WINSTON-SALEM, N.C., Jan. 25 /PRNewswire-FirstCall/ -- Triad Guaranty
Inc. (Nasdaq: TGIC) today reported net income for the quarter ended
December 31, 2006 of $8.1 million compared with $12.6 million for the same
quarter a year ago, a decrease of 35%. Diluted earnings per share were
$0.54 for the fourth quarter of 2006 compared with $0.85 for the fourth
quarter of 2005, a decline of 36%. Realized investment losses, net of
taxes, did not impact earnings in the fourth quarter of 2006, compared with
realized investment gains of $0.01 per share in the same quarter of 2005.
Net income for the full year 2006 was $65.6 million compared with $56.8
million for 2005. Diluted earnings per share were $4.40 for the full year
2006 compared to $3.84 for 2005, an increase of 15%. Realized investment
gains, net of taxes, contributed $0.07 per share for the full year 2006 and
did not impact earnings per share in 2005.
Mark K. Tonnesen, President and Chief Executive Officer, said, "Despite
many positive developments in the fourth quarter, our earnings are
disappointing. While the increase in defaults and the number of paid claims
was virtually on target, our average cost per paid claim increased
significantly. The fundamental cause of the higher loss per claim was the
impact of the slowing housing market on our claims mitigation efforts. A
larger percentage of our claims paid in the fourth quarter were full option
settlements, causing the average severity on both Primary and Modified Pool
business to increase from the levels observed over the last five quarters.
In response to this change, which emerged in the fourth quarter, we felt it
was both prudent and necessary to adjust the severity factors utilized in
our reserving methodology, which increased our reserves and, in turn, our
incurred losses. The increase in the severity factors was the major driver
of the $24.2 million increase in reserves during the quarter, although a
portion of the increase was attributable to changes in our frequency
factors and the natural growth and seasoning of our portfolio."
Mr. Tonnesen continued, "Our fundamentals remain strong. Strong
production and improved persistency throughout 2006 led to a 28% increase
in insurance in force from the end of 2005, with earned premiums increasing
29% for the fourth quarter, and 25% for the full year, compared to the
prior year periods. We also established a number of important new customer
relationships. Portfolio performance remained solid with reserved default
counts increasing only 5% during 2006 while insurance in force grew at 28%.
Our expense ratio for the fourth quarter of 2006 dropped to 22.8% compared
to 26.4% during the same quarter last year, primarily the result of the
increase in written premiums during the period."
Total insurance in force reached $56.8 billion at December 31, 2006,
compared to $44.4 billion a year ago. Insurance in force included Primary
of $34.1 billion and Modified Pool of $22.7 billion at December 31, 2006,
compared with $29.8 billion and $14.6 billion, respectively, a year
earlier. New insurance written during the fourth quarter of 2006 totaled
$6.0 billion compared with $4.5 billion in the fourth quarter of 2005.
Primary new insurance written for the fourth quarter of 2006 was $3.9
billion, up from $2.3 billion in the fourth quarter of 2005. New insurance
written from Modified Pool transactions, which can vary substantially from
quarter to quarter, totaled $2.1 billion in the fourth quarter of 2006
compared with $2.2 billion for the same period of 2005.
Earned premiums for the fourth quarter of 2006 were $58.2 million, an
increase of 29% over the same period a year ago and up 8% from the third
quarter of 2006. The increase in earned premiums was due to growth in
insurance in force, including growth in non-traditional mortgage products
that contain higher risk adjusted rates. Annual persistency on the Primary
business was 76.6% at December 31, 2006 compared with 70.0% at December 31,
2005.
Incurred losses for the fourth quarter of 2006 were $41.3 million, up
114% from the third quarter 2006 and up 88% from the fourth quarter of
2005. Total paid claims for the fourth quarter of 2006 were $16.6 million,
up from $13.6 million in the third quarter of 2006, and up 34% compared
with the fourth quarter of 2005. Overall severity on paid claims was
$27,900 in the fourth quarter of 2006, up from $25,300 in the third quarter
of 2006 and $25,400 in the fourth quarter of 2005. Total defaults at
December 31, 2006 were 8,566, up 13% from 7,588 at September 30, 2006, and
up from 7,753 reported at December 31, 2005, with the continued seasoning
of the Modified Pool portfolio accounting for the majority of the increase.
The Primary delinquency rate was 2.47% at December 31, 2006 compared with
2.37% at September 30, 2006 and 2.58% at December 31, 2005. The Modified
Pool delinquency rate was 2.67% at December 31, 2006 compared with 2.16%
and 2.51% at September 30, 2006 and December 31, 2005, respectively.
Triad Guaranty Inc.'s wholly owned subsidiary, Triad Guaranty Insurance
Corporation, is a nationwide mortgage insurer providing credit enhancement
solutions to its lender customers and the capital markets. This allows
buyers to achieve homeownership sooner, facilitates the sale of mortgage
loans in the secondary market and protects lenders from credit
default-related expenses. For more information, please visit the Company's
web site at http://www.triadguaranty.com
Operating income, which is net income excluding realized gains and
losses, and diluted realized investment gains/(losses) per share, net of
taxes, are non-GAAP measures. We believe these measures are relevant and
useful information to investors because, except for losses on impaired
securities, it shows the effect the Company's discretionary sales of
investments had on earnings. This document may contain forward-looking
statements that involve various risks and uncertainties. Actual results may
differ from those set forth in the forward-looking statements. Attention is
directed to the discussion of risk and uncertainties as part of the Safe
Harbor statement under the Private Securities Litigation Reform Act of 1995
contained in the Company's most recent annual report, Form 10-K and other
reports filed with the Securities and Exchange Commission.
