Exhibit 99.1
Quarterly
Operating Supplement
Second Quarter 2004
Quarterly
Operating
Supplement
Table of Contents
Page | ||
Introductory Note | 2 | |
Company Profile | 2 | |
Company Information | 2 | |
Key Financial Highlights | 3 | |
Segment Information–Financial Guaranty | 4 | |
Statutory Income Statements | 5 | |
Statutory Balance Sheets | 6 | |
Gross Premiums Written by Product | 7 | |
Total Claims-Paying Resources and Leverage Ratios | 7 | |
Investment Portfolio Highlights | 8 | |
Insured Portfolio Highlights | 9 | |
Explanatory Notes | 12 | |
Management Team | 13 | |
Safe Harbor Statement | 14 |
1 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Table of Contents |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Quarterly Operating Supplement
June 30, 2004
Introductory Note
Radian Reinsurance Inc. (“Radian Reinsurance”) was merged with and into Radian Asset Assurance Inc. effective as of June 1, 2004. All financial information presented herein is as if the merger had occurred on January 1, 2003.
Company Profile
Radian Asset Assurance Inc., founded in 1985 and rated AA by Standard & Poor’s and Fitch Ratings and Aa3 by Moody’s, provides credit enhancement to the holders of debt obligations and asset-backed securities. As a direct writer of financial guaranty insurance for municipal bonds, asset-backed securities and structured transactions, the Company plays an important role in extending the benefits of insurance to a broad range of institutions and securities issuers.
Radian Asset Assurance Inc. is a subsidiary of Radian Group Inc. (NYSE: RDN), a global credit enhancement provider headquartered in Philadelphia, with significant operations in New York City and a presence in London.
Company Information | ||
Radian Asset Assurance Inc. | Contact: | |
335 Madison Avenue | John C. DeLuca | |
New York, New York 10017 | Senior Vice President, Market Development | |
1 877 337.4925 (within the U.S.) | 1 212 984.9222 | |
1 212 983.3100 | john.deluca@radian.biz |
2 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Introductory Note / Company Profile / Company Information |
Quarterly
Operating
Supplement
Radian Group Inc. and Subsidiaries
Key Financial Highlights* ($ Thousands)
Six months ended June 30, 2004 | |||||||||||||
Mortgage Insurance | Financial Services | Financial Guaranty | Total | ||||||||||
Net premiums written . | $ | 442,128 | $ | — | $ | 70,569 | $ | 512,697 | |||||
Net premiums earned | $ | 406,603 | $ | — | $ | 96,066 | $ | 502,669 | |||||
Net investment income | 58,216 | 74 | 42,294 | 100,584 | |||||||||
Equity in net income/(loss) of affiliates | — | 85,287 | (633 | ) | 84,654 | ||||||||
Other income | 11,220 | 3,722 | 854 | 15,796 | |||||||||
Total revenues | 476,039 | 89,083 | 138,581 | 703,703 | |||||||||
Provision for losses | 199,162 | — | 32,165 | 231,327 | |||||||||
Policy acquisition costs | 34,219 | — | 19,436 | 53,655 | |||||||||
Other operating expenses | 74,198 | 8,315 | 23,070 | 105,583 | |||||||||
Interest expense | 10,412 | 1,310 | 6,296 | 18,018 | |||||||||
