Exhibit 99.1
Quarterly Operating Supplement Fourth Quarter 2005 |
Quarterly Operating Supplement
Table of Contents
Page | ||
Introductory Note | 2 | |
Company Profile | 2 | |
Company Information | 2 | |
Consolidated GAAP Income Statements | 3 | |
Consolidated GAAP Balance Sheets | 4 | |
Statutory Information | 5 | |
Total Claims-Paying Resources and Leverage Ratios | 5 | |
Consolidated Gross Premiums Written by Product | 6 | |
Consolidated Net Premiums Earned by Product | 6 | |
Consolidated Net Unearned Premium Amortization and Estimated Future Installment Premiums | 6 | |
Consolidated Selected Loss Information | 7 | |
Consolidated Selected Derivative Information | 8 | |
Consolidated Investment Portfolio Highlights | 9 | |
Consolidated Insured Portfolio Highlights | 10 | |
Consolidated CDO Exposure | 14 | |
Consolidated Explanatory Notes | 15 | |
Safe Harbor Statement | 16 |
Quarterly Operating Supplement for the Period Ended Dec 31, 2005 /Table of Contents
1
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Quarterly Operating Supplement
December 31, 2005
Introductory Note
This operating supplement presents financial information for Radian Asset Assurance Inc. and its consolidated subsidiaries on a GAAP basis, and includes selected information prepared on a statutory accounting basis. The financial information for Radian Asset Assurance Inc. contained in operating supplements prior to the Second Quarter 2005 was prepared on a statutory accounting basis.
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, 2004.
Company Profile
Radian Asset Assurance Inc., founded in 1985 and rated AA by Standard & Poor’s, a division of The McGraw-Hill Companies (“S&P”) and Fitch Ratings and Aa3 by Moody’s Investor Services (“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. also is a leading provider of reinsurance to the major monoline financial guarantors. In addition Radian Asset Assurance Inc. provides trade credit reinsurance.
Radian Asset Assurance Inc. is a subsidiary of Radian Group Inc. (NYSE: RDN), a global credit risk management company headquartered in Philadelphia with significant operations in both New York and London.
Company Information
Radian Asset Assurance Inc. | Contact: | |
335 Madison Avenue | John C. DeLuca | |
New York, New York 10017 | Senior Vice President, Public Finance - Marketing | |
1 877 337.4925 (within the U.S.) | 1 212 984.9222 | |
1 212 983.3100 | john.deluca@radian.biz |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Introductory Note / Company Profile / Company Information
2
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated GAAP Income Statements* ($ Thousands)
(Unaudited)
Quarter ended | Twelve months ended | |||||||||||||||
December 31 2005 | December 31 2004 | December 31 2005 | December 31 2004 | |||||||||||||
Revenues | ||||||||||||||||
Gross premiums written | $ | 67,703 | $ | 72,638 | $ | 222,944 | $ | 212,433 | ||||||||
Ceded premiums written | (306 | ) | (591 | ) | (3,363 | ) | (3,874 | ) | ||||||||
Net premiums written | 67,397 | 72,047 | 219,581 | 208,559 | ||||||||||||
Increase in deferred premium revenue | 16,198 | 13,640 | 13,458 | 3,949 | ||||||||||||
Premiums earned | 51,199 | 58,407 | 206,123 | 204,610 | ||||||||||||
Net investment income | 22,303 | 21,122 | 87,497 | 83,914 | ||||||||||||
Gains on sale of investments | 4,198 | 1,277 | 12,350 | 8,265 | ||||||||||||
Change in fair value of derivative instruments | (33,323 | ) | 27,265 | 6,053 | 34,253 | |||||||||||
Total revenues | 44,377 | 108,071 | 312,023 | 331,042 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses | 6,075 | 9,521 | 31,445 | 51,575 | ||||||||||||
