Exhibit 99.1
Quarterly Operating Supplement Fourth 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 | |
CDO Exposure | 12 | |
Explanatory Notes | 13 | |
Management Team | 14 | |
Safe Harbor Statement | 15 |
1 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Table of Contents |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Quarterly Operating Supplement
December 31, 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, Radian Asset Assurance Inc. 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 December 31, 2004 /Introductory Note / Company Profile / Company Information |
Quarterly Operating Supplement
Radian Group Inc. and Subsidiaries
Key Financial Highlights* ($ Thousands)
Twelve months ended December 31, 2004 | ||||||||||||
Mortgage Insurance | Financial Services | Financial Guaranty | Total | |||||||||
Net premiums written | $ | 866,051 | $ | — | $ | 216,436 | $ | 1,082,487 | ||||
Net premiums earned | $ | 814,553 | $ | — | $ | 214,931 | $ | 1,029,484 | ||||
Net investment income | 118,694 | 98 | 85,557 | 204,349 | ||||||||
Gains on sales of investments | 44,380 | 2,424 | 3,995 | 50,799 | ||||||||
Change in fair value of derivative instruments | 11,940 | 206 | 34,989 | 47,135 | ||||||||
Other income | 24,247 | 5,989 | 2,050 | 32,286 | ||||||||
Total revenues | 1,013,814 | 8,717 | 341,522 | 1,364,053 | ||||||||
Provision for losses | 400,936 | — | 55,898 | 456,834 | ||||||||
Policy acquisition costs | 75,487 | — | 46,343 | 121,830 | ||||||||
Other operating expenses | 141,131 | 12,229 | 52,327 | 205,687 | ||||||||
Interest expense | 20,138 | 2,500 | 12,022 | 34,660 | ||||||||
Total expenses | 637,692 | 14,729 | 166,590 | 819,011 | ||||||||
Equity in net income of affiliates | — | 179,128 | 1,422 | 180,550 | ||||||||
Pretax income | 376,122 | 173,116 | 176,354 | 725,592 | ||||||||
Income tax provision | 104,240 | 60,577 | 42,122 | 206,939 | ||||||||
Net income | $ | 271,882 | $ | 112,539 | $ | 134,232 | $ | 518,653 | ||||
Total assets | $ | 4,198,325 | $ | 388,975 | $ | 2,420,187 | $ | 7,007,487 | ||||
Deferred policy acquisition costs | 69,175 | — | 142,753 | 211,928 | ||||||||
Reserve for losses and loss adjustment expenses | 559,632 | — | 241,380 | 801,012 | ||||||||
Unearned premiums | 142,853 | — | 627,355 | 770,208 | ||||||||
Equity | $ | 2,065,290 | $ | 316,378 | $ | 1,307,387 | $ | 3,689,055 |
* | Reported on a GAAP basis. |
3 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Key Financial Highlights |
Quarterly Operating Supplement
Radian Group Inc. and Subsidiaries
Segment Information–Financial Guaranty ($ Thousands)
Twelve months ended December 31, 2004 | ||||||||||
As Reported | Impact of Clawback | As Adjusted Excluding Clawback | ||||||||
Net premiums written | $ | 216,436 | $ | (96,417 | ) | $ | 312,853 | |||
Net premiums earned | $ | 214,931 | $ | (24,892 | ) | $ | 239,823 | |||
Net investment income | 85,557 | — | 85,557 | |||||||
Gains on sales of investments | 3,995 | — | 3,995 | |||||||
Change in fair value of derivative instruments | 34,989 | (791 | ) | 35,780 | ||||||
Other income | 2,050 | — | 2,050 | |||||||
Total revenues | 341,522 | (25,683 | ) | 367,205 | ||||||
Provision for losses | 55,898 | — | 55,898 | |||||||
Policy acquisition costs | 46,343 | (9,766 | ) | 56,109 | ||||||
Other operating expenses | 52,327 | — | 52,327 | |||||||
Interest expense | 12,022 | — | 12,022 | |||||||
Total expenses | 166,590 | (9,766 | ) | 176,356 | ||||||
