Radian Group Inc (RDN) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Welcome to today's Radian fourth-quarter and full year 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session with instructions given at that time. (Operator Instructions) As a reminder, today's conference is being recorded. And I would now like to turn the conference over to our host today, Emily Riley, Vice President of Financial Communications.

Thank you, and welcome to Radian's fourth-quarter 2012 conference call. Our press release, which contains Radian's financial results for the quarter, was issued earlier today and is posted to the investors section of our website at www.Radian.biz. During today's call you will hear from S.A. Ibrahim, Radian's Chief Executive Officer, and Bob Quint, Chief Financial Officer.

Also on hand for the Q&A portion of the call are Teresa Bryce Bazemore, President of Radian Guaranty; David Beidler, President of Radian Asset Assurance; Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty; and Derek Brummer, Chief Risk Officer and General Counsel of Radian Asset.

Before we begin I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections, and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially.

For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2011 Form 10-K, as well as subsequent Quarterly and other reports and registration statements filed with the SEC. These are also available on our website.

Now I would like to turn the call over to S.A.

Thank you, Emily. Thanks to all for joining us and for your interest in Radian. Today I will first provide highlights from our fourth quarter and full year 2012 results. Then I will focus my comments on the priorities we set for 2012.

First, how we at Radian continue to grow our mortgage insurance franchise and capture a larger amount of new, high-quality business. Second, what we are doing to mitigate our mortgage insurance legacy losses. Third, how we are reducing our risk exposure in Financial Guaranty to provide an important capital support to the mortgage insurance business.

And, fourth, how we are positioning Radian for success as the housing market recovers and for a return to MI operating profitability this year. Bob will then cover the details of our financial position and I will provide a few closing comments before we open the call to your questions.

Earlier today, we reported a net loss for the fourth quarter 2012 of $177 million, or $1.34 per diluted share. For the full year, the net loss was $452 million, or $3.41 per diluted share. At December 31, 2012, our book value per share was $5.51.

The fourth-quarter net loss was driven in part by an increase to our IBNR, a components of our loss reserve that consists primarily of estimated denial reinstatements. Bob will discuss this impact to our incurred losses in more detail.

It is also important to note that the typical seasonal default and cure patterns that we mentioned in our third-quarter call as an expectation for the fourth quarter did not materialize, which is a positive indicator of our improving portfolio.

Additionally, in January, new defaults were down 28% from January 2012 and cures were 109% of our new defaults. The January 2013 new default rate was the lowest monthly rate we have seen since December 2005.

The Radian Guaranty's risk to capital ratio was 20.8 to 1 at year end 2012, reflecting an improvement from 21.5 to 1 at year end 2011. And importantly, we now expect Radian Guaranty to remain below 25 to 1 throughout 2013. This will include, if necessary, contributions from currently available Holding Company funds.

Now let me turn to the topics that we believe are top of mind. First, we continue to write more new high-quality mortgage insurance business that can generate strong returns. We wrote $11.7 billion in new business for the fourth quarter and $37.1 billion for 2012.

We wrote an increasing volume of new MI business each consecutive quarter in 2012 and ended the year with more than double the amount of new business than 2011. And we continued our momentum in January with our second-largest and NIW month in the past five years of $4 billion, which compares to only $2 billion written in January 2011. We look forward to continued strong volume this year and we expect our total NIW in 2013 to surpass our 2012 volume.

From 2009 to the end of this January, we wrote a total of $85 billion of new business, creating an impressive earnings ramp that we expect to lead us towards future profitability. Our sales strategy for bringing in business, both from existing and new customers, continues to be successful.

In 2012, more than 325 new customers chose Radian as their MI partner. And those relationships mean new opportunity, as 21% of new mortgage insurance business in 2012 and 25% in January came from customers new to Radian within the last two years, with our pipeline of prospective new customers remaining very strong.

In the last two years, mortgage originations have been driven by high volumes of refinance activity, and at some point in the near future, the market is expected to transition from refi to purchase. It is important to note that the MI penetration for purchased loans is significantly higher than it is for refi loans, and that purchases tend to be more skewed towards monthly versus single premium MI.

