XML 83 R10.htm IDEA: XBRL DOCUMENT v2.4.1.9
Note 3 - Segment Reporting (Notes)
3 Months Ended
Mar. 31, 2015
Segment Reporting [Abstract]  
Segment Reporting Disclosure
Segment Reporting
We currently have two strategic business units that we manage separately—Mortgage Insurance and, effective with the June 30, 2014 acquisition of Clayton, our Services segment. The operating results of Radian Asset Assurance are classified as discontinued operations for all periods presented in our condensed consolidated statements of operations. Previously, Radian Asset Assurance had represented substantially all of the financial guaranty segment; therefore, we no longer report a financial guaranty business segment. Certain corporate income and expenses that were previously allocated to the financial guaranty segment but were not reclassified to discontinued operations, such as corporate investment income, interest expense and corporate overhead expenses, have been reallocated to the Mortgage Insurance segment. Prior periods have been revised to conform to the current period presentation for these changes. See Note 2 for additional information related to discontinued operations.
We allocate to our Mortgage Insurance segment: (i) corporate expenses based on an allocated percentage of time spent on the Mortgage Insurance segment; (ii) all corporate cash and investments; (iii) all of the interest expense except for interest expense related to the Senior Notes due 2019 that were issued to purchase Clayton; and (iv) corporate income and expenses that were previously allocated to our financial guaranty segment and were not allocated to discontinued operations.
We allocate to our Services segment: (i) corporate expenses based on an allocated percentage of time spent on the Services segment; and (ii) as noted above, all of the interest expense related to the Senior Notes due 2019. No corporate cash or investments are allocated to the Services segment. We have included Clayton’s results of operations from the June 30, 2014 date of acquisition. Inter-segment activities are recorded at market rates for segment reporting and eliminated in consolidation.
Effective with the fourth quarter of 2014, certain loan servicer surveillance functions previously considered part of the Mortgage Insurance segment were transferred to the Services segment as part of a change in our internal management reporting. As a result, these activities are now reported in the Services segment for all periods presented.

Adjusted Pretax Operating Income (Loss)
Our senior management, including our Chief Executive Officer (our chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of Radian’s business segments and to allocate resources to the segments. Adjusted pretax operating income (loss) is defined as pretax income (loss) from continuing operations excluding the effects of net gains (losses) on investments and other financial instruments, acquisition-related expenses, amortization and impairment of intangible assets and net impairment losses recognized in earnings.
Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (1) not viewed as part of the operating performance of our primary activities; or (2) not expected to result in an economic impact equal to the amount reflected in pretax income (loss) from continuing operations. These adjustments, along with the reasons for their treatment, are described below.
(1)
Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses. We do not view them to be indicative of our fundamental operating activities. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss). However, we include the change in expected economic loss or recovery associated with our consolidated VIEs, if any, in the calculation of adjusted pretax operating income (loss).
(2)
Acquisition-related expenses. Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
(3)
Amortization and impairment of intangible assets. Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore are excluded from our calculation of adjusted pretax operating income (loss).
(4)
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).
Summarized financial information concerning our operating segments as of and for the periods indicated, is as follows:
 
Three Months Ended March 31, 2015
(In thousands)
Mortgage Insurance
 
Services
 
Total
Net premiums written—insurance
$
241,908

 
$

 
$
241,908

Increase in unearned premiums
(17,313
)
 

 
(17,313
)
Net premiums earned—insurance
224,595

 

 
224,595

Services revenue

 
30,742

 
30,742

Net investment income (1)
17,328

 

 
17,328

Other income (1)
1,331

 
790

 
2,121

Total (2)
243,254

 
31,532

 
274,786

 
 
 
 
 
 
Provision for losses
45,851

 

 
45,851

Policy acquisition costs
7,750

 

 
7,750

Direct cost of services

 
18,451

 
18,451

Other operating expenses before corporate allocations (3)
34,050

 
9,659

 
43,709

Total (4)
87,651

 
28,110

 
115,761

Adjusted pretax operating income before corporate allocations
155,603

 
3,422

 
159,025

Allocation of corporate operating expenses (1)
9,758

 
981

 
10,739

Allocation of interest expense (1)
19,953

 
4,432

 
24,385

Adjusted pretax operating income (loss)
$
125,892

 
$
(1,991
)
 
$
123,901

 
 
 
 
 
 
Cash and investments
$
3,669,413

 
$
9,437

 
$
3,678,850

Restricted cash
11,348

 
2,872

 
14,220

Goodwill

 
194,246

 
194,246

Other intangible assets, net

 
99,552

 
99,552

Assets held for sale (5)

 

 
1,755,873

Total assets (5)
4,708,744

 
349,238

 
6,813,855

Unearned premiums
657,555

 

