Exhibit 99.1
Quarterly Operating Supplement Second Quarter 2007 |
Table of Contents
Page | ||
Introductory Note | 2 | |
Company Profile | 2 | |
Company Information | 2 | |
Consolidated GAAP Income Statements | 3 | |
Consolidated GAAP Balance Sheets | 4 | |
Consolidated Gross Premiums Written by Product | 5 | |
Consolidated Net Premiums Earned by Product | 5 | |
Consolidated Net Unearned Premium Amortization and Estimated Future Installment Premiums | 5 | |
Consolidated Selected Loss Information | 6 | |
Consolidated Selected Derivative Information | 7 | |
Consolidated Investment Portfolio Highlights | 8 | |
Consolidated Insured Portfolio Highlights | 9 | |
Consolidated CDO Exposure | 15 | |
Consolidated Explanatory Notes | 16 | |
Safe Harbor Statement | 17 |
1 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Table of Contents |
Radian Asset Assurance Inc.
Quarterly Operating Supplement
June 30, 2007
Introductory Note
This operating supplement presents financial information for Radian Asset Assurance Inc. (Radian) and its consolidated subsidiaries on a GAAP basis. Please visit our website at www.radian.biz on or about August 22, 2007 for selected statutory information.
Company Profile
Radian, founded in 1985 and rated AA by Standard & Poor’s, a division of The McGraw-Hill Companies (S&P), AA (Ratings Watch Negative) by Fitch Ratings (Fitch) and Aa3 by Moody’s Investor Service (Moody’s), is a leading financial guarantor of structured finance and public finance transactions. As a direct writer of financial guaranty insurance for municipal bonds, asset-backed securities and structured transactions, Radian plays an important role in extending the benefits of insurance to a broad range of institutions and securities issuers. Radian is also a leading provider of reinsurance to the major monoline financial guarantors. In addition, Radian provided Trade Credit reinsurance until 2005, when this line of business was placed in runoff.
Radian is a subsidiary of Radian Group Inc. (Radian Group) (NYSE: RDN), a global credit risk management company headquartered in Philadelphia with significant operations in both New York and London.
For more information regarding Radian and Radian Group, including Radian Group’s pending merger with MGIC Investment Corporation (MGIC) (NYSE: MTG), see Radian Group’s filings with the SEC, which are available on our website at www.radian.biz
Company Information
Radian Asset Assurance Inc. | Contact: | |
335 Madison Avenue | John C. DeLuca | |
New York, New York 10017 | Senior Vice President | |
1 877 337.4925 (within the U.S.) | Director of Marketing, Public Finance | |
1 212 983.3100 | 1 212 984.9222 | |
www.radian.biz | john.deluca@radian.biz |
2 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Introductory Note / Company Profile / Company Information |
Radian Asset Assurance Inc.
Consolidated GAAP Income Statements*($ Thousands)
(Unaudited)
Quarter ended | Six months ended | |||||||||||||||
June 30 2007 | June 30 2006 | June 30 2007 | June 30 2006 | |||||||||||||
Revenues | ||||||||||||||||
Net premiums written - insurance | $ | 43,941 | $ | 66,545 | $ | 85,394 | $ | 105,617 | ||||||||
Net premiums written - derivatives | 5,604 | 14,987 | 18,930 | 29,431 | ||||||||||||
Total net premiums written | $ | 49,545 | $ | 81,532 | $ | 104,324 | $ | 135,048 | ||||||||
Net premiums earned - insurance | $ | 31,967 | $ | 31,563 | $ | 65,522 | $ | 64,750 | ||||||||
Net premiums earned - derivatives | 15,784 | 17,530 | 34,723 | 34,258 | ||||||||||||
Total net premiums earned | 47,751 | 49,093 | 100,245 | 99,008 | ||||||||||||
Net investment income | 25,571 | 22,557 | 50,357 | 44,337 | ||||||||||||
Gain on sale of investments | 5,700 | 1,722 | 8,400 | 1,469 | ||||||||||||
Change in fair value of derivative instruments | (32,620 | ) | (21,289 | ) | (7,480 | ) | (12,780 | ) | ||||||||
Total revenues | 46,402 | 52,083 | 151,522 | 132,034 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses | (7 | ) | 6,937 | (3,959 | ) | 14,119 | ||||||||||
Policy acquisition costs | 11,450 | 10,948 | 23,079 | 24,920 | ||||||||||||
Other operating expenses | 12,772 | 15,174 | 26,866 | 30,019 | ||||||||||||
Other expense | 4,126 | 4,006 | 8,393 | 7,458 | ||||||||||||
Total expenses | 28,341 | 37,065 | 54,379 | 76,516 | ||||||||||||
Income before income taxes | 18,061 | 15,018 | 97,143 | 55,518 | ||||||||||||
Income tax expense | 4,138 | 226 | 26,111 | 10,162 | ||||||||||||
Net income | $ | 13,923 | $ | 14,792 | $ | 71,032 | $ | 45,356 | ||||||||
Financial Ratios | ||||||||||||||||
Loss and LAE Ratio | 0.0 | % | 14.1 | % | –3.9 | % | 14.3 | % | ||||||||
Underwriting Expense Ratio | 50.7 | % | 53.2 | % | 49.8 | % | 55.5 | % | ||||||||
Combined Ratio | 50.7 | % | 67.3 | % | 45.9 | % | 69.8 | % | ||||||||
* | See Consolidated Explanatory Notes on page 16. |
3 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated GAAP Income Statements |
Radian Asset Assurance Inc.
