Radian Group Inc.

Welcome to the Brady and fourth quarter 2020 earnings call. My name is Jenny and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touch tone phone. Please note that this conference is being recorded. I'm going to turn the call over to John Damien, head of investor relations and corporate development. Mr. Damien, you may begin.

Thank you and welcome to Radian's fourth quarter and year-end 2020 conference call. Our press release, which contains Radian's financial results for the quarter and the year, was issued yesterday evening and is posted to the investor section of our website at www.radian.com. This press release includes certain non-GATT measures, which will be discussed during today's call, including adjusted pre-tax operating income, adjusted diluted net operating income per share, adjusted net operating return on equity, and real estate adjusted EBITDA. A complete description of these measures and the reconciliation to GATT may be found in press release exhibits F&G and on the investor section of our website. In addition, our related non-GATT measure, real estate adjusted EBITDA margin, is calculated by dividing real estate adjusted EBITDA by GAAP total revenue for the real estate segment. This morning, you will hear from Rick Thornberry, Radian's chief executive officer, and Frank Hall, chief financial officer. Also on hand for the Q&A portion of the call is Derek Brummer, president of Radian Mortgage. Due to the current environment, all of our speakers are remote. I would ask that you please excuse any sound quality or technical issues that may arise during the call. 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 discussion of these risks, please review the cautionary statements regarding forward-looking statements, including in our earnings release, and the risk factors included in our 2019 410 , as updated in our quarterly report on Form 10-Q for the third quarter of 2020 and subsequent reports filed with the SEC. These are also available on our website. Now, I would like to turn the call over to Rick.