(Relevant Triad Guaranty Inc. financial statistics and supplemental
information follow this news release.)
Triad Guaranty Inc.
Consolidated Income Statement
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
(Dollars in thousands except per share amounts)
Premiums written:
Direct $70,605 $55,102 $256,706 $207,260
Ceded (11,642) (10,781) (46,140) (40,644)
Net premiums written $58,963 $44,321 $210,566 $166,616
Earned premiums $58,222 $44,971 $210,856 $168,997
Net investment income 7,178 5,944 26,696 22,998
Net realized investment gains
(losses) (52) 160 1,584 36
Other income 2 2 8 15
Total revenues 65,350 51,077 239,144 192,046
Net losses and loss adjustment
expenses 41,300 21,979 94,227 66,855
Interest expense on debt 694 693 2,774 2,773
Amortization of deferred policy
acquisition costs 4,179 3,836 16,268 14,902
Other operating expenses - net 9,268 7,882 35,556 29,610
Income before income taxes 9,909 16,687 90,319 77,906
Income taxes 1,806 4,127 24,684 21,093
Net income $8,103 $12,560 $65,635 $56,813
Basic earnings per share $0.55 $0.85 $4.44 $3.87
Diluted earnings per share $0.54 $0.85 $4.40 $3.84
Weighted average common and common
stock equivalents outstanding
(in thousands)
Basic 14,777 14,724 14,770 14,691
Diluted 14,950 14,804 14,913 14,808
NON-GAAP INFORMATION:
Diluted realized investment gains
(losses) per share, net of taxes $- $0.01 $0.07 $-
Triad Guaranty Inc.
Consolidated Balance Sheet
(Unaudited)
December 31, December 31,
2006 2005
(Dollars in thousands except per share amounts)
Assets:
Invested assets:
Fixed maturities,
available for sale, at market $586,595 $534,064
Equity securities,
available for sale, at market 10,417 8,159
Other Investments 5,000 -
Short-term investments 5,300 4,796
607,312 547,019
Cash and cash equivalents 38,609 8,934
Deferred policy acquisition costs 35,143 33,684
Prepaid federal income tax 166,908 139,465
Other assets 47,659 38,401
Total assets $895,631 $767,503
Liabilities:
Losses and loss adjustment
expenses $84,352 $51,074
Unearned premiums 13,193 13,494
Deferred income tax 176,483 155,189
Long-term debt 34,510 34,501
Other liabilities 16,869 14,054
Total liabilities 325,407 268,312
Stockholders' equity:
Retained earnings 453,076 387,441
Accumulated other
comprehensive income 12,018 11,106
Other equity accounts 105,130 100,644
Total stockholders' equity 570,224 499,191
Total liabilities and
stockholders' equity $895,631 $767,503
Stockholders' equity per share:
Including unrealized
investment gains $38.38 $33.79
Excluding unrealized
investment gains $37.57 $33.04
Common shares outstanding 14,856,401 14,774,153
Triad Guaranty Inc.
Sequential Quarterly Statistical Information
(Unaudited)
Dec 31, Sep 30, Jun 30,
2006 2006 2006
(Dollars in millions unless otherwise indicated)
Insurance In Force
Primary insurance in force:
- Flow business $32,779 $31,012 $30,064
- Structured bulk transactions 1,330 1,094 719
Total Primary insurance in force 34,109 32,106 30,783
Modified Pool insurance in force 22,719 21,779 20,022
Total insurance in force $56,828 $53,885 $50,804
Number of insured loans:
- Primary 225,531 219,287 216,458
- Modified Pool 112,555 110,650 107,653
Total number of insured loans 338,086 329,937 324,111
Average loan size:
- Primary $151.2 $146.4 $142.2
- Modified Pool $201.9 $196.8 $186.0
Credit quality of primary insurance
in force(1)
Prime 80.4% 81.5% 82.9%
Alt-A 15.4% 14.1% 12.3%
A Minus 3.5% 3.6% 3.9%
Sub Prime 0.7% 0.8% 0.9%
Primary Alt A insurance in force by
credit score:
FICO between 620 and 659 10.1% 11.6% 14.4%
FICO between 660 and 699 32.5% 33.9% 34.4%
FICO between 700 and 739 31.9% 30.3% 28.2%
FICO greater than 739 25.5% 24.2% 22.9%
Primary flow insurance in force
subject to captive
reinsurance arrangements 61.0% 62.9% 62.7%
Primary annual persistency rate 76.6% 75.3% 72.7%
Mar 31, Dec 31, Sep 30,
2006 2005 2005
(Dollars in millions unless otherwise indicated)
Insurance In Force
Primary insurance in force:
- Flow business $29,510 $29,364 $29,327
- Structured bulk transactions 381 428 492
Total Primary insurance in force 29,891 29,792 29,820
Modified Pool insurance in force 18,309 14,615 13,406
Total insurance in force $48,200 $44,407 $43,225
Number of insured loans:
- Primary 215,736 217,397 219,159
- Modified Pool 101,934 85,091 78,241
Total number of insured loans 317,670 302,488 297,400
Average loan size:
- Primary $138.6 $137.0 $136.1
- Modified Pool $179.6 $171.8 $171.3
Credit quality of primary insurance
in force(1)
Prime 84.6% 84.9% 85.5%
Alt-A 10.4% 9.9% 9.2%
A Minus 4.1% 4.2% 4.3%
Sub Prime 0.9% 1.0% 1.0%
Primary Alt A insurance in force by