Policy acquisition costs | 13,167 | 13,323 | 52,354 | 43,234 | ||||||||||||
Other operating expenses | 18,928 | 15,139 | 65,919 | 50,114 | ||||||||||||
Other expense | 4,031 | 2,049 | 14,035 | 9,870 | ||||||||||||
Total expenses | 42,201 | 40,032 | 163,753 | 154,793 | ||||||||||||
Income before income taxes | 2,176 | 68,039 | 148,270 | 176,249 | ||||||||||||
Income tax (benefit) expense | (3,463 | ) | 19,438 | 32,556 | 43,798 | |||||||||||
Net income | $ | 5,639 | $ | 48,601 | $ | 115,714 | $ | 132,451 | ||||||||
* | See Consolidated Explanatory Notes on page 15. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 / Consolidated GAAP Income Statements
3
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated GAAP Balance Sheets* ($ Thousands)**
(Unaudited)
December 31 2005 | December 31 2004 | |||||
Assets | ||||||
Investments: | ||||||
Fixed maturities, available for sale, at fair value (amortized cost $1,934,133 and $1,929,921) | $ | 1,987,565 | $ | 2,008,416 | ||
Trading securities, at fair value (cost $17,318 and $16,848) | 23,264 | 22,436 | ||||
Common stock, at fair value (cost $931 and $931) | 1,164 | 1,049 | ||||
Short-term investments | 101,691 | 112,452 | ||||
Total Investments | 2,113,684 | 2,144,353 | ||||
Cash and cash equivalents | 5,925 | 14,017 | ||||
Premiums and other receivables | 39,824 | 49,638 | ||||
Accrued interest and dividends receivable | 26,372 | 28,211 | ||||
Deferred policy acquisition costs | 140,658 | 141,944 | ||||
Prepaid reinsurance premiums | 1,546 | 1,846 | ||||
Credit derivatives | 23,385 | 25,309 | ||||
Reinsurance recoverable on unpaid losses | 2,699 | 2,235 | ||||
Prepaid federal income taxes | 14,995 | 10,978 | ||||
Federal income tax recoverable | 3,163 | — | ||||
Other assets | 10,954 | 12,368 | ||||
Total Assets | $ | 2,383,205 | $ | 2,430,899 | ||
Liabilities and Shareholder’s Equity | ||||||
Liabilities | ||||||
Losses and loss adjustment expenses | $ | 186,425 | $ | 216,202 | ||
Reinsurance payable on paid losses and loss adjustment expenses | 6,142 | 6,417 | ||||
Deferred premium revenue | 634,424 | 623,677 | ||||
Deferred federal income taxes | 66,231 | 75,926 | ||||
Payable to affiliates | 8,065 | 9,686 | ||||
Federal income taxes payable | — | 5,943 | ||||
Accrued expenses and other liabilities | 21,439 | 20,682 | ||||
Total Liabilities | 922,726 | 958,533 | ||||
Shareholder’s Equity | ||||||
Common stock – $150 par value | ||||||
Authorized, issued and outstanding – 100,000 shares | 15,000 | 15,000 | ||||
Additional paid-in capital | 590,579 | 590,579 | ||||
Retained earnings | 817,708 | 801,994 | ||||
Accumulated other comprehensive income | 37,192 | 64,793 | ||||
Total Shareholder’s Equity | 1,460,479 | 1,472,366 | ||||
Total Liabilities and Shareholder’s Equity | $ | 2,383,205 | $ | 2,430,899 | ||
* | See Consolidated Explanatory Notes on page 15. |
** | Except share amounts. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated GAAP Balance Sheets
4
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Statutory Information* ($ Thousands except ratios)
Quarter ended | Percent Change | Twelve months ended | Percent Change | |||||||||||||||
December 31 2005 | December 31 2004 | December 31 2005 | December 31 2004 | |||||||||||||||
Statutory Net Income | $ | 27,423 | $ | 17,391 | 57.7 | % | $ | 116,988 | $ | 42,416 | 175.8 | % | ||||||
Statutory Ratios |
Quarter ended | Twelve months ended | |||||||||||
December 31 2005 | December 31 2004 | December 31 2005 | December 31 2004 | |||||||||
Loss and Loss Adjustment Expense Ratio | 0.0 | % | 25.6 | % | –1.0 | % | 74.1 | % | ||||
Underwriting Expense Ratio | 43.1 | % | 45.6 | % | 47.9 | % | 44.9 | % | ||||