Consolidated GAAP Balance Sheets* ($ Thousands)**
(Unaudited)
June 30 2007 | December 31 2006 | |||||
Assets | ||||||
Investments: | ||||||
Fixed maturities, available for sale, at fair value (amortized cost $2,072,937 and $2,111,479) | $ | 2,083,988 | $ | 2,171,578 | ||
Hybrid securities, at fair value (amortized cost $139,895) | 155,186 | — | ||||
Trading securities, at fair value (cost $97 and $17,459) | 351 | 28,340 | ||||
Common stock, at fair value (cost $931 and $931) | 1,152 | 1,152 | ||||
Short-term investments | 76,883 | 93,042 | ||||
Total Investments | 2,317,560 | 2,294,112 | ||||
Cash and cash equivalents | 11,005 | 2,371 | ||||
Accrued interest and dividends receivable | 28,040 | 27,860 | ||||
Premiums and other receivables | 21,550 | 25,760 | ||||
Deferred policy acquisition costs | 161,831 | 153,094 | ||||
Prepaid reinsurance premiums | 1,850 | 1,184 | ||||
Reinsurance recoverable on unpaid losses | 169 | 2,259 | ||||
Prepaid federal income taxes | 14,995 | 14,995 | ||||
Federal income tax recoverable | 6,591 | 409 | ||||
Credit derivatives | 80,509 | 118,721 | ||||
Other assets | 9,014 | 7,752 | ||||
Total Assets | $ | 2,653,114 | $ | 2,648,517 | ||
Liabilities and Shareholder’s Equity | ||||||
Liabilities | ||||||
Losses and loss adjustment expenses | $ | 157,753 | $ | 173,990 | ||
Reinsurance payable on paid losses and loss adjustment expenses | 1,429 | 1,853 | ||||
Deferred premium revenue | 680,398 | 659,877 | ||||
Deferred federal income taxes | 93,878 | 109,849 | ||||
Payable to affiliates | 4,314 | 5,141 | ||||
Credit derivatives | 39,949 | 59,143 | ||||
Accrued expenses and other liabilities | 24,781 | 32,388 | ||||
Total Liabilities | 1,002,502 | 1,042,241 | ||||
Shareholder’s Equity | ||||||
Common stock — $150 par value | ||||||
Authorized, issued and outstanding — 100,000 shares | 15,000 | 15,000 | ||||
Additional paid-in capital | 603,116 | 600,654 | ||||
Retained earnings | 1,019,293 | 944,996 | ||||
Accumulated other comprehensive income | 13,203 | 45,626 | ||||
Total Shareholder’s Equity | 1,650,612 | 1,606,276 | ||||
Total Liabilities and Shareholder’s Equity | $ | 2,653,114 | $ | 2,648,517 | ||
* | See Consolidated Explanatory Notes on page 16. |
** | Except share amounts. |
4 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated GAAP Balance Sheets |
Radian Asset Assurance Inc.
Consolidated Gross Premiums Written by Product* ($ Thousands)
Quarter ended | Six months ended | |||||||||||||||||
June 30 2007 | June 30 2006 | Percent Change | June 30 2007 | June 30 2006 | Percent Change | |||||||||||||
Public Finance Direct | $ | 18,128 | $ | 24,807 | –26.9 | % | $ | 30,908 | $ | 38,245 | –19.2 | % | ||||||
Structured Finance Direct | 3,016 | 6,629 | –54.5 | % | 8,263 | 10,570 | –21.8 | % | ||||||||||
Public Finance Reinsurance | 17,496 | 28,712 | –39.1 | % | 35,650 | 46,695 | –23.7 | % | ||||||||||
Structured Finance Reinsurance | 5,693 | 5,405 | 5.3 | % | 11,605 | 8,410 | 38.0 | % | ||||||||||
Trade Credit Reinsurance | 692 | 1,247 | –44.5 | % | 670 | 4,018 | –83.3 | % | ||||||||||
Derivatives | 5,530 | 14,832 | –62.7 | % | 18,976 | 29,424 | –35.5 | % | ||||||||||
$ | 50,555 | $ | 81,632 | –38.1 | % | $ | 106,072 | $ | 137,362 | –22.8 | % | |||||||
Consolidated Net Premiums Earned by Product*($ Thousands) | ||||||||||||||||||
Quarter ended | Six months ended | |||||||||||||||||
June 30 2007 | June 30 2006 | Percent Change | June 30 2007 | June 30 2006 | Percent Change | |||||||||||||