For the past two quarters, I have mentioned the outstanding teams at Radian that help to drive our NIW success, which include sales and training. Today I would like to mention a group that is working incredibly hard behind the scenes -- our underwriters, operations, and customer service teams that supported our outstanding quarter by quarter NIW growth in 2012. They helped make it even easier to do business with Radian, which is key to our success.

In 2012, our customer care team fielded 50% more calls than they did in 2011. Our service center underwriters were busy processing 125% more applications in 2012 than in 2011. And our customers were able to quickly and easily access Radian's rates using their Android, iPhone, or iPad.

The three new members of our sales team announced last week is another example of our continued confidence and commitment to an ongoing investment in our franchise, which will continue in 2013.

Now turning back to our mortgage insurance book of business and slide 19 on our webcast presentation, it is important to note that, as of the fourth quarter, the 2009 through 2012 books grew to nearly 45% of our primary risk in force. And the most problematic 2006 and 2007 books are now down to under 26%. We continue to expect that given the volume of new business we write each quarter, by the second quarter of this year our book of business written after 2008 will be larger than the book written in 2008 and prior.

And the latest HARP program continues to improve the credit profile of our legacy book. More than 9% of our risk in force has completed a HARP refinance. And this, combined with our newer, quality book of business, represents a strong portfolio that is now larger than our legacy book, representing 54% of our total primary mortgage insurance risk in force.

This improved composition of our mortgage insurance portfolio is one of the primary drivers of our expected return to MI operating profitability this year. You can already see the increasing impact of this new business on slide 18 on our webcast presentation, where the 2009 and subsequent vintages are clearly providing a larger, positive contribution to the overall book.

Additionally, our gross total primary insurance in force is now growing again and increased from $126.2 billion at year end 2011, to $140.4 billion at year end 2012, resulting in our MI premiums earned, net of ceded reinsurance premiums, increasing from $681 million in 2011 to $702 million in 2012.

Second, we continued to focus on mitigating losses in our mortgage insurance portfolio. The improvement in our portfolio of defaulted loans continues, with a steady decline of 2% from the third quarter and 16% year over year, as you can see on slide 22. And the default rate on our primary book fell further in the fourth quarter to 12.1%.

As we work through our legacy book of business, we maintained $3.1 billion in loss reserves which represents more than three times the claims we expect to pay this year. And our primary reserve per default increased in the fourth quarter to $29,510, our highest level ever, up from $26,007 at the end of 2011 and $23,374 at the end of 2010.

You will find the details of our rescission and denial activity on slide 20 of our webcast presentation. These rates continue to remain elevated as we review claims where errors in underwriting are common.

We also continue to review each claim carefully to ensure that the servicing standards referenced in our master policy have been followed. Our average total claim paid in 2012 was $48,700, down from $51,900 in 2011, in part due to our ongoing effort to curtail claim payments based on servicing negligence.

What is most important to remember is that we continue to pay appropriate claims while enforcing our rights on poorly underwritten, fraudulent, or negligently serviced loans.

Third, our Financial Guaranty business continues to serve as an important and unique source of capital for Radian Guaranty. Our Financial Guaranty team in New York remains focused on surveilling our existing exposure and pursuing opportunities for commutation and risk reduction.

We successfully reduced our net par exposure from a peak of $115 billion in June 2008, when Radian Asset stopped writing new business to $34 billion in the fourth quarter of 2012. This represents a decline of our total Financial Guaranty risk exposure of 71%, which includes several successes in 2012.

In January we announced a transaction with Assured Guaranty that commuted a $13.8 billion reinsurance portfolio and ceded an additional $1.8 billion of public finance business. This added $100 million to Radian Guaranty's statutory capital in 2012.

In April, we significantly improved the credit profile of our Financial Guaranty book by commuting our entire CDO ABS exposure and a significant portion of our riskiest TruPS exposure. In May, Radian Asset released $55 million of contingency reserves with the approval of the New York Department of Financial Services.

