Please refer to page 6 of the 10Q filed on 8/09/07. TGIC's net risk exposure increased from $7.6 billion at June 30, 2006 to $11.1 billion at June 30, 2007. At the same time leverage increased from 11.8:1.0 to 16.0:1.0. The losses on this business will be huge, as much of it was Alt A originated by American Home, which is now bankrupt.
Your theory that losses will be good for the industry may be correct, but it almost certainly will not be good for TGIC because their losses will prevent them from growing their way out of this mess. I believe new competitors without the baggage of prior exposure will move in. There are essentially no barriers to entry for PMI. Anyone with a balance sheet and a credit rating can write it.
I am also working on the theory that the housing mess will help TGIC in the long run. And I also don't understand how MGTs report caused such an over-reaction here. Maybe the fear is that the smaller the company, the less likely they can weather the storm?
Triad is conservatively managed in the sense that it covered a small number of subprime mortgages (less than 3% of insurance in force) and 75% of its insurance in force is rated prime. Housing slowdowns aren't bad for mortgage insurers. Mortgage insurance is automatically cancelled when the homeowner's equity reaches 20%, so housing bubbles cause policy cancelations. Flat prices are probably best, causing neither defaults nor cancellations. In addition, higher perception of risk (such as we have now) increases the market for insurance. Insurance is repalcing piggy-back loans acorss the country. So there are many good long-term factors in place. Short-term, the insurers will have to weather their Hurricane Katrina in housing, but that doesn't spell long-term trouble. The real question is how long this sentiment--all negative--will be the overriding factor in the stock price.
It did lose its largest source of business, which will take a short-term toll on revenue.
I thought it was pretty ridiculous that the particluar company that missed earnings dropped 10% and Triad, which reported nothing, dropped 20% in "sympathy." I put in a limit order to buy at the current price.
THIS POST from OCT 7th DIRECTLY from Investor Relations WHY would ANYONE be INFRONT of THIS TRAIN WRECK BEFORE EARNINGS...........
I do want to thank you for taking a position in our company. The current real estate market is challenging and we are not immune to the issues. As a result, there will be pressure on short-term financial performance. However, the current issues in the market have also resulted in positive developments (improved underwriting, improved mortgage insurance penetration rates, etc.) which should bode well for the long-term outlook.
You will find information on our web site how we have implemented rate and guideline changes. As for the comments by FBR and Morningstar, I can not comment on those. You can find contact information for these analysts as well as all analysts that follow our company on our web site if you choose to contact them.
Thank you and let me know if you have any further questions.