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 5.
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Item 6.
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•
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changes in general economic and political conditions, including unemployment rates, changes in the U.S. housing and mortgage credit markets (including declines in home prices and property values), the performance of the U.S. or global economies, the amount of liquidity in the capital or credit markets, changes or volatility in interest rates or consumer confidence and changes in credit spreads, all of which may be impacted by, among other things, legislative activity or inactivity, actual or threatened downgrades of U.S. government credit ratings, or actual or threatened defaults on U.S. government obligations;
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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 the fact that 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, municipal and sovereign or sub-sovereign bankruptcy filings or other economic changes in geographic regions 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;
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•
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a reduction in, or prolonged period of depressed levels of, home mortgage originations due to reduced liquidity in the lending market, tighter underwriting standards, or general reduced housing demand in the U.S., which may be exacerbated by regulations impacting home mortgage originations, including 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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our ability to maintain an adequate risk-to-capital position, minimum policyholder position and other surplus requirements for Radian Guaranty Inc. (“Radian Guaranty”), our principal mortgage insurance subsidiary, and an adequate minimum policyholder position and surplus for our insurance subsidiaries that provide reinsurance or capital support to Radian Guaranty;
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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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a more rapid than expected decrease in the levels of mortgage insurance rescissions and claim denials, which have reduced our paid losses and resulted in a significant reduction in our loss reserves, including a decrease in net rescissions or denials resulting from an increase in the number of successful challenges to previously rescinded policies or claim denials (including as part of one or more settlements of disputed rescissions or denials), or by Fannie Mae or Freddie Mac (the “Government-Sponsored Enterprises” or the “GSEs”) intervening in or otherwise limiting our loss mitigation practices, including settlements of disputes regarding loss mitigation activities;
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•
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the negative impact that our loss mitigation activities may have on our relationships with our customers and potential customers, including the potential loss of current or future 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 loss mitigation activities, to increase our loss reserves for, and reassume risk on, rescinded or cancelled loans or denied claims, and to pay additional claims, including amounts previously curtailed;
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•
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any disruption in the servicing of mortgages covered by our insurance policies, as well as 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 which remain a small part of our insured portfolio) that are riskier than traditional mortgage insurance or financial guaranty insurance policies;
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•
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a substantial decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income on our monthly premium policies and could decrease the profitability of our mortgage insurance business;
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•
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heightened competition for our mortgage insurance business from others such as the Federal Housing Administration, the U.S. Department of Veterans Affairs and other private mortgage insurers, including with respect to other private mortgage insurers, those that have been assigned higher ratings than we have, that may have access to greater amounts of capital than we do, that are less dependent on capital support from their subsidiaries than we are or that are new entrants to the industry, and therefore, are not burdened by legacy obligations;
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•
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changes in requirements for Radian Guaranty to remain an eligible insurer to the GSEs (which are expected to be released in draft form for public comment as early as the second quarter of 2014, and to become effective following an implementation period), which may include, among other items, more onerous risk-to-capital ratio requirements, capital requirements based on a variety of risk characteristics and measures of credit quality and a limitation on the amount of capital credit available for Radian Guaranty’s equity in its subsidiaries, including capital attributable to our financial guaranty business; the form of the new eligibility requirements and the timeframe for their implementation remain uncertain, and we cannot give any assurances as to their potential impact on us;
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•
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changes in the charters or business practices of, or rules or regulations applicable to, the GSEs;
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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 effect or 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 whether and to what extent loans with private mortgage insurance may be considered “qualified residential mortgages” for purposes of the Dodd-Frank Act securitization provisions;
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•
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the application of existing federal or state laws and regulations, or changes in these laws and regulations or the way they are interpreted, including, without limitation: (i) the resolution of existing, or the possibility of additional, lawsuits or investigations (including in particular investigations and litigation relating to captive reinsurance arrangements under the Real Estate Settlement Procedures Act of 1974); (ii) changes to the Mortgage Guaranty Insurers Model Act (the “Model Act”) being considered by the National Association of Insurance Commissioners (“NAIC”) that could include more stringent capital and other requirements for Radian Guaranty in states that adopt the new Model Act in the future; and (iii) legislative and regulatory changes (a) impacting the demand for private mortgage insurance, (b) limiting or restricting the products we may offer or increasing the amount of capital we are required to hold, (c) affecting the form in which we execute credit protection, or (d) otherwise impacting our existing businesses or future prospects;
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•
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the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including adjustments proposed by the Internal Revenue Service resulting from the examination of our 2000 through 2007 tax years, which we are currently contesting;
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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 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, substantially all of our investment portfolio and certain of our long-term incentive compensation awards;
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•
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our ability to realize some or all of the tax benefits associated with our gross deferred tax assets, which will depend, in part, on our ability to generate sufficient sustainable taxable income in future periods;
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•
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changes in accounting principles generally accepted in the United States of America or statutory accounting principles, rules and guidance, or their interpretation;
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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; and
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•
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our pending acquisition of Clayton Holdings LLC (“Clayton”), including: the potential to not fully realize the benefits anticipated from the acquisition, or to not realize such benefits during the anticipated time frame, including as a result of a loss of customers and/or employees; the potential inability to successfully integrate Clayton’s business with our business or the inability to complete such integration during the anticipated time frame; the inability or decision to not complete the acquisition, or to not complete the acquisition on a timely basis; the potential distraction of management time and attention; the risk that we are not able to finance the acquisition as anticipated, or that, if the financing efforts are successful, we are not able to utilize the funds raised efficiently in the event that we do not complete the acquisition.
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March 31,
2014 |
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December 31,
2013 |
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($ in thousands, except share and per share amounts)
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ASSETS
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Investments
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Fixed-maturities held to maturity—at amortized cost (fair value $50 and $351)
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$
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50
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$
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358
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Fixed-maturities available for sale—at fair value (amortized cost $212,734 and $120,385)
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213,989
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120,553
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Equity securities available for sale—at fair value (cost $78,106 and $78,106)
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137,920
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135,168
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Trading securities—at fair value
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2,728,976
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3,117,429
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Short-term investments—at fair value
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1,649,228
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1,429,228
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Other invested assets—(including variable interest entity (“VIE”) assets at fair value of $81,635 and $81,000)
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128,416
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128,421
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Total investments
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4,858,579
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4,931,157
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Cash
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20,963
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23,858
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Restricted cash
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22,366
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22,527
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Deferred policy acquisition costs
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63,708
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66,926
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Accrued investment income
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27,690
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30,264
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Accounts and notes receivable
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75,072
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75,106
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Property and equipment, at cost (less accumulated depreciation of $102,436 and $101,625)
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12,482
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10,516
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Derivative assets
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14,466
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16,642
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Deferred income taxes, net
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—
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17,902
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Reinsurance recoverables
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31,033
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46,846
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Other assets (including VIE other assets of $92,594 and $92,023)
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402,626
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379,947
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Total assets
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$
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5,528,985
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$
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5,621,691
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Unearned premiums
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$
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774,788
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$
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768,871
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Reserve for losses and loss adjustment expenses (“LAE”)
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1,923,711
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|
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2,185,421
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Long-term debt
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938,390
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|
930,072
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VIE debt—at fair value
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95,580
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94,645
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Derivative liabilities (including VIE derivative liabilities of $47,769 and $68,457)
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257,717
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307,185
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Other liabilities (including VIE accounts payable of $190 and $254)
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392,216
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395,852
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Total liabilities
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4,382,402
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4,682,046
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Commitments and Contingencies (Note 15)
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Equity component of currently redeemable convertible senior notes (Note 10)
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91,016
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—
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Stockholders’ equity
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Common stock: par value $.001 per share; 485,000,000 shares authorized at March 31, 2014 and December 31, 2013; 190,712,673 and 190,636,972 shares issued at March 31, 2014 and December 31, 2013, respectively; 173,166,892 and 173,099,515 shares outstanding at March 31, 2014 and December 31, 2013, respectively
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191
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191
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Treasury stock, at cost: 17,545,781 and 17,537,457 shares at March 31, 2014 and December 31, 2013, respectively
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(892,937
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)
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(892,807
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)
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Additional paid-in capital
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2,256,436
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2,347,104
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Retained deficit
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(349,467
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)
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(552,226
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)
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Accumulated other comprehensive income
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41,344
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|
37,383
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Total stockholders’ equity
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1,055,567
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|
|
939,645
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Total liabilities and stockholders’ equity
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$
|
5,528,985
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|
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$
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5,621,691
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|
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Three Months Ended March 31,
|
||||||
($ in thousands, except per share amounts)
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2014
|
|
2013
|
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Revenues:
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Premiums written—insurance:
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|
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|
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Direct
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$
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229,322
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|
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$
|
245,467
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|
Assumed
|
473
|
|
|
(10,397
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)
|
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Ceded
|
(16,089
|
)
|
|
(27,885
|
)
|
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Net premiums written
|
213,706
|
|
|
207,185
|
|
||
Increase in unearned premiums
|
(8,041
|
)
|
|
(14,597
|
)
|
||
Net premiums earned—insurance
|
205,665
|
|
|
192,588
|
|
||
Net investment income
|
24,229
|
|
|
26,873
|
|
||
Net gains (losses) on investments
|
64,451
|
|
|
(5,505
|
)
|
||
Change in fair value of derivative instruments
|
50,086
|
|
|
(167,670
|
)
|
||
Net gains (losses) on other financial instruments
|
698
|
|
|
(5,675
|
)
|
||
Other income
|
1,127
|
|
|
1,771
|
|
||
Total revenues
|
346,256
|
|
|
42,382
|
|
||
Expenses:
|
|
|
|
||||
Provision for losses
|
54,809
|
|
|
132,059
|
|
||
Change in premium deficiency reserve (“PDR”)
|
466
|
|
|
(629
|
)
|
||
Policy acquisition costs
|
8,614
|
|
|
17,195
|
|
||
Other operating expenses
|
59,909
|
|
|
80,100
|
|
||
Interest expense
|
19,927
|
|
|
15,881
|
|
||
Total expenses
|
143,725
|
|
|
244,606
|
|
||
Equity in net (loss) income of affiliates
|
(13
|
)
|
|
1
|
|
||
Pretax income (loss)
|
202,518
|
|
|
(202,223
|
)
|
||
Income tax benefit
|
(241
|
)
|
|
(14,723
|
)
|
||
Net income (loss)
|
$
|
202,759
|
|
|
$
|
(187,500
|
)
|
Basic net income (loss) per share
|
$
|
1.17
|
|
|
$
|
(1.30
|
)
|
Diluted net income (loss) per share
|
$
|
0.94
|
|
|
$
|
(1.30
|
)
|
Weighted-average number of common shares outstanding—basic
|
173,165
|
|
|
144,355
|
|
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Weighted-average number of common and common equivalent shares outstanding—diluted
|
222,668
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|
|
144,355
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Dividends per share
|
$
|
0.0025
|
|
|
$
|
0.0025
|
|
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Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Net income (loss)
|
$
|
202,759
|
|
|
$
|
(187,500
|
)
|
Other comprehensive income, net of tax (see Note 11):
|
|
|
|
||||
Unrealized gains on investments:
|
|
|
|
||||
Unrealized holding gains arising during the period
|
4,485
|
|
|
7,466
|
|
||
Less: Reclassification adjustment for net gains included in net income (loss)
|
524
|
|
|
21
|
|
||
Net unrealized gains on investments
|
3,961
|
|
|
7,445
|
|
||
Other comprehensive income
|
3,961
|
|
|
7,445
|
|
||
Comprehensive income (loss)
|
$
|
206,720
|
|
|
$
|
(180,055
|
)
|
(In thousands)
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional Paid-in Capital
|
Retained
Deficit
|
Accumulated Other Comprehensive Income
|
Total
|
||||||||||
BALANCE, JANUARY 1, 2013
|
$
|
151
|
|
$
|
(892,094
|
)
|
$
|
1,967,414
|
|
$
|
(355,241
|
)
|
$
|
16,095
|
|
$
|
736,325
|
|
Net loss
|
—
|
|
—
|
|
—
|
|
(187,500
|
)
|
—
|
|
(187,500
|
)
|
||||||
Net unrealized gain on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
7,445
|
|
7,445
|
|
||||||
Issuance of common stock - stock offering
|
39
|
|
—
|
|
299,503
|
|
—
|
|
—
|
|
299,542
|
|
||||||
Issuance of common stock under benefit plans
|
—
|
|
—
|
|
271
|
|
—
|
|
—
|
|
271
|
|
||||||
Issuance of common stock under incentive plans
|
—
|
|
—
|
|
62
|
|
—
|
|
—
|
|
62
|
|
||||||
Amortization of restricted stock
|
—
|
|
—
|
|
208
|
|
—
|
|
—
|
|
208
|
|
||||||
Issuance of convertible debt
|
—
|
|
—
|
|
77,026
|
|
—
|
|
—
|
|
77,026
|
|
||||||
Stock-based compensation expense, net
|
—
|
|
—
|
|
(1,999
|
)
|
—
|
|
—
|
|
(1,999
|
)
|
||||||
Dividends declared
|
—
|
|
—
|
|
(334
|
)
|
—
|
|
—
|
|
(334
|
)
|
||||||
BALANCE, MARCH 31, 2013
|
$
|
190
|
|
$
|
(892,094
|
)
|
$
|
2,342,151
|
|
$
|
(542,741
|
)
|
$
|
23,540
|
|
$
|
931,046
|
|
|
|
|
|
|
|
|
||||||||||||
BALANCE, JANUARY 1, 2014
|
$
|
191
|
|
$
|
(892,807
|
)
|
$
|
2,347,104
|
|
$
|
(552,226
|
)
|
$
|
37,383
|
|
$
|
939,645
|
|
Net income
|
—
|
|
—
|
|
—
|
|
202,759
|
|
—
|
|
202,759
|
|
||||||
Net unrealized gain on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
3,961
|
|
3,961
|
|
||||||
Repurchases of common stock under incentive plans
|
—
|
|
(130
|
)
|
—
|
|
—
|
|
—
|
|
(130
|
)
|
||||||
Issuance of common stock under benefit plans
|
—
|
|
—
|
|
458
|
|
—
|
|
—
|
|
458
|
|
||||||
Issuance of common stock under incentive plans
|
—
|
|
—
|
|
13
|
|
—
|
|
—
|
|
13
|
|
||||||
Amortization of restricted stock
|
—
|
|
—
|
|
459
|
|
—
|
|
—
|
|
459
|
|
||||||
Stock-based compensation expense, net
|
—
|
|
—
|
|
(149
|
)
|
—
|
|
—
|
|
(149
|
)
|
||||||
Reclassification to equity component of currently redeemable convertible senior notes
|
—
|
|
—
|
|
(91,016
|
)
|
—
|
|
—
|
|
(91,016
|
)
|
||||||
Dividends declared
|
—
|
|
—
|
|
(433
|
)
|
—
|
|
—
|
|
(433
|
)
|
||||||
BALANCE, MARCH 31, 2014
|
$
|
191
|
|
$
|
(892,937
|
)
|
$
|
2,256,436
|
|
$
|
(349,467
|
)
|
$
|
41,344
|
|
$
|
1,055,567
|
|
Radian Group Inc.
|
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|||||||
|
|
|
|
||||
(In thousands)
|
Three Months Ended March 31,
|
||||||
2014
|
|
2013
|
|||||
Cash flows used in operating activities
|
$
|
(137,010
|
)
|
|
$
|
(165,971
|
)
|
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from sales of fixed-maturity investments available for sale
|
13,230
|
|
|
1,102
|
|
||
Proceeds from sales of trading securities
|
444,967
|
|
|
380,030
|
|
||
Proceeds from redemptions of fixed-maturity investments available for sale
|
1,540
|
|
|
2,035
|
|
||
Proceeds from redemptions of fixed-maturity investments held to maturity
|
300
|
|
|
255
|
|
||
Purchases of fixed-maturity investments available for sale
|
(103,506
|
)
|
|
—
|
|
||
Purchases of trading securities
|
—
|
|
|
(232,538
|
)
|
||
Purchases of short-term investments, net
|
(219,943
|
)
|
|
(589,799
|
)
|
||
Sales of other assets, net
|
640
|
|
|
2,005
|
|
||
Purchases of property and equipment, net
|
(2,776
|
)
|
|
(362
|
)
|
||
Net cash provided by (used in) investing activities
|
134,452
|
|
|
(437,272
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Dividends paid
|
(433
|
)
|
|
(334
|
)
|
||
Proceeds/payments related to issuance or exchange of debt, net
|
—
|
|
|
381,165
|
|
||
Redemption of long-term debt
|
—
|
|
|
(79,372
|
)
|
||
Issuance of common stock
|
—
|
|
|
299,542
|
|
||
Excess tax benefits from stock-based awards
|
89
|
|
|
50
|
|
||
Net cash (used in) provided by financing activities
|
(344
|
)
|
|
601,051
|
|
||
Effect of exchange rate changes on cash
|
7
|
|
|
(29
|
)
|
||
Decrease in cash
|
(2,895
|
)
|
|
(2,221
|
)
|
||
Cash, beginning of period
|
23,858
|
|
|
31,555
|
|
||
Cash, end of period
|
$
|
20,963
|
|
|
$
|
29,334
|
|
|
|
|
|
||||
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Income taxes paid (received)
|
$
|
1,508
|
|
|
$
|
(1,983
|
)
|
Interest paid
|
$
|
4,520
|
|
|
$
|
3,630
|
|
•
|
We significantly tightened our mortgage insurance underwriting standards to focus primarily on insuring high credit quality first-liens originated in the U.S. and we ceased writing mortgage insurance on non-traditional and other inherently riskier products.
|
•
|
We expanded our claims management and loss mitigation efforts to better manage losses in the weak housing market and high default and claim environment.
|
•
|
We discontinued writing new financial guaranty business and Radian Group contributed its ownership interest in Radian Asset Assurance to Radian Guaranty. Although this structure makes the capital adequacy of our mortgage insurance business dependent, to a significant degree, on the successful run-off of our financial guaranty business, the structure has provided Radian Guaranty with substantial regulatory capital and, through dividends from Radian Asset Assurance, has increased liquidity at Radian Guaranty.
|
•
|
We reduced our legacy mortgage insurance portfolio, non-traditional mortgage insurance RIF and our financial guaranty portfolio through risk commutations, discounted security purchases, ceded reinsurance, discounted insured bond purchases and transaction settlements and terminations.
|
•
|
Since Radian Asset Assurance ceased writing new business in June 2008, Radian Asset Assurance has reduced its aggregate net par exposure by approximately
80%
to
$22.7 billion
as of March 31, 2014. This reduction included large declines in many of the riskier segments of Radian Asset Assurance’s insured portfolio. In light of this risk reduction and the significant level of capital, including
$1.2 billion
of statutory surplus remaining at Radian Asset Assurance, Radian Asset Assurance submitted a request to the New York State Department of Financial Services (“NYSDFS”) seeking permission to pay an extraordinary dividend to Radian Guaranty. The NYSDFS currently is considering this request and there can be no assurance if and when such request will be granted in whole or in part, and if granted, that it will not be subject to material conditions.
|
(1)
|
Change in fair value of derivative instruments
. Gains and losses related to changes in the fair value of insured credit derivatives are subject to significant fluctuation based on changes in interest rates, credit spreads (of both the underlying collateral as well as our credit spread), credit ratings and other market, asset-class and transaction-specific conditions and factors that may be unrelated or only indirectly related to our obligation to pay future claims. With the exception of the estimated present value of net credit (losses) recoveries incurred and net premiums earned on derivatives, discussed in items 2 and 3 below, we believe these gains and losses will reverse over time and consequently these changes are not expected to result in economic gains or losses. Therefore, these gains and losses are excluded from our calculation of adjusted pretax operating income (loss).
|
(2)
|
Estimated present value of net credit (losses) recoveries incurred.