In November, we agreed to the commutation of our remaining reinsurance risk from FDIC. This commutation was completed in January and consisted of an $822 million reinsurance portfolio.

Through actions taken in 2012, we successfully reduced our public finance exposure by 56%, including nearly 90% of our exposure to Jefferson County, Alabama. Similarly, our structured finance exposure was reduced by 50%, including nearly half of our CDO book. As you can see on slide 30, our remaining $13.8 billion corporate CDO exposure matures over the next four years, with 35% maturing by the end of 2013.

Finally, last week Radian Asset received regulatory approval to release another $61 million of contingency reverse reserves which will benefit Radian Guaranty's statutory capital position. While we had anticipated the reserve release and included it in our risk the capital projections for 2013, the amount released was slightly higher than we have projected. Today the total cumulative release of contingency reserves related to the direct book since 2008 now stands at $425 million.

Also, since 2008 Radian Asset has paid Radian Guaranty a total of $384 million in dividends and expects to pay another dividend of approximately $35 million to Radian Guaranty this year. As of February, approximately $230 million in contingency reserves remains to support Radian Asset's existing risk. This represents an opportunity over time to add to Radian Guaranty's statutory capital as the exposure is ultimately reduced and contingency reserves are released. As of December 31, 2012, Radian Asset maintains statutory surplus of $1.1 billion.

Fourth, while some challenges and volatility still remain in the economy, and in our legacy portfolio, there is now broad data from multiple sources indicating a solid recovery in the housing market after many years of declines. Based on our performance and trends, we continue to project a return to marginal level of MI operating profitability in 2013 and look forward to a return to more normalized profitability over the next couple of years.

Our industry continues to slowly but steadily begin regain share from the FHA, which presents another opportunity to increase our new business volume. Penetration for our industry has doubled over the past two years and increased nearly 2.5 points in 2012 alone.

Additionally, Acting FHA Commissioner, Carol Galante, announced another price increase for the FHA, effective April 1, stating that the decision was designed in part to, and I quote, continue encouraging the return of private capital to the housing market, end quotes. The FHA also decided to remove the benefit of cancellation from its coverage, which we feel is another competitive advantage for private mortgage insurance.

Meantime, on Capitol Hill, we continued to hear resounding support in Congress for a larger role for private capital, including private mortgage insurance in the future of housing finance. This theme echoed throughout the financial services committee hearings last week, where the role of FHA was questioned and its financial condition challenged. This sentiment, along with the FHA's recent actions, should help our industry continue to return to a more traditional and sustainable balance between government and private mortgage insurance.

Now, I would like to turn the call over to Bob for details of our financial position.

Thanks S.A. I'll be updating you on the P&L activity and trends for the fourth quarter of 2012, our capital and liquidity positions as of year-end 2012, and some expectations regarding 2013.

The MI provision for losses is $307 million this quarter compared to $172 million last quarter and $333 million a year ago. The increase in incurred losses compared to the third quarter is due primarily to the increased trend of denial reinstatements that occurred this quarter. Based on this experience, in the fourth quarter we increased our IBNR reserve for future reinstatement.

While the historical reinstatement rate for denials is clearly in the 50% range as depicted on slide 21 in the webcast slides, we have taken into account the very recent reinstatement activity and prudently increased the initial estimated denial reinstatement rate to approximately 60%. That initial 60% rate declines over a 12-month period as the outstanding denials age and actual reinstatement occur. We will continue to monitor this rate closely in 2013.

If the reinstatement rate remains at 60%, no further net adjustments to reserves would be necessary over time. If the rate were to rise unexpectedly to 75%, the impact to total loss reserves as of 12/31 would have been approximately $100 million. The net increase to the total IBNR this quarter was $61 million, resulting in the year-end figure of $323 million.

You will see on slide 11 that a large component of incurred losses this quarter were from the existing default line, which reflects the impact from both actual reinstatements as well as the IBNR increases during the quarter and the normal aging of delinquent loans.

The amount in our year-end balance sheet representing future denials and rescission was $455 million. The composition of the new default line continues to be at least 75% repeat defaults, which we consider positive as historically repeat defaults have had a much lower claim incidence than first-time defaults.

