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 2.
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Item 6.
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Term
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Definition
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Foreclosure Stage Default
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The Stage of Default indicating that the foreclosure sale has been scheduled or held
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Freddie Mac
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Federal Home Loan Mortgage Corporation
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Freddie Mac Agreement
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The Master Transaction Agreement between Radian Guaranty and Freddie Mac entered into in August 2013
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GAAP
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Accounting principles generally accepted in the United States of America
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Green River Capital
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Green River Capital LLC, a wholly-owned subsidiary of Clayton
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GSEs
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Government-Sponsored Enterprises (Fannie Mae and Freddie Mac)
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HPA
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Homeowners Protection Act
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IBNR
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Losses incurred but not reported
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IIF
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Insurance in force
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Implementation Date
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The February 1, 2015 commencement date for activities pursuant to the BofA Settlement Agreement
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Initial QSR Transaction
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Initial quota share reinsurance agreement entered into with a third-party reinsurance provider in the second quarter of 2012
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Insureds
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Insured parties, with respect to the BofA Settlement Agreement, Countrywide Home Loans, Inc. and Bank of America, N.A., as a successor to BofA Home Loan Servicing f/k/a Countrywide Home Loans Servicing LP
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IRS
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Internal Revenue Service
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LAE
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Loss adjustment expense, which includes the cost of investigating and adjusting losses and paying claims
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Legacy Portfolio
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Mortgage insurance written during the poor underwriting years of 2005 through 2008, together with business written prior to 2005
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Loss Mitigation Activity/Activities
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Activities such as Rescissions, Claim Denials, Claim Curtailments and cancellations
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LTV
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Loan-to-value ratio which is calculated as the percentage of the original loan amount to the original value of the property
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Master Policies
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The Prior Master Policy and the 2014 Master Policy, collectively
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Minimum Required Assets
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A risk-based minimum required asset amount, as defined in the PMIERs, calculated based on net RIF and a variety of measures designed to evaluate credit quality
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Model Act
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Mortgage Guaranty Insurers Model Act
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Monthly Premium Policy/Policies
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Insurance policies where premiums are paid on a monthly installment basis
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Moody’s
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Moody’s Investors Service
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Mortgage Insurance
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Radian’s Mortgage Insurance business segment, which provides credit-related insurance coverage, principally through private mortgage insurance, to mortgage lending institutions
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MPP Requirement
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Certain states’ statutory or regulatory risk-based capital requirement that the mortgage insurer must maintain a minimum policyholder position, which is calculated based on both risk and surplus levels
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NAIC
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National Association of Insurance Commissioners
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NIW
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New insurance written
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NOL
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Net operating loss, calculated on a tax basis
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Notices of Deficiency
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Formal letters from the IRS informing the taxpayer of an IRS determination of tax deficiency and appeal rights
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OCI
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Other comprehensive income (loss)
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PDR
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Premium deficiency reserve
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Persistency Rate
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The percentage of insurance in force that remains on our books after any 12-month period
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Term
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Definition
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PMIERs
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Private Mortgage Insurer Eligibility Requirements that were issued by the FHFA in proposed form for public comment on July 10, 2014 and issued in final form on April 17, 2015, as updated on June 30, 2015
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PMIERs Financial Requirements
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Financial requirements of the PMIERs
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Prior Master Policy
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Radian Guaranty’s master insurance policy in effect prior to the effective date of its 2014 Master Policy
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QSR
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Quota share reinsurance
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QSR Transactions
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The Initial QSR Transaction and Second QSR Transaction, collectively
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Radian
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Radian Group Inc. together with its consolidated subsidiaries
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Radian Asset Assurance
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Radian Asset Assurance Inc., a New York domiciled insurance subsidiary of Radian Guaranty
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Radian Asset Assurance Stock Purchase Agreement
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The Stock Purchase Agreement dated December 22, 2014, between Radian Guaranty and Assured Guaranty Corp., a subsidiary of Assured Guaranty Ltd. (“Assured”), to sell 100% of the issued and outstanding shares of Radian Asset Assurance, Radian’s financial guaranty insurance subsidiary, to Assured
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Radian Group
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Radian Group Inc., the registrant
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Radian Guaranty
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Radian Guaranty Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group
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RBC States
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Risk-based capital states, which are those states that currently impose a statutory or regulatory risk-based capital requirement
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Red Bell
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Red Bell Real Estate, LLC, a wholly-owned subsidiary of Clayton
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Reinstatements
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Reversals of previous rescissions, claim denials and claim curtailments
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REMIC
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Real Estate Mortgage Investment Conduit
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REO
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Real estate owned
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Rescission
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Our legal right, under certain conditions, to unilaterally rescind coverage on our mortgage insurance policies if we determine that a loan did not qualify for insurance
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RESPA
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Real Estate Settlement Procedures Act of 1974
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RGRI
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Radian Guaranty Reinsurance Inc., a Pennsylvania domiciled insurance subsidiary of Enhance Financial Services Group Inc., a New York domiciled non-insurance subsidiary of Radian Group
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RIF
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Risk in force, which approximates the maximum loss exposure at any point in time
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Risk-to-capital
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Under certain state regulations, a minimum ratio of statutory capital calculated relative to the level of net risk in force
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RMBS
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Residential mortgage-backed securities
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S&P
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Standard & Poor’s Financial Services LLC
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SAP
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Statutory accounting practices include those required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries
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SEC
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United States Securities and Exchange Commission
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Second QSR Transaction
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Second Quota share reinsurance transaction entered into with a third-party reinsurance provider in the fourth quarter of 2012
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Second-liens
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Second-lien mortgage loans
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Senior Notes due 2017
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Our 9.000% unsecured senior notes due June 2017 ($195.5 million principal amount)
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Senior Notes due 2019
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Our 5.500% unsecured senior notes due June 2019 ($300 million principal amount)
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Senior Notes due 2020
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Our 5.250% unsecured senior notes due June 2020 ($350 million principal amount)
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Services
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Radian’s Mortgage and Real Estate Services business segment, which provides mortgage- and real estate-related products and services to the mortgage finance market
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Servicing Only Loans
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With respect to the BofA Settlement Agreement, loans other than Legacy Loans that were or are serviced by the Insureds and were 90 days or more past due as of July 31, 2014, or if servicing has been transferred to a servicer other than the Insureds, 90 days or more past due as of the transfer date
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Term
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Definition
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Single Premium Policy/Policies
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Insurance policies where premiums are paid as a single payment at origination
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Stage of Default
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The stage a loan is in relative to the foreclosure process, based on whether or not a foreclosure sale has been scheduled or held
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Statutory RBC Requirement
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Risk-based capital requirement imposed by the RBC States, requiring a minimum surplus level and, in certain states, a minimum ratio of statutory capital relative to the level of risk
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Structured Transactions
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With respect to mortgage insurance, transactions in which mortgage insurance is provided on a group of mortgages after they have been originated. Structured Transactions contrast with Flow Business, in which mortgage insurance is provided on mortgages on an individual loan basis as they are originated
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Subject Loans
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Loans covered under the BofA Settlement Agreement, comprising Legacy Loans and Servicing Only Loans
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The White Case
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A putative class action under RESPA titled White v. PNC Financial Services Group filed in the U.S. District Court for the Eastern District of Pennsylvania
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The Menichino Case
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A putative class action under RESPA titled Menichino, et al. v. Citibank, N.A., et al. filed in the U.S. District Court for the Western District of Pennsylvania
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The Manners Case
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A putative class action under RESPA titled Manners, et al. v. Fifth Third Bank, et al. filed in the U.S. District Court for the Western District of Pennsylvania
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Time in Default
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The time period from the point a loan reaches default status (based on the month the default occurred) to the current reporting date
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U.S.
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The United States of America
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U.S. Treasury
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United States Department of the Treasury
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VIE
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Variable interest entity is a legal entity subject to the variable interest entity subsections of the accounting standard regarding consolidation, and generally includes a corporation, trust or partnership in which, by design, equity investors do not have a controlling financial interest or do not have sufficient equity at risk to finance activities without additional subordinated financial support
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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, 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;
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•
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catastrophic events, increased unemployment, home price depreciation or other negative economic changes generally or in geographic regions where our mortgage insurance exposure is more concentrated;
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•
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Radian Guaranty’s ability to remain eligible under applicable requirements imposed by the FHFA and by the GSEs to insure loans purchased by the GSEs;
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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. We expect to contribute a portion of our holding company liquidity to support Radian Guaranty’s compliance with the PMIERs Financial Requirements which become effective for existing mortgage insurers on December 31, 2015. Our projections regarding the amount of holding company liquidity that we may contribute to Radian Guaranty to comply with the PMIERs Financial Requirements are based on our estimates of Radian Guaranty’s Minimum Required Assets and Available Assets, which may not prove to be accurate, and which could be impacted by: (1) our ability to receive, as currently expected, GSE approval for the amendments to our existing reinsurance arrangements and receive the full PMIERs benefit for these arrangements; (2) whether we elect to convert certain liquid assets into PMIERs-compliant Available Assets; (3) the product mix of our NIW and factors affecting the performance of our mortgage insurance business, including our level of defaults, prepayments, the losses we incur on new or existing defaults and the credit characteristics of our mortgage insurance; and (4) how much capital we expect to maintain at our mortgage insurance subsidiaries in excess of the amount required to satisfy the PMIERs Financial Requirements. Contributions of holding company cash and investments from Radian Group will leave less liquidity to satisfy Radian Group’s future obligations. Depending on the amount of holding company contributions that we make, we may be required or may decide to seek additional capital by incurring additional debt, by issuing additional equity, or by selling assets, which we may not be able to do on favorable terms, if at all;
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•
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our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements, including new capital adequacy standards that currently are being developed by the NAIC and that could be adopted by states in which we write business;
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•
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changes in the charters or business practices of, or rules or regulations imposed by or applicable to the GSEs, including: (1) the implementation of the final PMIERs (as updated on June 30, 2015) which will (a) increase the amount of capital that Radian Guaranty is required to hold, and therefore, reduce our current returns on subsidiary capital, (b) potentially impact the type of business that Radian Guaranty is willing to write, which could reduce our NIW and market share, (c) impose extensive and more stringent operational requirements in areas such as claim processing, loss mitigation, document retention, underwriting, quality control, reporting and monitoring, among others, that may result in additional costs to achieve and maintain compliance, and (d) require the consent of the GSEs for Radian Guaranty to take certain actions such as paying dividends, entering into various inter-company agreements, and commuting or reinsuring risk, among others; (2) changes that could limit the type of business that Radian Guaranty and other private mortgage insurers are willing to write or that could impact the process for selecting a mortgage insurance provider, which could reduce our NIW and market share; (3) changes that could increase the cost of private mortgage insurance, including as compared to the FHA pricing, or result in the emergence of other forms of credit enhancement; and (4) changes that could require us to alter our business practices and which may result in substantial additional costs;
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•
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our ability to continue to effectively mitigate our mortgage insurance losses, including a decrease in net Rescissions, Claim Denials or Claim Curtailments resulting from an increase in the number of successful challenges to previous Rescissions, Claim Denials or Claim Curtailments (including as part of one or more settlements of disputed Rescissions or Claim Denials), or as a result of 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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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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a substantial decrease in the persistency rates of our mortgage insurance policies, which has the effect of reducing our premium income from 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 FHA, 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, or that are new entrants to the industry, and therefore, are not burdened by legacy obligations) and the impact such heightened competition may have on our returns and our NIW;
|
•
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the increased utilization of customized (reduced) rates on lender-paid, single premium mortgage insurance products and potentially other mortgage insurance products, which could further reduce our overall average premium rates and returns and, to the extent we decide to limit this type of business, could adversely impact our market share and our customer relationships;
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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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•
|
the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the financial services industry in general, and on our businesses in particular;
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•
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the adoption of new or 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: (1) the resolution of existing, or the possibility of additional, lawsuits, inquiries or investigations (including a recent inquiry from the Wisconsin Office of the Commissioner of Insurance to all private mortgage insurers pertaining to customized insurance rates and terms offered to mortgage insurance customers); (2) changes to the Model Act being considered by the 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 (3) legislative and regulatory changes (a) impacting the demand for our products, (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 deficiencies assessed by the IRS 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 business;
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•
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volatility in our results of operations caused by changes in the fair value of our assets and liabilities, including a significant portion of our investment portfolio;
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•
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changes in GAAP or SAP, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries 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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the possibility that we may need to impair the estimated fair value of goodwill established in connection with our acquisition of Clayton, the valuation of which requires the use of significant estimates and assumptions with respect to the estimated future economic benefits arising from certain assets acquired in the transaction such as the value of expected future cash flows of Clayton, Clayton’s workforce, expected synergies with our other affiliates and other unidentifiable intangible assets.
