Radian(US:RDN)2020-11-07 15:24Financial Data and Key Metrics Changes - The company reported net income of $135 million or $0.70 per diluted share for Q3 2020, compared to a net loss of $0.15 per diluted share in Q2 2020 and net income of $0.83 per diluted share in Q3 2019 [21] - Adjusted diluted net operating income was $0.59 per share in Q3 2020, compared to an adjusted diluted net operating loss of $0.36 in Q2 2020 and adjusted diluted net operating income of $0.81 in Q3 2019 [22] - Book value grew 11% year-over-year to $21.52 per share [8] Business Line Data and Key Metrics Changes - The company wrote a record volume of new primary mortgage insurance business of $33 billion in Q3 2020, up from $25.5 billion in Q2 2020 and $22 billion in Q3 2019 [23] - Revenues in the real estate segment increased 28% from Q2 2020 to $33 million, compared to $30 million in Q3 2019 [15][38] - The primary insurance in-force increased to $245.5 billion at the end of Q3 2020, compared to $241.3 billion in Q2 2020, with year-over-year growth of approximately 4% [26] Market Data and Key Metrics Changes - Existing home sales in the U.S. increased 9% from the prior month in September 2020, marking the fourth consecutive month of growth [11] - Home prices increased by 8% across the country over the last 12 months, driven by strong housing demand and limited supply [11] - The company experienced a 67.5% decline in new defaults quarter-over-quarter, with a new default rate of 5.9% [8] Company Strategy and Development Direction - The company is focused on leveraging its strong risk management discipline to deploy capital on business that generates the most economic value for shareholders [19] - There is a strategic emphasis on technology-driven solutions in the real estate segment, with investments in data, analytics, and technology to lead the market's digital transformation [16] - The company aims to write new mortgage insurance business exceeding $100 billion in 2020, supported by a strong commitment pipeline [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about signs of economic improvement and the strength of the housing market despite ongoing pandemic-related challenges [6] - The company noted a decline in the number of new defaults and an increase in cures reported in October, resulting in a net decline of outstanding defaults [10] - Management highlighted the importance of home price appreciation in reducing the likelihood of loans rolling to default and ultimately claims [75] Other Important Information - The company maintained $1.1 billion of available liquidity as of September 30, 2020, with total liquidity of $1.4 billion [52] - The provision for losses decreased to $87.8 million in Q3 2020, compared to $304 million in Q2 2020 [40] - The company entered into a fully collateralized reinsurance agreement in October 2020, providing up to $390.3 million of coverage for mortgage insurance losses [53] Q&A Session Summary Question: Can you talk about the pricing you got on the most recent ILM transaction? - The pricing received was a spread of 483 basis points, compared to 186 basis points in the previous issuance, indicating a significant widening but still viewed as an attractive cost of capital [71] Question: Can you discuss home price appreciation and its impact on the current default population? - Home prices have appreciated at a rate of 5% to 8%, positively impacting the propensity of loans to roll to default and the severity of claims [74] Question: Can you comment on premium yield and pricing competition in the market? - The company has seen an increase in pricing across the board, with some competition in the bulk bid market, but it has not participated in that segment [80] Question: What conditions are needed to improve performance in the real estate business? - The company is focused on scaling its title business and leveraging unique assets for future growth, with no immediate plans to divest [88][90] Question: How does the company view the competition in the bulk market? - The company has consistently chosen not to participate in the bulk market, focusing instead on optimal economic value opportunities [108] Question: Can you provide an update on the real estate segment's run rate revenue and EBITDA? - The company has not provided specific guidance but remains confident in the trajectory and value creation of its real estate businesses [116]