The change in present value of insurance claims we expect to pay or recover on insured credit derivatives represents the amount of the change in credit derivatives from item 1 above, that we expect to result in an economic loss or recovery based on our ongoing loss monitoring analytics. Therefore, this item is expected to have an economic impact and is included in our calculation of adjusted pretax operating income (loss). Also included in this item is the expected recovery of miscellaneous operating expenses associated with our consolidated VIEs.
|
(3)
|
Net premiums earned on derivatives.
The net premiums earned on insured credit derivatives are classified as part of the change in fair value of derivative instruments discussed in item 1 above. However, since net premiums earned on derivatives are considered part of our fundamental operating activities, these premiums are included in our calculation of adjusted pretax operating income (loss).
|
(4)
|
Net gains (losses) on investments and other financial instruments.
The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses. We do not view them to be indicative of our fundamental operating activities. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
|
(5)
|
Net impairment losses recognized in earnings.
The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view them to be indicative of our fundamental operating activities. Therefore, these losses are excluded from our calculation of adjusted pretax operating income (loss).
|
|
Three Months Ended March 31, 2014
|
||||||||||
|
Mortgage
|
|
Financial
|
|
|
||||||
(In thousands)
|
Insurance
|
|
Guaranty
|
|
Total
|
||||||
Net premiums written—insurance
|
$
|
212,953
|
|
|
$
|
753
|
|
|
$
|
213,706
|
|
Net premiums earned—insurance
|
$
|
198,762
|
|
|
$
|
6,903
|
|
|
$
|
205,665
|
|
Net premiums earned on derivatives
|
—
|
|
|
3,445
|
|
|
3,445
|
|
|||
Net investment income
|
14,021
|
|
|
10,208
|
|
|
24,229
|
|
|||
Other income
|
1,057
|
|
|
70
|
|
|
1,127
|
|
|||
Total revenues
|
213,840
|
|
|
20,626
|
|
|
234,466
|
|
|||
|
|
|
|
|
|
||||||
Provision for losses
|
49,159
|
|
|
5,650
|
|
|
54,809
|
|
|||
Estimated present value of net credit losses (recoveries) incurred
|
139
|
|
|
(501
|
)
|
|
(362
|
)
|
|||
Change in PDR
|
466
|
|
|
—
|
|
|
466
|
|
|||
Policy acquisition costs
|
7,017
|
|
|
1,597
|
|
|
8,614
|
|
|||
Other operating expenses
|
50,358
|
|
|
9,551
|
|
|
59,909
|
|
|||
Interest expense
|
5,372
|
|
|
14,555
|
|
|
19,927
|
|
|||
Total expenses
|
112,511
|
|
|
30,852
|
|
|
143,363
|
|
|||
|
|
|
|
|
|
||||||
Equity in net loss of affiliates
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
|||
|
|
|
|
|
|
||||||
Adjusted pretax operating income (loss)
|
$
|
101,329
|
|
|
$
|
(10,239
|
)
|
|
$
|
91,090
|
|
|
|
|
|
|
|
||||||
Cash and investments
|
$
|
2,735,809
|
|
|
$
|
2,166,099
|
|
|
$
|
4,901,908
|
|
Deferred policy acquisition costs
|
27,870
|
|
|
35,838
|
|
|
63,708
|
|
|||
Total assets
|
3,136,537
|
|
|
2,392,448
|
|
|
5,528,985
|
|
|||
Unearned premiums
|
580,453
|
|
|
194,335
|
|
|
774,788
|
|
|||
Reserve for losses and LAE
|
1,893,960
|
|
|
29,751
|
|
|
1,923,711
|
|
|||
VIE debt
|
3,144
|
|
|
92,436
|
|
|
95,580
|
|
|||
Derivative liabilities
|
—
|
|
|
257,717
|
|
|
257,717
|
|
|||
|
|
|
|
|
|
||||||
New Insurance Written (“NIW”) (in millions)
|
$
|
6,808
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2013
|
||||||||||
|
Mortgage
|
|
Financial
|
|
|
||||||
(In thousands)
|
Insurance
|
|
Guaranty
|
|
Total
|
||||||
Net premiums written—insurance
|
$
|
217,286
|
|
|
$
|
(10,101
|
)
|
|
$
|
207,185
|
|
Net premiums earned—insurance
|
$
|
182,992
|
|
|
$
|
9,596
|
|
|
$
|
192,588
|
|
Net premiums earned on derivatives
|
—
|
|
|
4,992
|
|
|
4,992
|
|
|||
Net investment income
|
15,102
|
|
|
11,771
|
|
|
26,873
|
|
|||
Other income
|
1,712
|
|
|
59
|
|
|
1,771
|
|
|||
Total revenues
|
199,806
|
|
|
26,418
|
|
|
226,224
|
|
|||
|
|
|
|
|
|
||||||
Provision for losses
|
131,956
|
|
|
103
|
|
|
132,059
|
|
|||
Estimated present value of net credit recoveries incurred
|
(299
|
)
|
|
(2,845
|
)
|
|
(3,144
|
)
|
|||
Change in PDR
|
(629
|
)
|
|
—
|
|
|
(629
|
)
|
|||
Policy acquisition costs
|
11,732
|
|
|
5,463
|
|
|
17,195
|
|
|||
Other operating expenses
|
65,780
|
|
|
14,320
|
|
|
80,100
|
|
|||
Interest expense
|
2,669
|
|
|
13,212
|
|
|
15,881
|
|
|||
Total expenses
|
211,209
|
|
|
30,253
|
|
|
241,462
|
|
|||
|
|
|
|
|
|
||||||
Equity in net income of affiliates
|
—
|
|
|
1
|
|
|
1
|
|
|||
|
|
|
|
|
|
||||||
Adjusted pretax operating loss
|
$
|
(11,403
|
)
|
|
$
|
(3,834
|
)
|
|
$
|
(15,237
|
)
|
|
|
|
|
|
|
||||||
Cash and investments
|
$
|
3,186,871
|
|
|
$
|
2,486,017
|
|
|
$
|
5,672,888
|
|
Deferred policy acquisition costs
|
29,920
|
|
|
44,681
|
|
|
74,601
|
|
|||
Total assets
|
3,663,552
|
|
|
2,707,397
|
|
|
6,370,949
|
|
|||
Unearned premiums
|
428,574
|
|
|
245,275
|
|
|
673,849
|
|
|||
Reserve for losses and LAE
|
2,894,500
|
|
|
24,573
|
|
|
2,919,073
|
|
|||
VIE debt
|
11,062
|
|
|
96,339
|
|
|
107,401
|
|
|||
Derivative liabilities
|
—
|
|
|
430,898
|
|
|
430,898
|
|
|||
|
|
|
|
|
|
||||||
NIW (in millions)
|
$
|
10,906
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2014
|
|
2013
|
||||
Adjusted pretax operating income (loss):
|
|
|
|
|
||||
Mortgage insurance
|
|
$
|
101,329
|
|
|
$
|
(11,403
|
)
|
Financial guaranty
|
|
(10,239
|
)
|
|
(3,834
|
)
|
||
Total adjusted pretax operating income (loss)
|
|
$
|
91,090
|
|
|
$
|
(15,237
|
)
|
|
|
|
|
|
||||
Change in fair value of derivative instruments
|
|
50,086
|
|
|
(167,670
|
)
|
||
Less: Estimated present value of net credit recoveries incurred
|
|
362
|
|
|
3,144
|
|
||
Less: Net premiums earned on derivatives
|
|
3,445
|
|
|
4,992
|
|
||
Change in fair value of derivative instruments expected to reverse over time
|
|
46,279
|
|
|
(175,806
|
)
|
||
|
|
|
|
|
||||
Net gains (losses) on investments
|
|
64,451
|
|
|
(5,505
|
)
|
||
Net gains (losses) on other financial instruments
|
|
698
|
|
|
(5,675
|
)
|
||
Consolidated pretax income (loss)
|
|
202,518
|
|
|
(202,223
|
)
|
||
Income tax benefit
|
|
(241
|
)
|
|
(14,723
|
)
|
||
Consolidated net income (loss)
|
|
$
|
202,759
|
|
|
$
|
(187,500
|
)
|
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Balance Sheets
|
|
|
|
||||
Derivative assets:
|
|
|
|
||||
Financial Guaranty credit derivative assets
|
$
|
5,638
|
|
|
$
|
6,323
|
|
Fixed-maturity derivative assets
|
8,828
|
|
|
10,319
|
|
||
Total derivative assets
|
14,466
|
|
|
16,642
|
|
||
Derivative liabilities:
|
|
|
|
||||
Financial Guaranty credit derivative liabilities
|
209,948
|
|
|
238,728
|
|
||
Financial Guaranty VIE derivative liabilities
|
47,769
|
|
|
68,457
|
|
||
Total derivative liabilities
|
257,717
|
|
|
307,185
|
|
||
Total derivative liabilities, net
|
$
|
243,251
|
|
|
$
|
290,543
|
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Statements of Operations
|
|
|
|
||||
Net premiums earned—derivatives
|
$
|
3,445
|
|
|
$
|
4,992
|
|
Financial Guaranty credit derivatives
|
28,016
|
|
|
(175,724
|
)
|
||
Financial Guaranty VIE derivatives
|
20,117
|
|
|
3,062
|
|
||
Other derivatives
|
(1,492
|
)
|
|
—
|
|
||
Change in fair value of derivative instruments
|
$
|
50,086
|
|
|
$
|
(167,670
|
)
|
($ in thousands)
|
March 31, 2014
|
|||||||||
Number of
Contracts
|
|
Par/
Notional
Exposure
|
|
Total Net Asset
(Liability)
|
||||||
Product
|
|
|
|
|
|
|||||
Corporate CDOs
|
17
|
|
|
$
|
6,957,838
|
|
|
$
|
(2,457
|
)
|
Non-Corporate CDOs and other derivative transactions:
|
|
|
|
|
|
|||||
Trust preferred securities (“TruPs”)
|
13
|
|
|
956,989
|
|
|
(30,202
|
)
|
||
CDOs of commercial mortgage-backed securities (“CMBS”)
|
3
|
|
|
1,381,000
|
|
|
(56,312
|
)
|
||
Other:
|
|
|
|
|
|
|||||
Structured finance
|
4
|
|
|
500,950
|
|
|
(75,691
|
)
|
||
Public finance
|
21
|
|
|
1,278,666
|
|
|
(31,096
|
)
|
||
Total Non-Corporate CDOs and other derivative transactions
|
41
|
|
|
4,117,605
|
|
|
(193,301
|
)
|
||
Assumed financial guaranty credit derivatives:
|
|
|
|
|
|
|||||
Structured finance
|
26
|
|
|
156,168
|
|
|
(8,151
|
)
|
||
Public finance
|
4
|
|
|
90,197
|
|
|
(401
|
)
|
||
Total Assumed
|
30
|
|
|
246,365
|
|
|
(8,552
|
)
|
||
Financial Guaranty VIE derivative liabilities (1)
|
1
|
|
|
78,575
|
|
|
(47,769
|
)
|
||
Other (2)
|
1
|
|
|
—
|
|
|
8,828
|
|
||
Grand Total
|
90
|
|
|
$
|
11,400,383
|
|
|
$
|
(243,251
|
)
|
(1)
|
Represents the fair value of a CDS included in a VIE that we have consolidated.
|
(2)
|
Represents derivative assets related to other purchased derivatives for which we do not have loss exposure that exceeds our net asset amount.
|
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. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.
|
(In millions)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
Assets and Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
||||||||
Investment Portfolio:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
|
$
|
980.0
|
|
|
$
|
370.9
|
|
|
$
|
—
|
|
|
$
|
1,350.9
|
|
State and municipal obligations
|
|
—
|
|
|
619.0
|
|
|
19.1
|
|
|
638.1
|
|
||||
Money market instruments
|
|
639.5
|
|
|
—
|
|
|
—
|
|
|
639.5
|
|
||||
Corporate bonds and notes
|
|
—
|
|
|
1,026.0
|
|
|
—
|
|
|
1,026.0
|
|
||||
Residential mortgage-backed securities (“RMBS”)
|
|
—
|
|
|
282.4
|
|
|
—
|
|
|
282.4
|
|
||||
CMBS
|
|
—
|
|
|
282.6
|
|
|
—
|
|
|
282.6
|
|
||||
Other ABS
|
|
—
|
|
|
234.4
|
|
|
—
|
|
|
234.4
|
|
||||
Foreign government and agency securities
|
|
—
|
|
|
46.7
|
|
|
—
|
|
|
46.7
|
|
||||
Equity securities (1)
|
|
130.0
|
|
|
96.4
|
|
|
0.4
|
|
|
226.8
|
|
||||
Other investments (2)
|
|
—
|
|
|
2.2
|
|
|
82.1
|
|
|
84.3
|
|
||||
Total Investments at Fair Value (3)
|
|
1,749.5
|
|
|
2,960.6
|
|
|
101.6
|
|
|
4,811.7
|
|
||||
Derivative assets
|
|
—
|
|
|
8.8
|
|
|
5.6
|
|
|
14.4
|
|
||||
Other assets (4)
|
|
—
|
|
|
—
|
|
|
92.5
|
|
|
92.5
|
|
||||
Total Assets at Fair Value
|
|
$
|
1,749.5
|
|
|
$
|
2,969.4
|
|
|
$
|
199.7
|
|
|
$
|
4,918.6
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
257.7
|
|
|
$
|
257.7
|
|
VIE debt (5)
|
|
—
|
|
|
—
|
|
|
95.6
|
|
|
95.6
|
|
||||
Total Liabilities at Fair Value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
353.3
|
|
|
$
|
353.3
|
|
(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 (
$0.6 million
) and short-term certificates of deposit (“CDs”) (
$1.6 million
) included within Level II and lottery annuities (
$0.3 million
), TruPs (
$0.2 million
), and a guaranteed investment contract held by a consolidated VIE (
$81.6 million
) within Level III.
|
(3)
|
Does not include fixed-maturities held to maturity (
$0.1 million
) and certain other invested assets (
$46.8 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 (
$3.1 million
) and financial guaranty VIEs (
$92.5 million
).
|
(In millions)
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
||||||||
Assets and Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
||||||||
Investment Portfolio:
|
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
|
$
|
755.0
|
|
|
$
|
402.9
|
|
|
$
|
—
|
|
|
$
|
1,157.9
|
|
State and municipal obligations
|
|
—
|
|
|
602.3
|
|
|
18.7
|
|
|
621.0
|
|
||||
Money market instruments
|
|
672.6
|
|
|
—
|
|
|
—
|
|
|
672.6
|
|
||||
Corporate bonds and notes
|
|
—
|
|
|
1,036.6
|
|
|
—
|
|
|
1,036.6
|
|
||||
RMBS
|
|
—
|
|
|
560.4
|
|
|
—
|
|
|
560.4
|
|
||||
CMBS
|
|
—
|
|
|
288.9
|
|
|
—
|
|
|
288.9
|
|
||||
Other ABS
|
|
—
|
|
|
194.9
|
|
|
0.9
|
|
|
195.8
|
|
||||
Foreign government and agency securities
|
|
—
|
|
|
40.7
|
|
|
—
|
|
|
40.7
|
|
||||
Equity securities (1)
|
|
128.3
|
|
|
97.1
|
|
|
0.4
|
|
|
225.8
|
|
||||
Other investments (2)
|
|
—
|
|
|
2.2
|
|
|
81.5
|
|
|
83.7
|
|
||||
Total Investments at Fair Value (3)
|
|
1,555.9
|
|
|
3,226.0
|
|
|
101.5
|
|
|
4,883.4
|
|
||||
Derivative assets
|
|
—
|
|
|
10.3
|
|
|
6.3
|
|
|
16.6
|
|
||||
Other assets (4)
|
|
—
|
|
|
—
|
|
|
91.9
|
|
|
91.9
|
|
||||
Total Assets at Fair Value
|
|
$
|
1,555.9
|
|
|
$
|
3,236.3
|
|
|
$
|
199.7
|
|
|
$
|
4,991.9
|
|
|
|
|
|
|
|
|
|
|
||||||||
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
307.2
|
|
|
$
|
307.2
|
|
VIE debt (5)
|
|
—
|
|
|
—
|
|
|
94.6
|
|
|
94.6
|
|
||||
Total Liabilities at Fair Value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
401.8
|
|
|
$
|
401.8
|
|
(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 (
$0.6 million
) and short-term CDs (
$1.6 million
) included within Level II and lottery annuities (
$0.3 million
), TruPs (
$0.2 million
), and a guaranteed investment contract held by a consolidated VIE (
$81.0 million
) within Level III.
|
(3)
|
Does not include fixed-maturities held to maturity (
$0.4 million
) and certain other invested assets (
$47.4 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 (
$2.8 million
) and financial guaranty VIEs (
$91.8 million
).
|
(In basis points)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|
December 31,
2012 |
||||
Radian Group’s five-year CDS spread
|
288
|
|
|
323
|
|
|
513
|
|
|
913
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian Non-Performance Risk
March 31, 2014
|
|
Impact of Radian
Non-Performance Risk March 31, 2014
|
|
Fair Value Liability
Recorded
March 31, 2014
|
||||||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
26.0
|
|
|
$
|
23.5
|
|
|
$
|
2.5
|
|
Non-Corporate CDO-related (1)
|
357.6
|
|
|
155.7
|
|
|
201.9
|
|
|||
NIMS-related (2)
|
5.2
|
|
|
2.1
|
|
|
3.1
|
|
|||
Total
|
$
|
388.8
|
|
|
$
|
181.3
|
|
|
$
|
207.5
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian Non-Performance Risk
December 31, 2013
|
|
Impact of Radian
Non-Performance Risk
December 31, 2013
|
|
Fair Value Liability
Recorded
December 31, 2013
|
||||||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
30.4
|
|
|
$
|
29.0
|
|
|
$
|
1.4
|
|
Non-Corporate CDO-related (1)
|
409.7
|
|
|
178.7
|
|
|
231.0
|
|
|||
NIMS-related (2)
|
5.0
|
|
|
2.2
|
|
|
2.8
|
|
|||
Total
|
$
|
445.1
|
|
|
$
|
209.9
|
|
|
$
|
235.2
|
|
(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.