Total expenses | 317,991 | 9,625 | 80,967 | 408,583 | |||||||||
Gains on sales of investments | 28,223 | 2,599 | 1,141 | 31,963 | |||||||||
Change in fair value of derivative instruments | 3,214 | 35 | 1,410 | 4,659 | |||||||||
Total gains | 31,437 | 2,634 | 2,551 | 36,622 | |||||||||
Pretax income | 189,485 | 82,092 | 60,165 | 331,742 | |||||||||
Income tax provision | 52,298 | 28,732 | 10,199 | 91,229 | |||||||||
Net income | $ | 137,187 | $ | 53,360 | $ | 49,966 | $ | 240,513 | |||||
Total assets | $ | 3,910,910 | $ | 314,756 | $ | 2,305,046 | $ | 6,530,712 | |||||
Deferred policy acquisition costs | 79,359 | — | 128,149 | 207,508 | |||||||||
Reserve for losses and loss adjustment expenses | 527,059 | — | 248,316 | 775,375 | |||||||||
Unearned premiums | 128,190 | — | 598,499 | 726,689 | |||||||||
Equity | $ | 1,907,478 | $ | 255,175 | $ | 1,183,041 | $ | 3,345,694 |
* | Reported on a GAAP basis. |
3 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Key Financial Highlights |
Quarterly
Operating
Supplement
Radian Group Inc. and Subsidiaries
Segment Information–Financial Guaranty ($ Thousands)
Six months ended June 30, 2004 | ||||||||||||
As Reported | Impact of Clawback | As Adjusted Excluding Clawback | ||||||||||
Net premiums written | $ | 70,569 | $ | (96,417 | ) | $ | 166,986 | |||||
Net premiums earned | $ | 96,066 | $ | (24,892 | ) | $ | 120,958 | |||||
Net investment income | 42,294 | — | 42,294 | |||||||||
Equity in net loss of affiliates | (633 | ) | — | (633 | ) | |||||||
Other income | 854 | — | 854 | |||||||||
Total revenues | 138,581 | (24,892 | ) | 163,473 | ||||||||
Provision for losses | 32,165 | — | 32,165 | |||||||||
Policy acquisition costs | 19,436 | (9,766 | ) | 29,202 | ||||||||
Other operating expenses | 23,070 | — | 23,070 | |||||||||
Interest expense | 6,296 | — | 6,296 | |||||||||
Total expenses | 80,967 | (9,766 | ) | 90,733 | ||||||||
Gains on sales of investments | 1,141 | — | 1,141 | |||||||||
Change in fair value of derivative instruments | 1,410 | (791 | ) | 2,201 | ||||||||
Total gains /(losses) | 2,551 | (791 | ) | 3,342 | ||||||||
Pretax income | 60,165 | (15,917 | ) | 76,082 | ||||||||
Income tax provision | 10,199 | (5,571 | ) | 15,770 | ||||||||
Net income | $ | 49,966 | $ | (10,346 | ) | $ | 60,312 | |||||
The above schedule shows the Financial Guaranty Segment, on a GAAP basis, as reported (Column 1) and adjustments (Column 2) to reflect the income statement impact of the recapture (referred to above as the clawback) of business previously ceded to the Company by one of the primary insurer customers of the Financial Guaranty Segment. The adjusted numbers are shown in Column 3. The impact of the clawback (Column 2) reflects the clawback of business ceded to the Company in prior periods. This clawback affected the first quarter (and, as a result, the year-to-date periods) of 2004. Accordingly, management believes that Column 3 provides useful information to investors by presenting a more meaningful basis of comparison for the Financial Guaranty Segment’s past and future results.
