Ladies and gentlemen, thank you for standing by. And welcome to the Radian's Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer period; instructions will be given at that time. [Operator Instructions] And as a reminder, today's conference call 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 second quarter 2016 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 Web site 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 a reconciliation to GAAP may be found in press release Exhibits F and G and on the Investors section of our Web site. 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; 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 2015 Form 10-K and subsequent reports filed with the SEC. These are also available on our Web site. And 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 dive into the details of this quarter, let me first highlight several of our most recent accomplishments. First, in the second quarter, we grew our NIW by 60% from the first quarter of 2016 and 10% from the second quarter of last year. In addition to capturing more high-quality business that we expect to generate attractive returns and strengthening our MI franchise, this new business growth should also help extend our future earnings momentum. Second, we were able to redeem our entire $325 million surplus note at the earliest possible date enhancing our holding company liquidity position and reflecting Radian's strong financial performance. Third, we announced our intention to accelerate our capital plan with the goal of positioning Radian Group for a return to investment grade ratings in the future. We continue to believe that we are better positioned to drive long-term value today than ever before in Radian's history. Turning to the quarter's results. Earlier today, we reported net income for the second quarter of 2016 of $98 million or $0.44 per diluted share. Adjusted pre-tax operating income was $131 million for the second quarter of 2016. And adjusted diluted net operating income per share for the second quarter was $0.38. Importantly, book value per share grew for the fourth consecutive quarter to $13.09, an increase of 16% over last year. And now, turning to the mortgage insurance segment. We continue to improve the quality of our large mortgage insurance in force book which drives future earnings for Radian. We wrote $12.9 billion in new MI business in the second quarter. While we had expected a seasonal increase in volume, we exceeded even our own expectations and in June, our third largest…

Thank S.A., and good morning. Before I get into the details of the results, let me first draw your attention to our new press release Exhibit D, which is designed to provide further visibility into certain items impacting our premiums earned and other operating expenses. I will discuss these items in more detail shortly and we will continue to break out notable items impacting our results each quarter. We hope you find the information useful. Turning now to the drivers of our revenue. New insurance written was $12.9 billion during the quarter compared to $8.1 billion last quarter and $11.8 billion in the second quarter of 2015. As S.A. mentioned the new business we're writing today consists of loans with excellent credit characteristics. For example, more than 60% of NIW in the second quarter consisted of loans with FICO scores greater than or equal to 740 and only 7% of FICO scores low 680. A direct single premium business represented 26% of our total NIW in the second quarter as compared to 29% in the first quarter. Our retained single premium exposure this quarter was 17% net of the insurance ceded with our singles only quota share reinsurance transaction. Primary insurance in force increased to $177.7 billion during the quarter. Refinancing decreased slightly to 18% of volume this quarter compared to 19% last quarter and was down from 23% a year ago. Our 12-month persistency increased from 79.4% in the first quarter of 2016 to 79.9% in the second quarter of 2016 as noted on Exhibit N. With respect to help persistency has currently trending, our annualized three-month persistency decreased from 82.3% in the first quarter of 2016 to 78% in the second quarter of 2016 primarily due to an increase in prepayments. Our long-term normalized persistency expectation of low…

Thank you, Frank. Before we open the call to your questions, let me take a moment to address the recent announcement of my planned retirement next year. I joined Radian in May 2005 and have now spent more than 11 years at Radian that have been the most demanding as well as rewarding of my professional career. I chose this time to announce my intention to retire because I feel the company is better positioned today to drive long-term value than ever before. All those who know me will attest that I have been the company's most enthusiastic and unflappable cheerleader even during some of the most challenging of times. During those difficult times, I've been fortunate to be surrounded and supported by an outstanding team throughout Radian to have received encouragement from an energetic and engaged Board and to have enjoyed the loyalty of customers who kept their faith and made it possible for Radian not only to survive, but to thrive. I look forward to my remaining tenure with the same enthusiasm I had when I joined in 2005, and I remained fully focused on our future. I'm committed to ensuring that we continue to build on our positive momentum and to work with the Board and my successor in ensuring a smooth transition. The thoughtful process that our Board is applying to appointing our company's next CEO will help us find the strongest leader for what I believe are Radian's best years that lie ahead. And now operator, we would like to open the call to questions.