credit score:
FICO between 620 and 659 17.9% 19.2% 20.0%
FICO between 660 and 699 34.0% 33.9% 34.4%
FICO between 700 and 739 27.1% 26.4% 26.0%
FICO greater than 739 21.0% 20.5% 19.6%
Primary flow insurance in force
subject to captive
reinsurance arrangements 59.7% 59.0% 58.3%
Primary annual persistency rate 71.1% 70.0% 69.7%
Jun 30, Mar 31, Dec 31,
2005 2005 2004
(Dollars in millions unless otherwise indicated)
Insurance In Force
Primary insurance in force:
- Flow business $28,904 $28,314 $28,191
- Structured bulk transactions 585 687 773
Total Primary insurance in force 29,489 29,001 28,964
Modified Pool insurance in force 10,018 9,217 7,863
Total insurance in force $39,507 $38,218 $36,827
Number of insured loans:
- Primary 219,256 217,657 218,011
- Modified Pool 59,581 55,182 48,563
Total number of insured loans 278,837 272,839 266,574
Average loan size:
- Primary $134.5 $133.2 $132.9
- Modified Pool $168.1 $167.0 $161.9
Credit quality of primary insurance
in force(1)
Prime 86.2% 87.2% 87.7%
Alt-A 8.4% 7.6% 7.3%
A Minus 4.4% 4.3% 4.2%
Sub Prime 1.0% 1.0% 0.9%
Primary Alt A insurance in force by
credit score:
FICO between 620 and 659 21.6% 22.7% 22.9%
FICO between 660 and 699 36.6% 38.0% 38.4%
FICO between 700 and 739 23.8% 22.7% 22.4%
FICO greater than 739 18.0% 16.5% 16.3%
Primary flow insurance in force
subject to captive
reinsurance arrangements 57.2% 56.7% 56.6%
Primary annual persistency rate 70.9% 69.0% 68.5%
(1) The Credit Quality of loans notated above are defined as followed:
Prime - All business that is not Alt A, A-, or subprime;
Alt A - Loans with credit scores >= 620 and that were underwritten
with low or no documentation;
A minus - Loans with credit scores >= 575 and <= 619;
Subprime - Loans with credit scores less than 575
Triad Guaranty Inc.
Sequential Quarterly Statistical Information (con't.)
(Unaudited)
Dec 31, Sep 30, Jun 30,
2006 2006 2006
(Dollars in millions unless otherwise indicated)
Risk In Force - Primary
Primary net risk in force:
- Flow business $7,447 $7,016 $6,781
- Structured bulk business 377 305 185
Total Primary net risk in force $7,824 $7,321 $6,966
Primary risk in force by credit score
FICO less than 575 0.6% 0.7% 0.7%
FICO between 575 and 619 3.6% 3.7% 3.9%
FICO between 620 and 659 16.4% 16.7% 17.3%
FICO between 660 and 699 24.5% 24.5% 24.5%
FICO between 700 and 739 25.2% 24.7% 24.2%
FICO greater than 739 29.7% 29.8% 29.3%
Primary risk in force by policy year
2001 and prior 4.4% 5.0% 5.7%
2002 5.5% 6.3% 7.1%
2003 17.1% 19.4% 22.0%
2004 16.8% 19.3% 21.9%
2005 23.4% 26.3% 29.1%
2006 32.8% 23.7% 14.2%
Primary risk in force by loan type:
- Fixed 70.1% 71.0% 72.6%
- ARM (positive amortization) 18.3% 19.4% 19.8%
- ARM (potential negative amortization) 11.6% 9.6% 7.6%
Primary risk in force by property type:
- Condominium 9.6% 9.2% 8.7%
- Other (principally single-
family detached) 90.4% 90.8% 91.3%
Primary risk in force by occupancy status:
- Primary residence 89.4% 89.7% 90.3%
- Second home 7.4% 7.0% 6.2%
- Non-owner occupied 3.2% 3.3% 3.5%
Primary risk in force by mortgage amount:
- $200,000 or less 58.4% 61.3% 64.3%
- Greater than $200,000 41.6% 38.7% 35.7%
Mar 31, Dec 31, Sep 30,
2006 2005 2005
(Dollars in millions unless otherwise indicated)
Risk In Force - Primary
Primary net risk in force:
- Flow business $6,652 $6,624 $6,647
- Structured bulk business 127 143 159
Total Primary net risk in force $6,779 $6,767 $6,806
Primary risk in force by credit score
FICO less than 575 0.8% 0.8% 0.9%
FICO between 575 and 619 4.1% 4.3% 4.4%
FICO between 620 and 659 17.8% 17.9% 18.2%
FICO between 660 and 699 24.5% 24.4% 24.4%
FICO between 700 and 739 23.9% 23.9% 23.8%
FICO greater than 739 28.9% 28.7% 28.3%
Primary risk in force by policy year
2001 and prior 6.4% 6.9% 7.6%
2002 8.0% 8.6% 9.5%
2003 24.6% 26.6% 29.3%
2004 24.4% 26.1% 28.2%
2005 31.3% 31.8% 25.4%
2006 5.3% - -
Primary risk in force by loan type:
- Fixed 73.8% 73.7% 73.6%
- ARM (positive amortization) 21.3% 22.2% 23.1%
- ARM (potential negative amortization) 4.9% 4.1% 3.3%
Primary risk in force by property type:
- Condominium 8.3% 7.8% 7.5%
- Other (principally single-
family detached) 91.7% 92.2% 92.5%
Primary risk in force by occupancy status:
- Primary residence 91.3% 91.9% 92.7%
- Second home 5.3% 4.6% 3.9%
- Non-owner occupied 3.4% 3.5% 3.4%
Primary risk in force by mortgage amount:
- $200,000 or less 66.7% 67.7% 68.5%
- Greater than $200,000 33.3% 32.3% 31.5%
Jun 30, Mar 31, Dec 31,
2005 2005 2004
(Dollars in millions unless otherwise indicated)
Risk In Force - Primary
