Radian(US:RDN)2022-05-06 20:18PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Radian Group's Q1 2022 net income increased to $181.1 million due to favorable loss development, though total assets decreased to $7.62 billion from investment losses | Financial Metric | Three Months Ended March 31, 2022 ($ millions) | Three Months Ended March 31, 2021 ($ millions) | | :--- | :--- | :--- | | Total Revenues | $293.0 | $328.8 | | Provision for Losses | $(83.8) | $46.1 | | Net Income | $181.1 | $125.6 | | Diluted EPS | $1.01 | $0.64 | | Balance Sheet Item | March 31, 2022 ($ billions) | December 31, 2021 ($ billions) | | :--- | :--- | :--- | | Total Investments | $6.33 | $6.51 | | Total Assets | $7.62 | $7.84 | | Total Liabilities | $3.47 | $3.58 | | Total Stockholders' Equity | $4.15 | $4.26 | Note 1 - Description of Business Radian operates through Mortgage, providing private mortgage insurance, and homegenius, offering title, real estate, and technology services - The Mortgage segment's primary business is providing private mortgage insurance on residential first-lien loans, facilitating homeownership for borrowers with down payments of less than 20%2829 - The homegenius segment is a fee-for-service business offering title, real estate, and technology products to consumers, lenders, investors, and real estate agents32 - As of March 31, 2022, the company's total direct primary mortgage insurance in force (IIF) was $249.0 billion, with risk in force (RIF) of $62.0 billion30 Note 4 - Segment Reporting In Q1 2022, Mortgage segment adjusted pretax operating income rose to $277.8 million, while homegenius reported a wider adjusted pretax operating loss of $13.5 million | Segment | Q1 2022 Adjusted Pretax Operating Income (Loss) ($ thousands) | Q1 2021 Adjusted Pretax Operating Income (Loss) ($ thousands) | | :--- | :--- | :--- | | Mortgage | $277,841 | $175,709 | | homegenius | $(13,506) | $(10,453) | | Total Reportable Segments | $264,335 | $165,256 | - The company uses adjusted pretax operating income (loss) as its primary measure to evaluate segment performance and allocate resources, excluding items like net gains/losses on investments and amortization of acquired intangibles5152 Note 8 - Reinsurance Radian uses reinsurance (QSR, Single Premium QSR, XOL) for risk management; Q1 2022 ceded premiums reduced net premiums earned by $14.6 million - Ceded losses for Q1 2022 were a benefit of $12.8 million, compared to an expense of $3.7 million in Q1 2021, reflecting favorable loss development103 - As of January 1, 2022, Radian Guaranty is no longer ceding new insurance written (NIW) under the Single Premium QSR Program107 | Reinsurance Program | RIF Ceded (as of March 31, 2022) ($ millions) | | :--- | :--- | | 2020 Single Premium QSR | $2,137 | | 2018 Single Premium QSR | $1,021 | | 2016 Single Premium QSR | $1,698 | - The total assets of the unconsolidated Eagle Re Issuers, which collateralize the Excess-of-Loss program, were $2.20 billion as of March 31, 2022121 Note 11 - Losses and LAE Total loss and LAE reserves decreased to $727.2 million by March 31, 2022, with Q1 2022 showing an $84.2 million benefit from favorable prior-year default development | Mortgage Insurance Reserve Rollforward | Three Months Ended March 31, 2022 ($ thousands) | | :--- | :--- | | Beginning Balance, net of reinsurance | $756,460 | | Losses Incurred (Current Year) | $40,662 | | Losses Incurred (Prior Years - Favorable Development) | $(124,897) | | Total Incurred | $(84,235) | | Total Paid | $4,738 | | Ending Balance, net of reinsurance | $667,487 | - New primary default notices decreased 21% to 9,393 in Q1 2022 compared to Q1 2021138 - Favorable reserve development was primarily driven by reductions in Default to Claim Rate assumptions for prior year defaults, especially those from 2020 at the start of the pandemic139 Note 14 - Capital Stock Radian's board approved a new $400 million share repurchase program and increased the quarterly dividend by 43% to $0.20 per share in Q1 2022 - A new share repurchase program authorizing up to $400.0 million was approved on February 9, 2022150 - In Q1 2022, the company purchased 0.9 million shares at an average price of $23.01 per share, with $378.7 million remaining available under the program as of March 31, 2022151 - The quarterly dividend was increased to $0.20 per share, beginning with the dividend declared in Q1 2022153 Note 16 - Statutory Information Radian's insurance subsidiaries complied with statutory capital requirements, with Radian Guaranty's risk-to-capital ratio at 12.1:1 and a $500 million capital return to the parent - Radian Guaranty paid a $500 million Extraordinary Distribution to Radian Group in February 2022, approved by the Pennsylvania Insurance Department164 - Radian Guaranty's Risk-to-capital ratio was 12.1:1 as of March 31, 2022, well within the common statutory limit of 25:1161 - The