RADIAN GROUP INC Q4 FY2024 earnings call

Key Points

• Rick Thornberry noted another excellent quarter/year with increased book value per share by 9%, net income of $604 million, and return on equity of 13.4%. $376 million was returned to stockholders through share repurchases and dividends.
• Primary mortgage insurance in force reached an all-time high of $275 billion. $2 billion of new insurance was written in 2024, with $13.2 billion in the fourth quarter, a 24% increase from Q4 2023.
• Strong capital and liquidity positions: Radian Guarantee had a PMIERs cushion of $2.2 billion, and available holding company liquidity was $885 million. Radian Guarantee paid $675 million in dividends, exceeding initial guidance.
• Expense management: Significantly reduced recurring expense structure; positioned to achieve run-rate operating expense reduction in 2025, expected to reduce operating expenses by $20 to $25 million compared to 2023.
• Housing market: Constrained existing home supply supports home values; private mortgage insurance market expected to be slightly larger.

The primary mortgage insurance segment was a key performer. Primary mortgage insurance in force reached an all-time high of $275 billion, a 2% year-over-year increase. Net premiums earned for the full year were $939 million, a 3% increase from the prior year. The investment portfolio generated net investment income of $270 million in 2024 when excluding mortgage loans held for sale, which was a 6% year-over-year increase. For other operating expenses, excluding impairments, the full-year 2024 combined cost of services and other operating expenses were reduced by approximately $85 million or 19% from the 2022 level.

Forward-Looking Statements

• For 2025, positioned to achieve the reduction in run-rate operating expenses started in 2024, expected to reduce operating expenses by $20 to $25 million compared to 2023.
• Expect mortgage insurance in force to have moderate growth, driven by a strong purchase market and high persistency of existing insurance in force.

Risks

• Forward-looking statements subject to risks and uncertainties, including those in earnings release and 2023 Form 10-Ks filed with the SEC.
• Default rates could be impacted by macroeconomic environment; hurricane-related defaults could affect results, though excluding hurricane-impacted areas, new defaults declined in the fourth quarter.

Q: Terry Ma asked about credit outlook and default rate for 2025.

A: Derek Brummer stated expected sub-3% default rate barring economic dislocation; Sumita Pandit added new defaults excluding hurricane areas declined 3% quarter over quarter.

Q: Doug Harter inquired about assumed claim rate and loan characteristics in default.

A: Sumita Pandit clarified 7.5% roll rate applied to all defaults, not separated by hurricane impact; Derek Brummer noted no material changes in loan characteristics of defaults and consistent embedded equity in new defaults.

Q: Bose George asked about leverage and capital return.

A: Sumita Pandit said comfortable with current leverage, business organically deleverages; capital return from Radian Guaranty to group driven by unassigned funds, with potential dividends up to $795 million without Pennsylvania approval.

Q: Scott Heleniak asked about GSE reform and HomeGenius restructuring.

A: Rick Thornberry said GSE reform dialogue ongoing, unlikely to see comprehensive housing finance legislation in near term; Sumita Pandit discussed expense reductions, with 30% reduction in FTEs and 19% reduction in expenses excluding impairments since 2022.

Q: Mihir Bhatia asked about portfolio yield, insurance in force growth, credit standards, and Radian Mortgage Capital.

A: Sumita Pandit said overall portfolio yield was 3.9%; Rick Thornberry and Derek Brummer noted moderate insurance in force growth driven by purchase market and high persistency, no material deterioration in credit standards of originations, and Radian Mortgage Capital focused on scaling business in medium term with positive demand.