Primary net risk in force:
- Flow business $6,509 $6,351 $6,337
- Structured bulk business 191 223 250
Total Primary net risk in force $6,700 $6,574 $6,587
Primary risk in force by credit score
FICO less than 575 1.0% 1.0% 1.1%
FICO between 575 and 619 4.6% 4.6% 4.6%
FICO between 620 and 659 18.3% 18.1% 17.9%
FICO between 660 and 699 24.6% 24.7% 24.7%
FICO between 700 and 739 23.7% 23.8% 23.8%
FICO greater than 739 27.9% 27.8% 27.8%
Primary risk in force by policy year
2001 and prior 8.6% 9.7% 10.7%
2002 11.1% 12.6% 14.0%
2003 33.4% 37.3% 40.5%
2004 31.4% 34.2% 34.8%
2005 15.5% 6.2% -
2006 - - -
Primary risk in force by loan type:
- Fixed 74.1% 75.6% 76.4%
- ARM (positive amortization) 23.9% 23.7% 23.1%
- ARM (potential negative amortization) 2.0% 0.7% 0.5%
Primary risk in force by property type:
- Condominium 7.2% 7.1% 6.9%
- Other (principally single-
family detached) 92.8% 92.9% 93.1%
Primary risk in force by occupancy status:
- Primary residence 92.9% 93.3% 93.5%
- Second home 3.7% 3.4% 3.3%
- Non-owner occupied 3.4% 3.3% 3.2%
Primary risk in force by mortgage amount:
- $200,000 or less 69.9% 70.9% 71.2%
- Greater than $200,000 30.1% 29.1% 28.8%
Triad Guaranty Inc.
Sequential Quarterly Statistical Information (con't.)
(Unaudited)
Dec 31, Sep 30, Jun 30,
2006 2006 2006
(Dollars in millions unless otherwise indicated)
Risk In Force - Modified Pool
Modified Pool gross risk in force $890 $837 $764
Deductibles on gross risk $101 $94 $90
Modified pool risk in force by credit
score(2):
FICO less than 575 0.2% 0.2% 0.2%
FICO between 575 and 619 0.8% 0.9% 1.0%
FICO between 620 and 659 11.3% 11.6% 12.0%
FICO between 660 and 699 31.0% 30.6% 30.2%
FICO between 700 and 739 29.4% 29.4% 29.5%
FICO greater than 739 27.3% 27.3% 27.1%
Modified pool risk in force by loan
type(2):
- Fixed 31.0% 32.1% 35.5%
- ARM (positive amortization) 55.6% 56.1% 58.7%
- ARM (potential negative
amortization) 13.4% 11.8% 5.8%
Modified pool risk in force by
property type(2):
- Condominium 8.0% 7.3% 7.2%
- Other (principally single-
family detached) 92.0% 92.7% 92.8%
Modified pool risk in force by
occupancy status(2):
- Primary residence 73.7% 73.7% 73.9%
- Second home 6.2% 6.0% 5.9%
- Non-owner occupied 20.1% 20.3% 20.2%
Modified pool risk in force by
mortgage amount(2):
- $200,000 or less 38.4% 39.6% 41.9%
- Greater than $200,000 61.6% 60.4% 58.1%
Mar 31, Dec 31, Sep 30,
2006 2005 2005
(Dollars in millions unless otherwise indicated)
Risk In Force - Modified Pool
Modified Pool gross risk in force $751 $616 $579
Deductibles on gross risk $83 $71 $68
Modified pool risk in force by credit
score(2):
FICO less than 575 0.2% 0.2% 0.2%
FICO between 575 and 619 1.0% 1.1% 1.2%
FICO between 620 and 659 12.2% 14.2% 14.8%
FICO between 660 and 699 29.9% 31.1% 31.5%
FICO between 700 and 739 29.7% 28.4% 28.1%
FICO greater than 739 27.1% 25.0% 24.1%
Modified pool risk in force by loan
type(2):
- Fixed 32.5% 41.3% 43.2%
- ARM (positive amortization) 65.8% 58.7% 56.8%
- ARM (potential negative
amortization) 1.7% 0.0% 0.0%
Modified pool risk in force by
property type(2):
- Condominium 6.7% 5.9% 4.8%
- Other (principally single-
family detached) 93.3% 94.1% 95.2%
Modified pool risk in force by
occupancy status(2):
- Primary residence 74.2% 74.2% 74.7%
- Second home 5.9% 5.7% 5.7%
- Non-owner occupied 19.9% 20.1% 19.6%
Modified pool risk in force by
mortgage amount(2):
- $200,000 or less 42.9% 46.4% 46.3%
- Greater than $200,000 57.1% 53.6% 53.7%
Jun 30, Mar 31,
2005 2005
(Dollars in millions unless otherwise indicated)
Risk In Force - Modified Pool
Modified Pool gross risk in force $489 $462
Deductibles on gross risk $59 $53
Modified pool risk in force by credit
score(2):
FICO less than 575 0.3% 0.3%
FICO between 575 and 619 1.6% 1.8%
FICO between 620 and 659 17.4% 18.3%
FICO between 660 and 699 33.2% 33.1%
FICO between 700 and 739 27.2% 26.7%
FICO greater than 739 20.2% 19.7%
Modified pool risk in force by loan
type(2):
- Fixed 47.9% 49.9%
- ARM (positive amortization) 52.1% 50.1%
- ARM (potential negative
amortization) 0.0% 0.0%
Modified pool risk in force by
property type(2):
- Condominium 2.2% 1.4%
- Other (principally single-
family detached) 97.8% 98.6%
Modified pool risk in force by
occupancy status(2):
- Primary residence 74.9% 75.0%
- Second home 5.7% 5.3%
- Non-owner occupied 19.4% 19.7%
Modified pool risk in force by
mortgage amount(2):
- $200,000 or less 47.1% 47.5%
- Greater than $200,000 52.9% 52.5%
(2) Percentages represent distribution of direct risk in force (RIF) on
a per policy basis and do not account for applicable stop loss
amounts.
