Ladies and gentlemen, thank you for standing by. And welcome to the Radian’s Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Emily Riley, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, and welcome to Radian's fourth quarter 2015 conference call. Our press release, which contains Radian's financial results for the quarter, was issued earlier this morning and is posted to the Investors section of our website at www.Radian.biz. This press release includes certain non-GAAP measures which will be discussed during today's call. A complete description of these measures and the reconciliation to GAAP may be found in press release exhibits E, F and G and on the Investors section of our website. During today's call, you will hear from S.A. Ibrahim, Radian's Chief Executive Officer, and Frank Hall, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce Bazemore, President of Radian Guarantee; Joe D'Urso, President of Clayton; Derek Brummer, Executive Vice President and Chief Risk Officer of Radian Group; and Cathy Jackson, Corporate Controller. 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 a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2014 Form 10-K and subsequent reports filed with the SEC. These are also available on our website. Now I would like to turn the call over to S.A.

Thank you, Emily. Thank you all for joining us and for your interest in Radian. Before we discuss the financial results for the fourth quarter, I would like to highlight what I believe 2015 has met for Radian. Following my comments, Frank will cover the details of our financial position. Then I will summarize a few key points before opening the call to your questions. 2015 was a year when we delivered strong financial results, demonstrated our commitment to balance and discipline by writing high-quality flow MI business that was among the highest in our company's history and positioned Radian for future success as a simplified company with a clear strategic focus on our core strengths. First, we eliminated all of our exposure to financial guaranty credit risk with the sale of Radian Asset. Second, we grew our mortgage insurance in force. Including writing a high-volume of profitable mortgage insurance business. We expect our in force book to grow in 2013 and enhance a strong foundation for future earnings. Third, we expanded our mortgage and real estate services offerings with the acquisitions of Red Bell Real Estate and ValuAmerica. These offerings add fee-based revenue help distinguish Radian among its mortgage insurance peers and position our company for future success in a mortgage financing environment that continues to evolve. Fourth, we satisfied the private mortgage insurer eligibility requirements. As part of our PMIER strategy, we utilized a surplus note, which is a creative solution that allows us the opportunity to quickly return liquidity to the holding company and provide greater capital flexibility. This has allowed us the opportunity to explore capital options, including the $100 million share repurchase program recently authorized by our board. Today, we believe we are better positioned to drive long-term value than ever before. Our legacy exposure…

Thank you S.A. and good morning. Before I get into the details of our results, I would like to address a point of clarification to aid in the analysis of these results. The comparability of our GAAP net income for 2015 and 2014 is materially impacted by two important 2014 events. First, the successful sale of radiant asset and second the reversal of our deferred tax asset valuation allowance. Please refer to our fourth quarter 2014 financial results and 10-K for details of these two significant events. Our primary focus today will be on our operating results. Moving now to the drivers of our revenue. New insurance written was $9.1 billion during the quarter, compared to $11.2 billion last quarter and $10 billion in the fourth quarter of 2014. Refinancing increased slightly to 17% of volume this quarter, compared to 13% last quarter and 22% a year ago. We expect our insurance in force to continue to grow in 2016 due to the increased mix of purchase volume relative to refinance. Single premium business represented 29% of our total NIW in the fourth quarter, up slightly from the third quarter. Primary insurance in force increased to $175.6 billion during the quarter. Our 12-month persistency declined from 79.2% in the third quarter of 2015 to 78.8% in the fourth quarter of 2015 as noted on Exhibit M. To give more context with respect to how persistency is currently trending, our annualized three-month persistency increased from 80.5% in the third quarter of 2015 to 81.8% in the fourth quarter. Our twelve-month persistency was negatively impacted by our previously disclosed reconciliation with servicers resulting in unusually high cancellation that still remain in the twelve-month consistency calculation. Earned premiums for the quarter were relatively flat from the third quarter and included approximately $13 million…

Thank you, Frank. Let me summarize the important takeaways for 2015. I’m pleased with our continued ability to rise more high-quality MI business maintain our price discipline to generate mid to upper teens return on equity, improve the credit quality of our existing MI portfolio, grow our mortgage insurance in in-force, and create a diversified source of fee-based income through our services segment that also deepens our relationship with our MI customers. Our solid 2015 financial results and credit performance represent the powerful demonstration of our embedded strength. Most importantly, we believe we are better positioned today to drive long-term value than ever before. And now operator, we’d like to open the call to your questions.