Combined Ratio | 43.1 | % | 71.2 | % | 46.9 | % | 119.0 | % | ||||
Total Claims-Paying Resources and Leverage Ratios*
($ Thousands except ratios)
December 31 2005 | December 31 2004 | |||||
Capital and Surplus | $ | 994,487 | $ | 1,003,748 | ||
Contingency Reserve | 271,907 | 251,674 | ||||
Qualified Statutory Capital | 1,266,394 | 1,255,422 | ||||
Unearned Premium Reserve | 732,092 | 694,611 | ||||
Loss and Loss Expense Reserves | 58,627 | 87,332 | ||||
Total Policyholders’ Reserves | 2,057,113 | 2,037,365 | ||||
Present Value of Future Installment Premiums | 300,038 | 251,242 | ||||
Reinsurance and Soft Capital Facilities | 150,000 | 245,000 | ||||
Total Claims-Paying Resources | $ | 2,507,151 | $ | 2,533,607 | ||
Net Debt Service (Principal and Interest) Outstanding | $ | 110,168,629 | $ | 101,499,932 | ||
Capital Leverage Ratio1 | 87:1 | 81:1 | ||||
Claims-Paying Ratio2 | 44:1 | 40:1 |
* | See Consolidated Explanatory Notes on page 15. |
1 | Capital Leverage Ratio: Net debt service/Qualified statutory capital. |
2 | Claims-Paying Ratio: Net debt service/Total claims-paying resources. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Statutory Information / Total Claims-Paying Resources
5
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Gross Premiums Written by Product* ($ Thousands)
Quarter ended | Twelve months ended | |||||||||||||||||||
December 31 2005 | December 31 2004 | Percent Change | December 31 2005 | December 31 2004 | Percent Change | |||||||||||||||
Public Finance Direct | $ | 21,860 | $ | 16,408 | 33.2 | % | $ | 73,146 | $ | 52,279 | 39.9 | % | ||||||||
Structured Finance Direct | 18,951 | 18,124 | 4.6 | % | 71,559 | 97,177 | –26.4 | % | ||||||||||||
Public Finance Reinsurance | 16,443 | 18,575 | –11.5 | % | 77,797 | 74,777 | 4.0 | % | ||||||||||||
Structured Finance Reinsurance | 4,294 | 8,299 | –48.3 | % | 20,649 | 32,112 | –35.7 | % | ||||||||||||
Trade Credit Reinsurance | 6,155 | 11,232 | –45.2 | % | 34,535 | 52,505 | –34.2 | % | ||||||||||||
67,703 | 72,638 | –6.8 | % | 277,686 | 308,850 | –10.1 | % | |||||||||||||
Impact of Recapture | — | — | (54,742 | ) | (96,417 | ) | 43.2 | % | ||||||||||||
$ | 67,703 | $ | 72,638 | –6.8 | % | $ | 222,944 | $ | 212,433 | 4.9 | % | |||||||||
Consolidated Net Premiums Earned by Product* ($ Thousands)
Quarter ended | Twelve months ended | |||||||||||||||||||
December 31 2005 | December 31 2004 | Percent Change | December 31 2005 | December 31 2004 | Percent Change | |||||||||||||||
Public Finance Direct | $ | 7,866 | $ | 7,127 | 10.4 | % | $ | 32,533 | $ | 26,643 | 22.1 | % | ||||||||
Structured Finance Direct | 22,310 | 20,700 | 7.8 | % | 79,408 | 78,091 | 1.7 | % | ||||||||||||
Public Finance Reinsurance | 8,752 | 10,841 | –19.3 | % | 34,413 | 41,651 | –17.4 | % | ||||||||||||
Structured Finance Reinsurance | 4,877 | 8,053 | –39.4 | % | 20,440 | 33,001 | –38.1 | % | ||||||||||||
Trade Credit Reinsurance | 7,394 | 11,686 | –36.7 | % | 43,868 | 50,116 | –12.5 | % | ||||||||||||
51,199 | 58,407 | –12.3 | % | 210,662 | 229,502 | –8.2 | % | |||||||||||||
Impact of Recapture | — | — | (4,539 | ) | (24,892 | ) | 81.8 | % | ||||||||||||
$ | 51,199 | $ | 58,407 | –12.3 | % | $ | 206,123 | $ | 204,610 | 0.7 | % | |||||||||
Consolidated Net Unearned Premium Amortization and Estimated Future Installment Premiums**
As of December 31, 2005
($ Millions)
Ending Net Unearned Premiums | Unearned Premium Amortization | Future Installments | Total Premium Earnings | |||||||||
2006 | $ | 533.3 | $ | 99.6 | $ | 64.1 | $ | 163.7 | ||||
2007 | 472.0 | 61.3 | 64.2 | 125.5 | ||||||||
2008 | 419.6 | 52.4 | 47.3 | 99.7 | ||||||||
2009 | 377.6 | 42.0 | 38.0 | 80.0 | ||||||||