Sure. [Operator Instructions] And our first question comes from Patrick Kealey with FBR. Please go ahead.

Good morning, everyone. Thanks for taking my question. So I guess starting off with kind of your remarks on the letter to the FHFA regarding LLPAs, maybe if you could give us your thoughts on what the next steps there would be and to the extent you have a view what a reasonable timeframe for any adjustment could be in that process?

This is Teresa. And at this point there continues to be dialogue with the FHFA and the GSEs about their pricing. I don't know sort of what the timing will be for any change or whether they will make a change, but there is certainly a lot more focus on this in that, really within the industry views of pricing as higher than it needs to be for the risk that they are taking on. Particularly when you consider that the LLPAs were really put in place during the crisis with respect to what was going on at that time. So some work has been done, analysis has been done, but the timing of any change or whether it will happen I just can't predict.

Okay, great. And then, I guess may be turning to competition within the industry kind of post the pricing adjustments we saw earlier this year maybe can you comment on how you see things playing out right now. And then, as we look further out there has been talk of consolidation within the industry. Can you maybe touch on how you feel with seven players in the industry, is that the right number? And how you think that plays out here as we go forward?

So I'll take the first part in terms of sort of how we're seeing the competition. And one of the things we talked about was that as we're starting to see sort of pricing competition moderate. There is still pricing competition, but as we saw it moderate. We thought that gave us a lot of benefits, because we could see sort of our work around ease of business, our focus on customer service, our focus on training and relationships with our customer would help us do well. And I think you saw that in the NIW that we wrote in the second quarter. So we're very pleased with that. So, we're going to continue to compete everyday for every piece of NIW and I'll leave it to S.A to talk little bit about the sort of consolidation in the industry if that might happen.

Thanks Teresa. And I'd like to reiterate first Teresa's point that while there are seven players in the industry right now and by the way that was similar to when I joined Radian. As we have demonstrated in the second quarter -- and the kind of stable environment we saw in the second quarter, have the ability to compete successfully and differentiate ourselves. That said, of course, we would welcome consolidation in the industry because fewer players would mean that is greater opportunity for us to write business. And we're encouraged there are some early signs with one of the players having announced their intention to either IPO or perhaps maybe that will lead to a sale of the business. And my view of consolidation is the way consolidation economics work in this industry. Obviously, fewer competitors mean more share for competitor, but also there are some dynamics in terms of market share implications, franchise implications and most importantly the scale benefits that accrue from combining back offices.

Okay, great. Thanks for the time.

Our next question comes from Bose George with KBW. Please go ahead.

Hey, good morning. First question, what was your average premium on the new insurance written now just with the new pricing rolled in just wanted to see where premiums are trending?

Yes. This is Frank. We were in about 50 basis point range.

Okay, great. Thanks. And then, actually switching to insurance in force growth, I mean in the comments you guys noted that you expect modest growth in insurance in force. I guess the first half of the year; it looks like it was about a little over 1%. And do you think annualizing that kind of -- is the run rate that you're thinking in terms of insurance in force growth?

Yes. Bose what we said is, we do expect to see growth. I don't know that I would necessarily annualize the first half, but we do expect to see growth.

Okay, great. Actually there is one more, just what's the share account, rescheduled going forward?

Let me get that number for you, I want to say its 214 million shares.

Okay, perfect. Thank you.

And let me just clarify that that was for the second quarter.

Our next question comes from Eric Beardsley with Goldman Sachs. Please go ahead.

Thank you. Just as we think about the provision moving forward, I guess where should we see the most improvement, is it declining new notices, improved claim rates or just more positive development on the back book?