[Operator Instructions] First question comes from the line of Eric Beardsley of Goldman Sachs.

Hi, thank you. I just wanted to clarify some of the credit commentary in terms of your expectations for new notice improvement. Could you just repeat, I guess the percentage improvement that you expect next year? Is that consistent with the fourth-quarter levels or the full year 2015 levels as you look out at the 16 new notices?

Sure, so we stated that the full-year 2015 new defaults were 13% lower than in 2014 and in 2016 we expect the new defaults to decline at a similar rate.

Got it. So, as we look at the fourth quarter trends, obviously that pace was somewhat slower, is there anything notable that we should think about their and I guess relative to what you saw in the quarter what else contributed to your decision to lower the claim rate?

Yes. So, I wouldn't say that there was anything notable. In fact, again on the annual basis it was consistent with our expectations. What I would say about the reduction in the role rate is it is wholly consistent with what we're seeing in the overall positive trends in credit quality. And so what you're seeing there is simply a reflection of that view.

Okay. And then just quickly I guess just to clarify also, the OpEx commentary. So, if we were looking at the fourth quarter level adjusting for 6 million of the small items, the improvement that we are looking at of that level is 3% to 5%, but you are also going to have an additional 6 million next year from a technology project, did I understand that correctly?

That’s correct. So, for the fourth quarter of 2015 the way to think about it is that we have what I would call core operating expenses, on a consolidated basis of roughly $65 million. And so that 3% to 5% reduction on a 4Q 2016 over 4Q 2015 basis would be off of that $65 million. The OpEx that I had mentioned about our modernization project will be called out separately and as we mentioned in our Investor Day, the expenses associated with modernization are really duplicative to our existing platform and therefore as we operate during this time period of redundancy will call that out separately.

Okay, great thank you.

Okay, thank you. Next question from the line of Mark DeVries of Barclays, please go ahead.

Thanks. First I want to clarify a point. Frank I think you indicated that the imply claims rate on new notices was 13%, but we are calculating a lower number. When I think about, I think the gross primary incurs were $59 million new notices and defaults were [11.7000] so that gets you to about an incurred per new default of little over $5000, which versus $49,000 average claim implies kind of an implied claims rate closer to 10%. Where is the disconnect there? Where are we off in that calculation?

That is a great question. What I would suggest is that maybe we take that off-line and point you to some of our disclosures that can help maybe highlight that difference for you.

Okay, but at a higher level are you seeing, have you seen about, I think you indicated, you are at 13% now, you don't expect more than 100 basis point improvement this year, are you seeing 10% on the truly new notices on new vintages versus the higher level on some of the older vintages and therefore as that continues to burn down it's going to take time to get from 13% to 10%?

Let me just make one quick comment and I'll turn it over to Derek for some details. I think the overarching conclusion that I want to make sure it becomes very clear on this call is that our overall credit trends are positive. And so what you're seeing in all of our actions are consistent with that conclusion and consistent with the evidence that we have, but to your particular question, I will turn over to Derek.

Sure. In terms of the new vintages, I mean generally what we're seeing is they tend to cure at a higher rate, I would say than the legacy portfolio, so one would expect as you see the book season and more of the default inventory moved to the newer vintages, you would probably see that rate decrease on a relative basis.

Okay. And then finally, I just want to clarify a point. I think you indicated Frank that you're going to target, I guess a minimum liquidity of $300 million at the HoldCo, given where you are now does that imply you're going to need some more cash up to the HoldCo through the redemption of the surplus notes before you would be able to use the full $100 million stock repurchase authorization?

No. We actually maintain sufficient liquidity of the parent company to deal with the share repurchase program.