2010 | 342.0 | 35.6 | 27.2 | 62.8 | ||||||||
2006 – 2010 | 342.0 | 290.9 | 240.8 | 531.7 | ||||||||
2011 – 2015 | 196.6 | 145.4 | 64.5 | 209.9 | ||||||||
2016 – 2020 | 97.2 | 99.4 | 16.8 | 116.2 | ||||||||
2021 – 2025 | 37.0 | 60.2 | 11.4 | 71.6 | ||||||||
After 2025 | 0.0 | 37.0 | 14.9 | 51.9 | ||||||||
Total | — | $ | 632.9 | $ | 348.4 | $ | 981.3 |
* | See Consolidated Explanatory Notes on page 15. |
** | This table depicts the expected amortization of the unearned premium for the existing financial guaranty portfolio, assuming no advance refundings as of December 31, 2005. Expected maturities will differ from contractual maturities because borrowers have the right to call or repay financial guaranty obligations. Unearned premium amounts are net of prepaid reinsurance. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Consolidated: Gross Premiums Written / Net Premiums Earned / Net Unearned Premium
6
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Selected Loss Information*
($ Thousands)
Components of Claims Paid and Incurred Losses and Loss Adjustment Expenses
Quarter ended | Twelve months ended | ||||||||||||
December 31 2005 | December 31 2004 | December 31 2005 | December 31 2004 | ||||||||||
Claims Paid | |||||||||||||
Trade Credit | $ | 6,183 | $ | 4,962 | $ | 19,284 | $ | 33,125 | |||||
Financial Guaranty | (1,944 | ) | 2,598 | 9,340 | 26,488 | ||||||||
Conseco Finance Corp | 6,181 | 7,350 | 29,574 | 30,657 | |||||||||
10,420 | 14,910 | 58,198 | 90,270 | ||||||||||
Impact of Recapture | — | — | — | 7,488 | |||||||||
Total | $ | 10,420 | $ | 14,910 | $ | 58,198 | $ | 97,758 | |||||
Incurred Losses and Loss Adjustment Expenses | |||||||||||||
Trade Credit | $ | 2,209 | $ | 3,944 | $ | 15,947 | $ | 24,263 | |||||
Financial Guaranty | 3,866 | 5,577 | 15,498 | 27,312 | |||||||||
Total | $ | 6,075 | $ | 9,521 | $ | 31,445 | $ | 51,575 | |||||
Components of Losses and Loss Adjustment Expense Reserves
December 31 2005 | December 31 2004 | |||||
Financial Guaranty | ||||||
Case | $ | 53,928 | $ | 91,905 | ||
Allocated non-specific | 27,750 | 9,750 | ||||
Unallocated non-specific | 54,878 | 56,748 | ||||
136,556 | 158,403 | |||||
Trade Credit and Other | ||||||
Case | 19,051 | 26,587 | ||||
IBNR | 30,818 | 31,212 | ||||
49,869 | 57,799 | |||||
Total | $ | 186,425 | $ | 216,202 | ||
* | See Consolidated Explanatory Notes on page 15. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Consolidated Selected Loss Information
7
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Selected Derivative Information
($ Millions)
December 31 2005 | December 31 2004 | |||||||
Notional value | $ | 22,724.8 | $ | 12,470.6 | ||||
Gross unrealized gains | $ | 95.5 | $ | 74.9 | ||||
Gross unrealized losses | 72.1 | 49.6 | ||||||
Net gains | $ | 23.4 | $ | 25.3 | ||||
Balance at January 1 | $ | 25.3 | $ | (16.1 | ) | |||
Net unrealized gains recorded | 5.7 | 29.7 | ||||||
Settlements of derivatives contracts: | ||||||||
Defaults | ||||||||
Recoveries | (7.7 | ) | (4.0 | ) | ||||
Payments | 0.1 | 18.6 | ||||||
Early termination receipts | — | (2.9 | ) | |||||
Balance at end of period | $ | 23.4 | $ | 25.3 | ||||
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Consolidated Selected Derivative Information
8
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Investment Portfolio Highlights
Asset Quality
As of December 31, 2005, the book value of our investment portfolio was $2.1 billion, with an average duration of 5.8 years.
Asset Class
Our conservative portfolio is invested primarily in fixed-income securities. Our primary objective is to achieve total return, with a secondary objective of maximizing after-tax income.