Equity in net income of affiliates | 1,422 | — | 1,422 | |||||||
Pretax income | 176,354 | (15,917 | ) | 192,271 | ||||||
Income tax provision | 42,122 | (5,571 | ) | 47,693 | ||||||
Net income | $ | 134,232 | $ | (10,346 | ) | $ | 144,578 | |||
* | 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 that occurred in the first quarter of 2004. The adjusted numbers are shown in Column 3. The impact of the clawback (Column 2) reflects the clawback of business recorded by 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 December 31, 2004 /Segment Information–Financial Guaranty |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Statutory Income Statements* ($ Thousands)
Quarter ended | Twelve months ended | |||||||||||||||
December 31 2004 | December 31 2003 | December 31 2004 | December 31 2003 | |||||||||||||
Revenues | ||||||||||||||||
Gross premiums written | $ | 61,063 | $ | 95,737 | $ | 157,619 | $ | 361,807 | ||||||||
Reinsurance premiums ceded | (627 | ) | (2,026 | ) | (3,983 | ) | (8,380 | ) | ||||||||
Net premiums written | 60,436 | 93,711 | 153,636 | 353,427 | ||||||||||||
(Increase) decrease in unearned premiums | (20,609 | ) | (24,483 | ) | 15,875 | (107,475 | ) | |||||||||
Premiums earned | 39,827 | 69,228 | 169,511 | 245,952 | ||||||||||||
Net investment income | 20,689 | 19,699 | 83,246 | 78,047 | ||||||||||||
Net realized gain on sale of investments | 902 | 2,429 | 9,095 | 11,141 | ||||||||||||
Net investment gains | 21,591 | 22,128 | 92,341 | 89,188 | ||||||||||||
Total revenues | 61,418 | 91,356 | 261,852 | 335,140 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses incurred | 10,204 | 29,431 | 125,553 | 62,253 | ||||||||||||
Commissions incurred | 7,355 | 2,169 | (3,002 | ) | 50,164 | |||||||||||
Other underwriting expenses | 20,207 | 19,845 | 72,011 | 66,175 | ||||||||||||
Other expense | 2,091 | 2,646 | 11,148 | 5,361 | ||||||||||||
Total expenses | 39,857 | 54,091 | 205,710 | 183,953 | ||||||||||||
Income before income taxes | 21,561 | 37,265 | 56,142 | 151,187 | ||||||||||||
Federal and foreign income tax expense | 4,170 | (3,026 | ) | 13,726 | 11,808 | |||||||||||
Net income | $ | 17,391 | $ | 40,291 | $ | 42,416 | $ | 139,379 | ||||||||
Financial Ratios | ||||||||||||||||
Loss and LAE Ratio . . . . . . . . | 25.6 | % | 42.5 | % | 74.1 | % | 25.3 | % | ||||||||
Underwriting Expense Ratio | 45.6 | % | 23.5 | % | 44.9 | % | 32.9 | % | ||||||||
Combined Ratio | 71.2 | % | 66.0 | % | 119.0 | % | 58.2 | % | ||||||||
* | See Explanatory Notes on page 13. |
5 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Statutory Income Statements |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Statutory Balance Sheets* ($ Thousands)
December 31 2004 | December 31 2003 | |||||
Assets | ||||||
Long-term bonds | $ | 1,813,095 | $ | 1,662,554 | ||
Preferred stock | 29,485 | 32,252 | ||||
Common stock | 1,049 | 4,866 | ||||
Common stock of affiliates | 118,517 | 69,338 | ||||
Cash and short-term investments | 50,320 | 143,729 | ||||
Receivable for securities | — | 515 | ||||
Total Investments | 2,012,466 | 1,913,254 | ||||
Investment income due and accrued | 26,197 | 23,652 | ||||
Premiums receivable | 24,709 | 21,653 | ||||
Funds held by reinsured companies | 392 | 952 | ||||
Current federal income tax recoverable | — | 4,924 | ||||
Net deferred tax asset | 3,304 | 3,019 | ||||
Other assets | 2,934 | 2,317 | ||||
Total Assets | $ | 2,070,002 | $ | 1,969,771 | ||
Liabilities | ||||||
Contingency reserve | $ | 251,674 | $ | 321,312 | ||