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June 30,
2015 |
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December 31,
2014 |
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($ in thousands, except share amounts)
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ASSETS
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Investments (Note 5)
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Fixed-maturities available for sale—at fair value (amortized cost $1,196,446 and $528,660)
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$
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1,178,842
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$
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536,890
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Equity securities available for sale—at fair value (cost $573 and $76,900)
|
881
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143,368
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Trading securities—at fair value
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1,466,435
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1,633,584
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Short-term investments—at fair value
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1,649,370
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1,300,872
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Other invested assets
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13,620
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14,585
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Total investments
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4,309,148
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3,629,299
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Cash
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51,381
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30,465
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Restricted cash
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12,633
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14,031
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Accounts and notes receivable
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72,093
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85,792
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Deferred income taxes, net (Note 12)
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651,238
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700,201
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Goodwill and other intangible assets, net (Note 6)
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290,640
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288,240
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Other assets (Note 8)
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349,371
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357,864
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Assets held for sale (Note 2)
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—
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1,736,444
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Total assets
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$
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5,736,504
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$
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6,842,336
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Unearned premiums
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$
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665,947
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$
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644,504
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Reserve for losses and loss adjustment expense (“LAE”) (Note 9)
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1,204,792
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1,560,032
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Long-term debt (Note 10)
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1,224,892
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1,192,299
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Other liabilities
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278,929
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326,743
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Liabilities held for sale (Note 2)
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—
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|
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947,008
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Total liabilities
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3,374,560
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4,670,586
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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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8,546
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74,690
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Stockholders’ equity
|
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Common stock: par value $.001 per share; 485,000,000 shares authorized at June 30, 2015 and December 31, 2014, respectively; 226,147,213 and 208,601,020 shares issued at June 30, 2015 and December 31, 2014, respectively; 208,586,516 and 191,053,530 shares outstanding at June 30, 2015 and December 31, 2014, respectively
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226
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209
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Treasury stock, at cost: 17,560,597 and 17,547,490 shares at June 30, 2015 and December 31, 2014, respectively
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(893,176
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)
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(892,961
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)
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Additional paid-in capital
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2,709,721
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2,531,513
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Retained earnings
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548,161
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|
406,814
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Accumulated other comprehensive (loss) income (“AOCI”) (Note 11)
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(11,534
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)
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|
51,485
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Total stockholders’ equity
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2,353,398
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2,097,060
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Total liabilities and stockholders’ equity
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$
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5,736,504
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$
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6,842,336
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
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($ in thousands, except per share amounts)
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2015
|
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2014
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2015
|
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2014
|
||||||||
Revenues:
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|
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Net premiums earned—insurance
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$
|
237,437
|
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$
|
203,646
|
|
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$
|
462,032
|
|
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$
|
402,408
|
|
Services revenue
|
43,503
|
|
|
—
|
|
|
74,133
|
|
|
—
|
|
||||
Net investment income
|
19,285
|
|
|
16,663
|
|
|
36,613
|
|
|
31,981
|
|
||||
Net gains on investments and other financial instruments
|
28,448
|
|
|
25,332
|
|
|
45,227
|
|
|
68,300
|
|
||||
Other income
|
1,743
|
|
|
1,739
|
|
|
3,074
|
|
|
2,865
|
|
||||
Total revenues
|
330,416
|
|
|
247,380
|
|
|
621,079
|
|
|
505,554
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
||||||||
Provision for losses
|
32,560
|
|
|
64,648
|
|
|
77,588
|
|
|
114,274
|
|
||||
Policy acquisition costs
|
6,963
|
|
|
6,746
|
|
|
14,713
|
|
|
13,763
|
|
||||
Direct cost of services
|
23,520
|
|
|
—
|
|
|
42,773
|
|
|
—
|
|
||||
Other operating expenses
|
67,731
|
|
|
60,751
|
|
|
121,505
|
|
|
115,258
|
|
||||
Interest expense
|
24,501
|
|
|
22,348
|
|
|
48,886
|
|
|
42,275
|
|
||||
Loss on induced conversion and debt extinguishment (Note 10)
|
91,876
|
|
|
—
|
|
|
91,876
|
|
|
—
|
|
||||
Amortization and impairment of intangible assets
|
3,281
|
|
|
—
|
|
|
6,304
|
|
|
—
|
|
||||
Total expenses
|
250,432
|
|
|
154,493
|
|
|
403,645
|
|
|
285,570
|
|
||||
Pretax income from continuing operations
|
79,984
|
|
|
92,887
|
|
|
217,434
|
|
|
219,984
|
|
||||
Income tax provision (benefit)
|
34,791
|
|
|
(10,650
|
)
|
|
80,514
|
|
|
(29,533
|
)
|
||||
Net income from continuing operations
|
45,193
|
|
|
103,537
|
|
|
136,920
|
|
|
249,517
|
|
||||
Income from discontinued operations, net of tax
|
4,855
|
|
|
71,296
|
|
|
5,385
|
|
|
128,075
|
|
||||
Net income
|
$
|
50,048
|
|
|
$
|
174,833
|
|
|
$
|
142,305
|
|
|
$
|
377,592
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share:
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations
|
$
|
0.23
|
|
|
$
|
0.57
|
|
|
$
|
0.71
|
|
|
$
|
1.40
|
|
Income from discontinued operations
|
0.03
|
|
|
0.39
|
|
|
0.03
|
|
|
0.72
|
|
||||
Net income
|
$
|
0.26
|
|
|
$
|
0.96
|
|
|
$
|
0.74
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations
|
$
|
0.20
|
|
|
$
|
0.47
|
|
|
$
|
0.59
|
|
|
$
|
1.15
|
|
Income from discontinued operations
|
0.02
|
|
|
0.31
|
|
|
0.02
|
|
|
0.56
|
|
||||
Net income
|
$
|
0.22
|
|
|
$
|
0.78
|
|
|
$
|
0.61
|
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Weighted-average number of common shares outstanding—basic
|
193,112
|
|
|
182,583
|
|
|
192,245
|
|
|
177,903
|
|
||||
Weighted-average number of common and common equivalent shares outstanding—diluted
|
246,650
|
|
|
230,779
|
|
|
244,981
|
|
|
226,767
|
|
||||
Dividends per share
|
$
|
0.0025
|
|
|
$
|
0.0025
|
|
|
$
|
0.0050
|
|
|
$
|
0.0050
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net income
|
$
|
50,048
|
|
|
$
|
174,833
|
|
|
$
|
142,305
|
|
|
$
|
377,592
|
|
Other comprehensive (loss) income, net of tax (Note 11):
|
|
|
|
|
|
|
|
||||||||
Net foreign currency translation adjustments
|
158
|
|
|
—
|
|
|
32
|
|
|
—
|
|
||||
Unrealized (losses) gains on investments:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding (losses) gains arising during the period
|
(21,620
|
)
|
|
8,633
|
|
|
(15,166
|
)
|
|
11,302
|
|
||||
Less: Reclassification adjustment for net gains (losses) included in net income
|
44,664
|
|
|
(393
|
)
|
|
44,631
|
|
|
(389
|
)
|
||||
Net unrealized (losses) gains on investments
|
(66,284
|
)
|
|
9,026
|
|
|
(59,797
|
)
|
|
11,691
|
|
||||
Activity related to investments recorded as assets held for sale
|
(5,082
|
)
|
|
647
|
|
|
(3,254
|
)
|
|
1,943
|
|
||||
Other comprehensive (loss) income, net of tax
|
(71,208
|
)
|
|
9,673
|
|
|
(63,019
|
)
|
|
13,634
|
|
||||
Comprehensive (loss) income
|
$
|
(21,160
|
)
|
|
$
|
184,506
|
|
|
$
|
79,286
|
|
|
$
|
391,226
|
|
(In thousands)
|
Common
Stock
|
Treasury
Stock
|
Additional Paid-in Capital
|
Retained
(Deficit) Earnings
|
AOCI
|
Total
|
||||||||||||
BALANCE, JANUARY 1, 2014
|
$
|
191
|
|
$
|
(892,807
|
)
|
$
|
2,347,104
|
|
$
|
(552,226
|
)
|
$
|
37,383
|
|
$
|
939,645
|
|
Net income
|
—
|
|
—
|
|
—
|
|
377,592
|
|
—
|
|
377,592
|
|
||||||
Net unrealized gain on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
13,634
|
|
13,634
|
|
||||||
Repurchases of common stock under incentive plans
|
—
|
|
(154
|
)
|
—
|
|
—
|
|
—
|
|
(154
|
)
|
||||||
Issuance of common stock - stock offering
|
18
|
|
—
|
|
247,370
|
|
—
|
|
—
|
|
247,388
|
|
||||||
Issuance of common stock under benefit plans
|
—
|
|
—
|
|
487
|
|
—
|
|
—
|
|
487
|
|
||||||
Issuance of common stock under incentive plans
|
—
|
|
—
|
|
175
|
|
—
|
|
—
|
|
175
|
|
||||||
Stock-based compensation expense, net
|
—
|
|
—
|
|
6,390
|
|
—
|
|
—
|
|
6,390
|
|
||||||
Dividends declared
|
—
|
|
—
|
|
(910
|
)
|
—
|
|
—
|
|
(910
|
)
|
||||||
BALANCE, JUNE 30, 2014
|
$
|
209
|
|
$
|
(892,961
|
)
|
$
|
2,600,616
|
|
$
|
(174,634
|
)
|
$
|
51,017
|
|
$
|
1,584,247
|
|
|
|
|
|
|
|
|
||||||||||||
BALANCE, JANUARY 1, 2015
|
$
|
209
|
|
$
|
(892,961
|
)
|
$
|
2,531,513
|
|
$
|
406,814
|
|
$
|
51,485
|
|
$
|
2,097,060
|
|
Net income
|
—
|
|
—
|
|
—
|
|
142,305
|
|
—
|
|
142,305
|
|
||||||
Net foreign currency translation adjustment, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
32
|
|
32
|
|
||||||
Net unrealized loss on investments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
(63,051
|
)
|
(63,051
|
)
|
||||||
Repurchases of common stock under incentive plans
|
—
|
|
(215
|
)
|
—
|
|
—
|
|
—
|
|
(215
|
)
|
||||||
Issuance of common stock under benefit plans
|
—
|
|
—
|
|
482
|
|
—
|
|
—
|
|
482
|
|
||||||
Issuance of common stock under incentive plans
|
1
|
|
—
|
|
1,112
|
|
—
|
|
—
|
|
1,113
|
|
||||||
Stock-based compensation expense, net
|
—
|
|
—
|
|
6,494
|
|
—
|
|
—
|
|
6,494
|
|
||||||
Impact of extinguishment of Convertible Senior Notes due 2017 (Note 10)
|
28
|
|
—
|
|
349,033
|
|
—
|
|
—
|
|
349,061
|
|
||||||
Shares repurchased under ASR (Note 16)
|
(9
|
)
|
—
|
|
(201,991
|
)
|
—
|
|
—
|
|
(202,000
|
)
|
||||||
Termination of capped calls (Note 10)
|
(3
|
)
|
—
|
|
11,976
|
|
—
|
|
—
|
|
11,973
|
|
||||||
Change in equity component of currently redeemable convertible senior notes
|
—
|
|
—
|
|
11,102
|
|
—
|
|
—
|
|
11,102
|
|
||||||
Dividends declared
|
—
|
|
—
|
|
—
|
|
(958
|
)
|
—
|
|
(958
|
)
|
||||||
BALANCE, JUNE 30, 2015
|
$
|
226
|
|
$
|
(893,176
|
)
|
$
|
2,709,721
|
|
$
|
548,161
|
|
$
|
(11,534
|
)
|
$
|
2,353,398
|
|
Radian Group Inc.
|
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|||||||
|
|
|
|
||||
(In thousands)
|
Six Months Ended
June 30, |
||||||
2015
|
|
2014
|
|||||
Cash flows from operating activities:
|
|
|
|
||||
Net cash used in operating activities, continuing operations
|
$
|
(66,804
|
)
|
|
$
|
(236,753
|
)
|
Net cash used in operating activities, discontinued operations
|
(1,759
|
)
|
|
(23,107
|
)
|
||
Net cash used in operating activities
|
(68,563
|
)
|
|
(259,860
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Proceeds from sales of fixed-maturity investments available for sale
|
57,309
|
|
|
9,802
|
|
||
Proceeds from sales of equity securities available for sale
|
145,550
|
|
|
—
|
|
||
Proceeds from sales and redemptions of trading securities
|
134,427
|
|
|
432,248
|
|
||
Proceeds from redemptions of fixed-maturity investments available for sale
|
25,179
|
|
|
100
|
|
||
Proceeds from redemptions of fixed-maturity investments held to maturity
|
—
|
|
|
300
|
|
||
Purchases of fixed-maturity investments available for sale
|
(725,640
|
)
|
|
(165,256
|
)
|
||
Purchases of equity securities available for sale
|
(500
|
)
|
|
—
|
|
||
Purchases and redemptions of short-term investments, net
|
(348,702
|
)
|
|
(197,299
|
)
|
||
Sales of other assets, net
|
965
|
|
|
6,750
|
|
||
Proceeds from the sale of investment in affiliate, net of cash transferred
|
784,866
|
|
|
—
|
|
||
Purchases of property and equipment, net
|
(10,654
|
)
|
|
(8,041
|
)
|
||
Acquisitions, net of cash acquired
|
(6,449
|
)
|
|
(295,977
|
)
|
||
Net cash provided by (used in) investing activities, continuing operations
|
56,351
|
|
|
(217,373
|
)
|
||
Net cash provided by investing activities, discontinued operations
|
4,999
|
|
|
14,740
|
|
||
Net cash provided by (used in) investing activities
|
61,350
|
|
|
(202,633
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Dividends paid
|
(958
|
)
|
|
(910
|
)
|
||
Issuance of long-term debt, net
|
344,260
|
|
|
294,402
|
|
||
Purchases and redemptions of long-term debt
|
(128,303
|
)
|
|
(57,223
|
)
|
||
Proceeds from termination of capped calls
|
11,973
|
|
|
—
|
|
||
Issuance of common stock
|
—
|
|
|
247,388
|
|
||
Purchase of shares under ASR
|
(202,000
|
)
|
|
—
|
|
||
Excess tax benefits from stock-based awards
|
2,679
|
|
|
106
|
|
||
Net cash provided by financing activities, continuing operations
|
27,651
|
|
|
483,763
|
|
||
Net cash provided by (used in) financing activities, discontinued operations
|
—
|
|
|
—
|
|
||
Net cash provided by financing activities
|
27,651
|
|
|
483,763
|
|
||
Effect of exchange rate changes on cash
|
57
|
|
|
(13
|
)
|
||
Increase in cash
|
20,495
|
|
|
21,257
|
|
||
Cash, beginning of period
|
30,465
|
|
|
22,880
|
|
||
Less: Change in cash of business held for sale
|
(421
|
)
|
|
1,758
|
|
||
Cash, end of period
|
$
|
51,381
|
|
|
$
|
42,379
|
|
|
|
|
|
||||
Supplemental disclosures of cash flow information:
|
|
|
|
||||
Income taxes paid
|
$
|
3,786
|
|
|
$
|
5,333
|
|
Interest paid
|
$
|
29,547
|
|
|
$
|
21,558
|
|
•
|
the issuance of
$350 million
aggregate principal amount of Senior Notes due 2020;
|
•
|
the purchases of approximately
$389.1 million
aggregate principal amount of Convertible Senior Notes due 2017;
|
•
|
the termination of a corresponding portion of the capped call transactions related to the purchased Convertible Senior Notes due 2017; and
|
•
|
the entry into an ASR program to repurchase an aggregate of
$202 million
of Radian Group common stock.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net premiums earned
|
$
|
—
|
|
|
$
|
10,468
|
|
|
$
|
1,007
|
|
|
$
|
17,371
|
|
Net investment income
|
—
|
|
|
9,074
|
|
|
9,153
|
|
|
17,985
|
|
||||
Net gains on investments and other financial instruments
|
7,818
|
|
|
19,978
|
|
|
21,486
|
|
|
42,159
|
|
||||
Change in fair value of derivative instruments
|
—
|
|
|
57,477
|
|
|
2,625
|
|
|
107,563
|
|
||||
Other income
|
—
|
|
|
78
|
|
|
—
|
|
|
79
|
|
||||
Total revenues
|
7,818
|
|
|
97,075
|
|
|
34,271
|
|
|
185,157
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Provision for losses
|
—
|
|
|
5,078
|
|
|
502
|
|
|
10,727
|
|
||||
Policy acquisition costs
|
—
|
|
|
1,675
|
|
|
(191
|
)
|
|
3,272
|
|
||||
Other operating expense
|
—
|
|
|
4,800
|
|
|
4,107
|
|
|
10,202
|
|
||||
Total expenses
|
—
|
|
|
11,553
|
|
|
4,418
|
|
|
24,201
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Equity in net loss of affiliates
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
||||
Income from operations of businesses held for sale
|
7,818
|
|
|
85,522
|
|
|
29,840
|
|
|
160,943
|
|
||||
Loss on sale
|
(350
|
)
|
|
—
|
|
|
(14,280
|
)
|
|
—
|
|
||||
Income tax provision
|
2,613
|
|
|
14,226
|
|
|
10,175
|
|
|
32,868
|
|
||||
Income from discontinued operations, net of tax
|
$
|
4,855
|
|
|
$
|
71,296
|
|
|
$
|
5,385
|
|
|
$
|
128,075
|
|
(In thousands)
|
December 31, 2014
|
||
Fixed-maturity investments
|
$
|
224,552
|
|
Equity securities
|
3,749
|
|
|
Trading securities
|
689,887
|
|
|
Short-term investments
|
435,413
|
|
|
Other invested assets
|
108,206
|
|
|
Other assets
|
274,637
|
|
|
Total assets held for sale
|
$
|
1,736,444
|
|
|
|
||
Unearned premiums
|
$
|
158,921
|
|
Reserve for losses and LAE
|
31,558
|
|
|
VIE debt
|
85,016
|
|
|
Derivative liabilities
|
183,370
|
|
|
Other liabilities
|
488,143
|
|
|
Total liabilities held for sale
|
$
|
947,008
|
|
(1)
|
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.
|
(2)
|
Loss on induced conversion and debt extinguishment.
Gains or losses on early extinguishment of debt or losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, these activities are not viewed as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
|
(3)
|
Acquisition-related expenses.
Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
|
(4)
|
Amortization and impairment of intangible assets.
Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore 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 these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Mortgage Insurance
|
|
|
|
|
|
|
|
||||||||
Net premiums written—insurance
|
$
|
251,082
|
|
|
$
|
221,947
|
|
|
$
|
492,990
|
|
|
$
|
434,900
|
|
Increase in unearned premiums
|
(13,645
|
)
|
|
(18,301
|
)
|
|
(30,958
|
)
|
|
(32,492
|
)
|
||||
Net premiums earned—insurance
|
237,437
|
|
|
203,646
|
|
|
462,032
|
|
|
402,408
|
|
||||
Net investment income (1)
|
19,285
|
|
|
16,663
|
|
|
36,613
|
|
|
31,981
|
|
||||
Other income (1)
|
1,743
|
|
|
1,620
|
|
|
3,074
|
|
|
2,616
|
|
||||
Total
|
258,465
|
|
|
221,929
|
|
|
501,719
|
|
|
437,005
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Provision for losses
|
31,637
|
|
|
64,648
|
|
|
77,488
|
|
|
114,274
|
|
||||
Change in expected economic loss or recovery for consolidated VIEs
|
—
|
|
|
180
|
|
|
—
|
|
|
319
|
|
||||
Policy acquisition costs
|
6,963
|
|
|
6,746
|
|
|
14,713
|
|
|
13,763
|
|
||||
Other operating expenses before corporate allocations
|
41,853
|
|
|
36,356
|
|
|
75,903
|
|
|
74,120
|
|
||||
Total (2)
|
80,453
|
|
|
107,930
|
|
|
168,104
|
|
|
202,476
|
|
||||
Adjusted pretax operating income before corporate allocations
|
178,012
|
|
|
113,999
|
|
|
333,615
|
|
|
234,529
|
|
||||
Allocation of corporate operating expenses (1)
|
12,516
|
|
|
17,021
|
|
|
22,274
|
|
|
32,905
|
|
||||
Allocation of interest expense (1)
|
20,070
|
|
|
22,348
|
|
|
40,023
|
|
|
42,275
|
|
||||
Adjusted pretax operating income
|
$
|
145,426
|
|
|
$
|
74,630
|
|
|
$
|
271,318
|
|
|
$
|
159,349
|
|
(1)
|
For periods prior to the April 1, 2015 sale of Radian Asset Assurance, includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations, as follows:
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net investment income
|
$
|
—
|
|
|
$
|
1,392
|
|
|
$
|
882
|
|
|
$
|
2,689
|
|
Other income
|
—
|
|
|
113
|
|
|
26
|
|
|
182
|
|
||||
Allocation of corporate operating expenses
|
—
|
|
|
4,412
|
|
|
2,074
|
|
|
8,561
|
|
||||
Allocation of interest expense
|
—
|
|
|
15,943
|
|
|
9,918
|
|
|
30,498
|
|
(2)
|
Includes inter-segment expenses as follows:
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Inter-segment expenses
|
$
|
1,092
|
|
|
$
|
—
|
|
|
$
|
1,994
|
|
|
$
|
—
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Services
|
|
|
|
|
|
|
|
||||||||
Services revenue
|
$
|
44,595
|
|
|
$
|
—
|
|
|
$
|
76,127
|
|
|
$
|
—
|
|
Other income
|
—
|
|
|
119
|
|
|
—
|
|
|
249
|
|
||||
Total (1)
|
44,595
|
|
|
119
|
|
|
76,127
|
|
|
249
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Direct cost of services
|
25,501
|
|
|
—
|
|
|
44,754
|
|
|
—
|
|
||||
Other operating expenses before corporate allocations
|
11,522
|
|
|
642
|
|
|
20,379
|
|
|
1,501
|
|
||||
Total
|
37,023
|
|
|
642
|
|
|
65,133
|
|
|
1,501
|
|
||||
Adjusted pretax operating income (loss) before corporate allocations
|
7,572
|
|
|
(523
|
)
|
|
10,994
|
|
|
(1,252
|
)
|
||||
Allocation of corporate operating expenses
|
1,307
|
|
|
—
|
|
|
2,288
|
|
|
—
|
|
||||
Allocation of interest expense
|
4,431
|
|
|
—
|
|
|
8,863
|
|
|
—
|
|
||||
Adjusted pretax operating income (loss)
|
$
|
1,834
|
|
|
$
|
(523
|
)
|
|
$
|
(157
|
)
|
|
$
|
(1,252
|
)
|
(1)
|
Includes inter-segment revenues as follows:
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Inter-segment revenues
|
$
|
1,092
|
|
|
$
|
—
|
|
|
$
|
1,994
|
|
|
$
|
—
|
|
|
At June 30, 2015
|
||||||||||
(In thousands)
|
Mortgage Insurance
|
|
Services
|
|
Total
|
||||||
Total assets
|
$
|
5,384,224
|
|
|
$
|
352,280
|
|
|
$
|
5,736,504
|
|
|
At December 31, 2014
|
||||||||||
(In thousands)
|
Mortgage Insurance
|
|
Services
|
|
Total
|
||||||
Assets held for sale (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,736,444
|
|
Total assets
|
4,769,014
|
|
|
336,878
|
|
|
6,842,336
|
|
(1)
|
Assets held for sale are not part of the Mortgage Insurance or Services segments.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Adjusted pretax operating income (loss):
|
|
|
|
|
|
|
|
||||||||
Mortgage Insurance (1) (2)
|
$
|
145,426
|
|
|
$
|
74,630
|
|
|
$
|
271,318
|
|
|
$
|
159,349
|
|
Services (2)
|
1,834
|
|
|
(523
|
)
|
|
(157
|
)
|
|
(1,252
|
)
|
||||
Total adjusted pretax operating income
|
147,260
|
|
|
74,107
|
|
|
271,161
|
|
|
158,097
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net gains on investments and other financial instruments (3)
|
28,448
|
|
|
25,512
|
|
|
45,227
|
|
|
68,619
|
|
||||
Loss on induced conversion and debt extinguishment
|
(91,876
|
)
|
|
—
|
|
|
(91,876
|
)
|
|
—
|
|
||||
Acquisition-related expenses
|
(567
|
)
|
|
(6,732
|
)
|
|
(774
|
)
|
|
(6,732
|
)
|
||||
Amortization and impairment of intangible assets
|
(3,281
|
)
|
|
—
|
|
|
(6,304
|
)
|
|
—
|
|
||||
Consolidated pretax income from continuing operations
|
$
|
79,984
|
|
|
$
|
92,887
|
|
|
$
|
217,434
|
|
|
$
|
219,984
|
|
(1)
|
For periods prior to the April 1, 2015 sale of Radian Asset Assurance, includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment, as listed in the preceding tables. These amounts represent items that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations.