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated Investment Portfolio Highlights
9
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ | Millions) |
Geographic Diversification
State | Net Par Outstanding (12/31/2005) | Percent of total Net Par | Net Par Outstanding (12/31/2004) | Percent of total Net Par | ||||||||
California | $ | 5,182 | 6.8 | % | $ | 5,243 | 7.9 | % | ||||
New York | 4,835 | 6.3 | % | 4,516 | 6.8 | % | ||||||
Texas | 3,625 | 4.7 | % | 3,375 | 5.1 | % | ||||||
Pennsylvania | 2,907 | 3.8 | % | 2,690 | 4.0 | % | ||||||
Florida | 2,681 | 3.5 | % | 2,623 | 3.9 | % | ||||||
Illinois | 2,654 | 3.5 | % | 2,589 | 3.9 | % | ||||||
Massachusetts | 2,178 | 2.8 | % | 1,709 | 2.6 | % | ||||||
New Jersey | 1,994 | 2.6 | % | 1,565 | 2.3 | % | ||||||
Washington | 1,549 | 2.0 | % | 1,208 | 1.8 | % | ||||||
Colorado | 1,165 | 1.5 | % | 1,142 | 1.7 | % | ||||||
Top ten states – public finance subtotal | 28,770 | 37.5 | % | 26,660 | 40.0 | % | ||||||
Total of other states – public finance | 16,960 | 22.2 | % | 17,800 | 26.7 | % | ||||||
Domestic structured finance | 24,595 | 32.1 | % | 17,520 | 26.2 | % | ||||||
International | 6,249 | 8.2 | % | 4,771 | 7.1 | % | ||||||
Total | $ | 76,574 | 100.0 | % | $ | 66,751 | 100.0 | % |
* | See Consolidated Explanatory Notes on page 15. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated Insured Portfolio Highlights
10
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Sector Breakout
Public Finance | Gross Par Outstanding (12/31/2005) | Percent of total Gross Par | Net Par Outstanding (12/31/2005) | Percent of total Net Par | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | Percent of total Net Par | ||||||||||||||||
General Obligations | $ | 15,179 | 19.4 | % | $ | 15,160 | 19.8 | % | $ | 13,612 | 19.8 | % | $ | 13,586 | 20.3 | % | ||||||||
Healthcare | 8,727 | 11.2 | % | 8,727 | 11.4 | % | 8,191 | 11.9 | % | 8,191 | 12.3 | % | ||||||||||||
Utilities | 5,798 | 7.4 | % | 5,686 | 7.4 | % | 6,144 | 9.0 | % | 6,014 | 9.0 | % | ||||||||||||
Transportation | 4,739 | 6.1 | % | 4,739 | 6.2 | % | 5,059 | 7.4 | % | 5,059 | 7.6 | % | ||||||||||||
Tax Backed | 4,543 | 5.8 | % | 4,540 | 5.9 | % | 4,475 | 6.5 | % | 4,471 | 6.7 | % | ||||||||||||
Education | 3,513 | 4.5 | % | 3,513 | 4.6 | % | 3,601 | 5.3 | % | 3,601 | 5.4 | % | ||||||||||||
Investor Owned Utilities | 1,819 | 2.3 | % | 1,690 | 2.2 | % | 1,728 | 2.5 | % | 1,728 | 2.6 | % | ||||||||||||
Long Term Care | 1,292 | 1.6 | % | 1,292 | 1.7 | % | 1,126 | 1.6 | % | 1,126 | 1.7 | % | ||||||||||||
Other Public Finance | 1,106 | 1.4 | % | 851 | 1.1 | % | 1,451 | 2.1 | % | 1,196 | 1.8 | % | ||||||||||||
Housing | 618 | 0.8 | % | 618 | 0.8 | % | 693 | 1.0 | % | 694 | 1.0 | % | ||||||||||||
Second-To-Pay Municipal Wrap | 427 | 0.5 | % | 427 | 0.6 | % | 708 | 1.0 | % | 708 | 1.1 | % | ||||||||||||
Subtotal Public Finance | $ | 47,761 | 61.0 | % | $ | 47,243 | 61.7 | % | $ | 46,788 | 68.1 | % | $ | 46,374 | 69.5 | % |
Structured Finance | Gross Par Outstanding (12/31/2005) | Percent of total Gross Par | Net Par Outstanding (12/31/2005) | Percent of total Net Par | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | Percent of total Net Par | ||||||||||||||||
Collateralized Debt Obligations | $ | 22,736 | 29.1 | % | $ | 22,736 | 29.7 | % | $ | 13,156 | 19.2 | % | $ | 13,156 | 19.7 | % | ||||||||
Asset Backed - Commercial and Other | 1,784 | 2.3 | % | 1,784 | 2.3 | % | 1,783 | 2.6 | % | 1,783 | 2.7 | % | ||||||||||||
Asset Backed - Consumer | 1,714 | 2.2 | % | 1,714 | 2.2 | % | 2,728 | 4.0 | % | 2,728 | 4.1 | % | ||||||||||||
Asset Backed - Mortgage and MBS | 2,448 | 3.1 | % | 1,287 | 1.7 | % | 3,328 | 4.8 | % | 1,798 | 2.7 | % | ||||||||||||
Other Structured Finance | 1,810 | 2.3 | % | 1,810 | 2.4 | % | 912 | 1.3 | % | 912 | 1.3 | % | ||||||||||||
Subtotal Structured Finance | 30,492 | 39.0 | % | 29,331 | 38.3 | % | 21,907 | 31.9 | % | 20,377 | 30.5 | % | ||||||||||||
Total | $ | 78,253 | 100.0 | % | $ | 76,574 | 100.0 | % | $ | 68,695 | 100.0 | % | $ | 66,751 | 100.0 | % |
