On its web site, Triad (TGIC) claims there are 8 providers of mortgage insurance in the country. I am aware of MTG and CMT, can anyone tell me the other 5?
Jeff Morris, INVESCO Funds, On Financial Sector &
Financial services sector has been under pressure from Fed
Stocks move about 2 months ahead of the end of the Fed
If we saw that the end was in sight, market
environment would feel that the Fed had done its
Financial stocks can stand about 100 basis points this year
and still do fine.
Sector has benefited from
rotation out of tech stocks. Has moved higher since March,
up about 20% from lows.
Merger activity has gone
on in Europe which still has several years' worth of
restructuring to do. It will be subject to near term concerns.
It could cool off but business is still
There are some cheap stocks out there in terms of P/E
I am also in the industry and was with CMT. CMT
is the surviving entity of the recent merger. AMN
has taken over sales and risk. CMT had a much better
risk evaluater than MTG. Acctually predicting loss and
not just default, like the one used by MTG. However,
knowing what is a high risk to either go into a default
or a loss and not insuring it are two different
things. both companies would and probably still will
insure anything they can get their hamds on. GE runs hot
and cold on the credit policy. Hot to get market
share then cold when the quality is evaluated on NIW
(New Insurance Written). PMA was looked at by CMT
before the deal with AMN was finalized. AMN tried to
sell to CMT in 1996 but was way overpricing itself.
CMT or RDN is "coasts" heavy when it comes to
business. MTG is over exposed in numerous markets.
analysis of MTG's liquidation value. If I had the
time to do it it would be very similar in theory.
However, I was merely stating what one analyst (I think
Mr. Gray from Sanford Berenstein) discussed several
months ago. Now this might have been when MTG stock was
in the mid-thirties, which is very close to
liquidation value. I do have to agree MTG is above its
liquidation value now, however, it's still a bargain for a
potential suitor,who would be crazy to just run it
Sorry for the confusion.
BTW, it has been
holding up quite nicely in the current
= no income verification...these guys insure this
junk up to 95% !!! rdn and pma insure 100% ltv's. the
cash they have, i think could go alot quicker than
anyone thinks. plus the pool reserves can't be touched
unless it's for losses in that particular pool...sorry,
got to go....talk to you later
I am not sure how you determine that MTG is
trading at liquidation value. In order to determine
liquidation I start with book value and add the revenues that
are coming off the insured loans, less expenses, less
losses, plus the income from the investment portfolio,
and tax affect the whole thing.
Since MTG is
trading at around 2.5x-3x book, you need to get a lot of
future income in order to get to a liquidation value of
$45 per share. I can understand PMI and RDN trading
at or maybe even slightly above liquidation
depending on one's assumptions (even though I don't think
they are according to my analyses), but MTG is VERY
MTG's book value is $16 per share. I
figure liquidation is about $25 - $30 per share.
Although liquidation analysis is only a theoretical
exercise (in that companies that do go into liquidation
are usually placed there for a reason), I agree with
you that it is still an interesting exercise to get a
perspective on the ballpark value of all the business put on
the books to date.
The reality of the exercise
is, if the company was put into liquidation, you
would have premium revenues going down (pick a
persistency rate). Losses would rise. (The book of business
matures and enters its peak loss years. Also, as the
better credits pay off MGIC would be left with more of
the delinquent customers. The loss ratios, therefore
would rise dramatically.) Expenses would fall
dramatically. The investment income would rise. And, of course,
you need to tax affect it.
Let's assume for a
minute, there are no expenses or losses (which of course
there would be). There are only revenues. Also, let's
discount it back. How about 10% ( a nice round number).
Let's pick a persistency of 80% (a generous number) and
a tax rate of 35% on the premiums and 10% on the
investment portfolio (because there are muni
I only did it for 15 years, because after that the
numbers get really low. I get premiums of $2.9 billion
over 15 years, $1.9 billion after taxes, and $1.6
billion present value.
For investment income, I
assumed that grew based on 5.5% income on the investment
portfolio plus 5.5% return on the new revenues from the
premiums. That gave me $4.8 billion, $4.4 billion after
taxes, $2.1 billion PV. The total is $3.7 billion after
tax PV. Add that to the $1.8 billion book value and
you get $5.5 billion. With 110,000 share outstanding
you get about $50 per share. But, that's without any
losses or expenses. Once you add losses and expenses to
the equation, it is much, much less
back of the envelope number: Assume that we start with
$4.00 per share and income falls by 20% a year for the
next 15 years and then goes to $0. The value would be
about $29 per share. Either way, you don't get close to
$45 per share.
stick to one board. Few more thoughts...
don't know how OFHEO will affect any non aaa rated
mortgage insurer, but neither of the aaa rated insurers
are even #3 in terms of market share. I can't imagine
that OFHEO would have any impact on that however it
may impact the entire industry as GSE could see
alternative forms of credit enhancements. MI just happens to
be the most efficient at this stage.
you explain the term "niv" I haven't heard that one.
I have to agree with you on FICO's. They are way to
arbitrary with not enough data to validate scores. The MI's
have better models, it's just that FICO has become
standard because of its lack of
Personally, I think these niche products will not have a
significant impact due to two and potentially three huge
years of production from 1998-2000. By the time losses
develop in the pool area (which I think is most
susceptible), renewal premiums on these huge policy years which
I estimate at potentially being 60-70% of total
renewal will outweigh any real economic downturn. That's
the beauty of these companies, they have some mcuh
old cash coming in the door, that losses would have
to be so widespread and concentrated in a 12-18
month period to have a financial impact, and that isn't
even talking about a liquidity/shut the doors
I'm sure these companies could withstand even severe
regional recessions without much suffering.
values of these companies, I couldn't disagree more as
these companies are all undervalued and actually have
performed well over the past few trading days as the market
has been tanking. They are almost acting
counter-cyclical, which would be good when the bubble bursts
very good points, however they both have had
conversations with other mi's about a sale. the large holder of
pmi was allstate and they have dumped everything.
with mgic, it was n/western mutual and they sold all
of it at the low. both these insurers know it is
coming and that is why they got out. OFHEO regs will
come to pass and it will change the complexion of non
aaa companies with the gse's.
as far as
quality goes the rdn,pma,mtg all will be hurt. i hear the
global thing but they are all stretched with capital due
to g fee deals and you're right, they are a loss
leader BUT they must retain capital for all loans in a
pool even if they pay off until the last loan in that
pool is gone. legally, they have done some deals which
will not pass muster if looked at. the credit issues
will be greater than the 80's due to A-, niv's, and
the fact that i truly think this FICO based world is
trading off of no real history as to how fico's will
really perform. i do nothink they remember the lesson
they learned. the market swelling has brought a lot of
stocks up and anaylsts who are 25 years old have no clue
as to how the 80's really were. Values are over done
and these new niche programs will kill these guys.