Triad Guaranty Inc.
Sequential Quarterly Statistical Information (con't.)
(Unaudited)
Dec 31, Sep 30, Jun 30,
2006 2006 2006
(Dollars in millions unless otherwise indicated)
Production
New insurance written (NIW):
- Primary flow business $3,612 $2,844 $2,559
- Primary structured bulk
business 304 436 385
Total Primary 3,916 3,280 2,944
- Modified Pool 2,130 2,956 2,980
Total NIW $6,046 $6,236 $5,924
New risk written:
- Primary (gross) $991 $865 $730
- Modified Pool 78 106 92
Total new risk written $1,069 $971 $822
Primary NIW by loan-to-value ratio
(LTV):
- Greater than 95% 16.2% 20.7% 12.2%
- 90.01% to 95.00% 25.3% 23.3% 22.0%
- 90.00% and below 58.5% 56.0% 65.8%
Percent of Primary NIW from
refinancings 41.5% 28.9% 32.5%
Percent of Primary flow NIW subject
to captive reinsurance arrangements 31.9% 61.5% 61.2%
Mar 31, Dec 31, Sep 30,
2006 2005 2005
(Dollars in millions unless otherwise indicated)
Production
New insurance written (NIW):
- Primary flow business $1,947 $2,263 $3,091
- Primary structured bulk
business 1 - 2
Total Primary 1,948 2,263 3,093
- Modified Pool 4,606 2,255 4,526
Total NIW $6,553 $4,518 $7,619
New risk written:
- Primary (gross) $490 $583 $822
- Modified Pool 142 55 97
Total new risk written $633 $638 $919
Primary NIW by loan-to-value ratio
(LTV):
- Greater than 95% 10.1% 11.0% 14.1%
- 90.01% to 95.00% 25.0% 35.9% 43.0%
- 90.00% and below 64.9% 53.1% 42.9%
Percent of Primary NIW from
refinancings 33.5% 28.6% 26.5%
Percent of Primary flow NIW subject
to captive reinsurance arrangements 55.1% 55.1% 58.1%
Jun 30, Mar 31, Dec 31,
2005 2005 2004
(Dollars in millions unless otherwise indicated)
Production
New insurance written (NIW):
- Primary flow business $2,941 $2,161 $2,456
- Primary structured bulk
business - 30 20
Total Primary 2,941 2,191 2,476
- Modified Pool 1,798 2,103 1,606
Total NIW $4,739 $4,294 $4,082
New risk written:
- Primary (gross) $723 $540 $642
- Modified Pool 46 62 46
Total new risk written $769 $602 $688
Primary NIW by loan-to-value ratio
(LTV):
- Greater than 95% 11.6% 13.2% 13.7%
- 90.01% to 95.00% 30.7% 30.1% 32.9%
- 90.00% and below 57.7% 56.7% 53.4%
Percent of Primary NIW from
refinancings 33.6% 34.9% 30.1%
Percent of Primary flow NIW subject
to captive reinsurance arrangements 54.6% 47.4% 52.8%
Note: The Company periodically enters into structured transactions
involving loans that have insurance effective dates within the
current reporting period but for which detailed loan information
regarding the insured loans is not provided until later. When this
occurs, the Company accrues due premium in the reporting period
based on each loan's insurance effective date; however, the loans
are not reflected in the Company's in force and related data totals
until the loan level detail is reported to the Company. At December
31, 2006, the Company had approximately $119 million of structured
transactions with effective dates within the fourth quarter for
which loan level detail had not been received.
Triad Guaranty Inc.
Sequential Quarterly Statistical Information (con't.)
