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06/16/2008
Radian Comments on Standard & Poor's Rating Action
PHILADELPHIA, June 16 /PRNewswire-FirstCall/ -- Radian Group Inc. (NYSE: RDN) commented today on the action taken by Standard & Poor's Rating Services (S&P). S&P lowered its financial strength rating to 'A' on Radian's financial guaranty business, including Radian Asset Assurance Inc., the Company's principal financial guaranty subsidiary. Radian Asset remains on CreditWatch with negative implications. The Company today issued the following statement:
We are disappointed by the actions taken by S&P. Unlike certain other
financial guarantors, Radian Asset was not downgraded due to any lack of
capital adequacy or credit issues. Radian Asset had $1.6 billion of
statutory capital as of March 31, 2008 and currently maintains
significant excess capital above the amount needed for a AA rating as
well as a comparatively strong insured portfolio. We note that this
downgrade will likely inhibit Radian Asset's ability to write business.
Radian Asset remains fully committed to its policy holders and will
retain the key staff required to honor those commitments.
S.A. Ibrahim, Chief Executive Officer of the Company, commented, "Despite S&P's decision to downgrade Radian Asset, we will continue ongoing discussions with the rating agencies and other key constituencies. Importantly, Radian Asset will now serve as a potential source of significant, non-dilutive capital for Radian. As a result, we are currently re-evaluating our capital strategy and reassessing our need for additional capital."
About Radian
Radian Group Inc. is a global credit risk management company headquartered in Philadelphia with significant operations in New York and London. Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, primarily through credit insurance products. The company also provides credit enhancement for public finance and other corporate and consumer assets on both a direct and reinsurance basis and holds strategic interests in credit-based consumer asset businesses. Additional information may be found at http://www.radian.com.
Forward-Looking Statement
All statements made in this news release that address events, developments or results 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. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking information. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties, including the following:
-- As a result of the S&P downgrade, up to $50.5 billion of Radian
Asset's total net assumed par outstanding is subject to recapture by
Radian Asset's primary reinsurance customers. If all of this
business was recaptured, we estimate that Radian Asset would
experience a reduction in written and earned premiums of
approximately $440.7 million and $82.3 million, respectively, a
reduction in the net present value of expected future installment
premiums of $177.5 million and a reduction in incurred losses of
approximately $48.8 million. Any recapture of business would
correspondingly reduce the amount of capital required to be held in
support of such obligations.
-- actual or perceived changes in general financial and political
conditions, such as extended national or regional economic
recessions, changes in housing demand or mortgage originations,
changes in housing values (in particular, further deterioration in
the housing, mortgage and related credit markets, which would harm
our future consolidated results of operations and could cause losses
for our mortgage insurance business to be worse than expected),
changes in liquidity in the capital markets and the further
contraction of credit markets, population trends and changes in
household formation patterns, changes in unemployment rates, changes
or volatility in interest rates or consumer confidence, changes in
credit spreads, changes in the way investors perceive the strength of
private mortgage insurers or financial guaranty providers, investor
concern over the credit quality and specific risks faced by the
particular businesses, municipalities or pools of assets covered by
our insurance;
-- actual or perceived economic changes or catastrophic events in
geographic regions where our mortgage insurance or financial guaranty
insurance in force is more concentrated;
-- our ability to successfully obtain additional capital, if necessary,
to support our long-term liquidity needs and to protect our credit
ratings and the financial strength ratings of our subsidiaries;
-- our ability to satisfy the covenants contained in our credit
agreement (including, but not limited to, financial covenants),
which, if we are unable to satisfy, could lead to a default on the
terms of that loan, upon which the lenders representing a majority of
the debt under our credit agreement would have the right to terminate
all commitments under the credit agreement and declare the
outstanding debt due and payable;
-- risks faced by the businesses, municipalities or pools of assets
covered by our insurance;
-- a decrease in the volume of home mortgage originations due to reduced
liquidity in the lending market, tighter underwriting standards and a