|
(2)
|
Includes inter-segment expenses and revenues as listed in the notes to the preceding tables.
|
(3)
|
The change in expected economic loss or recovery associated with our previously owned VIEs is included in adjusted pretax operating income above, although it represents amounts that are not included in net income. Therefore, for purposes of this reconciliation, net gains on investments and other financial instruments has been adjusted by
$0.2 million
and
$0.3 million
for the
three and six months ended June 30, 2014
, respectively, to reverse this item.
|
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 at Fair Value
|
|
|
|
|
|
|
|
||||||||
Investment Portfolio:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
598.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
598.3
|
|
State and municipal obligations
|
—
|
|
|
330.8
|
|
|
—
|
|
|
330.8
|
|
||||
Money market instruments
|
828.1
|
|
|
—
|
|
|
—
|
|
|
828.1
|
|
||||
Corporate bonds and notes
|
—
|
|
|
1,321.7
|
|
|
—
|
|
|
1,321.7
|
|
||||
RMBS
|
—
|
|
|
237.3
|
|
|
—
|
|
|
237.3
|
|
||||
CMBS
|
—
|
|
|
383.4
|
|
|
—
|
|
|
383.4
|
|
||||
Other ABS
|
—
|
|
|
274.0
|
|
|
—
|
|
|
274.0
|
|
||||
Foreign government and agency securities
|
—
|
|
|
36.7
|
|
|
—
|
|
|
36.7
|
|
||||
Equity securities
|
21.1
|
|
|
46.4
|
|
|
0.5
|
|
|
68.0
|
|
||||
Other investments (1)
|
—
|
|
|
217.2
|
|
|
—
|
|
|
217.2
|
|
||||
Total Investments at Fair Value (2)
|
1,447.5
|
|
|
2,847.5
|
|
|
0.5
|
|
|
4,295.5
|
|
||||
Total Assets at Fair Value
|
$
|
1,447.5
|
|
|
$
|
2,847.5
|
|
|
$
|
0.5
|
|
|
$
|
4,295.5
|
|
(1)
|
Comprising short-term certificates of deposit (
$1.0 million
) and short-term commercial paper (
$216.2 million
) included within Level II.
|
(2)
|
Does not include certain other invested assets (
$13.6 million
), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.
|
(In millions)
|
Level I
|
|
Level II
|
|
Total
|
||||||
Assets at Fair Value
|
|
|
|
|
|
||||||
Investment Portfolio:
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
836.9
|
|
|
$
|
3.0
|
|
|
$
|
839.9
|
|
State and municipal obligations
|
—
|
|
|
362.8
|
|
|
362.8
|
|
|||
Money market instruments
|
600.3
|
|
|
—
|
|
|
600.3
|
|
|||
Corporate bonds and notes
|
—
|
|
|
992.8
|
|
|
992.8
|
|
|||
RMBS
|
—
|
|
|
132.3
|
|
|
132.3
|
|
|||
CMBS
|
—
|
|
|
246.8
|
|
|
246.8
|
|
|||
Other ABS
|
—
|
|
|
185.5
|
|
|
185.5
|
|
|||
Foreign government and agency securities
|
—
|
|
|
37.7
|
|
|
37.7
|
|
|||
Equity securities (1)
|
164.0
|
|
|
51.6
|
|
|
215.6
|
|
|||
Other investments (2)
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|||
Total Investments at Fair Value (3)
|
1,601.2
|
|
|
2,013.5
|
|
|
3,614.7
|
|
|||
Total Assets at Fair Value
|
$
|
1,601.2
|
|
|
$
|
2,013.5
|
|
|
$
|
3,614.7
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds and certain common stocks included within Level I and various preferred stocks invested across numerous companies and industries included within Level II.
|
(2)
|
Comprising short-term certificates of deposit.
|
(3)
|
Does not include certain other invested assets (
$14.6 million
), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value. Also excludes investments classified as assets held for sale of
$495.1 million
,
$839.2 million
and
$102.6 million
, with fair values categorized in Level I, Level II and Level III, respectively.
|
|
June 30, 2015
|
|
December 31, 2014
|
|
||||||||||||
(In millions)
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Other invested assets
|
$
|
13.6
|
|
|
$
|
21.0
|
|
(1)
|
$
|
14.6
|
|
|
$
|
20.5
|
|
(1)
|
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Long-term debt
|
1,224.9
|
|
|
1,681.0
|
|
(1)
|
1,192.3
|
|
|
1,859.3
|
|
(1)
|
(1)
|
These estimated fair values would be classified in Level II of the fair value hierarchy.
|
|
June 30, 2015
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
5,745
|
|
|
$
|
5,784
|
|
|
$
|
39
|
|
|
$
|
—
|
|
State and municipal obligations
|
17,668
|
|
|
18,476
|
|
|
810
|
|
|
2
|
|
||||
Corporate bonds and notes
|
529,942
|
|
|
517,857
|
|
|
1,850
|
|
|
13,935
|
|
||||
RMBS
|
158,134
|
|
|
156,532
|
|
|
513
|
|
|
2,115
|
|
||||
CMBS
|
218,531
|
|
|
213,988
|
|
|
97
|
|
|
4,640
|
|
||||
Other ABS
|
243,096
|
|
|
243,045
|
|
|
693
|
|
|
744
|
|
||||
Foreign government and agency securities
|
23,330
|
|
|
23,160
|
|
|
186
|
|
|
356
|
|
||||
|
1,196,446
|
|
|
1,178,842
|
|
|
4,188
|
|
|
21,792
|
|
||||
Equity securities available for sale
|
573
|
|
|
881
|
|
|
308
|
|
|
—
|
|
||||
Total debt and equity securities
|
$
|
1,197,019
|
|
|
$
|
1,179,723
|
|
|
$
|
4,496
|
|
|
$
|
21,792
|
|
|
December 31, 2014
|
||||||||||||||
(In thousands)
|
Amortized
Cost
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
||||||||
Fixed-maturities available for sale:
|
|
|
|
|
|
|
|
||||||||
U.S. government and agency securities
|
$
|
5,709
|
|
|
$
|
5,751
|
|
|
$
|
48
|
|
|
$
|
6
|
|
State and municipal obligations
|
17,727
|
|
|
18,910
|
|
|
1,183
|
|
|
—
|
|
||||
Corporate bonds and notes
|
277,678
|
|
|
284,408
|
|
|
7,288
|
|
|
558
|
|
||||
RMBS
|
41,467
|
|
|
42,520
|
|
|
1,053
|
|
|
—
|
|
||||
CMBS
|
57,358
|
|
|
58,234
|
|
|
876
|
|
|
—
|
|
||||
Other ABS
|
109,420
|
|
|
107,701
|
|
|
8
|
|
|
1,727
|
|
||||
Foreign government and agency securities
|
19,301
|
|
|
19,366
|
|
|
307
|
|
|
242
|
|
||||
|
528,660
|
|
|
536,890
|
|
|
10,763
|
|
|
2,533
|
|
||||
Equity securities available for sale (1)
|
76,900
|
|
|
143,368
|
|
|
66,468
|
|
|
—
|
|
||||
Total debt and equity securities
|
$
|
605,560
|
|
|
$
|
680,258
|
|
|
$
|
77,231
|
|
|
$
|
2,533
|
|
(1)
|
Comprising broadly diversified domestic equity mutual funds (
$143.0 million
fair value) and a preferred stock investment in Freddie Mac (
$0.4 million
fair value).
|
(In thousands)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Trading securities:
|
|
|
|
||||
U.S. government and agency securities
|
$
|
131,335
|
|
|
$
|
134,530
|
|
State and municipal obligations
|
312,340
|
|
|
343,926
|
|
||
Corporate bonds and notes
|
660,964
|
|
|
708,361
|
|
||
RMBS
|
80,772
|
|
|
89,810
|
|
||
CMBS
|
169,443
|
|
|
188,615
|
|
||
Other ABS
|
30,952
|
|
|
77,755
|
|
||
Foreign government and agency securities
|
13,548
|
|
|
18,331
|
|
||
Equity securities
|
67,081
|
|
|
72,256
|
|
||
Total
|
$
|
1,466,435
|
|
|
$
|
1,633,584
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended June 30,
|
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net realized gains (losses):
|
|
|
|
|
|
|
|
||||||||
Fixed-maturities held to maturity
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(9
|
)
|
Fixed-maturities available for sale
|
(8
|
)
|
|
(604
|
)
|
|
(59
|
)
|
|
(599
|
)
|
||||
Equities available for sale
|
68,723
|
|
|
—
|
|
|
68,723
|
|
|
—
|
|
||||
Trading securities
|
(8,291
|
)
|
|
(41
|
)
|
|
(12,859
|
)
|
|
(4,392
|
)
|
||||
Short-term investments
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
||||
Other
|
1
|
|
|
(63
|
)
|
|
106
|
|
|
(53
|
)
|
||||
Net realized gains (losses) on investments
|
60,429
|
|
|
(708
|
)
|
|
55,915
|
|
|
(5,053
|
)
|
||||
Unrealized (losses) gains on trading securities
|
(31,638
|
)
|
|
28,941
|
|
|
(10,937
|
)
|
|
76,572
|
|
||||
Total net gains on investments
|
28,791
|
|
|
28,233
|
|
|
44,978
|
|
|
71,519
|
|
||||
Net (losses) gains on other financial instruments
|
(343
|
)
|
|
(2,901
|
)
|
|
249
|
|
|
(3,219
|
)
|
||||
Net gains on investments and other financial instruments
|
$
|
28,448
|
|
|
$
|
25,332
|
|
|
$
|
45,227
|
|
|
$
|
68,300
|
|
June 30, 2015: ($ in thousands) Description of Securities
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|||||||||||||||||||||||||||
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|
# of
securities
|
|
Fair Value
|
|
Unrealized
Losses
|
|||||||||||||||||
State and municipal obligations
|
|
1
|
|
|
$
|
5,727
|
|
|
$
|
2
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
5,727
|
|
|
$
|
2
|
|
Corporate bonds and notes
|
|
95
|
|
|
408,203
|
|
|
13,528
|
|
|
7
|
|
|
10,172
|
|
|
407
|
|
|
102
|
|
|
418,375
|
|
|
13,935
|
|
||||||
RMBS
|
|
9
|
|
|
116,631
|
|
|
2,115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
116,631
|
|
|
2,115
|
|
||||||
CMBS
|
|
30
|
|
|
195,913
|
|
|
4,640
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
195,913
|
|
|
4,640
|
|
||||||
Other ABS
|
|
28
|
|
|
114,059
|
|
|
273
|
|
|
10
|
|
|
39,860
|
|
|
471
|
|
|
38
|
|
|
153,919
|
|
|
744
|
|
||||||
Foreign government and agency securities
|
|
11
|
|
|
10,971
|
|
|
340
|
|
|
1
|
|
|
183
|
|
|
16
|
|
|
12
|
|
|
11,154
|
|
|
356
|
|
||||||
Total
|
|
174
|
|
|
$
|
851,504
|
|
|
$
|
20,898
|
|
|
18
|
|
|
$
|
50,215
|
|
|
$
|
894
|
|
|
192
|
|
|
$
|
901,719
|
|
|
$
|
21,792
|
|
December 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
|
|
|
$
|
3,455
|
|
|
$
|
6
|
|
|
1
|
|
|
$
|
3,455
|
|
|
$
|
6
|
|
Corporate bonds and notes
|
|
24
|
|
|
40,917
|
|
|
410
|
|
|
1
|
|
|
1,027
|
|
|
148
|
|
|
25
|
|
|
41,944
|
|
|
558
|
|
||||||
Other ABS
|
|
34
|
|
|
97,356
|
|
|
1,727
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
97,356
|
|
|
1,727
|
|
||||||
Foreign government and agency securities
|
|
4
|
|
|
6,353
|
|
|
242
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
6,353
|
|
|
242
|
|
||||||
Total
|
|
62
|
|
|
$
|
144,626
|
|
|
$
|
2,379
|
|
|
2
|
|
|
$
|
4,482
|
|
|
$
|
154
|
|
|
64
|
|
|
$
|
149,108
|
|
|
$
|
2,533
|
|
|
June 30, 2015
|
||||||
|
Available for Sale
|
||||||
(In thousands)
|
Amortized
Cost
|
|
Fair
Value
|
||||
Due in one year or less (1)
|
$
|
7,381
|
|
|
$
|
7,399
|
|
Due after one year through five years (1)
|
51,208
|
|
|
51,265
|
|
||
Due after five years through ten years (1)
|
345,233
|
|
|
340,126
|
|
||
Due after ten years (1)
|
172,863
|
|
|
166,487
|
|
||
RMBS (2)
|
158,134
|
|
|
156,532
|
|
||
CMBS (2)
|
218,531
|
|
|
213,988
|
|
||
Other ABS (2)
|
243,096
|
|
|
243,045
|
|
||
Total
|
$
|
1,196,446
|
|
|
$
|
1,178,842
|
|
(1)
|
Actual maturities may differ as a result of calls before scheduled maturity.
|
(2)
|
RMBS, CMBS, and Other ABS are shown separately, as they are not due at a single maturity date.