Public Finance Direct | $ | 9,961 | $ | 7,401 | 34.6 | % | $ | 21,546 | $ | 15,154 | 42.2 | % | ||||||
Structured Finance Direct | 4,389 | 5,374 | –18.3 | % | 9,080 | 10,286 | –11.7 | % | ||||||||||
Public Finance Reinsurance | 11,692 | 7,865 | 48.7 | % | 22,792 | 16,158 | 41.1 | % | ||||||||||
Structured Finance Reinsurance | 5,742 | 5,594 | 2.6 | % | 11,936 | 10,188 | 17.2 | % | ||||||||||
Trade Credit Reinsurance | 183 | 5,329 | –96.6 | % | 168 | 12,964 | –98.7 | % | ||||||||||
Derivatives | 15,784 | 17,530 | –10.0 | % | 34,723 | 34,258 | 1.4 | % | ||||||||||
$ | 47,751 | $ | 49,093 | –2.7 | % | $ | 100,245 | $ | 99,008 | 1.2 | % | |||||||
Consolidated Net Unearned Premium Amortization and Estimated Future Installment Premiums**
As of June 30, 2007
($ Millions)
Ending Net Unearned Premiums | Unearned Premium Amortization | Future Installments | Total Premium Earnings | |||||||||
2007 | $ | 646.3 | $ | 51.3 | $ | 23.8 | $ | 75.1 | ||||
2008 | 584.5 | 61.8 | 70.8 | 132.6 | ||||||||
2009 | 530.8 | 53.7 | 63.7 | 117.4 | ||||||||
2010 | 482.9 | 47.9 | 49.5 | 97.4 | ||||||||
2011 | 438.3 | 44.6 | 46.2 | 90.8 | ||||||||
2007 – 2011 | 438.3 | 259.3 | 254.0 | 513.3 | ||||||||
2012 – 2016 | 254.7 | 183.6 | 121.6 | 305.2 | ||||||||
2017 – 2021 | 128.0 | 126.7 | 38.0 | 164.7 | ||||||||
2022 – 2026 | 50.2 | 77.8 | 26.5 | 104.3 | ||||||||
After 2026 | — | 50.2 | 40.7 | 90.9 | ||||||||
Total | — | $ | 697.6 | $ | 480.8 | $ | 1,178.4 | |||||
* | See Consolidated Explanatory Notes on page 16. |
** | This table depicts the expected amortization of the unearned premium, net of prepaid reinsurance premiums, including credit derivatives, for the existing financial guaranty portfolio, assuming no advance refundings as of June 30, 2007. 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. |
5 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated: Gross Premiums Written / Net Premiums Earned / Net Unearned Premium |
Radian Asset Assurance Inc.
Consolidated Selected Loss Information*
($ Thousands)
Components of Claims Paid and Incurred Losses and Loss Adjustment Expenses
Quarter ended | Six months ended | |||||||||||||||
June 30 2007 | June 30 2006 | June 30 2007 | June 30 2006 | |||||||||||||
Claims Paid | ||||||||||||||||
Trade Credit | $ | 1,991 | $ | 4,089 | $ | 4,593 | $ | 7,816 | ||||||||
Financial Guaranty | 384 | 6,706 | 1 | 6,497 | ||||||||||||
Conseco Finance Corp | 3,010 | 4,428 | 6,119 | 8,745 | ||||||||||||
Total | $ | 5,385 | $ | 15,223 | $ | 10,713 | $ | 23,058 | ||||||||
Incurred Losses andLoss Adjustment Expenses | ||||||||||||||||
Trade Credit | $ | (2,297 | ) | $ | 2,898 | $ | (3,573 | ) | $ | 6,493 | ||||||
Financial Guaranty | 2,290 | 4,039 | (386 | ) | 8,908 | |||||||||||
Conseco Finance Corp | — | — | — | (1,282 | ) | |||||||||||
Total | $ | (7 | ) | $ | 6,937 | $ | (3,959 | ) | $ | 14,119 | ||||||
Net payments under derivative contracts | $ | — | $ | (1,226 | ) | $ | — | $ | 65,413 | |||||||
Components of Losses and Loss Adjustment Expense Reserves
June 30 2007 | December 31 2006 | |||||
Financial Guaranty | ||||||
Case | $ | 36,131 | $ | 42,459 | ||
Allocated non-specific | 27,706 | 26,185 | ||||
Unallocated non-specific | 59,708 | 60,431 | ||||
123,545 | 129,075 | |||||
Trade Credit and Other | ||||||
Case | 17,041 | 20,770 | ||||
IBNR | 17,167 | 24,145 | ||||
34,208 | 44,915 | |||||
Total | $ | 157,753 | $ | 173,990 | ||
* | See Consolidated Explanatory Notes on page 16. |
6 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Selected Loss Information |
Radian Asset Assurance Inc.