Rating Distribution
Rating** | Gross Par Outstanding (12/31/2005) | Percent of total Gross Par | Net Par Outstanding (12/31/2005) | Percent of total Net Par | Gross Par Outstanding (12/31/2004) | Percent of total Gross Par | Net Par Outstanding (12/31/2004) | Percent of total Net Par | ||||||||||||||||
AAA | $ | 23,825 | 30.4 | % | $ | 22,535 | 29.5 | % | $ | 13,403 | 19.5 | % | $ | 11,881 | 17.8 | % | ||||||||
AA | 16,480 | 21.1 | % | 16,391 | 21.4 | % | 15,989 | 23.3 | % | 15,880 | 23.8 | % | ||||||||||||
A | 19,624 | 25.1 | % | 19,324 | 25.2 | % | 21,941 | 32.0 | % | 21,635 | 32.4 | % | ||||||||||||
BBB | 15,350 | 19.6 | % | 15,350 | 20.0 | % | 14,009 | 20.4 | % | 14,002 | 21.0 | % | ||||||||||||
Investment Grade | 584 | 0.7 | % | 584 | 0.8 | % | 422 | 0.6 | % | 422 | 0.6 | % | ||||||||||||
Below Investment Grade | 1,454 | 1.9 | % | 1,454 | 1.9 | % | 1,602 | 2.3 | % | 1,602 | 2.4 | % | ||||||||||||
Not Rated | 936 | 1.2 | % | 936 | 1.2 | % | 1,329 | 1.9 | % | 1,329 | 2.0 | % | ||||||||||||
Total | $ | 78,253 | 100.0 | % | $ | 76,574 | 100.0 | % | $ | 68,695 | 100.0 | % | $ | 66,751 | 100.0 | % |
* | See Consolidated Explanatory Notes on page 15. |
** | Indicated category reflects highest rating of the three rating agencies. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated Insured Portfolio Highlights
11
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
10 Largest Public Finance Exposures
Net Par Outstanding (12/31/2005) | Percent of total Net Par | Rating 1 | ||||||
New York, New York GO | $ | 656 | 0.9 | % | A+ | |||
California State GO | 545 | 0.7 | % | A | ||||
Port Authority Of New York & New Jersey | 474 | 0.6 | % | AA- | ||||
Chicago, City Of | 405 | 0.5 | % | AA- | ||||
Massachusetts State GO | 340 | 0.4 | % | AA | ||||
New York City Muni Water Finance | 307 | 0.4 | % | AA+ | ||||
Long Island Power Authority New York | 305 | 0.4 | % | A- | ||||
Metropolitan Transportation Authority New York | 289 | 0.4 | % | A | ||||
Jefferson County Alabama Gas & Sewer | 275 | 0.4 | % | A3 | ||||
Illinois State GO | 272 | 0.4 | % | AA | ||||
Total | $ | 3,868 | 5.1 | % |
12 Largest Structured Finance Exposures**
Net Par Outstanding (12/31/2005) | Percent of total Net Par | Rating 2 | ||||||
US Static Synthetic Investment Grade CDO | $ | 450 | 0.6 | % | AAA | |||
US Static Synthetic Investment Grade CDO | 450 | 0.6 | % | AAA | ||||
UK Static Synthetic Investment Grade CDO | 450 | 0.6 | % | AAA | ||||
Second to Pay CDO Wrap | 450 | 0.6 | % | AAA | ||||
US Static Synthetic Investment Grade CDO | 416 | 0.6 | % | AAA | ||||
US Static Synthetic Investment Grade CDO | 416 | 0.6 | % | AAA | ||||
UK Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
US Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
US Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
UK Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
US Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
Global Static Synthetic Investment Grade CDO | 400 | 0.5 | % | AAA | ||||
Total | $ | 5,032 | 6.6 | % |
* | See Consolidated Explanatory Notes on page 15. |
** | Country designation refers to underlying collateral. |
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. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated Insured Portfolio Highlights
12
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Net Debt Service Amortization
Scheduled as of December 31, 2005 | Ending Net Debt Service | |||||
2006 | $ | 5,848 | $ | 104,418 | ||
2007 | 7,299 | 97,119 | ||||
2008 | 6,269 | 90,850 | ||||
2009 | 8,300 | 82,550 | ||||
2010 | 8,751 | 73,799 | ||||
2011-2015 | 26,373 | 47,426 | ||||
2016-2020 | 17,685 | 29,741 | ||||
2021-2025 | 13,362 | 16,379 | ||||
After 2025 | 16,379 | — | ||||
Total | $ | 110,266 |
* | See Consolidated Explanatory Notes on page 15. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated Insured Portfolio Highlights
13
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated CDO Exposure*($ Millions)
