Mortgage insurer 4Q results bolstered by strong loan performance
February 23, 2022 4:52 PM
deagreez - stock.adobe.com
That led to low loss ratios and the six active companies being able to release reserves, pointed out Cullen Johnson, an analyst with B. Riley Securities, in a note issued after Radian (the last MI to report) issued its results on Feb. 22.
All five of the stand-alone companies reported higher full-year net income, and each except for NMI Holdings recorded significant quarter-to-quarter improvement as well.
"Cures continue to outpace new delinquencies," Johnson said in a comment on the MI business as a whole. "Further, still many of the borrowers that are
The strong performance seen to date has been a relief because a high rate of claims originally was a concern early in the pandemic. A high claim rate had weighed down the industry during a prior financial crisis and put three companies (RMIC, PMI and Triad) out of business,
In contrast, the credit-related results for the six MIs that follow turned out to be relatively strong.
Enact thrived in fourth quarter as a stand-alone entity
Enact Holdings, which was spun out of Genworth Financial in September, was the first company to report, with its fourth quarter net income of $154 million, up from $137 million in the third quarter and $91 million for the fourth quarter of 2020.
While both the sequential and annual changes can be attributed in large part to lower losses from favorable reserve development, the company also saw lower premium income.
New insurance written fell to $21.4 billion, down 11% from the third quarter's $24 billion and $27 billion for the year ago period.
The good news from higher mortgage rates is that its persistency ratio, the share of policies on the books 12 months later, rose to 69% from 65% in the third quarter and 57% in the fourth quarter of 2020.
"With over $21 billion of new insurance written, record insurance-in-force, and favorable loss performance, this was a strong finish to a transformational year for our company," Rohit Gupta, Enact's president and CEO, said in a press release. "Looking ahead, market dynamics for our business remain favorable, and we are well positioned to build on our success."
Following the initial public offering, Genworth still owns 81.9% of Enact.
Enact's full-year net income of $547 million topped the $370 million earned in 2020, although NIW slipped to $97 billion from $99.9 billion.
While both the sequential and annual changes can be attributed in large part to lower losses from favorable reserve development, the company also saw lower premium income.
New insurance written fell to $21.4 billion, down 11% from the third quarter's $24 billion and $27 billion for the year ago period.
The good news from higher mortgage rates is that its persistency ratio, the share of policies on the books 12 months later, rose to 69% from 65% in the third quarter and 57% in the fourth quarter of 2020.
"With over $21 billion of new insurance written, record insurance-in-force, and favorable loss performance, this was a strong finish to a transformational year for our company," Rohit Gupta, Enact's president and CEO, said in a press release. "Looking ahead, market dynamics for our business remain favorable, and we are well positioned to build on our success."
Following the initial public offering, Genworth still owns 81.9% of Enact.
Enact's full-year net income of $547 million topped the $370 million earned in 2020, although NIW slipped to $97 billion from $99.9 billion.
Oldest MI had best year ever for new business
MGIC Investment, the oldest of the MIs, reported net income for the fourth quarter of $173.9 million, compared with $158 million in the third quarter and $151.4 million for the fourth quarter of 2020.
Full year net income was $635 million, up from $446.1 million for 2020.
"In 2021, we capitalized on one of the largest mortgage insurance markets in the company's 65-year history by writing a record $120 billion of new insurance," CEO Tim Mattke said in a press release. "As a result of the record new-business volume and increasing annual persistency, we increased our insurance in force by 11%."
However, fourth quarter NIW of $27.1 billion was down from $28.7 billion in the third quarter and $33.2 billion one year prior. MGIC ended the year with IIF of $274.4 billion.
MGIC’s persistency rate ended the quarter at 62.6%, up from 59.5% on Sept. 30, 2020.
Full year net income was $635 million, up from $446.1 million for 2020.
"In 2021, we capitalized on one of the largest mortgage insurance markets in the company's 65-year history by writing a record $120 billion of new insurance," CEO Tim Mattke said in a press release. "As a result of the record new-business volume and increasing annual persistency, we increased our insurance in force by 11%."
However, fourth quarter NIW of $27.1 billion was down from $28.7 billion in the third quarter and $33.2 billion one year prior. MGIC ended the year with IIF of $274.4 billion.
MGIC’s persistency rate ended the quarter at 62.6%, up from 59.5% on Sept. 30, 2020.
Arch's underwriting income rose 42%
Arch Capital Group's underwriting income from its mortgage insurance businesses grew 42% on a year-over-year basis to $268.6 billion in the fourth quarter. It reported $234.1 million in the third quarter and $188.9 million in the fourth quarter of 2020.
The segment includes its U.S. primary MI business, its global mortgage reinsurance business and as of the third quarter, Arch's acquisition of Westpac Lenders Mortgage Insurance, an Australian underwriter.
New insurance written by the U.S. business fell to $22.5 billion in the fourth quarter, from $27.8 billion in the third quarter and $38 billion in the fourth quarter of 2020.
The segment includes its U.S. primary MI business, its global mortgage reinsurance business and as of the third quarter, Arch's acquisition of Westpac Lenders Mortgage Insurance, an Australian underwriter.
New insurance written by the U.S. business fell to $22.5 billion in the fourth quarter, from $27.8 billion in the third quarter and $38 billion in the fourth quarter of 2020.
Essent lost market share in fourth quarter
This change was "in part due to Essent's effort to maximize returns and preserve premium yield," BTIG analyst Ryan Gilbert said in a report. "The rollout of the new iteration of EssentEdge [its automated pricing engine] likely had some effect as well."