Losses and loss adjustment expenses | 87,332 | 62,850 | ||||
Reinsurance payable on paid losses and loss adjustment expenses | 5,250 | 6,059 | ||||
Unearned premiums | 694,611 | 710,486 | ||||
Provision for reinsurance | 1 | 284 | ||||
Payable to affiliates | 5,598 | 25,350 | ||||
Payable for securities | — | 2,962 | ||||
Ceded reinsurance premiums payable | 1,412 | 1,742 | ||||
Federal and foreign income taxes payable | 3,011 | — | ||||
Accrued expenses and other liabilities | 17,365 | 15,652 | ||||
Total Liabilities | 1,066,254 | 1,146,697 | ||||
Policyholders’ Surplus | ||||||
Common stock | 15,000 | 15,000 | ||||
Additional paid-in capital | 593,214 | 528,214 | ||||
Unassigned funds | 395,534 | 279,860 | ||||
Total Policyholders’ Surplus | 1,003,748 | 823,074 | ||||
Total Liabilities and Policyholders’ Surplus | $ | 2,070,002 | $ | 1,969,771 | ||
Qualified Statutory Capital | $ | 1,255,422 | $ | 1,144,386 | ||
* | See Explanatory Notes on page 13. |
6 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Statutory Balance Sheets |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Gross Premiums Written by Product* ($ Thousands)
4th Qtr 2004 | 4th Qtr 2003 | Percent Change | YTD 2004 | YTD 2003 | Percent Change | |||||||||||||||
Public Finance Direct | $ | 16,408 | $ | 42,036 | –61.0 | % | $ | 52,279 | $ | 85,316 | –38.7 | % | ||||||||
Structured Finance Direct | 17,510 | 35,143 | –50.2 | % | 98,094 | 105,000 | –6.6 | % | ||||||||||||
Public Finance Reinsurance | 18,575 | 14,974 | 24.0 | % | 74,777 | 81,985 | –8.8 | % | ||||||||||||
Structured Finance Reinsurance | 8,133 | 10,477 | –22.4 | % | 31,740 | 49,863 | –36.3 | % | ||||||||||||
Trade Credit Reinsurance | 437 | (6,893 | ) | 106.3 | % | (2,854 | ) | 39,643 | –107.2 | % | ||||||||||
61,063 | 95,737 | –36.2 | % | 254,036 | 361,807 | –29.8 | % | |||||||||||||
Impact of Recapture | — | — | (96,417 | ) | — | |||||||||||||||
$ | 61,063 | $ | 95,737 | –36.2 | % | $ | 157,619 | $ | 361,807 | –56.4 | % | |||||||||
Total Claims-Paying Resources and Leverage Ratios*
($ Thousands except ratios)
December 31 2004 | December 31 2003 | Percent Change | |||||||
Capital and Surplus | $ | 1,003,748 | $ | 823,074 | 22 | % | |||
Contingency Reserve | 251,674 | 321,312 | –22 | % | |||||
Qualified Statutory Capital | 1,255,422 | 1,144,386 | 10 | % | |||||
Unearned Premium Reserve | 694,611 | 710,486 | –2 | % | |||||
Loss and Loss Expense Reserves | 87,332 | 62,850 | 39 | % | |||||
Total Policyholders’ Reserves | 2,037,365 | 1,917,722 | 6 | % | |||||
Present Value of Future Installment Premiums | 244,959 | 444,368 | –45 | % | |||||
Reinsurance and Soft Capital Facilities | 245,000 | 275,000 | –11 | % | |||||
Total Claims-Paying Resources. | $ | 2,527,324 | $ | 2,637,090 | –4 | % | |||
Net Debt Service | $ | 101,499,932 | $ | 117,817,484 | –14 | % | |||
Capital Leverage Ratio1 | 81:1 | 103:1 | |||||||
Claims-Paying Ratio2 | 40:1 | 45:1 |
* | See Explanatory Notes on page 13. |
1 | Capital Leverage Ratio: Net debt service/Qualified statutory capital. |
2 | Claims-Paying Ratio: Net debt service/Total claims-paying resources. |
7 | Quarterly Operating Supplement for the Period Ended December 31, 2004 / Gross Premiums /Total Claims-Paying Resources |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Investment Portfolio Highlights
Asset Quality
As of December 31, 2004, the book value of our investment portfolio was $2.0 billion, with an average duration of 5.3 years.
