Radian Reports $392 Million Loss

He said the company "is in the unique position to fulfill its capital needs through internal resources by contributing our financial guaranty business to our mortgage insurance business. This non-dilutive capital strategy benefits our shareholders and allows Radian to continue to take advantage of market opportunities that will best position the company for the future."

According to the company, its book of business in Radian Asset Assurance Inc., the principal financial guaranty subsidiary, has significantly less exposure to mortgage and mortgage-related assets compared to other financial guaranty insurers and new business production across all financial guaranty product lines has been significantly reduced this year.

Radian said new business in financial guaranty product lines is likely to remain at minimal levels allowing Radian Group's $960 million of statutory surplus investment in Radian Asset to be contributed to Radian Guaranty. Radian said it expects that this will occur during the third quarter.

It said the surplus investment is part of approximately $3 billion of Radian Asset claims paying resources, and lenders have signed an amendment to the company's credit facility to allow for the transfer.

The company said it established its $421.8 million pre-tax deficiency reserve after updating the company's future loss projections.

Radian noted the reserve represents the company's best estimate of the present value of expected future losses not already included in its June 30 loss reserves, net of related future premiums. It said there was a $50.8 million deferred policy acquisition cost write-off in conjunction with the reserving.

Other financial "highlights" listed by the insurer included:

o Radian Asset declared an ordinary dividend of $107.5 million to Radian Group Inc.; $100 million was subsequently contributed to Radian Guaranty to support the mortgage insurance business.

o Captive reinsurance and Smart Home transactions generated significant ceded losses recoverable, the balances of which were $131.1 million and $44.7 million, respectively, on June 30.

o First- and second-lien claims paid were below expectations at $209 million, driven primarily by increased investment in loss management efforts.

o First-lien primary defaults increased 11 percent in the quarter, which the company said compares favorably to the 13.6 percent increase in first-lien primary defaults added during this year's first quarter. Including pool defaults, the increase was 8.9 percent during the second quarter, compared to 9.9 percent during the first quarter.

o In markets where home prices have declined, the company said Radian Guaranty has made multiple guideline changes and pricing increases. Radian said it has increased down payment requirements and approximately 93 percent of $9.6 billion in new insurance written during the second quarter was prime.

Radian, which holds a stake in debt collection agency Sherman Financial, said Sherman's overall second-quarter pre-tax operating income was $77.8 million, of which Radian's share is $15.7 million. Radian received $19.5 million of dividends from Sherman during the quarter.

Radian Group said it has $50 million in cash and liquid investment securities after an impending paydown of $50 million of its credit facility in conjunction with the Radian Asset contribution, with no principal payments on its debt due until 2011. In addition, Radian said it has at its option the sale of its remaining stake in Sherman. Last year Radian sold off all its preferred units and 43 percent of its common shares for $278 million.