|
(In thousands)
|
Goodwill
|
|
Accumulated Impairment Losses
|
|
Net
|
||||||
Balance at December 31, 2013
|
$
|
2,095
|
|
|
$
|
—
|
|
|
$
|
2,095
|
|
Goodwill acquired
|
191,932
|
|
|
—
|
|
|
191,932
|
|
|||
Impairment losses
|
—
|
|
|
(2,095
|
)
|
|
(2,095
|
)
|
|||
Balance at December 31, 2014
|
194,027
|
|
|
(2,095
|
)
|
|
191,932
|
|
|||
Goodwill acquired
|
2,388
|
|
|
—
|
|
|
2,388
|
|
|||
Impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance at June 30, 2015
|
$
|
196,415
|
|
|
$
|
(2,095
|
)
|
|
$
|
194,320
|
|
|
As of June 30, 2015
|
||||||||||
(In thousands)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Client relationships
|
$
|
83,072
|
|
|
$
|
(6,939
|
)
|
|
$
|
76,133
|
|
Technology
|
10,940
|
|
|
(1,741
|
)
|
|
9,199
|
|
|||
Trademark
|
8,300
|
|
|
(807
|
)
|
|
7,493
|
|
|||
Client backlog
|
6,680
|
|
|
(3,295
|
)
|
|
3,385
|
|
|||
Non-competition agreements
|
185
|
|
|
(75
|
)
|
|
110
|
|
|||
Total
|
$
|
109,177
|
|
|
$
|
(12,857
|
)
|
|
$
|
96,320
|
|
|
|
|
|
|
|
||||||
|
As of December 31, 2014
|
||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||
Client relationships
|
$
|
79,203
|
|
|
$
|
(2,917
|
)
|
|
$
|
76,286
|
|
Technology
|
8,970
|
|
|
(797
|
)
|
|
8,173
|
|
|||
Trademark
|
7,860
|
|
|
(393
|
)
|
|
7,467
|
|
|||
Client backlog
|
6,680
|
|
|
(2,406
|
)
|
|
4,274
|
|
|||
Non-competition agreements
|
145
|
|
|
(37
|
)
|
|
108
|
|
|||
Total
|
$
|
102,858
|
|
|
$
|
(6,550
|
)
|
|
$
|
96,308
|
|
2015
|
$
|
6,548
|
|
2016
|
12,559
|
|
|
2017
|
11,918
|
|
|
2018
|
11,286
|
|
|
2019
|
10,050
|
|
|
2020
|
8,497
|
|
|
Thereafter
|
35,462
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net premiums written-insurance:
|
|
|
|
|
|
|
|
||||||||
Direct
|
$
|
258,198
|
|
|
$
|
238,590
|
|
|
$
|
513,446
|
|
|
$
|
467,859
|
|
Assumed
|
8
|
|
|
10
|
|
|
55
|
|
|
20
|
|
||||
Ceded
|
(7,124
|
)
|
|
(16,653
|
)
|
|
(20,511
|
)
|
|
(32,979
|
)
|
||||
Net premiums written-insurance
|
$
|
251,082
|
|
|
$
|
221,947
|
|
|
$
|
492,990
|
|
|
$
|
434,900
|
|
Net premiums earned-insurance:
|
|
|
|
|
|
|
|
||||||||
Direct
|
$
|
249,797
|
|
|
$
|
221,171
|
|
|
$
|
491,961
|
|
|
$
|
437,047
|
|
Assumed
|
10
|
|
|
12
|
|
|
23
|
|
|
24
|
|
||||
Ceded
|
(12,370
|
)
|
|
(17,537
|
)
|
|
(29,952
|
)
|
|
(34,663
|
)
|
||||
Net premiums earned-insurance
|
$
|
237,437
|
|
|
$
|
203,646
|
|
|
$
|
462,032
|
|
|
$
|
402,408
|
|
|
Initial QSR Transaction
|
||||||||||||||
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Ceded premiums written
|
$
|
3,822
|
|
|
$
|
5,046
|
|
|
$
|
7,889
|
|
|
$
|
10,350
|
|
Ceded premiums earned
|
6,424
|
|
|
6,803
|
|
|
12,442
|
|
|
13,610
|
|
||||
Ceding commissions written
|
828
|
|
|
1,262
|
|
|
1,708
|
|
|
2,588
|
|
|
Second QSR Transaction
|
||||||||||||||
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Ceded premiums written
|
$
|
395
|
|
|
$
|
8,072
|
|
|
$
|
6,924
|
|
|
$
|
15,365
|
|
Ceded premiums earned
|
3,039
|
|
|
7,197
|
|
|
11,807
|
|
|
13,782
|
|
||||
Ceding commissions written
|
2,154
|
|
|
2,825
|
|
|
4,439
|
|
|
5,378
|
|
(In thousands)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Deposit with the IRS (Note 12)
|
$
|
88,557
|
|
|
$
|
88,557
|
|
Corporate-owned life insurance
|
81,998
|
|
|
80,755
|
|
||
Prepaid reinsurance premiums
|
47,835
|
|
|
57,291
|
|
||
Property and equipment (1)
|
35,380
|
|
|
27,248
|
|
||
Accrued investment income
|
24,475
|
|
|
20,022
|
|
||
Reinsurance recoverables
|
13,227
|
|
|
28,119
|
|
||
Deferred policy acquisition costs
|
9,866
|
|
|
12,003
|
|
||
Other
|
48,033
|
|
|
43,869
|
|
||
Total other assets
|
$
|
349,371
|
|
|
$
|
357,864
|
|
(1)
|
Property and equipment, at cost less accumulated depreciation of
$103.3 million
and
$100.2 million
at
June 30, 2015
and
December 31, 2014
, respectively.
|
(In thousands)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Reserve for losses by category:
|
|
|
|
||||
Prime
|
$
|
562,918
|
|
|
$
|
700,174
|
|
Alt-A
|
256,854
|
|
|
292,293
|
|
||
A minus and below
|
148,043
|
|
|
179,103
|
|
||
IBNR and other
|
125,038
|
|
|
223,114
|
|
||
LAE
|
48,141
|
|
|
56,164
|
|
||
Reinsurance recoverable (1)
|
11,677
|
|
|
26,665
|
|
||
Total primary reserve
|
1,152,671
|
|
|
1,477,513
|
|
||
Pool
|
47,902
|
|
|
75,785
|
|
||
IBNR and other
|
891
|
|
|
1,775
|
|
||
LAE
|
2,353
|
|
|
3,542
|
|
||
Total pool reserve
|
51,146
|
|
|
81,102
|
|
||
Total First-lien reserve
|
1,203,817
|
|
|
1,558,615
|
|
||
Second-lien and other (2)
|
975
|
|
|
1,417
|
|
||
Total reserve for losses
|
$
|
1,204,792
|
|
|
$
|
1,560,032
|
|
(1)
|
Primarily represents ceded losses on captive transactions and the QSR Transactions.
|
(2)
|
Does not include our Second-lien PDR that is included in other liabilities.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Balance at beginning of period
|
$
|
1,384,714
|
|
|
$
|
1,893,960
|
|
|
$
|
1,560,032
|
|
|
$
|
2,164,353
|
|
Less reinsurance recoverables (1)
|
13,365
|
|
|
25,751
|
|
|
26,665
|
|
|
38,363
|
|
||||
Balance at beginning of period, net of reinsurance recoverables
|
1,371,349
|
|
|
1,868,209
|
|
|
1,533,367
|
|
|
2,125,990
|
|
||||
Add losses and LAE incurred in respect of default notices reported and unreported in:
|
|
|
|
|
|
|
|
||||||||
Current year (2) (3)
|
53,617
|
|
|
75,472
|
|
|
134,054
|
|
|
184,321
|
|
||||
Prior years (3)
|
(19,835
|
)
|
|
(11,207
|
)
|
|
(55,195
|
)
|
|
(70,896
|
)
|
||||
Total incurred
|
33,782
|
|
|
64,265
|
|
|
78,859
|
|
|
113,425
|
|
||||
Deduct paid claims and LAE related to:
|
|
|
|
|
|
|
|
||||||||
Current year (2)
|
576
|
|
|
803
|
|
|
576
|
|
|
803
|
|
||||
Prior years
|
211,440
|
|
|
239,448
|
|
|
418,535
|
|
|
546,389
|
|
||||
Total paid
|
212,016
|
|
|
240,251
|
|
|
419,111
|
|
|
547,192
|
|
||||
Balance at end of period, net of reinsurance recoverables
|
1,193,115
|
|
|
1,692,223
|
|
|
1,193,115
|
|
|
1,692,223
|
|
||||
Add reinsurance recoverables (1)
|
11,677
|
|
|
22,458
|
|
|
11,677
|
|
|
22,458
|
|
||||
Balance at end of period
|
$
|
1,204,792
|
|
|
$
|
1,714,681
|
|
|
$
|
1,204,792
|
|
|
$
|
1,714,681
|
|
(1)
|
Related to ceded losses on captive reinsurance transactions and the QSR 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.
|
(3)
|
Amounts previously reported for losses and LAE incurred in respect of default notices reported and unreported in current year and prior years have been reclassified to correct an error. There was no net change to total incurred losses in any period as a result of these reclassifications. For the
three and six months ended June 30, 2014
, the amounts previously reported for losses and LAE incurred in respect of default notices reported and unreported in current year have been revised downward by approximately
$14.4 million
and
$48.2 million
, respectively, with an equal and offsetting adjustment to the amount previously reported for default notices reported and unreported in prior years. For the years ended December 31, 2014, 2013 and 2012, the amounts previously reported related to losses and LAE incurred from current year default notices should have been lower by approximately
$71.8 million
,
$65.0 million
and
$75.7 million
, respectively, with equal and offsetting adjustments to the incurred loss amounts related to prior years’ default notices.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Rescissions, net
|
$
|
3.4
|
|
|
$
|
7.6
|
|
|
$
|
7.2
|
|
|
$
|
14.0
|
|
Claim Denials, net
|
3.6
|
|
|
6.4
|
|
|
9.2
|
|
|
25.3
|
|
||||
Net (Reinstatements), Rescissions or Claim Denials related to the BofA Settlement Agreement
|
(47.1
|
)
|
|
(2.5
|
)
|
|
(71.2
|
)
|
|
0.5
|
|
||||
Net First-lien claims submitted for payment that were (reinstated), rescinded or denied (1)
|
$
|
(40.1
|
)
|
|
$
|
11.5
|
|
|
$
|
(54.8
|
)
|
|
$
|
39.8
|
|
(1)
|
Includes an amount related to a small number of submitted claims that were subsequently withdrawn by the insured.
|
|
|
December 31, 2014
|
||||||||||
(In thousands)
|
|
As Previously Reported
|
|
Adjustment
|
|
As Adjusted
|
||||||
9.000%
|
Senior Notes due 2017
|
$
|
192,605
|
|
|
$
|
(2,360
|
)
|
|
$
|
190,245
|
|
3.000%
|
Convertible Senior Notes due 2017
|
375,310
|
|
|
(3,974
|
)
|
|
371,336
|
|
|||
2.250%
|
Convertible Senior Notes due 2019
|
342,011
|
|
|
(5,878
|
)
|
|
336,133
|
|
|||
5.500%
|
Senior Notes due 2019
|
300,000
|
|
|
(5,415
|
)
|
|
294,585
|
|
|||
|
Total long-term debt
|
$
|
1,209,926
|
|
|
$
|
(17,627
|
)
|
|
$
|
1,192,299
|
|
(In thousands)
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
9.000%
|
Senior Notes due 2017
|
$
|
191,256
|
|
|
$
|
190,245
|
|
3.000%
|
Convertible Senior Notes due 2017
|
51,917
|
|
|
371,336
|
|
||
2.250%
|
Convertible Senior Notes due 2019
|
342,980
|
|
|
336,133
|
|
||
5.500%
|
Senior Notes due 2019
|
295,198
|
|
|
294,585
|
|
||
5.250%
|
Senior Notes due 2020
|
343,541
|
|
|
—
|
|
||
|
Total long-term debt
|
$
|
1,224,892
|
|
|
$
|
1,192,299
|
|
•
|
the
$35.5 million
market premium representing the consideration paid to the sellers of the Convertible Senior Notes due 2017 in excess of the conversion value of the purchased Convertible Senior Notes due 2017;
|
•
|
the
$52.3 million
difference between the fair value and the carrying value of the liability component of the purchased Convertible Senior Notes due 2017; and
|
•
|
the
$4.1 million
net impact of transaction costs and unamortized debt issuance costs on the purchased Convertible Senior Notes due 2017.
|
|
Convertible Senior Notes due 2017
|
|
Convertible Senior Notes due 2019
|
||||||||||||
(In thousands)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2015 |
|
December 31,
2014 |
||||||||
Liability component:
|
|
|
|
|
|
|
|
||||||||
Principal
|
$
|
60,914
|
|
|
$
|
450,000
|
|
|
$
|
399,992
|
|
|
$
|
400,000
|
|
Debt discount, net (1)
|
(8,546
|
)
|
|
(74,690
|
)
|
|
(51,793
|
)
|
|
(57,989
|
)
|
||||
Debt issuance costs (1)
|
(451
|
)
|
|
(3,974
|
)
|
|
(5,219
|
)
|
|
(5,878
|
)
|
||||
Net carrying amount
|
$
|
51,917
|
|
|
$
|
371,336
|
|
|
$
|
342,980
|
|
|
$
|
336,133
|
|
|
|
|
|
|
|
|
|
||||||||
Equity component of currently redeemable convertible senior notes
|
$
|
8,546
|
|
|
$
|
74,690
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Included within long-term debt and is being amortized over the life of the convertible notes.
|
|
Convertible Senior Notes due 2017
|
||||||||||||||
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
($ in thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Contractual interest expense
|
$
|
3,122
|
|
|
$
|
3,375
|
|
|
$
|
6,497
|
|
|
$
|
6,750
|
|
Amortization of debt issuance costs
|
298
|
|
|
304
|
|
|
616
|
|
|
604
|
|
||||
Amortization of debt discount
|
5,394
|
|
|
5,312
|
|
|
11,102
|
|
|
10,498
|
|
||||
Total interest expense
|
$
|
8,814
|
|
|
$
|
8,991
|
|
|
$
|
18,215
|
|
|
$
|
17,852
|
|
|
Convertible Senior Notes due 2019
|
||||||||||||||
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
($ in thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Contractual interest expense
|
$
|
2,250
|
|
|
$
|
2,250
|
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
Amortization of debt issuance costs
|
330
|
|
|
319
|
|
|
658
|
|
|
635
|
|
||||
Amortization of debt discount
|
3,123
|
|
|
2,934
|
|
|
6,196
|
|
|
5,823
|
|
||||
Total interest expense
|
$
|
5,703
|
|
|
$
|
5,503
|
|
|
$
|
11,354
|
|
|
$
|
10,958
|
|
|
Three Months Ended June 30, 2015
|
|
Six Months Ended June 30, 2015
|
||||||||||||||||||||
(In thousands)
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
||||||||||||
Balance at beginning of period
|
$
|
91,806
|
|
|
$
|
32,132
|
|
|
$
|
59,674
|
|
|
$
|
79,208
|
|
|
$
|
27,723
|
|
|
$
|
51,485
|
|
OCI:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net foreign currency translation adjustments
|
243
|
|
|
85
|
|
|
158
|
|
|
49
|
|
|
17
|
|
|
32
|
|
||||||
Unrealized gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Unrealized holding losses arising during the period
|
(33,261
|
)
|
|
(11,641
|
)
|
|
(21,620
|
)
|
|
(23,332
|
)
|
|
(8,166
|
)
|
|
(15,166
|
)
|
||||||
Less: Reclassification adjustment for net gains included in net income (1)
|
68,714
|
|
|
24,050
|
|
|
44,664
|
|
|
68,663
|
|
|
24,032
|
|
|
44,631
|
|
||||||
Net unrealized losses on investments
|
(101,975
|
)
|
|
(35,691
|
)
|
|
(66,284
|
)
|
|
(91,995
|
)
|
|
(32,198
|
)
|
|
(59,797
|
)
|
||||||
Activity related to investments recorded as assets held for sale (2)
|
(7,818
|
)
|
|
(2,736
|
)
|
|
(5,082
|
)
|
(3)
|
(5,006
|
)
|
|
(1,752
|
)
|
|
(3,254
|
)
|
||||||
OCI
|
(109,550
|
)
|
|
(38,342
|
)
|
|
(71,208
|
)
|
|
(96,952
|
)
|
|
(33,933
|
)
|
|
(63,019
|
)
|
||||||
Balance at end of period
|
$
|
(17,744
|
)
|
|
$
|
(6,210
|
)
|
|
$
|
(11,534
|
)
|
|
$
|
(17,744
|
)
|
|
$
|
(6,210
|
)
|
|
$
|
(11,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Three Months Ended June 30, 2014
|
|
Six Months Ended June 30, 2014
|
||||||||||||||||||||
(In thousands)
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
|
Before Tax
|
|
Tax Effect
|
|
Net of Tax
|
||||||||||||
Balance at beginning of period
|
$
|
61,185
|
|
|
$
|
19,841
|
|
|
$
|
41,344
|
|
|
$
|
57,345
|
|
|
$
|
19,962
|
|
|
$
|
37,383
|
|
OCI:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Unrealized holding gains (losses) arising during the period
|
8,422
|
|
|
(211
|
)
|
|
8,633
|
|
|
11,092
|
|
|
(210
|
)
|
|
11,302
|
|
||||||
Less: Reclassification adjustment for net losses included in net income (1)
|
(604
|
)
|
|
(211
|
)
|
|
(393
|
)
|
|
(599
|
)
|
|
(210
|
)
|
|
(389
|
)
|
||||||
Net unrealized gains on investments
|
9,026
|
|
|
—
|
|
|
9,026
|
|
|
11,691
|
|
|
—
|
|
|
11,691
|
|
||||||
Activity related to investments recorded as assets held for sale (2)
|
646
|
|
|
(1
|
)
|
|
647
|
|
|
1,821
|
|
|
(122
|
)
|
|
1,943
|
|
||||||
OCI
|
9,672
|
|
|
(1
|
)
|
|
9,673
|
|
|
13,512
|
|
|
(122
|
)
|
|
13,634
|
|
||||||
Balance at end of period
|
$
|
70,857
|
|
|
$
|
19,840
|
|
|
$
|
51,017
|
|
|
$
|
70,857
|
|
|
$
|
19,840
|
|
|
$
|
51,017
|
|
(1)
|
Included in net gains on investments and other financial instruments on our condensed consolidated statements of operations.
|
(2)
|
Represents the unrealized holding gains (losses) arising during the period on investments recorded as assets held for sale, net of reclassification adjustments for net gains (losses) included in net income from discontinued operations.
|
(3)
|
For the
three months ended June 30, 2015
, this amount represents the recognition of investment gains included in income from discontinued operations, net of tax, as a result of the completion of the sale of Radian Asset Assurance on April 1, 2015. Previously, pursuant to accounting standards, such investment gains had been deferred and recorded in AOCI.
|
|
June 30,
2015 |
|
December 31,
2014 |
||||
($ in millions)
|
|
|
|
||||
RIF, net (1)
|
$
|
32,290.6
|
|
|
$
|
30,615.7
|
|
|
|
|
|
||||
Statutory policyholders’ surplus
|
$
|
1,367.0
|
|
|
$
|
1,325.2
|
|
Contingency reserve
|
592.7
|
|
|
389.4
|
|
||
Statutory capital
|
$
|
1,959.7
|
|
|
$
|
1,714.6
|
|
|
|
|
|
||||
Risk-to-capital
|
16.5:1
|
|
17.9:1
|
(1)
|
Excludes risk ceded through reinsurance contracts (to third parties and affiliates) and RIF on defaulted loans.