Consolidated Selected Derivative Information*
($ Millions)
Balance Sheet Information
June 30 2007 | December 31 2006 | |||||
Notional value - insured portfolio | $ | 47,106.4 | $ | 43,728.0 | ||
Gross unrealized gains | $ | 80.5 | $ | 118.7 | ||
Gross unrealized losses | 20.9 | 24.3 | ||||
Net gains | $ | 59.6 | $ | 94.4 | ||
Income Statement Information
Quarter ended | Six months ended | |||||||||||||||
June 30 2007 | June 30 2006 | June 30 2007 | June 30 2006 | |||||||||||||
Net (losses) gains on trading securities | $ | — | $ | (1.7 | ) | $ | (0.1 | ) | $ | 2.0 | ||||||
Net losses recorded on derivatives | (32.6 | ) | (19.6 | ) | (7.4 | ) | (14.8 | ) | ||||||||
Change in fair value of derivative instruments | $ | (32.6 | ) | $ | (21.3 | ) | $ | (7.5 | ) | $ | (12.8 | ) | ||||
Net Gains and (Losses)
June 30 2007 | December 31 2006 | |||||||
Balance at January 1 | $ | 94.4 | $ | 23.4 | ||||
Net (losses) gains recorded | (7.4 | ) | 7.4 | |||||
Settlements of derivatives contracts: | ||||||||
Early termination receipts | (27.4 | ) | — | |||||
Defaults | ||||||||
Recoveries | — | (4.5 | ) | |||||
Payments | — | 68.1 | ||||||
Balance at end of period | $ | 59.6 | $ | 94.4 | ||||
* | See Consolidated Explanatory Notes on page 16. |
7 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Selected Consolidated Derivative Information |
Radian Asset Assurance Inc.
Consolidated Investment Portfolio Highlights*
($ Millions)
Asset Quality** | Book Value (06/30/2007) | Percent of Book Value | Book Value (12/31/2006) | Percent of Book Value | ||||||||
AAA | $ | 1,535.8 | 66.3 | % | $ | 1,573.2 | 68.5 | % | ||||
AA | 394.6 | 17.0 | % | 404.4 | 17.6 | % | ||||||
A | 208.9 | 9.0 | % | 172.6 | 7.5 | % | ||||||
BBB | 170.1 | 7.3 | % | 132.4 | 5.8 | % | ||||||
BIG | 1.6 | 0.1 | % | 3.5 | 0.2 | % | ||||||
NR | 5.1 | 0.2 | % | 5.8 | 0.3 | % | ||||||
Other | 1.5 | 0.1 | % | 2.2 | 0.1 | % | ||||||
Total | $ | 2,317.6 | 100.0 | % | $ | 2,294.1 | 100.0 | % | ||||
Asset Class | Book Value (06/30/2007) | Percent of Book Value | Book Value (12/31/2006) | Percent of Book Value | ||||||||
Municipal Bonds | $ | 1,748.0 | 75.5 | % | $ | 1,703.6 | 74.2 | % | ||||
Taxable Bonds | 336.0 | 14.5 | % | 344.2 | 15.0 | % | ||||||
Convertible Bonds | 126.2 | 5.4 | % | 116.5 | 5.1 | % | ||||||
Short-Term | 76.9 | 3.3 | % | 93.0 | 4.1 | % | ||||||
Other | 30.5 | 1.3 | % | 36.8 | 1.6 | % | ||||||
Total | $ | 2,317.6 | 100.0 | % | $ | 2,294.1 | 100.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
** | Average duration of 6.2 years and 5.6 years at 06/30/2007 and 12/31/2006, respectively. |
8 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Investment Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights* ($ Millions)
Consolidated Gross Par Originated
Quarter ended | ||||||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||||
Direct | Assumed** | Total | Direct | Assumed** | Total | |||||||||||||
Public Finance | $ | 947 | $ | 1,575 | $ | 2,522 | $ | 859 | $ | 844 | $ | 1,703 | ||||||
Structured Finance | 503 | 281 | 784 | 6,514 | 498 | 7,012 | ||||||||||||
Total | $ | 1,450 | $ | 1,856 | $ | 3,306 | $ | 7,373 | $ | 1,342 | $ | 8,715 | ||||||
Six months ended | ||||||||||||||||||
June 30, 2007 | June 30, 2006 | |||||||||||||||||
Direct | Assumed** | Total | Direct | Assumed** | Total | |||||||||||||
Public Finance | $ | 1,468 | $ | 4,201 | $ | 5,669 | $ | 1,330 | $ | 2,887 | $ | 4,217 | ||||||
Structured Finance | 11,326 | 699 | 12,025 | 11,911 | 812 | 12,723 | ||||||||||||
Total | $ | 12,794 | $ | 4,900 | $ | 17,694 | $ | 13,241 | $ | 3,699 | $ | 16,940 | ||||||
Sector Breakout
Net Par Outstanding (06/30/2007) | Percent of total Net Par | Net Par Outstanding (12/31/2006) | Percent of total Net Par | |||||||||