4 | Quarterly Operating Supplement for the Period Ended June 30, 2004 / Segment Information–Financial Guaranty |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Statutory Income Statements* ($Thousands)
Quarter ended | Six months ended | |||||||||||||||
June 30 2004 | June 30 2003 | June 30 2004 | June 30 2003 | |||||||||||||
Revenues | ||||||||||||||||
Gross premiums written | $ | 82,752 | $ | 84,772 | $ | 39,558 | $ | 170,505 | ||||||||
Reinsurance premiums ceded | (1,203 | ) | (2,624 | ) | (2,564 | ) | (3,471 | ) | ||||||||
Net premiums written | 81,549 | 82,148 | 36,994 | 167,034 | ||||||||||||
(Increase) decrease in unearned premiums | (39,287 | ) | (20,918 | ) | 51,160 | (51,099 | ) | |||||||||
Premiums earned | 42,262 | 61,230 | 88,154 | 115,935 | ||||||||||||
Net investment income | 20,437 | 19,237 | 41,015 | 38,342 | ||||||||||||
Net realized gain on sale of investments | 2,280 | 2,462 | 7,281 | 6,350 | ||||||||||||
Net investment gains | 22,717 | 21,699 | 48,296 | 44,692 | ||||||||||||
Other (expense) income | (3,323 | ) | (1,481 | ) | (6,053 | ) | 60 | |||||||||
Total revenues | 61,656 | 81,448 | 130,397 | 160,687 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses incurred | (3,847 | ) | 12,815 | 112,507 | 22,571 | |||||||||||
Commissions incurred | 8,499 | 15,417 | (17,096 | ) | 34,712 | |||||||||||
Other underwriting expenses | 17,073 | 17,989 | 33,563 | 29,723 | ||||||||||||
Total expenses | 21,725 | 46,221 | 128,974 | 87,006 | ||||||||||||
Income before income taxes | 39,931 | 35,227 | 1,423 | 73,681 | ||||||||||||
Federal and foreign income tax expense (benefit) | 4,793 | 4,225 | (17,500 | ) | 9,216 | |||||||||||
Net income | $ | 35,138 | $ | 31,002 | $ | 18,923 | $ | 64,465 | ||||||||
Financial Ratios | ||||||||||||||||
Loss and LAE Ratio | –9.1 | % | 20.9 | % | 127.6 | % | 19.5 | % | ||||||||
Underwriting Expense Ratio | 31.4 | % | 40.7 | % | 44.5 | % | 38.6 | % | ||||||||
Combined Ratio | 22.3 | % | 61.6 | % | 172.1 | % | 58.1 | % | ||||||||
* | See Explanatory Notes on page 12. |
5 | Quarterly Operating Supplement for the Period Ended June 30, 2004 / Statutory Income Statements |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Statutory Balance Sheets* ($ Thousands)
June 30 2004 | December 31 2003 | |||||
Assets | ||||||
Long-term bonds | $ | 1,816,550 | $ | 1,662,554 | ||
Preferred stock | 30,824 | 32,252 | ||||
Common stock | 70,792 | 74,204 | ||||
Cash and short-term investments | 55,518 | 143,729 | ||||
Receivable for securities | 3,455 | 515 | ||||
Total Investments | 1,977,139 | 1,913,254 | ||||
Investment income due and accrued | 25,178 | 23,652 | ||||
Premiums receivable | 21,964 | 21,653 | ||||
Funds held by reinsured companies | 736 | 952 | ||||
Current federal income tax recoverable | — | 4,924 | ||||
Net deferred tax asset | 3,607 | 3,019 | ||||
Other assets | 3,194 | 2,317 | ||||
Total Assets | $ | 2,031,818 | $ | 1,969,771 | ||
Liabilities | ||||||
Contingency reserve | $ | 225,255 | $ | 321,312 | ||
Losses and loss adjustment expenses | 115,202 | 62,850 | ||||
Reinsurance payable on paid losses and loss adjustment expenses | 3,809 | 6,059 | ||||
Unearned premiums | 659,326 | 710,486 | ||||
Provision for reinsurance . | 91 | 284 | ||||
Payable to affiliates | 6,359 | 25,350 | ||||
Payable for securities | 6,940 | 2,962 | ||||
