Mortgage insurance earnings were strong in 3Q, even as business shrank
November 8, 2022 10:39 AM
Private mortgage insurer third quarter results were strong, but primarily because of reserve releases, while operating trends were largely in line with what analysts at Keefe, Bruyette & Woods expected.
Meanwhile, pricing of new insurance policies — where in past down markets, industry players looked to steal market share by undercutting the competition — remains a non-issue.
"A continued positive for the industry remains the upward trend in pricing as the industry incorporates growing risks in the housing market into pricing," the report from Bose George said.
Insurance in force across the industry grew 9% year-over-year, with KBW expecting 10% annual improvement for both the fourth quarter and for the full year. However, it expects this to moderate to moderating to 6% growth for all of 2023 and 5% the following year, which is "consistent with our expectations for a slowdown in the growth rate of overall mortgage debt outstanding."
New insurance written totaled $104.1 billion, down from $120.9 billion in the second quarter and $148.7 billion one year ago. KBW expects business to slip to $89.4 billion in the fourth quarter.
The following are the third quarter results for each of the six underwriters:
Meanwhile, pricing of new insurance policies — where in past down markets, industry players looked to steal market share by undercutting the competition — remains a non-issue.
"A continued positive for the industry remains the upward trend in pricing as the industry incorporates growing risks in the housing market into pricing," the report from Bose George said.
Insurance in force across the industry grew 9% year-over-year, with KBW expecting 10% annual improvement for both the fourth quarter and for the full year. However, it expects this to moderate to moderating to 6% growth for all of 2023 and 5% the following year, which is "consistent with our expectations for a slowdown in the growth rate of overall mortgage debt outstanding."
New insurance written totaled $104.1 billion, down from $120.9 billion
The following are the third quarter results for each of the six underwriters:
MGIC remains No. 1 by a large margin
MGIC Investment reported net income of $249.6 million, compared with $249.3 million in the second quarter and $158 million one year prior.
"While the combination of rising interest rates, decelerating home prices, and other macroeconomic concerns have resulted in increased risks and uncertainties, our financial strength and capital flexibility position us to navigate the changing economic cycle." CEO Tim Mattke said in a press release.
Meanwhile, new insurance written slipped to $19.6 billion, but it was still the most among the six active underwriters, by almost $2 billion. That compares with $24.3 billion in the second quarter and $28.7 billion in the third quarter.
Its delinquent loan inventory fell to 25,878 as of Sept. 30, from 26,855 three months prior and 37,379 on the same day in 2021. MGIC's realized delinquencies should stay low over the near-term, BTIG analyst Eric Hagen said in a note.
"While the combination of rising interest rates, decelerating home prices, and other macroeconomic concerns have resulted in increased risks and uncertainties, our financial strength and capital flexibility position us to navigate the changing economic cycle." CEO Tim Mattke said in a press release.
Meanwhile, new insurance written slipped to $19.6 billion, but it was still the most among the six active underwriters, by almost $2 billion. That compares with $24.3 billion in the second quarter and $28.7 billion in the third quarter.
Its delinquent loan inventory fell to 25,878 as of Sept. 30, from 26,855 three months prior and 37,379 on the same day in 2021. MGIC's realized delinquencies should stay low over the near-term, BTIG analyst Eric Hagen said in a note.
Radian's MI profits cover a loss in real estate services
Radian Group reported third quarter net income of $198.3 million, down from $201.2 million in the second quarter, but well ahead of the $126.4 million earned in the third quarter of 2021.
But prior to the earnings report, Radian laid off 166 workers in Pennsylvania.
"Our primary mortgage insurance in force portfolio, which is the main driver of future earnings for our company, grew more than 7% year-over-year to $259 billion and credit performance remained strong," said CEO Rick Thornberry in the earnings release. "We are managing our expense structure to align to today's operating environment and strategically managing our capital."
NIW was $17.6 billion in the third quarter, compared with $18.9 billion in the second quarter, and $26.6 billion in the third quarter of 2021. Radian ended the quarter ranked second in NIW, whereas three months prior, it was fourth.
However, its real estate services unit, homegenius, reported an adjusted pretax operating loss of $25.5 million for the third quarter, compared with a $5.6 million loss one year prior. Radian pulled this segment's future earnings guidance because of the uncertainty around interest rates, George said.
But prior to the earnings report, Radian
"Our primary mortgage insurance in force portfolio, which is the main driver of future earnings for our company, grew more than 7% year-over-year to $259 billion and credit performance remained strong," said CEO Rick Thornberry in the earnings release. "We are managing our expense structure to align to today's operating environment and strategically managing our capital."
NIW was $17.6 billion in the third quarter, compared with $18.9 billion in the second quarter, and $26.6 billion in the third quarter of 2021. Radian ended the quarter ranked second in NIW, whereas three months prior, it was fourth.
However, its real estate services unit, homegenius, reported an adjusted pretax operating loss of $25.5 million for the third quarter, compared with a $5.6 million loss one year prior. Radian pulled this segment's future earnings guidance because of the uncertainty around interest rates, George said.
Arch's future earnings dependent on existing book
Arch Capital Group's mortgage insurance segment reported underwriting income of $299.4 million for the third quarter, versus $298.4 million in the prior quarter and $234.1 million in the previous year. The segment results include reinsurance and international business.
Its NIW fell to $17.4 billion from $23.5 billion in the second quarter and $27.8 billion for the third quarter of 2021.
Meanwhile, the percentage of U.S. primary insurance policies in default was 1.73% at the end of the third quarter, compared to 1.77% three months prior.