In addition, defaulted loans moved to foreclosure had a stable rate throughout 2012, and loans submitted as claims were relatively low in the fourth quarter. Both of these items are critical to determining future paid losses.

For 2013 we continue to expect a much smaller incurred loss line, driven by an estimated decline in new defaults of approximately 24% with no material expected changes to default composition or net roll rate expectations. Paid claims in 2013 are estimated to be between $900 million and $1 billion.

The 2009 and subsequent vintages continue to be profitable and are growing as a proportion of our total business as depicted on slide 18. Radian has written a meaningful volume of single premium business over the past few years, as we have successfully marketed the product as a competitive product to FHA.

While discounted, such single premium business appears to be very profitable, with loss ratios of 2012 that are similar to those from monthly premium and other business written during this same time period.

Radian Guaranty's year-end risk to capital ratio is estimated to be 20.8 to 1, with $157 million of excess statutory surplus above a 25 to 1 risk to capital ratio. The primary drivers of the changes in our risk to capital this quarter were the operating losses which reduced capital, and the strong new insurance written which increased gross risk in force, offset by our external and intercompany reinsurance, both of which reduced net risk in force, and some additional statutory capital benefits relating to unearned premiums and deferred taxes.

Radian Guaranty ended the year with $926 million of statutory capital compared to $843 million a year ago. For 2013 we expect our strong new insurance written volumes will continue to increase Radian's gross and net risk in force. Statutory capital levels are expected to remain near current levels throughout 2013.

Fair value gains and losses were minimal this quarter as collateral spread tightening was offset by the tightening of Radian's credit spread. Slide 9 depicts our current balance sheet fair value position, along with the expected net credit losses and recoveries of fair value exposures.

Based on our projections regarding future credit loss payments and recoveries, we expect to add approximately $244 million or $1.82 to pretax book value over time as the exposures mature or are otherwise eliminated. That number is derived by taking the net balance sheet liability of $185 million and adding the present value of credit loss recoveries of $59 million. Both of these numbers are slowed showed on slide 9.

Operating expenses this quarter were impacted by increases in our stock-based compensation expenses, which were $13.5 million for the quarter compared to $1.3 million in the fourth quarter of last year.

As of December 31, 2012, the valuation allowance against our deferred tax asset is approximately $990 million, or $7.41 per share. We have zero remaining admitted DTA for GAAP purposes as the majority of our $20 million fourth-quarter tax provision represented the write-off of our remaining assets, due to our determination in the fourth quarter that there is an extremely low likelihood of a near-term IRS settlement. The most likely next step is tax litigation, which would likely take several years for final resolution.

We continue to believe that our full DTA will be realized in the future, and the realistic timeframe when we can potentially reverse some or all of the valuation allowance is still expected to be sometime in 2015. We will have approximately $257 million available at the Holding Company after the upcoming full repayment of our 2013 debt. After completion of the exchange and extension of most of our 2015 debt, we have $55 million remaining part maturing in June 2015 and $195 million of par maturing in 2017, in addition to the $450 million convertible debt, which matures in November 2017.

We anticipate using current Holding Company funds primarily to support the Operating Company and will make contributions, if necessary, to help ensure Radian's strong new business volume and market position, which is the key to Radian's return to profitability. I'd now like to turn the call back over to S.A.

Thank you, Bob. Before we turn to the operator, I would like to summarize four important points. First, we wrote more new MI business each consecutive quarter in 2012, and ended the year with $37.1 billion in NIW, a number we expect to surpass in 2013.

Second, since 2008, we reduced our Radian Asset risk exposure by 71% while paying $384 million in dividends to Radian Guarantee and releasing $425 million in contingency reserves. Our statutory surplus stands at $1.1 billion.

Third, at the end of fourth quarter, our risk to capital ratio was 20.8 to 1 and we do not expect to breach 25 to 1 in 2013. Fourth, we successfully extended nearly 80% of our 2015 debt obligation to 2017, leaving a total of $55 million due in June 2015.