Public Finance | ||||||||||||
General Obligations | $ | 18,253 | 16.5 | % | $ | 16,760 | 16.1 | % | ||||
Healthcare | 10,436 | 9.4 | % | 10,198 | 9.8 | % | ||||||
Utilities | 6,250 | 5.7 | % | 6,269 | 6.0 | % | ||||||
Transportation | 6,067 | 5.5 | % | 5,426 | 5.2 | % | ||||||
Tax Backed | 5,552 | 5.0 | % | 5,269 | 5.1 | % | ||||||
Education | 4,205 | 3.8 | % | 4,095 | 3.9 | % | ||||||
Investor-Owned Utilities | 2,787 | 2.5 | % | 2,355 | 2.3 | % | ||||||
Long Term Care | 1,578 | 1.4 | % | 1,464 | 1.4 | % | ||||||
Housing | 725 | 0.7 | % | 793 | 0.8 | % | ||||||
Other Public Finance | 1,342 | 1.2 | % | 1,184 | 1.1 | % | ||||||
Subtotal Public Finance | $ | 57,195 | 51.7 | % | $ | 53,813 | 51.7 | % | ||||
Structured Finance | ||||||||||||
Collateralized Debt Obligations | $ | 47,022 | 42.6 | % | $ | 43,989 | 42.3 | % | ||||
Asset Backed – Consumer | 1,322 | 1.2 | % | 1,310 | 1.3 | % | ||||||
Asset Backed – Commercial and Other | 1,220 | 1.1 | % | 1,109 | 1.1 | % | ||||||
Asset Backed – Mortgage and MBS | 1,110 | 1.0 | % | 1,023 | 1.0 | % | ||||||
Other Structured Finance | 2,668 | 2.4 | % | 2,722 | 2.6 | % | ||||||
Subtotal Structured Finance | 53,342 | 48.3 | % | 50,153 | 48.3 | % | ||||||
Total | $ | 110,537 | 100.0 | % | $ | 103,966 | 100.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
** | Reflects one quarter lag |
9 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Rating Distribution**
Rating** | Net Par Outstanding (06/30/2007) | Percent of total Net Par | Net Par Outstanding (12/31/2006) | Percent of total Net Par | ||||||||
Public Finance | ||||||||||||
AAA | $ | 1,650 | 1.5 | % | $ | 1,371 | 1.3 | % | ||||
AA | 17,172 | 15.5 | % | 16,436 | 15.8 | % | ||||||
A | 19,785 | 17.9 | % | 18,715 | 18.0 | % | ||||||
BBB | 17,042 | 15.4 | % | 15,808 | 15.2 | % | ||||||
Below Investment Grade | 1,495 | 1.4 | % | 1,293 | 1.2 | % | ||||||
Not Rated | 51 | 0.0 | % | 190 | 0.2 | % | ||||||
Subtotal Public Finance | $ | 57,195 | 51.7 | % | $ | 53,813 | 51.7 | % | ||||
Structured Finance | ||||||||||||
AAA | $ | 47,028 | 42.6 | % | $ | 41,800 | 40.2 | % | ||||
AA | 1,650 | 1.5 | % | 2,976 | 2.9 | % | ||||||
A | 1,521 | 1.4 | % | 1,481 | 1.5 | % | ||||||
BBB | 2,344 | 2.1 | % | 2,511 | 2.4 | % | ||||||
Below Investment Grade | 110 | 0.1 | % | 119 | 0.1 | % | ||||||
Not Rated | 689 | 0.6 | % | 1,266 | 1.2 | % | ||||||
Subtotal Structured Finance | $ | 53,342 | 48.3 | % | $ | 50,153 | 48.3 | % | ||||
Total | ||||||||||||
AAA | $ | 48,678 | 44.1 | % | $ | 43,171 | 41.5 | % | ||||
AA | 18,822 | 17.0 | % | 19,412 | 18.7 | % | ||||||
A | 21,306 | 19.3 | % | 20,196 | 19.5 | % | ||||||
BBB | 19,386 | 17.5 | % | 18,319 | 17.6 | % | ||||||
Below Investment Grade | 1,605 | 1.5 | % | 1,412 | 1.3 | % | ||||||
Not Rated | 740 | 0.6 | % | 1,456 | 1.4 | % | ||||||
Total | $ | 110,537 | 100.0 | % | $ | 103,966 | 100.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
** | Indicated ratings category reflects the highest rating assigned to the underlying obligation from the three rating agencies (S&P, Moody’s and Fitch), or, if no such rating has been assigned, Radian’s rating estimate of the obligation utilizing rating agency models and methodologies to the extent available. Radian’s rating estimates are subject to revision at any time and may differ from the credit ratings ultimately assigned by the three rating agencies. |
10 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Geographic Diversification
Net Par Outstanding (06/30/2007) | Percent of total Net Par | Net Par Outstanding (12/31/2006) | Percent of total Net Par | |||||||||
Domestic public finance | ||||||||||||
California | $ | 6,710 | 6.1 | % | $ | 6,185 | 5.9 | % | ||||
New York | 5,520 | 5.0 | % | 5,051 | 4.9 | % | ||||||
