest.
|
3.
|
Relative TSR Vesting Percentage.
|
Date
|
Vested Shares subject to the Option
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands, except per-share amounts and market prices)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
||||||||
Net (loss) income
|
$
|
(119,259
|
)
|
|
$
|
137,115
|
|
|
$
|
(288,491
|
)
|
|
$
|
240,121
|
|
Average diluted stock options outstanding
|
—
|
|
|
1,030
|
|
|
—
|
|
|
1,030
|
|
||||
Average exercise price per share
|
$
|
—
|
|
|
$
|
3.10
|
|
|
$
|
—
|
|
|
$
|
3.10
|
|
Average market price per share—diluted basis
|
$
|
—
|
|
|
$
|
5.09
|
|
|
$
|
—
|
|
|
$
|
6.29
|
|
Average common shares outstanding
|
132,346
|
|
|
132,185
|
|
|
132,350
|
|
|
132,185
|
|
||||
Increase in shares due to potential exercise of common stock equivalents—diluted basis (1)
|
—
|
|
|
1,429
|
|
|
—
|
|
|
1,539
|
|
||||
Adjusted shares outstanding—diluted
|
132,346
|
|
|
133,614
|
|
|
132,350
|
|
|
133,724
|
|
||||
Net (loss) income per share—basic
|
$
|
(0.90
|
)
|
|
$
|
1.04
|
|
|
$
|
(2.18
|
)
|
|
$
|
1.82
|
|
Net (loss) income per share—diluted
|
$
|
(0.90
|
)
|
|
$
|
1.03
|
|
|
$
|
(2.18
|
)
|
|
$
|
1.80
|
|
(1)
|
As a result of our net loss for the three and six months ended
June 30, 2012
,
5,964,726
shares of our common stock equivalents issued under our stock-based compensation plans were not included in the calculation of diluted net loss per share as of such date because they were anti-dilutive. For the three and six months ended
June 30, 2011
,
3,268,525
shares of our common stock equivalents issued under our stock-based compensation plans were not included in the calculation of diluted net income per share as of such date because they were anti-dilutive.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Radian Group Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
Date: August 9, 2012
|
/s/ S
ANFORD
A. I
BRAHIM
|
|
Sanford A. Ibrahim
Chief Executive Officer
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
|
|
Date: August 9, 2012
|
/s/ C. R
OBERT
Q
UINT
|
|
C. Robert Quint
Chief Financial Officer
|
|
|
Date: August 9, 2012
|
/s/ S. A. I
BRAHIM
|
|
Sanford A. Ibrahim
|
|
|
|
/s/ C. R
OBERT
Q
UINT
|
|
C. Robert Quint
|