|
(In millions)
|
Beginning
Balance at
January 1, 2014
|
|
Realized and
Unrealized Gains (Losses) Recorded in Earnings (1) |
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of) Level III (2) |
|
Ending
Balance at
March 31, 2014
|
||||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
State and municipal obligations
|
$
|
18.7
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.1
|
|
Other ABS
|
0.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
(0.5
|
)
|
|
—
|
|
||||||||
Equity securities
|
0.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
||||||||
Other investments
|
81.5
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
82.1
|
|
||||||||
Total Level III Investments
|
101.5
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
(0.5
|
)
|
|
101.6
|
|
||||||||
Other assets
|
91.9
|
|
|
5.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5.2
|
|
|
—
|
|
|
92.5
|
|
||||||||
Total Level III Assets
|
$
|
193.4
|
|
|
$
|
6.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
194.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Derivative liabilities, net
|
$
|
300.9
|
|
|
$
|
52.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3.4
|
)
|
|
$
|
—
|
|
|
$
|
252.1
|
|
VIE debt
|
94.6
|
|
|
(5.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.1
|
|
|
—
|
|
|
95.6
|
|
||||||||
Total Level III Liabilities, net
|
$
|
395.5
|
|
|
$
|
47.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
347.7
|
|
(1)
|
Includes unrealized gains (losses) relating to assets and liabilities still held as of
March 31, 2014
as follows:
$0.2 million
for other investments,
$3.6 million
for other assets,
$48.6 million
for derivative liabilities and
$(4.4) 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, 2013
|
|
Realized and
Unrealized
Gains (Losses)
Recorded
in Earnings (1)
|
|
Purchases
|
|
Sales
|
|
Issuances
|
|
Settlements
|
|
Transfers Into
(Out of) Level III (2) |
|
Ending
Balance at
March 31, 2013
|
||||||||||||||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
State and municipal obligations
|
$
|
19.0
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19.2
|
|
Corporate bonds and notes
|
—
|
|
|
—
|
|
|
2.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
||||||||
CMBS
|
—
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
||||||||
Other ABS
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
1.5
|
|
||||||||
Equity securities
|
1.0
|
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
||||||||
Other investments
|
79.0
|
|
|
(1.6
|
)
|
|
0.4
|
|
|
0.1
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
77.3
|
|
||||||||
Total Level III Investments
|
100.7
|
|
|
(1.4
|
)
|
|
6.2
|
|
|
0.7
|
|
|
—
|
|
|
0.6
|
|
|
—
|
|
|
104.2
|
|
||||||||
NIMS derivative assets
|
1.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.6
|
|
||||||||
Other assets
|
99.2
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
|
—
|
|
|
96.5
|
|
||||||||
Total Level III Assets
|
$
|
201.5
|
|
|
$
|
1.9
|
|
|
$
|
6.2
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
6.6
|
|
|
$
|
—
|
|
|
$
|
202.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Derivative liabilities, net
|
$
|
254.9
|
|
|
$
|
(167.7
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3.5
|
)
|
|
$
|
—
|
|
|
$
|
426.1
|
|
VIE debt
|
108.9
|
|
|
(3.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.8
|
|
|
—
|
|
|
107.4
|
|
||||||||
Total Level III Liabilities, net
|
$
|
363.8
|
|
|
$
|
(171.0
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
533.5
|
|
(1)
|
Includes unrealized gains (losses) relating to assets and liabilities still held as of
March 31, 2013
as follows:
$(1.5) million
for investments,
$0.8 million
for other assets,
$(172.6) million
for derivative liabilities and
$(2.5) 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)
|
Fair Value Net Asset (Liability) March 31, 2014 (1)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range/ Weighted Average
|
||||||
Level III Assets/Liabilities:
|
|
|
|
|
|
|
|
|
|
||||
State and municipal obligations
|
$
|
19.1
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
Expected loss
|
|
|
|
11.1
|
%
|
|||
Other investments
|
81.6
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
1.0
|
%
|
||
Corporate CDOs
|
(2.5
|
)
|
|
Base correlation model
|
|
Radian correlation to corporate index
|
|
|
|
85.0
|
%
|
||
|
|
|
|
|
Average credit spread
|
|
0.1
|
%
|
-
|
0.9
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
0.9
|
%
|
-
|
3.8
|
%
|
||
CDOs of CMBS
|
(56.3
|
)
|
|
Discounted cash flow
|
|
Radian correlation to CMBS transaction index
|
|
72.0
|
%
|
-
|
85.0
|
%
|
|
|
|
|
|
|
Own credit spread (2)
|
|
0.9
|
%
|
-
|
3.8
|
%
|
||
TruPs CDOs
|
(30.2
|
)
|
|
Discounted cash flow
|
|
Principal recovery
|
|
|
|
75.0
|
%
|
||
|
|
|
|
|
Principal recovery (stressed)
|
|
|
|
65.0
|
%
|
|||
|
|
|
|
|
Probability of conditional liquidity payment
|
|
0.2
|
%
|
-
|
10.0
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
0.9
|
%
|
-
|
3.8
|
%
|
||
TruPs - related VIE
|
(47.8
|
)
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
8.8
|
%
|
||
Other non-corporate CDOs and derivative transactions
|
(115.3
|
)
|
|
Risk-based model
|
|
Average life (in years)
|
|
<1
|
|
-
|
20
|
|
|
|
|
|
|
|
Own credit spread (2)
|
|
0.9
|
%
|
-
|
3.8
|
%
|
||
NIMS VIE
|
(3.1
|
)
|
|
Discounted cash flow
|
|
NIMS credit spread
|
|
|
|
43.2
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
|
|
7.2
|
%
|
(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.
|
(In millions)
|
Fair Value Net Asset (Liability) December 31, 2013 (1)
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range/ Weighted Average
|
||||||
Level III Assets/Liabilities:
|
|
|
|
|
|
|
|
|
|
||||
State and municipal obligations
|
$
|
18.7
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
Expected loss
|
|
|
|
11.1
|
%
|
|||
Other investments
|
81.0
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
1.2
|
%
|
||
Corporate CDOs
|
(1.4
|
)
|
|
Base correlation model
|
|
Radian correlation to corporate index
|
|
|
|
85.0
|
%
|
||
|
|
|
|
|
Average credit spread
|
|
0.1
|
%
|
-
|
0.9
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
0.8
|
%
|
-
|
4.3
|
%
|
||
CDOs of CMBS
|
(67.8
|
)
|
|
Discounted cash flow
|
|
Radian correlation to CMBS transaction index
|
|
72.0
|
%
|
-
|
85.0
|
%
|
|
|
|
|
|
|
Own credit spread (2)
|
|
0.8
|
%
|
-
|
4.3
|
%
|
||
TruPs CDOs
|
(43.9
|
)
|
|
Discounted cash flow
|
|
Principal recovery
|
|
|
|
75.0
|
%
|
||
|
|
|
|
|
Principal recovery (stressed)
|
|
|
|
65.0
|
%
|
|||
|
|
|
|
|
Probability of conditional liquidity payment
|
|
1.1
|
%
|
-
|
12.4
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
0.8
|
%
|
-
|
4.3
|
%
|
||
TruPs - related VIE
|
(68.4
|
)
|
|
Discounted cash flow
|
|
Discount rate
|
|
|
|
13.1
|
%
|
||
Other non-corporate CDOs and derivative transactions
|
(119.4
|
)
|
|
Risk-based model
|
|
Average life (in years)
|
|
<1
|
|
-
|
20
|
|
|
|
|
|
|
|
Own credit spread (2)
|
|
0.8
|
%
|
-
|
4.3
|
%
|
||
NIMS VIE
|
(2.8
|
)
|
|
Discounted cash flow
|
|
NIMS credit spread
|
|
|
|
43.8
|
%
|
||
|
|
|
|
|
Own credit spread (2)
|
|
|
|
7.9
|
%
|
(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.
|
|
March 31, 2014
|
|
December 31, 2013
|
|
||||||||||||
(In millions)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Fixed-maturities held to maturity
|
$
|
0.1
|
|
|
$
|
0.1
|
|
(1)
|
$
|
0.4
|
|
|
$
|
0.4
|
|
(1)
|
Other invested assets
|
46.8
|
|
|
55.4
|
|
(1)
|
47.4
|
|
|
54.3
|
|
(1)
|
||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Long-term debt (3)
|
938.4
|
|
|
1,559.8
|
|
(1)
|
930.1
|
|
|
1,502.7
|
|
(1)
|
||||
Non-derivative financial guaranty liabilities
|
148.6
|
|
|
215.2
|
|
(2)
|
144.7
|
|
|
189.1
|
|
(2)
|
(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.
|
(3)
|
The carrying amount of long-term debt is net of the equity component, which is accounted for under the accounting standard for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). The fair value is estimated based on the quoted market prices for the same or similar issues. See Note 10 for further information.
|
|
Consolidated
|
|
Unconsolidated
|
||||||||||||
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2014 |
|
December 31,
2013 |
||||||||
Balance Sheet:
|
|
|
|
|
|
|
|
||||||||
Other invested assets
|
$
|
81,635
|
|
|
$
|
81,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Premiums receivable
|
—
|
|
|
—
|
|
|
2,100
|
|
|
2,211
|
|
||||
Other assets
|
92,594
|
|
|
92,023
|
|
|
—
|
|
|
—
|
|
||||
Unearned premiums
|
—
|
|
|
—
|
|
|
1,680
|
|
|
1,872
|
|
||||
Reserve for losses and LAE
|
—
|
|
|
—
|
|
|
9,505
|
|
|
14,094
|
|
||||
Derivative liabilities
|
47,769
|
|
|
68,457
|
|
|
191,945
|
|
|
220,633
|
|
||||
VIE debt—at fair value
|
92,436
|
|
|
91,800
|
|
|
—
|
|
|
—
|
|
||||
Other liabilities
|
190
|
|
|
254
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Maximum exposure (1)
|
140,242
|
|
|
121,628
|
|
|
4,079,740
|
|
|
4,578,784
|
|
(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
|
||||||||||||
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
||||||||||||
(In thousands)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Statement of Operations:
|
|
|
|
|
|
|
|
||||||||
Premiums earned
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
324
|
|
Net investment income
|
440
|
|
|
443
|
|
|
—
|
|
|
—
|
|
||||
Net gain (loss) on investments
|
195
|
|
|
(1,530
|
)
|
|
—
|
|
|
—
|
|
||||
Change in fair value of derivative instruments—gain (loss)
|
20,117
|
|
|
3,062
|
|
|
29,621
|
|
|
(160,975
|
)
|
||||
Net gain on other financial instruments
|
1,016
|
|
|
1,155
|
|
|
—
|
|
|
—
|
|
||||
Provision for losses—increase (decrease)
|
—
|
|
|
—
|
|
|
894
|
|
|
(10
|
)
|
||||
Other operating expenses
|
447
|
|
|
503
|
|
|
—
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net Cash Inflow (Outflow)
|
—
|
|
|
114
|
|
|
(4,356
|
)
|
|
1,215
|
|
|
March 31, 2014
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities held to maturity:
|
|
|
|
|
|
|
|
||||||||
State and municipal obligations
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
8,961
|
|
|
$
|
9,116
|
|
|
$
|
202
|
|
|
$
|
47
|
|
State and municipal obligations
|
26,428
|
|
|
26,699
|
|
|
624
|
|
|
353
|
|
||||
Corporate bonds and notes
|
58,480
|
|
|
58,812
|
|
|
1,102
|
|
|
770
|
|
||||
RMBS
|
36,500
|
|
|
37,196
|
|
|
696
|
|
|
—
|
|
||||
Other ABS
|
64,184
|
|
|
64,124
|
|
|
65
|
|
|
125
|
|
||||
Foreign government and agency securities
|
17,944
|
|
|
17,805
|
|
|
69
|
|
|
208
|
|
||||
Other investments
|
237
|
|
|
237
|
|
|
—
|
|
|
—
|
|
||||
|
$
|
212,734
|
|
|
$
|
213,989
|
|
|
$
|
2,758
|
|
|
$
|
1,503
|
|
Equity securities available for sale (1)
|
$
|
78,106
|
|
|
$
|
137,920
|
|
|
$
|
59,814
|
|
|
$
|
—
|
|
Total debt and equity securities
|
$
|
290,890
|
|
|
$
|
351,959
|
|
|
$
|
62,572
|
|
|
$
|
1,503
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds (
$130.0 million
fair value) and various preferred and common stocks invested across numerous companies and industries (
$8.0 million
fair value).
|
|
December 31, 2013
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities held to maturity:
|
|
|
|
|
|
|
|
||||||||
State and municipal obligations
|
$
|
358
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
358
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
8,939
|
|
|
$
|
9,106
|
|
|
$
|
224
|
|
|
$
|
57
|
|
State and municipal obligations
|
26,489
|
|
|
25,946
|
|
|
26
|
|
|
569
|
|
||||
Corporate bonds and notes
|
11,951
|
|
|
12,045
|
|
|
578
|
|
|
484
|
|
||||
RMBS
|
72,665
|
|
|
73,115
|
|
|
450
|
|
|
—
|
|
||||
Other investments
|
341
|
|
|
341
|
|
|
—
|
|
|
—
|
|
||||
|
$
|
120,385
|
|
|
$
|
120,553
|
|
|
$
|
1,278
|
|
|
$
|
1,110
|
|
Equity securities available for sale (1)
|
$
|
78,106
|
|
|
$
|
135,168
|
|
|
$
|
57,062
|
|
|
$
|
—
|
|
Total debt and equity securities
|
$
|
198,849
|
|
|
$
|
256,072
|
|
|
$
|
58,340
|
|
|
$
|
1,117
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds (
$128.3 million
fair value) and various preferred and common stocks invested across numerous companies and industries (
$6.9 million
fair value).
|
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Trading securities:
|
|
|
|
||||
U.S. government and agency securities
|
$
|
333,804
|
|
|
$
|
393,815
|
|
State and municipal obligations
|
611,410
|
|
|
595,070
|
|
||
Corporate bonds and notes
|
967,207
|
|
|
1,024,574
|
|
||
RMBS
|
245,232
|
|
|
487,239
|
|
||
CMBS
|
282,561
|
|
|
288,895
|
|
||
Other ABS
|
170,289
|
|
|
195,816
|
|
||
Foreign government and agency securities
|
28,866
|
|
|
40,657
|
|
||
Equity securities
|
88,860
|
|
|
90,604
|
|
||
Other investments
|
747
|
|
|
759
|
|
||
Total
|
$
|
2,728,976
|
|
|
$
|
3,117,429
|
|
March 31, 2014: ($ 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
|
|||||||||||||||||
U.S. government and agency securities
|
|
1
|
|
|
$
|
5,417
|
|
|
$
|
47
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
5,417
|
|
|
$
|
47
|
|
State and municipal obligations
|
|
1
|
|
|
2
|
|
|
4
|
|
|
1
|
|
|
5,389
|
|
|
349
|
|
|
2
|
|
|
5,391
|
|
|
353
|
|
||||||
Corporate bonds and notes
|
|
10
|
|
|
31,135
|
|
|
223
|
|
|
2
|
|
|
2,950
|
|
|
547
|
|
|
12
|
|
|
34,085
|
|
|
770
|
|
||||||
Other ABS
|
|
8
|
|
|
46,709
|
|
|
125
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
46,709
|
|
|
125
|
|
||||||
Foreign government and agency securities
|
|
6
|
|
|
6,432
|
|
|
208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6,432
|
|
|
208
|
|
||||||
Total
|
|
26
|
|
|
$
|
89,695
|
|
|
$
|
607
|
|
|
3
|
|
|
$
|
8,339
|
|
|
$
|
896
|
|
|
29
|
|
|
$
|
98,034
|
|
|
$
|
1,503
|
|
December 31, 2013: ($ 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
|
|||||||||||||||||
U.S. government and agency securities
|
|
1
|
|
|
$
|
5,401
|
|
|
$
|
57
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
5,401
|
|
|
$
|
57
|
|
State and municipal obligations
|
|
4
|
|
|
14,502
|
|
|
42
|
|
|
2
|
|
|
5,514
|
|
|
534
|
|
|
6
|
|
|
20,016
|
|
|
576
|
|
||||||
Corporate bonds and notes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2,966
|
|
|
484
|
|
|
2
|
|
|
2,966
|
|
|
484
|
|
||||||
Total
|
|
5
|
|
|
$
|
19,903
|
|
|
$
|
99
|
|
|
4
|
|
|
$
|
8,480
|
|
|
$
|
1,018
|
|
|
9
|
|
|
$
|
28,383
|
|
|
$
|
1,117
|
|
|
March 31, 2014
|
||||||||||||||
|
Held to Maturity
|
|
Available for Sale
|
||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
||||||||
Due in one year or less (1)
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
3,543
|
|
|
$
|
3,066
|
|
Due after one year through five years (1)
|
—
|
|
|
—
|
|
|
42,858
|
|
|
42,935
|
|
||||
Due after five years through ten years (1)
|
—
|
|
|
—
|
|
|
39,863
|
|
|
39,858
|
|
||||
Due after ten years (1)
|
—
|
|
|
—
|
|
|
25,785
|
|
|
26,809
|
|
||||
RMBS (2)
|
—
|
|
|
—
|
|
|
36,500
|
|
|
37,196
|
|
||||
Other ABS (2)
|
—
|
|
|
—
|
|
|
64,185
|
|
|
64,125
|
|
||||
Total
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
212,734
|
|
|
$
|
213,989
|
|
(1)
|
Actual maturities may differ as a result of calls before scheduled maturity.
|
(2)
|
RMBS and Other ABS are shown separately, as they are not due at a single maturity date.
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Net premiums written-insurance:
|
|
|
|
||||
Direct
|
$
|
229,322
|
|
|
$
|
245,467
|
|
Assumed
|
473
|
|
|
(10,397
|
)
|
||
Ceded
|
(16,089
|
)
|
|
(27,885
|
)
|
||
Net premiums written-insurance
|
$
|
213,706
|
|
|
$
|
207,185
|
|
Net premiums earned-insurance:
|
|
|
|
||||
Direct
|
$
|
221,959
|
|
|
$
|
207,940
|
|
Assumed
|
2,147
|
|
|
2,211
|
|
||
Ceded
|
(18,441
|
)
|
|
(17,563
|
)
|
||
Net premiums earned-insurance
|
$
|
205,665
|
|
|
$
|
192,588
|
|
|
Initial QSR Transaction
|
||||||
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Ceded premiums written
|
$
|
5,304
|
|
|
$
|
6,122
|
|
Ceded premiums earned
|
6,807
|
|
|
7,833
|
|
||
Ceding commissions written
|
1,326
|
|
|
1,530
|
|
|
Second QSR Transaction
|
||||||
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Ceded premiums written
|
$
|
7,293
|
|
|
$
|
16,440
|
|
Ceded premiums earned
|
6,585
|
|
|
2,838
|
|
||
Ceding commissions written
|
2,553
|
|
|
5,754
|
|
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Mortgage insurance reserves
|
$
|
1,893,960
|
|
|
$
|
2,164,353
|
|
Financial guaranty reserves
|
29,751
|
|
|
21,068
|
|
||
Total reserve for losses and LAE
|
$
|
1,923,711
|
|
|
$
|
2,185,421
|
|
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Reserves for losses by category:
|
|
|
|
||||
Prime
|
$
|
790,529
|
|
|
$
|
937,307
|
|
Alternative-A (“Alt-A”)
|
351,695
|
|
|
384,841
|
|
||
A minus and below
|
189,453
|
|
|
215,545
|
|
||
Incurred but not reported (“IBNR”)
and other
|
347,674
|
|
|
347,698
|
|
||
LAE
|
50,684
|
|
|
51,245
|
|
||
Reinsurance recoverable (1)
|
25,751
|
|
|
38,363
|
|
||
Total primary reserves
|
1,755,786
|
|
|
1,974,999
|
|
||
Pool
|
123,596
|
|
|
169,682
|
|
||
IBNR and other
|
5,679
|
|
|
8,938
|
|
||
LAE
|
4,517
|
|
|
5,439
|
|
||
Total pool reserves
|
133,792
|
|
|
184,059
|
|
||
Total first-lien reserves
|
1,889,578
|
|
|
2,159,058
|
|
||
Second-lien and other (2)
|
4,382
|
|
|
5,295
|
|
||
Total reserve for losses
|
$
|
1,893,960
|
|
|
$
|
2,164,353
|
|
(1)
|
Primarily represents ceded losses on captive transactions and the Reinsurance Transactions.
|
(2)
|
Does not include our second-lien premium deficiency reserve that is included in other liabilities.