Texas | 4,327 | 3.9 | % | 4,158 | 4.0 | % | ||||||
Florida | 3,266 | 2.9 | % | 3,245 | 3.1 | % | ||||||
Pennsylvania | 3,156 | 2.8 | % | 2,892 | 2.8 | % | ||||||
Illinois | 2,875 | 2.6 | % | 2,881 | 2.8 | % | ||||||
New Jersey | 2,335 | 2.1 | % | 2,250 | 2.2 | % | ||||||
Massachusetts | 2,280 | 2.1 | % | 2,238 | 2.2 | % | ||||||
Washington | 1,868 | 1.7 | % | 1,775 | 1.7 | % | ||||||
Colorado | 1,580 | 1.4 | % | 1,409 | 1.3 | % | ||||||
Top ten states – domestic public finance subtotal | 33,917 | 30.6 | % | 32,084 | 30.9 | % | ||||||
Total of other states – domestic public finance | 19,303 | 17.5 | % | 18,685 | 17.9 | % | ||||||
Total domestic public finance | 53,220 | 48.1 | % | 50,769 | 48.8 | % | ||||||
Domestic structured finance | 37,333 | 33.8 | % | 37,205 | 35.8 | % | ||||||
International public and structured finance | 19,984 | 18.1 | % | 15,992 | 15.4 | % | ||||||
Total | $ | 110,537 | 100.0 | % | $ | 103,966 | 100.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
11 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights* ($ Millions)
25 Largest Public Finance Exposures
Obligor | Net Par Outstanding (06/30/2007) | Percent of total Net Par | Rating** | |||||
New York, NY – G.O. | $ | 784 | 0.7 | % | AA | |||
California – G.O. | 609 | 0.6 | % | A+ | ||||
Port Authority of New York & New Jersey | 540 | 0.5 | % | AA– | ||||
Chicago, IL – G.O. | 455 | 0.4 | % | AA | ||||
Washington – G.O. | 453 | 0.4 | % | AA+ | ||||
Massachusetts – G.O. | 421 | 0.4 | % | AA | ||||
Los Angeles Unified School District, CA | 416 | 0.4 | % | AA– | ||||
Metropolitan Transportation Authority, NY | 346 | 0.3 | % | A | ||||
New Jersey Transportation Trust Fund Authority | 342 | 0.3 | % | AA- | ||||
Puerto Rico – G.O. | 332 | 0.3 | % | BBB- | ||||
New Jersey Economic Development Authority School Facilities | 309 | 0.3 | % | AA- | ||||
Long Island Power Authority, NY | 296 | 0.3 | % | A- | ||||
Illinois Toll Highway Authority | 289 | 0.3 | % | AA- | ||||
New York City Municipal Water Finance, NY | 275 | 0.3 | % | AA+ | ||||
Jefferson County, AL – Sewer Revenue | 274 | 0.2 | % | A | ||||
Reliance Rail Corp. | 271 | 0.2 | % | A- | ||||
Massachusetts School Building Authority | 257 | 0.2 | % | AA | ||||
San Francisco International Airport, CA | 252 | 0.2 | % | A+ | ||||
Illinois – G.O. | 249 | 0.2 | % | AA | ||||
New Jersey Turnpike Authority | 248 | 0.2 | % | A | ||||
Houston Airport System, TX | 239 | 0.2 | % | A+ | ||||
Massachusetts Water Resources Authority | 238 | 0.2 | % | AA | ||||
California Economic Recovery Bonds | 235 | 0.2 | % | AA- | ||||
Denver Colorado Airport System | 211 | 0.2 | % | A+ | ||||
Dallas Fort Worth International Airport, TX | 205 | 0.2 | % | A+ | ||||
Total | $ | 8,546 | 7.7 | % | ||||
Largest Structured Finance Exposures
Radian’s largest Structured Finance exposures consist of the following:
• | Seven $600 million transactions representing Static Synthetic Investment Grade Corporate CDOs rated AAA. |
• | One $599 million transaction representing a Static Synthetic Investment Grade Commercial Mortgage Backed Securities CDO rated AAA. |
• | One $563 million transaction representing a Static Synthetic Investment Grade Corporate CDO rated AAA. |
• | One $515 million transaction representing a Managed Cashflow Investment Grade Asset-Backed CDO rated AAA. |
• | Twenty eight transactions ($450 million each) representing Static Synthetic Investment Grade Corporate CDOs rated AAA. |
• | One $450 million transaction representing a Second-to-Pay CDO rated AAA. |
• | One $450 million transaction representing a Static Synthetic Investment Grade Commercial Mortgage Backed Securities CDO rated AAA. |
These 40 transactions combine to total $19.4 billion, or 17.5% of Radian’s Net Par Outstanding as of June 30, 2007.
