Earnings Call Transcript - RDN Q4 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Radian Group Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bob Lally, VP Finance. Please go ahead.

Robert Lally, VP Finance

Thank you, and welcome to Radian's Fourth Quarter 2025 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Dan Kobell, Senior Executive Vice President and Interim Chief Financial Officer. Before we begin, I'd 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 more information regarding these risks and uncertainties as well as certain additional risks that Radian faces, you should refer to the risk factors included in our 2024 Form 10-K and our third quarter 2025 Form 10-Q as well as the subsequent reports filed with the SEC. Now I would like to turn the call over to Rick.

Richard Thornberry, CEO

Good morning, and thank you for joining us. I am pleased to report another strong quarter for Radian, rounding out an outstanding year, both in terms of our financial performance and the beginning of an exciting strategic transformation of our company with the acquisition of Inigo. Our performance in 2025 demonstrates the strength of our core business and the disciplined execution of our strategy. We grew our mortgage insurance in force portfolio to an all-time high. We maintained strong credit performance and operational discipline. We continue to generate substantial capital, distributing $795 million from Radian Guaranty to our holding company and returned $576 million to stockholders through dividends and share repurchases. And we used risk distribution strategies to effectively manage our capital and proactively mitigate risk. Most notably, earlier this month, we completed our strategic acquisition of Inigo, a highly respected specialty insurer underwriting through Lloyd's of London. Importantly, we funded this transaction entirely with available liquidity and excess capital with no new equity raised. This marks a defining milestone in Radian's history and the beginning of an exciting new chapter. We believe this is truly transformative for Radian's future. Building on a strong foundation as a leading U.S. mortgage insurer, we are now poised to expand and diversify into a global multiline specialty insurer. We have the unique opportunity to leverage our high-performing Mortgage Insurance business, which is expected to continue generating excess capital alongside a growing and global specialty insurance business. The acquisition significantly expands our expertise, capabilities and geographic reach, greatly increasing our total addressable market and position us to deploy capital strategically for attractive returns. We expect this transaction to double our annual revenues, be accretive to EPS and returns, and provide greater strategic flexibility to deploy capital across multiple insurance lines through various business cycles. Inigo has a proven track record in the Lloyd's market, fueled by a high-performing culture and an experienced team with a strong focus on their customers. Their business model and the approach align closely with our Mortgage Insurance business, particularly in their commitment to strong risk management through disciplined underwriting, leveraging data and analytics, and disciplined capital allocation. As part of Radian, Inigo will operate as a stand-alone business unit in London, maintaining its management team, brand, and culture. We are excited to welcome Inigo's CEO, Richard Watson, and his talented team to Radian and look forward to working together to build long-term and sustainable value for all our stakeholders as a global multiline specialty insurer. I also want to share that our divestiture plan for our Mortgage Conduit, Title, and Real Estate Services businesses is well underway and on track for completion by the third quarter of this year. I am very proud of these teams as they have effectively managed their businesses while working through this process. Last week, we announced an important organizational update. These changes are intended to align our leadership team with our strategic focus, continuing to deliver strong operating performance in our Mortgage Insurance business, realizing the strategic value of the Inigo acquisition, and maintaining strong financial management, including effective capital allocation. We promoted Steve Keleher and Meghan Bartholomew, both long-tenured Radian leaders who are well-known to the market, to co-head our Mortgage Insurance business. We also promoted Dan Kobell and Rob Quigley, two highly experienced and accomplished financial executives with extensive financial management expertise. These appointments and the exceptional teams behind them, along with the addition of the highly talented Inigo team, position us well for the future with a strong and deep pool of talent. I am truly excited to see what this team can achieve together. Before I turn the call over to Dan, I would like to take a moment to formally introduce him. Many of you have worked with Dan during his tenure at Radian, most recently as EVP of Finance, heading Corporate Planning, Corporate Development, Treasury, Investments, and Investor Relations. During his 11 years at Radian, he has been a leader across our finance team and his deep expertise in financial management and strong understanding of our business have been invaluable. Most recently, he was a key leader in the work done to identify and complete the Inigo acquisition. His experience and knowledge of Radian and now Inigo position him well for this important role. Now I would like to turn the call over to Dan to review our financial results.

