Radian Group Inc. (RDN) Earnings

Management highlights

- Radian is now a global multiline specialty insurer with the completion of the Inigo acquisition, combining 2 world-class teams. - Refined segment reporting to Mortgage and Specialty segments, with corporate category including non-segment attributable items. - Mortgage Insurance business delivered strong operating performance, resumed share repurchases. - Inigo's results for 2 months since closing contributed meaningfully, consistent with expectations. - Radian Group's role is to manage capital thoughtfully across both businesses, supporting growth with attractive risk-adjusted returns and returning excess capital to stockholders. - Investor Day on June 4 in New York City to provide more detail on strategy, capital management, and opportunity from 2 complementary insurance businesses. - Team's dedication and commitment in executing the transformational plan.

Guidance

- Expect to continue to maintain strong financial and liquidity positions, support organic growth in both businesses, deploy capital to achieve attractive risk-adjusted returns and return excess capital to stockholders thoughtfully and strategically. - Expect approximately $600 million of dividends from Radian Guaranty to Radian Group during 2026, including the $140 million dividend paid in the first quarter. - Expect to repay revolving credit facility borrowing of $150 million in full during 2026, with holding company leverage ratio expected to be below 20% by year-end 2026. - Full year basis, expect between $200 million to $250 million of excess capital potentially available for opportunistic repurchase.

Segment performance

On a GAAP basis, net income from continuing operations was $129 million or $0.93 per share with a return on equity of 10.8%. Adjusted net operating earnings per share grew to $1.27, up 22% from a year ago. Adjusted net operating return on equity was 14.7%, an increase of over 130 basis points from a year ago. Book value per share grew 10% year-over-year to $35.67. Total revenues grew 58% year-over-year to $466 million. Net premiums earned are diversified across 2 segments, with Specialty segment accounting for 41% of first quarter net earned premiums. Mortgage segment: In-force portfolio grew 3% year-over-year to $282 billion, new insurance written was $13.5 billion (up 42% year-over-year), persistency was 81.3%, mortgage provision for losses and credit trends were positive with 13,600 new defaults (down 4% from prior quarter) and 13,700 cures (exceeding new defaults, reducing portfolio default rate to 2.51%). Mortgage segment operating expenses were $41 million, a decline of 6% year-over-year. Specialty segment: Reflects 2 months of Inigo's performance, net premiums earned $164 million, total loss provision $86 million (including $13 million of favorable net development for prior period reserves), net expense ratio 33% and net combined ratio 85%.

Risks & headwinds

- Comments made during the call include forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially. - Risks and uncertainties, as well as certain additional risks, are detailed in the 2025 Form 10-K and subsequent SEC filings. - Variability in Specialty segment combined ratio over time due to outside factors like competitive pricing environment and loss experience, which is difficult to predict.

Analyst Q&A

• Q: This is Graham, on for Bose. Congratulations on closing Inigo, first of all. But in Exhibit E, you show roughly $40 million of pretax income from Inigo. And then the January breakout, is another $14 million. Is that a good run rate, like roughly $55 million? Or is there some seasonality or additional expenses that we need to think about?

  A: Yes. Thanks, Graham, for the question. So as you noted, we did provide some additional guidance. The quarterly results really just reflects the 2 months, February and March since the acquisition. So we provided the month of January in our press release as well for Inigo, just to give you a more complete quarter to help establish a baseline for some of the key items on the Specialty segment P&L. As I noted earlier, we don't provide guidance on items like combined ratio, premium growth. Those are subject to outside factors, competitive pricing environment as well as loss experience, which is difficult to predict. There is some seasonality, as you alluded to in the business, both in terms of premiums and losses tend to see those recognized in line with where you'd expect the risk to take place during the year. But they'll generally move together. So on a net basis, not as much of an impact on the bottom line. I'll just reiterate that as far as fourth quarter results, we're pleased with what we saw. It was in line with our expectations for the quarter. No surprises on either the top line or the bottom line. We're already seeing the financial benefits of the transaction play through in terms of the increase in earnings, 22% increase in operating earnings year-over-year. 130 basis points increase in return on equity. As far as full year guidance, again, I can't provide anything more for you, but I will say our Investor Day that we're going to have in about 4 weeks is a great opportunity to hear more from the Inigo team as far as their business and what they expect to see over the balance of 2026 and beyond.

• Q: I wanted to start with the capital allocation outlook. Just how are you planning to balance share buybacks with debt paydown? And just remind us, any change to your [ debt to capital ] targets. I heard you on the 20%, but just longer term, any change, where do you want to get that debt to capital ratio down to just given your adding specialty and potentially some volatility there?