* | See Consolidated Explanatory Notes on page 16. |
** | Indicated ratings category reflects the highest rating assigned to the underlying obligation from the three rating agencies (S&P, Moody’s and Fitch), or, if no such rating has been assigned, Radian’s rating estimate of the obligation utilizing rating agency models and methodologies to the extent available. Radian’s rating estimates are subject to revision at any time and may differ from the credit ratings ultimately assigned by the three rating agencies. |
12 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Below Investment Grade Exposure by Sector
Sector | Net Par Outstanding (06/30/2007) | Percent of total Net Par | ||||
Public Finance | ||||||
General Obligations | $ | 990 | 0.9 | % | ||
Utilities | 124 | 0.1 | % | |||
Tax Backed | 103 | 0.1 | % | |||
Education | 89 | 0.1 | % | |||
Healthcare | 67 | 0.1 | % | |||
Long Term Care | 56 | 0.1 | % | |||
Housing | 22 | 0.0 | % | |||
Transportation | 4 | 0.0 | % | |||
Other Public Finance | 41 | 0.0 | % | |||
Subtotal Public Finance | 1,496 | 1.4 | % | |||
Structured Finance | ||||||
Asset Backed – Consumer | 73 | 0.1 | % | |||
Asset Backed – Commercial and Other | 28 | 0.0 | % | |||
Collateralized Debt Obligations | 8 | 0.0 | % | |||
Subtotal Structured Finance | 109 | 0.1 | % | |||
Total | $ | 1,605 | 1.5 | % | ||
10 Largest Health Care Exposures
Obligor | Net Par Outstanding (06/30/2007) | Percent of total Net Par | Rating** | |||||
Bon Secours Health System Inc | $ | 132 | 0.1 | % | A- | |||
MedStar Health | 119 | 0.1 | % | A- | ||||
Kaiser Permanente | 109 | 0.1 | % | A+ | ||||
Consort Healthcare Limited | 107 | 0.1 | % | BBB- | ||||
Methodist Hospital | 105 | 0.1 | % | AA | ||||
Adventist Health System | 101 | 0.1 | % | A+ | ||||
Mountain States Health Alliance | 98 | 0.1 | % | BBB+ | ||||
Group Health Cooperative | 98 | 0.1 | % | A- | ||||
Ascension Health | 98 | 0.1 | % | AA+ | ||||
Catholic Healthcare West | 96 | 0.1 | % | A+ | ||||
Total | $ | 1,063 | 1.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
** | Indicated ratings category reflects the highest rating assigned to the underlying obligation from the three rating agencies (S&P, Moody’s and Fitch), or, if no such rating has been assigned, Radian’s rating estimate of the obligation utilizing rating agency models and methodologies to the extent available. Radian’s rating estimates are subject to revision at any time and may differ from the credit ratings ultimately assigned by the three rating agencies. |
13 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated Insured Portfolio Highlights*
($ Millions)
Net Debt Service Amortization
Scheduled as of 06/30/2007 | Ending Net Debt Service | |||||
2007 | $ | 4,501 | $ | 147,850 | ||
2008 | 6,274 | 141,576 | ||||
2009 | 7,454 | 134,122 | ||||
2010 | 7,423 | 126,699 | ||||
2011 | 6,727 | 119,972 | ||||
2012-2016 | 50,978 | 68,994 | ||||
2017-2021 | 26,800 | 42,194 | ||||
2022-2026 | 16,442 | 25,752 | ||||
After 2026 | 25,752 | — | ||||
Total | $ | 152,351 | ||||
* | See Consolidated Explanatory Notes on page 16. |
14 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Insured Portfolio Highlights |
Radian Asset Assurance Inc.
Consolidated CDO Exposure* ($ Millions)
Total CDO Exposure
Net Par Outstanding (06/30/2007) | Percent of Total CDO Net Par | Net Par Outstanding (12/31/2006) | Percent of Total CDO Net Par | |||||||||
Direct | $ | 45,199 | 96.1 | % | $ | 42,110 | 95.7 | % | ||||
Assumed | 1,823 | 3.9 | % | 1,879 | 4.3 | % | ||||||
Total | $ | 47,022 | 100.0 | % | $ | 43,989 | 100.0 | % | ||||
Total CDO Portfolio Rating Distribution**
Net Par Outstanding (06/30/2007) | Percent of Total CDO Net Par | Net Par Outstanding (12/31/2006) | Percent of Total CDO Net Par | |||||||||
AAA | $ | 45,481 | 96.7 | % | $ | 40,448 | 92.0 | % | ||||
AA | 1,183 | 2.5 | % | 2,357 | 5.4 | % | ||||||
A | 228 | 0.5 | % | 505 | 1.1 | % | ||||||
BBB | 122 | 0.3 | % | 271 | 0.6 | % | ||||||
Below Investment Grade | 8 | 0.0 | % | 8 | 0.0 | % | ||||||
Not Rated | — | 0.0 | % | 400 | 0.9 | % | ||||||
Total | $ | 47,022 | 100.0 | % | $ | 43,989 | 100.0 | % | ||||
Direct CDO Underlying Asset Types
Direct CDO Net Par Outstanding (06/30/2007) | Percent of CDO Net Par | Direct CDO Net Par Outstanding (12/31/2006) | Percent of CDO Net Par | |||||||||
Corporates | $ | 38,834 | 85.9 | % | $ | 36,319 | 86.2 | % | ||||
Other | 6,365 | 14.1 | % | 5,791 | 13.8 | % | ||||||
Total | $ | 45,199 | 100.0 | % | $ | 42,110 | 100.0 | % | ||||
* | See Consolidated Explanatory Notes on page 16. |
** | Indicated ratings category reflects the highest rating assigned to the underlying obligation from the three rating agencies (S&P, Moody’s and Fitch), or, if no such rating has been assigned, Radian’s rating estimate of the obligation utilizing rating agency models and methodologies to the extent available. Radian’s rating estimates are subject to revision at any time and may differ from the credit ratings ultimately assigned by the three rating agencies. |
15 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated CDO Exposure |
Radian Asset Assurance Inc.
Consolidated Explanatory Notes
1. The accompanying unaudited GAAP financial information includes the accounts of Radian, Radian Asset Assurance Limited, (RAAL) Radian Financial Products Limited, Van-American Insurance Agency, Inc. and Asset Recovery Solutions Group Inc.
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 audited consolidated financial statements and notes thereto, including the Report of Independent Registered Public Accounting Firm for Radian for the year ended December 31, 2006.