Yes. This is Derek. I think where you'll see is a continued improvement in new notices. So we've been running this quarter was down 5% year-over-year, first quarter was down 7%. So you will see it there. And if we revert back as Frank mentioned in his comment kind of the run rate on new defaults -- fall to claim perspective, it's about 10% normalized. So we see return to that then also I think see some positive development there.

Got it. And the extra 50 basis points decline in that claim rate, I guess do you expect to having at some point in the balance of the year, is that more of a 3Q event or a 4Q event?

This is Frank. Not sure the timing of it and really that estimate is based on the continuation of the trends that we've seen thus far continuing at the levels that we've seen thus far. So that being said, we would expect to see that 50 basis point improvement in the back half, but we couldn't speak to timing.

Got it. And then, just lastly, I guess with the reinsurance environment being relatively strong and you having done some more in the single premium. I guess what's your appetite to, do reinsurance more on the back book. I mean is there a pricing there yet, have you thought about doing that, if there is any [type of] [ph] arbitrage given where the stock prices and potential to free up some cash?

Eric, this is Derek. So when we look at reinsurance the book we're writing now was obviously very strong return. So when we look at reinsurance it's really looking opportunities to manage our overall risk mix in terms of our portfolio. So the way we look at it is kind of in terms of our overall capital planning. And we’ll continue to be opportunistic I think in terms of executing in the reinsurance market.

Okay. So nothing specific on whether you would consider doing some on the back book right now?

No, nothing at this point.

Okay. Thank you.

Our next question comes from MacKenzie Aron with Zelman & Associates. Please go ahead.

Thanks good morning. In terms of this quarter's volume, can you may be quantify how much the incremental business came from some of the newer credit union channels that you've called out as being an area of growth?

Hi, MacKenzie. We don't actually sort of separate it out by, so -- what we're getting from each channel. But, we did see growth in the credit union space. But, we also saw growth. And with some of our other customers where we gained share or had share additional customers even outside of the credit union space.

Okay, great. And then, also just, would be interested in your thoughts around some of these new 97 LTV programs that we've seen announced by some of the largest lenders. Just in terms of how meaningful you think those could be for NIW going forward. And also if you think there is interest or ability for some of your smaller customers to also offer similar products?

So, the product have been differing as you look at each one. I mean some of them are being done under the Freddie Home Possible program. Some of them are being done with state FHA, since they do vary kind of a master program. We have seen an increase in the number of 97 that we're doing. And so we think it's positive in terms of expanding access to credit. And we've been able to do quite a bit of training for our customers on both the Fanny & Freddie program. So I think there is an opportunity for certainly some of the smaller customers to participate in those programs as they expand and you saw that, Fanny Mae just recently made some changes to make their program a little bit more accessible. So hopefully that's going to lead to more first time home buyers having an opportunity to participate in the market.

Okay. Thank you.

Our next question comes from Douglas Harter with Credit Suisse. Please go ahead.

Thanks. When you think about your -- the excess PMIERs capital, I guess how do you think that that should change on an organic basis within the MI-sub?

Sure. This is Frank. It's a difficult number to estimate. But we do expect to see growth there and it could range anywhere between $25 million and $50 million a quarter. But there are quite a few variables that go into calculating that number. But that general range is probably safe.

And I guess if, if it happens in that range would you be able to accelerate or could do anything else in terms of capital return or getting capital out of the MI subsidiary, now that you have gotten the surplus note?

Yes. That's something that we evaluate when we are doing our overall capital planning. And as you've heard it say our targeted range for a PIMERs cushion is between 5% and 8%. And I think if you extent the math out there few quarters into the out years, you see that we get well beyond the 8% cushion at some point. So that's something that that we are aware of and I would tell you that we are cognizant of it and are looking at, at different ways to manage that within the context of our overall capital structure.

Okay. Thank you.