|
(In thousands)
|
June 30,
2015 |
|
December 31, 2014
|
||||
Investment in subsidiaries, at equity in net assets
|
$
|
3,018,264
|
|
|
$
|
2,746,915
|
|
Total assets
|
3,869,439
|
|
|
3,741,648
|
|
||
Long-term debt
|
1,224,892
|
|
|
1,192,299
|
|
||
Total liabilities
|
1,507,495
|
|
|
1,569,898
|
|
||
Equity component of currently redeemable convertible senior notes
|
8,546
|
|
|
74,690
|
|
||
Total stockholders’ equity
|
2,353,398
|
|
|
2,097,060
|
|
||
Total liabilities and stockholders’ equity
|
3,869,439
|
|
|
3,741,648
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands, except share and per share amounts)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net income from continuing operations:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations - basic
|
$
|
45,193
|
|
|
$
|
103,537
|
|
|
$
|
136,920
|
|
|
$
|
249,517
|
|
Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1)
|
3,707
|
|
|
5,503
|
|
|
7,380
|
|
|
10,958
|
|
||||
Net income from continuing operations - diluted
|
$
|
48,900
|
|
|
$
|
109,040
|
|
|
$
|
144,300
|
|
|
$
|
260,475
|
|
|
|
|
|
|
|
|
|
||||||||
Net income:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations - basic
|
$
|
45,193
|
|
|
$
|
103,537
|
|
|
$
|
136,920
|
|
|
$
|
249,517
|
|
Income from discontinued operations, net of tax
|
4,855
|
|
|
71,296
|
|
|
5,385
|
|
|
128,075
|
|
||||
Net income - basic
|
50,048
|
|
|
174,833
|
|
|
142,305
|
|
|
377,592
|
|
||||
Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1)
|
3,707
|
|
|
5,503
|
|
|
7,380
|
|
|
10,958
|
|
||||
Net income - diluted
|
$
|
53,755
|
|
|
$
|
180,336
|
|
|
$
|
149,685
|
|
|
$
|
388,550
|
|
|
|
|
|
|
|
|
|
||||||||
Average common shares outstanding - basic
|
193,112
|
|
|
182,583
|
|
|
192,245
|
|
|
177,903
|
|
||||
Dilutive effect of Convertible Senior Notes due 2017
|
12,438
|
|
|
7,599
|
|
|
11,789
|
|
|
8,306
|
|
||||
Dilutive effect of Convertible Senior Notes due 2019
|
37,736
|
|
|
37,736
|
|
|
37,736
|
|
|
37,736
|
|
||||
Dilutive effect of stock-based compensation arrangements (2)
|
3,364
|
|
|
2,861
|
|
|
3,211
|
|
|
2,822
|
|
||||
Adjusted average common shares outstanding - diluted
|
246,650
|
|
|
230,779
|
|
|
244,981
|
|
|
226,767
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net income per share:
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations
|
$
|
0.23
|
|
|
$
|
0.57
|
|
|
$
|
0.71
|
|
|
$
|
1.40
|
|
Income from discontinued operations
|
0.03
|
|
|
0.39
|
|
|
0.03
|
|
|
0.72
|
|
||||
Net income
|
$
|
0.26
|
|
|
$
|
0.96
|
|
|
$
|
0.74
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted:
|
|
|
|
|
|
|
|
||||||||
Net income from continuing operations
|
$
|
0.20
|
|
|
$
|
0.47
|
|
|
$
|
0.59
|
|
|
$
|
1.15
|
|
Income from discontinued operations
|
0.02
|
|
|
0.31
|
|
|
0.02
|
|
|
0.56
|
|
||||
Net income
|
$
|
0.22
|
|
|
$
|
0.78
|
|
|
$
|
0.61
|
|
|
$
|
1.71
|
|
(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)
|
The following number of shares of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of net income per share because they were anti-dilutive:
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||
(in thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Shares of common stock equivalents
|
264
|
|
1,484
|
|
530
|
|
1,484
|
•
|
the issuance of
$350 million
aggregate principal amount of Senior Notes due 2020;
|
•
|
the purchases of approximately
$389.1 million
aggregate principal amount of its Convertible Senior Notes due 2017;
|
•
|
the termination of a corresponding portion of the capped call transactions related to the purchased Convertible Senior Notes due 2017; and
|
•
|
the entry into an ASR program to repurchase an aggregate of
$202 million
of Radian Group common stock.
|
•
|
a net increase in available holding company liquidity of approximately
$24.3 million
;
|
•
|
a net increase in long-term debt of approximately
$16.0 million
, excluding the impact of the reclassification of unamortized debt issuance costs;
|
•
|
a net decrease in the equity component of currently redeemable convertible senior notes of approximately
$55.0 million
; and
|
•
|
a net increase in stockholders’ equity of approximately
$89.2 million
.
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
$ Change
|
||||||||||||
|
Three Months Ended
June 30, |
|
Favorable (Unfavorable)
|
|
Six Months Ended
June 30, |
|
Favorable (Unfavorable)
|
||||||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015 vs. 2014
|
|
2015
|
|
2014
|
|
2015 vs. 2014
|
||||||||||||
Net income from continuing operations
|
$
|
45.2
|
|
|
$
|
103.5
|
|
|
$
|
(58.3
|
)
|
|
$
|
136.9
|
|
|
$
|
249.5
|
|
|
$
|
(112.6
|
)
|
Income from discontinued operations, net of tax
|
4.9
|
|
|
71.3
|
|
|
(66.4
|
)
|
|
5.4
|
|
|
128.1
|
|
|
(122.7
|
)
|
||||||
Net income
|
50.1
|
|
|
174.8
|
|
|
(124.7
|
)
|
|
142.3
|
|
|
377.6
|
|
|
(235.3
|
)
|
||||||
Net premiums earned—insurance
|
237.4
|
|
|
203.6
|
|
|
33.8
|
|
|
462.0
|
|
|
402.4
|
|
|
59.6
|
|
||||||
Services revenue
|
43.5
|
|
|
—
|
|
|
43.5
|
|
|
74.1
|
|
|
—
|
|
|
74.1
|
|
||||||
Net investment income
|
19.3
|
|
|
16.7
|
|
|
2.6
|
|
|
36.6
|
|
|
32.0
|
|
|
4.6
|
|
||||||
Net gains on investments and other financial instruments
|
28.4
|
|
|
25.3
|
|
|
3.1
|
|
|
45.2
|
|
|
68.3
|
|
|
(23.1
|
)
|
||||||
Provision for losses
|
32.6
|
|
|
64.6
|
|
|
32.0
|
|
|
77.6
|
|
|
114.3
|
|
|
36.7
|
|
||||||
Direct cost of services
|
23.5
|
|
|
—
|
|
|
(23.5
|
)
|
|
42.8
|
|
|
—
|
|
|
(42.8
|
)
|
||||||
Other operating expenses
|
67.7
|
|
|
60.8
|
|
|
(6.9
|
)
|
|
121.5
|
|
|
115.3
|
|
|
(6.2
|
)
|
||||||
Interest expense
|
24.5
|
|
|
22.3
|
|
|
(2.2
|
)
|
|
48.9
|
|
|
42.3
|
|
|
(6.6
|
)
|
||||||
Loss on induced conversion and debt extinguishment
|
91.9
|
|
|
—
|
|
|
(91.9
|
)
|
|
91.9
|
|
|
—
|
|
|
(91.9
|
)
|
||||||
Amortization and impairment of intangible assets
|
3.3
|
|
|
—
|
|
|
(3.3
|
)
|
|
6.3
|
|
|
—
|
|
|
(6.3
|
)
|
||||||
Income tax provision (benefit)
|
34.8
|
|
|
(10.7
|
)
|
|
(45.5
|
)
|
|
80.5
|
|
|
(29.5
|
)
|
|
(110.0
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Adjusted pretax operating income (1)
|
147.3
|
|
|
74.1
|
|
|
73.2
|
|
|
271.2
|
|
|
158.1
|
|
|
113.1
|
|
(1)
|
See “—
Use of Non-GAAP Financial Measure
” below.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net unrealized (losses) gains related to change in fair value of trading securities and other investments
|
$
|
(31.6
|
)
|
|
$
|
29.0
|
|
|
$
|
(10.9
|
)
|
|
$
|
76.6
|
|
Net realized gains (losses) on sales
|
60.4
|
|
|
(0.8
|
)
|
|
55.9
|
|
|
(5.1
|
)
|
||||
Net (losses) gains on other financial instruments
|
(0.4
|
)
|
|
(2.9
|
)
|
|
0.2
|
|
|
(3.2
|
)
|
||||
Net gains on investments and other financial instruments
|
$
|
28.4
|
|
|
$
|
25.3
|
|
|
$
|
45.2
|
|
|
$
|
68.3
|
|
(1)
|
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.
|
(2)
|
Loss on induced conversion and debt extinguishment.
Gains or losses on early extinguishment of debt or losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, these activities are not viewed as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
|
(3)
|
Acquisition-related expenses.
Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
|
(4)
|
Amortization and impairment of intangible assets.
Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore 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 these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).
|
(1)
|
For periods prior to the April 1, 2015 sale of Radian Asset Assurance, includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment. These amounts represent items that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations. See Note 3 of Notes to Unaudited Condensed Consolidated Financial Statements.
|
(2)
|
The change in expected economic loss or recovery associated with our previously-owned VIEs is included in adjusted pretax operating income above, although it represents amounts that are not included in net income. Therefore, for purposes of this reconciliation, net gains on investments and other financial instruments has been adjusted by
$0.2 million
and
$0.3 million
for the
three and six months ended June 30, 2014
to reverse this item.
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
$ Change
|
||||||||||||
|
Three Months Ended
June 30, |
|
Favorable (Unfavorable)
|
|
Six Months Ended
June 30, |
|
Favorable (Unfavorable)
|
||||||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015 vs. 2014
|
|
2015
|
|
2014
|
|
2015 vs. 2014
|
||||||||||||
Adjusted pretax operating income (1)
|
$
|
145.4
|
|
|
$
|
74.6
|
|
|
$
|
70.8
|
|
|
$
|
271.3
|
|
|
$
|
159.3
|
|
|
$
|
112.0
|
|
Net premiums written—insurance
|
251.1
|
|
|
221.9
|
|
|
29.2
|
|
|
493.0
|
|
|
434.9
|
|
|
58.1
|
|
||||||
Net premiums earned—insurance
|
237.4
|
|
|
203.6
|
|
|
33.8
|
|
|
462.0
|
|
|
402.4
|
|
|
59.6
|
|
||||||
Net investment income
|
19.3
|
|
|
16.7
|
|
|
2.6
|
|
|
36.6
|
|
|
32.0
|
|
|
4.6
|
|
||||||
Provision for losses
|
31.6
|
|
|
64.6
|
|
|
33.0
|
|
|
77.5
|
|
|
114.3
|
|
|
36.8
|
|
||||||
Other operating expenses
|
54.4
|
|
|
53.4
|
|
|
(1.0
|
)
|
|
98.2
|
|
|
107.0
|
|
|
8.8
|
|
||||||
Interest expense
|
20.1
|
|
|
22.3
|
|
|
2.2
|
|
|
40.0
|
|
|
42.3
|
|
|
2.3
|
|
(1)
|
Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the Company’s business segments.
|
|
Three Months Ended June 30,
|
|
Six Months Ended
June 30, |
||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Total Primary NIW
|
$
|
11,751
|
|
|
$
|
9,322
|
|
|
$
|
21,136
|
|
|
$
|
16,130
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||||||||||||||
Total primary NIW by FICO Score
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
>=740
|
$
|
7,405
|
|
|
63.0
|
%
|
|
$
|
5,769
|
|
|
61.9
|
%
|
|
$
|
13,373
|
|
|
63.3
|
%
|
|
$
|
10,114
|
|
|
62.7
|
%
|
680-739
|
3,615
|
|
|
30.8
|
|
|
2,927
|
|
|
31.4
|
|
|
6,460
|
|
|
30.5
|
|
|
4,968
|
|
|
30.8
|
|
||||
620-679
|
731
|
|
|
6.2
|
|
|
626
|
|
|
6.7
|
|
|
1,303
|
|
|
6.2
|
|
|
1,048
|
|
|
6.5
|
|
||||
Total Primary
|
$
|
11,751
|
|
|
100.0
|
%
|
|
$
|
9,322
|
|
|
100.0
|
%
|
|
$
|
21,136
|
|
|
100.0
|
%
|
|
$
|
16,130
|
|
|
100.0
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Percentage of primary NIW
|
|
|
|
|
|
|
|
||||||||
Monthly premiums
|
68
|
%
|
|
76
|
%
|
|
66
|
%
|
|
75
|
%
|
||||
Single premiums
|
32
|
%
|
|
24
|
%
|
|
34
|
%
|
|
25
|
%
|
||||
|
|
|
|
|
|
|
|
||||||||
Refinances
|
23
|
%
|
|
13
|
%
|
|
27
|
%
|
|
15
|
%
|
||||
|
|
|
|
|
|
|
|
||||||||
LTV
|
|
|
|
|
|
|
|
||||||||
95.01% and above
|
3.2
|
%
|
|
0.2
|
%
|
|
2.5
|
%
|
|
0.5
|
%
|
||||
90.01% to 95.00%
|
49.4
|
%
|
|
53.9
|
%
|
|
49.0
|
%
|
|
53.0
|
%
|
||||
85.01% to 90.00%
|
34.0
|
%
|
|
34.5
|
%
|
|
33.7
|
%
|
|
34.5
|
%
|
||||
80.01% to 85.00%
|
13.4
|
%
|
|
11.4
|
%
|
|
14.8
|
%
|
|
12.0
|
%
|
||||
|
|
|
|
|
|
|
|
||||||||
Primary risk written
|
$
|
2,963
|
|
|
$
|
2,378
|
|
|
$
|
5,278
|
|
|
$
|
4,100
|
|
($ in millions)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
|||||||||||||||
Primary IIF
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
$
|
164,137
|
|
|
95.0
|
%
|
|
$
|
162,302
|
|
|
94.5
|
%
|
|
$
|
155,604
|
|
|
94.3
|
%
|
Structured
|
8,555
|
|
|
5.0
|
|
|
9,508
|
|
|
5.5
|
|
|
9,385
|
|
|
5.7
|
|
|||
Total Primary
|
$
|
172,692
|
|
|
100.0
|
%
|
|
$
|
171,810
|
|
|
100.0
|
%
|
|
$
|
164,989
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
161,397
|
|
|
93.4
|
%
|
|
$
|
159,647
|
|
|
92.9
|
%
|
|
$
|
151,865
|
|
|
92.0
|
%
|
Alt-A
|
6,857
|
|
|
4.0
|
|
|
7,412
|
|
|
4.3
|
|
|
8,014
|
|
|
4.9
|
|
|||
A minus and below
|
4,438
|
|
|
2.6
|
|
|
4,751
|
|
|
2.8
|
|
|
5,110
|
|
|
3.1
|
|
|||
Total Primary
|
$
|
172,692
|
|
|
100.0
|
%
|
|
$
|
171,810
|
|
|
100.0
|
%
|
|
$
|
164,989
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Persistency
(12 months ended) (1)
|
|
|
80.1
|
%
|
(2)
|
|
|
84.2
|
%
|
|
|
|
83.9
|
%
|
(1)
|
Effective March 31, 2015, we refined our persistency calculation to incorporate loan level detail rather than aggregated portfolio data. Prior periods have been recalculated and reflect the current calculation methodology.
|
(2)
|
Persistency decreased primarily as a result of the cancellations of Single Premium policies due to prepayments that servicers had not previously reported to Radian. See Net Premiums Written and Earned below for the corresponding impact on premiums earned.