So you could do that rapidly if you wanted them and the stock is obviously at a pretty compelling level here that we hope will not persist for that long. And if you could cut a front-end load that as opposed to spreading it out I think it would be ideal for you guys.

Yeah, obviously the share price here is very attractive, but the timing of the actual purchases will depend on market and certain other conditions, but the current trading price certainly represents an attractive opportunity.

Okay, but there are no liquidity issues that will impact the pace at which you are able to buy that back?

Yes, that is correct.

Okay, great. Thank you.

Okay, thank you. And the next question comes from the line of Mackenzie Kelley of Zelman & Associates, please go ahead.

Thanks, good morning. S.A. with some of the industry moving away from cost subsidized pricing, can we take your earlier comment to imply that at this time Radian doesn’t intend to pursue a flatter pricing strategy and really at this point what would prevent you from adopting a more risk-based model to better adjust to PMIERs?

As I said, we do follow a granular pricing approach, which is in fact risk-based pricing. If your question specifically is do we want to go further and look at some of the tools that others use, we will evaluate that. At this point, we believe we can use those tools if we wanted to, but we haven’t made a decision. In terms of this next part of your question I'll ask Frank to answer that, but point to the fact that we take a very measured and disciplined approach to pricing.

And I would just add to that as S.A. said, we are constantly evaluating a wide range of options in the context of the competitive landscape, but what we have evidenced in the past with our LP singles card change here recently that will become effective in March is that we have effectively flattened the card, but increased the returns overall. And so as we are evaluating different options and opportunities we are very mindful of and placed great emphasis on the returns and so as we look at potential future changes. We will always be very mindful and place a very, very heavy emphasis on the returns.

Got it. Thanks for that. And Teresa maybe this is for you. Just a few months now into trade, have you heard from customers any feedback regarding the pros and cons of the transparent rate card versus the black box strategy here, has that really turned out to be a non-issue thus far?

Hi McKenzie, it actually has - we haven’t heard any issues at this point. We've had some discussions with customers, I think they’ve been so focused on their own issues around this and the fact that it’s slowed down closings a little bit that we haven’t heard that there is a differentiator there.

Great, thank you.

Okay, thank you. And the next question is from the line of Bose George of KBW, please go ahead.

Hey good morning. It is just another follow-up on pricing. Obviously there are several rate cards out there from competitors with the slider pricing, I mean is it fair to say that you think returns from those rate cards don't meet your hurdle rate, which is the driver of not adopting something similar?

Yeah, I'm not going to speak specifically to our competitors rate cards, but just framing at the context of what I just described, which is that we are placing an emphasis on the returns. We think that the returns that S.A. mentioned of low-to-mid teens are very achievable and that’s what we will be targeting as we evaluate any future pricing actions. But I think what you would notice by our recent actions is that we maintain a very high level of discipline here and we have not been quick to change, so that we can see what the reaction is from the competitive landscape.

Okay great. And then actually your comment about the market share impact of the pricing position, has that already been seen in the data or are you speaking prospectively. Do you think there could be further market share impact going forward?

Yeah. The market share impact that we’ve referenced is historical, again, further evidence of our discipline. And so we have let a little bit of market share slip, we have maintained strong returns. And we are certainly mindful of that historic experience, but what we are looking to in the future are different ways to grow our market share. And are confident we will be able to do that.

Okay great. And then just actually one more on the pricing. In terms of discussions with lenders, how are lenders managing multiple rate cards, some people with the black box et cetera. How are they seeing the process?

Yeah. Teresa?

I think each lender is taking their own approach to that. So, some lenders are using the black box along with rate cards, others have opted not to use a black box at all. So, it really does vary by lender in terms of their own operations and systems and just their own strategy of how they want to approach it.

Okay great. Let me just sneak in one more, on the buyback is an accelerated share repurchase, one of the considerations?

What we spoke to on our press release is more of an open market approach to the share repurchase program.

Okay great thanks.

Okay, thank you. The next question is from the line of Douglas Harter of Credit Suisse. Please go ahead.