Asset Class
Our conservative portfolio is invested primarily in fixed-income securities. Our primary objective is to achieve total return, with a secondary objective of maximizing after-tax income.
8 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Investment Portfolio Highlights |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
Geographic Diversification
State | Net Par Outstanding (12/31/2004) | Percent of total Net Par | Net Par Outstanding (12/31/2003) | Percent of total Net Par | ||||||||
California | $ | 5,243 | 7.9 | % | $ | 6,255 | 8.1 | % | ||||
New York | 4,516 | 6.8 | % | 4,930 | 6.4 | % | ||||||
Texas | 3,375 | 5.1 | % | 3,727 | 4.9 | % | ||||||
Pennsylvania | 2,690 | 4.0 | % | 2,950 | 3.8 | % | ||||||
Florida | 2,623 | 3.9 | % | 3,132 | 4.1 | % | ||||||
Illinois | 2,589 | 3.9 | % | 2,702 | 3.5 | % | ||||||
Massachusetts | 1,709 | 2.6 | % | 2,235 | 2.9 | % | ||||||
New Jersey | 1,565 | 2.3 | % | 2,137 | 2.8 | % | ||||||
Washington | 1,208 | 1.8 | % | 1,354 | 1.8 | % | ||||||
Ohio | 1,153 | 1.7 | % | 1,179 | 1.5 | % | ||||||
Top ten states subtotal | 26,671 | 40.0 | % | 30,601 | 39.8 | % | ||||||
Total of other states | 17,789 | 26.7 | % | 20,000 | 26.0 | % | ||||||
Domestic structured finance | 17,489 | 26.2 | % | 19,782 | 25.7 | % | ||||||
International | 4,771 | 7.1 | % | 6,531 | 8.5 | % | ||||||
Total | $ | 66,720 | 100.0 | % | $ | 76,914 | 100.0 | % |
* | See Explanatory Notes on page 13. |
9 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Insured Portfolio Highlights |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
Sector Breakout
Public Finance | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | 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 | $ | 13,612 | 19.9 | % | $ | 13,586 | 20.3 | % | $ | 14,431 | 18.3 | % | $ | 14,387 | 18.7 | % | ||||||||
Healthcare | 8,191 | 11.9 | % | 8,191 | 12.3 | % | 8,874 | 11.2 | % | 8,874 | 11.5 | % | ||||||||||||
Utilities | 6,144 | 8.9 | % | 6,014 | 9.0 | % | 8,057 | 10.2 | % | 7,925 | 10.3 | % | ||||||||||||
Transportation | 5,059 | 7.4 | % | 5,059 | 7.6 | % | 7,214 | 9.1 | % | 7,213 | 9.4 | % | ||||||||||||
Tax Backed | 4,475 | 6.5 | % | 4,471 | 6.7 | % | 4,373 | 5.6 | % | 4,373 | 5.7 | % | ||||||||||||
Education | 3,601 | 5.3 | % | 3,601 | 5.4 | % | 3,818 | 4.8 | % | 3,818 | 5.0 | % | ||||||||||||
Investor Owned Utilities | 1,728 | 2.5 | % | 1,728 | 2.6 | % | 2,234 | 2.8 | % | 2,234 | 2.9 | % | ||||||||||||
Other Public Finance | 1,451 | 2.1 | % | 1,196 | 1.8 | % | 1,530 | 1.9 | % | 1,276 | 1.7 | % | ||||||||||||
Long Term Care | 1,126 | 1.6 | % | 1,126 | 1.7 | % | 1,149 | 1.5 | % | 1,149 | 1.5 | % | ||||||||||||
Housing | 693 | 1.0 | % | 694 | 1.0 | % | 1,376 | 1.8 | % | 1,376 | 1.8 | % | ||||||||||||
Second-To-Pay Municipal Wrap | 708 | 1.0 | % | 708 | 1.1 | % | 793 | 1.0 | % | �� | 793 | 1.0 | % | |||||||||||
Subtotal Public Finance | $ | 46,788 | 68.1 | % | $ | 46,374 | 69.5 | % | $ | 53,849 | 68.2 | % | $ | 53,418 | 69.5 | % |
Structured Finance | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | 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 | $ | 13,125 | 19.1 | % | $ | 13,125 | 19.7 | % | $ | 10,187 | 12.9 | % | $ | 10,187 | 13.2 | % | ||||||||
Asset Backed – Consumer | 2,728 | 4.0 | % | 2,728 | 4.1 | % | 7,060 | 8.9 | % | 7,060 | 9.2 | % | ||||||||||||
Asset Backed – Mortgage and MBS | 3,328 | 4.9 | % | 1,798 | 2.7 | % | 3,723 | 4.7 | % | 2,116 | 2.7 | % | ||||||||||||
Asset Backed – Commercial and Other | 1,783 | 2.6 | % | 1,783 | 2.7 | % | 3,153 | 4.0 | % | 3,153 | 4.1 | % | ||||||||||||