2. Prior year amounts have been restated to conform to current year presentation.
3. For the quarters ended June 30, 2007 and June 30, 2006, the change in fair value of derivatives were $(32.6) million and $(21.3) million respectively. Both the 2007 and 2006 periods had substantial losses primarily resulting from the widening of credit spreads. On a year to date basis, the change in fair value of derivatives were $(7.5) and $(12.8) for 2007 and 2006, respectively. The 2006 year to date results include $(17.2) million from a credit that settled in March 2006.
4. The current quarter’s decrease in losses and loss adjustment expenses is primarily the result of trade credit reserve releases. The year to date decrease includes both trade credit reserve releases and a decrease in structured finance reserves.
5. On February 6, 2007, Radian Group and MGIC entered into an Agreement and Plan of Merger pursuant to which Radian Group agreed, subject to the terms and conditions of the merger agreement, to merge with and into MGIC. The merger has been approved by each company’s board of directors and shareholders, and completion of the merger remains subject to the approval of the New York and Texas insurance departments. On August 7, 2007, MGIC publicly announced that it had advised the New York Insurance Department that it was MGIC management’s preliminary assessment that MGIC is not obligated to complete the merger in light of the Credit-Based Asset Servicing and Securitization LLC (C-BASS) impairment (described below). MGIC also announced it was reviewing “other developments” that, in its opinion, may affect its obligation to close. Radian Group responded publicly that it does not believe the impairment affects MGIC’s obligation to go forward with the merger agreement, it is not aware of any developments that would impact MGIC’s obligation to close the merger and it believes it has fully complied with all of its obligations under the merger agreement. Upon completion of the merger, certain of our reinsurance customers will have the right to recapture reinsurance business previously assumed by Radian as a result of the merger.
On July 31, 2007, Fitch placed the AA insurer financial strength ratings of Radian on Ratings Watch Negative. Additionally, all obligations insured by Radian and RAAL have been placed on Ratings Watch Negative. Fitch attributed this rating action to the significant impairment of Radian Group’s investment in C-BASS and Fitch’s assessment of Radian Group’s financial position as a result of the situation with C-BASS. Fitch stated that the resolution of the Ratings Watch status for Radian and RAAL will depend in large part on the financial condition and capital strength of such entities combined with Fitch’s view of the long-term commitment to the financial guaranty business by the management group of the combined company upon completion of the merger. On July 31, 2007 and again on August 7, 2007, S&P affirmed the AA ratings of Radian and RAAL. On August 1, 2007, Moody’s affirmed the Aa3 insurance financial strength ratings of Radian and RAAL. S&P has previously indicated that Radian’s AA financial strength rating “would not be affected by successful integration,” although no assurances can be given with respect to future ratings actions, the success of the merger or the financial impact of any recapture of business, if any, as a result of the merger. S&P and Moody’s have indicated that they will revisit the conditions for Radian and RAAL to maintain their ratings should the merger not occur.
16 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Consolidated Explanatory Notes |
Safe Harbor Statement
All statements made herein 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 our 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 demand or mortgage originations, changes in housing values, population trends and changes in household formation patterns, changes in unemployment rates, changes or volatility in interest rates or consumer confidence, or changes in credit spreads; 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 our insurance; the loss of a customer with whom we have a concentration of our insurance in force or the influence of large customers; increased severity or frequency of losses associated with certain of our products that are riskier than traditional mortgage insurance and municipal guaranty insurance policies; material changes in persistency rates of our 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 our 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 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 our mortgage insurance policies; vulnerability to the performance of our strategic investments; changes in the availability of affordable or adequate reinsurance for our non-prime risk; legal and other limitations on the amount of dividends that Radian Group Inc. may receive from its insurance subsidiaries; international expansion of our mortgage insurance and financial guaranty businesses into new markets and risks associated with our international business activities; and risks and uncertainties associated with our pending merger with MGIC Investment Corporation (“MGIC”), including, without limitation: the ability to complete the transaction on the proposed terms and schedule; the risk that the two companies and their businesses will not be integrated successfully; customer attrition and disruption from the transaction making it more difficult to maintain relationships with customers, employees or other business relationships; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; the risk that potential sales of assets in connection with the merger may negatively impact the financial performance of the combined company; the risk that certain of our reinsurance customers will have the right to recapture reinsurance business previously assumed by us; any ratings action with respect to Radian Group’s credit ratings or the insurance financial strength ratings assigned by the major ratings agencies to any of Radian Group’s rated insurance subsidiaries in the event the merger is not completed; and the possibility that the merger may not be completed, whether due to the failure to receive regulatory approvals or otherwise, which may have an adverse effect on our customers, employees and other business relationships, and may have a materially adverse impact on our financial results and prospects. For more information regarding these risks and uncertainties as well as certain additional risks faced by us, please refer to the risk factors detailed in Item 1A of Part I of Radian Group Inc.’s annual report on Form 10-K for the year ended December 31, 2006 and in Radian Group’s joint proxy statement/prospectus for its 2007 annual meeting. 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. We do not intend to, and disclaim 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.
17 | Quarterly Operating Supplement for the Period Ended June 30, 2007 /Safe Harbor Statement |