Our next question comes from Mark DeVries from Barclays. Please go ahead.

Yes. Thanks. So it seems like your 10% year-over-year growth in NIW is actually stronger than what we are seeing more broadly in the purchase market, looks relatively flat. To what do you attribute that? Do you think you are gaining share within the MI industry, gaining share from the FHA with higher percentage of 97s or you think you actually seeing just a higher percentage of purchases coming from LTV borrowers?

Until everybody reports, it's really difficult for us to get our arms around sort of what all of those dynamics are. Certainly, we have been very focused on our customers growing share with them, some of them have been growing as well. And we did believe and I think we have seen that that pricing started to moderate in terms of some of the competition. We have again have the opportunity to leverage many of our strength in the marketplace, I think we are seeing that as well. So, it's hard to say which one of those dynamics or what combination of them maybe driving kind of our NIW growth, but we are certainly happy to see it.

Okay. Thanks. And on a separate note, we got another announcement this morning from a mortgage [rebids] [ph] shows and to kind of get out of its, its mortgage securitization business because of the challenges there from an economist perspective. So if anything, it seems like the non-agency market is really kind of losing momentum instead of building it. Have you at all thought about revisiting whether it makes sense to unwind investment in mortgage services there?

In terms of our investment in mortgage services, if we step back and think about why we made it, the number one reason was to add relevance and depth to our customer relationships, which we believe has gone -- as well a better than we had imagined. And the business very important because complement that continue to perform even in the environment where the private label securitization has not come back to-date. So we are very happy with that investment, it's an important differentiating factor for us particularly in a stable market environment and may have contributed to our success with our customers in that environment. Our sales force is very excited about it and being a unique company which puts -- we view ourselves as a company run by mortgage lenders who have the ability of putting ourselves in the shoes of our customers. And I continue to get positive feedback from them on our expanded capabilities. That said let me ask Jeff Tennyson, who is the President of our Clayton Group businesses to comment on the securitization -- single family securitization environment.

Yes. Thanks SA. We are encouraged by the activity we are seeing in all of our business lines while our private label securitization market would enhance those activities, we are continuing to see it grow in various ways. Regarding the private label securitization as SA noted Clayton was selected by Fitch and Morningstar to be the one and only deal agent in that activity. And so we are seeing some progress in its reemergence and we will continue to amount for that and be very active in its development.

Remember, interest rates remain down and they go up, so we have to build a business franchise at Radian which can compete and succeed in all interest rate environment. And I believe the combination of businesses we have now positioned Radian to be stronger in any interest rate environment.

Okay. Got it. Thank you.

Our next question comes from Jack Micenko with SIG. Please go ahead.

Hey, good morning. Frank, wanted to ask about, how you think about the cadence of the buyback, I know last time you did, you did all in sort of one quarter with the stock and the book value here to-date, are you thinking the similar kind of approach or are you going to spread that out?

That is something that we will be evaluating and we will in all likelihood utilize it 10b5-1 plan that will set specific price parameters around where the shares are repurchased as far as estimating the timing of it that's probably not a safe thing for me to do. But, it would take a similar approach to what we did last time.

Okay. Okay. And then, on the expense discussion, is $58 million sort of right run rate to use and can you talk about what a reduction would be of that number or maybe conversely -- is there an expense ratio target maybe for 4Q or 1Q 2017 that you could sort of help us size the planned efficiencies?

Sure. What we've said, I will touch on a couple of the metrics that you just said. What we said about the MI expense ratio, we said that we would like to have a long-term expense ratio target of 20%. Now, I would tell you right now relative to the competitors in the industry we are already very low. So this would be an improvement half of an already low start point. As it relates to a run rate for quarterly expenses, I would estimate fourth quarter of this year to be about $64 million on a GAAP basis and that would be inclusive of the expenses that we cited previously has been implicative related to our technology spend. So, if you and that amount would be approximately $2.5 million to $3 million on a quarterly basis.