Essent also reported a quarter-to-quarter decline in IIF as it fell to $207.2 billion on Dec. 31 from $208.2 billion on Sept. 30, 2021.
"We are pleased with our fourth quarter and full year 2021 financial results, which reflect our continued focus on optimizing our unit economics in generating high-quality earnings and strong returns," Mark Casale, Essent's chairman and CEO, said in a press release. "Our strong operating performance also generated excess capital, which we continued to deploy in a balanced manner between reinvestment in our franchise and distribution to shareholders."
Essent's fourth quarter net income totaled $181 million, compared with $137 million for the third quarter and $123.6 million in the quarter ended Dec. 31, 2020. For the full year, Essent's net income was $681.8 million, compared to $413 million during 2020.
National MI bucks trend by growing business over 3Q
Only one of the private mortgage insurers, National MI, reported higher NIW for the fourth quarter than it did in the third. The company recorded $18.3 billion in NIW in the most recent period, up from $18.1 billion in the third quarter, but down from the $19.8 billion during the fourth quarter of 2020.
Net income at parent company NMI Holdings for the fourth quarter totaled $60.5 million, compared to $60.2 million in the third quarter and $48.3 million for the same quarter one year ago.
For the full year, net income grew to $231.1 million versus $171.6 million in 2020. "In 2021, we delivered record NIW volume, grew our high-quality insured portfolio, and achieved record profitability and consistently strong mid-teen returns," President and CEO Adam Pollitzer said in a press release.
National MI NMIH did not adjust its premium rate in the fourth quarter. Instead its "above-market growth through expanded client relationships has been a core aspect of our positive thesis on the company," BTIG's Gilbert said in his post-earnings note on the company. "National MI activated 36 new lenders as clients in the fourth quarter, up from 29 in the third quarter."
Its IIF ended the year at $152.3 billion, up 37% from Dec. 31, 2020.
"While National MI's growth far outpaced the industry in 2021 (36% versus the industry's 7%), we expect that delta to normalize fairly quickly by 2023 (NMIH's IIF up 12% versus the industry's up 7%)," Bose George, an analyst at Keefe, Bruyette & Woods said in his report.
Net income at parent company NMI Holdings for the fourth quarter totaled $60.5 million, compared to $60.2 million in the third quarter and $48.3 million for the same quarter one year ago.
For the full year, net income grew to $231.1 million versus $171.6 million in 2020. "In 2021, we delivered record NIW volume, grew our high-quality insured portfolio, and achieved record profitability and consistently strong mid-teen returns," President and CEO Adam Pollitzer said in a press release.
National MI NMIH did not adjust its premium rate in the fourth quarter. Instead its "above-market growth through expanded client relationships has been a core aspect of our positive thesis on the company," BTIG's Gilbert said in his post-earnings note on the company. "National MI activated 36 new lenders as clients in the fourth quarter, up from 29 in the third quarter."
Its IIF ended the year at $152.3 billion, up 37% from Dec. 31, 2020.
"While National MI's growth far outpaced the industry in 2021 (36% versus the industry's 7%), we expect that delta to normalize fairly quickly by 2023 (NMIH's IIF up 12% versus the industry's up 7%)," Bose George, an analyst at Keefe, Bruyette & Woods said in his report.
Radian responds to sale rumors, sort of
Radian Group's earnings grew to $193.4 million in the fourth quarter, up from $126.4 million in the third quarter and $148 million one year prior. Full year income was $600.7 million, up from $393.6 million.
But rumors about the company considering looking at possible suitors once again arose prior to the start of earnings season. In 2007, Radian agreed to merge with MGIC, but by September, with the financial crisis dragging down the housing market,the deal ended following some acrimony. On occasion since then, gossip has come into the market about Radian's availability.
"We continue to think that consolidation among the six active MIs is unlikely given cannibalization risk," KBW's George said in a Feb. 7 note. "However, we acknowledge there could be interest from outside parties given depressed valuations."
In response to a question from George during its earnings call, Radian CEO Rick Thornberry said the company does not comment on merger and acquisition rumors.
"We believe the market has a healthy number of players today," Thornberry continued. "The GSEs have expressed the same and have an interest in not expanding their counterparty concentration risk, especially given their counterparty risk to private MI is their largest counterparty risk."
Radian ended the quarter with NIW of $23.7 billion, down from $26.6 billion for the third quarter and $29.8 billion one year prior.
The company's homegenius segment, which includes its title insurance underwriting subsidiary and other real estate services, reported revenues for the fourth quarter of $44.7 million, compared to $45.1 million for the third quarter, and $23.6 million for the fourth quarter of 2020.
But rumors about the company considering looking at possible suitors once again arose prior to the start of earnings season. In 2007, Radian agreed to merge with MGIC, but by September, with the financial crisis dragging down the housing market,
"We continue to think that consolidation among the six active MIs is unlikely given cannibalization risk," KBW's George said in a Feb. 7 note. "However, we acknowledge there could be interest from outside parties given depressed valuations."
In response to a question from George during its earnings call, Radian CEO Rick Thornberry said the company does not comment on merger and acquisition rumors.
"We believe the market has a healthy number of players today," Thornberry continued. "The GSEs have expressed the same and have an interest in not expanding their counterparty concentration risk, especially given their counterparty risk to private MI is their largest counterparty risk."
Radian ended the quarter with NIW of $23.7 billion, down from $26.6 billion for the third quarter and $29.8 billion one year prior.
The company's homegenius segment, which includes its title insurance underwriting subsidiary and other real estate services, reported revenues for the fourth quarter of $44.7 million, compared to $45.1 million for the third quarter, and $23.6 million for the fourth quarter of 2020.