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Mortgage Insurance
|
|
|
|
||||
Balance at January 1
|
$
|
2,164,353
|
|
|
$
|
3,083,608
|
|
Less reinsurance recoverables (1)
|
38,363
|
|
|
83,238
|
|
||
Balance at January 1, net of reinsurance recoverables
|
2,125,990
|
|
|
3,000,370
|
|
||
Add losses and LAE incurred in respect of default notices reported and unreported in:
|
|
|
|
||||
Current year (2)
|
142,696
|
|
|
182,534
|
|
||
Prior years
|
(93,536
|
)
|
|
(50,578
|
)
|
||
Total incurred
|
49,160
|
|
|
131,956
|
|
||
Deduct paid claims and LAE related to:
|
|
|
|
||||
Prior years
|
306,941
|
|
|
309,927
|
|
||
Total paid
|
306,941
|
|
|
309,927
|
|
||
Balance at end of period, net of reinsurance recoverables
|
1,868,209
|
|
|
2,822,399
|
|
||
Add reinsurance recoverables (1)
|
25,751
|
|
|
72,101
|
|
||
Balance at March 31
|
$
|
1,893,960
|
|
|
$
|
2,894,500
|
|
(1)
|
Related to ceded losses on captive reinsurance transactions and the Reinsurance Transactions. See Note 7 for additional information.
|
(2)
|
Related to underlying defaulted loans with a most recent default notice dated 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 March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
Rescissions
|
$
|
16.1
|
|
|
$
|
15.3
|
|
Denials
|
12.2
|
|
|
27.2
|
|
||
Total first-lien claims submitted for payment that were rescinded or denied (1)
|
$
|
28.3
|
|
|
$
|
42.5
|
|
(1)
|
Includes an amount related to a small number of submitted claims that were subsequently withdrawn by the insured.
|
|
Surveillance Categories
|
||||||||||||||||||
($ in thousands)
|
Performing
|
|
Special
Mention
|
|
Intensified
Surveillance
|
|
Case
Reserve
|
|
Total
|
||||||||||
Number of policies
|
7
|
|
|
221
|
|
|
56
|
|
|
82
|
|
|
366
|
|
|||||
Remaining weighted-average contract period (in years)
|
22
|
|
|
16
|
|
|
19
|
|
|
18
|
|
|
17
|
|
|||||
Insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
||||||||||
Principal
|
$
|
1,513
|
|
|
$
|
1,162,520
|
|
|
$
|
581,107
|
|
|
$
|
79,952
|
|
|
$
|
1,825,092
|
|
Interest
|
172
|
|
|
671,500
|
|
|
306,299
|
|
|
21,614
|
|
|
999,585
|
|
|||||
Total
|
$
|
1,685
|
|
|
$
|
1,834,020
|
|
|
$
|
887,406
|
|
|
$
|
101,566
|
|
|
$
|
2,824,677
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross claim liability
|
$
|
1
|
|
|
$
|
22,047
|
|
|
$
|
229,993
|
|
|
$
|
25,557
|
|
|
$
|
277,598
|
|
Less:
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross potential recoveries
|
—
|
|
|
2,364
|
|
|
334,298
|
|
|
44,075
|
|
|
380,737
|
|
|||||
Discount, net
|
—
|
|
|
3,343
|
|
|
(147,419
|
)
|
|
(2,328
|
)
|
|
(146,404
|
)
|
|||||
Net claim liability/(asset) (prior to reduction for unearned premium)
|
$
|
1
|
|
|
$
|
16,340
|
|
|
$
|
43,114
|
|
|
$
|
(16,190
|
)
|
|
$
|
43,265
|
|
Unearned premium revenue
|
$
|
6
|
|
|
$
|
20,513
|
|
|
$
|
9,205
|
|
|
$
|
—
|
|
|
$
|
29,724
|
|
Net claim liability/(asset) reported in the balance sheet
|
$
|
—
|
|
|
$
|
6,453
|
|
|
$
|
37,552
|
|
|
$
|
(16,190
|
)
|
|
$
|
27,815
|
|
Reinsurance recoverables
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Refundings
|
$
|
2,117
|
|
|
$
|
4,753
|
|
Recaptures/Commutations
|
—
|
|
|
(2,447
|
)
|
||
Adjustments to installment premiums, gross of commissions
|
139
|
|
|
2,692
|
|
||
Unearned premium acceleration upon establishment of case reserves
|
—
|
|
|
65
|
|
||
Foreign exchange revaluation, gross of commissions
|
314
|
|
|
(768
|
)
|
||
Total adjustment to premiums earned
|
$
|
2,570
|
|
|
$
|
4,295
|
|
(In thousands)
|
Ending Net
Unearned
Premiums
|
|
Unearned
Premium
Amortization
|
|
Accretion
|
|
Total
Premium
Revenue
|
||||||||
2
nd
quarter 2014
|
$
|
175,331
|
|
|
$
|
6,088
|
|
|
$
|
199
|
|
|
$
|
6,287
|
|
3
rd
quarter 2014
|
167,264
|
|
|
8,066
|
|
|
193
|
|
|
8,259
|
|
||||
4
th
quarter 2014
|
162,654
|
|
|
4,610
|
|
|
191
|
|
|
4,801
|
|
||||
2014
|
162,654
|
|
|
18,764
|
|
|
583
|
|
|
19,347
|
|
||||
2015
|
146,423
|
|
|
16,232
|
|
|
719
|
|
|
16,951
|
|
||||
2016
|
133,021
|
|
|
13,402
|
|
|
657
|
|
|
14,059
|
|
||||
2017
|
120,746
|
|
|
12,274
|
|
|
616
|
|
|
12,890
|
|
||||
2018
|
109,213
|
|
|
11,533
|
|
|
562
|
|
|
12,095
|
|
||||
2014 - 2018
|
109,213
|
|
|
72,205
|
|
|
3,137
|
|
|
75,342
|
|
||||
2019 - 2023
|
61,574
|
|
|
47,639
|
|
|
2,147
|
|
|
49,786
|
|
||||
2024 - 2028
|
30,234
|
|
|
31,341
|
|
|
1,369
|
|
|
32,710
|
|
||||
2029 - 2033
|
12,735
|
|
|
17,499
|
|
|
873
|
|
|
18,372
|
|
||||
After 2033
|
—
|
|
|
12,735
|
|
|
1,009
|
|
|
13,744
|
|
||||
Total
|
$
|
—
|
|
|
$
|
181,419
|
|
|
$
|
8,535
|
|
|
$
|
189,954
|
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Claim liability at January 1
|
$
|
19,458
|
|
|
$
|
64,291
|
|
Incurred losses and LAE:
|
|
|
|
||||
Increase in gross claim liability
|
8,140
|
|
|
8,390
|
|
||
Decrease (increase) in gross potential recoveries
|
32,958
|
|
|
(3,946
|
)
|
||
Increase in discount
|
(31,757
|
)
|
|
(3,555
|
)
|
||
Increase in unearned premiums
|
(4,110
|
)
|
|
(797
|
)
|
||
Incurred losses and LAE
|
5,231
|
|
|
92
|
|
||
Paid losses and LAE:
|
|
|
|
||||
Current year
|
—
|
|
|
1
|
|
||
Prior years
|
3,126
|
|
|
(41,915
|
)
|
||
Paid losses and LAE
|
3,126
|
|
|
(41,914
|
)
|
||
Claim liability at March 31
|
$
|
27,815
|
|
|
$
|
22,469
|
|
|
|
|
|
||||
Components of incurred losses and LAE:
|
|
|
|
||||
Claim liability established in current period
|
$
|
1,040
|
|
|
$
|
104
|
|
Changes in existing claim liabilities
|
4,191
|
|
|
(12
|
)
|
||
Total incurred losses and LAE
|
$
|
5,231
|
|
|
$
|
92
|
|
|
|
|
|
||||
Components of increase in discount:
|
|
|
|
||||
Increase in discount related to claim liabilities established in current period
|
$
|
(491
|
)
|
|
$
|
(128
|
)
|
Increase in discount related to existing claim liabilities
|
(31,266
|
)
|
|
(3,427
|
)
|
||
Total increase in discount
|
$
|
(31,757
|
)
|
|
$
|
(3,555
|
)
|
March 31, 2014
|
2.86
|
%
|
December 31, 2013
|
2.95
|
%
|
March 31, 2013
|
2.09
|
%
|
December 31, 2012
|
2.00
|
%
|
(In thousands)
|
|
March 31,
2014 |
|
December 31,
2013 |
||||
5.375%
|
Senior Notes due 2015
|
$
|
54,484
|
|
|
$
|
54,481
|
|
9.000%
|
Senior Notes due 2017
|
191,850
|
|
|
191,611
|
|
||
3.000%
|
Convertible Senior Notes due 2017 (1)
|
358,985
|
|
|
353,798
|
|
||
2.250%
|
Convertible Senior Notes due 2019 (2)
|
333,071
|
|
|
330,182
|
|
||
|
Total long-term debt
|
$
|
938,390
|
|
|
$
|
930,072
|
|
(1)
|
The principal amount of these notes is
$450 million
.
|
(2)
|
The principal amount of these notes is
$400 million
.
|
|
Convertible Senior Notes due 2017
|
|
Convertible Senior Notes due 2019
|
|
||||||||||||
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2014 |
|
December 31,
2013 |
|
||||||||
Liability component:
|
|
|
|
|
|
|
|
|
||||||||
Principal
|
$
|
450,000
|
|
|
$
|
450,000
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
Less: debt discount, net (1)
|
(91,016
|
)
|
|
(96,202
|
)
|
|
(66,929
|
)
|
|
(69,818
|
)
|
|
||||
Net carrying amount
|
$
|
358,984
|
|
|
$
|
353,798
|
|
|
$
|
333,071
|
|
|
$
|
330,182
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity component of currently redeemable convertible senior notes
|
$
|
91,016
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Equity component (net of tax impact) (2)
|
$
|
(25,337
|
)
|
(3)
|
$
|
65,679
|
|
|
$
|
77,026
|
|
(4)
|
$
|
77,026
|
|
(4)
|
(1)
|
Included within long-term debt and is being amortized over the life of the convertible notes.
|
(2)
|
Amount included within additional paid-in capital, net of the capped call transactions (Convertible Senior Notes due 2017) and related issuance costs (Convertible Senior Notes due 2017 and 2019).
|
(3)
|
Primarily represents the deferred tax amount related to this transaction due to the reclassification of the debt discount to temporary equity.
|
(4)
|
There was
no
net tax impact recorded in equity related to the Convertible Senior Notes due 2019, as a result of our full valuation allowance.
|
|
Convertible Senior Notes due 2017
|
||||||
|
Three Months Ended March 31,
|
||||||
($ in thousands)
|
2014
|
|
2013
|
||||
Contractual interest expense
|
$
|
4,399
|
|
|
$
|
3,375
|
|
Amortization of debt issuance costs
|
300
|
|
|
283
|
|
||
Amortization of debt discount
|
5,186
|
|
|
4,712
|
|
||
Total interest expense
|
$
|
9,885
|
|
|
$
|
8,370
|
|
|
|
|
|
|
|
||
Effective interest rate of the liability component
|
9.75
|
%
|
|
9.75
|
%
|
|
Convertible Senior Notes due 2019
|
||||||
|
Three Months Ended March 31,
|
||||||
($ in thousands)
|
2014
|
|
2013
|
||||
Contractual interest expense
|
$
|
2,250
|
|
|
$
|
675
|
|
Amortization of debt issuance costs
|
316
|
|
|
92
|
|
||
Amortization of debt discount
|
2,889
|
|
|
819
|
|
||
Total interest expense
|
$
|
5,455
|
|
|
$
|
1,586
|
|
|
|
|
|
||||
Effective interest rate of the liability component
|
6.25
|
%
|
|
6.25
|
%
|
|
Three Months Ended March 31, 2014
|
||||||||||
(In thousands)
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
||||||
Balance at beginning of period
|
$
|
57,345
|
|
|
$
|
19,962
|
|
|
$
|
37,383
|
|
Other comprehensive income:
|
|
|
|
|
|
||||||
Unrealized gains on investments:
|
|
|
|
|
|
|
|||||
Unrealized holding gains arising during the period
|
4,649
|
|
|
164
|
|
|
4,485
|
|
|||
Less: Reclassification adjustment for net gains included in net income (1)
|
809
|
|
|
285
|
|
|
524
|
|
|||
Net unrealized gains on investments
|
3,840
|
|
|
(121
|
)
|
|
3,961
|
|
|||
Other comprehensive income
|
3,840
|
|
|
(121
|
)
|
|
3,961
|
|
|||
Balance at end of period
|
$
|
61,185
|
|
|
$
|
19,841
|
|
|
$
|
41,344
|
|
|
|
|
|
|
|
||||||
|
Three Months Ended March 31, 2013
|
||||||||||
(In thousands)
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
||||||
Balance at beginning of period
|
$
|
24,904
|
|
|
$
|
8,809
|
|
|
$
|
16,095
|
|
Other comprehensive income:
|
|
|
|
|
|
||||||
Unrealized gains on investments:
|
|
|
|
|
|
||||||
Unrealized holding gains arising during the period
|
11,486
|
|
|
4,020
|
|
|
7,466
|
|
|||
Less: Reclassification adjustment for net gains included in net loss (1)
|
67
|
|
|
46
|
|
|
21
|
|
|||
Net unrealized gains on investments
|
11,419
|
|
|
3,974
|
|
|
7,445
|
|
|||
Other comprehensive income
|
11,419
|
|
|
3,974
|
|
|
7,445
|
|
|||
Balance at end of period
|
$
|
36,323
|
|
|
$
|
12,783
|
|
|
$
|
23,540
|
|
(1)
|
Included in net gains (losses) on investments on our condensed consolidated statements of operations.
|
(In millions)
|
As of and for the Three Months Ended March 31, 2014
|
|
As of and for the Year Ended December 31, 2013
|
||||
Statutory net income (loss)
|
$
|
68.2
|
|
|
$
|
(23.8
|
)
|
Statutory surplus
|
1,305.5
|
|
|
1,317.8
|
|
||
Contingency reserve
|
108.2
|
|
|
23.0
|
|
|
March 31,
2014 |
|
December 31,
2013 |
||||
($ in millions)
|
|
|
|
||||
RIF, net (1)
|
$
|
27,075.0
|
|
|
$
|
26,128.2
|
|
|
|
|
|
||||
Statutory surplus
|
$
|
1,305.5
|
|
|
$
|
1,317.8
|
|
Statutory contingency reserve
|
108.2
|
|
|
23.0
|
|
||
Statutory position
|
$
|
1,413.7
|
|
|
$
|
1,340.8
|
|
|
|
|
|
||||
Risk-to-capital
|
19.2:1
|
|
|
19.5:1
|
(1)
|
Excludes risk ceded through reinsurance contracts (to third parties and affiliates) and RIF on defaulted loans.
|
(In millions)
|
As of and for the Three Months Ended March 31, 2014
|
|
As of and for the Year Ended December 31, 2013
|
||||
Statutory net income (loss)
|
$
|
2.1
|
|
|
$
|
(24.9
|
)
|
Statutory surplus
|
1,186.3
|
|
|
1,198.0
|
|
||
Contingency reserve
|
271.8
|
|
|
264.0
|
|
(In thousands)
|
March 31,
2014 |
|
December 31, 2013
|
||||
Investment in subsidiaries, at equity in net assets
|
$
|
1,721,213
|
|
|
$
|
1,419,360
|
|
Total assets
|
2,318,631
|
|
|
2,112,495
|
|
||
Long-term debt
|
938,390
|
|
|
930,072
|
|
||
Total liabilities
|
1,172,048
|
|
|
1,172,850
|
|
||
Equity component of currently redeemable convertible senior notes
|
91,016
|
|
|
—
|
|
||
Total stockholders’ equity
|
1,055,567
|
|
|
939,645
|
|
||
Total liabilities and stockholders’ equity
|
2,318,631
|
|
|
2,112,495
|
|
•
|
On December 30, 2011, a putative class action under RESPA titled White v. PNC Financial Services Group was filed in the U.S. District Court for the Eastern District of Pennsylvania. On September 29, 2012, plaintiffs filed an amended complaint.
On November 26, 2012, Radian Guaranty filed a motion to dismiss the plaintiffs’ claims as barred by the statute of limitations. On June 20, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on July 5, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on July 22, 2013.
|
•
|
On January 13, 2012, a putative class action under RESPA titled Menichino, et al. v. Citibank, N.A., et al., was filed in the U.S. District Court for the Western District of Pennsylvania. Radian Guaranty was not named as a defendant in the original complaint. On December 4, 2012, plaintiffs amended their complaint to add Radian Guaranty as an additional defendant.
On February 4, 2013, Radian Guaranty filed a motion to dismiss the claims against it as barred by the statute of limitations. On July 19, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on August 16, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on September 17, 2013. The court denied Radian Guaranty’s motion on February 4, 2014, without prejudice to Radian Guaranty’s ability to raise the statute of limitations bar on a motion for summary judgment.
On March 26, 2014, the court stayed the Menichino case, pending the outcome of an appeal filed by plaintiffs in Riddle v. Bank of America Corporation, et. al. (another putative class action under RESPA in which Radian Guaranty is not a party) after the Riddle case was dismissed on summary judgment on November 18, 2013.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Manners, et al. v. Fifth Third Bank, et al. was filed in the U.S. District Court for the Western District of Pennsylvania.
On November 28, 2012, Radian Guaranty moved to dismiss plaintiffs’ claims as barred by the statute of limitations. On July 19, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on August 16, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on September 17, 2013. The court denied Radian Guaranty’s motion on February 5, 2014, without prejudice to Radian Guaranty’s ability to raise the statute of limitations bar on a motion for summary judgment.
On March 26, 2014, the court stayed the Manners case, pending the outcome of an appeal filed by plaintiffs in Riddle v. Bank of America Corporation, et. al. (another putative class action under RESPA in which Radian Guaranty is not a party) after the Riddle case was dismissed on summary judgment on November 18, 2013.
|
•
|
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 U.S. District Court for the Middle District of Pennsylvania.
On December 10, 2012, Radian Guaranty moved to dismiss plaintiffs’ claims as barred by the statute of limitations, and on February 11, 2013, plaintiffs filed an opposition to the motion to dismiss. On October 30, 2013, the court denied that motion and ordered a brief period of discovery limited to the statute of limitations issue. On January 31, 2014, plaintiffs voluntarily dismissed Radian Guaranty from this lawsuit.
|
|
Three Months Ended March 31,
|
||||||
(In thousands, except per share amounts)
|
2014
|
|
2013
|
||||
Net income (loss)—basic
|
$
|
202,759
|
|
|
$
|
(187,500
|
)
|
Adjustment for dilutive Convertible Senior Notes due 2019 (1)
|
5,455
|
|
|
—
|
|
||
Net income (loss)—diluted
|
$
|
208,214
|
|
|
$
|
(187,500
|
)
|
|
|
|
|
||||
Average common shares outstanding—basic
|
173,165
|
|
|
144,355
|
|
||
Dilutive effect of Convertible Senior Notes due 2017 (2)
|
9,003
|
|
|
—
|
|
||
Dilutive effect of Convertible Senior Notes due 2019
|
37,736
|
|
|
—
|
|
||
Dilutive effect of stock-based compensation arrangements (3)
|
2,764
|
|
|
—
|
|
||
Adjusted average common shares outstanding—diluted
|
222,668
|
|
|
144,355
|
|
||
|
|
|
|
||||
Net income (loss) per share—basic
|
$
|
1.17
|
|
|
$
|
(1.30
|
)
|
Net income (loss) per share—diluted
|
$
|
0.94
|
|
|
$
|
(1.30
|
)
|
(1)
|
As applicable, includes coupon interest, amortization of discount and fees, and other changes in income or loss that would result from the assumed conversion.
|
(2)
|
Does not include the anti-dilutive impact of
6,112,498
shares due to capped call transactions related to the Convertible Senior Notes due 2017. Such transactions were designed to offset the potential dilution of the notes up to a stock price of approximately $14.11 per share. See Note 11 of Notes to Consolidated Financial Statements in our 2013 Form 10-K.
|
(3)
|
For the
three
months ended
March 31, 2014
,
946,400
shares of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of diluted net income per share as of such date because they were anti-dilutive. As a result of our net loss for the
three
months ended
March 31, 2013
,
5,198,389
shares of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of diluted net loss per share as of such date because they were anti-dilutive.
|
•
|
Loan Review/Due Diligence—Loan-level due diligence for the mortgage and residential mortgage backed securities (“RMBS”) markets through skilled professionals and proprietary technology, with offerings focused on credit underwriting, regulatory compliance and collateral valuation;
|
•
|
Surveillance—Third-party performance oversight, risk management and consulting services, with offerings focused on RMBS surveillance, loan servicer oversight, reviews of loans in default and loan reviews for exception management;
|
•
|
Component Services—Outsourced solutions focused on the real estate owned (“REO”) to rental market, REO-to-rental analysis and management, and REO-to-rental securitization reviews;
|
•
|
REO/Short-Sale Services—REO asset and short sale management services, with offerings including residential and commercial REO asset management, short-sale management and borrower outreach; and
|
•
|
EuroRisk—Outsourced mortgage services in the United Kingdom and other locations, with offerings including due diligence services, asset management, portfolio assessment and evaluation and consulting services.
|
•
|
Premiums.