|
($ in millions)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
|||||||||||||||
Primary RIF
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Flow
|
$
|
41,706
|
|
|
95.5
|
%
|
|
$
|
41,071
|
|
|
95.0
|
%
|
|
$
|
39,139
|
|
|
94.8
|
%
|
Structured
|
1,957
|
|
|
4.5
|
|
|
2,168
|
|
|
5.0
|
|
|
2,131
|
|
|
5.2
|
|
|||
Total Primary
|
$
|
43,663
|
|
|
100.0
|
%
|
|
$
|
43,239
|
|
|
100.0
|
%
|
|
$
|
41,270
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Prime
|
$
|
40,963
|
|
|
93.8
|
%
|
|
$
|
40,326
|
|
|
93.3
|
%
|
|
$
|
38,124
|
|
|
92.4
|
%
|
Alt-A
|
1,588
|
|
|
3.6
|
|
|
1,720
|
|
|
4.0
|
|
|
1,863
|
|
|
4.5
|
|
|||
A minus and below
|
1,112
|
|
|
2.6
|
|
|
1,193
|
|
|
2.7
|
|
|
1,283
|
|
|
3.1
|
|
|||
Total Primary
|
$
|
43,663
|
|
|
100.0
|
%
|
|
$
|
43,239
|
|
|
100.0
|
%
|
|
$
|
41,270
|
|
|
100.0
|
%
|
($ in millions)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
|||||||||||||||
Total primary RIF by FICO score
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
>=740
|
$
|
24,778
|
|
|
56.7
|
%
|
|
$
|
24,511
|
|
|
56.7
|
%
|
|
$
|
23,209
|
|
|
56.2
|
%
|
680-739
|
13,131
|
|
|
30.1
|
|
|
12,817
|
|
|
29.6
|
|
|
12,078
|
|
|
29.3
|
|
|||
620-679
|
4,880
|
|
|
11.2
|
|
|
4,973
|
|
|
11.6
|
|
|
4,974
|
|
|
12.1
|
|
|||
<=619
|
874
|
|
|
2.0
|
|
|
938
|
|
|
2.1
|
|
|
1,009
|
|
|
2.4
|
|
|||
Total Primary RIF
|
$
|
43,663
|
|
|
100.0
|
%
|
|
$
|
43,239
|
|
|
100.0
|
%
|
|
$
|
41,270
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Primary RIF on defaulted loans
|
$
|
1,753
|
|
|
|
|
$
|
2,089
|
|
|
|
|
$
|
2,270
|
|
|
|
($ in millions)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
|||||||||||||||
Percentage of primary RIF
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Refinances
|
25
|
%
|
|
|
|
26
|
%
|
|
|
|
27
|
%
|
|
|
||||||
Loan Type:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Fixed
|
95.7
|
%
|
|
|
|
95.2
|
%
|
|
|
|
94.6
|
%
|
|
|
||||||
Adjustable rate mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Less than five years
|
1.5
|
%
|
|
|
|
1.7
|
%
|
|
|
|
2.0
|
%
|
|
|
||||||
Five years and longer
|
2.8
|
%
|
|
|
|
3.1
|
%
|
|
|
|
3.3
|
%
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total primary RIF by LTV
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
95.01% and above
|
$
|
3,340
|
|
|
7.6
|
%
|
|
$
|
3,547
|
|
|
8.2
|
%
|
|
$
|
3,835
|
|
|
9.3
|
%
|
90.01% to 95.00%
|
21,398
|
|
|
49.0
|
|
|
20,521
|
|
|
47.5
|
|
|
18,637
|
|
|
45.1
|
|
|||
85.01% to 90.00%
|
15,103
|
|
|
34.6
|
|
|
15,307
|
|
|
35.4
|
|
|
14,963
|
|
|
36.3
|
|
|||
85.00% and below
|
3,822
|
|
|
8.8
|
|
|
3,864
|
|
|
8.9
|
|
|
3,835
|
|
|
9.3
|
|
|||
Total Primary
|
$
|
43,663
|
|
|
100.0
|
%
|
|
$
|
43,239
|
|
|
100.0
|
%
|
|
$
|
41,270
|
|
|
100.0
|
%
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
($ in thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Initial QSR Transaction
|
|
|
|
|
|
|
|
||||||||
Ceded premiums written
|
$
|
3,822
|
|
|
$
|
5,046
|
|
|
$
|
7,889
|
|
|
$
|
10,350
|
|
% of premiums written
|
1.5
|
%
|
|
2.1
|
%
|
|
1.5
|
%
|
|
2.2
|
%
|
||||
Ceded premiums earned
|
$
|
6,424
|
|
|
$
|
6,803
|
|
|
$
|
12,443
|
|
|
$
|
13,610
|
|
% of total premiums
|
2.6
|
%
|
|
3.1
|
%
|
|
2.5
|
%
|
|
3.1
|
%
|
||||
Ceding commissions written
|
$
|
828
|
|
|
$
|
1,262
|
|
|
$
|
1,708
|
|
|
$
|
2,588
|
|
RIF included in Initial QSR Transaction (1)
|
$
|
954,673
|
|
|
$
|
1,234,975
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Second QSR Transaction
|
|
|
|
|
|
|
|
||||||||
Ceded premiums written
|
$
|
395
|
|
|
$
|
8,072
|
|
|
$
|
6,923
|
|
|
$
|
15,365
|
|
% of premiums written
|
0.2
|
%
|
|
3.4
|
%
|
|
1.4
|
%
|
|
3.3
|
%
|
||||
Ceded premiums earned
|
$
|
3,039
|
|
|
$
|
7,197
|
|
|
$
|
11,808
|
|
|
$
|
13,782
|
|
% of total premiums
|
1.2
|
%
|
|
3.3
|
%
|
|
2.4
|
%
|
|
3.2
|
%
|
||||
Ceding commissions written
|
$
|
2,154
|
|
|
$
|
2,825
|
|
|
$
|
4,439
|
|
|
$
|
5,378
|
|
RIF included in Second QSR Transaction (1)
|
$
|
1,440,312
|
|
|
$
|
1,447,088
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||||||
First-Lien Captives
|
|
|
|
|
|
|
|
||||||||
Premiums earned ceded to captives
|
$
|
2,700
|
|
|
$
|
3,314
|
|
|
$
|
5,285
|
|
|
$
|
6,822
|
|
% of total premiums
|
1.1
|
%
|
|
1.5
|
%
|
|
1.1
|
%
|
|
1.6
|
%
|
||||
IIF subject to captives (2)
|
2.4
|
%
|
|
3.3
|
%
|
|
|
|
|
||||||
RIF subject to captives (3)
|
2.2
|
%
|
|
3.1
|
%
|
|
|
|
|
(1)
|
RIF ceded under QSR Transactions and included in primary RIF.
|
(2)
|
IIF on captives as a percentage of total IIF.
|
(3)
|
RIF on captives as a percentage of total RIF.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
New defaults
|
$
|
59.8
|
|
|
$
|
74.4
|
|
|
$
|
102.4
|
|
|
$
|
129.2
|
|
Existing defaults, Second-liens, LAE and other (1)
|
(28.2
|
)
|
|
(9.8
|
)
|
|
(24.9
|
)
|
|
(14.9
|
)
|
||||
Provision for losses
|
$
|
31.6
|
|
|
$
|
64.6
|
|
|
$
|
77.5
|
|
|
$
|
114.3
|
|
(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, prepaid, or resulted in a paid claim or a Rescission or Claim Denial during the period indicated; (c) the impact to our IBNR reserve during the period related to changes in actual and estimated Reinstatements of previous Rescissions and Claim Denials, including those subject to the BofA Settlement Agreement; (d) Second-lien loss reserves and PDR; and (e) LAE and other loss reserves.
|
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
|||
Default Statistics—Primary Insurance:
|
|
|
|
|
|
|||
Total Primary Insurance
|
|
|
|
|
|
|||
Prime
|
|
|
|
|
|
|||
Number of insured loans
|
802,719
|
|
|
797,436
|
|
|
764,508
|
|
Number of loans in default
|
23,237
|
|
|
28,246
|
|
|
30,012
|
|
Percentage of loans in default
|
2.89
|
%
|
|
3.54
|
%
|
|
3.93
|
%
|
Alt-A
|
|
|
|
|
|
|||
Number of insured loans
|
35,927
|
|
|
38,953
|
|
|
41,846
|
|
Number of loans in default
|
6,949
|
|
|
8,136
|
|
|
9,299
|
|
Percentage of loans in default
|
19.34
|
%
|
|
20.89
|
%
|
|
22.22
|
%
|
A minus and below
|
|
|
|
|
|
|||
Number of insured loans
|
34,224
|
|
|
36,688
|
|
|
39,180
|
|
Number of loans in default
|
7,490
|
|
|
8,937
|
|
|
9,593
|
|
Percentage of loans in default
|
21.89
|
%
|
|
24.36
|
%
|
|
24.48
|
%
|
Total Primary
|
|
|
|
|
|
|||
Number of insured loans
|
872,870
|
|
|
873,077
|
|
|
845,534
|
|
Number of loans in default (1)
|
37,676
|
|
|
45,319
|
|
|
48,904
|
|
Percentage of loans in default
|
4.32
|
%
|
|
5.19
|
%
|
|
5.78
|
%
|
(1)
|
Excludes
3,246
, 4,467 and 5,238 loans that are in default at
June 30, 2015
,
December 31, 2014
and
June 30, 2014
, respectively, that are subject to the Freddie Mac Agreement, and for which we no longer have claims exposure.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||
Beginning default inventory
|
40,440
|
|
|
53,119
|
|
|
45,319
|
|
|
60,909
|
|
Plus: New defaults (1)
|
10,006
|
|
|
11,454
|
|
|
20,259
|
|
|
23,567
|
|
Less: Cures (1)
|
9,591
|
|
|
10,930
|
|
|
21,180
|
|
|
24,575
|
|
Less: Claims paid (2) (3)
|
3,891
|
|
|
4,698
|
|
|
7,823
|
|
|
10,747
|
|
Less: Rescissions (4)
|
35
|
|
|
61
|
|
|
74
|
|
|
120
|
|
Less: Claim (Reinstatements) Denials (5)
|
(25
|
)
|
|
(16
|
)
|
|
(67
|
)
|
|
49
|
|
Less: Net (Reinstatements), Rescissions or Claim Denials related to the BofA Settlement Agreement (6)
|
(722
|
)
|
|
(4
|
)
|
|
(1,108
|
)
|
|
81
|
|
Ending default inventory
|
37,676
|
|
|
48,904
|
|
|
37,676
|
|
|
48,904
|
|
(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
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||
Intra-period new defaults
|
3,877
|
|
|
4,271
|
|
|
12,010
|
|
|
13,382
|
|
(2)
|
Includes those charged to a deductible or captive.
|
(3)
|
Includes 1,315 and 2,790 claim payments related to the BofA Settlement Agreement for the
three and six months ended June 30, 2015
, respectively.
|
(4)
|
Net of any previous Rescissions that were reinstated during the period. Such reinstated Rescissions may ultimately result in a paid claim.
|
(5)
|
Net of any Claim Denials that were reinstated during the period. Such previously denied but reinstated claims are generally reviewed for possible Rescission prior to any claim payment.
|
(6)
|
Includes Rescissions, Claim Denials and Reinstatements on the population of loans subject to the BofA Settlement Agreement. Net (Reinstatements), Rescissions or Claim Denials related to the BofA Settlement Agreement prior to the February 1, 2015 Implementation Date represent such activities on loans that subsequently became subject to the BofA Settlement Agreement.
|
|
June 30, 2015
|
|||||||||||||||||
|
Total
|
|
Foreclosure Stage Defaulted Loans
|
|
Cure % During the 2nd Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
|||||||||
($ in thousands)
|
#
|
|
%
|
|
#
|
|
%
|
|
$
|
|
%
|
|||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Three payments or less
|
9,668
|
|
|
25.7
|
%
|
|
184
|
|
|
33.3
|
%
|
|
$
|
117,029
|
|
|
12.0
|
%
|
Four to eleven payments
|
8,433
|
|
|
22.4
|
|
|
656
|
|
|
18.0
|
|
|
159,768
|
|
|
16.3
|
|
|
Twelve payments or more
|
15,725
|
|
|
41.7
|
|
|
3,416
|
|
|
4.8
|
|
|
508,581
|
|
|
51.9
|
|
|
Pending claims
|
3,850
|
|
|
10.2
|
|
|
N/A
|
|
|
1.2
|
|
|
194,114
|
|
|
19.8
|
|
|
Total
|
37,676
|
|
|
100.0
|
%
|
|
4,256
|
|
|
|
|
979,492
|
|
|
100.0
|
%
|
||
IBNR and other
|
|
|
|
|
|
|
|
|
125,038
|
|
|
|
||||||
LAE
|
|
|
|
|
|
|
|
|
48,141
|
|
|
|
||||||
Total primary reserve
|
|
|
|
|
|
|
|
|
$
|
1,152,671
|
|
|
|
Key Reserve Assumptions
|
||||
Gross Default to Claim Rate %
|
|
Net Default to Claim Rate %
|
|
Severity %
|
54%
|
|
50%
|
|
105%
|
|
December 31, 2014
|
|||||||||||||||||
|
Total
|
|
Foreclosure Stage Defaulted Loans
|
|
Cure % During the 4th Quarter
|
|
Reserve for Losses
|
|
% of Reserve
|
|||||||||
($ in thousands)
|
#
|
|
%
|
|
#
|
|
%
|
|
$
|
|
%
|
|||||||
Missed payments:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Three payments or less
|
11,192
|
|
|
24.7
|
%
|
|
174
|
|
|
30.6
|
%
|
|
$
|
142,503
|
|
|
11.9
|
%
|
Four to eleven payments
|
10,413
|
|
|
23.0
|
|
|
695
|
|
|
15.8
|
|
|
195,440
|
|
|
16.3
|
|
|
Twelve payments or more
|
18,071
|
|
|
39.9
|
|
|
3,984
|
|
|
3.9
|
|
|
593,466
|
|
|
49.5
|
|
|
Pending claims
|
5,643
|
|
|
12.4
|
|
|
N/A
|
|
|
0.8
|
|
|
266,826
|
|
|
22.3
|
|
|
Total
|
45,319
|
|
|
100.0
|
%
|
|
4,853
|
|
|
|
|
1,198,235
|
|
|
100.0
|
%
|
||
IBNR and other
|
|
|
|
|
|
|
|
|
223,114
|
|
|
|
||||||
LAE
|
|
|
|
|
|
|
|
|
56,164
|
|
|
|
||||||
Total primary reserve
|
|
|
|
|
|
|
|
|
$
|
1,477,513
|
|
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In millions)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Rescissions, net
|
$
|
3.4
|
|
|
$
|
7.6
|
|
|
$
|
7.2
|
|
|
$
|
14.0
|
|
Claim Denials, net
|
3.6
|
|
|
6.4
|
|
|
9.2
|
|
|
25.3
|
|
||||
Net (Reinstatements), Rescissions or Claim Denials related to the BofA Settlement Agreement
|
(47.1
|
)
|
|
(2.5
|
)
|
|
(71.2
|
)
|
|
0.5
|
|
||||
Net First-lien claims submitted for payment that were (reinstated), rescinded or denied (1)
|
$
|
(40.1
|
)
|
|
$
|
11.5
|
|
|
$
|
(54.8
|
)
|
|
$
|
39.8
|
|
(1)
|
Includes an amount related to a small number of submitted claims that were subsequently withdrawn by the insured.
|
(In millions)
|
June 30,
2015 |
|
December 31,
2014 |
|
June 30,
2014 |
||||||
Decrease to our loss reserve due to estimated future Rescissions and Claim Denials
|
$
|
108
|
|
|
$
|
125
|
|
|
$
|
192
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||
Rescinded policies:
|
|
|
|
|
|
|
|
||||
Rescinded
|
(37
|
)
|
|
(78
|
)
|
|
(78
|
)
|
|
(154
|
)
|
Reinstated
|
2
|
|
|
17
|
|
|
4
|
|
|
34
|
|
Net Reinstatements (Rescissions) related to the BofA Settlement Agreement
|
114
|
|
|
(105
|
)
|
|
451
|
|
|
(227
|
)
|
Denied claims:
|
|
|
|
|
|
|
|
||||
Denied
|
(277
|
)
|
|
(518
|
)
|
|
(581
|
)
|
|
(1,301
|
)
|
Reinstated
|
302
|
|
|
534
|
|
|
648
|
|
|
1,252
|
|
Net Reinstatements related to the BofA Settlement Agreement
|
608
|
|
|
109
|
|
|
657
|
|
|
146
|
|
Total Net Reinstatements (Rescissions and Claim Denials)
|
712
|
|
|
(41
|
)
|
|
1,101
|
|
|
(250
|
)
|
(In thousands)
|
June 30,
2015 |
|
December 31,
2014 |
||||
Reserve for losses by category:
|
|
|
|
||||
Prime
|
$
|
562,918
|
|
|
$
|
700,174
|
|
Alt-A
|
256,854
|
|
|
292,293
|
|
||
A minus and below
|
148,043
|
|
|
179,103
|
|
||
IBNR and other
|
125,038
|
|
|
223,114
|
|
||
LAE
|
48,141
|
|
|
56,164
|
|
||
Reinsurance recoverable (1)
|
11,677
|
|
|
26,665
|
|
||
Total primary reserve
|
1,152,671
|
|
|
1,477,513
|
|
||
Pool
|
47,902
|
|
|
75,785
|
|
||
IBNR and other
|
891
|
|
|
1,775
|
|
||
LAE
|
2,353
|
|
|
3,542
|
|
||
Total pool reserve
|
51,146
|
|
|
81,102
|
|
||
Total First-lien reserve
|
1,203,817
|
|
|
1,558,615
|
|
||
Second-lien and other (2)
|
975
|
|
|
1,417
|
|
||
Total reserve for losses
|
$
|
1,204,792
|
|
|
$
|
1,560,032
|
|
(1)
|
Primarily represents ceded losses on captive transactions and the QSR Transactions.
|
(2)
|
Does not include Second-lien PDR.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
(In thousands)
|
2015
|
|
2014
|
|
2015
|
|
2014
|
||||||||
Net claims paid (1):
|
|
|
|
|
|
|
|
||||||||
Prime
|
$
|
83,489
|
|
|
$
|
159,335
|
|
|
$
|
159,675
|
|
|
$
|
354,781
|
|
Alt-A
|
23,260
|
|
|
37,368
|
|
|
43,259
|
|
|
83,961
|
|
||||
A minus and below
|
14,965
|
|
|
26,675
|
|
|
30,106
|
|
|
60,268
|
|
||||
Total primary claims paid
|
121,714
|
|
|
223,378
|
|
|
233,040
|
|
|
499,010
|
|
||||
Pool
|
10,798
|
|
|
16,362
|
|
|
19,672
|
|
|
47,225
|
|
||||
Second-lien and other
|
(53
|
)
|
|
511
|
|
|
(164
|
)
|
|
1,238
|
|
||||
Subtotal
|
132,459
|
|
|
240,251
|
|
|
252,548
|
|
|
547,473
|
|
||||
Impact of captive terminations
|
—
|
|
|
—
|
|
|
(12,000
|
)
|
|
(1,156
|
)
|
||||
Impact of settlements
|
79,557
|
|
|
—
|
|
|
178,563
|
|
|
875
|
|
||||
Total net claims paid
|
$
|
212,016
|
|
|
$
|
240,251
|
|
|
$
|
419,111
|
|
|
$
|
547,192
|
|
|
|
|
|
|
|
|
|
||||||||
Average net claim paid (2):
|
|
|
|
|
|
|
|
||||||||
Prime
|
$
|
48.1
|
|
|
$
|
46.3
|
|
|
$
|
46.3
|
|
|
$
|
45.1
|
|
Alt-A
|
59.5
|
|
|
55.9
|
|
|
56.8
|
|
|
55.6
|
|
||||
A minus and below
|
40.1
|
|
|
37.8
|
|
|
38.4
|
|
|
37.4
|
|
||||
Total average net primary claim paid
|
48.7
|
|
|
46.4
|
|
|
46.7
|
|
|
45.5
|
|
||||
Pool
|
69.7
|
|
|
63.4
|
|
|
63.3
|
|
|
61.3
|
|
||||
Second-lien and other
|
(3.5
|
)
|
|
16.5
|
|
|
(6.8
|
)
|
|
18.7
|
|
||||
Total average net claim paid
|
$
|
49.6
|
|
|
$
|
47.0
|
|
|
$
|
47.4
|
|
|
$
|
46.3
|
|
|
|
|
|
|
|
|
|
||||||||
Average direct primary claim paid (2) (3)
|
$
|
49.6
|
|
|
$
|
47.4
|
|
|
$
|
47.6
|
|
|
$
|
45.8
|
|
Average total direct claim paid (2) (3)
|
$
|
50.4
|
|
|
$
|
48.0
|
|
|
$
|
48.3
|
|
|
$
|
46.6
|
|
(1)
|
Net of reinsurance recoveries.
|
(2)
|
Calculated without giving effect to the impact of the termination of captive transactions and settlements.
|
(3)
|
Before reinsurance recoveries.
