Radian (RDN) Gains From Insurance Written as Expense Woes Stay
Radian Group Inc. RDN is poised to grow on the strength of an improving mortgage insurance portfolio, declining claims, the well-performing homegenius segment, a solid capital position and effective capital deployment. Earnings of RDN have risen 8.5% over the last five years, better than the industry average of 7.5%.
RDN has a solid earnings surprise history. It surpassed estimates in each of the last four quarters, the average earnings surprise being 24.00%.
Based on projections of private mortgage insurance penetration in the overall insurable mortgage market, Radian expects the private mortgage insurance market between $300 billion and $350 billion in 2024. Management anticipates a healthy purchase market in 2024, driven by ongoing homebuyer demand and an expected decline in interest rates, which are positives for mortgage insurers.
This mortgage insurer has been witnessing an increase in new business written. The insurer expects new business, combined with increasing annual persistency, to result in continued growth of the insurance-in-force portfolio. Also, given an increase in market mortgage interest rates, the company expects a continued positive impact on persistency rates.
RDN has been witnessing a declining pattern of claim filings. Thus, we expect paid claims to decrease further. A decline in loss and claims will strengthen the balance sheet and hence improve its financial profile.
The company enjoys a solid capital position, banking on capital contribution, reinsurance transactions and cash position. This, in turn, aids the mortgage insurer to engage in capital payout. RDN has increased the quarterly dividend with a total increase of 96% over the past four years. It also has $167 million remaining under its buyback authorization.
However, the insurer has been witnessing an increase in underwriting and other expenses weighing on margins. Net margin contracted 1377 basis points in 2023. The loss ratio was negative 4.6% in 2023.
Also, Radian has been witnessing a decline in Homegenius revenues due to a rapid decrease in industry-wide mortgage and real estate transaction volume. Despite steps taken to align the workforce to the current and expected needs of the business and reduce the operating expenses, RDN expects this trend to continue. This, is turn, could impact the results of homegenius segment in at least the near-term based on current market conditions and the expectation that overall refinance volumes will remain low.
Nonetheless, RDN’s trailing 12-month return on equity was 14.8%, ahead of the industry average of 13.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders fund.
Also, return on invested capital in the trailing 12 months was 8.5%, better than the industry average of 1.8%. It reflects RDN’s efficiency in utilizing funds to generate income.
Some Key Industry Players
Other players in the insurance industry are Assurant Inc. AIZ, Reinsurance Group of America, Incorporated RGA and Manulife Financial Corporation MFC.
Assurant’s earnings surpassed estimates in each of the last four quarters, the average surprise being 42.15%.
Increased mobile subscribers in North America, inorganic and organic growth strategies, higher average insured values and effective capital deployment boded well for the growth. For 2024, AIZ expects adjusted EBITDA, excluding reportable catastrophes, to increase by mid-single digits, driven by both Global Lifestyle and Global Housing, at similar growth rates.
Adjusted EPS, excluding catastrophes, is expected to grow modestly below adjusted EBITDA, primarily reflecting an increase in depreciation expense from strategic technology investments. Strong franchise, consistent cash flow generation and robust solutions segment are tailwinds. It plans to deploy capital, mainly to fund business growth and return capital to shareholders via share buybacks and dividends.
Reinsurance Group’s earnings surpassed estimates in each of the last four quarters, the average surprise being 24.39%.
RGA has been benefiting from an increase in new business volumes, favorable longevity experience, stronger invested asset base, business expansion in the pension risk transfer market and effective capital deployment.
Manulife Financial’s earnings surpassed estimates in each of the last four quarters, the average surprise being 7.01%.
Strength of its Asia business, expanding Wealth and Asset Management business and solid capital position continue to drive MFC. Its inorganic growth is impressive as this life insurer prudently deploys capital in high-growth, less capital-intensive and higher-return businesses.
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Assurant, Inc. (AIZ) : Free Stock Analysis Report
Manulife Financial Corp (MFC) : Free Stock Analysis Report
Radian Group Inc. (RDN) : Free Stock Analysis Report
Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report