Thank you, John, and good morning. Thank you all for joining us today and for your interest in RADIAN. As we look back at last year, it is safe to say that 2020 did not play out as we had originally planned. In March, the COVID-19 pandemic triggered a global health and economic crisis and caused an abrupt shift in our day-to-day focus. Combining a pandemic with heightened social unrest and a divisive political environment, I think it's fair to say that 2020 was the perfect storm. Despite the challenges of 2020, including shifting to a largely virtual work environment, we were able to write record-breaking levels of new mortgage insurance business and grow revenues in our real estate segment. And while our quarterly and full-year results were impacted by the environment, I'm proud to say that our business model, Weather the Storm, is designed demonstrating that through the cycle of resiliency, we and the mortgage industry have been building since the last financial crisis. I'm pleased with our ability to operate well with strong momentum throughout a challenging year. Although we continue to navigate the pandemic economic environment, as we enter 2021, we are encouraged by the signs of recovery and improvement in the overall economy, the continued strength and momentum in the housing market, and the positive default trends in our portfolio. I'd like to recognize our team across Radian and thank our customers, investors, business partners, and board for their commitment and support in helping us deliver solid results during this unprecedented time. Frank will discuss the details of our financial position shortly, but let me first share a few highlights for 2020. We wrote nearly $30 billion of NIW in the fourth quarter, which is a 49% increase over the fourth quarter of 2019. This contributed to our record-breaking volume of new flow business written in 2020 of $105 billion, which represented a 47% increase year-over-year and marked our fifth consecutive year of record annual volume. We grew our primary insurance in force to $246 billion, while the high volume of refinances during the year resulted in lower persistency. It's important to note that our high-quality insurance portfolio grew approximately 2% year-over-year And our monthly premium insurance and force grew 11% year-over-year. Our mortgage insurance portfolio, which is one of the largest in our industry, is the primary driver of future earnings for our company. The economic value and the projected future earnings of this portfolio include the addition of the high-quality 2020 vintage, which represented more than 40% of our insurance and force as of December 31, 2020. We grew our book value per share by more than 11%. We achieved this growth even after accounting for nearly $100 million of dividends that we returned to stockholders in 2020 through the significant increase to our quarterly cash dividend in the first quarter. In our mortgage segment, we continued our focus on meeting the needs of our customers and maximizing the economic value and future earnings of our mortgage insurance portfolio. Given the flexibility of our radar range pricing model, we were able to respond to the rapidly changing economic environment in 2020. Our strong customer relationships and excellent service delivery combined with market intelligence and value-based pricing decisions helped our team effectively navigate the competitive environment to originate a high-quality book of business with significant economic value. Written at historically low interest rates, which should benefit persistency, we expect the 2020 vintage to produce attractive returns and contribute significant earnings in future periods. For our real estate segment, despite a challenging pandemic environment, total revenues for the full year were $102 million, a 14% increase compared to 2019. While certain of our businesses experienced slowdowns during 2020 as a result of the pandemic, we saw strong growth in our title business, including a 238% year-over-year increase in closed title insurance orders with a strong sales pipeline of large customers going into 2021. The operating loss in the real estate segment for the fourth quarter and the year was largely the result of slowdowns in our valuation and REO businesses resulting from the foreclosure and eviction moratoria staffing up to support our growing title business and our continued strategic investment in data analytics and technology across our digital valuation and real estate business platforms. We remain focused on positioning our real estate businesses for future growth by driving competitively differentiated, data-driven digital products and services to our customers, lenders, realtors, consumers, and mortgage investors. Although these real estate businesses are in the early stages of their development and maturity, We are very excited about their future and remain confident that we are well positioned with the customer relationships and an experienced team to drive increased stockholder value going forward. We will share more details about these businesses as we progress, including during our next investor day, which we plan to announce for later this year. In 2020, we took steps to fortify our capital position and increase our strategic financial flexibility. During the second quarter, we strengthened our available liquidity by extending the term of our existing credit facility to January of 2022 and issuing $525 million of senior notes due 2025. We continue to execute our aggregate, manage, and distribute business model focused on lowering the risk profile and through the cycle volatility of the business. In 2020, we entered into a single premium quota share reinsurance program, which covers the 2020 and 2021 advantages of our single premium production, and executed two mortgage insurance linked notes transactions for a total of $878 million. At December 31st, Radian Group maintained a strong capital position with $1.4 billion of total holding company liquidity, and Radian guarantees PMeyer's excess available assets grew 38% to more than $1.3 billion during the fourth quarter of 2020. I'm pleased with our ability to strengthen our capital position and increase our financial flexibility, a true testament of our through-the-cycle business model. We believe the impact of the pandemic has been an earnings, not a capital event for the industry, and that Radian is well-positioned to weather the remaining uncertainty ahead with our strong PMIRES capital and holding company available liquidity. Moving now to the broader mortgage and real estate market. We continue to see this market perform extremely well through the pandemic environment with strong purchase volume growth and significant home price appreciations. As we have all redefined the significance of home in so many aspects of our lives during the pandemic, the housing market flourished in 2020 driven by low interest rates and strong demand. Positive momentum continued in the fourth quarter with December existing home sales increasing 1% from the prior month and 23% from December 2019. And based on the latest data from our own radiant home price index over the last three months of 2020, strong housing demand and relatively limited supply of the market led to an annualized 9% increase in home prices across the country. We expect the rate of home price appreciation to moderate this year and believe the combination of continued strong supply and demand dynamics, low interest rates, and income growth are well aligned for a healthy and sustainable housing market. Looking ahead, We expect vaccine rollouts and government support to sustain continued improvements in the economy and U.S. housing market and anticipate continued growth in home purchase activity and gradual reductions in refinances. For 2021, recent market projections estimate total mortgage originations of approximately $3 trillion. While the overall origination market is expected to be smaller in 2021, as compared to last year, and expectations for refinance volume vary, there is consensus around a growing purchase market in 2021, which is positive for our industry given the higher likelihood of purchase loans to utilize private mortgage insurance as compared to a refinance loan. Based on these projections, the private mortgage insurance market is expected to be approximately $450 to $500 billion. It is also important to note that as refinance volume declines, we benefit from increased persistency in our portfolio, further supporting insurance and fourth growth. Turning to the regulatory legislative landscape, the Biden administration has laid out an ambitious plan for housing focused on increasing access and affordability for low and moderate income borrowers, increasing the inventory of affordable homes, and ensuring an equitable housing finance system. We support the administration's focus in these areas, which are aligned with our corporate mission of ensuring a pathway to responsible, sustainable home ownership. With the change in administration, there's been increased discussion of a potential FHA premium reduction. Based on recent reports about a possible 25 basis point decrease, we would anticipate a small impact to our industry and to our business volume. The government continues to provide broad support to homeowners impacted by the pandemic. The recent announcement by the FHFA of an extension of GSE mortgage forbearance from 12 to 15 months should help to further assist borrowers through the crisis. And the unprecedented level of government stimulus, including the new relief package that is expected to pass Congress shortly, should help accelerate the economic recovery already underway. We are very proud of the role the private mortgage insurance industry has served throughout this crisis, aligning our policies and procedures with the GSEs to support struggling homeowners, while at the same time continuing to serve our critical role of taking on first loss mortgage credit risk in one of the largest housing markets in history. Finally, as we've said before, our industry is the only committed source of permanent private capital for U.S. mortgage credit risk and has continued to consistently underwrite and support mortgage credit risk through the market cycles. Our overall performance during the pandemic, which has been a period of extreme economic stress, as well as our ability to continue to effectively manage and distribute risk through the cycle to further strengthen our company, has proven the resilience of our business model and capital structure. Now I would like to turn the call over to Frank for details of our financial positions.