company was in compliance with the Private Mortgage Insurer Eligibility Requirements (PMIERs) set by the GSEs162 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations NIW decreased 7.5% to $18.7 billion, while IIF grew to $249.0 billion; consolidated net income increased due to loss provision benefits, with strong holding company liquidity Mortgage Insurance Portfolio IIF grew to $249.0 billion by Q1 2022, driven by higher persistency, while NIW decreased 7.5% to $18.7 billion due to lower refinance activity | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | New Insurance Written (NIW) ($ billions) | $18.7 | $20.2 | | Primary Insurance in Force (IIF) ($ billions) | $249.0 | $238.9 | | 12-Month Persistency Rate (%) | 68.0% | 57.2% | - The composition of NIW shifted dramatically toward purchase loans, which constituted 91.4% of Q1 2022 NIW, compared to 59.1% in Q1 2021191 Results of Operations—Consolidated Consolidated net income rose to $181.1 million in Q1 2022, driven by a $129.9 million favorable change in loss provisions, despite lower total revenues of $293.0 million | (in thousands) | Q1 2022 ($ thousands) | Q1 2021 ($ thousands) | | :--- | :--- | :--- | | Total Revenues | $292,980 | $328,813 | | Provision for Losses | $(83,754) | $46,143 | | Total Expenses | $58,840 | $167,624 | | Pretax Income | $234,140 | $161,189 | | Net Income | $181,131 | $125,608 | - Adjusted pretax operating income, a non-GAAP measure, increased to $264.9 million from $167.3 million in the prior-year quarter219 Results of Operations—Mortgage Mortgage segment adjusted pretax operating income increased to $277.8 million in Q1 2022, primarily due to an $84.2 million net benefit from loss provisions, despite lower net premiums earned | Mortgage Segment | Q1 2022 ($ millions) | Q1 2021 ($ millions) | | :--- | :--- | :--- | | Net Premiums Earned | $245.2 | $264.6 | | Provision for Losses | $(84.2) | $45.9 | | Adjusted Pretax Operating Income | $277.8 | $175.7 | - The segment's loss ratio was (34.3)% for Q1 2022, compared to 17.3% for Q1 2021, reflecting the large benefit from loss reserve releases241 Results of Operations—homegenius homegenius segment revenues grew to $33.9 million in Q1 2022, but the adjusted pretax operating loss widened to $13.5 million due to increased expenses | homegenius Segment | Q1 2022 ($ thousands) | Q1 2021 ($ thousands) | | :--- | :--- | :--- | | Total Revenues | $33,912 | $25,795 | | Total Expenses | $47,418 | $36,248 | | Adjusted Pretax Operating Loss | $(13,506) | $(10,453) | - Services revenue increased primarily due to growth in valuation and single family rental products and services266 Liquidity and Capital Resources Radian Group maintained strong liquidity with $1.0 billion in cash and investments, while Radian Guaranty had a $1.6 billion PMIERs cushion and a debt-to-capital ratio of 25.4% - Radian Group (holding company) had $1.0 billion in unrestricted cash and liquid investments and total liquidity of $1.3 billion as of March 31, 2022278 - Radian Guaranty's PMIERs cushion was $1.6 billion, or 44% over its Minimum Required Assets, as of March 31, 2022298 | Capital Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Debt-to-capital ratio (%) | 25.4% | 24.9% | | Book value per share ($) | $23.75 | $24.28 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures, primarily from interest rate and credit spread risk in its investment portfolio, remain materially unchanged from 2021 - The fair value of the company's investments is materially exposed to changes in interest rates and credit spreads312 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2022, disclosure controls and procedures were effective to provide reasonable assurance of timely and accurate reporting315 PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine legal and regulatory matters, with management not expecting a material adverse effect on financial condition - Radian is routinely involved in legal actions, regulatory reviews, and other disputes arising in the ordinary course of business318 Item 1A. Risk Factors No material changes to the company's risk factors were reported from those disclosed in the 2021 Annual Report on Form 10-K - No material changes to risk factors were reported since the 2021 Form 10-K319 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell unregistered equity securities in Q1 2022 but repurchased 927,075 shares at $23.01 each under a $400 million program | Period | Total Shares Purchased | Average Price Paid per Share ($) | Dollar Value Remaining Under Program ($) | | :--- | :--- | :--- | :--- | | Jan 2022 | 387 | $21.94 | N/A | | Feb 2022 | 1,824 | $22.23 | $400,000,000 | | Mar 2022 | 931,438 | $23.01 | $378,680,000 | - The current share repurchase program was approved on February 9, 2022, for up to $400 million and expires in February 2024323 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files