Ceded reinsurance premiums payable | 1,233 | 1,742 | ||||
Federal and foreign income taxes payable | 1,194 | — | ||||
Accrued expenses and other liabilities | 10,232 | 15,652 | ||||
Total Liabilities | 1,029,641 | 1,146,697 | ||||
Policyholders’ Surplus | ||||||
Common stock | 15,000 | 15,000 | ||||
Additional paid-in capital | 593,214 | 528,214 | ||||
Unassigned funds | 393,963 | 279,860 | ||||
Total Policyholders’ Surplus | 1,002,177 | 823,074 | ||||
Total Liabilities and Policyholders’ Surplus | $ | 2,031,818 | $ | 1,969,771 | ||
Qualified Statutory Capital | $ | 1,227,432 | $ | 1,144,386 | ||
* | See Explanatory Notes on page 12. |
6 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Statutory Balance Sheets |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Gross Premiums Written by Product* ($ Thousands)
2nd Qtr 2004 | 2nd Qtr 2003 | Percent Change | YTD 2004 | YTD 2003 | Percent Change | ||||||||||||||
Public Finance Direct | $ | 17,679 | $ | 10,891 | 62.3 | % | $ | 25,865 | $ | 21,735 | 19.0 | % | |||||||
Structured Finance Direct | 35,702 | 22,354 | 59.7 | % | 57,153 | 39,461 | 44.8 | % | |||||||||||
Public Finance Reinsurance | 16,773 | 24,001 | –30.1 | % | 36,897 | 47,607 | –22.5 | % | |||||||||||
Structured Finance Reinsurance | 8,292 | 13,615 | –39.1 | % | 17,296 | 28,298 | –38.9 | % | |||||||||||
Trade Credit Reinsurance | 4,306 | 13,911 | –69.0 | % | (1,236 | ) | 33,404 | –103.7 | % | ||||||||||
82,752 | 84,772 | –2.4 | % | 135,975 | 170,505 | –20.3 | % | ||||||||||||
Impact of Recapture | — | — | (96,417 | ) | — | ||||||||||||||
$ | 82,752 | $ | 84,772 | –2.4 | % | $ | 39,558 | $ | 170,505 | –76.8 | % | ||||||||
Total Claims-Paying Resources and Leverage Ratios*
($ Thousands except ratios)
June 30 2004 | December 31 2003 | Percent Change | |||||||
Capital and Surplus | $ | 1,002,177 | $ | 823,074 | 22 | % | |||
Contingency Reserve | 225,255 | 321,312 | –30 | % | |||||
Qualified Statutory Capital | 1,227,432 | 1,144,386 | 7 | % | |||||
Unearned Premium Reserve | 659,326 | 710,486 | –7 | % | |||||
Loss and Loss Expense Reserves | 115,202 | 62,850 | 83 | % | |||||
Total Policyholders’ Reserves | 2,001,960 | 1,917,722 | 4 | % | |||||
Present Value of Future Installment Premiums | 339,211 | 444,368 | –24 | % | |||||
Reinsurance and Soft Capital Facilities | 245,000 | 275,000 | –11 | % | |||||
Total Claims-Paying Resources. | $ | 2,586,171 | $ | 2,637,090 | –2 | % | |||
Total Debt Service | |||||||||
(Principal and Interest) Outstanding | $ | 98,761,065 | $ | 117,817,484 | –16 | % | |||
Capital Leverage Ratio1. | 80:1 | 103:1 | |||||||
Claims-Paying Ratio2 | 38:1 | 45:1 |
* | See Explanatory Notes on page 12. |
1 | Capital Leverage Ratio: Total debt service/Qualified statutory capital. |
2 | Claims-Paying Ratio: Total debt service/Total claims-paying resources. |
7 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Gross Premiums / Total Claims-Paying Resources |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Investment Portfolio Highlights
Asset Quality
As of June 30, 2004, the book value of our investment portfolio was $2.0 billion, with an average duration of 6.3 years.
Asset Class
Our conservative portfolio is invested primarily in fixed-income securities. Our primary objective is to achieve total return, with a secondary objective of maximizing after-tax income.