Other Structured Finance | 912 | 1.3 | % | 912 | 1.3 | % | 1,010 | 1.3 | % | 980 | 1.3 | % | ||||||||||||
Subtotal Structured Finance | $ | 21,876 | 31.9 | % | $ | 20,346 | 30.5 | % | $ | 25,133 | 31.8 | % | $ | 23,496 | 30.5 | % | ||||||||
Total | $ | 68,664 | 100.0 | % | $ | 66,720 | 100.0 | % | $ | 78,982 | 100.0 | % | $ | 76,914 | 100.0 | % |
Rating Distribution
Rating** | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | 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 | $ | 13,372 | 19.5 | % | $ | 11,850 | 17.8 | % | $ | 12,936 | 16.4 | % | $ | 11,372 | 14.8 | % | ||||||||
AA | 15,989 | 23.3 | % | 15,880 | 23.8 | % | 17,306 | 21.9 | % | 17,186 | 22.3 | % | ||||||||||||
A | 21,941 | 32.0 | % | 21,635 | 32.4 | % | 26,986 | 34.2 | % | 26,660 | 34.7 | % | ||||||||||||
BBB | 14,009 | 20.4 | % | 14,002 | 21.0 | % | 17,905 | 22.7 | % | 17,862 | 23.2 | % | ||||||||||||
Investment Grade | 422 | 0.6 | % | 422 | 0.6 | % | 600 | 0.7 | % | 600 | 0.8 | % | ||||||||||||
Below Investment Grade | 1,602 | 2.3 | % | 1,602 | 2.4 | % | 1,284 | 1.6 | % | 1,273 | 1.7 | % | ||||||||||||
Not Rated | 1,329 | 1.9 | % | 1,329 | 2.0 | % | 1,965 | 2.5 | % | 1,961 | 2.5 | % | ||||||||||||
Total | $ | 68,664 | 100.0 | % | $ | 66,720 | 100.0 | % | $ | 78,982 | 100.0 | % | $ | 76,914 | 100.0 | % |
* | See Explanatory Notes on page 13. |
** | Indicated category reflects highest rating of the three rating agencies. |
10 | Quarterly Operating Supplement for the Period Ended December 31, 2004 / Insured Portfolio Highlights |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Insured Portfolio Highlights* ($ Millions)
10 Largest Public Finance Exposures
Net Par Outstanding (12/31/2004) | Percent of total Net Par | Rating1 | ||||||
New York, New York GO | $ | 403 | 0.60 | % | A+ | |||
California State GO | 380 | 0.57 | % | A | ||||
Port Authority of New York & New Jersey | 348 | 0.52 | % | AA– | ||||
Long Island Power Authority New York | 317 | 0.48 | % | A– | ||||
Jefferson County Alabama Gas & Sewer | 288 | 0.43 | % | A | ||||
New York City Muni Water Finance | 284 | 0.43 | % | AA | ||||
Metropolitan Transportation Authority New York | 279 | 0.42 | % | A | ||||
Illinois State GO | 273 | 0.41 | % | AA | ||||
Houston Airport System | 262 | 0.39 | % | A1 | ||||
Chicago, Illinois GO | 251 | 0.38 | % | AA– | ||||
Total | $ | 3,085 | 4.63 | % |
10 Largest Structured Finance Exposures
Net Par Outstanding (12/31/2004) | Percent of total Net Par | Rating2 | ||||||
U.S. Static Synthetic Investment Grade CDO | $ | 450 | 0.67 | % | AAA | |||
U.S. Static Synthetic Investment Grade CDO | 407 | 0.61 | % | AAA | ||||
CDO of ABS | 390 | 0.58 | % | AA | ||||
U.S. Static Synthetic Investment Grade CDO | 381 | 0.57 | % | AAA | ||||
U.S. Static Synthetic Investment Grade CDO | 350 | 0.52 | % | BB+** | ||||
U.S. Static Synthetic Investment Grade CDO | 340 | 0.51 | % | AA | ||||
U.S. Static Synthetic Investment Grade CDO | 288 | 0.43 | % | AAA | ||||
U.S. Static Synthetic Investment Grade CDO | 285 | 0.43 | % | AA | ||||
U.S. Static Synthetic Investment Grade CDO | 250 | 0.38 | % | AAA | ||||
U.S. Static Synthetic Investment Grade CDO | 250 | 0.38 | % | AA | ||||
Total | $ | 3,391 | 5.08 | % |
* | See Explanatory Notes on page 13. |
** | 93% of Radian’s exposure to this transaction is at the AA or higher rating level. |
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. |
11 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Insured Portfolio Highlights |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