deterioration in housing markets throughout the U.S.;
-- the loss of a customer for whom we write a significant amount of
mortgage insurance or the influence of large customers;
-- disruption in the servicing of mortgages covered by our insurance
policies;
-- the aging of our mortgage insurance portfolio and changes in severity
or frequency of losses associated with certain of our products that
are riskier than traditional mortgage insurance or financial guaranty
insurance policies;
-- the performance of our insured portfolio of higher risk loans, such
as Alternative-A ("Alt-A") and subprime loans, and adjustable rate
products, such as adjustable rate mortgages ("ARMs") and
interest-only mortgages, which have resulted in increased losses in
2007 and 2008 and may result in further losses;
-- reduced opportunities for loss mitigation in markets where housing
values fail to appreciate or begin to decline;
-- changes in persistency rates of our mortgage insurance policies
caused by changes in refinancing activity, in the rate of
appreciation or depreciation of home values and changes in the
mortgage insurance cancellation requirements of mortgage lenders and
investors;
-- downgrades or threatened downgrades of, or other ratings actions with
respect to, our credit ratings or the insurance financial strength
ratings assigned by the major rating agencies to any of our rated
insurance subsidiaries at any time (in particular, our credit rating
and the financial strength ratings of our insurance subsidiaries that
are currently under review for possible downgrade);
-- heightened competition for our mortgage insurance business from
others such as the Federal Housing Administration and the Veterans'
Administration or other private mortgage insurers (in particular
those that have been assigned higher ratings from the major ratings
agencies), from alternative products such as "80-10-10" loans or
other forms of simultaneous second loan structures used by mortgage
lenders, from investors using forms of credit enhancement other than
mortgage insurance as a partial or complete substitution for private
mortgage insurance and from mortgage lenders that demand increased
participation in revenue sharing arrangements such as captive
reinsurance arrangements;
-- changes in the charters or business practices of Federal National
Mortgage Association ("Fannie Mae") and Freddie Mac, the largest
purchasers of mortgage loans that we insure, and our ability to
retain our Top Tier eligibility status from both Freddie Mac and
Fannie Mae;
-- the application of existing federal or state consumer, lending,
insurance, securities and other applicable laws and regulations, or
changes in these laws and regulations or the way they are
interpreted, including, without limitation: (i) the outcome of
private lawsuits or investigations (or the possibility of additional
private lawsuits or investigations) by state insurance departments
and state attorneys general alleging that services offered by the
mortgage insurance industry, such as captive reinsurance, pool
insurance and contract underwriting, are violative of the Real Estate
Settlement Procedures Act ("RESPA") and/or similar state regulations,
(ii) legislative and regulatory changes affecting demand for private
mortgage insurance or financial guaranty insurance, or (iii)
legislation and regulatory changes limiting or restricting our use of
(or requirements for) additional capital, the products we may offer,
the form in which we may execute the credit protection we provide or
the aggregate notional amount of any product we may offer for any one
transaction or in the aggregate;
-- 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 the premium deficiency for our second-lien
mortgage insurance business, or to estimate accurately the fair value
amounts of derivative contracts in our mortgage insurance and
financial guaranty businesses in determining gains and losses on
these contracts;
-- changes in accounting guidance from the Securities and Exchange
Commission ("SEC") or the Financial Accounting Standards Board
("FASB");
-- the possibility that we may not be able to achieve and maintain
effective internal control over our financial reporting;
-- legal and other limitations on the amount of dividends or other
distributions we may receive from our subsidiaries; and
-- vulnerability to the performance of our strategic investments,
including in particular, our investment in Sherman.
For more information regarding these risks as well as additional risks that we face, you should refer to the Risk Factors detailed in our filings with the SEC. We caution you not to place undue reliance on these forward- looking statements, which are current only as of the date of this news release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements made in this news release to reflect new information or future events or for any other reason.
Contact: For investors: Terri Williams-Perry - phone: 215 231.1486 Email: terri.williams-perry@radian.com For the media: Rick Gillespie - phone: 215 231.1061 Email: rick.gillespie@radian.com Eric Bonach / Nicholas Lamplough Joele Frank, Wilkinson Brimmer Katcher 212 355.4449 SOURCE Radian Group Inc.