Thank. Just one more on the holding company liquidity, when you think about debt maturities, how far out will you sort of account for those and factor that into your $300 million liquidity target?

Sure, so I will answer that question in the context of some of our previously stated goals of returning to investment-grade. And one of the factors that they look at is your ability to deal with upcoming maturities. And so when we’ve targeted that $300 million it is within the context of what we expect our future debt maturity schedule to look like.

Okay. And then have you started to have conversations or do you expect to have conversations with Pennsylvania about the ability to when you might be able to get start to get regular dividends out of the insurance subsidiary?

That is something again, our approach to managing liquidity at the parent company from the operating company was handled through the surplus note. The ordinary dividends as far as what the map - required map is for that to take place, we are many years away from having that positive unassigned surplus. And so we don't feel at this time that there is a need to request any special dividend if that’s your question. And expect that that ordinary dividend ability to return to us in six or so years.

Great, thank you.

Okay, thank you. And next question from Geoffrey Dunn of Dowling & Partners, please go ahead.

Thank you, good morning.

Good morning Geoff.

First question is on singles pricing. Obviously you and others in the industry have increased pricing materially in response to the higher capital charges. Any color on lenders, particularly the non-banks initial reactions to the higher costs?

I will ask Teresa for some commentary on that. But I don't get the sense that there has been. Teresa?

Yeah, I think Geoff that frankly with the PMIERs changes particularly with the changes that happened in June with higher capital charges, for singles, there was already a lot of discussion with lenders about the fact that there would need to be some adjustment there. So, frankly I don't think they are surprised or we certainly haven't seen any surprise.

Okay. And then with respect to BPMI pricing, you have risk-based capital charges on a much more granule level from PMIERs, such that against prior rate cards it just doesn't the line and ends up getting progressively more expensive on a relative basis for the higher FICO's. Why isn't a realignment of a BPMI rate card just basically inevitable here across the entire industry? It seems like you're now dealing with apples and oranges given how the capital charges are laid out under PMIERS.

Jeff I would point you to the comments that we’ve made about expected returns in the mid-teens. And just highlight that that is on PMIERs capital. So, from our vantage point we don't think there is a technical need to change the BPMI card, no, certainly the competitive landscape may dictate some change in the future, but we don't see a technical reason to need to change that.

But I think you said on the lender card you can get to more granularity in pricing and still maintain or improve returns right?

That is correct. We are seeing improved returns with the widen rate card, that’s correct.

Okay, great. Thank you.

Okay, thank you. And next question is from the line of Vivek Agrawal of Wells Fargo Securities. Please go ahead.

Hi, good morning thanks. Given that the FICO scores are above pre-crisis levels and the calculations seem to have been eased on the margin with things like the past missed medical payments now being forgiven in calculations. From a risk management standpoint, have do you look at FICO score improvements due to items such as this relative to the passage of time were the improvement in the underlying borrowers?

Great question. I always dare to respond to that. Sure, well, in terms of our portfolio the GSEs haven't converted over, they are utilizing that – the newer FICO system, so it’s not really impacting. So from a modeling perspective kind of what we used on a historical basis for FICO still applies.

Okay. And then moving on, are you seeing any weakness from energy-related geographies in your miss payments?

This is Derek. I will take that one. We haven't seen any impact in terms of the portfolio. Obviously, we're monitoring the situation closely. When we look at it, I would separate two things, the impact on the overall economy and we think for consumers nationwide it’s probably a positive. You will need to see that bleeding, I think, over time. When we look at that concentration, I would say, in oil-related states and I want to make a couple of points. One is I think the economies in oil-related states are less dependent from a job perspective. On the oil industry, we’ve certainly seen that also. I would say home prices are more in line with fundamentals than what we saw, let’s say, in the 80s in the oil patch crisis. The other important point is we really look at it on an MSA-level. And so what we look at is MSAs where their concentrations in the oil-related jobs, which we define as more than three percentage and when we look at that in our portfolio, our exposure to those oil-concentrated MSAs is less than 4% of our overall portfolio. We run various stress test through the portfolio, oil-related stresses and when we do that given the relatively low concentration to those MSAs, it doesn't really materially impact our projected losses for the overall portfolio.