(Unaudited)
Dec 31, Sep 30, Jun 30,
2006 2006 2006
(Dollars in millions unless otherwise indicated)
Delinquencies and Claim Information
Total primary delinquent loans 5,565 5,201 5,001
- Flow business 5,265 4,892 4,666
- Bulk business 300 309 335
Total modified pool delinquent loans 3,001 2,387 1,944
- Structured with deductibles 1,897 1,578 1,330
- Structured without deductibles 1,104 809 614
Total primary delinquency rate 2.47% 2.37% 2.31%
Modified Pool delinquency rate 2.67% 2.16% 1.81%
Primary average severity
($ thousands) $28.1 $25.7 $25.8
- Flow business $27.9 $25.0 $25.0
- Bulk business $29.8 $37.6 $32.5
Primary net paid claims ($ thousands) $15,100 $13,016 $13,501
- Flow business $13,880 $11,887 $11,614
- Bulk business $1,220 $1,129 $1,887
Modified Pool average severity
($ thousands) $26.2 $18.8 $19.4
Modified Pool net paid claims
($ thousands) $1,493 $603 $930
Financial Information
Loss ratio - GAAP 70.9% 35.7% 34.1%
Expense ratio - GAAP 22.8% 24.8% 25.6%
Combined ratio - GAAP 93.7% 60.5% 59.7%
Risk-to-capital ratio 12.5:1 12.0:1 11.8:1
Mar 31, Dec 31, Sep 30,
2006 2005 2005
(Dollars in millions unless otherwise indicated)
Delinquencies and Claim Information
Total primary delinquent loans 5,302 5,617 4,537
- Flow business 4,908 5,147 4,097
- Bulk business 394 470 440
Total modified pool delinquent loans 2,055 2,136 1,565
- Structured with deductibles 1,383 1,388 920
- Structured without deductibles 672 748 645
Total primary delinquency rate 2.46% 2.58% 2.07%
Modified Pool delinquency rate 2.02% 2.51% 2.00%
Primary average severity
($ thousands) $26.2 $26.2 $26.2
- Flow business $26.0 $24.9 $26.1
- Bulk business $27.4 $40.5 $27.4
Primary net paid claims ($ thousands) $13,305 $11,562 $11,982
- Flow business $11,444 $10,021 $10,555
- Bulk business $1,861 $1,540 $1,427
Modified Pool average severity
($ thousands) $16.4 $18.0 $22.0
Modified Pool net paid claims
($ thousands) $1,100 $862 $1,475
Financial Information
Loss ratio - GAAP 34.1% 48.9% 38.4%
Expense ratio - GAAP 25.6% 26.4% 26.1%
Combined ratio - GAAP 59.7% 75.3% 64.5%
Risk-to-capital ratio 12.3:1 12.6:1 13.0:1
Jun 30, Mar 31, Dec 31,
2005 2005 2004
(Dollars in millions unless otherwise indicated)
Delinquencies and Claim Information
Total primary delinquent loans 4,189 4,319 4,430
- Flow business 3,752 3,872 3,940
- Bulk business 437 447 490
Total modified pool delinquent loans 1,549 1,553 1,492
- Structured with deductibles 829 748 634
- Structured without deductibles 720 805 858
Total primary delinquency rate 1.91% 1.98% 2.03%
Modified Pool delinquency rate 2.60% 2.81% 3.07%
Primary average severity
($ thousands) $28.9 $24.7 $24.1
- Flow business $29.0 $24.9 $23.6
- Bulk business $27.6 $21.0 $28.4
Primary net paid claims ($ thousands) $12,147 $8,681 $7,138
- Flow business $10,931 $8,283 $6,172
- Bulk business $1,216 $398 $966
Modified Pool average severity
($ thousands) $24.5 $17.6 $14.7
Modified Pool net paid claims
($ thousands) $1,150 $970 $1,193
Financial Information
Loss ratio - GAAP 42.0% 27.4% 27.0%
Expense ratio - GAAP 26.4% 28.1% 27.8%
Combined ratio - GAAP 68.4% 55.5% 54.8%
Risk-to-capital ratio 13.1:1 13.7:1 14.0:1
SUPPLEMENTAL INFORMATION FOR DECEMBER 31, 2006
Exhibit 1 Review of Fourth Quarter Reserve Increase
Exhibit 2 Incurred Losses Supplemental Information
a. Paid Loss and Reserve Analysis for the Nine Quarters Ended December
2006
b. Rollforward of Reserve Change From September 30, 2006 to December 31,
2006
c. Overall Severity for Last Five Quarters
d. Claims Settlement Methods - Mitigation Impact for Last Five Quarters
e. Average Severity by Claims Settlement Method for the Last 5 Quarters
f. Average Paid Claim Severity as Percent of Risk on Paid Claims
Exhibit 1
REVIEW OF FOURTH QUARTER RESERVE INCREASE
There are many positive and encouraging trends to be found in the
fourth quarter numbers - 29% premium growth from excellent production and
strong persistency, solid portfolio performance, and an improving expense
ratio. However, the reserve increase may overshadow our quarterly
performance, since the size of the increase was not anticipated. We hope
this summary will provide Triad's perspective on the reserve increase and
explain what occurred during the quarter that led us to make the increase.
Exhibit 2b included with this earnings release illustrates that the
reserve change this quarter is a function of three separate components - 1)
$5.8 million is associated with the normal change in the default inventory
in terms of count and mix; 2) $4.9 million has to do with changing
expectations and model refinements on frequency; and 3) the largest portion
of the increase, $12.6 million, is a function of new trends in severity
which first became apparent this quarter. Comments regarding each of the
components of the quarterly reserve change follows.
In regards to the change in default inventory, we are fortunate to have
avoided some of the most problematic areas of the lending business, such as
sub prime and second liens. We believe the quality of our portfolio remains
strong, evidenced by the fact that our year-end reserved defaults are up
just 5% from December 31, 2005, even with our recent growth over the past
few years. A review of the portfolio's credit quality, in terms of FICO
scores and delinquency rates, demonstrates that the portfolio credit
quality has remained steady. The net message is that default counts showed
a moderate increase for the quarter and reflect the consistent quality of
our portfolio. The normal changes in the default inventory added $5.8
million to reserves this quarter.