What continues to excite us at Radian is moving closer to realizing the promise of a profitable future that will be driven in part by the size and earnings power of the high-quality new MI business we have written since 2008. Our success in writing new business continues, driven by our strong customer relationships, a highly skilled and dedicated Radian team, and our competitive risk to capital ratio as well as the support of our stakeholders.

Now, operator, I would like to open the call to questions.

(Operator Instructions) Douglas Harter, Credit Suisse.

Thanks. You guys disclosed the combined insurance ratio, that being risk to capital ratio -- sorry, of being close to 30 times. Can you just tell us what type of impact that has versus the 25 to 1 that you are referencing that you'll expect to stay under on the main insurance subsidiary?

Doug, this is Bob. The only risk to capital ratio that matters for writing new business is Radian Guaranty's, which is 20.8 to 1. And that's the one we said would remain below 25 to 1 for 2013. The other MI insurance subsidiary's combined risk to capital is that other number, and we wanted to disclose it, to show it, but it really doesn't matter whatsoever for writing new business.

Great. And then, if you guys could talk about, from a competitive standpoint, you saw Arch Capital buying the PMI platform and NMI getting approval to write new business. So I guess how are you guys viewing the competitive landscape with those potential new entrants?

Doug, let me answer that. First, we believe that the entry of such large amounts of new capital shows that a lot of people believe that the mortgage insurance business is going to be attractive and profitable going forward, which, for us already in the business, is good.

Second, we believe that new capital coming in and the strengthening of the mortgage insurance industry will play well with Capitol Hill, because it validates the mortgage insurance business model with policymakers who are starting to deliberate the future of the housing finance industry. Third, the new entrants announced bring the number of participants in the mortgage insurance industry to the same number that existed prior to the downturn, and we have competed with that number in the past. The major difference being we now will be competing with the same number of players from a stronger position in the market, particularly given the number of new customers that we have added in -- added to Radian and continue to bring into Radian.

And finally, the mortgage insurance market could increase in the future as the FHA pulls back and as the housing market returns to a more normal level, driven by more purchase than refi. So that is a comprehensive view of the new competition and the competitive environment.

Thank you, S A.

[Craig Perry, Panning Capital].

Hey, guys. Thanks for taking the call. I just had a couple of quick questions. The first is just in relation to your commentary about making operating profitability this year. Is there any way you can help us understand kind of seasonally when you would expect that profit to occur? Based on my numbers and based on kind of the January number, it would appear that Q1 would be a profitable quarter.

The second question, somewhat related, is, any update that you care to provide to the market about the actual profitability of the new business you've written? I'm looking at slide 18. And I think you've, in the past, said sort of 15% ROEs. That seems extremely conservative relative to the performance of the portfolio you've written in 2009 onward.

I know your competitors at Genworth kind of have used sort of a 20%-plus figure. Maybe you could just provide some commentary there. And then third, and lastly, Bob, could you just help us understand the deferred tax asset of almost $1 billion? Why is it that, if you achieve operating profitability this year, you wouldn't be in a position to write that back up sooner?

I just know, from my experience with some of the regional banks, that I think it's sort of three or four consecutive quarters of profitability are enough or sufficient to cause a write back up of that asset. Could you just walk us through what conditions have to be met to write that asset up? Thanks so much, guys.

Okay. I'm glad you don't have a fourth one. So as far as the first question, we've talked about the whole year achieving this marginal MI operating profitability. Certainly, the first quarter, from a seasonal standpoint, is typically our best quarter. We've gotten off to a very good start, as you can see from our January results.

So we are on our way for the first quarter, but we're really talking throughout the whole year. And as we saw, the fourth quarter, which is typically from a seasonable standpoint, the worst from new default and cure standpoint wasn't really that way. So that's a reflection of our changing composition and our better book of business.

Your second question, regarding the vintages, the 15% ROE, which is really a modeled ROE that we use over a cycle, clearly it appears that the 2009 and subsequent vintages, from what we can see so far, will be better than that -- perhaps significantly better than that. It does look like 2010 is better than 2009 and 2011 is better than that. So these books can very conceivably end up being north of 20%, perhaps significantly. The 15% that we use is really over time over a cycle.