Okay, thank you.

Thank you. And the next question, it is from the line of Chris Gamaitoni of Autonomous Research. Please go ahead.

Good morning and thanks for taking my call. Just one clarifying point. I was wondering what the future loss mitigation practice is that you said you changed were? And how exactly that impacted the reserve this quarter?

Yeah, so the loss mitigation practices really just impacts our assumptions around decisions and denials. And I think what you'll notice now in any quarter where you make a key assumption change, the largest impact is in the quarter of change. And so we would expect to see on that on a go-forward basis is relatively small changes in that.

Okay, that’s perfect. And then on the BPMI rate card discussion relative to market share, so if you to make a change, why would you not be adversely selected where other competitors may have lower prices at the very high FICO scores leading to a mix of business kind of to the more called 680 to 720 area?

Great. So it’s a great question and really what we're saying is that we have not reached a conclusion as it relates to how to address the competitive landscape for BPMI. What we'll continue to say and continue to illustrate and demonstrate is that pricing disciple is the focus on returns and that’s the approach that we will take.

Perfect. And can you remind us what the structure of the remaining 2019 converts are if you were to do something with those, is it a call premium? I just don't remember what you would have to do the technical aspects of dealing with those?

Right. So there is a call feature if the share price is above a certain strike price – of $13.78. and it is our option as to the mix of consideration related to how we settle those, but during the quarter our share price has averaged at a price below that.

Certainly. Well, thank you so much for my call.

Thank you.

Thank you. And the next question, it’s from the line of Al Copersino of Columbia Management. Please go ahead.

Thanks very much. I wanted to also get a clarifying question and if I could. I believe you said the sub is now at the intended cushion level above PMIERs, but that cushion will increase of course as you generate earnings. I know it's very early days and you probably haven't come to a final decision on this, but have you come close to deciding where that cushion should be, how large it should be beyond the $300 million of liquidity get to HoldCo with the sub…?

Yeah, so what we’ve described is initially we wanted to have a modest cushion, which we achieved at year-end. And that was really the purpose of utilizing the surplus notes. Because the surplus note provides us with a faster opportunity to return cash to the holding company once that cushion builds. So we again expect that cushion to grow organically over time. The good news is once that cushion builds to a sufficient level, we have the opportunity to return capital and cash back up to the parent company.

But as a percentage of required PMIERs capital at the sub, you haven't decided specifically that we want to keep a 10% cushion or 15% cushion, what have you?

No, we have not. And again, our primary purpose for year-end – our primary goal was to make sure that it was modest at the operating company because it will build organically. And then as we think about cushions and managing cushions on an ongoing basis, we will be maintaining that approximate $300 million at the HoldCo, which is really the cushion if you will that we manage too.

Right, right. One follow up on that. The PMIERs capital requirements are procyclical. Do you envision the size of your buffer changing over time as well throughout the cycle?

Yeah, I would describe it as any buffer that we would need would be accounted for when we do the calculation for the excess on each quarter. So, again, we don't expect a need to push down any further capital into the operating company. And that any of those buffers, if you will, will be accommodated through organic means.

Right, okay. One last if I could sneak that one in on pricing. Just to make sure I understand you. You referenced, I think, are two different things. You referenced some what’s been some competitive pricing at times in the industry, I can think of particular few months ago I believe one competitor cut pricing, but it seems like the conversation the we've been having on this call about rate cards is a separate issue that you are finding an ability to change your rate card while increasing your expected returns. So I see you doing that. That element of what some competitors have done, but I see you also, secondly, not responding to the one-off price cuts that we've seen in the past. Have I summarized that correctly, those two different pieces of the pricing dynamic?

Let me restate it a little bit to describe what we’ve actually done. So, historically, we have operated in the competitive landscape given what I would call historic pricing actions from our competitors. And that’s been reflected in our previous statements, our previous results and our discussion around returns, et cetera. What some of the discussion today has been around is both the lender-paid singles and also borrow-paid monthlies. And we have made a change on the lender-paid to increase the overall returns to card even though we flattened it, if you will, and we have not yet concluded any pricing changes will be necessary for the borrower-paid.