We continually monitor reserves and claim development. As new data
emerges, we consider its impact on our reserve calculation and, when
necessary, make changes to our estimates. During the first three quarters
of 2006 we refined our segmentation for the reserve calculation and
monitored emerging trends. The result of the changes through the first
three quarters of the year was an 18% increase in reserves compared to a 5%
decline in reserved defaults over the same period. During the first nine
months of the year, we were adjusting our reserves upward. In the fourth
quarter, these changes continued. We increased the frequency factors, which
had a $3.8 million impact and, at the same time, eliminated a lag in
processing that had a $1.1 million impact on reserves. The total change
resulting from the continuous review process added $4.9 million to reserves
in the quarter.
The severity increase in the reserves had the most impact and reflects
a new view we have for the future. As shown in Exhibit 2d, during the
fourth quarter we saw a significant change in our ability to reduce claims
through our traditional mitigation processes, which we believe is related
to problems in the housing market. In many cases we are able to pay less
than the full amount of our coverage because the property is sold during
the foreclosure process, and these presales prior to foreclosure generally
serve to reduce our loss. When the property does not sell prior to
foreclosure, we often pay the full amount of our coverage, which we call a
full option settlement. In the fourth quarter, full option settlements
became a larger percent of our paid claims, creating an increase in
severity. A little over half of the severity increase on paid claims during
the quarter was due to the increase in the percentage of full option
settlements compared to those which were mitigated. The remainder of the
increase in the quarter's severity is due to the increase in our risk
exposure that we have anticipated because of growth in our loan size over
the past few years. While the impact on paid claims for the quarter due to
the severity increase was between $1 million and $2 million, it focused our
attention on the potential effect on our future claim payments should this
trend continue. We believe the primary cause of the shift towards full
option settlement was the general weakness in the housing market reducing
our opportunities to mitigate the claims through pre-sales prior to
foreclosure, or through our own purchase of the property. As a direct
result of the emergence of this new trend during the fourth quarter, and in
light of the deteriorating housing market, it was determined that the
prudent course of action was to increase our severity factors utilized in
our reserving methodology.
To place this into perspective, the new data suggests that future
severity per paid claim will be in the vicinity of $31,000 based on the
current default inventory. This required that reserves be increased this
quarter by $12.6 million, in addition to the roughly $1 million to $2
million increase in paid claims.
In summary, given the information that we were presented with in the
fourth quarter, we believe it was necessary to increase our severity
factors to reflect the current conditions. Ignoring the signals from the
housing market was not an option. House price declines on a year-over-year
basis and the inventory of existing homes increasing from 5.1 months supply
at December 2005 to 7.4 months at the end of October 2006 are facts that
cannot be dismissed. We see nothing in the current economic environment
that would lead us to believe that the severity factors will improve during
the expected period of claim development on the existing defaults. Going
forward, we will continue to monitor our claim development and adjust our
factors as new information becomes available to us.
This document may contain forward-looking statements that involve
various risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements. Attention is directed to the
discussion of risk and uncertainties as part of the Safe Harbor statement
under the Private Securities Litigation Reform Act of 1995 contained in the
Company's most recent annual report, Form 10-K and other reports filed with
the Securities and Exchange Commission.
Exhibit 2a
PAID LOSSES AND RESERVE ANALYSIS
As of and for the Quarter Ended
12/31/06 09/30/06 06/30/06
(in 000s except counts)
PAID LOSS INFORMATION
Primary
Paid Claims excluding Loss
Adjustment Expenses $15,100 $13,016 $13,502
Average Severity $27.9 $25.0 $25.0
Number of Paid Claims 538 506 523
Trailing 12 Months Number of Paid
Claims 2,073 1,976 1,927
Modified Pool
Paid Claims excluding Loss
Adjustment Expenses $1,493 $603 $930
Average Severity $27.7 $27.9 $26.6
Number of Paid Claims 57 32 48
Trailing 12 Months Number of Paid
Claims 204 195 230
Total Paid Losses
Paid Claims excluding Loss
Adjustment Expenses $16,593 $13,619 $14,432
Average Severity $27.9 $25.3 $25.3
Number of Paid Claims 595 538 571
Trailing 12 Months Number of Paid
Claims 2,277 2,171 2,157
RESERVE INFORMATION
TOTAL RESERVES $84,352 $60,123 $54,905
Reserves per Default
Number of Defaults Without
Deductibles (1) 6,668 6,009 5,614
Reserves per Defaults without
Deductibles $12.7 $10.0 $9.8
Reserves as Percent of Risk in Default
Risk in Default
(without deductibles) $265,415 $220,204 $197,014
Average Risk per Default
(without deductibles) $39.8 $36.6 $35.1
Reserves as Percent of Risk at
Default 32% 27% 28%
Reserves to Paid Loss Ratios
Most Recent Quarter Annualized Net
Paid Losses and LAE $68,283
Ratio of Reserve to Most Recent
Quarter Annualized Paid Losses 1.24
Paid Losses for Trailing 12 Months $60,949
Ratio of Reserve to Paid Losses
for Trailing 12 Months 1.38
