Radian Group Inc. — 2021 Form 10-K Summary
Business context and reporting period
Radian Group is a mortgage and real estate services company reporting for the fiscal year ended December 31, 2021. Its Mortgage segment primarily provides private mortgage insurance and related services; its homegenius segment provides title, real estate and technology products and services. Comparisons below are with fiscal 2020 unless noted.
Financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.330 billion | $1.439 billion |
| Net premiums earned | $1.037 billion | $1.115 billion |
| Net income | $600.7 million | $393.6 million |
| Diluted earnings per share | $3.16 | $2.00 |
| Net cash from operating activities | $557.1 million | $658.4 million |
| Book value per share at year-end | $24.28 | $22.36 |
- Pretax income was $764.8 million, compared with $479.4 million. Adjusted pretax operating income, a non-GAAP measure, was $757.7 million versus $432.1 million.
- The provision for losses fell to $20.9 million from $485.1 million. Mortgage insurance loss ratio was 1.9%, compared with 44.2%; the Mortgage segment expense ratio rose to 25.3% from 21.0%.
- homegenius revenue increased 45.5% to $149.1 million. The segment nevertheless reported an adjusted pretax operating loss of $27.3 million, wider than the $23.2 million loss in 2020.
- Primary mortgage insurance new business written was $91.8 billion, down from $105.0 billion. Year-end insurance in force was $246.0 billion, essentially unchanged; risk in force was $60.9 billion.
- Mortgage defaults improved: the primary default rate was 2.9% at year-end versus 5.2% in 2020. Claims paid were $35.3 million, down from $97.6 million; delayed foreclosures and pandemic relief affected payment timing.
- Net cash used in investing activities was $1.9 million; net cash used in financing activities was $496.8 million, principally reflecting share repurchases and dividends. The filing does not present a conventional free-cash-flow measure.
- At year-end, senior notes were $1.409 billion and FHLB advances were $151.0 million. Holding-company debt-to-capital was 24.9%. Holding-company available liquidity was $604.9 million; including the undrawn $275 million revolving facility, total liquidity was $879.9 million.
- The investment portfolio had a fair value of approximately $6.6 billion; 95.5% was investment grade. A hypothetical 100-basis-point rate increase would reduce fixed-income portfolio value by an estimated $281.7 million.
Material changes versus 2020
- Net income improved mainly because loss provisions declined sharply as new defaults fell and prior-year reserves developed favorably. Management attributed favorable cures partly to pandemic forbearance outcomes and home-price appreciation.
- Revenue declined, particularly mortgage premiums, as portfolio premium yield fell and single-premium cancellation revenue was lower. Net investment income also declined, while investment gains fell to $15.6 million from $60.3 million amid rising rates.
- homegenius grew, including title revenue growth, but staffing, commissions and strategic investment increased costs and widened its operating loss.
- Radian repurchased 17.8 million shares for $399.1 million and paid $104.4 million in dividends. The quarterly dividend increased from $0.125 to $0.14 in 2021.
- Radian Guaranty’s PMIERs cushion increased to $2.1 billion from $1.3 billion. Risk-to-capital improved to 11.1:1 from 12.7:1.
Outlook, risks and unusual items
- Management cited positive long-term housing fundamentals but emphasized uncertainty from inflation, interest rates, employment, home prices and the continuing effects of COVID-19. It expected in-force portfolio premium yield to decline by approximately two basis points in 2022; this is not earnings guidance.
- Industry projections cited in the filing—not company guidance—estimated 2022 mortgage originations of approximately $3.0 trillion, about 31% below 2021, and private mortgage insurance market volume of $500–$550 billion.
- Key risks include inaccurate loss-reserve estimates, prolonged defaults or higher claims severity; changes to PMIERs, state capital rules or GSE practices; reduced reinsurance availability or capital relief; intense mortgage insurance pricing competition; lower policy persistency; and economic or housing-market deterioration.
- Further risks include investment-market volatility, cyber incidents, legal and regulatory proceedings, and homegenius customer concentration and transactional revenue variability. The top 10 homegenius customers generated approximately 57.9% of segment services revenue.
- Radian Guaranty had negative unassigned surplus of $562.8 million and was not expected to pay ordinary dividends for several years without regulatory approval. After year-end, regulators approved a $500 million extraordinary return of capital to Radian Group, paid February 11, 2022.
- After year-end, the board raised the quarterly dividend to $0.20 per share and authorized a new $400 million share repurchase program. The prior repurchase authorization was fully used by year-end.
- The auditor issued an unqualified opinion and found internal control over financial reporting effective. Valuation of first-lien mortgage insurance case reserves was identified as a critical audit matter because it relies on significant assumptions for default-to-claim rates and claim severity.
Important facts for investors to verify
- Whether favorable cure and reserve-development trends persist as forbearance programs end and foreclosure activity normalizes.
- How changes in home prices, interest rates, unemployment and refinancing affect defaults, claims, persistency and mortgage insurance in force.
- Whether Radian Guaranty maintains PMIERs and statutory capital compliance, and how much capital can be returned to the holding company.
- Whether reinsurance remains available on acceptable terms and continues to receive expected PMIERs credit.
- Whether homegenius revenue growth translates into improved profitability, given customer concentration and higher operating costs.
- The impact of the $500 million post-year-end capital distribution, increased dividend and new repurchase authorization on liquidity and capital flexibility.