The premium rates we charge for our insurance are based on a number of borrower, loan and property characteristics. Premiums on our mortgage insurance products are paid either on a monthly installment basis (“monthly premium”), in a single payment at origination (“single premium”), as a combination of up-front premium at origination plus a monthly renewal, or in some cases, as an annual or multi-year premium.
|
•
|
NIW.
NIW is affected by the overall size of the mortgage origination market, the penetration percentage of private mortgage insurance into the overall mortgage origination market and our market share of the private mortgage insurance market. The overall mortgage origination market is influenced by macroeconomic factors such as household composition, home affordability, interest rates, housing markets in general, credit availability and the impact of various legislative and regulatory actions that may influence the mortgage finance industry. The penetration percentage of private mortgage insurance is mainly influenced by the competitiveness of private mortgage insurance on Government-Sponsored Enterprise (“GSE”) conforming loans compared to Federal Housing Administration (“FHA”) insurance and the relative percentage of mortgage originations that are for purchased homes versus refinances. Typically, private mortgage insurance penetration is significantly higher on new mortgages for purchased homes than on the refinance of existing mortgages because average loan-to-value (“LTV”) ratios are higher on home purchases. Radian Guaranty’s share of the private mortgage insurance market is influenced by competition in that market and our ability to maintain or grow existing levels of new mortgage originations from our current customers and expand our customer base. We compete with other private mortgage insurers on the basis of price, terms and conditions, customer relationships, reputation, financial strength measures and overall service. Service-based competition includes effective and timely delivery of products, risk management services, timeliness of claims payments, training, loss mitigation efforts and management and field service expertise.
|
•
|
Losses
. Incurred losses represent the estimated future claim payments on newly defaulted insured loans as well as any change in our claim estimates for previously existing defaults. Our mortgage insurance incurred losses are driven primarily by new defaults and changes in the estimates we use to determine our losses, including estimates with respect to the likelihood, magnitude and timing of anticipated losses, and our estimate of the rate at which we expect defaults will ultimately result in paid claims. Other factors influencing incurred losses include:
|
‑
|
The product mix of our total direct RIF (loans with higher risk characteristics generally result in more delinquencies and claims);
|
‑
|
The average loan size (higher average loan amounts generally result in higher incurred losses);
|
-
|
The percentage of coverage on insured loans (higher percentages of insurance coverage generally result in higher incurred losses) and the presence of structural mitigants such as deductibles or stop losses;
|
-
|
Changes in housing values (declines in housing values negatively impact our ability to mitigate our losses by either paying the full claim amount and acquiring the property for resale or facilitating a sale of the property, and also may negatively affect a borrower’s willingness to continue to make mortgage payments when the home value is less than the mortgage balance);
|
-
|
The distribution of claims over the life cycle of a portfolio (historically, claims are relatively low during the first two years after a loan is originated and then increase substantially over a period of several years before declining; however, as happened with much of our legacy portfolio, several factors can impact and change this cycle, including the economic environment, the characteristics of the mortgage loan, the credit profile of the borrower, housing prices and unemployment rates); and
|
-
|
Our ability to mitigate potential losses through rescissions, denials, cancellations and the curtailment of claims submitted to us. Generally, we rescind insurance coverage when we conclude, through our review of the underwriting of a loan, that the loan was not originated in accordance with our underwriting guidelines. Generally, we deny claims when the documentation we receive is not sufficient to perfect the claim in accordance with our master insurance policy. In addition, we may cancel coverage or curtail claim payments when we identify servicer negligence, or we may make other adjustments to claims as permitted by our master insurance policy. These actions all reduce our incurred losses. Conversely, if our loss mitigation activities are successfully challenged at rates that are higher than expected, our incurred losses will increase. In general, our loss mitigation activities have been more frequent with respect to our legacy insured portfolio, including the historically poor underwriting years of 2005 through 2008.
|
•
|
Other Operating Expenses
. Our other operating expenses are affected by both the level of NIW, as well as the level of RIF. Additionally, in recent periods, our operating expenses have been impacted significantly by compensation expense associated with changes in the estimated fair value of certain of our long-term incentive awards that are settled in cash. The fair value of these awards, and associated compensation expense, is dependent, in large part, on our stock price at any given point in time.
|
•
|
Third-Party Reinsurance.
We use third-party reinsurance in our mortgage insurance business to manage capital and risk. When we enter into a reinsurance agreement, the reinsurer receives a premium and, in exchange, agrees to insure an agreed upon portion of incurred losses. This arrangement has the impact of reducing our earned premiums but also reduces our net RIF, which provides capital relief to the insurance subsidiary ceding the RIF and reduces our incurred losses by any incurred losses ceded in accordance with the reinsurance agreement. In addition, we often receive ceding commissions from the reinsurer as part of the transaction, which contributes to reducing our overall expenses. In the past, we also had entered into capital markets-based reinsurance transactions (“Smart Home”) designed to transfer all or a portion of the risk associated with certain higher risk mortgage insurance products. See Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements for more information about our reinsurance arrangements.
|
•
|
Premiums.
We earn premiums on our financial guaranty insurance policies and on the other forms of credit protection we have provided. In our financial guaranty business, premiums on public finance exposures are generally paid as single up-front premiums and are earned over the life of the contract. Premiums on our structured finance contracts are generally paid on a periodic basis (monthly or quarterly installment premiums) and are earned on a monthly basis. In addition, we recognize the remaining unearned premium revenue when securities that we insure are redeemed or otherwise retired (we refer to this activity as “refundings”), which generally results in the termination of the financial guaranty policies insuring such securities. Furthermore, our earned premiums are reduced by premiums ceded through reinsurance agreements. Since we have discontinued writing new financial guaranty insurance, our premiums earned have been reduced commensurate with the decrease in our net par outstanding.
|
•
|
Net Par Outstanding
. Our net par outstanding represents principal risk exposure on insured contracts. As noted above, our net par outstanding has been declining since we discontinued writing new financial guaranty business in 2008. The decline in our net par outstanding is driven by scheduled maturities and permitted early terminations within our financial guaranty portfolio and negotiated commutations and other transactions that we have entered into to reduce our net par outstanding.
|
•
|
Losses/Credit Performance
. Our financial guaranty incurred losses are driven primarily by economic conditions that affect the ability of the issuers of our insured obligations to meet such financial obligations and by changes in the assumptions used to determine our losses, including assumptions with respect to the likelihood, magnitude and timing of anticipated losses. Stronger economic conditions increase the likelihood that obligors will have the ability to pay interest and principal on the bonds we insure. Weaker economic conditions often place strains on the revenue flows available to pay interest and principal on our insured obligations. Other significant factors influencing defaults and incurred losses include:
|
-
|
Real estate values, which can affect the ability of municipalities and other governmental entities to generate sufficient tax revenues to satisfy their financial obligations;
|
-
|
The potential impact of federal, state and local budgetary constraints affecting funding and payments (including Medicare and Medicaid payments) to healthcare, long-term care, educational and other governmental and non-governmental entities whose obligations we insure;
|
-
|
The potential impact of threatened or actual government shutdowns or defaults on the payment of government-issued debt securities or other financial obligations;
|
-
|
Potential changes to entitlement programs, such as Social Security, Medicare and Medicaid, that could affect the ability of certain entities whose obligations we insure to receive adequate reimbursement for the services they provide and for individuals and entities to utilize the services provided by these entities;
|
-
|
Performance of commercial and residential mortgage loans and other types of indebtedness that we insure;
|
-
|
The movement of interest rates (increases in interest rates will increase the interest component of the variable rate obligations we insure, and as a result, will increase the strain on the obligors to make payments on these obligations); and
|
-
|
The performance of the primary insurers from whom we have either ceded reinsurance or who have the primary obligation to pay claims on our second-to-pay obligations; if such primary insurers have financial difficulties, they may be unable or unwilling to devote sufficient resources to loss mitigation efforts or could fail to pay claims on transactions where we have second-to-pay obligations.
|
•
|
Investment Income.
Investment income is determined primarily by the investment balances held and the average yield on our overall investment portfolio.
|
•
|
Changes in Fair Value of Obligations.
Many of our structured finance, some of our public finance and our net interest margin securities (“NIMS”) contracts are accounted for as derivatives or variable interest entities (“VIEs”), which are carried at fair market value. Therefore, our results are impacted by changes in the fair value of these contracts. The estimated fair value of these obligations and instruments is measured as of a specific point in time and may be influenced by changes in interest rates, credit spreads (of both the underlying collateral as well as the credit spread for Radian Group), credit ratings, changes in regulations affecting the holders of such obligations or the value of obligations underlying our insured portfolio and other market, asset-class and transaction-specific conditions and factors that may be unrelated or only indirectly related to our obligation to pay future claims. The estimated changes in fair value of these obligations and instruments are reported in change in fair value of derivative instruments and net gains (losses) on other financial instruments in our statements of operations.
|
•
|
Net Gains (Losses) on Investments.
The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on such factors as market opportunities, our tax and capital profile and overall market cycles that impact the timing of the sales of securities. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading and these unrealized gains and losses are generally the result of interest rates or market credit spreads and may not necessarily result in economic gains or losses.
|
|
Three Months Ended March 31,
|
|
% Change
|
|||||||
($ in millions)
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|||||
Net income (loss)
|
$
|
202.8
|
|
|
$
|
(187.5
|
)
|
|
n/m
|
|
Net investment income
|
24.2
|
|
|
26.9
|
|
|
(10.0
|
)%
|
||
Net gains (losses) on investments
|
64.5
|
|
|
(5.5
|
)
|
|
n/m
|
|
||
Change in fair value of derivative instruments
|
50.1
|
|
|
(167.7
|
)
|
|
n/m
|
|
||
Net gains (losses) on other financial instruments
|
0.7
|
|
|
(5.7
|
)
|
|
n/m
|
|
||
Provision for losses
|
54.8
|
|
|
132.1
|
|
|
(58.5
|
)
|
||
Policy acquisition costs
|
8.6
|
|
|
17.2
|
|
|
(50.0
|
)
|
||
Other operating expenses
|
59.9
|
|
|
80.1
|
|
|
(25.2
|
)
|
||
Interest expense
|
19.9
|
|
|
15.9
|
|
|
25.2
|
|
||
Income tax benefit
|
(0.2
|
)
|
|
(14.7
|
)
|
|
(98.6
|
)
|
||
|
|
|
|
|
|
|||||
Adjusted pretax operating income (loss) (1)
|
91.1
|
|
|
(15.2
|
)
|
|
n/m
|
|
(1)
|
See “—Use of Non-GAAP Financial Measure” which follows.
|
|
Three Months Ended March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
Net unrealized gains (losses) related to change in fair value of trading securities and other investments
|
$
|
68.3
|
|
|
$
|
(19.3
|
)
|
Net realized (losses) gains on sales
|
(3.8
|
)
|
|
13.8
|
|
||
Net gains (losses) on investments
|
$
|
64.5
|
|
|
$
|
(5.5
|
)
|
|
Three Months Ended March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
Net premiums earned—derivatives
|
$
|
3.5
|
|
|
$
|
5.0
|
|
Financial Guaranty credit derivatives
|
28.0
|
|
|
(175.7
|
)
|
||
Financial Guaranty VIE derivative
|
20.1
|
|
|
3.0
|
|
||
Other
|
(1.5
|
)
|
|
—
|
|
||
Change in fair value of derivative instruments
|
$
|
50.1
|
|
|
$
|
(167.7
|
)
|
(In basis points)
|
March 31, 2014
|
|
December 31, 2013
|
|
March 31, 2013
|
|
December 31, 2012
|
||||
Radian Group’s five-year CDS spread
|
288
|
|
|
323
|
|
|
513
|
|
|
913
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian
Non-Performance Risk
March 31, 2014
|
|
Impact of Radian
Non-Performance Risk
March 31, 2014
|
|
Fair Value Liability
Recorded
March 31, 2014
|
||||||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
26.0
|
|
|
$
|
23.5
|
|
|
$
|
2.5
|
|
Non-Corporate CDO-related (1)
|
357.6
|
|
|
155.7
|
|
|
201.9
|
|
|||
Net interest margin securities (“NIMS”)-related (2)
|
5.2
|
|
|
2.1
|
|
|
3.1
|
|
|||
Total
|
$
|
388.8
|
|
|
$
|
181.3
|
|
|
$
|
207.5
|
|
(In millions)
|
Fair Value Liability
before Consideration
of Radian
Non-Performance Risk
December 31,
2013
|
|
Impact of Radian
Non-Performance Risk
December 31,
2013
|
|
Fair Value Liability
Recorded
December 31,
2013
|
||||||
Product
|
|
|
|
|
|
||||||
Corporate CDOs
|
$
|
30.4
|
|
|
$
|
29.0
|
|
|
$
|
1.4
|
|
Non-Corporate CDO-related (1)
|
409.7
|
|
|
178.7
|
|
|
231.0
|
|
|||
NIMS-related (2)
|
5.0
|
|
|
2.2
|
|
|
2.8
|
|
|||
Total
|
$
|
445.1
|
|
|
$
|
209.9
|
|
|
$
|
235.2
|
|
(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.
|
(In millions)
|
NIMS and Other
|
|
Financial Guaranty Derivatives
and VIEs |
|
Total
|
||||||
Balance Sheet
|
|
|
|
|
|
||||||
Other invested assets
|
$
|
—
|
|
|
$
|
81.6
|
|
|
$
|
81.6
|
|
Derivative assets
|
8.9
|
|
|
5.6
|
|
|
14.5
|
|
|||
Other assets
|
—
|
|
|
92.5
|
|
|
92.5
|
|
|||
Total assets
|
8.9
|
|
|
179.7
|
|
|
188.6
|
|
|||
Derivative liabilities (including VIE derivatives)
|
—
|
|
|
257.7
|
|
|
257.7
|
|
|||
VIE debt - at fair value
|
3.1
|
|
|
92.4
|
|
|
95.5
|
|
|||
Other liabilities
|
—
|
|
|
0.2
|
|
|
0.2
|
|
|||
Total liabilities
|
3.1
|
|
|
350.3
|
|
|
353.4
|
|
|||
Total fair value net assets (liabilities)
|
$
|
5.8
|
|
|
$
|
(170.6
|
)
|
|
$
|
(164.8
|
)
|
Present value of estimated credit loss payments (recoveries) (1)
|
$
|
6.5
|
|
|
$
|
(74.7
|
)
|
|
$
|
(68.2
|
)
|
(1)
|
Represents the present value of our estimated credit loss recoveries (net of estimated credit loss payments) for those transactions for which we currently anticipate paying net losses or receiving recoveries of losses already paid. The present value is calculated using a discount rate of approximately
1.9%
, which approximates the average investment yield as reported in our most recently filed statutory financial statements. As illustrated above, expected recoveries for our insured financial guaranty credit derivatives and VIEs exceeded estimated credit loss payments for these transactions as of
March 31, 2014
.
|
(1)
|
Change in fair value of derivative instruments
. Gains and losses related to changes in the fair value of insured credit derivatives are subject to significant fluctuation based on changes in interest rates, credit spreads (of both the underlying collateral as well as our credit spread), credit ratings and other market, asset-class and transaction-specific conditions and factors that may be unrelated or only indirectly related to our obligation to pay future claims. With the exception of the estimated present value of net credit (losses) recoveries incurred and net premiums earned on derivatives, discussed in items 2 and 3 below, we believe these gains and losses will reverse over time and consequently these changes are not expected to result in economic gains or losses. Therefore, these gains and losses are excluded from our calculation of adjusted pretax operating income.
|
(2)
|
Estimated present value of net credit (losses) recoveries incurred.
The change in present value of insurance claims we expect to pay or recover on insured credit derivatives represents the amount of the change in credit derivatives from item 1 above, that we expect to result in an economic loss or recovery based on our ongoing loss monitoring analytics. Therefore, this item is expected to have an economic impact and is included in our calculation of adjusted pretax operating income. Also included in this item is the expected recovery of miscellaneous operating expenses associated with our consolidated VIEs.
|
(3)
|
Net premiums earned on derivatives.
The net premiums earned on insured credit derivatives are classified as part of the change in fair value of derivative instruments discussed in item 1 above. However, since net premiums earned on derivatives are considered part of our fundamental operating activities, these premiums are included in our calculation of adjusted pretax operating income.
|
(4)
|
Net gains (losses) on investments and other financial instruments.
The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses. We do not view them to be indicative of our fundamental operating activities. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. Therefore, these items are excluded from our calculation of adjusted pretax operating income.
|
(5)
|
Net impairment losses recognized in earnings.