PAID LOSSES AND RESERVE ANALYSIS
As of and for the Quarter Ended
03/31/06 12/31/05 09/30/05
(in 000s except counts)
PAID LOSS INFORMATION
Primary
Paid Claims excluding Loss
Adjustment Expenses $13,305 $11,562 $11,982
Average Severity $26.0 $24.9 $26.1
Number of Paid Claims 506 441 457
Trailing 12 Months Number of Paid
Claims 1,855 1,701 1,556
Modified Pool
Paid Claims excluding Loss
Adjustment Expenses $1,078 $862 $1,475
Average Severity $21.8 $27.9 $24.4
Number of Paid Claims 67 48 67
Trailing 12 Months Number of Paid
Claims 229 217 250
Total Paid Losses
Paid Claims excluding Loss
Adjustment Expenses $14,383 $12,424 $13,457
Average Severity $25.1 $25.4 $25.7
Number of Paid Claims 573 489 524
Trailing 12 Months Number of Paid
Claims 2,084 1,918 1,806
RESERVE INFORMATION
TOTAL RESERVES $52,614 $51,074 $41,823
Reserves per Default
Number of Defaults Without
Deductibles (1) 5,973 6,364 5,182
Reserves per Defaults without
Deductibles $8.8 $8.0 $8.1
Reserves as Percent of Risk in Default
Risk in Default
(without deductibles) $204,934 $220,030 $180,154
Average Risk per Default
(without deductibles) $34.3 $34.6 $34.8
Reserves as Percent of Risk at
Default 26% 23% 23%
Reserves to Paid Loss Ratios
Most Recent Quarter Annualized Net
Paid Losses and LAE $50,910
Ratio of Reserve to Most Recent
Quarter Annualized Paid Losses 1.00
Paid Losses for Trailing 12 Months $49,822
Ratio of Reserve to Paid Losses
for Trailing 12 Months 1.03
PAID LOSSES AND RESERVE ANALYSIS
As of and for the Quarter Ended
06/30/05 03/31/05 12/31/04
(in 000s except counts)
PAID LOSS INFORMATION
Primary
Paid Claims excluding Loss
Adjustment Expenses $12,147 $8,681 $7,138
Average Severity $29.0 $24.9 $23.6
Number of Paid Claims 451 352 296
Trailing 12 Months Number of Paid
Claims 1,438 1,248 1,104
Modified Pool
Paid Claims excluding Loss
Adjustment Expenses $1,150 $970 $1,193
Average Severity $26.0 $18.5 $18.8
Number of Paid Claims 47 55 81
Trailing 12 Months Number of Paid
Claims 242 224 186
Total Paid Losses
Paid Claims excluding Loss
Adjustment Expenses $13,297 $9,651 $8,331
Average Severity $26.7 $23.7 $22.1
Number of Paid Claims 498 407 377
Trailing 12 Months Number of Paid
Claims 1,680 1,472 1,290
RESERVE INFORMATION
TOTAL RESERVES $38,576 $34,825 $34,042
Reserves per Default
Number of Defaults Without
Deductibles (1) 4,909 5,124 5,288
Reserves per Defaults without
Deductibles $7.9 $6.8 $6.4
Reserves as Percent of Risk in Default
Risk in Default
(without deductibles) $168,368 $179,605 $184,678
Average Risk per Default
(without deductibles) $34.3 $35.1 $34.9
Reserves as Percent of Risk at
Default 23% 19% 18%
Reserves to Paid Loss Ratios
Most Recent Quarter Annualized Net
Paid Losses and LAE $34,203
Ratio of Reserve to Most Recent
Quarter Annualized Paid Losses 1.00
Paid Losses for Trailing 12 Months $29,007
Ratio of Reserve to Paid Losses
for Trailing 12 Months 1.17
(1) Reserves for defaults under Modified Pool transactions with
deductibles are not recorded until the losses for submitted claims
plus the calculated reserve for defaults exceed the amount of
deductible under the transaction. At December 31, 2006 there are no
transactions where the submitted losses plus reserve for defaults
exceed the deductible.
Exhibit 2b
RESERVE ROLLFORWARD - September 30, 2006 to December 31, 2006
Reserve Change Analysis used in Estimating Components of Fourth Quarter
2006 Reserve Increase
($ in thousands)
Reserve Reported at
September 30, 2006 $60,123
Change in and Seasoning of the
Default Inventory 5,800 (1)
Frequency Factor and Process Changes:
Elimination of lag in processing 1,101 (2)
Frequency Factor update 3,837 (3)
Total Factor and Process Change 4,938
Increase in Severity Factors 12,590 (4)
Increase in Reserve for Loss
Adjustment Expense 901
Change from September 30, 2006 to
December 31, 2006 24,229
Reported Reserve at December 31, 2006 $84,352
(1)Represents the change in reserve from applying the actual reserve
factors used at September 30, 2006 against the December 31, 2006
default inventory
(2)During the fourth quarter a process change was made to eliminate lag in
reporting for information received from servicers near quarter end. An
estimated reserve for these defaults was included in the incurred but
not reported reserve, but the defaults were not included in the default
counts
(3)Represents the change in reserve from applying December 31, 2006
frequency factors to the September 30, 2006 default inventory
(4)The change was derived by multiplying the increase in the average
reserve per default by line of business from September 30, 2006 to
December 31, 2006, times the December 31, 2006 defaults by line of
business and then subtracting the change generated by the frequency
factor update described in item (3)
Exhibit 2c - Paid Claims Average Severity:
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-a
Exhibit 2d - Claims Settlement Methods:
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-b
Exhibit 2e - Average Severity by Settlement Method:
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-c
Exhibit 2f - Paid Claims as Percent of Risk:
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-d
SOURCE Triad Guaranty Inc.
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Related links:
http://www.triadguaranty.com/
Photo Notes:
NewsCom: http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-a
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-b
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-c
http://www.newscom.com/cgi-bin/prnh/20070125/CLTH057-d
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Ken Jones, Senior Vice President, Chief
Financial Officer of Triad Guaranty Inc., +1-800-451-4872
ext.1105, or kjones@tgic.com
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