  A: Yes. So Mihir, thanks for the question. I'll start with the last point that you mentioned. As far as the debt-to-capital ratio, no change in our expectation there. We've noted we expect to repay the short-term draw on our credit facility during 2026, and that would take us back to the high teens from a leverage ratio perspective and certainly comfortable operating in that position. As far as capital management more broadly, I think I'll just start by talking about our holding company liquidity. So I noted last quarter, following the transaction closing, we had approximately [ $350 ] million of liquidity from that point forward to the end of the first quarter, we paid down [ $50 ] million of the credit facility. We repurchased $50 million of our common stock or 1.5 million shares. In April, we purchased an additional $65 million of our shares, bringing total repurchase so far this year to $115 million or 3.3 million shares. We were pleased to resume opportunistic share repurchases and continue to believe that share repurchase provides an efficient and accretive way to return excess capital to stockholders, particularly as the shares trade significantly below our view of their intrinsic value. During the first quarter, Radian Group also paid a quarterly dividend to stockholders totaling $35 million. As we noted last quarter, we drew $200 million on our revolving credit facility before the Inigo closing. During the quarter, we repaid $50 million, leaving $150 million outstanding at quarter end. We continue to expect to repay this borrowing in full during 2026. Our holding company liquidity at quarter end was $391 million. We expect dividends of at least $600 million from Radian Guaranty to Radian Group during 2026, including the $140 million dividend paid in the first quarter. Finally, our holding company leverage ratio was 20.2% at quarter end and we expect it to be below 20% by year-end 2026. I'd give you a range of between $200 million to $250 million that we would expect on a full year basis would be excess capital that would become potentially available for opportunistic repurchase.

• Q: Just on this topic, sorry. The one thing that I didn't hear you addressed was the $450 million, I think you have a Senior Note due next March. Just any comments on thoughts on that one?

  A: Yes. So we have -- we do have a maturity, as you noted, coming up in March of 2027. Current expectation would be that we would refinance that. Again, we're comfortable with the leverage ratio where we are and kind of the high teens when you factor in the expected paydown of the credit facility. So that is our current expectation of how we would handle that maturity either later this year or early next year kind of refinance there.

• Q: And then just on the MI business, the claims severity has been increasing quite a bit. Just any comments on just the [ driver ] and where you expect that to settle out?

  A: Yes. So on claim severity, we have seen that trend higher over the last several years and several quarters. I think what you see there is a couple of factors. One, you see more new loans that are kind of working their way into the default inventory and working their way to claim and those newer loans just have higher loan balances, higher risk in force on a per policy basis. You also see a little bit of a change in mix of -- in terms of the claims that are being paid and the mitigation benefits based on home price appreciation. Some of that has started to fluctuate and kind of decline a little bit over time, still very favorable to what we would expect. Typical severity pre-Covid was kind of 100% or above, and we're kind of in the 80% range. So still see that favorable to our expectations. Just a little bit of a fluctuation for those 2 factors that I mentioned.

• Q: And then just my last question, and I'll jump back in queue. Just -- obviously on the Specialty Insurance side. So I think a lot of us are still learning it, but we've heard a lot about softening of the pricing environment. Can you just talk about what -- where you're seeing the most pressure and how you're adjusting underwriting risk returns and where you're doing, maybe just allocating capital there?

  A: Yes. Thank you for the question. I think a key point of this business is all about managing kind of through the cycle, both softening markets and hardening markets. So I think we've certainly seen -- and we expect it through our M&A due diligence kind of the markets to soften. And as we come into 2026, that expectation has been consistent -- or at least the softening market has been consistent with our expectation. So I think as we go through and as we did our due diligence, we spent a great deal of time with the team kind of walking through their approach and process for that and really were impressed by not only their track records kind of going through multiple cycles, but just their whole philosophy and discipline about how they think about growth [indiscernible] creation and profitability. So cycle management is a fundamental skill in this business and financial discipline is critically important. So we -- I think it's important to note, too, that as you hear general comments about softening of market, there are still opportunities that can be identified, but it's also important to remember that pricing is coming off fairly high levels after the last 5 years. And so we see rate adequacy is still very good in many areas even with the pullback in pricing. But our focus is on managing the cycle well by remaining disciplined, by remaining agile and flexible, continuing to look for relative value and leveraging the data and analytics that we have, not to mention our strong customer relationship. So I think with our priority being profitability, as opposed to any particular revenue growth target, we see the team working with that discipline. And I think there are similarities to how we think and talk about our MI business, where we leverage data and analytics, strong underwriting with a focus on profitability and economic value to really identify the opportunities to allocate capital to and construct our portfolio accordingly. The interesting thing and the nice thing about the Specialty business is that there is product diversification across the business, which gives you a greater opportunity and a broader lens to kind of identify those opportunities and allocate capital where we see the highest risk-adjusted return. So given the experience of the team and working with them closely over the past several months, we're very confident in the team's ability to find value in this market and really to kind of navigate through the market cycle.