Total CDO Exposure
Net Par Outstanding (12/31/2005) | Percent of Total CDO Net Par | Net Par Outstanding (12/31/2004) | Percent of Total CDO Net Par | |||||||||
Direct | $ | 21,442 | 94.3 | % | $ | 11,704 | 89.0 | % | ||||
Assumed | 1,294 | 5.7 | % | 1,452 | 11.0 | % | ||||||
Total | $ | 22,736 | 100.0 | % | $ | 13,156 | 100.0 | % |
Total CDO Portfolio Rating Distribution
Net Par Outstanding (12/31/2005) | Percent of Total CDO Net Par | Net Par Outstanding (12/31/2004) | Percent of Total CDO Net Par | |||||||||
AAA | $ | 18,267 | 80.3 | % | $ | 8,474 | 64.4 | % | ||||
AA | 2,470 | 10.9 | % | 2,612 | 19.9 | % | ||||||
A | 604 | 2.7 | % | 790 | 6.0 | % | ||||||
BBB | 982 | 4.3 | % | 619 | 4.7 | % | ||||||
Below Investment Grade | 413 | 1.8 | % | 521 | 4.0 | % | ||||||
Not Rated | — | — | 140 | 1.0 | % | |||||||
Total | $ | 22,736 | 100.0 | % | $ | 13,156 | 100.0 | % |
Direct CDO Underlying Asset Types
Net Par Outstanding (12/31/2005) | Percent of Total CDO Net Par | Net Par Outstanding (12/31/2004) | Percent of Total CDO Net Par | |||||||||
Corporates | $ | 20,019 | 93.4 | % | $ | 10,577 | 90.4 | % | ||||
ABS | 1,423 | 6.6 | % | 1,127 | 9.6 | % | ||||||
Total | $ | 21,442 | 100.0 | % | $ | 11,704 | 100.0 | % |
* | All direct CDO deals are synthetic. $18,558 million of direct CDO net par outstanding, representing 86.6% of net par outstanding, was comprised of static deals as of 12/31/05. $2,883 million of direct CDO net par outstanding, representing 13.4% of net par outstanding, was comprised of managed deals as of 12/31/05. |
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005/ Consolidated CDO Exposure
14
Quarterly Operating Supplement
Radian Asset Assurance Inc.
Consolidated Explanatory Notes
1. The accompanying unaudited GAAP financial information includes the accounts of Radian Asset Assurance Inc. (the “Company” or “Radian Asset”), Radian Asset Assurance Limited, Radian Financial Products Limited, Van-American Companies, Inc. and Asset Recovery Solutions.
These unaudited consolidated financial statements do not include all of the information and disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the most recently available audited consolidated financial statements for the Company and notes thereto, including the Report of Independent Registered Public Accounting Firm for the Company, which are available on Radian’s website at www.radian.biz.
2. In May 2004, Moody’s provided Radian Asset with an initial insurance financial strength rating of Aa3. Concurrently, and in anticipation of the merger of Radian Reinsurance with and into Radian Asset, Moody’s downgraded the insurance financial strength rating of Radian Reinsurance from Aa2 to Aa3. As a result of this downgrade, two of the primary insurer customers had the right to recapture previously written business ceded to Radian Reinsurance. One of these customers agreed, without cost to or concessions by the Company, to waive its recapture rights. Effective February 28, 2005, the remaining primary insurer customer with recapture rights recaptured approximately $7.4 billion of par in-force that it had ceded to Radian Reinsurance, including $54.7 million of premiums written through the recapture date, $4.5 million of which already had been treated as earned under GAAP and was required to be recorded as an immediate reduction of earned premium at the time of recapture. Also, in connection with the recapture in the first quarter of 2005, the Company was reimbursed for policy acquisition costs of approximately $17.1 million for which the carrying value under GAAP was $18.8 million. This required the Company to write-off policy acquisition costs of $1.7 million. The aggregate result of the recapture was a reduction in pre-tax income of $6.2 million. In March 2005, without cost to or concessions by the Company, this customer waived its remaining right to recapture an additional $5.2 billion of par in force that it had ceded to the Company through December 31, 2004.
