Radian Group Reports Loss


Mortgage insurer Radian Group Inc. (RDN) reported first quarter 2012 net loss of $1.28 per share, wider than the Zacks Consensus Estimate of a loss of 58 cents per share. The disappointing results were largely the result of a decline in the fair value of derivative instruments. In the year-ago period, Radian reported earnings of 77 cents on a per-share basis.

Despite a volatile mortgage insurance market, Radian managed to write new business of $6.5 billion, up 2.5 times compared with the year-ago comparable period. Radian gained from the loss of business suffered by other mortgage insurers, translating into new business wins for the company.

Its close rival MGIC Investment Corp. (MTG) reported a 40% drop in new business written in the reported quarter. One of its other peers, PMI Group, filed for bankruptcy last year and exited the market.

Radian continued to record a decline in the number of mortgage insurance defaults. Total number of primary delinquent loans decreased 12% in the reported quarter.  

Total mortgage insurance net claims paid were $218.2 million, down 40% year over year. The company expects to pay net claims of $1.1 billion for full year 2012.

The holding company has approximately $350 million of capital. Risk-to-capital ratio, a measure of capital strength among mortgage insurers, improved to 20.6:1 from 21.5:1 as of December 31, 2011. The maximum permissible limit for risk-to-capital ratio is 25:1.

The company is trying hard to improve the ratio and has adopted a number of measures in this regard. These include the Assured Guaranty transaction and the quota share reinsurance agreement. A dividend of approximately $50 million from Radian Guaranty in mid-2012 will also contribute to the capital and lower the ratio.

Book value per share improved modestly to $7.65 per share from $7.31 as of March 31, 2011.

Another mortgage insurance provider Genworth Financial Inc. (GNW) reported first quarter 2012 earnings of 6 cents, lagging the Zacks Consensus Estimate by 6 cents primarily due to the recurrent losses faced by its U.S. Mortgage Insurance division.

Mortgage insurers have been suffering since the onset of the housing market downturn, incurring significant claims expenses. The performance of the sector is dependent on the housing market, which in turn is governed by the fluctuations in the economy. Therefore, the performance of the sector will hardly see any improvement until there is a complete economic recovery.

Radian currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the shares.

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