 
657,555

Reserve for losses and LAE
1,384,714

 

 
1,384,714

 
 
 
 
 
 
NIW (in millions)
$
9,385

 
 
 
 
____________
(1)
Includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations. These items include net investment income of $0.9 million, corporate overhead expenses of $2.1 million and interest expense of $9.9 million.
(2)
Excludes net gains on investments and other financial instruments of $16.8 million, not included in adjusted pretax operating income. Includes inter-segment revenues of $0.9 million in the Services segment.
(3)
Excludes $0.2 million of acquisition-related expenses not included in segment other operating expenses.
(4)
Includes inter-segment expenses of $0.9 million in the Mortgage Insurance segment.
(5)
Assets held for sale are not part of the Mortgage Insurance or Services segments.
 
Three Months Ended March 31, 2014
(In thousands)
Mortgage Insurance
 
Services
 
Total
Net premiums written—insurance
$
212,953

 
$

 
$
212,953

Increase in unearned premiums
(14,191
)
 

 
(14,191
)
Net premiums earned—insurance
198,762

 

 
198,762

Net investment income (1)
15,318

 

 
15,318

Other income (1)
996

 
130

 
1,126

Total (2)
215,076


130


215,206

 
 
 
 
 

Provision for losses
49,626

 

 
49,626

Change in expected economic loss or recovery for consolidated VIEs
139

 

 
139

Policy acquisition costs
7,017

 

 
7,017

Other operating expenses before corporate allocations
37,764

 
859

 
38,623

Total
94,546

 
859

 
95,405

Adjusted pretax operating income (loss) before corporate allocations
120,530

 
(729
)
 
119,801

Allocation of corporate operating expenses (1)
15,884

 

 
15,884

Allocation of interest expense (1)
19,927

 

 
19,927

Adjusted pretax operating income (loss)
$
84,719

 
$
(729
)
 
$
83,990

 
 
 
 
 
 
Cash and investments
$
3,302,763

 
$
24

 
$
3,302,787

Restricted cash
22,366

 

 
22,366

Goodwill

 
2,095

 
2,095

Other intangible assets, net

 
188

 
188

Assets held for sale (3)

 

 
1,795,185

Total assets (3)
3,731,139

 
2,661

 
5,528,985

Unearned premiums
580,453

 

 
580,453

Reserve for losses and LAE
1,893,960

 

 
1,893,960

 
 
 
 
 
 
NIW (in millions)
$
6,808

 
 
 
 
________________
(1)
Includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations. These items include net investment income of $1.3 million, other income of $0.1 million, corporate overhead expenses of $4.1 million and interest expense of $14.6 million.
(2)
Excludes net gains on investments and other financial instruments of $43.1 million, not included in adjusted pretax operating income.
(3)
Assets held for sale are not part of the Mortgage Insurance or Services segments.


The reconciliation of adjusted pretax operating income to consolidated pretax income from continuing operations is as follows:
 
Three Months Ended
March 31,

(In thousands)
2015

2014

Adjusted pretax operating income (loss):
 
 
 
 
Mortgage Insurance (1) (2)
$
125,892

 
$
84,719

 
Services (3)
(1,991
)
 
(729
)
 
Total adjusted pretax operating income
123,901


83,990


 
 
 
 
 
Net gains on investments and other financial instruments
16,779

 
43,107

(4)
Acquisition-related expenses
(207
)
 

 
Amortization and impairment of intangible assets
(3,023
)
 

 
Consolidated pretax income from continuing operations
$
137,450


$
127,097



______________
(1)
Includes certain corporate income and expenses that have been reallocated to the Mortgage Insurance segment for all periods presented, as listed in the preceding detailed tables. These amounts represent items that were previously allocated to the former financial guaranty segment, but were not reclassified to discontinued operations.
(2)
Includes inter-segment expenses of $0.9 million for the three months ended March 31, 2015.
(3)
Includes inter-segment revenues of $0.9 million for the three months ended March 31, 2015.
(4)
The change in expected economic loss or recovery associated with our consolidated VIEs is included in adjusted pretax operating income above. Therefore, for purposes of this reconciliation, net gains on investments and other financial instruments has been adjusted by $0.1 million for the three months ended March 31, 2014 to reverse this item, which represents an amount that is not included in net income.
On a consolidated basis, “adjusted pretax operating income (loss)” is a measure not determined in accordance with GAAP. Total adjusted pretax operating income (loss) is not a measure of total profitability, and therefore should not be viewed as a substitute for GAAP pretax income (loss). Our definition of adjusted pretax operating income (loss) may not be comparable to similarly-named measures reported by other companies.