Radian Group Inc. has a market cap of $381.2 million; its shares were traded at around $3 with and P/S ratio of 0.2. The dividend yield of Radian Group Inc. stocks is 0.4%.
Highlight of Business Operations:During the first six months of 2012 and 2011, there were no credit losses recognized in earnings.
For our first-lien insurance business, because the combination of the net present value of expected premiums and already established reserves (net of reinsurance recoverables) exceeds the net present value of expected losses and expenses, a first-lien PDR was not required as of June 30, 2012 or December 31, 2011. Our pre-tax investment yield used as the discount rate in these present value calculations was 2.34% and 2.62% as of June 30, 2012 and December 31, 2011, respectively. Expected losses are based on an assumed paid claim rate of approximately 13.3% on our total first-lien insurance portfolio (8% on performing loans and 46% on defaulted loans). Assuming all other factors remained constant, if our assumed paid claim rate increased to 15.1%, we would be required to establish a PDR. New business originated since the beginning of 2009 is expected to be profitable, which has contributed to the overall expected net profitability of our first-lien portfolio. In addition, estimated rescissions and denials on insured loans are expected to partially offset the impact of expected defaults and claims.
A net claim liability is established for a performing credit if there is evidence that credit deterioration has occurred and the expected loss on the credit exceeds the unearned premium revenue for the contract based on the present value of the expected net cash outflows. Included in accounts and notes receivable and unearned premiums on our condensed consolidated balance sheets are the present value of premiums receivable and unearned premiums that are received on an installment basis. The premiums receivable is net of commissions on assumed reinsurance business. The present values of premiums receivable and unearned premiums that are received on an installment basis were $30.9 million and $35.8 million, respectively, as of June 30, 2012, and $34.3 million and $39.8 million, respectively, as of December 31, 2011.
The following table shows the impact of the Assured Transaction on our condensed consolidated financial statements in the first six months of 2012. While Radian Asset Assurance and Radian Guaranty received a statutory capital benefit as a result of this transaction as discussed above, under accounting principles generally accepted in the United States of America (“GAAP”) this transaction resulted in a realized loss, and therefore, a reduction in our retained earnings.
Defaults. Our first-lien primary default rate at June 30, 2012 was 13.3%, compared to 15.2% at December 31, 2011. Our primary default inventory comprised 98,450 loans at June 30, 2012, compared to 103,027 loans and 110,861 loans at March 31, 2012 and December 31, 2011, respectively. Our primary default inventory declined slightly in July 2012. The reduction in our default inventory is the result of the total number of defaulted loans that have cured (“cures”), defaulted loans for which claim payments have been made, and defaulted loans that have resulted in insurance rescissions and claim denials collectively exceeding the total number of new defaults on insured loans. Despite this positive trend, our overall primary default rates continue to remain elevated compared to historical levels due to continued high unemployment and weakness in the U.S. housing and mortgage credit markets. We believe that a return to sustained profitability in our mortgage insurance business is dependent upon both a further reduction in the number of new defaults and an increase in the number of cures, particularly with respect to our older delinquent loans. Based on our projections, which are subject to significant risks and uncertainties, we expect improved operating results in our mortgage insurance business in 2012 compared to 2011, and while we expect an operating loss for our mortgage insurance business in 2012, we continue to expect to achieve marginal operating profitability in our mortgage insurance business in 2013. We are projecting a 15%-20% decrease in new defaults in 2012 compared to 2011, which compares to an 18% decrease in new defaults in 2011 compared to 2010. During the second quarter and first half of 2012, new defaults decreased 20% compared to the same periods of 2011.
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