Sean, look at this presentation, page 31.
Look at the 2006 vintage modified pool, without deductible. Stop loss of 305M, which is about 8% of remaining insurance in force. But only 37M in reserves, or 1% of remaining insurance in force. Are they kidding? 2006 vintage Alt A, with no deductible, and they are reserving less than 1% of UPB???
Now let's look at TGIC, page 10
Look at their 2006 numbers. Stop loss of 367M, but only 39M of stop loss remaining, meaning they have incurred losses (paid + reserved) for nearly 90% of their layer.
PMI is holding back on reserving for their modified pool exposure because they have to. Just reserving to TGIC's level for 2006 modified pool without deductible alone would have put them in breach of statutory risk-to-capital levels as of 12/31, and since they did not have their alternative plans in place at that time, they would be in runoff today.
The regulators are allowing this unsafe insurance company to continue to write new business, and when this blows up, the regulators are going to have a lot of questions to answer.
In general RDN is as badly reserved as PMI, but they don't break out the components of their reserves as well.
With RDN, look for signs of what they call "pool" deteriorating. "Pool" for RDN is a different animal than Modified Pool, which RDN tends to include in their primary numbers. Their Pool is something much nastier (if that is possible), and it is starting to generate some material losses. 296M in reserves last quarter, up from 211M a quarter earlier, some big deterioration happening there.
stryker_rx or anybody with first hand knowledge of the issue, Has anybody looked at RDN in this regard? I understood that they reduced their reserves last qtr and were under similar pressures to keep capital ratios high enough to continue writing business. They also seem to have a history of underestimating reserves. However I am looking for particulars. I have go through the 10 k but am not an expert on credit reserves. Any help is appreciated!
that's the problem, they can't own up to it or they will be insolvent, but if they are insolvent they can't raise capital, they are screwed, mtg really dropped the bomb on them today, you know what they say, if you are going to panic, panic first.