In October 2002, S&P downgraded the insurance financial strength rating of Radian Reinsurance, before its merger with and into Radian Asset from AAA to AA. As a result of this downgrade, effective January 31, 2004, one of the primary insurer customers of Radian Reinsurance exercised its right to recapture approximately $16.4 billion of par in force, including $96.4 million of written premiums with a GAAP carrying value of approximately $71.5 million. The entire impact of this recapture was reflected as a reduction of written premiums in the first quarter of 2004. Because the Company, in accordance with GAAP, already had reflected $24.9 million of these recaptured written premiums as having been earned, the Company was required to record the entire $24.9 million reduction in earned premiums in the first quarter of 2004. Also, in connection with the recapture in the first quarter of 2004, the Company was reimbursed for policy acquisition costs of approximately $31.0 million for which the carrying value under GAAP was $21.3 million. In addition, the Company also reimbursed the primary insurer approximately $7.5 million for case reserves which were net of $4.0 million of salvage. Finally, the Company took a charge of $0.8 million for mark-to-market adjustments related to certain insurance policies associated with the recapture. The sum of the above adjustments resulted in an immediate reduction of pre-tax income of $15.9 million. Without cost to or concessions by the Company, the remaining primary insurer customers with recapture rights agreed not to exercise those rights with respect to the October 2002 downgrade by S&P.
3. For the year 2005, policy acquisition costs were $9.1 million higher than 2004. The February 28, 2005 recapture resulted in a $1.7 million increase in policy acquisition costs, as compared to the January 31, 2004 recapture which resulted in a $9.7 million reduction.
4. Change in fair value of derivative instruments for the year 2005 was $6.1 million as compared to $34.3 million for 2004. This decrease was primarily driven by the mark to market model on one high-yield deal.
5. The liability for losses and loss adjustment expenses decreased $29.8 million to $186.4 million at December 31, 2005 from $216.2 million at December 31, 2004. This decrease was primarily the result of $29.6 million of claims paid pertaining to Conseco Finance Corp. (“Conseco”)
6. The statutory loss and loss adjustment expense ratio for 2004 reflects the establishment of a $111.3 million reserve on a statutory basis (recorded on a GAAP basis in 2003) pertaining to Conseco.
7. For the year 2005, other operating expenses were $15.8 million higher than 2004, primarily driven by increases in technology and severance costs.
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Consolidated Explanatory Notes
15
Quarterly Operating Supplement
Safe Harbor Statement
All statements made in this document that address 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, as well as Radian’s prospects as a whole, are subject to risks and uncertainties, including the following: changes in general financial and political conditions such as extended national or regional economic recessions (or expansions), changes in housing values, population trends and changes in household formation patterns, changes in unemployment rates, 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 a customer 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, or other ratings actions with respect to, our credit ratings or the insurance financial-strength ratings assigned by the major ratings agencies to Radian’s operating subsidiaries; heightened competition from other insurance providers and from alternative products to private mortgage insurance and financial guaranty insurance; changes in the charters or business practices of Fannie Mae and Freddie Mac; the application of existing federal or state consumer lending, insurance and other applicable laws and regulations, or unfavorable changes in these laws and regulations or the way they are interpreted including legislative and regulatory changes affecting demand for private mortgage insurance or financial guaranty insurance; the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance or financial guaranty businesses or to estimate accurately the fair value amounts of derivative financial guaranty contracts in determining gains and losses on these contracts; changes in accounting guidance from the SEC or the Financial Accounting Standards Board regarding income recognition and the treatment of loss reserves in the mortgage insurance or financial guaranty industries; changes in claims against mortgage insurance products resulting from the aging of Radian’s mortgage insurance policies; vulnerability to the performance of Radian’s strategic investments; changes in the availability of affordable or adequate reinsurance for our non-prime risk; international expansion of our mortgage insurance and financial guaranty businesses into new markets and risks associated with our international business activities. For more information regarding these risks and uncertainties as well as certain additional risks faced by Radian, please refer to the risk factors detailed in Item 1A of Part I of our annual report on Form 10-K for the year ended December 31, 2005. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which this information was publicly released. 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.
Quarterly Operating Supplement for the Period Ended Dec. 31, 2005 /Safe Harbor Statement
16