8 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Investment Portfolio Highlights |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
Geographic Diversification
State | Net Par Outstanding (6/30/2004) | Percent of total Net Par | Net Par Outstanding (12/31/2003) | Percent of total Net Par | ||||||||
California | $ | 4,992 | 7.8 | % | $ | 6,255 | 8.1 | % | ||||
New York | 4,284 | 6.6 | % | 4,930 | 6.4 | % | ||||||
Texas | 3,473 | 5.4 | % | 3,727 | 4.9 | % | ||||||
Florida | 2,705 | 4.2 | % | 3,132 | 4.1 | % | ||||||
Pennsylvania | 2,657 | 4.1 | % | 2,950 | 3.8 | % | ||||||
Illinois | 2,608 | 4.0 | % | 2,702 | 3.5 | % | ||||||
Massachusetts | 1,671 | 2.6 | % | 2,235 | 2.9 | % | ||||||
New Jersey | 1,331 | 2.1 | % | 2,137 | 2.8 | % | ||||||
Washington | 1,184 | 1.8 | % | 1,354 | 1.8 | % | ||||||
Ohio | 1,127 | 1.8 | % | 1,179 | 1.5 | % | ||||||
Top ten states subtotal | 26,032 | 40.4 | % | 30,601 | 39.8 | % | ||||||
Total of other states | 17,298 | 26.8 | % | 20,000 | 26.0 | % | ||||||
Domestic structured finance | 17,038 | 26.4 | % | 19,782 | 25.7 | % | ||||||
International | 4,116 | 6.4 | % | 6,531 | 8.5 | % | ||||||
Total | $ | 64,484 | 100.0 | % | $ | 76,914 | 100.0 | % |
* | See Explanatory Notes on page 12. |
9 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Insured Portfolio Highlights |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
Sector Breakout
Public Finance | Gross Par Outstanding (6/30/2004) | Percent of total Gross Par | Net Par Outstanding (6/30/2004) | Percent of total Net Par | Gross Par Outstanding (12/31/2003) | Percent of total Gross Par | Net Par Outstanding (12/31/2003) | Percent of total Net Par | ||||||||||||||||
General Obligations | $ | 12,913 | 19.4 | % | $ | 12,880 | 20.0 | % | $ | 14,431 | 18.3 | % | $ | 14,387 | 18.7 | % | ||||||||
Healthcare | 7,781 | 11.7 | % | 7,781 | 12.1 | % | 8,874 | 11.2 | % | 8,874 | 11.5 | % | ||||||||||||
Utilities | 6,402 | 9.6 | % | 6,271 | 9.7 | % | 8,057 | 10.2 | % | 7,925 | 10.3 | % | ||||||||||||
Transportation | 5,091 | 7.7 | % | 5,091 | 7.9 | % | 7,214 | 9.1 | % | 7,213 | 9.4 | % | ||||||||||||
Tax Backed | 3,821 | 5.8 | % | 3,817 | 5.9 | % | 4,373 | 5.6 | % | 4,373 | 5.7 | % | ||||||||||||
Education | 3,557 | 5.4 | % | 3,557 | 5.5 | % | 3,818 | 4.8 | % | 3,818 | 5.0 | % | ||||||||||||
Investor Owned Utilities | 1,662 | 2.5 | % | 1,662 | 2.6 | % | 2,234 | 2.8 | % | 2,234 | 2.9 | % | ||||||||||||
Other Public Finance | 1,448 | 2.2 | % | 1,194 | 1.8 | % | 1,530 | 1.9 | % | 1,276 | 1.7 | % | ||||||||||||
Long Term Care | 1,142 | 1.7 | % | 1,142 | 1.8 | % | 1,149 | 1.5 | % | 1,149 | 1.5 | % | ||||||||||||
Housing | 853 | 1.3 | % | 853 | 1.3 | % | 1,376 | 1.8 | % | 1,376 | 1.8 | % | ||||||||||||
Second-To-Pay Municipal Wrap | 789 | 1.2 | % | 789 | 1.2 | % | 793 | 1.0 | % | 793 | 1.0 | % | ||||||||||||
Subtotal Public Finance | $ | 45,459 | 68.5 | % | $ | 45,037 | 69.8 | % | $ | 53,849 | 68.2 | % | $ | 53,418 | 69.5 | % | ||||||||
Structured Finance | Gross Par Outstanding (6/30/2004) | Percent of total Gross Par | Net Par Outstanding (6/30/2004) | Percent of total Net Par | Gross Par Outstanding (12/31/2003) | Percent of total Gross Par | Net Par Outstanding (12/31/2003) | Percent of total Net Par | ||||||||||||||||
Collateralized Debt Obligations | $ | 11,956 | 18.0 | % | $ | 11,956 | 18.5 | % | $ | 10,187 | 12.9 | % | $ | 10,187 | 13.2 | % | ||||||||
Asset Backed – Consumer | 3,058 | 4.6 | % | 3,058 | 4.8 | % | 7,060 | 8.9 | % | 7,060 | 9.2 | % | ||||||||||||