Got it. Okay.

And the third question, regarding the DTA, that's still -- the 2015 is still our expectation. There are a variety of tests that you need to go through. They are cumulative income -- or cumulative loss tests that need to be observed as well as a return to profitability.

So there is no hard, fast, exact rule. But based on what we can see, just a return to profitability in 2013 or even 2014 won't necessarily get to the point where we can book a reversal to the valuation allowance. We'll keep updating this, but at this point, some or all of the reversal in 2015 appears the most realistic.

Got it. Okay. But it is conceivable that it could happen sooner as well, depending on how things develop.

It's conceivable, but we would not expect it at this point.

Got it. Thanks, guys.

Steve Stelmach, FBR.

Hi. Good morning. S.A., you noted that in 2012 the book has finally started to grow again, yet premium revenues were down in 2012. When can we start to expect to see premium revenue, on an annual basis, start to grow similarly as the book is?

You mean proportional to the book growth?

Yes, or just growth at all. I know there may be some sort of lagging component, also the single premium component was a higher percentage of the overall mix historically that it is likely to be going forward due to the purchase commentary you gave. But should we start to see total premiums begin to grow year-over-year at this point?

Yes. Yes. You should expect to see that. Obviously, also, you need to factor in the numbers that we showed and I referenced, the impact of reinsurance.

Yes. And then, just sort of dovetailing into that, you mentioned staying below 25 to 1 risk to capital in 2013; presumably the world's a better place in 2014 and 2015. Why can't we expect to sort of stay below 25 to 1 for the foreseeable future at this point?

Bob?

Yes, I mean, I think what we're really looking at is, for the next year, we expect to stay below. We are writing significant volumes and we think, over time, the mortgage origination market is going to come back strong. The purchase market is going to come back.

So it could be that the volumes of new insurance written drive the risk in force significantly higher. So that's why we are really not commenting on -- beyond 2013. But it's important to know that, for 2013, we expect to stay below and that will allow us to keep writing.

Okay. Great. And then, just lastly, on page 18 is that, call it, $256 million, roughly, of sort of 2009 and more recent premiums earned. What percentage of that was single premiums and what's more the monthlies or the annuity type aspect?

I don't have the exact number. Most of it was monthlies.

Yes. I would assume so.

For the past couple years, we've written -- you know, this year we wrote about a third in singles. Now that's going to be more in the premiums written as a component than it is beyond. So it's still mostly monthly that make up the premiums earned.

Got it. All right, guys. Thank you very much.

Jasper Burch, Macquarie.

I guess, starting off with, on the 2013 profitability guidance, could you give us a little bit more color in terms of what you are sort of in the base case assuming for the change in NODs and for NIW?

Yes, Jasper, it's Bob. I said that we expect a 24% decline in new defaults year over year. Now, January was 28%, just as an initial comparison. But that's the number we expect, and that's the number we expect to drive the incurred losses, as well as no material changes in the net roll rate assumptions.

Okay. That's helpful. And that factors in changes to HARP and sort of burn-off on that?

It factors in. Certainly, we expect HARP will continue this year, but there's not a material component of the expectation regarding HARP. But that does help the composition of the portfolio for sure.

Okay. And then, you guys spent a little bit of time talking about the competitive landscape and sort of -- to a lot of people it looks a lot like a homogeneous product. And so, how do you sort of compete other than on pricing to really gain market share or continue to grow relative to your competitors?

This is Teresa. And we've been very focused on working with our customers to help them grow their business and for us to grow with them. You know, we've been very sort of customer focused.

We've also help with training, feedback on how their portfolios are performing from a risk analytics point of view. And we believe all of that has sort of enhanced the relationship.

S.A.'s talked in the past about our training. We believe that that's another thing that adds value in terms of the customer as well as improving the portfolio of business that we are seeing from them. So we believe that that, along with the increase in the number of customers that we are working with, positions us well going forward.

