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Radian Group posts $174.8M in net income for 2Q2014

Gains come from change in fair value of derivatives

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Radian Group (RDN) reported net income for the quarter ended June 30, 2014, of $174.8 million, or $0.78 per diluted share, which included net gains on investments of $47.2 million and combined gains from the change in fair value of derivatives and other financial instruments of $55.6 million.

This compares to a net loss for the quarter ended June 30, 2013, of $33.2 million, or $0.19 per diluted share, which included net losses on investments of $130.3 million and combined net gains from the change in fair value of derivatives and other financial instruments of $87.7 million. Book value per share at June 30, 2014, was $8.29.

“I am pleased with the solid financial performance and strong credit trends for our mortgage insurance business in the second quarter, as well as the successful closing of our Clayton acquisition,” said CEO S.A. Ibrahim. “We believe that there is continued growth and opportunity ahead for our mortgage insurance business, and we are positioning Radian to leverage our risk management expertise as well as our new industry-leading mortgage and real estate services for the next phase in the evolution of the U.S. housing finance markets.”

Adjusted pretax operating income for the quarter ended June 30, 2014, was $74.2 million, consisting of $92.9 million of income from the mortgage insurance segment and a loss of $18.7 million from the financial guaranty segment. This compares to adjusted pretax operating income for the quarter ended June 30, 2013, of $16.2 million, consisting of $15.9 million of income from the mortgage insurance segment and $0.3 million of income from the financial guaranty segment.

Radian Guaranty’s risk-to-capital ratio was 18.7:1 as of June 30, 2014. Radian Group maintains approximately $770 million of currently available liquidity.

The improvement in the risk-to-capital ratio from March 31, 2014, was primarily driven by the company’s net income, partially offset by an increase to net risk in force.

Current holding company liquidity was approximately $770 million after an investment of $20 million in July 2014, to capitalize a newly formed, wholly owned insurance subsidiary of Radian Group. The strategic objective of this investment is to offer mortgage insurance-related products, which are currently in a developmental stage.

As of June 30, 2014, Radian Guaranty’s statutory capital was $1.5 billion compared to $1.4 billion at March 31, 2014, and $1.2 billion a year ago.

New mortgage insurance written (NIW) was $9.3 billion during the quarter, compared to $6.8 billion in the first quarter of 2014 and $13.4 billion in the prior- year quarter.

Radian wrote an additional $3.9 billion in NIW in July 2014, compared to $5.3 billion in July 2013.

The Home Affordable Refinance Program accounted for $0.5 billion of insurance not included in Radian Guaranty’s NIW total for the quarter. This compares to $0.6 billion in the first quarter of 2014 and $2.4 billion in the prior-year quarter. As of June 30, 2014, more than 11% of the company’s total primary mortgage insurance risk in force had successfully completed a HARP refinance.

Of the $9.3 billion in new business written in the second quarter of 2014, 76% was written with monthly premiums and 24% with single premiums. This compares to a mix of 67% monthly premiums and 33% single premiums in the second quarter of 2013.

 The mortgage insurance provision for losses was $64.3 million in the second quarter of 2014, compared to $49.2 million in the first quarter of 2014, and $136.4 million in the prior-year period. 

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