Dan Kobell, Senior Executive Vice President and Interim CFO

Thank you, Rick, for the warm welcome. I'm honored to step into this role and lead the finance function at Radian in close partnership with Rob Quigley. This is an exciting chapter in Radian's nearly 50-year history, and I look forward to engaging with all of you as we move forward together. I'm pleased to report additional details about our fourth quarter results, which reflect another quarter of strong performance. For the quarter, we generated net income from continuing operations of $159 million or $1.15 per share. For the full year, net income from continuing operations was $618 million or $4.39 per share. We were pleased to grow our net income from continuing operations per share in 2025, driven by a combination of strong earnings as well as an 8% reduction in our share count. Additionally, in our Mortgage Insurance business, we saw growth in both insurance in force and new insurance written with NIW growing 6% year-over-year. We generated a return on equity of 13.5% in the fourth quarter and 13.1% for the full year. We grew book value per share 13% year-over-year to $35.29. We also returned dividends to our stockholders in 2025 that accounted for an additional 3% of book value. Turning now to the key drivers of our results. Our total revenues continued to be strong at $301 million in the fourth quarter and $1.2 billion for the full year. Slides 14 through 16 in our presentation include details on our Mortgage Insurance portfolio as well as other key factors impacting our net premiums earned. We generated $237 million in net premiums earned in the quarter, which represents the highest level in over 3 years. Our large, high-quality primary Mortgage Insurance portfolio grew 3% year-over-year to another all-time high of $283 billion. Contributing to this growth was $55 billion of NIW in 2025, including $15.9 billion in the fourth quarter. These figures compare favorably to $52 billion in 2024 and $13.2 billion in the fourth quarter of the prior year. Our proprietary mortgage data and analytics, which drive our MI pricing strategy, together with our disciplined and informed approach to risk management have contributed to a healthy and profitable portfolio, creating long-term economic value and generating strong returns for our shareholders. As shown on Slide 14, our quarterly persistency rate remained strong at 82% in the fourth quarter, a small decrease from the prior quarter due to higher refinance activity. As of the end of the fourth quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5.5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term, and we, therefore, continue to expect our persistency rate to remain strong. As shown on Slide 16, the in-force premium yield for our Mortgage Insurance portfolio remained stable as expected at 38 basis points. With strong persistency rates and the current industry pricing environment, we expect the in-force premium yield to remain generally stable in 2026. As shown on Slide 17, our investment portfolio of $6.1 billion consists of well-diversified and highly rated securities, generating net investment income of $249 million in 2025. Our provision for losses and related credit trends continue to be positive with strong cure activity. On Slide 20, we provide trends for our primary default inventory. The number of new defaults in the fourth quarter was approximately 14,200, and as expected, the total number of defaults increased in the fourth quarter to approximately 25,000 loans at quarter end, resulting in a portfolio default rate of 2.56%. This increase in total defaults reflects normal seasonal trends and the expected continued seasoning of our large insurance in-force portfolio. As we have noted in the past, our new defaults continue to contain significant embedded equity, which has been a key driver of recent favorable credit trends, including higher cure rates and reduced severity for policies that result in claims submission. As shown on Slide 21, our cure trends have been consistently positive in recent periods, meaningfully exceeding our initial default-to-claim expectations for these loans. Cure rates in the fourth quarter exhibited typical