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Genworth Financial Inc. Message Board

  • paidbasher38291 paidbasher38291 Feb 8, 2013 12:57 PM Flag

    rebirth of PMI, yet another reason gnw should have dumped usmi

    more competition entering the industry will lead to lower returns, especially for the remaining legacy players gnw, rdn, and mtg, usmi is a commodity business where market share depends almost entirely on price, witness the market positions of rdn and ugi (aig's sub), both who are undercutting the market in select areas by up to 25%, now another player with low capital costs will enter and undercut returns even more, rather than dump $1b+ into this company, gnw should have returned that money to shareholders and gotten out of the business...

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    • Arch is at least 12 months away from market entry by their own admission, and that is all subject to approval. Regardless of their eventual entry, and regardless of lower pricing, the flip side is that the underlying loan underwriting is much tighter now, making these loans less likely to default. So I believe that's a reasonable offset to lower pricing, and clearly major volume uptick will help spread any future losses. Actually, I think MI might be the short term earnings lifeboat that keeps GNW SP from sinking until they fix their other more pressing issues, like LTC and Life. However, they have a new CEO who seemingly has the exact experience necessary to make the necessary changes in LTC and Life (although he is cureently hamstrung by low interest rates and poorly priced legacy LTC book).

    • The other side of that coin is that there must be opportunity in the US MI space. If it wasn't an attractive place to be, why would the new entrants even bother - they would deploy that capital elsewhere.

      Regarding GNW, existing customer relationships have value, and the post-reorg R/C of GNW's overall MI and its flagship US MI opco do provide the opportunity to maintain those relationships and make some money down the road (probably better returns on new business than LTC at the moment).

      Regarding US MI as a price-based commodity, lots of lenders are now "collecting" deferred benefits from TGIC and Republic (is PMI also deferring benefits? i can't recall). TGIC was a price leader and also was a pioneer of the now-maligned excess-of-loss captive reinsurance. In light of this, maybe price won't be the only driving factor, and survival of the great recession housing bust + willingness to provide holding company support for the benefit of policy holders may be a factor in choosing a business partner?

      Time will tell.

      • 1 Reply to matthsusant
      • under the messed up structure of our housing finance market, the originators (the ones who decide which MI to use) are not the ones who are penalized by those MIs who can't pay their claims, the lenders are not collecting deferred benefits at all, that loss falls to the gses, if the originators faced the loss, mtg would probably get little or no business, so the originators, in order to offer the lowest payments to their borrowers, use the lowest priced MI provider, they could care less if the mi goes out of business, that is fannie and freddie's problem, this sets up for an industry that will suffer from brutal price competition as there are no market forces to regulate the quality of the coverage, that is left soley to the gses - for an originator, all "approved insurers" are created equally, during the bubble, the competition manifested itself in captive reinsurance agreements - who can cede away the most premium - underpricing alt a and subprime risk, and ancilliary services provided at a loss, like contract underwriting, now, it is just coming right off the top of premium rates, if you look at a 30 year history of returns in the industry, they are nowhere near 20%, they are closer to 11%, with many negative years (not just the recent bubble), it's a #$%$ industry, and instead of abandoning it, gnw double down, really, really dumb

    • Hate to bust your bubble on that, but all you mentioned were doing quiet well even with PMI, and others, before the housing bust. Thing is, GNW has MUCH more going for it than just MI. Yeah, hard to figure this sell-off when all the analysts project HIGHER eps/earnings for next quarter...Long run, GNW is BY FAR the best. BTW, all that want divis, share buy back....paying down debt would be MUCH it down, THEN divi's, buy backs....believe me, market would notice, and GNW COULD do it...IMO. Comments?GLTA, except shorts that is....

      Sentiment: Buy

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