Okay. That's helpful. And then, just lastly, S.A., you've mentioned the transition from really a refi driven market to more purchase volumes, at least relative in terms of issuance. I was wondering, is there a real difference in terms of the profitability of writing either refi versus purchase volume in terms of either the premiums or, I guess, the persistency on the book or just the returns you would expect?

On the surface, the profitability per product is very similar. But when you take into consideration that the purchase business typically has a larger complement of monthlies versus single, the composition should yield higher profitability.

That's helpful. Thank you guys very much for all the color. It's very helpful.

Jordan Heimowitz, Philadelphia Financial.

Thanks, guys. Two quick things because most of them have been answered. First of all, you talked about a 15% return on equity. If we're sitting here two years from now and you get the DTA back, you have equity only about $14. And then you'd be making about a $2 number on that. Is that mathematically correct, not predicting you're going to make that or not, but is that the way to think about it?

You can certainly arrive at those numbers, based on the trajectory of earned premiums and then down to a normalized loss level. So you can get there, but certainly we are not providing those projections.

Okay. And actually my other question was answered. Thank you.

Geoffrey Dunn, Dowling and Partners.

Thanks. Good morning, guys. First question, just technical, so your consolidated risk the capital, does that include CMAC or just the Radian Guaranty umbrella?

All of the MI companies, so yes, [included].

Okay. And then, Bob, can you help us think about your paid claim guidance, basically, is another year of kind of flat outgoing cash flow. Can you add some color to that with respect to Freddie's directive to clean out your pending claim inventory? And in a multiyear scenario, are we basically looking at several years of billion-dollar claim payments to clean up the inventory and really no acceleration at this point?

Yes, I think, certainly, the component of the Freddie agreement is taken into account in our projections. And I would say claims paid will be elevated for the next several years. We do expect them to come down a little bit next year and probably thereafter, but still remain elevated because of the prolonged timeframes, everything that we know about.

Okay. So you are looking at more of we've already reached peak on outgoing claim payments versus down the road a pickup or sustaining these levels.

Yes. We think 2011 was the peak, and we think they are going to remain elevated. So they may not come down very quickly, but we don't think they're going to go up.

Okay. Great. Thank you.

Sure.

Jack Micenko, SIG.

Hi. Thanks. Wanted to talk first about the mix of single and monthly; I think you're now about 65/35. Where could that mix ratio go to, in a more robust purchase market, with the FHA increases continuing? Where was that back in prior points in the cycle, where you sort of switched over to purchase? And then, how do we think about the ROE differential between single versus monthly pay?

With an increase in the purchase market, certainly, the single percentage can come down perhaps to the 20s, which, in our minds, that's an ideal mix. The modeled ROE for monthlies is in the mid to higher teens. The modeled ROE for singles is in the very low double digits.

But, remember, that's based on assumptions and based on a duration assumption that, if it's longer, it's going to be better for the monthlies and not as good for the singles. If it's shorter, it's going to be better for the singles, and vice versa.

But we look at the mix combined and we say that, if it's a little bit longer than our expectations overall, the book is going to be better because we're still writing more monthlies. So we like the mix. We'd like it to be a little bit lower than the current mix of singles, and we expect that that will happen as the purchase market picks up.

Okay. And then on the denial reinstatements, can you share what's potentially happening there? Is there something on the servicing side that's more industrywide? Is it a single servicer, anything they are tied to some of the recent settlement and completion of the foreclosure over the years?

Good morning. This is Scott. It's probably not related to anything like that, but we have been working with our servicers to identify efficiencies in processing reinstatement requests. The goal is to either quickly be there finalizing denial or reinstating the claim. So it's more about getting things done sooner.

Okay. Thank you.

Matthew Dodson, JWest.

You guys have done a great job with your risk to capital ratio, and you have also done a great job with the capital. Can you talk a little bit about, if you take out the [13] that you have due and then the $55 million that you have left?

You have about [200] at the Holding Company. And I mean it looks like you guys have made it to the other side. So how do you think about potentially raising capital again at the Holding Company and how should we think about that?