The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view them to be indicative of our fundamental operating activities. Therefore, these losses are excluded from our calculation of adjusted pretax operating income.
|
|
Three Months Ended March 31,
|
|
% Change
|
|||||||
($ in millions)
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|||||
Adjusted pretax operating income (loss) (1)
|
$
|
101.3
|
|
|
$
|
(11.4
|
)
|
|
n/m
|
|
Net premiums written—insurance
|
213.0
|
|
|
217.3
|
|
|
(2.0
|
)%
|
||
Net premiums earned—insurance
|
198.8
|
|
|
183.0
|
|
|
8.6
|
|
||
Net investment income
|
14.0
|
|
|
15.1
|
|
|
(7.3
|
)
|
||
Provision for losses
|
49.2
|
|
|
132.0
|
|
|
(62.7
|
)
|
||
Policy acquisition costs
|
7.0
|
|
|
11.7
|
|
|
(40.2
|
)
|
||
Other operating expenses
|
50.4
|
|
|
65.8
|
|
|
(23.4
|
)
|
||
Interest expense
|
5.4
|
|
|
2.7
|
|
|
100.0
|
|
||
Income tax (benefit) provision
|
—
|
|
|
—
|
|
|
n/m
|
|
||
Pretax income (loss)
|
—
|
|
|
—
|
|
|
n/m
|
|
(1)
|
Our senior management uses adjusted pretax operating income (loss) as our primary measure to facilitate evaluation of the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.
|
|
Three Months Ended March 31,
|
||||||||||||
($ in millions)
|
2014
|
|
2013
|
||||||||||
Primary NIW
|
|
|
|
|
|
|
|
||||||
Prime
|
$
|
6,807
|
|
|
100.0
|
%
|
|
$
|
10,905
|
|
|
100.0
|
%
|
Alternative-A (“Alt-A”) and A minus and below
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||
Total Primary
|
$
|
6,808
|
|
|
100.0
|
%
|
|
$
|
10,906
|
|
|
100.0
|
%
|
|
Three Months Ended March 31,
|
||||||||||||
($ in millions)
|
2014
|
|
2013
|
||||||||||
Total primary NIW by FICO Score
|
|
|
|
|
|
|
|
||||||
>=740
|
$
|
4,345
|
|
|
63.8
|
%
|
|
$
|
8,210
|
|
|
75.3
|
%
|
680-739
|
2,041
|
|
|
30.0
|
|
|
2,398
|
|
|
22.0
|
|
||
620-679
|
422
|
|
|
6.2
|
|
|
298
|
|
|
2.7
|
|
||
<=619
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||
Total Primary
|
$
|
6,808
|
|
|
100.0
|
%
|
|
$
|
10,906
|
|
|
100.0
|
%
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
2014
|
|
2013
|
||||
Percentage of primary NIW
|
|
|
|
||||
Refinances
|
18
|
%
|
|
48
|
%
|
||
|
|
|
|
||||
LTV (1)
|
|
|
|
||||
95.01% and above
|
0.9
|
%
|
|
1.7
|
%
|
||
90.01% to 95.00%
|
51.8
|
%
|
|
39.8
|
%
|
||
85.01% to 90.00%
|
34.4
|
%
|
|
39.3
|
%
|
||
80.01% to 85.00%
|
12.9
|
%
|
|
19.2
|
%
|
||
|
|
|
|
||||
Primary risk written
|
$
|
1,722
|
|
|
$
|
2,589
|
|
(1)
|
LTV ratio: The percentage of the original loan amount to the original value of the property.
|
($ in millions)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|||||||||||||||
Primary IIF (1)
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
$
|
152,731
|
|
|
94.1
|
%
|
|
$
|
151,383
|
|
|
93.9
|
%
|
|
$
|
133,693
|
|
|
92.4
|
%
|
Structured
|
9,637
|
|
|
5.9
|
|
|
9,857
|
|
|
6.1
|
|
|
10,950
|
|
|
7.6
|
|
|||
Total Primary
|
$
|
162,368
|
|
|
100.0
|
%
|
|
$
|
161,240
|
|
|
100.0
|
%
|
|
$
|
144,643
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
148,736
|
|
|
91.6
|
%
|
|
$
|
147,072
|
|
|
91.2
|
%
|
|
$
|
128,361
|
|
|
88.8
|
%
|
Alt-A
|
8,317
|
|
|
5.1
|
|
|
8,634
|
|
|
5.4
|
|
|
10,027
|
|
|
6.9
|
|
|||
A minus and below
|
5,315
|
|
|
3.3
|
|
|
5,534
|
|
|
3.4
|
|
|
6,255
|
|
|
4.3
|
|
|||
Total Primary
|
$
|
162,368
|
|
|
100.0
|
%
|
|
$
|
161,240
|
|
|
100.0
|
%
|
|
$
|
144,643
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Persistency
(12 months ended)
|
|
|
82.3
|
%
|
|
|
|
81.1
|
%
|
|
|
|
80.9
|
%
|
(1)
|
Includes amounts related to loans subject to the Freddie Mac Agreement.
|
($ in millions)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|||||||||||||||
Primary RIF (1)
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
$
|
38,252
|
|
|
94.6
|
%
|
|
$
|
37,792
|
|
|
94.4
|
%
|
|
$
|
33,027
|
|
|
93.2
|
%
|
Structured
|
2,180
|
|
|
5.4
|
|
|
2,225
|
|
|
5.6
|
|
|
2,419
|
|
|
6.8
|
|
|||
Total Primary
|
$
|
40,432
|
|
|
100.0
|
%
|
|
$
|
40,017
|
|
|
100.0
|
%
|
|
$
|
35,446
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
37,159
|
|
|
91.9
|
%
|
|
$
|
36,613
|
|
|
91.5
|
%
|
|
$
|
31,565
|
|
|
89.1
|
%
|
Alt-A
|
1,939
|
|
|
4.8
|
|
|
2,017
|
|
|
5.0
|
|
|
2,315
|
|
|
6.5
|
|
|||
A minus and below
|
1,334
|
|
|
3.3
|
|
|
1,387
|
|
|
3.5
|
|
|
1,566
|
|
|
4.4
|
|
|||
Total Primary
|
$
|
40,432
|
|
|
100.0
|
%
|
|
$
|
40,017
|
|
|
100.0
|
%
|
|
$
|
35,446
|
|
|
100.0
|
%
|
(1)
|
Includes amounts related to loans subject to the Freddie Mac Agreement.
|
($ in millions)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|||||||||||||||
Total primary RIF by FICO score
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
21,976
|
|
|
57.4
|
%
|
|
$
|
21,525
|
|
|
57.0
|
%
|
|
$
|
17,556
|
|
|
53.2
|
%
|
680-739
|
11,158
|
|
|
29.2
|
|
|
11,019
|
|
|
29.2
|
|
|
9,865
|
|
|
29.9
|
|
|||
620-679
|
4,459
|
|
|
11.7
|
|
|
4,555
|
|
|
12.0
|
|
|
4,801
|
|
|
14.5
|
|
|||
<=619
|
659
|
|
|
1.7
|
|
|
693
|
|
|
1.8
|
|
|
805
|
|
|
2.4
|
|
|||
Total Flow
|
$
|
38,252
|
|
|
100.0
|
%
|
|
$
|
37,792
|
|
|
100.0
|
%
|
|
$
|
33,027
|
|
|
100.0
|
%
|
Structured
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
590
|
|
|
27.1
|
%
|
|
$
|
602
|
|
|
27.0
|
%
|
|
$
|
647
|
|
|
26.7
|
%
|
680-739
|
624
|
|
|
28.6
|
|
|
640
|
|
|
28.8
|
|
|
698
|
|
|
28.9
|
|
|||
620-679
|
572
|
|
|
26.2
|
|
|
585
|
|
|
26.3
|
|
|
642
|
|
|
26.5
|
|
|||
<=619
|
394
|
|
|
18.1
|
|
|
398
|
|
|
17.9
|
|
|
432
|
|
|
17.9
|
|
|||
Total Structured
|
$
|
2,180
|
|
|
100.0
|
%
|
|
$
|
2,225
|
|
|
100.0
|
%
|
|
$
|
2,419
|
|
|
100.0
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
22,566
|
|
|
55.8
|
%
|
|
$
|
22,127
|
|
|
55.3
|
%
|
|
$
|
18,203
|
|
|
51.3
|
%
|
680-739
|
11,782
|
|
|
29.1
|
|
|
11,659
|
|
|
29.1
|
|
|
10,563
|
|
|
29.8
|
|
|||
620-679
|
5,031
|
|
|
12.5
|
|
|
5,140
|
|
|
12.9
|
|
|
5,443
|
|
|
15.4
|
|
|||
<=619
|
1,053
|
|
|
2.6
|
|
|
1,091
|
|
|
2.7
|
|
|
1,237
|
|
|
3.5
|
|
|||
Total Primary
|
$
|
40,432
|
|
|
100.0
|
%
|
|
$
|
40,017
|
|
|
100.0
|
%
|
|
$
|
35,446
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Primary RIF on defaulted loans
|
$
|
2,466
|
|
(1)
|
|
$
|
2,786
|
|
(1)
|
|
$
|
3,953
|
|
|
(1)
|
Excludes risk related to loans subject to the Freddie Mac Agreement.
|
($ in millions)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|||||||||||||||
Percentage of primary RIF
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Refinances
|
29
|
%
|
|
|
|
29
|
%
|
|
|
|
32
|
%
|
|
|
||||||
Loan Type:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Fixed
|
94.3
|
%
|
|
|
|
94.1
|
%
|
|
|
|
92.3
|
%
|
|
|
||||||
Adjustable rate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Less than five years
|
2.2
|
%
|
|
|
|
2.4
|
%
|
|
|
|
3.2
|
%
|
|
|
||||||
Five years and longer
|
3.5
|
%
|
|
|
|
3.5
|
%
|
|
|
|
4.5
|
%
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total primary RIF by LTV (1)
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
95.01% and above
|
$
|
4,008
|
|
|
9.9
|
%
|
|
$
|
4,171
|
|
|
10.4
|
%
|
|
$
|
4,494
|
|
|
12.7
|
%
|
90.01% to 95.00%
|
17,767
|
|
|
44.0
|
|
|
17,239
|
|
|
43.1
|
|
|
13,988
|
|
|
39.5
|
|
|||
85.01% to 90.00%
|
14,807
|
|
|
36.6
|
|
|
14,750
|
|
|
36.9
|
|
|
13,473
|
|
|
38.0
|
|
|||
85.00% and below
|
3,850
|
|
|
9.5
|
|
|
3,857
|
|
|
9.6
|
|
|
3,491
|
|
|
9.8
|
|
|||
Total Primary
|
$
|
40,432
|
|
|
100.0
|
%
|
|
$
|
40,017
|
|
|
100.0
|
%
|
|
$
|
35,446
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total primary RIF by policy year
|
|
|
|
|
|
|
|
|
|
|
||||||||||
2005 and prior
|
$
|
4,209
|
|
|
10.4
|
%
|
|
$
|
4,461
|
|
|
11.1
|
%
|
|
$
|
5,362
|
|
|
15.1
|
%
|
2006
|
2,243
|
|
|
5.6
|
|
|
2,326
|
|
|
5.8
|
|
|
2,635
|
|
|
7.4
|
|
|||
2007
|
5,064
|
|
|
12.5
|
|
|
5,247
|
|
|
13.1
|
|
|
5,876
|
|
|
16.6
|
|
|||
2008
|
3,810
|
|
|
9.4
|
|
|
3,950
|
|
|
9.9
|
|
|
4,436
|
|
|
12.5
|
|
|||
2009
|
1,363
|
|
|
3.4
|
|
|
1,448
|
|
|
3.6
|
|
|
1,855
|
|
|
5.2
|
|
|||
2010
|
1,144
|
|
|
2.8
|
|
|
1,206
|
|
|
3.0
|
|
|
1,573
|
|
|
4.5
|
|
|||
2011
|
2,165
|
|
|
5.4
|
|
|
2,263
|
|
|
5.7
|
|
|
2,735
|
|
|
7.7
|
|
|||
2012
|
7,511
|
|
|
18.6
|
|
|
7,710
|
|
|
19.3
|
|
|
8,397
|
|
|
23.7
|
|
|||
2013
|
11,210
|
|
|
27.7
|
|
|
11,406
|
|
|
28.5
|
|
|
2,577
|
|
|
7.3
|
|
|||
2014
|
1,713
|
|
|
4.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Total Primary
|
$
|
40,432
|
|
|
100.0
|
%
|
|
$
|
40,017
|
|
|
100.0
|
%
|
|
$
|
35,446
|
|
|
100.0
|
%
|
(1)
|
LTV ratio: The percentage of the original loan amount to the original value of the property.
|
|
Three Months Ended March 31,
|
||||||
($ in thousands)
|
2014
|
|
2013
|
||||
First-Lien Captives
|
|
|
|
||||
Premiums earned ceded to captives
|
$
|
3,508
|
|
|
$
|
5,152
|
|
% of total premiums
|
1.6
|
%
|
|
2.6
|
%
|
||
IIF subject to captives (1)
|
3.5
|
%
|
|
5.8
|
%
|
||
RIF subject to captives (2)
|
3.3
|
%
|
|
5.7
|
%
|
||
|
|
|
|
||||
Initial Quota Share Reinsurance (“QSR”) Transaction
|
|
|
|
||||
Ceded premiums written
|
$
|
5,304
|
|
|
$
|
6,122
|
|
% of premiums written
|
2.3
|
%
|
|
2.5
|
%
|
||
Ceded premiums earned
|
$
|
6,807
|
|
|
$
|
7,833
|
|
% of total premiums
|
3.2
|
%
|
|
4.0
|
%
|
||
Ceding commissions written
|
$
|
1,326
|
|
|
$
|
1,530
|
|
RIF included in Initial QSR Transaction (3)
|
$
|
1,289,856
|
|
|
$
|
1,471,580
|
|
|
|
|
|
||||
Second QSR Transaction
|
|
|
|
||||
Ceded premiums written
|
$
|
7,293
|
|
|
$
|
16,440
|
|
% of premiums written
|
3.2
|
%
|
|
6.7
|
%
|
||
Ceded premiums earned
|
$
|
6,585
|
|
|
$
|
2,838
|
|
% of total premiums
|
3.1
|
%
|
|
1.4
|
%
|
||
Ceding commissions written
|
$
|
2,553
|
|
|
$
|
5,754
|
|
RIF included in Second QSR Transaction (3)
|
$
|
1,360,651
|
|
|
$
|
900,378
|
|
(1)
|
IIF on captives as a percentage of total IIF.
|
(2)
|
RIF on captives as a percentage of total RIF.
|
(3)
|
RIF ceded under Reinsurance Transactions and included in primary RIF.
|
|
Three Months Ended March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
New defaults
|
$
|
77.0
|
|
|
$
|
108.7
|
|
Existing defaults, second-liens, loss adjustment expenses (“LAE”) and other (1)
|
(27.8
|
)
|
|
23.3
|
|
||
Provision for losses
|
$
|
49.2
|
|
|
$
|
132.0
|
|
(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 cured (“cures”), prepaid, or resulted in a paid claim or a rescission or denial during the period indicated; (c) the impact to our incurred but not reported (“IBNR”) reserve during the period related to changes in actual and estimated reinstatements of previously rescinded policies and denied claims, including potential reinstatements we are in the process of discussing with servicers; (d) second-lien loss reserves; and (e) LAE and other loss reserves.
|
|
March 31, 2014
|
||||||||||||||||||||
|
|
|
|
|
Projected Default to Claim Rate
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
Gross (1)
|
|
Net (2)
|
|
Cure % During the 1st Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
||||||||
($ in thousands)
|
#
|
|
%
|
|
%
|
|
%
|
|
%
|
|
$
|
|
%
|
||||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Three payments or less
|
10,958
|
|
|
20.6
|
%
|
|
24
|
%
|
|
22
|
%
|
|
36.4
|
%
|
|
$
|
111,488
|
|
|
8.2
|
%
|
Four to eleven payments
|
11,862
|
|
|
22.3
|
|
|
48
|
|
|
44
|
|
|
18.1
|
|
|
241,966
|
|
|
17.9
|
|
|
Twelve payments or more
|
22,330
|
|
|
42.1
|
|
|
57
|
|
|
50
|
|
|
4.5
|
|
|
638,335
|
|
|
47.0
|
|
|
Pending claims
|
7,969
|
|
|
15.0
|
|
|
100
|
|
|
88
|
|
|
0.6
|
|
|
365,639
|
|
|
26.9
|
|
|
Total
|
53,119
|
|
|
100.0
|
%
|
|
54
|
%
|
|
48
|
%
|
|
|
|
1,357,428
|
|
|
100.0
|
%
|
||
IBNR and other
|
|
|
|
|
|
|
|
|
|
|
347,674
|
|
|
|
|||||||
LAE
|
|
|
|
|
|
|
|
|
|
|
50,684
|
|
|
|
|||||||
Total primary reserves
|
|
|
|
|
|
|
|
|
|
|
$
|
1,755,786
|
|
|
|
|
March 31, 2013
|
||||||||||||||||||||
|
|
|
|
|
Projected Default to Claim Rate
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
Gross (1)
|
|
Net (2)
|
|
Cure % During the 1st Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
||||||||
($ in thousands)
|
#
|
|
%
|
|
%
|
|
%
|
|
%
|
|
$
|
|
%
|
||||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Three payments or less
|
13,945
|
|
|
16.4
|
%
|
|
25
|
%
|
|
23
|
%
|
|
34.8
|
%
|
|
$
|
149,865
|
|
|
6.6
|
%
|
Four to eleven payments
|
18,548
|
|
|
21.8
|
|
|
49
|
|
|
45
|
|
|
14.0
|
|
|
406,486
|
|
|
17.8
|
|
|
Twelve payments or more
|
35,202
|
|
|
41.4
|
|
|
57
|
|
|
48
|
|
|
4.0
|
|
|
949,269
|
|
|
41.6
|
|
|
Pending claims
|
17,414
|
|
|
20.4
|
|
|
100
|
|
|
88
|
|
|
0.2
|
|
|
776,625
|
|
|
34.0
|
|
|
Total
|
85,109
|
|
|
100.0
|
%
|
|
59
|
%
|
|
51
|
%
|
|
|
|
2,282,245
|
|
|
100.0
|
%
|
||
IBNR and other
|
|
|
|
|
|
|
|
|
|
|
247,526
|
|
|
|
|||||||
LAE
|
|
|
|
|
|
|
|
|
|
|
59,739
|
|
|
|
|||||||
Total primary reserves
|
|
|
|
|
|
|
|
|
|
|
$
|
2,589,510
|
|
|
|
(1)
|
Represents the weighted average default to claim rate before consideration of estimated rescissions, denials and reinstatements of rescissions and denials for each category of defaulted loans.
|
(2)
|
Net of estimate of rescissions, denials and reinstatements of rescissions and denials.
|
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
|||
Default Statistics—Primary Insurance:
|
|
|
|
|
|
|||
Total Primary Insurance
|
|
|
|
|
|
|||
Prime
|
|
|
|
|
|
|||
Number of insured loans
|
746,598
|
|
|
741,554
|
|
|
683,227
|
|
Number of loans in default
|
32,708
|
|
|
37,932
|
|
|
55,490
|
|
Percentage of loans in default
|
4.38
|
%
|
|
5.12
|
%
|
|
8.12
|
%
|
Alt-A
|
|
|
|
|
|
|||
Number of insured loans
|
43,018
|
|
|
44,905
|
|
|
51,981
|
|
Number of loans in default
|
10,173
|
|
|
11,209
|
|
|
14,833
|
|
Percentage of loans in default
|
23.65
|
%
|
|
24.96
|
%
|
|
28.54
|
%
|
A minus and below
|
|
|
|
|
|
|||
Number of insured loans
|
39,338
|
|
|
40,930
|
|
|
47,656
|
|
Number of loans in default
|
10,238
|
|
|
11,768
|
|
|
14,786
|
|
Percentage of loans in default
|
26.03
|
%
|
|
28.75
|
%
|
|
31.03
|
%
|
Total Primary
|
|
|
|
|
|
|||
Number of insured loans (1)
|
839,802
|
|
|
839,249
|
|
|
782,864
|
|
Number of loans in default (2)
|
53,119
|
|
|
60,909
|
|
|
85,109
|
|
Percentage of loans in default
|
6.33
|
%
|
|
7.26
|
%
|
|
10.87
|
%
|
Default Statistics—Pool Insurance:
|
|
|
|
|
|
|||
Number of loans in default
|
9,814
|
|
|
11,921
|
|
|
16,750
|
|
(1)
|
Includes
10,848
and
11,860
insured loans subject to the Freddie Mac Agreement at
March 31, 2014
and
December 31, 2013
, respectively.
|
(2)
|
Excludes
6,022
and
7,221
loans that are in default at
March 31, 2014
and
December 31, 2013
, respectively, that are subject to the Freddie Mac Agreement, and for which we no longer have claims exposure.
|
|
Three Months Ended March 31,
|
||||
|
2014
|
|
2013
|
||
Beginning default inventory
|
60,909
|
|
|
93,169
|
|
Plus: New defaults (1)
|
12,113
|
|
|
14,846
|
|
Less: Cures (1)
|
13,645
|
|
|
16,897
|
|
Less: Claims paid (2)
|
6,049
|
|
|
5,560
|
|
Less: Rescissions (3)
|
181
|
|
|
187
|
|
Less: Denials (4)
|
28
|
|
|
262
|
|
Ending default inventory
|
53,119
|
|
|
85,109
|
|
(1)
|
Amounts reflected are compiled monthly based on reports received from loan servicers. The number of new defaults and cures presented includes the following monthly defaults that both defaulted and cured within the periods indicated:
|
|
Three Months Ended March 31,
|
||||
|
2014
|
|
2013
|
||
Intra-period new defaults
|
5,332
|
|
|
6,286
|
|
(2)
|
Includes those charged to a deductible or captive.
|
(3)
|
Net of any previously rescinded policies or denied claims that were reinstated during the period. Such reinstated rescissions may ultimately result in a paid claim.