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
$ Change
|
||||||||||||
|
Three Months Ended June 30,
|
|
Favorable (Unfavorable)
|
|
Six Months Ended
June 30, |
|
Favorable (Unfavorable)
|
||||||||||||||||
($ in millions)
|
2015
|
|
2014
|
|
2015 vs. 2014
|
|
2015
|
|
2014
|
|
2015 vs. 2014
|
||||||||||||
Adjusted pretax operating income (loss) (1)
|
$
|
1.8
|
|
|
$
|
(0.5
|
)
|
|
$
|
2.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
1.1
|
|
Services revenue
|
44.6
|
|
|
—
|
|
|
44.6
|
|
|
76.1
|
|
|
—
|
|
|
76.1
|
|
||||||
Direct cost of services
|
25.5
|
|
|
—
|
|
|
(25.5
|
)
|
|
44.7
|
|
|
—
|
|
|
(44.7
|
)
|
||||||
Gross profit on services
|
19.1
|
|
|
—
|
|
|
19.1
|
|
|
31.4
|
|
|
—
|
|
|
31.4
|
|
||||||
Other operating expenses
|
12.8
|
|
|
0.6
|
|
|
(12.2
|
)
|
|
22.7
|
|
|
1.5
|
|
|
(21.2
|
)
|
||||||
Interest expense
|
4.4
|
|
|
—
|
|
|
(4.4
|
)
|
|
8.9
|
|
|
—
|
|
|
(8.9
|
)
|
(1)
|
Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the Company’s business segments.
|
•
|
In June 2015, Radian Group issued
$350 million
aggregate principal amount of Senior Notes due 2020 and received net proceeds of approximately
$344.3 million
. See Note 10 of Notes to Unaudited Condensed Consolidated Financial Statements for further information.
|
•
|
In June 2015 Radian Group entered into privately negotiated agreements with certain of the holders of a portion of its outstanding Convertible Senior Notes due 2017 to purchase an aggregate principal amount of
$389.1 million
of Convertible Senior Notes due 2017 for a combination of cash and shares of Radian Group common stock. Radian Group funded the purchases with
$126.8 million
in cash (plus accrued and unpaid interest due on the purchased notes) and by issuing to the sellers approximately
28.4 million
shares of Radian Group common stock. Following this action, approximately
$60.9 million
of the principal amount of the Convertible Senior Notes due 2017 remain outstanding. See Note 10 of Notes to Unaudited Condensed Consolidated Financial Statements for further information.
|
•
|
On June 18, 2015, Radian Group entered into an ASR program to repurchase an aggregate of approximately
$202 million
of Radian Group common stock. During the three-month period ended June 30, 2015,
9.2 million
initial shares were repurchased under this program. As of June 30, 2015, the total payment of $202 million pursuant to our ASR program has been funded. However, under this program,
the total number of shares ultimately delivered to Radian Group will be based on the average of the daily volume-weighted average price of Radian Group common stock during the term of the transaction, less a negotiated discount and subject to certain other adjustments pursuant to the terms and conditions of the program. If the adjusted average price of Radian Group common stock during the term of the transaction is higher than the initial repurchase price, Radian Group may be required to make an adjustment payment, which it may make, at its election, in cash or in shares of Radian Group common stock. If an adjustment payment is required from the counterparty, the counterparty may be required to deliver to Radian Group additional shares of Radian Group common stock or, at our election under certain circumstances, a combination of Radian Group common stock and cash. Final settlement of the ASR program is expected to occur in October 2015, and may occur earlier at the option of the counterparty to the agreement.
|
•
|
the issuance of
$350 million
aggregate principal amount of Senior Notes due 2020 for net proceeds of approximately
$344.3 million
;
|
•
|
the purchases of approximately
$389.1 million
aggregate principal amount of its Convertible Senior Notes due 2017, for a combination of approximately
$126.8 million
in cash and
28.4 million
shares of Radian Group common stock;
|
•
|
the termination of a corresponding portion of the capped call transactions related to the purchased Convertible Senior Notes due 2017, as a result of which we received consideration of
2.3 million
shares of Radian Group common stock and
$12.0 million
in cash; and
|
•
|
the entry into an ASR program to repurchase an aggregate of
$202 million
of Radian Group common stock, resulting in the repurchase of
9.2 million
initial shares in June 2015.
|
(1)
|
the repayment of our outstanding long-term debt, including:
|
•
|
$195.5 million principal amount of outstanding debt due in June 2017;
|
•
|
$60.9 million principal amount of convertible debt due in November 2017, which must be settled in cash, plus, any related conversion premium which may, at our option, be settled in cash, common shares or a combination thereof;
|
•
|
$400 million of convertible debt due in March 2019 for which the principal amount and any conversion premium may, at our option, be settled in cash, common shares or a combination thereof;
|
•
|
$300 million principal amount of outstanding debt due in June 2019; and
|
•
|
$350 million principal amount of outstanding debt due in June 2020;
|
(2)
|
potential additional capital contributions to our subsidiaries, including future additional contributions related to compliance with the PMIERs Financial Requirements; and
|
(3)
|
potential payments to the U.S. Treasury resulting from our dispute with the IRS relating to the examination of our 2000 through 2007 consolidated federal income tax returns by the IRS.
|
|
Six Months Ended
June 30, |
||||||
(In thousands)
|
2015
|
|
2014
|
||||
Net income
|
$
|
142,305
|
|
|
$
|
377,592
|
|
Less: Income from discontinued operations, net of tax
|
5,385
|
|
|
128,075
|
|
||
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
||||
Net gains on investments and other financial instruments recognized in earnings
|
(45,227
|
)
|
|
(68,300
|
)
|
||
Loss on induced conversion and debt extinguishment
|
91,876
|
|
|
—
|
|
||
Net payments related to derivative contracts and VIEs (1)
|
(3,203
|
)
|
|
(42
|
)
|
||
Commutation-related charges
|
—
|
|
|
1,105
|
|
||
Deferred income tax provision (benefit)
|
82,522
|
|
|
(553
|
)
|
||
Amortization and impairment of intangible assets
|
6,304
|
|
|
—
|
|
||
Depreciation and amortization, net
|
32,396
|
|
|
28,802
|
|
||
Change in:
|
|
|
|
||||
Unearned premiums
|
21,443
|
|
|
30,788
|
|
||
Deferred policy acquisition costs
|
2,137
|
|
|
3,298
|
|
||
Reinsurance recoverables
|
14,892
|
|
|
21,523
|
|
||
Reserve for losses and LAE
|
(355,240
|
)
|
|
(450,257
|
)
|
||
Other assets
|
7,930
|
|
|
19,501
|
|
||
Other liabilities
|
(59,554
|
)
|
|
(72,135
|
)
|
||
Net cash used in operating activities, continuing operations
|
(66,804
|
)
|
|
(236,753
|
)
|
||
Net cash used in operating activities, discontinued operations
|
(1,759
|
)
|
|
(23,107
|
)
|
||
Net cash used in operating activities
|
$
|
(68,563
|
)
|
|
$
|
(259,860
|
)
|
(1)
|
Cash item.
|
|
Moody’s
(1)
|
|
S&P
(2)
|
Radian Group
|
B1
|
|
B
|
Radian Guaranty
|
Ba1
|
|
BB
|
(1)
|
Moody’s outlook for Radian Group and Radian Guaranty is currently Positive.
|
(2)
|
S&P’s outlook for Radian Group and Radian Guaranty is currently Positive.
|
•
|
convert approximately
$80 million
of existing liquid assets into PMIERs-compliant Available Assets; and
|
•
|
as currently expected, receive GSE approval for the amendments to our existing quota-share reinsurance arrangements and receive the full PMIERs benefit of approximately
$145 million
for these arrangements.
|
Issuer Purchases of Equity Securities
|
|||||||||||
Period
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs (2)
|
||||
ASR program
|
|
|
|
|
|
|
|
||||
6/1/2015 to 6/30/2015
|
9,201,500
|
|
|
(1)
|
|
9,201,500
|
|
|
$
|
—
|
|
ASR program total
|
9,201,500
|
|
|
(1)
|
|
9,201,500
|
|
|
—
|
|
|
Other purchases (3)
|
2,300,000
|
|
|
$18.68
|
|
—
|
|
|
—
|
|
|
Total (4)
|
11,501,500
|
|
|
|
|
9,201,500
|
|
|
$
|
—
|
|
(1)
|
On June 18, 2015, we announced that our board of directors had authorized an ASR program to repurchase an aggregate of approximately
$202 million
of Radian Group common stock. Under this program, the total number of shares ultimately delivered to Radian Group, and therefore, the average price per share, will be based on the average of the daily volume-weighted average price of Radian Group common stock during the term of the transaction, less a negotiated discount and subject to certain other adjustments pursuant to the terms and conditions of the program. Final settlement of the ASR program is expected to occur in October 2015, and may occur earlier at the option of the counterparty to the agreement. Share purchases under this program were funded from the proceeds of the Senior Notes due 2020.
|
(2)
|
Radian Group’s share repurchase program does not obligate it to acquire any specific number of shares; however, approximately
$202 million
is authorized to be repurchased under the ASR program. As of June 30, 2015, the total payment of
$202 million
pursuant to our ASR program has been funded. Amounts shown in this column have been reduced by the
$30.1 million
aggregate value of shares held back by the investment banker, to be delivered pending the final settlement of the ASR program referenced in Note (1) above.
|
(3)
|
On June 18, 2015, we announced that in connection with our June 2015 purchases of Convertible Senior Notes due 2017, we terminated a corresponding portion of the capped call transactions we had entered into related to the initial issuance of the Convertible Senior Notes due 2017. As a result of this termination, we received total consideration of
$54.9 million
, consisting of
2,300,000
shares of Radian Group common stock and
$12.0 million
in cash.
|
(4)
|
This table includes only repurchases of common stock, and therefore does not include an aggregate of
1,456
shares of Radian Group common stock at an average price of
$18.37
per share, withheld from the vesting of certain share-based compensation awards under our equity compensation plans to satisfy the tax liability of the award recipients.
|
|
Radian Group Inc.
|
|
|
August 7, 2015
|
/s/ J. F
RANKLIN
H
ALL
|
|
J. Franklin Hall
|
|
Executive Vice President, Chief Financial Officer
|
|
|
|
/s/ C
ATHERINE
M. J
ACKSON
|
|
Catherine M. Jackson
|
|
Senior Vice President, Controller
|
Exhibit No.
|
|
Exhibit Name
|
4.1
|
|
Senior Indenture dated as of March 4, 2013 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 27, 2013 and filed on March 4, 2013).
|
4.2
|
|
Third Supplemental Indenture dated as of June 19, 2015 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated June 16, 2015 and filed on June 19, 2015).
|
4.3
|
|
Form of 5.250% Senior Notes due 2020 (included as Exhibit A to the Third Supplemental Indenture in Exhibit 4.2).
|
*10.1
|
|
Accelerated Share Repurchase Agreement, dated as of June 18, 2015, between the Registrant and Deutsche Bank AG, London Branch with Deutsche Bank Securities Inc. acting as agent.
|
*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 June 30, 2015, is formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014, (iv) Condensed Consolidated Statements of Changes in Common Stockholders’ Equity for the six months ended June 30, 2015 and 2014, (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.
|
To:
|
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
|
Re:
|
Accelerated Stock Buyback
|
Date:
|
June 18, 2015
|
Trade Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Buyer:
|
Counterparty
|
Seller:
|
Deutsche Bank AG, London Branch
|
Shares:
|
The common stock, par value $0.001 per share, of Counterparty (Ticker: RDN)
|
Exchange:
|
The New York Stock Exchange
|
Related Exchange(s):
|
All Exchanges
|
Obligation:
|
Applicable
|
Prepayment Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Prepayment Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
VWAP Price:
|
For any Exchange Business Day, the New York Stock Exchange Rule 10b-18 Volume Weighted Average Price per Share for the regular trading session of the Exchange, as published on Bloomberg page “RDN UN <equity> AQR SEC” (or any successor thereto) at 8:00 a.m. New York time on the following Exchange Business Day, subject to “Valuation Disruption” below, or if such price is not so reported on such Exchange Business Day for any reason or is, in the Calculation Agent’s discretion, manifestly incorrect on any given day, the Calculation Agent may use a commercially reasonable alternate means of calculating such VWAP Price on such day.
|
Forward Price:
|
The average of the VWAP Prices for the Exchange Business Days in the Calculation Period, subject to “Valuation Disruption” below.
|
Adjustment Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Calculation Period:
|
The period from, and including, the Calculation Period Start Date to, and including, the Termination Date.
|
Calculation Period Start Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation, to be the first Exchange Business Day immediately following the Trade Date, subject to postponement as provided in “Valuation Disruption” below.
|
Termination Date:
|
For each Transaction, the Scheduled Termination Date;
provided
that Seller shall have the right, from time to time, to designate any Exchange Business Day (which shall not be after the Scheduled Termination Date) to be a Termination Date (the “
Accelerated Termination Date
”) with respect to (x) any portion of the Prepayment Amount for such Transaction,
provided
that the aggregate percentage of the original Prepayment Amount for such Transaction as to which an Accelerated Termination Date has been designated shall not exceed the then-current Maximum Acceleration Percentage for such Transaction or (y) on or after the First Acceleration Date, all or any portion of the Prepayment Amount for such Transaction as to which an Accelerated Termination Date has not previously been designated (in each case of clause (x) or (y), such accelerated Prepayment Amount, the “
Accelerated Amount
”), in each case, by delivering notice to Counterparty of any such designation prior to the Acceleration Notice Deadline (as specified, with respect to each Transaction, in the relevant Supplemental Confirmation). If Seller designates an Accelerated Termination Date with respect to less than all of the Prepayment Amount, then upon the occurrence of such Accelerated Termination Date, the Transaction shall be considered two Transactions with terms identical to those of the original Transaction, except that (1) the first such resulting Transaction (the “
Accelerated Transaction
”) shall have (x) a Prepayment Amount equal to the Accelerated Amount, (y) a number of Initial Shares and a Delivered Number, rounded to the nearest whole number, equal to the corresponding number for the original Transaction
multiplied
by
a fraction the numerator of which is the Accelerated Amount and the denominator of which is the Prepayment Amount for the original Transaction and (z) a Termination Date occurring on such Accelerated Termination Date and (2) the second such resulting Transaction (the “
Remaining Transaction
”) shall have (x) a Prepayment Amount equal to the Prepayment Amount for the original Transaction
minus
the Accelerated Amount and (y) a number of Initial Shares (if any) and a Delivered Number equal to the corresponding number for the original Transaction
minus
the corresponding number for the Accelerated Transaction. For the avoidance of doubt, following settlement of the Accelerated Transaction, the Remaining Transaction shall be treated for all purposes as the sole Transaction hereunder and may be subject to a further Accelerated Termination Date as set forth above. Any notice to be delivered by Seller of an Accelerated Termination Date pursuant to the foregoing shall specify an Accelerated Amount, if applicable.
|
Scheduled Termination Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation, subject to postponement as provided in “Valuation Disruption” below.
|
Percentage:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
First Acceleration Date:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Valuation Disruption:
|
The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and inserting the words “at any time on any Scheduled Trading Day during the Calculation Period, Share Termination Valuation Period or Settlement Valuation Period” after the word “material,” in the third line thereof.