Okay. And then, related to that, it looks like the margins in mortgage services has come in over the past year. Well, some of those efficiency measures be focused in the mortgage services side as well?

Absolutely. I mean, we are focused all across the company.

Okay, great. Thank you.

Our next question comes from Vivek Agarwal with Wells Fargo. Please go ahead.

And thanks. Good morning. I think in your prepared remarks you said that you are expecting the securitization activity for the single-family rentals to pick up. With the single-family rental companies acquiring homes at a slower pace, how do you kind of view that longer term?

Jeff, you want to take that?

Sure. This is Jeff Tennyson. I think as -- in many ways the market has been somewhat soft from just kind of the pent-up from the lack activity within the securitization market and people maintaining their acquisitions on their warehouse lines. That activity is appearing to kind of free-up some of that activity and we are seeing more securitization request and demand from our clients that we are actively given the dominating market share position that we have at Clayton regarding that space, we are seeing increased activity in that arena.

Okay. And then, Frank, I think you mentioned that you're expecting persistency rates to be a little bit lower than the 80% that you mentioned being sort of a baseline. Given that we had lows in mortgage rates couple of weeks ago, are you expecting the similar type of magnitude on an annualized basis lower for the next -- potentially for the next couple of quarters?

Yes. It's hard to predict. But, I would say just given the recent prepayment activities and that does affect the entire portfolio. I think lower persistency rates for -- for the next quarter or two or probably within the realm of possibility.

I know it's hard to predict, but do you have a sense that you can help us with that?

No. I really don't.

Okay. Thanks for the comments.

Our next question comes from Ron Bobman with Capital Returns. Please go ahead.

Hi. Thanks a lot. I had a question about through the reinsurance environment obviously it's heated and growing level of interest and participating on the various session opportunities from the PIMERs. And it has gone to the point where some of these reinsurers are actually on a fee for service basis underwriting business for other reinsurers and maybe even other capital providers. And I was wondering why Radian is not doing something to that effect or pursing something to that effect already because I think these reinsurers have been doing it for some time.

Yes. This is Frank. I would say that we are always evaluating opportunities to increase revenues and to leverage the expertise that we have. We generally don't comment on any specific activities. But, we are seeing the same things, and again, it's within the realm of things that we evaluate from time to time.

And as you can see from our history, we have strong relationship with all reinsurers. We have demonstrated our ability to often create unique deals in terms of the reinsurance space. And we remain focused on evaluating not just reinsurance, but all opportunities to see if they [are quite accretive] [ph] or normal to enhance our earnings and our shareholder value.

What are the negatives, what are the -- what's the -- what are the negative elements to pursuing it, do you feel it's going to damage your reinsurance relationships or there other frictional items they don't appreciate, do you think it's a temporary phenomena?

I don't think it's appropriate for us to talk about any specific opinions or thoughts on any specific idea but understanding is --

Why is that? I'm sorry. Why is that?

From a competitive standpoint generally speaking we don't talk about the specifics of any of the things that we feel could create a competitive advantage for us. So, for that reason alone we generally don't comment.

Thanks for not helping me.

Our next question comes from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Thanks. Good morning. Couple of questions. First, Frank, can you get into a little more detail on the development in the incurred loss ratio this quarter. I think you mentioned better cure experience on the 1Q delinquencies, what gave you confidence there? And then, what drove the modest prior year adverse development; was that settlement related or anything like that?

Yes. This is Derek. In terms of prior year development, I would consider that noise nothing material. So in terms of the overall trends in the portfolio continue to be positive. So if you look at for instance the increase in the care rate on year-over-year basis that continues to improve. So I would just view that simply as noise in terms of prior year development. You are going to see that move up and down kind of quarter-to-quarter.

And how about just the first quarter, I think you commented on better cure?

On a year-over-year basis cure rates are up. We saw I would say particular improvement in the 12 month bucket in terms of improved cure rates at the probably highest level we have seen in the number of years.