|
(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.
|
|
Three Months Ended March 31,
|
||||
|
2014
|
|
2013
|
||
Rescinded policies:
|
|
|
|
||
Rescinded
|
(212
|
)
|
|
(441
|
)
|
Reinstated
|
31
|
|
|
254
|
|
Denied claims:
|
|
|
|
||
Denied
|
(1,281
|
)
|
|
(2,106
|
)
|
Reinstated
|
1,253
|
|
|
1,844
|
|
Total net rescissions and denials
|
(209
|
)
|
|
(449
|
)
|
(In millions)
|
March 31,
2014 |
|
December 31,
2013 |
|
March 31,
2013 |
||||||
Decrease to our loss reserve due to estimated future rescissions and denials
|
$
|
219
|
|
|
$
|
247
|
|
|
$
|
392
|
|
|
Three Months Ended March 31,
|
||||||
(In millions)
|
2014
|
|
2013
|
||||
Rescissions
|
$
|
16.1
|
|
|
$
|
15.3
|
|
Denials
|
12.2
|
|
|
27.2
|
|
||
Total first-lien claims submitted for payment that were rescinded or denied (1)
|
$
|
28.3
|
|
|
$
|
42.5
|
|
(1)
|
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 Rate for Each Quarter (1)
|
|
Percentage of
Total Claims Resolved (2)
|
Q3 2011
|
|
30.5%
|
|
100%
|
Q4 2011
|
|
26.6%
|
|
100%
|
Q1 2012
|
|
23.5%
|
|
100%
|
Q2 2012
|
|
21.1%
|
|
99%
|
Q3 2012
|
|
18.3%
|
|
98%
|
Q4 2012
|
|
17.1%
|
|
95%
|
Q1 2013
|
|
17.0%
|
|
90%
|
Q2 2013
|
|
17.3%
|
|
86%
|
Q3 2013
|
|
15.1%
|
|
81%
|
(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 policies or denied claims (excluding certain potential reinstatements we are in the process of discussing with servicers). These projected amounts represent the cumulative rates for each quarter as of
March 31, 2014
. 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; 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 and rescissions could be challenged and potentially reinstated or overturned. For the fourth quarter of 2013 and the first quarter of 2014, a significant portion of claims received for those quarters have not been internally resolved; therefore, we do not believe the projected net cumulative rescission/denial rates for those periods are presently meaningful.
|
(In thousands)
|
March 31,
2014 |
|
December 31,
2013 |
||||
Reserves for losses by category:
|
|
|
|
||||
Prime
|
$
|
790,529
|
|
|
$
|
937,307
|
|
Alt-A
|
351,695
|
|
|
384,841
|
|
||
A minus and below
|
189,453
|
|
|
215,545
|
|
||
IBNR and other
|
347,674
|
|
|
347,698
|
|
||
LAE
|
50,684
|
|
|
51,245
|
|
||
Reinsurance recoverable (1)
|
25,751
|
|
|
38,363
|
|
||
Total primary reserves
|
1,755,786
|
|
|
1,974,999
|
|
||
Pool
|
123,596
|
|
|
169,682
|
|
||
IBNR and other
|
5,679
|
|
|
8,938
|
|
||
LAE
|
4,517
|
|
|
5,439
|
|
||
Total pool reserves
|
133,792
|
|
|
184,059
|
|
||
Total first-lien reserves
|
1,889,578
|
|
|
2,159,058
|
|
||
Second-lien and other (2)
|
4,382
|
|
|
5,295
|
|
||
Total reserve for losses
|
$
|
1,893,960
|
|
|
$
|
2,164,353
|
|
|
|
|
|
||||
PDR on second-liens
|
$
|
2,251
|
|
|
$
|
1,785
|
|
(1)
|
Primarily represents ceded losses on captive transactions and the Reinsurance Transactions.
|
(2)
|
Does not include second-lien PDR.
|
|
March 31,
2014 |
|
December 31,
2013 |
||||
First-lien reserve per default (1)
|
|
|
|
||||
Primary reserve per default excluding IBNR and other
|
$
|
26,509
|
|
|
$
|
26,717
|
|
Pool reserve per pool default excluding IBNR and other (2)
|
13,054
|
|
|
14,690
|
|
(1)
|
Calculated as total reserves excluding IBNR and other divided by total defaults.
|
(2)
|
If calculated before giving effect to deductibles and stop losses in pool transactions, the pool reserve per default at
March 31, 2014
and
December 31, 2013
would be
$22,172
and
$24,640
, respectively.
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Net claims paid:
|
|
|
|
||||
Prime
|
$
|
194,718
|
|
|
$
|
200,517
|
|
Alt-A
|
46,191
|
|
|
49,091
|
|
||
A minus and below
|
33,286
|
|
|
27,486
|
|
||
Total primary claims paid
|
274,195
|
|
|
277,094
|
|
||
Pool
|
30,863
|
|
|
30,949
|
|
||
Second-lien and other
|
727
|
|
|
1,884
|
|
||
Subtotal
|
305,785
|
|
|
309,927
|
|
||
Impact of captive terminations
|
1,156
|
|
|
—
|
|
||
Total net claims paid
|
$
|
306,941
|
|
|
$
|
309,927
|
|
Average net claim paid (1):
|
|
|
|
||||
Prime
|
$
|
44.1
|
|
|
$
|
49.0
|
|
Alt-A
|
54.9
|
|
|
60.1
|
|
||
A minus and below
|
36.7
|
|
|
37.6
|
|
||
Total average net primary claim paid
|
44.5
|
|
|
49.1
|
|
||
Pool
|
60.3
|
|
|
73.5
|
|
||
Second-lien and other
|
20.8
|
|
|
22.2
|
|
||
Total average net claim paid
|
$
|
45.6
|
|
|
$
|
50.4
|
|
|
|
|
|
||||
Average direct primary claim paid (2)
|
$
|
46.2
|
|
|
$
|
51.4
|
|
Average total direct claim paid (2)
|
$
|
47.2
|
|
|
$
|
52.6
|
|
(1)
|
Net of reinsurance recoveries and without giving effect to captive terminations.
|
(2)
|
Before reinsurance recoveries and without giving effect to captive terminations.
|
|
March 31, 2014
|
|||||||||||||
|
Net Par
Outstanding (1)
|
|
% of Total
Net Par
Outstanding (1)
|
|
Net Claim
(Asset) Liability (2)
|
|
Fair Value
Net
Liability (3)
|
|||||||
Type of Obligation
|
(In billions)
|
|
|
|
(In millions)
|
|
(In millions)
|
|||||||
Public finance:
|
|
|
|
|
|
|
|
|||||||
General obligation and other tax supported (4)
|
$
|
5.2
|
|
|
22.9
|
%
|
|
$
|
14.8
|
|
|
$
|
0.2
|
|
Healthcare and long-term care
|
2.3
|
|
|
10.1
|
|
|
12.6
|
|
|
1.0
|
|
|||
Water/sewer/electric gas and investor-owned utilities
|
1.3
|
|
|
5.7
|
|
|
(1.6
|
)
|
|
1.5
|
|
|||
Education
|
1.1
|
|
|
4.9
|
|
|
(3.9
|
)
|
|
—
|
|
|||
Airports/transportation
|
0.9
|
|
|
4.0
|
|
|
—
|
|
|
28.6
|
|
|||
Escrowed transactions (5)
|
0.8
|
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|||
Housing
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|||
Other public finance (6)
|
0.5
|
|
|
2.2
|
|
|
(13.0
|
)
|
|
0.1
|
|
|||
Total public finance (7)
|
12.2
|
|
|
53.7
|
|
|
8.9
|
|
|
31.4
|
|
|||
Structured finance:
|
|
|
|
|
|
|
|
|||||||
CDO
|
9.8
|
|
|
43.3
|
|
|
2.2
|
|
|
164.6
|
|
|||
Asset-backed obligations
|
0.6
|
|
|
2.6
|
|
|
16.7
|
|
|
8.0
|
|
|||
Other structured (8)
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
0.3
|
|
|||
Total structured finance
|
10.5
|
|
|
46.3
|
|
|
18.9
|
|
|
172.9
|
|
|||
Total
|
$
|
22.7
|
|
|
100.0
|
%
|
|
$
|
27.8
|
|
|
$
|
204.3
|
|
|
December 31, 2013
|
|||||||||||||
|
Net Par
Outstanding (1)
|
|
% of Total
Net Par
Outstanding (1)
|
|
Net Claim (Asset)
Liability (2)
|
|
Fair Value
Net
Liability (3)
|
|||||||
Type of Obligation
|
(In billions)
|
|
|
|
(In millions)
|
|
(In millions)
|
|||||||
Public finance:
|
|
|
|
|
|
|
|
|||||||
General obligation and other tax supported (4)
|
$
|
5.3
|
|
|
22.2
|
%
|
|
$
|
12.9
|
|
|
$
|
0.2
|
|
Healthcare and long-term care
|
2.4
|
|
|
10.0
|
|
|
11.1
|
|
|
0.8
|
|
|||
Water/sewer/electric gas and investor-owned utilities
|
1.3
|
|
|
5.4
|
|
|
(9.6
|
)
|
|
1.2
|
|
|||
Education
|
1.1
|
|
|
4.6
|
|
|
(4.2
|
)
|
|
—
|
|
|||
Airports/transportation
|
0.9
|
|
|
3.8
|
|
|
(0.5
|
)
|
|
27.5
|
|
|||
Escrowed transactions (5)
|
0.9
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|||
Housing
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
—
|
|
|||
Other public finance (6)
|
0.5
|
|
|
2.1
|
|
|
(12.9
|
)
|
|
0.4
|
|
|||
Total public finance (7)
|
12.5
|
|
|
52.3
|
|
|
(3.2
|
)
|
|
30.1
|
|
|||
Structured finance:
|
|
|
|
|
|
|
|
|||||||
CDO
|
10.7
|
|
|
44.8
|
|
|
2.9
|
|
|
193.4
|
|
|||
Asset-backed obligations
|
0.6
|
|
|
2.5
|
|
|
19.6
|
|
|
8.6
|
|
|||
Other structured (8)
|
0.1
|
|
|
0.4
|
|
|
—
|
|
|
0.2
|
|
|||
Total structured finance
|
11.4
|
|
|
47.7
|
|
|
22.5
|
|
|
202.2
|
|
|||
Total
|
$
|
23.9
|
|
|
100.0
|
%
|
|
$
|
19.3
|
|
|
$
|
232.3
|
|
(1)
|
Represents our exposure to the aggregate outstanding principal on insured obligations. We are also responsible for the timely payment of interest on substantially all of our public finance and our non-corporate CDO structured finance obligations. For our insured corporate CDOs and CDOs of collateralized mortgage-backed securities (“CMBS”), net par outstanding represents the notional amount of credit protection we are providing on a pool of 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 claim liability reported is net of estimated salvage and subrogation, which may result in a net claim asset.
|
(3)
|
Represents 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
$1.4 billion
and $1.5 billion at
March 31, 2014
and
December 31, 2013
, respectively, of tax supported revenue bonds.
|
(5)
|
Escrowed transactions are legally defeased bond issuances where cash or U.S. government 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. Although we have little to no remaining credit risk on these transactions, they remain outstanding for GAAP purposes.
|
(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
$2.4 billion
at
March 31, 2014
and
December 31, 2013
, of international public finance insured obligations (which includes sovereign and sub-sovereign (collectively, “Sovereign”) indebtedness, of which
$102.0 million
and $101.2 million at
March 31, 2014
and
December 31, 2013
, respectively, is related to Greece, Spain, Italy, Hungary, Portugal and Ireland (collectively, the “Stressed European Countries”)).
|
(8)
|
Represents other types of structured finance obligations, including collateralized guaranteed investment contracts or letters of credit, foreign commercial assets and life insurance securitizations, none of which individually constitutes a material amount of our financial guaranty net par outstanding.
|
|
Three Months Ended March 31,
|
|
% Change
|
|||||||
($ in millions)
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|||||
Adjusted pretax operating loss (1)
|
$
|
(10.2
|
)
|
|
$
|
(3.8
|
)
|
|
n/m
|
|
Net premiums written—insurance
|
0.8
|
|
|
(10.1
|
)
|
|
n/m
|
|
||
Net premiums earned—insurance
|
6.9
|
|
|
9.6
|
|
|
(28.1
|
)%
|
||
Net premiums earned on derivatives
|
3.4
|
|
|
5.0
|
|
|
(32.0
|
)
|
||
Net investment income
|
10.2
|
|
|
11.8
|
|
|
(13.6
|
)
|
||
Provision for losses
|
5.7
|
|
|
0.1
|
|
|
n/m
|
|
||
Policy acquisition costs
|
1.6
|
|
|
5.5
|
|
|
(70.9
|
)
|
||
Other operating expenses
|
9.6
|
|
|
14.3
|
|
|
(32.9
|
)
|
||
Interest expense
|
14.6
|
|
|
13.2
|
|
|
10.6
|
|
(1)
|
Our senior management uses adjusted pretax operating income (loss) as our primary measure to facilitate evaluation of the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Net premiums earned:
|
|
|
|
||||
Public finance direct
|
$
|
4,543
|
|
|
$
|
7,200
|
|
Public finance reinsurance
|
1,679
|
|
|
1,447
|
|
||
Structured direct
|
226
|
|
|
200
|
|
||
Structured reinsurance
|
453
|
|
|
3,196
|
|
||
Trade credit reinsurance
|
2
|
|
|
—
|
|
||
Total premiums earned—insurance
|
6,903
|
|
|
12,043
|
|
||
Impact of commutations/recaptures
|
—
|
|
|
(2,447
|
)
|
||
Total net premiums earned—insurance
|
$
|
6,903
|
|
|
$
|
9,596
|
|
|
|
|
|
||||
Refundings included in total net premiums earned
|
$
|
2,117
|
|
|
$
|
4,753
|
|
(In thousands)
|
March 31, 2014
|
|
December 31, 2013
|
|
March 31, 2013
|
||||||
Total reserve for losses
|
$
|
29,752
|
|
|
$
|
21,069
|
|
|
$
|
24,573
|
|
(1)
|
Reflects the payment of $41.6 million related to the FGIC Commutation.
|
|
Three Months Ended March 31,
|
||||||
(In thousands)
|
2014
|
|
2013
|
||||
Net income (loss)
|
$
|
202,759
|
|
|
$
|
(187,500
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
||||
Net (gains) losses on investments and other financial instruments, change in fair value of derivatives and net impairment losses recognized in earnings
|
(115,235
|
)
|
|
178,850
|
|
||
Net receipts (payments) related to derivative contracts and VIE debt
(1)
|
2,775
|
|
|
(4,821
|
)
|
||
Equity in loss (earnings) of affiliates
|
13
|
|
|
(1
|
)
|
||
Net cash received (paid) for commutations, terminations, and recaptures
(1)
|
1,105
|
|
|
(52,400
|
)
|
||
Commutation-related charges
|
—
|
|
|
5,300
|
|
||
Deferred tax benefit
|
(533
|
)
|
|
(24,266
|
)
|
||
Depreciation and amortization, net
|
15,461
|
|
|
18,893
|
|
||
Change in:
|
|
|
|
||||
Unearned premiums
|
5,917
|
|
|
35,267
|
|
||
Deferred policy acquisition costs
|
3,218
|
|
|
10,301
|
|
||
Reinsurance recoverables
|
15,242
|
|
|
10,434
|
|
||
Reserve for losses and LAE
|
(262,295
|
)
|
|
(189,263
|
)
|
||
Other assets
|
2,840
|
|
|
(3,543
|
)
|
||
Other liabilities
|
(8,277
|
)
|
|
36,778
|
|
||
Cash flows used in operations
|
$
|
(137,010
|
)
|
|
$
|
(165,971
|
)
|
(1)
|
Cash item.
|
|
Moody’s
(1)
|
|
S&P
(2)
|
Radian Group
|
Caa1
|
|
B-
|
Radian Guaranty
|
Ba3
|
|
BB-
|
Radian Insurance Inc.
|
(3)
|
|
(3)
|
Radian Mortgage Assurance Inc. (“RMAI”) (4)
|
Ba3
|
|
BB-
|
Radian Asset Assurance
|
Ba1
|
|
B+
|
(1)
|
Moody’s outlook for Radian Group and all our rated mortgage insurance subsidiaries is currently Positive. Moody’s outlook for Radian Asset Assurance is currently Negative.
|
(2)
|
S&P’s outlook for Radian Group and Radian Guaranty is currently Positive. The outlook for all other subsidiaries is currently Stable.
|
(3)
|
Not currently rated.
|
(4)
|
Currently, RMAI is not writing new business and has no RIF.
|
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. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.
|
•
|
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
|
0.31
|
%
|
|
|
|
|
|||||
Fair value of net liabilities
|
$
|
2.5
|
|
|
|
|
|
||||
|
Increase (Decrease) in Fair Value Net 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
|
$
|
9.0
|
|
|
$
|
11.7
|
|
|
$
|
14.3
|
|
0 basis points change in Radian Group’s CDS spread
|
(1.4
|
)
|
|
—
|
|
|
1.4
|
|
|||
50% widening of Radian Group’s CDS spread
|
(5.8
|
)
|
|
(5.1
|
)
|
|
(4.3
|
)
|
|||
_______________________
|
|
|
|
|
|
||||||
|
|
|
|
|
|
||||||
Non-Corporate CDO related (1) ($ in millions)
|
|
|
|
|
|
||||||
Weighted average credit spread
|
1.37
|
%
|
|
|
|
|
|||||
Fair value of net liabilities
|
$
|
193.3
|
|
|
|
|
|
||||
|
Increase (Decrease) in Fair Value Net 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
|
$
|
67.5
|
|
|
$
|
104.4
|
|
|
$
|
140.6
|
|
0 basis points change in Radian Group’s CDS spread
|
(25.9
|
)
|
|
—
|
|
|
25.6
|
|
|||
50% widening of Radian Group’s CDS spread
|
(44.9
|
)
|
|
(21.2
|
)
|
|
1.7
|
|
(1)
|
Includes TruPs, CDOs of CMBS and other non-corporate CDOs and related VIEs.
|
•
|
On December 30, 2011, a putative class action under RESPA titled White v. PNC Financial Services Group was filed in the U.S. District Court for the Eastern District of Pennsylvania. On September 29, 2012, plaintiffs filed an amended complaint.
On November 26, 2012, Radian Guaranty filed a motion to dismiss the plaintiffs’ claims as barred by the statute of limitations. On June 20, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on July 5, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on July 22, 2013.
|
•
|
On January 13, 2012, a putative class action under RESPA titled Menichino, et al. v. Citibank, N.A., et al., was filed in the U.S. District Court for the Western District of Pennsylvania. Radian Guaranty was not named as a defendant in the original complaint. On December 4, 2012, plaintiffs amended their complaint to add Radian Guaranty as an additional defendant.
On February 4, 2013, Radian Guaranty filed a motion to dismiss the claims against it as barred by the statute of limitations. On July 19, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on August 16, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on September 17, 2013. The court denied Radian Guaranty’s motion on February 4, 2014, without prejudice to Radian Guaranty’s ability to raise the statute of limitations bar on a motion for summary judgment.
On March 26, 2014, the court stayed the Menichino case, pending the outcome of an appeal filed by plaintiffs in Riddle v. Bank of America Corporation, et. al. (another putative class action under RESPA in which Radian Guaranty is not a party) after the Riddle case was dismissed on summary judgment on November 18, 2013.
|
•
|
On April 5, 2012, a putative class action under RESPA titled Manners, et al. v. Fifth Third Bank, et al. was filed in the U.S. District Court for the Western District of Pennsylvania.