Arch's insurance in force ended the quarter at $295 billion, the most in the industry, and up 5% from Sept. 30, 2021.
"The in-force book is where we're going to generate most of our underwriting income for the foreseeable future," said Arch Capital Chief Financial Officer Francois Morin on the company's earnings call. "Doesn't matter really materially whether production is stable, declining, increasing, the in-force books is going to drive the underwriting income for the next three years or so."
Its NIW fell to $17.4 billion from $23.5 billion in the second quarter and $27.8 billion for the third quarter of 2021.
Meanwhile, the percentage of U.S. primary insurance policies in default was 1.73% at the end of the third quarter, compared to 1.77% three months prior.
Arch's insurance in force ended the quarter at $295 billion, the most in the industry, and up 5% from Sept. 30, 2021.
"The in-force book is where we're going to generate most of our underwriting income for the foreseeable future," said Arch Capital Chief Financial Officer Francois Morin on the company's earnings call. "Doesn't matter really materially whether production is stable, declining, increasing, the in-force books is going to drive the underwriting income for the next three years or so."
NMI's new policies written were up from 2Q
NMI Holdings recorded net income of $76.8 million in the third quarter, slightly ahead of the second quarter's $75.4 million and compared with $60.2 million one year prior.
Its National MI subsidiary generated $17.2 billion of NIW during the quarter, which was 4% higher than the $16.6 billion it wrote in the second quarter. For the third quarter of 2021, National MI wrote $18.1 billion.
"We're proud to have delivered strong results in the third quarter, with significant new business production and increasing persistency driving growth in our high-quality insured portfolio, and favorable credit performance and expense discipline driving record profitability and strong returns," National MI President and CEO Adam Pollitzer said in the earnings release. "We continue to manage with discipline and a focus on through-the-cycle performance, and took further steps during the quarter to insulate our business from the impact of any economic stress that may emerge."
Its National MI subsidiary generated $17.2 billion of NIW during the quarter, which was 4% higher than the $16.6 billion it wrote in the second quarter. For the third quarter of 2021, National MI wrote $18.1 billion.
"We're proud to have delivered strong results in the third quarter, with significant new business production and increasing persistency driving growth in our high-quality insured portfolio, and favorable credit performance and expense discipline driving record profitability and strong returns," National MI President and CEO Adam Pollitzer said in the earnings release. "We continue to manage with discipline and a focus on through-the-cycle performance, and took further steps during the quarter to insulate our business from the impact of any economic stress that may emerge."
Essent's profits down year-over-year
Unlike its competitors, Essent Group reported lower net income on a year-over-year basis, $178.1 million for this year's third quarter, versus $205.4 million in 2021.
In the second quarter, the company earned $231.8 million.
Still, those third quarter results were above what both KBW and BTIG expected for Essent.
But the $17.1 billion of NIW put Essent in the same market share ballpark as most of the industry. This was down from $20.1 billion in the second quarter and $23.6 billion for the third quarter of 2021.
"We are pleased with our financial performance for the third quarter as we produced strong earnings and robust returns," said Mark Casale, chairman and CEO in a press release. "Our results reflect our focus on optimizing unit economics along with continued favorable credit performance."
In the second quarter, the company earned $231.8 million.
Still, those third quarter results were above what both KBW and BTIG expected for Essent.
But the $17.1 billion of NIW put Essent in the same market share ballpark as most of the industry. This was down from $20.1 billion in the second quarter and $23.6 billion for the third quarter of 2021.
"We are pleased with our financial performance for the third quarter as we produced strong earnings and robust returns," said Mark Casale, chairman and CEO in a press release. "Our results reflect our focus on optimizing unit economics along with continued favorable credit performance."
Enact completes fourth full quarter as a public company
Enact Holdings trailed the field in terms of market share, but still reported strong earnings for the quarter, with net income of $191 million. For the second quarter it earned $205 million, while for the third quarter of 2021, it earned $137 million.
Genworth Financial spun out Enact near the end of the third quarter last year; it remains the mortgage insurer's single largest shareholder with an equity stake over 81%.
But its NIW of $15 billion was more than $2 billion lower than Essent's and was down 14% from the second quarter's $17 billion. One year prior, it had $24 billion of NIW.
"Throughout the quarter we continued to execute against all aspects of our cycle-tested growth strategy, writing profitable new business, investing in our growth, and managing our risk, while also delivering on our commitment to return excess capital to shareholders," said Rohit Gupta, president and CEO in a press release. "While several factors are creating uncertainty in the housing market in the near-term, we believe the longer-term drivers of demand remain in place, and the strength of our portfolio, balance sheet, and cash flows position us well to prudently navigate the current market environment while continuing to successfully pursue our long-term growth strategy, and drive value creation for all stakeholders."
Genworth Financial
But its NIW of $15 billion was more than $2 billion lower than Essent's and was down 14% from the second quarter's $17 billion. One year prior, it had $24 billion of NIW.
"Throughout the quarter we continued to execute against all aspects of our cycle-tested growth strategy, writing profitable new business, investing in our growth, and managing our risk, while also delivering on our commitment to return excess capital to shareholders," said Rohit Gupta, president and CEO in a press release. "While several factors are creating uncertainty in the housing market in the near-term, we believe the longer-term drivers of demand remain in place, and the strength of our portfolio, balance sheet, and cash flows position us well to prudently navigate the current market environment while continuing to successfully pursue our long-term growth strategy, and drive value creation for all stakeholders."
