On May 27, we issued an updated research report on private mortgage insurer Radian Group Inc. RDN.
For more than 35 years, the company has been supporting homebuyers, mortgage lenders, loan servicers and investors through a suite of private mortgage insurance, and related risk management products and services.
The housing crash and its resultant financial crisis that started in 2007 crippled the private mortgage insurer which had to pay billions of dollars in claim as homeowners with private mortgage insurance defaulted. Increasing delinquency and high claims were mostly seen in the company’s earnings from 2007–2012.
However, a recovery in the housing market has helped Radian to attract new and profitable business, giving it some respite from the losses it had incurred since 2008.
In 2014, the company returned to full-year profitability for the first time since the financial crisis. The company’s insurance in force grew to $171.8 billion on Dec 31, 2014 from $161.2 billion as of Dec 31, 2013.
Radian is also witnessing an improvement in the quality and size of mortgage insurance in force, which is expected to create a strong foundation for future earnings.
Declining delinquency (delinquency triggers claims), led by the impact of an improving economy and the company’s continued focus on loss mitigation in its mortgage insurance portfolio are also prominent.
Radian is also reshaping its business to diversify and focus on growth points. To this effect it acquired Clayton Holdings in Jun 2014 sold off its financial guaranty insurance subsidiary, Radian Asset Assurance Inc., to Assured Guaranty Corp., a subsidiary of Assured Guaranty Ltd. (AGO). While the buyout of Clayton will generate a fee-based revenue for Radian and broaden its participation in the residential mortgage market value chain, with services that complement its Mortgage Insurance business, the sale of Radian Asset has released funds which would fortify its capital that it requires to comply with the newly issued capital regulations called Private Mortgage Insurer Eligibility Requirements (PMIERS).
Nevertheless, the recent increase in mortgage insurance rates, below standard financial strength ratings and stricter capital regulations are some of the near-term headwinds.
Radian carries a Zacks Rank # 2 (Buy). Some other stocks worth considering in the space are Old Republic International Corporation ORI, Zurich Insurance Group Ltd ZURVY and James River Group Holdings, Ltd. JRVR. While Old Republic carries a Zacks Rank # 1 (Strong Buy), Zurich Insurance and James River Group carry a Zacks Rank #2 (Buy).
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