CDO Exposure* ($ Millions)
Total CDO Exposure
Net Par Outstanding (12/31/2004) | Percent of total CDO Net Par | Net Par Outstanding (12/31/2003) | Percent of total CDO Net Par | |||||||||
Direct | $ | 11,261 | 85.8 | % | $ | 7,720 | 75.8 | % | ||||
Assumed | 1,864 | 14.2 | % | 2,467 | 24.2 | % | ||||||
Total | $ | 13,125 | 100.0 | % | $ | 10,187 | 100.0 | % |
Total CDO Portfolio Rating Distribution
Net Par Outstanding (12/31/2004) | Percent of total CDO Net Par | Net Par Outstanding (12/31/2003) | Percent of total CDO Net Par | |||||||||
AAA | $ | 8,443 | 64.3 | % | $ | 6,149 | 60.4 | % | ||||
AA | 2,612 | 19.9 | % | 2,860 | 28.1 | % | ||||||
A | 790 | 6.0 | % | 607 | 6.0 | % | ||||||
BBB | 619 | 4.7 | % | 136 | 1.3 | % | ||||||
BIG | 521 | 4.0 | % | 122 | 1.2 | % | ||||||
Not Rated | 140 | 1.1 | % | 313 | 3.0 | % | ||||||
Total | $ | 13,125 | 100.0 | % | $ | 10,187 | 100.0 | % |
Direct CDO Underlying Asset Types
Net Par Outstanding (12/31/2004) | Percent of total CDO Net Par | Net Par Outstanding (12/31/2003) | Percent of total CDO Net Par | |||||||||
Corporates | $ | 10,282 | 91.3 | % | $ | 6,670 | 86.4 | % | ||||
ABS | 979 | 8.7 | % | 1,050 | 13.6 | % | ||||||
Total | $ | 11,261 | 100.0 | % | $ | 7,720 | 100.0 | % |
* | All direct CDO deals are synthetic. 84.9% of direct CDO net par outstanding is comprised of static deals for a total net par outstanding of $9,564 million as of 12/31/04. 15.1% of direct CDO net par outstanding is comprised of managed deals for a total net par outstanding of $1,697 million as of 12/31/04. |
12 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /CDO Exposure |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Explanatory Notes
1. Effective January 31, 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 this 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 Investor Services Inc. (“Moody’s”) provided the Company with an initial insurance financial strength rating of “Aa3.” Concurrently and in anticipation of the merger of Radian Reinsurance with and into the Company (which became effective June 1, 2004), Moody’s downgraded Radian Reinsurance’s 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 the downgrade of the Moody’s rating related to the financial guaranty reinsurance business conducted by Radian Reinsurance prior to the merger, two of the primary insurer customers of the financial guaranty reinsurance business had the right to recapture written business ceded to the Company. One of these customers agreed, without cost to or concessions by the Company, to waive its recapture rights. In November 2004, the other primary insurance customer with rights to recapture business previously ceded to Radian Reinsurance notified the Company of its intent to recapture effective, February 28, 2005, approximately $6.4 billion of par in force, including $50.6 million of written premiums as of December 31, 2004. In addition, the Company would be reimbursed for policy acquisition costs of approximately $15.7 million. The aggregate result would be an increase in pre-tax income of $15.7 million on a statutory basis. Despite the recapture, the primary insurer customer also informally advised the Company that, going forward, the customer intends to continue its reinsurance relationship with the Company on the same terms as before the May 2004 downgrade. In March of 2005, without cost to or concessions by the Company, the customer waived its remaining right to recapture $5.2 billion of additional par in force that it had ceded to the Company as of December 31, 2004.
