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Radian Group (RDN) Falls Short of Q2 Earnings Estimates

Zacks Equity Research

Radian Group RDN reported second-quarter 2020 operating loss of 36 cents per share in contrast to the Zacks Consensus Estimate of earnings of 19 cents and the year-ago earnings of 80 cents.  

The company witnessed elevated loss provision due to the increase in the number of new defaults, which include defaults of loans subject to forbearance programs implemented, attributable to the COVID-19 pandemic.

Quarter in Details

Operating revenues declined 15.7% year over year to $289 million, attributable to lower net premiums earned, services revenue, net investment income and other income.

MI New Insurance Written grew 37% year over year to $25.5 billion backed by rebound in the housing market.

Primary mortgage insurance in force was $241.3 billion as on Jun 30, 2020, up 5% year over year.

Persistency — percentage of mortgage insurance in force that remains in the company’s books after a 12-month period — was 70.2% as of Jun 30, 2020, down 1320 basis points year over year.

Primary delinquent loans were 69,742 as of Jun 30, 2020, up more than three-fold year over year.

Total expenses surged 119% year over year to $406.7 million on account of higher provision for losses.

Radian Group Inc. Price, Consensus and EPS Surprise

Radian Group Inc. Price, Consensus and EPS Surprise
Radian Group Inc. Price, Consensus and EPS Surprise

Radian Group Inc. price-consensus-eps-surprise-chart | Radian Group Inc. Quote

Segment Update

Earlier, the company reported results under two segments – Mortgage Insurance and Services. This year in January, Radian decided to divest Clayton Services LLC to Covius Holdings. Apart from reorganizing its Services segment, the deal highlighted the company’s focus on growing its core mortgage and real estate businesses. Hence, from the first quarter of 2020, the company started reporting results under Mortgage and Real Estate segments.

Net premiums earned by the Mortgage segment were $247.6 million, down 16.4% year over year. Claims paid were $22.8 million in the quarter under review, down 29.6% year over year. Loss ratio deteriorated to 122.8% from year-ago figure of 15.9%.

The Real Estate segment reported a 5.4% year-over-year decrease in total revenues to $26.1 million. Adjusted earnings before interest, income taxes, depreciation and amortization (Real Estate adjusted EBITDA) was negative $0.7 million, compared with negative $0.5 million in the year-ago quarter.

Financial Update

As of Jun 30, 2020, Radian Group had solid cash balance of $68.4 million, down 26.3% from 2019-end level.  Debt to capital ratio deteriorated 800 bps to 26% from 2019 end level.

Book value per share, a measure of net worth, grew 13% year over year to $20.82 as of Jun 30, 2020.

Adjusted net operating return on equity was (7.1%) versus 18.2% in the year-ago quarter.

Risk-to-capital ratio of Radian Guaranty as of second-quarter end was 13.3:1, lower than 13.6:1 from 2019 end level.

Excess available resources to support PMIERs were $2.4 billion as of Jun 30, 2020, 73% above Radian Guaranty's minimum required assets of about $3.2 billion. During the second quarter, excess available resources to support PMIERs increased by $361 million.

Zacks Rank & Performance of Other Insurers

Radian currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Of the insurance industry players that have reported second-quarter results so far, The Progressive Corporation PGR, Cincinnati Financial CINF, and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings.

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