Asset Backed – Mortgage and MBS | 3,265 | 4.9 | % | 1,773 | 2.8 | % | 3,723 | 4.7 | % | 2,116 | 2.7 | % | ||||||||||||
Asset Backed – Commercial and Other | 1,766 | 2.7 | % | 1,766 | 2.7 | % | 3,153 | 4.0 | % | 3,153 | 4.1 | % | ||||||||||||
Other Structured Finance | 898 | 1.3 | % | 894 | 1.4 | % | 1,010 | 1.3 | % | 980 | 1.3 | % | ||||||||||||
Subtotal Structured Finance | $ | 20,943 | 31.5 | % | $ | 19,447 | 30.2 | % | $ | 25,133 | 31.8 | % | $ | 23,496 | 30.5 | % | ||||||||
Total | $ | 66,402 | 100.0 | % | $ | 64,484 | 100.0 | % | $ | 78,982 | 100.0 | % | $ | 76,914 | 100.0 | % |
Rating Distribution
Rating** | Gross Par Outstanding (6/30/2004) | Percent of total Gross Par | Net Par Outstanding (6/30/2004) | Percent of total Net Par | Gross Par Outstanding (12/31/2003) | Percent of total Gross Par | Net Par Outstanding (12/31/2003) | Percent of total Net Par | ||||||||||||||||
AAA | $ | 12,044 | 18.1 | % | $ | 10,595 | 16.4 | % | $ | 12,936 | 16.4 | % | $ | 11,372 | 14.8 | % | ||||||||
AA | 15,181 | 22.9 | % | 15,072 | 23.4 | % | 17,306 | 21.9 | % | 17,186 | 22.3 | % | ||||||||||||
A | 21,340 | 32.1 | % | 21,040 | 32.6 | % | 26,986 | 34.2 | % | 26,660 | 34.7 | % | ||||||||||||
BBB | 14,471 | 21.8 | % | 14,415 | 22.4 | % | 17,905 | 22.7 | % | 17,862 | 23.2 | % | ||||||||||||
Investment Grade | 460 | 0.7 | % | 460 | 0.7 | % | 600 | 0.7 | % | 600 | 0.8 | % | ||||||||||||
Below Investment Grade | 1,608 | 2.4 | % | 1,608 | 2.5 | % | 1,284 | 1.6 | % | 1,273 | 1.7 | % | ||||||||||||
Not Rated | 1,298 | 2.0 | % | 1,294 | 2.0 | % | 1,965 | 2.5 | % | 1,961 | 2.5 | % | ||||||||||||
Total | $ | 66,402 | 100.0 | % | $ | 64,484 | 100.0 | % | $ | 78,982 | 100.0 | % | $ | 76,914 | 100.0 | % |
* | See Explanatory Notes on page 12. |
** | Indicated category reflects highest rating of the three rating agencies. |
10 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Insured Portfolio Highlights |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
10 Largest Public Finance Exposures
Net Par Outstanding (6/30/2004) | Percent of total Net Par | Rating 1 | ||||||
California State GO | $ | 404 | 0.63 | % | A3 | |||
New York, New York GO | 363 | 0.56 | % | A+ | ||||
Long Island Power Authority New York | 328 | 0.51 | % | A– | ||||
New York & New Jersey Port Authority | 323 | 0.50 | % | AA– | ||||
Jefferson County Alabama Gas & Sewer | 297 | 0.46 | % | A | ||||
New York City Muni Water Finance | 296 | 0.46 | % | AA | ||||
Illinois State GO | 289 | 0.45 | % | AA | ||||
Metropolitan Transportation Authority New York | 288 | 0.45 | % | A | ||||
Houston Airport System | 267 | 0.41 | % | A1 | ||||
Chicago, Illinois GO | 258 | 0.40 | % | A+ | ||||
Total | $ | 3,113 | 4.83 | % |
10 Largest Structured Finance Exposures
Net Par Outstanding (6/30/2004) | Percent of total Net Par | Rating2 | ||||||
U.S. Static Synthetic CDO | $ | 450 | 0.70 | % | AAA | |||
CDO of ABS | 390 | 0.60 | % | AA | ||||
U.S. Static Synthetic CDO | 381 | 0.59 | % | AAA | ||||
U.S. Static Synthetic CDO | 365 | 0.57 | % | AAA | ||||
U.S. Static Synthetic CDO | 350 | 0.54 | % | BB+3 | ||||
U.S. Static Synthetic CDO | 340 | 0.53 | % | AA | ||||
European Static Synthetic CDO | 288 | 0.44 | % | AAA | ||||
U.S. Static Synthetic CDO | 285 | 0.44 | % | AA | ||||
U.S. Static Synthetic CDO | 250 | 0.39 | % | AAA | ||||
U.S. Static Synthetic CDO | 250 | 0.39 | % | AA | ||||
Total | $ | 3,349 | 5.19 | % |
* | See Explanatory Notes on page 12. |
1 | Indicated category reflects highest rating of the three rating agencies. |