Okay. Got it, thank you.

Thank you. And the next question is from the line of Sean Dargan of McQuarrie. Please go ahead.

Thanks and good morning. I'm giving your – the statement you just made about not changing the borrower-paid rate card. All else being equal, would you expect new insurance written to be higher or lower in 2016 versus 2015?

So, I will answer your last question first. For new insurance written, we expect it to be comparable to 2015. What I said about the borrower-paid is that we have not yet concluded whether any action will be required or what action we would take if it is required.

Okay. And then I will try to speak in general terms here. If there was a mortgage insurance company that was part of a larger well-capitalized parent that is no longer going to get the full capital support of that parent, do you think it would make sense that that company raised pricing to achieve adequate returns or do you have any thoughts on what the impact of a new publicly traded mortgage insurer could be?

Yes. Actually, we find it very positive. We would find it very positive for us in the industry for any company that was [indiscernible] a public company – publicly traded company, it would level the playing field, increase transparency and hopefully potentially increase the pricing discipline.

Okay. Thanks. And one last question, it seems like you're striving for an investment-grade rating. Do you get the sense that investment-grade financial strength ratings of the insurance subs are becoming more important to your lender partners?

It’s certainly something that we think is very important and there have been some instances of, I will call it, midsized financial institutions that we deal with where it is important and candidly that is one of the levers the we expect to be able to pull hopefully in the not-too-distant future for regaining some market shares. So for some it is important, but it hasn’t practically impaired our ability to successfully write new business.

Okay.

It does not impede us from doing the business we are doing today. But on the margin, it could be a plus in doing more business going forward if we have the investment-grade ratings.

Got it, thank you. And the reason I ask is I think there's a real possibility that a parent of another mortgage insurer could have its credit ratings downgraded and if – there can only be so many notches in between the insurance sub-financial strength ratings and that of the parent and if Genworth is downgraded, I’m just wondering if that would impair their – there maybe [indiscernible] some platforms.

Again, level playing field and transparency are good for all of us. And, therefore, we welcome any development that would take privately held companies and make them public and put them on under the same scrutiny and same capital standers that the rest of us operate under.

Got it. Thank you.

Thank you. And the final question for today is from the line of Patrick Keeley of FBR. Please go ahead.

Thanks, guys. Most of my questions have been answered, but just kind of wanted to talk about, I know in the past you've talked about the potential for kind of cross-selling with your Clayton products to existing MI customers and using that as a means to deepen your relationship. So just kind of like maybe an update that and if you have any maybe numbers to put around that I think would be very helpful.

Sure. Joe, do u want to take that?

Sure. Thanks, Patrick. I think we are very heartened by the progress and attraction that we've made so far in 2015. We put in our presentation that value circle. We share that with all of our Radian insurance clients. That always has a positive impact. And we are really looking forward to 2016. We think that we're going to continue to pick up traction and will start to see a meaningful relative impact in that.

Okay. And maybe just sticking with Clayton and kind of the value circle, I mean as we kind of look at kind of the market in 2016 and kind of how things have shaped up so far, maybe where do you see the biggest revenue opportunities for Clayton and maybe what’s the difference there as opposed to when Clinton was acquired by Radian?

Sure. While there is no doubt that the follow-on acquisitions that we have done were done with the purpose of providing our clients with more products and services across the value chain. That clearly has started to take hold. Our clients when they talk to us about that value circle they now say that now you can do more things with us and for us. That has become important as the regulations have forced people to really be fully aware of who their vendors are and how that works. And so while I wouldn't say that there is any one particular area within that value circle, where we will see more or less business, the sum total of all of those services I think will make us much more meaningful to our clients and we should see some broad impact on that over time.

All right, thank you, guys.

Okay, thank you. And now back to Chief Executive Officer, S.A. Ibrahim for closing comments.

Thank you, operator. And I thank you all for participating in today's call. And we look forward to seeing you again on the next call. Thank you.