Clearly, we believe that capital and liquidity have been a critical factor for us, and we also believe that financial strength will continue to be an important differentiator going forward. Therefore, we've been and will continue to evaluate opportunities for improving our capital and liquidity positions on terms that are favorable and acceptable to us.

Thank you.

Thank you, Mr. Dodson. Any further questions?

No thank you. Thank you.

Bose George, KBW.

Good morning. First a political question. To me, it looks like the GSE first loss risk-sharing product is probably going to happen fairly soon. I was just curious if that's the market that you guys could potentially participate in?

This is Teresa. There continues to be a lot of discussion around that, as well as whether there would be more movement on FHSA talking about deeper MI coverage, but right now that seems to not be moving forward at the moment. So we don't really know what the timing is going to be in that regard. We continue to have discussions about how we can participate in the strategic plan that the FHSA has.

Okay. Great. Thanks. And then just, actually a question, you noted earlier that you expect to 2013 NIW to be higher than 2012. Do you have an expectation for growth in insurance in force for either yourself or the industry?

I think at this point we don't have an estimate that we could share with you, but I think we do expect a couple of things. One is, we expect the penetration for the MI product to be up, because of particularly the growth in purchase transactions that we are expecting as well as the FHA announcements. They have a price increase coming in April and they're also planning in June to eliminate their cancellation of the MI premium going forward. We think those things will both help the MI -- private MI industry write more business.

So we think, at the end of the day, that will help with kind of the growth of NIW in 2013. And we feel good about where January ended in that regard.

Okay. Great. Thank you.

Steve Stelmach, FBR.

Yes. Just a follow-up and I think it's probably for Teresa. HARP put out their disparate impact language, I think on Friday. One, are you guys subject to disparate impact? And, two, if not, and disparate impact sort of complicates lenders' ability to risk-base price, does that create an opportunity for mortgage insurance?

Steve, we are sort of just looking at that just in the way that you are. We are certainly subject to HUD's views on disparate impact. So I don't know whether I can comment at this point about whether that creates any opportunity for us, but we certainly will be looking closely at that.

Great. It's certainly not a negative, but neutral to maybe possibly positive. Is that the right characterization you would (multiple speakers)?

I don't think I can characterize it any way at this point. But I would say that we have always been subject to the fair lending guidance of HUD, and so it's something that we always had an eye to. So if anything, will be looking to see if that list changes anything going forward or gives us any opportunity going forward, but I can't say that we know that at this point.

I realize it's pretty early innings, so thank you for the color.

Sure.

Jordan Heimowitz, Philadelphia Financial.

Sorry. One more follow-up question please. The [AGO] ruling last week against Flagstar, I know that was non-agency primarily, but it is also precedent-setting. And I'm just wondering, if that is reaffirmed on appeal, do judgments like that -- are they factored into your rescission guidance at this point?

We have always said in the past with similar kinds of actions taken by financial guarantors that, really, it's apples and oranges when you compare their remedies and their contracts versus our remedies and our contracts. Our process is looking at loan by loan, getting a claim, determining whether it was underwritten properly or fraudulently or serviced properly, and doing what we have been doing.

I -- well, but they also endorsed statistical sampling in his ruling. So that's a little bit different, but you still have a little bit of non-agency, if I'm correct. But independent of that, wouldn't it make it easier if there's an increasing move towards accepting denials and rescissions, wouldn't that even you more impetus to look where there's more of a process going forward to make these guys re-look at some of the things that have been sent to you over time?

All I can say is, we look at all of those decisions and evaluate them against our -- what we are doing. But we also understand that our business and our relationship with our services and lenders is on a different contractual basis.

Okay. Thank you.

Thank you. And I'd like to turn the conference back over to S.A. Ibrahim. Go ahead, please.

Well, I'd like to thank everybody for participating in our call and for the robust questions. And, with that, I'd like to conclude the call for this quarter. Thanks.

Thank you very much. And as you heard, ladies and gentlemen, that concludes our conference today. We appreciate your participation and your using AT&T Executive Teleconference. And you may now disconnect.