On November 28, 2012, Radian Guaranty moved to dismiss plaintiffs’ claims as barred by the statute of limitations. On July 19, 2013, the court granted Radian Guaranty’s motion and dismissed plaintiffs’ claims, but granted plaintiffs leave to file a second amended complaint. Plaintiffs filed their second amended complaint on August 16, 2013, reasserting a putative claim under RESPA on substantially the same allegations. Radian Guaranty filed a motion to dismiss plaintiffs’ second amended complaint on September 17, 2013. The court denied Radian Guaranty’s motion on February 5, 2014, without prejudice to Radian Guaranty’s ability to raise the statute of limitations bar on a motion for summary judgment.
On March 26, 2014, the court stayed the Manners case, pending the outcome of an appeal filed by plaintiffs in Riddle v. Bank of America Corporation, et. al. (another putative class action under RESPA in which Radian Guaranty is not a party) after the Riddle case was dismissed on summary judgment on November 18, 2013.
|
•
|
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 U.S. District Court for the Middle District of Pennsylvania.
On December 10, 2012, Radian Guaranty moved to dismiss plaintiffs’ claims as barred by the statute of limitations, and on February 11, 2013, plaintiffs filed an opposition to the motion to dismiss. On October 30, 2013, the court denied that motion and ordered a brief period of discovery limited to the statute of limitations issue. On January 31, 2014, plaintiffs voluntarily dismissed Radian Guaranty from this lawsuit.
|
|
|
Three Months Ended
|
|
Year Ended
|
||||||||||||||||
(In thousands)
|
|
March 31, 2013
|
|
June 30, 2013
|
|
September 30, 2013
|
|
December 31, 2013
|
|
December 31, 2013
|
||||||||||
Mortgage Insurance
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums written - insurance
|
|
$
|
217,286
|
|
|
$
|
251,159
|
|
|
$
|
250,799
|
|
|
$
|
231,754
|
|
|
$
|
950,998
|
|
Net premiums earned - insurance
|
|
$
|
182,992
|
|
|
$
|
197,952
|
|
|
$
|
200,120
|
|
|
$
|
200,356
|
|
|
$
|
781,420
|
|
Net premiums earned on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net investment income
|
|
15,102
|
|
|
15,266
|
|
|
14,868
|
|
|
16,379
|
|
|
61,615
|
|
|||||
Other income
|
|
1,712
|
|
|
2,159
|
|
|
1,250
|
|
|
903
|
|
|
6,024
|
|
|||||
Total revenues
|
|
199,806
|
|
|
215,377
|
|
|
216,238
|
|
|
217,638
|
|
|
849,059
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Provision for losses
|
|
131,956
|
|
|
136,410
|
|
|
152,012
|
|
|
144,270
|
|
|
564,648
|
|
|||||
Estimated present value of net credit (recoveries) losses incurred
|
|
(299
|
)
|
|
323
|
|
|
(74
|
)
|
|
29
|
|
|
(21
|
)
|
|||||
Change in reserve for premium deficiency
|
|
(629
|
)
|
|
1,251
|
|
|
(2,325
|
)
|
|
(198
|
)
|
|
(1,901
|
)
|
|||||
Policy acquisition costs
|
|
11,732
|
|
|
6,501
|
|
|
5,839
|
|
|
4,413
|
|
|
28,485
|
|
|||||
Other operating expenses
|
|
65,780
|
|
|
51,295
|
|
|
59,590
|
|
|
60,294
|
|
|
236,959
|
|
|||||
Interest expense
|
|
2,669
|
|
|
3,704
|
|
|
4,447
|
|
|
7,175
|
|
|
17,995
|
|
|||||
Total expenses
|
|
211,209
|
|
|
199,484
|
|
|
219,489
|
|
|
215,983
|
|
|
846,165
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Equity in net income of affiliates
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted pretax operating (loss) income
|
|
$
|
(11,403
|
)
|
|
$
|
15,893
|
|
|
$
|
(3,251
|
)
|
|
$
|
1,655
|
|
|
$
|
2,894
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Three Months Ended
|
|
Year Ended
|
||||||||||||||||
(In thousands)
|
|
March 31, 2013
|
|
June 30, 2013
|
|
September 30, 2013
|
|
December 31, 2013
|
|
December 31, 2013
|
||||||||||
Financial Guaranty
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net premiums written - insurance
|
|
$
|
(10,101
|
)
|
|
$
|
70
|
|
|
$
|
43
|
|
|
$
|
(193
|
)
|
|
$
|
(10,181
|
)
|
Net premiums earned - insurance
|
|
$
|
9,596
|
|
|
$
|
15,172
|
|
|
$
|
11,864
|
|
|
$
|
12,842
|
|
|
$
|
49,474
|
|
Net premiums earned on derivatives
|
|
4,992
|
|
|
4,857
|
|
|
4,170
|
|
|
3,879
|
|
|
17,898
|
|
|||||
Net investment income
|
|
11,771
|
|
|
12,349
|
|
|
11,864
|
|
|
10,489
|
|
|
46,473
|
|
|||||
Other income
|
|
59
|
|
|
75
|
|
|
64
|
|
|
13
|
|
|
211
|
|
|||||
Total revenues
|
|
26,418
|
|
|
32,453
|
|
|
27,962
|
|
|
27,223
|
|
|
114,056
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Provision for losses
|
|
103
|
|
|
3,881
|
|
|
5,162
|
|
|
(6,660
|
)
|
|
2,486
|
|
|||||
Estimated present value of net credit (recoveries) losses incurred
|
|
(2,845
|
)
|
|
(618
|
)
|
|
3,347
|
|
|
(393
|
)
|
|
(509
|
)
|
|||||
Change in reserve for premium deficiency
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Policy acquisition costs
|
|
5,463
|
|
|
3,505
|
|
|
2,119
|
|
|
2,092
|
|
|
13,179
|
|
|||||
Other operating expenses
|
|
14,320
|
|
|
9,686
|
|
|
11,384
|
|
|
12,179
|
|
|
47,569
|
|
|||||
Interest expense
|
|
13,212
|
|
|
15,716
|
|
|
15,123
|
|
|
12,572
|
|
|
56,623
|
|
|||||
Total expenses
|
|
30,253
|
|
|
32,170
|
|
|
37,135
|
|
|
19,790
|
|
|
119,348
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Equity in net income of affiliates
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted pretax operating (loss) income
|
|
$
|
(3,834
|
)
|
|
$
|
283
|
|
|
$
|
(9,173
|
)
|
|
$
|
7,433
|
|
|
$
|
(5,291
|
)
|
|
|
Three Months Ended
|
|
Year Ended
|
||||||||||||||||
(In thousands)
|
|
March 31, 2013
|
|
June 30, 2013
|
|
September 30, 2013
|
|
December 31, 2013
|
|
December 31, 2013
|
||||||||||
Consolidated
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Adjusted pretax operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Mortgage insurance
|
|
$
|
(11,403
|
)
|
|
$
|
15,893
|
|
|
$
|
(3,251
|
)
|
|
$
|
1,655
|
|
|
$
|
2,894
|
|
Financial guaranty
|
|
(3,834
|
)
|
|
283
|
|
|
(9,173
|
)
|
|
7,433
|
|
|
(5,291
|
)
|
|||||
Total adjusted pretax operating (loss) income
|
|
(15,237
|
)
|
|
16,176
|
|
|
(12,424
|
)
|
|
9,088
|
|
|
(2,397
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Change in fair value of derivative instruments
|
|
(167,670
|
)
|
|
86,535
|
|
|
10,778
|
|
|
38,586
|
|
|
(31,771
|
)
|
|||||
Less: Estimated present value of net credit recoveries (losses) incurred
|
|
3,144
|
|
|
295
|
|
|
(3,273
|
)
|
|
364
|
|
|
530
|
|
|||||
Less: Net premiums earned on derivatives
|
|
4,992
|
|
|
4,857
|
|
|
4,170
|
|
|
3,879
|
|
|
17,898
|
|
|||||
Change in fair value of derivative instruments expected to reverse over time
|
|
(175,806
|
)
|
|
81,383
|
|
|
9,881
|
|
|
34,343
|
|
|
(50,199
|
)
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Net losses on investments
|
|
(5,505
|
)
|
|
(130,254
|
)
|
|
(7,132
|
)
|
|
(6,829
|
)
|
|
(149,720
|
)
|
|||||
Net impairment losses recognized in earnings
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|||||
Net (losses) gains on other financial instruments
|
|
(5,675
|
)
|
|
1,188
|
|
|
902
|
|
|
(1,151
|
)
|
|
(4,736
|
)
|
|||||
Consolidated pretax (loss) income
|
|
(202,223
|
)
|
|
(31,507
|
)
|
|
(8,773
|
)
|
|
35,448
|
|
|
(207,055
|
)
|
|||||
Income tax (benefit) provision
|
|
(14,723
|
)
|
|
1,665
|
|
|
3,909
|
|
|
(921
|
)
|
|
(10,070
|
)
|
|||||
Consolidated net (loss) income
|
|
$
|
(187,500
|
)
|
|
$
|
(33,172
|
)
|
|
$
|
(12,682
|
)
|
|
$
|
36,369
|
|
|
$
|
(196,985
|
)
|
Exhibit No.
|
|
Exhibit Name
|
*2
|
|
Unit Purchase Agreement, dated as of May 6, 2014, by and among (i) Radian Group Inc., (ii) Clayton Holdings LLC and (iii) Cobra Green LLC, a Delaware limited liability company, and Paul T. Bossidy.
|
*12
|
|
Statement of Ratio of Earnings to Fixed Charges
|
*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 March 31, 2014, is formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013, (iv) Condensed Consolidated Statements of Changes in Common Stockholders’ Equity for the three months ended March 31, 2014 and 2013, (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
|
|
Radian Group Inc.
|
|
|
May 6, 2014
|
/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
|
*2
|
|
Unit Purchase Agreement, dated as of May 6, 2014, by and among (i) Radian Group Inc., (ii) Clayton Holdings LLC and (iii) Cobra Green LLC, a Delaware limited liability company, and Paul T. Bossidy.
|
*12
|
|
Statement of Ratio of Earnings to Fixed Charges
|
*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 March 31, 2014, is formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013, (iv) Condensed Consolidated Statements of Changes in Common Stockholders’ Equity for the three months ended March 31, 2014 and 2013, (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
|
Article I SALE AND PURCHASE OF CLASS A UNITS AND CLASS B UNITS
|
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1.1
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Sale and Purchase of Class A Units and Class B Units
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1
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1.2
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Purchase Price
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2
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1.3
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Escrow Account
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2
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1.4
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Estimated Purchase Price Adjustment
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3
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1.5
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Purchase Price Adjustment
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3
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1.6
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Tax Treatment
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5
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Article II CLOSING AND TERMINATION
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2.1
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Closing; Closing Date
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7
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2.2
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Closing Deliveries
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7
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2.3
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Termination of the Agreement
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8
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2.4
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Procedure Upon Termination
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10
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2.5
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Effect of Termination
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10
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Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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3.1
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Status, Authority, Conflicts
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10
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3.2
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Capitalization of the Company
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11
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3.3
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Subsidiaries
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12
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3.4
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Financial Information
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12
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3.5
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Absence of Certain Changes
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13
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3.6
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Title to Assets
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15
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3.7
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Contracts
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15
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3.8
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Employee Benefit Matters
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17
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3.9
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Intellectual Property
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18
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3.10
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Insurance
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18
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3.11
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Litigation
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19
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3.12
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Operations in Conformity with Law
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19
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3.13
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Taxes
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20
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3.14
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Employee Matters
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21
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3.15
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Brokers
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22
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3.16
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Affiliate Transactions
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22
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3.17
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Customers and Suppliers
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22
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3.18
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Data Collection and Privacy Policies
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22
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3.19
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Disclaimer of Other Representations and Warranties
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23
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Article IV REPRESENTATIONS AND WARRANTIES OF UNITHOLDERS
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4.1
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Authority and Validity
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23
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4.2
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No Violation
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24
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4.3
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Ownership of Class A Units and/or Class B Units
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24
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4.4
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Brokers
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24
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4.5
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Disclaimer of Other Representations and Warranties
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24
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Article V REPRESENTATIONS AND WARRANTIES OF PURCHASER
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5.1
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Corporate Organization
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25
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5.2
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Authority and Validity
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25
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5.3
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No Violation
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25
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5.4
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Investment Intention
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25
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5.5
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Financial Capability; Solvency
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26
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5.6
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Brokers
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26
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5.7
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Litigation
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26
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5.8
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Inspection; No Other Representations
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26
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5.9
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Disclaimer of Other Representations and Warranties
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27
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Article VI ADDITIONAL AGREEMENTS
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6.1
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Further Assurances
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27
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6.2
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Notification
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28
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6.3
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Confidentiality
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29
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6.4
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Publicity
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29
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6.5
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Tax Matters
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30
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6.6
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Conduct of the Business Prior to the Closing
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32
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6.7
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Pre-Closing Period Access to Information
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33
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6.8
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Post-Closing Preservation of Records
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33
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6.9
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No Solicitation
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34
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6.10
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Director and Officer Indemnification and Insurance
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34
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6.11
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Employment and Benefit Matters
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35
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6.12
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Certain Waivers
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36
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6.13
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Non-Competition and Non-Solicitation
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36
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6.14
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Financing Matters
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38
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Article VII CONDITIONS PRECEDENT
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7.1
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Conditions to Each Party’s Obligation
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40
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7.2
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Conditions to Obligation of Purchaser
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40
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7.3
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Conditions to Obligation of the Unitholders
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41
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Article VIII INDEMNIFICATION; CERTAIN REMEDIES
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8.1
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Survival
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42
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8.2
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Indemnification by the Unitholders
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42
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8.3
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Indemnification by Purchaser
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43
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8.4
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Limitations on Indemnification
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44
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8.5
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Indemnification Procedures
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45
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8.6
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Calculation of Losses
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47
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8.7
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Tax Treatment of Indemnity Payments
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47
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8.8
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Subrogation
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47
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8.9
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Exclusive Remedy
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48
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Article IX GENERAL PROVISIONS
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9.1
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Expenses
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48
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9.2
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Notices
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48
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9.3
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Interpretation
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49
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9.4
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Counterparts
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50
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9.5
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Entire Agreement; Construction
|
50
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9.6
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Amendment
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50
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9.7
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Waiver
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50
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9.8
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Governing Law; Waiver of Jury Trial
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50
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9.9
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Unitholder Representative
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51
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9.10
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Severability
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54
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9.11
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Assignment
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54
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9.12
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No Third Party Beneficiaries
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54
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9.13
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Enforcement of Agreement
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54
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9.14
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Waiver of Conflicts; Privilege
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54
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THIS UNIT PURCHASE AGREEMENT
(this “
Agreement
”) is entered into as of May 6, 2014, by and among (i) Radian Group Inc., a Delaware corporation (“
Purchaser
”), (ii) Clayton Holdings LLC, a Delaware limited liability company (the “
Company
”), (iii) Cobra Green LLC, a Delaware limited liability company (“
Cobra Green
”), and Paul T. Bossidy (each such party, a “
Unitholder
,” and collectively, the “
Unitholders
”), and Cobra Green, in its role as the Unitholder Representative (the “
Unitholder Representative
”). Each of Purchaser, the Company and each Unitholder is referred to herein as a “
Party
” and collectively as the “
Parties
.” Capitalized terms used herein and not otherwise defined have the meanings set forth in
Schedule II
hereto.
|
PURCHASER:
RADIAN GROUP INC.
By:
/s/ S.A. Ibrahim
Name: S.A. Ibrahim
Title: Chief Executive Officer
|
COMPANY:
CLAYTON HOLDINGS LLC
By:
/s/ Paul T. Bossidy
Name: Paul T. Bossidy
Title: Chief Executive Officer
|
UNITHOLDERS:
COBRA GREEN LLC
By:
/s/ Barry P. Marcus
Name: Barry P. Marcus
Title: Senior Vice President
|
/s/ Paul T. Bossidy
Paul T. Bossidy
|
UNITHOLDER REPRESENTATIVE:
COBRA GREEN LLC
By:
/s/ Barry P. Marcus
Name: Barry P. Marcus
Title: Senior Vice President
|
|
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Schedule I
|
Unitholder
|
Class A Units
|
Class B Units
|
Pro Rata Share
|
Cobra Green LLC
|
131,739.67
|
0
|
99.95513%
|
Paul T. Bossidy
|
59.14
|
100
|
0.04487%
|
|
|
|
|
Total
|
131,798.81
|
100
|
100%
|
|
|
|
|
(In thousands)
|
Three Months Ended
|
|
Fiscal Years Ended December 31,
|
||||||||||||||||||||
|
March 31, 2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
||||||||||||
Net earnings (loss)
|
$
|
202,759
|
|
|
$
|
(196,985
|
)
|
|
$
|
(451,468
|
)
|
|
$
|
302,150
|
|
|
$
|
(1,805,867
|
)
|
|
$
|
(147,879
|
)
|
Federal and state income tax (benefit) provision
|
(241
|
)
|
|
(10,070
|
)
|
|
7,271
|
|
|
66,362
|
|
|
226,189
|
|
|
(94,401
|
)
|
||||||
Earnings (loss) before income taxes
|
202,518
|
|
|
(207,055
|
)
|
|
(444,197
|
)
|
|
368,512
|
|
|
(1,579,678
|
)
|
|
(242,280
|
)
|
||||||
Equity in net loss (income) of affiliates
|
13
|
|
|
(1
|
)
|
|
13
|
|
|
(65
|
)
|
|
(14,668
|
)
|
|
(33,226
|
)
|
||||||
Distributed income from equity investees
|
—
|
|
|
—
|
|
|
92
|
|
|
—
|
|
|
29,498
|
|
|
11,040
|
|
||||||
Net earnings (loss)
|
202,531
|
|
|
(207,056
|
)
|
|
(444,092
|
)
|
|
368,447
|
|
|
(1,564,848
|
)
|
|
(264,466
|
)
|
||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest
|
19,927
|
|
|
74,618
|
|
|
51,832
|
|
|
61,394
|
|
|
41,777
|
|
|
46,010
|
|
||||||
One-Third of all rentals
|
419
|
|
|
1,432
|
|
|
1,873
|
|
|
1,678
|
|
|
1,621
|
|
|
2,496
|
|
||||||
Fixed charges
|
20,346
|
|
|
76,050
|
|
|
53,705
|
|
|
63,072
|
|
|
43,398
|
|
|
48,506
|
|
||||||
Net earnings (loss) available for fixed charges
(1)
|
$
|
222,877
|
|
|
$
|
(131,006
|
)
|
|
$
|
(390,387
|
)
|
|
$
|
431,519
|
|
|
$
|
(1,521,450
|
)
|
|
$
|
(215,960
|
)
|
Ratio of net earnings (loss) to fixed charges
|
11.0x
|
|
(2)
|
|
(2)
|
|
6.8x
|
|
(2)
|
|
(2)
|
(1)
|
We do not have any preferred stock for any of the periods presented.
|
(2)
|
For the fiscal years ended 2013, 2012, 2010 and 2009, earnings were not adequate to cover fixed charges in the amount
$(131,006)
,
$(390,387)
,
$(1,521,450)
and
$(215,960)
, respectively. Interest on tax accruals that are non-third party indebtedness are excluded from the calculations.
|
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: May 6, 2014
|
/s/ S
ANFORD
A. I
BRAHIM
|
|
Sanford A. Ibrahim
Chief Executive Officer
|
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: May 6, 2014
|
/s/ C. R
OBERT
Q
UINT
|
|
C. Robert Quint
Chief Financial Officer
|
|
|
Date: May 6, 2014
|
/s/ S. A. I
BRAHIM
|
|
Sanford A. Ibrahim
Chief Executive Officer
|
|
|
|
/s/ C. R
OBERT
Q
UINT
|
|
C. Robert Quint
Chief Financial Officer
|