Again, maybe I'm misunderstanding it. For the current year default, prior quarter, the minus $6 million in the incurred loss, I thought that was adjusting the provision you made for the first quarter new notices?

Yes, Geoff. So in terms of that and that's really what we are looking at -- there is continued improvement on kind of recent defaults and you are seeing that in really that $6 million number. So that continues, I think the trend we have generally been seeing.

Okay. So, if you are seeing continuing trend there, is that type of development something that leads to ultimate revision of the incidence assumption the remaining 50?

Yes. Eventually that will beat into our assumption and then making any changes with respect to that. That's what we would factor in, yes.

Okay. And then, I want to ask about singles pricing. Obviously, capital charges are up year-over-year, can you quantify how your average singles premium rate this quarter compared to the year ago, we would hope that pricing would be up given the capital charges are up, but we didn't see that from one competitor? How did your numbers trend?

Generally, Geoff that's flat.

So, I ask the same thing in Magic, why should we be okay with that, your capital charges are higher assuming there is not much of a credit mix change. The industries capital charges are up, but your pricing is unchanged despite your rate card filings. Why is that okay?

Yes. So a couple of things factor into that Geoff. And I think we've shared this before -- we look at returns on a blended basis and on a customer-by-customer basis. So, generally, we can't isolate a particular product set and say we don't want this, we want something else. So given that we have a mix of business to manage to, one of the things that we did last quarter was the reinsurance, the singles only reinsurance transaction. So, we think we are being very disciplined and prudent in managing the returns on the overall business, the product mix that were effectively exposed to et cetera. So when we look at our blended returns that's why we are confident saying that we are still generating mid-teen returns for the business that we are writing. So that is the entirety of the analysis we do.

All right. It sounds like maybe this is a relationship driven thing then? I mean, why write it, if it's becoming sub-par?

We absolutely take into consideration relationship.

But, Geoff, this is Derek. I guess, I wouldn't draw that conclusion with respect to that. You have to look at a couple of things; I mean one is just the increase in terms of capital requirements and that shift in mix. So, you definitely see that this quarter in terms of average FICO, it's up. So the business is of higher quality. And generally, I think the way the cards have been reconstructed as you see, I would say more consistent returns across that cards. So, I don't think you can draw the conclusion that somehow the returns are sub-par, sub-optimal because of the change. I think there is a lot of moving pieces are going into it.

And Geoff, as you know, we have demonstrated very strong discipline in writing business to achieve the desired return on our blended book of business. And in fact, we have been willing to give up business, which did not meet that as demonstrated by our past. I tell investors that the measure of a successful risk company is knowing when to press the gas pedal and when to hit the brakes. And we have demonstrated both, but we managed the business to deliver a targeted return to our shareholders and I'm pretty pleased with what we are achieving in that regard.

Okay. Thanks.

And our final question comes from Chris Gamaitoni with Autonomous Research. Please go ahead.

Good morning. Thanks for taking my call. Most of my questions have been answered. One thing is -- when do we think the old books will finally burn out, we are now 10 to 11 years away from -- as an outsider it's hard to get a sense of kind of when they hit the 78% LTV? So do you have an idea of when -- there might be an acceleration and terminations on these legacy books, just give a HPA in time?

I mean it's embedded. I mean we have projected with respect to that. But, I mean the run rate you are kind of seeing with respect to that burn off and the shift is renewable book of business. It's a pretty good run rate. I think in terms of that shift. So I would look at that. I don't think there is a significant cliff in terms of that.

Interesting metrics. Okay. That's all I had left. Thank you.

I'd now like to turn the conference back to S.A. Ibrahim for any closing remarks. Please go ahead.

Thank you, operator. And thank you all for participating on our call. And once again, I would like to reiterate that our quarter was characterized with strong NIW, stronger earnings in our services business and I believe that we are well-positioned for the future. So with that, I would like to thank you all for participating on today's call.

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.