2 | Indicated category reflects highest rating of the three rating agencies. Represents lowest attachment point of transactions. |
3 | Represents lowest attachment point of transaction. The majority of the transaction attaches at AAA/AA levels. |
11 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Insured Portfolio Highlights |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Explanatory Notes
1. Effective January 31st, 2004, one of the primary insurer customers of Radian Asset Assurance Inc. (the “Company”) exercised its right to recapture business that it previously ceded to the Company. In connection with the recapture, the Company has returned approximately $16.4 billion of par in force and approximately $96.4 million of statutory unearned premium reserves to the primary insurer. In addition, the Company has been reimbursed by the primary insurer for policy acquisition costs of approximately $31.0 million. The Company has also reimbursed the primary insurer approximately $7.5 million for case reserves which were net of $4.0 million of salvage.
2. In May 2004, Moody’s provided the Company with an initial insurance financial strength rating of “Aa3.” Concurrently therewith, in anticipation of the merger of Radian Reinsurance with and into the Company (which became effective on June 1, 2004), Moody’s downgraded Radian Reinsurance’s insurance financial strength rating to “Aa3” from “Aa2.” Effective June 1, 2004, the Company and Radian Reinsurance were merged, with the Company as the surviving entity. The merged company is rated “Aa3” by Moody’s, “AA” (negative outlook) by S&P and “AA” (outlook stable) by Fitch. As a result of this downgrade, two of the primary insurer customers of the financial guaranty reinsurance business have the right to recapture an aggregate of $20.3 billion of par in force ceded to the Company, including $147.3 million of written premiums as of June 30, 2004. The Company is currently negotiating with these customers regarding whether the recapture rights will be exercised and cannot provide any assurance as to the outcome of these negotiations.
3. Gross and net written premiums for the six months ended June 30, 2004 decreased $131 million compared to the same period of 2003. This decrease was the result of the recapture of $96 million of previously written premiums in the first quarter of 2004 and a $34 million reduction in trade credit premiums resulting from the Company novating business to an affiliate.
4. Premiums earned for the second quarter of 2004 were $42 million versus $61 million for the same period of 2003, a decline of $19 million. This decline is primarily due to the novation of the trade credit business to an affiliate.
5. Loss and loss adjustment expenses incurred for the six months ended June 30, 2004 were $90 million higher than the comparable period of 2003 primarily due to the establishment of a $111 million reserve on a statutory basis (recorded on a GAAP basis in 2003) pertaining to a single manufactured housing transaction.
6. Commission expenses for the quarter ended June 30, 2004 were $7 million lower than the $15 million incurred for the same period of 2003 due to lower assumed premiums written. For the first six months of 2004, commission expenses were $52 million lower than the same period of 2003. The recapture resulted in a reduction to commission expenses of $31 million. The remainder of the reduction in commission expenses is a result of lower assumed premiums written in the financial guaranty and trade credit products.