seasonal trends in line with similar periods from prior years. Slide 22 shows the components of our provision for loss. We maintained our initial default-to-claim rate of 7.5% on new defaults, which resulted in $57 million of loss provision for new defaults in the fourth quarter. Throughout 2025, our provision for losses benefited from favorable reserve development on prior period defaults, primarily due to more favorable cure trends than initially estimated. This continued in the fourth quarter with $35 million of positive reserve development. As a result, we recognized a net provision expense of $22 million in the fourth quarter. Now turning to our other expenses. For the fourth quarter, our other operating expenses were $56 million, down from $62 million in the third quarter. For the year, our other operating expenses were $246 million, below our previously communicated annual expense guidance of $250 million for continuing operations. With the Inigo acquisition and following the planned divestiture of our Mortgage Conduit, Title, and Real Estate Services businesses, we will continue to look for opportunities to enhance our efficiency as we simplify our business model to focus on mortgage and specialty insurance. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. In 2025, Radian Guaranty distributed $795 million to Radian Group through dividends and returns of capital. We also continue to diversify our sources of capital and use a range of risk distribution strategies to effectively manage capital and proactively mitigate risk. During the fourth quarter, we completed an excess of loss reinsurance agreement covering approximately $373 million on certain policies written from 2016 through 2021. Our PMIERs cushion was $1.6 billion at year-end, significantly above our required PMIERs capital level. This capital buffer, combined with our current reinsurance programs, positions Radian Guaranty well to withstand and remain well-capitalized through a severe potential macroeconomic stress. Moving to our discontinued operations. During the fourth quarter, we extracted $62 million of capital from our entities held for sale. These returns of capital provided immediate liquidity to Radian Group and reduced the net carrying value of these businesses to $110 million as of year-end. As we've mentioned in the past, we have engaged Citizens JMP and Piper Sandler to assist us in the divestiture process. We are making steady progress and continue to expect this process to be completed by the end of the third quarter of this year. Moving to our holding company, Radian Group. In 2025, we repurchased approximately 13.5 million shares of our common stock at a total cost of $430 million. In preparation for the Inigo acquisition, which closed earlier this month, we significantly expanded our holding company liquidity to $1.8 billion at year-end, supported by a $195 million dividend in the fourth quarter and a $600 million intercompany note, both from Radian Guaranty. In January, we drew $200 million on our revolving credit facility, further increasing holding company liquidity. With these resources, we funded the Inigo acquisition with a purchase price paid at closing, net of certain adjustments, of $1.67 billion. Inigo's estimated tangible equity at year-end was $1.16 billion, resulting in a net purchase price multiple of approximately 1.4x tangible equity. Following the Inigo purchase, our holding company liquidity was approximately $350 million. In 2026, we expect dividends of at least $600 million from Radian Guaranty to Radian Group, including a $140 million dividend later in the first quarter. We expect these dividends to allow Radian Group to repay the $200 million draw from the credit facility during 2026 while continuing to maintain sufficient liquidity. As the year progresses, we expect to continue to build our liquidity position at Radian Group, and we will apply our disciplined capital allocation methodology to optimize the use of any excess capital, including potentially resuming share repurchases under our available share repurchase authorization. Finally, our leverage ratio declined to 18.3% at year-end, and we expect it to remain below 20% by year-end 2026.

