Business context and reporting period
Radian Group Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2023. It operates Mortgage, principally private mortgage insurance and related services, and homegenius, a title, real estate and technology business.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 or comparison |
|---|---|---|
| Total revenue | $310.6 million | $293.0 million, up 6% |
| Net premiums earned | $233.2 million | $254.2 million |
| Net investment income | $59.2 million | $38.2 million |
| Pretax income | $204.0 million | $234.1 million |
| Net income / diluted EPS | $157.8 million / $0.98 | $181.1 million / $1.01 |
| Adjusted pretax operating income (non-GAAP) | $199.9 million | $264.9 million |
| Operating cash flow | $116.8 million | $116.7 million |
| Total assets / stockholders’ equity | $7.20 billion / $4.11 billion | At Dec. 31, 2022: $7.06 billion / $3.92 billion |
Investment gains and losses improved to a $5.6 million gain from a $29.5 million loss, mainly reflecting the change in interest-rate movements. The tax provision was $46.3 million; the effective tax rate was 22.7%.
Mortgage insurance in force was $261.5 billion and risk in force was $66.6 billion at quarter-end. Radian Guaranty’s statutory risk-to-capital ratio was 10.6:1; it reported a $1.7 billion PMIERs cushion, or 44% above minimum required assets. The company reported a 25.6% debt-to-capital ratio. Senior notes had a carrying value of $1.415 billion, with $450 million principal due in 2024, $525 million in 2025 and $450 million in 2027. Other borrowings were $121.6 million; the $275 million revolving credit facility was undrawn.
Material changes versus the prior year
- Net income declined 13% and diluted EPS decreased from $1.01 to $0.98. Adjusted pretax operating income fell 25%.
- Mortgage NIW fell 40% to $11.3 billion, reflecting weaker housing and mortgage origination activity. However, IIF rose 5% year over year, and 12-month persistency increased to 81.6% from 68.0%, as higher mortgage rates reduced refinancing and cancellations.
- The provision for losses remained a benefit, but narrowed to $16.9 million from $83.8 million. Favorable development on prior-year defaults was $67.4 million, compared with $124.9 million; new primary defaults rose 13% to 10,624.
- homegenius revenue fell to $13.0 million from $33.9 million, and its adjusted pretax operating loss widened to $23.0 million from $13.5 million, amid lower title and real estate activity.
- Higher rates lifted investment income, while reduced market rates during Q1 improved investment fair values. Comprehensive income was $227.9 million versus a $68.5 million loss in Q1 2022.
Outlook, commentary and risks
Management gave no specific company earnings guidance. It expects near-term pressure on NIW and homegenius revenue, and higher mortgage insurance defaults, from elevated rates and subdued housing activity. It also expects higher rates to support persistency and investment income. Management cited industry projections for 2023 mortgage originations of about $1.7 trillion and a private mortgage insurance market of $300–$325 billion; these are market estimates, not company guidance. Management said longer-term housing fundamentals remain favorable.
Key exposures include inflation, slower growth, recession and unemployment; housing prices and mortgage activity; reserve-estimate uncertainty and future cure rates; interest-rate and credit-spread volatility; and continued compliance with PMIERs, regulatory capital and liquidity requirements. Available-for-sale securities had $497.6 million of gross unrealized losses at March 31; management said it intended and was able to hold the securities until recovery of amortized cost. The filing says pending legal matters are not expected to materially affect consolidated financial condition, while acknowledging outcomes are uncertain. Radian reported compliance with debt covenants and applicable insurance capital requirements.
Capital actions included a $100 million ordinary dividend from Radian Guaranty to the holding company, $15 million of share repurchases, and a quarterly common dividend increase from $0.20 to $0.225 per share. Holding-company available liquidity was $956 million, or $1.2 billion including the undrawn revolver. The company also contributed $32 million to homegenius during the quarter.
Important facts for investors to verify
- Whether mortgage defaults, cure rates and favorable reserve development continue to support the reported loss benefit; monitor new defaults and claims.
- Whether NIW, persistency and net premium yield develop as management expects in the higher-rate housing market.
- Whether homegenius can reduce losses as title and real estate volumes remain weak.
- Investment portfolio unrealized losses, credit quality and sensitivity to interest rates and spreads, including the assumptions behind holding securities to recovery.
- PMIERs cushion, statutory capital and dividend capacity, holding-company liquidity, and debt maturities and refinancing plans.
- Reinsurance effectiveness and counterparty exposure, including the Eagle Re delinquency-trigger arrangements and credit granted under PMIERs.