|
Settlement Procedures:
|
If the Number of Shares to be Delivered is positive, Physical Settlement shall be applicable;
provided
that Seller does not, and shall not, make the agreement or the representations solely related to the restrictions imposed by applicable securities laws set forth in Section 9.11 of the Equity Definitions with respect to any Shares delivered by Seller to Counterparty under any Transaction. If the Number of Shares to be Delivered is negative, then the Counterparty Settlement Provisions in Annex A shall apply. Notwithstanding anything to the contrary herein or in the Equity Definitions, if the Number of Shares to be Delivered exceeds 16,000,000 Shares (the “
Specified Number of Shares
” and such excess, the “
Excess Share Number
”), then, in lieu of delivery of the full Number of Shares to be Delivered, Counterparty may elect no later than the first Exchange Business Day following the Termination Date, if it represents and warrants to Seller in writing on the date it notifies Seller of such election that, as of such date, it is not aware of any material non-public information concerning Counterparty or the Shares and is making such election in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws, for settlement to consist of the Specified Number of Shares plus cash in an amount equal to the Partial Cash Settlement Amount, in which case (i) a number of Shares equal to the Excess Share Number shall be sold by Seller pursuant to
|
to be Delivered:
|
For each Transaction, a number of Shares equal to (a) (i) the Prepayment Amount
divided by
(ii) the Divisor Amount
minus
(b) the number of Shares (the “
Delivered Number
”) delivered by Seller pursuant to “Initial Share Delivery” below, if applicable.
|
Divisor Amount:
|
For each Transaction, the Forward Price
minus
the Forward Price Adjustment Amount.
|
Excess Dividend Amount:
|
For the avoidance of doubt, all references to the Excess Dividend Amount shall be deleted from Section 9.2(a)(iii) of the Equity Definitions.
|
Settlement Date:
|
If the Number of Shares to be Delivered is positive, the date that is one Settlement Cycle immediately following the Termination Date.
|
Settlement Currency:
|
USD
|
Initial Share Delivery:
|
For each Transaction for which the number of Initial Shares is greater than zero (0) Shares, on each Initial Share Delivery Date, Seller shall deliver a number of Shares equal to the Initial Shares (or, in the case of multiple Initial Share Delivery Dates, the relevant portion thereof) to Counterparty in accordance with Section 9.4 of the Equity Definitions, with each such Initial Share Delivery Date deemed to be a “Settlement Date” for purposes of such Section 9.4.
|
Initial Share Delivery Date(s):
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Initial Shares:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Potential Adjustment Event:
|
Notwithstanding anything to the contrary in Section 11.2(e) of the Equity Definitions, an Extraordinary Dividend shall not constitute a Potential Adjustment Event.
|
Extraordinary Dividend:
|
For any calendar quarter, any dividend or distribution on the Shares with an ex-dividend date occurring during such calendar quarter, if (i) such dividend or distribution is not a dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions and (ii) in the case of a cash dividend or distribution, the amount per Share of such cash dividend or distribution, taken together with the amount of all previous cash dividends or distributions with ex-dividend dates occurring in the same calendar quarter, exceeds the Ordinary Dividend Amount.
|
Ordinary Dividend Amount:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
Method of Adjustment:
|
Calculation Agent Adjustment
|
(a)
|
Share-for-Share: Modified Calculation Agent Adjustment
|
(b)
|
Share-for-Other: Cancellation and Payment
|
(c)
|
Share-for-Combined: Component Adjustment
|
(a)
|
Share-for-Share: Modified Calculation Agent Adjustment
|
(b)
|
Share-for-Other: Modified Calculation Agent Adjustment
|
(c)
|
Share-for-Combined: Modified Calculation Agent Adjustment
|
Announcement Events:
|
Seller may elect, in its sole discretion, without prejudice to Sections 7 and 8 below, that the consequences set forth in Section 12.3(d) of the Equity Definitions shall apply to any Acquisition Announcement Event;
provided
that, for this purpose, references in Section 12.3(d) of the Equity Definitions to “Tender Offer” shall be replaced by references to “Acquisition Announcement Event” and references to “Tender Offer Date” shall be replaced by references to “Acquisition Announcement Date”. An Acquisition Announcement Event shall be an “Extraordinary Event” for purposes of the Equity Definitions, to which Article 12 of the Equity Definitions is applicable.
|
Event:
|
The occurrence of an Acquisition Announcement Date in respect of a potential Acquisition Transaction (as defined in Section 8 below).
|
Date:
|
The date of the first public announcement of an event that, if consummated, would result in an Acquisition Transaction, or any publicly announced change or amendment to such potential Acquisition Transaction (including an announcement of the abandonment thereof).
|
Tender Offers:
|
The consequences set forth opposite “Consequences of Merger Events” or “Consequences of Tender Offers” above shall apply upon the occurrence of a Merger Event or Tender Offer regardless of whether such Merger Event or Tender Offer relates to an Acquisition Announcement Date for which an adjustment has been made pursuant to “Consequences of Acquisition Announcement Events” above, without duplication of any such adjustment.
|
Insolvency or Delisting:
|
Cancellation and Payment;
provided
that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange.
|
(a)
|
Change in Law: Applicable;
provided
that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the word “Shares” with “Hedge Positions”; (ii) adding the phrase “or public announcement of” immediately after the phrase “due to the promulgation of or” in the third line thereof and adding the phrase “formal or informal” before the word “interpretation” in the same line and (iii) adding the words “(including, for the avoidance of doubt and without limitation, adoption or promulgation of new regulations authorized or mandated by existing statute)” after the word “regulation” in the second line thereof.
|
(b)
|
Hedging Disruption: Applicable;
provided
that:
|
(i)
|
Section 12.9(a)(v) of the Equity Definitions is hereby amended by (a) adding immediately following the words “equity price risk” in the third and fourth lines thereof the words “, volatility risk, interest rate risk, legal risk and dividend risk” and (b) inserting the following phrase at the end of such Section: “For the avoidance of doubt, any such transactions or assets referred to in phrases (A) or (B) above must be available on commercially reasonable pricing terms.”; and
|
(ii)
|
Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in the third line thereof, after the words “to terminate the Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
|
(c)
|
Increased Cost of Hedging: Applicable;
provided
that Section 12.9(a)(vi) of the Equity Definitions is hereby amended by adding immediately following the words “equity price risk” in the fifth line thereof the words “, volatility risk, interest rate risk, legal risk and dividend risk”.
|
(d)
|
Failure to Deliver: Applicable
|
(e)
|
Insolvency Filing: Applicable
|
(f)
|
Loss of Stock Borrow: Applicable, it being understood that the rate to borrow Shares shall be determined by reference to the terms of a commercially reasonable share borrowing arrangement and without regard to the Hedging Party’s cost of funding in connection with such borrowings.
|
(g)
|
Increased Cost of Stock Borrow: Applicable, it being understood that the rate to borrow Shares shall be determined by reference to the terms of a commercially reasonable share borrowing arrangement and without regard to the Hedging Party’s cost of funding in connection with such borrowings.
|
Additional Termination Event(s):
|
Notwithstanding anything to the contrary in the Equity Definitions, if, as a result of an Extraordinary Event, any Transaction would be cancelled or terminated (whether in whole or in part) pursuant to Article 12 of the Equity Definitions, an Additional Termination Event (with such terminated Transaction(s) (or portions thereof) being the Affected Transaction(s) and Counterparty being the sole Affected Party) shall be deemed to occur, and, in lieu of Sections 12.7, 12.8 and 12.9 of the Equity Definitions, Seller may elect for Section 6 of the Agreement to apply to such Affected Transaction(s).
|
|
Each of the following shall constitute an Additional Termination Event with Counterparty as the sole Affected Party and all Transactions hereunder as the Affected Transactions: (i) the
|
Scheduled Ex-Dividend Dates:
|
For each Transaction, as set forth in the related Supplemental Confirmation.
|
|
Relevant Dividend Period: The period from and including the Calculation Period Start Date, to and including the Relevant Dividend Period End Date.
|
End Date:
|
If the Number of Shares to be Delivered is negative, the last day of the Settlement Valuation Period; otherwise, the Termination Date.
|
Seller Payment Instructions:
|
Bank: Bank of New York
|
for Purpose of Giving Notice:
|
To be provided by Counterparty
|
Purpose of Giving Notice:
|
Deutsche Bank Securities Inc.
|
Calculation Agent:
|
Seller;
provided
that, following the occurrence and during the continuation of an Event of Default pursuant to Section 5(a)(vii) of the Agreement with respect to which Seller is the Defaulting Party, Counterparty shall have the right to select a leading dealer in the market for U.S. corporate equity derivatives reasonably acceptable to Seller to replace Seller as Calculation Agent, and the parties shall work in good faith to execute any appropriate documentation required by such replacement Calculation Agent.
|
2.
|
Additional Mutual Representations, Warranties and Covenants
.
|
Share Termination Alternative:
|
Applicable and means (x) if delivery pursuant to the Share Termination Alternative is owed by Seller, that Seller shall deliver to Counterparty the Share Termination Delivery Property on the date on which the Payment Obligation would otherwise be due pursuant to Article 12 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable, or such later date as Seller may reasonably determine (the “
Share Termination Payment Date
”), in satisfaction of the Payment Obligation or the Applicable Portion, as the case may be, and (y) if delivery pursuant to the Share Termination Alternative is owed by Counterparty, paragraphs 2 through 7 of Annex A shall apply as if such delivery were a settlement of the Transaction to which Net Share Settlement (as defined in Annex A) applied, the Cash Settlement Payment Date were the Early Termination Date, the Forward Cash Settlement Amount were zero
minus
the Payment Obligation (or the Applicable Portion, as the case may be) owed by Counterparty, and “Shares” as used in Annex A were replaced by “Share Termination Delivery Units”.
|
Property:
|
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation (or the Applicable Portion, as the case may be)
divided by
the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.
|
Share Termination Unit Price:
|
Either (x) the value of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property or (y) an appropriately weighted average of the values of such property over a valuation period reasonably selected by Seller following the relevant Early Termination Date or date on which the Transaction is terminated (the “
Share Termination Valuation Period
”), at Seller’s election, in each case such value or average of values to be determined by the Calculation Agent by commercially reasonable means and notified by the Calculation Agent to the parties prior to the Share Termination Payment Date.
|
Share Termination Delivery Unit:
|
One Share or, if as the result of an Insolvency, Nationalization or Merger Event, the Shares have changed into other property or the right to receive other property, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Insolvency, Nationalization or Merger Event. If such Insolvency, Nationalization or Merger Event involves a choice of consideration to be
|
Failure to Deliver:
|
Applicable
|
Other applicable provisions:
|
If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.10, 9.11 (except that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Counterparty is the issuer of the Shares or any portion of the Share Termination Delivery Units) and 9.12 of the Equity Definitions will be applicable as if “Physical Settlement” applied to the Transaction, except that all references to “Shares” shall be read as references to “Share Termination Delivery Units”.
|
To:
|
Radian Group Inc.
1601 Market Street
Philadelphia, PA 19103
|
Subject:
|
Accelerated Stock Buyback
|
Date:
|
[ ]
|
Trade Date:
|
[ ]
|
|
Calculation Period Start Date:
|
[ ]
|
|
Forward Price Adjustment Amount:
|
USD[ ]
|
|
Scheduled Termination Date:
|
[ ]
|
|
Maximum Acceleration Percentage:
|
[ ]
|
|
First Acceleration Date:
|
[ ]
|
|
Prepayment Amount:
|
USD[ ]
|
|
Prepayment Date:
|
[ ]
|
|
Initial Share Delivery Dates:
|
[ ]
|
|
Initial Shares:
|
[ ] Shares;
provided
that if, in connection with the Transaction, on any Initial Share Delivery Date, Seller is unable to borrow a number of Shares equal to the relevant Initial Shares for delivery to Counterparty at a borrow cost not greater than the Initial Stock Loan Rate, the Initial Shares to be delivered on such Initial Share Delivery Date shall be reduced to such number of Shares that Seller is able to so borrow, and the remaining Initial Shares with respect to such Initial Share Delivery Date shall be delivered as promptly as practicable thereafter
|
|
Ordinary Dividend Amount:
|
USD[ ]
|
|
Scheduled Ex-Dividend Dates:
|
[ ]
|
|
Termination Price:
|
USD[ ]
|
|
Additional Relevant Days:
|
The
[ ] Exchange Business Day(s) immediately following the Calculation Period.
|
|
Specified Acquisition Percentage
|
[ ]
|
|
Acceleration Notice Deadline:
|
[ ]
|
|
Settlement Currency:
|
USD
|
Settlement Method Election:
|
Applicable;
provided
that (i) Section 7.1 of the Equity Definitions is hereby amended by deleting the word “
Physical
” in the sixth line thereof and replacing it with the words “
Net Share
” and (ii) the Electing Party may make a settlement method election only if the Electing Party represents and warrants to Seller in writing on the date it notifies Seller of its election that, as of such date, the Electing Party is not aware of any material non-public information concerning Counterparty or the Shares and is electing the settlement method in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws.
|
Electing Party:
|
Counterparty
|
Election Date:
|
The earlier of (i) the Scheduled Termination Date and (ii) the second Exchange Business Day immediately following the Accelerated Termination Date (in which case the election under Section 7.1 of the Equity Definitions shall be made no later than 10 minutes prior to the open of trading on the Exchange on such second Exchange Business Day), as the case may be.
|
Default Settlement Method:
|
Cash Settlement
|
Amount:
|
The Number of Shares to be Delivered
multiplied by
the Settlement Price.
|
Settlement Price:
|
The average of the VWAP Prices for the Exchange Business Days in the Settlement Valuation Period, subject to Valuation Disruption as specified in the Master Confirmation.
|
Settlement Valuation Period:
|
A number of Scheduled Trading Days selected by Seller in its reasonable discretion, beginning on the Scheduled Trading Day immediately following the earlier of (i) the Scheduled Termination Date or (ii) the Exchange Business Day immediately following the Termination Date.
|
Cash Settlement:
|
If Cash Settlement is applicable, then Buyer shall pay to Seller the absolute value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date.
|
Payment Date:
|
The date one Settlement Cycle following the last day of the Settlement Valuation Period.
|
Procedures:
|
If Net Share Settlement is applicable, Net Share Settlement shall be made in accordance with paragraphs 2 through 7 below.
|
Where
|
A = the number of authorized but unissued shares of Counterparty that are not reserved for future issuance on the date of the determination of the Capped Number; and
|
|
Six Months Ended
|
|
Fiscal Years Ended December 31,
|
||||||||||||||||||||
(In thousands)
|
June 30, 2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
||||||||||||
Net earnings (loss) from continuing operations
|
$
|
136,920
|
|
|
$
|
1,259,574
|
|
|
$
|
(141,851
|
)
|
|
$
|
(224,105
|
)
|
|
$
|
(446,790
|
)
|
|
$
|
(1,418,111
|
)
|
Federal and state income tax provision (benefit)
|
80,514
|
|
|
(852,418
|
)
|
|
(31,495
|
)
|
|
(48,323
|
)
|
|
(138,238
|
)
|
|
481,899
|
|
||||||
Earnings (loss) before income taxes
|
217,434
|
|
|
407,156
|
|
|
(173,346
|
)
|
|
(272,428
|
)
|
|
(585,028
|
)
|
|
(936,212
|
)
|
||||||
Equity in net income of affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,598
|
)
|
||||||
Distributed income from equity investees
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29,498
|
|
||||||
Net earnings (loss)
|
217,434
|
|
|
407,156
|
|
|
(173,346
|
)
|
|
(272,428
|
)
|
|
(585,028
|
)
|
|
(921,312
|
)
|
||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest
|
48,886
|
|
|
90,464
|
|
|
74,618
|
|
|
51,832
|
|
|
61,394
|
|
|
41,777
|
|
||||||
One-Third of all rentals
|
762
|
|
|
1,308
|
|
|
1,020
|
|
|
1,269
|
|
|
1,060
|
|
|
966
|
|
||||||
Fixed charges
|
49,648
|
|
|
91,772
|
|
|
75,638
|
|
|
53,101
|
|
|
62,454
|
|
|
42,743
|
|
||||||
Preferred dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Fixed charges and preferred dividends
|
49,648
|
|
|
91,772
|
|
|
75,638
|
|
|
53,101
|
|
|
62,454
|
|
|
42,743
|
|
||||||
Net earnings (loss) and fixed charges
|
$
|
267,082
|
|
|
$
|
498,928
|
|
|
$
|
(97,708
|
)
|
|
$
|
(219,327
|
)
|
|
$
|
(522,574
|
)
|
|
$
|
(878,569
|
)
|
Net earnings (loss), fixed charges and preferred dividends
|
$
|
267,082
|
|
|
$
|
498,928
|
|
|
$
|
(97,708
|
)
|
|
$
|
(219,327
|
)
|
|
$
|
(522,574
|
)
|
|
$
|
(878,569
|
)
|
Ratio of net earnings (loss) and fixed charges to fixed charges
|
5.4x
|
|
5.4x
|
|
(1)
|
|
(1)
|
|
(1)
|
|
(1)
|
||||||||||||
Ratio of net earnings (loss), fixed charges and preferred stock dividends to fixed charges and preferred stock dividends
(2)
|
5.4x
|
|
5.4x
|
|
(1)
|
|
(1)
|
|
(1)
|
|
(1)
|
(1)
|
For the fiscal years ended December 31, 2013, 2012, 2011 and 2010, earnings were not adequate to cover fixed charges in the amounts of
$(97,708)
,
$(219,327)
,
$(522,574)
and
$(878,569)
, respectively.
|
(2)
|
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: August 7, 2015
|
/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: August 7, 2015
|
/s/ J. Franklin Hall
|
|
J. Franklin Hall
Executive Vice President, Chief Financial Officer
|
|
|
Date: August 7, 2015
|
/s/ S. A. I
BRAHIM
|
|
Sanford A. Ibrahim
Chief Executive Officer
|
|
|
|
/s/ J. Franklin Hall
|
|
J. Franklin Hall
Executive Vice President, Chief Financial Officer
|