Richard Thornberry, CEO

Thank you, Dan. Our results for the quarter and the year once again reflect the balance and agility of our company as well as the strength and flexibility of our capital and liquidity positions. Our Mortgage Insurance business remains a cornerstone of our success and of our commitment to supporting homeownership. We appreciate the focus of the administration, FHFA, and GSEs on making homeownership more affordable and sustainable. Our products enable qualified borrowers to access homeownership and begin building equity years earlier than if they had to save for a large down payment. For nearly 50 years, we have helped millions of families purchase their homes or refinance their mortgages. We are proud to play this important role in the housing finance system and in building strong communities. Finally, I want to express my gratitude to all Radian employees across every part of our company for their dedication and outstanding work throughout this pivotal year. Their commitment to excellence and our values has been the foundation of our success. Operator, we would be happy to take questions.

Operator, Operator

And our first question comes from Terry Ma of Barclays.

Terry Ma, Analyst

Maybe to start off, Inigo, I have a question for Dan. You recently closed it, but do you have any updated thoughts on financial metrics or anything you mentioned a few months ago?

Dan Kobell, Senior Executive Vice President and Interim CFO

Thanks for the question, Terry. Overall, there are no changes from what we discussed a few months ago. To summarize the financial impact of the Inigo acquisition: it’s a $1.7 billion deal. The funding came from our investment portfolio at Radian, where it was earning a yield of around 4% to 5%. Now, we’ve invested that $1.7 billion into an operating business that we anticipate will yield a mid-teens return over time. Although there may be some volatility—it's actually been higher recently—if we estimate a mid-teens return, that's about a 10% increase in yield on the $1.7 billion, leading to around $170 million in additional net income. That's the financial benefit we realized from this transaction. We didn’t depend on expense or revenue synergies, so it’s a straightforward integration of Inigo into Radian. From a risk standpoint, I would say it’s fairly low. We have some basic integration tasks related to financial systems and reporting for consolidated results, as well as areas to consider at an enterprise level. However, there are no changes to our financial guidance, and I am confident we will meet our expectations.

Terry Ma, Analyst

Got it. That's helpful. And then maybe just turning to credit. You called out the strong cure trends on Slide 21 of your deck, 90% of defaults curing within 1 year. Like as we kind of look forward, how sticky can that 90% be as you have some of the more recent vintages kind of start to season and peak, which I imagine have probably less embedded equity as some of the earlier vintages?

Dan Kobell, Senior Executive Vice President and Interim CFO

Yes. So that's a good question, Terry, and that's certainly something we'll continue to monitor. As you noted, the vintages, if you go back, kind of that are seasoning now, had significant home price appreciation and embedded equity. We do continue to see in our new defaults, very significant embedded equity is still what's coming through. So the more recent vintages, we're starting to see that play through now, certainly going to be mindful of that. But the cure activity that we've seen has been very strong. As a reminder, we assume effectively 92.5% cumulative cure rate in terms of our reserving assumptions. So we take a fairly conservative view there relative to what we've seen over the last several years. It remains to be seen in terms of how those more recent vintages play out because we're just not seeing that enter the default inventory in a significant number yet. But we continue to see those cure trends play out very consistently, very favorable to what our original expectations were. And as far as credit trends overall, not really seeing any pockets of concern from a geography perspective across different credit segments or at a vintage level. Everything is playing out in line with or better than our expectations.

Operator, Operator

And our next question comes from Mihir Bhatia of Bank of America.

Mihir Bhatia, Analyst

On the pricing environment, can you just compare returns on new business today versus a year ago?

Dan Kobell, Senior Executive Vice President and Interim CFO

I can start with that, and then Rick can provide some insights on pricing. Our premium yield is probably the best metric to consider. Our yield on an in-force basis has remained very steady at around 38 basis points for the past three years. This suggests that there is a good balance between what we are bringing into the portfolio and what is leaving from a pricing standpoint. We aren't seeing any movement in the in-force yield, and I mentioned in my prepared remarks that we expect this trend to continue into 2026 as well. There is a fair amount of stability regarding the blended rate of new and exiting portfolio elements. I'll let Rick take it from a pricing competition standpoint.

Richard Thornberry, CEO

We're very pleased with the volume and quality we've experienced in the fourth quarter and throughout 2025, especially from an economic value standpoint. Industry pricing has remained relatively stable, and the competitive environment is normal, with no significant changes to report. Our focus is not on market share but rather on economic value while maintaining discipline and consistency in our strategy. We continue to identify attractive opportunities to use our data and analytics to source New Insurance Written with appealing economic value and risk-adjusted returns, allowing us to build a high-value portfolio. We utilized our analytics this year to increase our insurance in force, reaching a record high of $283 billion. While we anticipate quarterly fluctuations, we've maintained consistency over time as we seek the most appealing economic value segments in the market. It's worth noting that, compared to other mortgage insurance companies that rely heavily on bid-card structures— which we consider to be low-value— our approach enables us to fully utilize our proprietary data and analytics to assess risks where we see economic value. Currently, over 80% of our New Insurance Written is being sourced through our RADAR Rates platform, which helps us effectively price and select loans with the highest economic value, based on borrower attributes and our long-term assessment of geographic trends in the industry. Over the past year, we've found many attractive opportunities from an economic value perspective. Our leading data and analytics capabilities, along with our commitment to quality origination and servicing, give us an advantage in long-term portfolio construction. We have confidence in this market, and our team has excelled at using our tools to discover value while collaborating closely with our customers.