3. Gross and net written premiums for the twelve months ended December 31, 2004 decreased $204 million and $200 million, respectively, compared to the same period of 2003. These decreases were primarily the result of the recapture of $96 million of previously written premiums in the first quarter of 2004, and a $42 million reduction in trade credit premiums resulting from the Company novating business to affiliates. In addition, a decrease in new issue volume, competition from other financial guaranty companies and a tightening credit-spread environment also contributed to the reduction in written premiums.
4. Premiums earned for the twelve months of 2004 were $170 million versus $246 million for the same period of 2003, a decline of $76 million. This decline is primarily due to the novation of the trade credit business to affiliates and reduced net premiums written in the financial guaranty business.
5. Loss and loss adjustment expenses incurred for the twelve months ended December 31, 2004 were $63 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. For the twelve months of 2004, commission expenses were $53 million lower than the same period of 2003. The January 31, 2004 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 $70 million to $252 million at December 31, 2004 compared to December 31, 2003 primarily as a result of the January 31, 2004 recapture.
8. Loss and loss adjustment expense reserves increased by $24 million to $87 million at December 31, 2004 compared to December 31, 2003 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 $84 million of loss payments and by a $17 million reduction in trade credit loss reserves novated by the Company to affiliates.
9. Unearned premiums were $16 million lower at December 31, 2004 compared to December 31, 2003 as a result of the January 31, 2004 recapture of financial guaranty business by one of the Company’s primary insurers which was partially offset by increases in public finance reinsurance, public finance direct and structured finance direct writings.
10. Additional paid-in capital increased $65 million from December 31, 2003, as the result of a capital contribution from the Company’s ultimate parent, Radian Group Inc., related to the manufactured housing transaction for which the $111 million reserve was established.
11. Investment in common stock of affiliates increased $49 million at December 31, 2004 compared to December 31, 2003 primarily as a result of the capitalization of Radian Financial Products Limited, the Company’s 100% owned United Kingdom based Securities and Futures Company.
13 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Explanatory Notes |
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Management Team
Martin A. Kamarck
President
David J. Beidler
Senior Vice President, Deputy Chief, Financial Guaranty
Sally B. Campbell
Senior Vice President, Public Finance
Stephen D. Cooke
Executive Vice President, Chief Legal Officer
John C. DeLuca
Senior Vice President, Market Development
Bonita Z. Dorland
Executive Vice President, Chief Underwriting Officer
Paul C. Larsen
Senior Vice President, Head of Surveillance and Risk Management
Anna M. Laudon
Senior Vice President, Managing Director of Asset Backed Securities
Mark Mylon
Senior Vice President, Executive Managing Director of Structured Products
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
Senior Vice President, Managing Director of Financial Products
14 | Quarterly Operating Supplement for the Period Ended December 31, 2004 /Management Team |
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 most recently filed annual report on Form 10-K 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.
15 | Quarterly Operating Supplement for the Period Ended December 31, 2004 / Safe Harbor Statement |