7. The contingency reserve decreased $96 million to $225 million at June 30, 2004 primarily as a result of the recapture.
8. Loss and loss adjustment expense reserves increased by $52 million to $115 million at June 30, 2004 primarily resulting from the establishment of a $111 million reserve on a statutory basis (recorded on a GAAP basis in 2003) for a single manufactured housing transaction, offset by a $17 million reduction in trade credit loss reserves novated by the Company to an affiliated company and by $42 million of loss payments.
9. Unearned premiums were $51 million lower at June 30, 2004 as compared to December 31, 2003 as a result of the $96 million recapture of financial guaranty business by one of the Company’s primary insurers.
10. Additional paid-in capital increased $65 million as the result of a capital contribution related to the manufactured housing transaction for which the $111 million reserve was established.
12 | Quarterly Operating Supplement for the Period Ended June 30, 2004 / Explanatory Notes |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Management Team
Martin A. Kamarck
President
David J. Beidler
Senior Vice President, Senior Counsel
Sally B. Campbell
Senior Vice President, Public Finance
John C. DeLuca
Senior Vice President, Market Development
Bonita Z. Dorland
Senior Vice President, Chief Risk Officer
Paul C. Larsen
Vice President, Managing Director of Client and Portfolio Management
Anna M. Laudon
Vice President, Managing Director of Asset Backed Securities
Andrew C.J. Poole
Managing Director, Radian Asset Assurance Ltd. & Radian Representatives Ltd.
Jack Praschnik
Senior Vice President, Global Strategies
Andrew Reid
Vice President, Managing Director of Global Markets
Patrick Rossi
Senior Vice President, Controller
Jeffrey C. Salton
Senior Vice President, Operations and Analysis
Hao Wu
Vice President, Managing Director of Financial Products
13 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Radian Asset Assurance Inc.ManagementTeam |
Quarterly
Operating
Supplement
Radian Asset Assurance Inc.
Safe Harbor Statement
All statements in this document that address operating performance, events or developments that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These statements are made on the basis of management’s current views and assumptions with respect to future events.
The forward-looking statements involve risks and uncertainties including the following:
changes in general financial and political conditions, such as extended national or regional economic recessions, changes in housing values, changes or volatility in interest rates, or other political instability; changes in investor perception of the strength of private mortgage insurers or financial guaranty providers, and risks faced by the businesses, municipalities or pools of assets covered by Radian’s insurance; the loss of significant customers with whom Radian has a concentration of its insurance in force; rising delinquencies in mortgage loans insured by Radian resulting from increased consolidation of mortgage lenders and servicers; increased severity or frequency of losses associated with certain Radian products that are riskier than traditional mortgage insurance and municipal guaranty insurance policies; material changes in persistency rates of Radian’s mortgage insurance policies; downgrades of the insurance financial-strength ratings assigned by the major ratings agencies to Radian’s operating subsidiaries; intense competition from others and from alternative products to private mortgage insurance and financial guaranty insurance; changes in the business practices of Fannie Mae and Freddie Mac; legislative and regulatory changes affecting demand for private mortgage insurance and financial guaranty insurance; changes in claims against mortgage insurance products resulting from the aging of Radian’s mortgage insurance policies; changes in Radian’s ability to maintain sufficient reinsurance capacity in an increasingly concentrated reinsurance market; vulnerability to the performance of Radian’s strategic investments; and the loss of executive officers or other key personnel.
Investors are also directed to other risks discussed in documents filed by Radian with the SEC, including the factors detailed in our annual report on Form 10-K for the year ended December 31, 2003 in the section immediately preceding Part I of the report.
Radian does not intend to and disclaims any duty or obligation to update or revise any forward-looking statements made in this document to reflect new information, future events or for any other reason.
14 | Quarterly Operating Supplement for the Period Ended June 30, 2004 /Safe Harbor Statement |