Mihir Bhatia, Analyst

Okay. Awesome. And then maybe just a quick one on Inigo. Is the mid- to high 80% combined ratio a good run rate to think about for that business?

Dan Kobell, Senior Executive Vice President and Interim CFO

Yes. So we haven't provided any kind of forward guidance from an Inigo perspective. I think as we report our results starting with the first quarter on a combined basis, we'll have all the key drivers for both Inigo and our MI business and probably a segment reporting structure, we'll be able to provide more detail at that time. So nothing forward. I think the combined ratio range that you referenced, I think, is kind of where they've been certainly over kind of their 5 years of operation. So I understand if you want to kind of think about that as a good trend to use, but we'll provide updated guidance as we move forward.

Operator, Operator

And our next question comes from Bose George of KBW.

Bose George, Analyst

I just wanted to follow up on the question about the accretion. Is the $170 million a pretax number? Could you confirm that?

Dan Kobell, Senior Executive Vice President and Interim CFO

Yes. The way that I would explain that, Bose, I think of that as a pretax number. And...

Bose George, Analyst

Okay. Great. Please continue.

Dan Kobell, Senior Executive Vice President and Interim CFO

No, I was going to say, I think if you take that $170 million and you apply that to our equity base using, call it, a 25% statutory tax rate in the U.K. for Inigo, you get to north of 200 basis points of ROE accretion. So I think that's the right math to use.

Bose George, Analyst

Okay. Perfect. And then in terms of the premium to book value, is there going to be intangibles that need to be amortized? So do you know the split yet between goodwill and intangibles?

Dan Kobell, Senior Executive Vice President and Interim CFO

Yes. So there will be intangibles and some of them will most likely be amortizing. We are in the process of doing all the purchase accounting related to the transaction. So that we don't have those numbers available and complete yet. But as I mentioned earlier, when we report our results for the first quarter, we will certainly have that and be able to kind of specify what the intangibles are and kind of what the amortization periods are going to look like for those.

Bose George, Analyst

Okay. Great. And then just one on the buybacks. You mentioned that we could see a resumption back half of the year. So if you look out to 2027, could we see buybacks back at the pre-Inigo levels by next year?

Richard Thornberry, CEO

Thank you for your question, Bose. I believe that considering our strategic future with the MI business, the combination with Inigo, and the ongoing divestiture process, we see attractive financial metrics from the Inigo acquisition. We think our shares are undervalued, which is likely a sentiment you've heard from public company CEOs before. Given our strong financial position heading into 2026, as Dan outlined regarding our current capital situation and the clarity on future capital availability, we plan to resume opportunistic share repurchases. This approach is informed by the stable earnings from our insurance in force portfolio and our expected capital returns from Radian Guaranty. Furthermore, we believe that merging with Inigo enhances the appeal of our shares. We are eager to showcase the value of our strategic transformation to all our stakeholders, and we recognize the value in our shares.

Operator, Operator

I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks.

Richard Thornberry, CEO

Thank you for joining us and for your interest in Radian. We look forward to reporting on our first combined results with Inigo next quarter, kind of exciting and demonstrating how our transformation into a global multiline specialty insurer can create additional value for our customers, partners and stockholders. And we're excited to speak with many of you in the coming months and share more of our story as it continues to unfold. And again, look forward to that first quarter reporting cycle. So thank you and appreciate your interest and be well.

Operator, Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect.