Mortgage insurer earnings grow in 2Q
August 8, 2022 3:34 PM
Private mortgage insurers reported strong earnings during a quarter in which their mortgage originator clients were not doing so well .
Three key points explain mortgage insurers' robust second quarter: consistent commentary by management of price hardening; large loan loss reserve releases driving earnings beats; and mostly strong capital return levels, a report from Bose George of Keefe, Bruyette & Woods said.
In the past, especially in the days prior to the industry-wide adoption of "black box" pricing methodologies, it was common when mortgage origination volume shrunk for industry participants to undercut each other's offered premiums in order to drive net insurance written. That has not happened in the current market cycle.
"We view favorably the decision by all the MIs to raise pricing in the second quarter ahead of anticipated economic uncertainty, a signal of discipline and managing the business for the long-term," George said.
Three key points explain mortgage insurers' robust second quarter: consistent commentary by management of price hardening; large loan loss reserve releases driving earnings beats; and mostly strong capital return levels, a report from Bose George of Keefe, Bruyette & Woods said.
In the past, especially in the days prior to the industry-wide
"We view favorably the decision by all the MIs to raise pricing in the second quarter ahead of anticipated economic uncertainty, a signal of discipline and managing the business for the long-term," George said.
Staying persistent
Insurance-in-force grew by 8% year-over-year in the second quarter. KBW estimates 8% full year growth, followed by increases of 5% in 2023 and 4% in 2024.
Helping IIF growth is increased persistency, the level of insurance that remains on the books 12 months later. Higher mortgage rates reduce refinancings and given that much of the current book of business has rates of 3% or lower, these loans "should be very sticky, so persistency should trend above 80%. For context, IIF had been growing at an annual pace of 9 to 11% from 2016 through 2019, before moderating to 7 to 8% in 2020 and 2021." George said.
NIW activity is expected to end this year at $406.8 billion, 30% lower than last year's volume before slipping by 16% to $342.3 billion. For 2024, George made an initial prediction of $343.7 billion.
The six companies wrote $120.3 billion in the second quarter, up from $104.1 billion three months prior but was 24% from $158 billion one year ago.
On a quarter-to-quarter basis, as measured by percentage, MGIC and Essent gained market share, Arch and National MI remained the same, while Radian and Enact did less business.
Here are the earnings from each company during the quarter:
Helping IIF growth is increased persistency, the level of insurance that remains on the books 12 months later. Higher mortgage rates reduce refinancings and given that much of the current book of business has rates of 3% or lower, these loans "should be very sticky, so persistency should trend above 80%. For context, IIF had been growing at an annual pace of 9 to 11% from 2016 through 2019, before moderating to 7 to 8% in 2020 and 2021." George said.
NIW activity is expected to end this year at $406.8 billion, 30% lower than last year's volume before slipping by 16% to $342.3 billion. For 2024, George made an initial prediction of $343.7 billion.
The six companies wrote $120.3 billion in the second quarter, up from $104.1 billion three months prior but was 24% from $158 billion one year ago.
On a quarter-to-quarter basis, as measured by percentage, MGIC and Essent gained market share, Arch and National MI remained the same, while Radian and Enact did less business.
Here are the earnings from each company during the quarter:
MGIC is tops for new policies written
MGIC Investment reported second quarter net income of $249.3 million, compared with $175 million in the first quarter and $153.1 million in the second quarter of 2021.
"Pre- and peak-COVID cure activity led to a $131 million reserve release, driving the beat," Ryan Gilbert, BTIG analyst, said in a report. Revenue and net premiums earned also beat his estimate.
Furthermore, the company ended the three-month period with the most NIW written, at $24.3 billion, up from $19.6 billion in the first quarter but down from $33.6 billion one year prior. MGIC attributed the year-over-year change to a loss of atypically high refinance business.
"We demonstrated the benefits of our capital position in the quarter by growing insurance in force, repurchasing stock, paying a common stock dividend, decreasing our leverage ratio and producing an annualized 21.6% return on equity," MGIC CEO Tim Mattke said in a press release.
As another positive, MGIC's primary delinquency inventory was lower than what BTIG forecasted, totalling 26,855 loans at June 30 as opposed to the prediction of 29,027. The actual total was down from 30,462 loans on March 31, and 42,999 loans as of June 30, 2021.
"Pre- and peak-COVID cure activity led to a $131 million reserve release, driving the beat," Ryan Gilbert, BTIG analyst, said in a report. Revenue and net premiums earned also beat his estimate.
Furthermore, the company ended the three-month period with the most NIW written, at $24.3 billion, up from $19.6 billion in the first quarter but down from $33.6 billion one year prior. MGIC attributed the year-over-year change to a loss of atypically high refinance business.
"We demonstrated the benefits of our capital position in the quarter by growing insurance in force, repurchasing stock, paying a common stock dividend, decreasing our leverage ratio and producing an annualized 21.6% return on equity," MGIC CEO Tim Mattke said in a press release.
As another positive, MGIC's primary delinquency inventory was lower than what BTIG forecasted, totalling 26,855 loans at June 30 as opposed to the prediction of 29,027. The actual total was down from 30,462 loans on March 31, and 42,999 loans as of June 30, 2021.
Arch management remains bullish on MI
The mortgage insurance segment of Arch Capital Group reported underwriting income of $298.4 million, compared with $285.3 million in the first quarter and $250.1 million one year ago.
Gross premiums written by the mortgage segment in the 2022 second quarter were 5% lower than one year prior, due to both lower U.S. primary mortgage insurance single premium volume and a decrease in monthly premiums.
Besides its U.S mortgage insurance operations, this segment includes Arch's international primary MI and the global reinsurance business.
Arch wrote $23.9 million of new insurance in the U.S. during the second quarter, up from $20 million in the first quarter but down from $28.2 million in the second quarter of 2021.
Arch Capital's management was for the most part positive when asked about a recession's effect on the MI unit's financials.
"By and large, the credit quality has actually improved through the pandemic, so we're very, very pleased with this," Arch Capital CEO Mark Grandisson said during the company's earnings call. "And I'm saying this, because the biggest driver of default in distress is the credit quality of the borrower."
The MI business is not recession-proof, he added, but the company is well-positioned if one were to occur. Arch will still be bringing in premium income because much of its book is monthly policies.
"So we're not going to see a huge immediate impact," Grandisson said. "It's not like a property casualty portfolio…it's a somewhat of a tempered impact on the top line, we believe."
Arch's delinquency rate improved 32 basis points between the end of the first and second quarters to 1.77%.
Gross premiums written by the mortgage segment in the 2022 second quarter were 5% lower than one year prior, due to both lower U.S. primary mortgage insurance single premium volume and a decrease in monthly premiums.
Besides its U.S mortgage insurance operations, this segment includes Arch's international primary MI and the global reinsurance business.
Arch wrote $23.9 million of new insurance in the U.S. during the second quarter, up from $20 million in the first quarter but down from $28.2 million in the second quarter of 2021.
Arch Capital's management was for the most part positive when asked about a recession's effect on the MI unit's financials.
"By and large, the credit quality has actually improved through the pandemic, so we're very, very pleased with this," Arch Capital CEO Mark Grandisson said during the company's earnings call. "And I'm saying this, because the biggest driver of default in distress is the credit quality of the borrower."
The MI business is not recession-proof, he added, but the company is well-positioned if one were to occur. Arch will still be bringing in premium income because much of its book is monthly policies.
"So we're not going to see a huge immediate impact," Grandisson said. "It's not like a property casualty portfolio…it's a somewhat of a tempered impact on the top line, we believe."
Arch's delinquency rate improved 32 basis points between the end of the first and second quarters to 1.77%.
Essent's profits down compared with 1Q
Unlike the rest of its competition, Essent posted lower net income on a quarter-to-quarter basis. For the period ended June 30, it earned $231.8 million compared with $272.4 million in the first quarter. But the second quarter total was 45% higher than the $159.8 million net income reported for the second quarter of 2021.
Essent still beat both Gilbert's and George's estimates for the period. Reserve releases were the primary driver, complemented by higher premiums earned and investment income, George added.
Second quarter NIW was $20.1 billion, compared with $12.8 billion in the first quarter and $25.0 billion in the second quarter of 2021.
"We are pleased with our strong financial results for the second quarter, which reflect the continued favorable credit performance of our portfolio," Mark Casale, chairman and CEO, said in a press release. "We believe that the fundamentals of our business remain solid, and despite near-term headwinds, our long-term structural outlook for the housing market remains positive."
Essent ended the quarter with 12,707 loans in its delinquent inventory, down 15% from the first quarter and below BTIG's 14,393 estimate. Even new defaults came in lower for the quarter from Gilbert's estimate, at 5,495 compared with his expectations of 6,271 loans.
Essent still beat both Gilbert's and George's estimates for the period. Reserve releases were the primary driver, complemented by higher premiums earned and investment income, George added.
Second quarter NIW was $20.1 billion, compared with $12.8 billion in the first quarter and $25.0 billion in the second quarter of 2021.
"We are pleased with our strong financial results for the second quarter, which reflect the continued favorable credit performance of our portfolio," Mark Casale, chairman and CEO, said in a press release. "We believe that the fundamentals of our business remain solid, and despite near-term headwinds, our long-term structural outlook for the housing market remains positive."
Essent ended the quarter with 12,707 loans in its delinquent inventory, down 15% from the first quarter and below BTIG's 14,393 estimate. Even new defaults came in lower for the quarter from Gilbert's estimate, at 5,495 compared with his expectations of 6,271 loans.
Radian’s new defaults reach a 20-year low
Radian Group reported second quarter net income of $201.2 million, up from $181.2 million in the first quarter and $155.2 million in the second quarter of 2021.
The Philadelphia-based company also beat Gilbert's adjusted earnings per share estimate due to "a much larger than expected favorable development drove the beat…[as] elevated cures likely pulled forward some reserve releases."
On a quarter-to-quarter basis, NIW was relatively flat, $18.9 billion versus $18.7 billion in the first three months of the year. In the second quarter of 2021, Radian's NIW totaled $21.7 billion.
"Our primary mortgage insurance in force, which is the main driver of future earnings for our company, grew 7% year-over-year, and the number of new defaults in the quarter was the lowest we've seen in more than 20 years," Radian's CEO Rick Thornberry said in a press release. "Moody's recently upgraded our company, reflecting our improved capital adequacy through risk distribution, our improving profitability metrics, our strong market position and our financial flexibility with strong liquidity."
Its delinquent loan inventory totaled 21,861 at the end of the second quarter, compared with 25,510 as of March 31, and 40,464 on June 30, 2021.
Besides mortgage insurance, Radian has a data and analytics segment, which includes its title insurance underwriting unit.
The segment, called homegenius, recorded an adjusted pretax operating loss of $17.7 million in the second quarter, compared with a $13.5 million loss for the quarter ended March 31, and a $9.2 million loss for the quarter ended June 30, 2021.
The Philadelphia-based company also beat Gilbert's adjusted earnings per share estimate due to "a much larger than expected favorable development drove the beat…[as] elevated cures likely pulled forward some reserve releases."
On a quarter-to-quarter basis, NIW was relatively flat, $18.9 billion versus $18.7 billion in the first three months of the year. In the second quarter of 2021, Radian's NIW totaled $21.7 billion.
"Our primary mortgage insurance in force, which is the main driver of future earnings for our company, grew 7% year-over-year, and the number of new defaults in the quarter was the lowest we've seen in more than 20 years," Radian's CEO Rick Thornberry said in a press release. "Moody's recently upgraded our company, reflecting our improved capital adequacy through risk distribution, our improving profitability metrics, our strong market position and our financial flexibility with strong liquidity."
Its delinquent loan inventory totaled 21,861 at the end of the second quarter, compared with 25,510 as of March 31, and 40,464 on June 30, 2021.
Besides mortgage insurance, Radian has a data and analytics segment, which includes its title insurance underwriting unit.
The segment, called homegenius, recorded an adjusted pretax operating loss of $17.7 million in the second quarter, compared with a $13.5 million loss for the quarter ended March 31, and a $9.2 million loss for the quarter ended June 30, 2021.
Enact's performance benefits former parent
While Enact earned $205 million in the first quarter, its former parent and current majority shareholder Genworth Financial also benefited from the MI company's strong performance.
First off, Genworth received $19 million from Enact's first-ever quarterly dividend of 14 cents per share.
Furthermore, Genworth plans to primarily fund an early call of $152 million of debt maturing in 2024 with an Enact special dividend of $150 million being paid later this year, according to a report from KBW's Ryan Krueger.
In the first quarter, Enact earned $165 million, while in the second quarter of 2021, it reported net income of $131 million. Genworth sold 30 million shares of Enact — 15.3 million in an initial public offering and 14.7 million to Bayview Asset Management —last Sept. 16.
But not only did Enact lose market share compared with the first quarter, its NIW slipped to $17 billion from $19 billion. In the second quarter of 2021, it wrote $27 billion.
"Our performance reflects the continued execution of our strategy, the strength and resiliency of our business model, and the sustained performance of our outstanding team," Rohit Gupta, Enact's president and CEO, said in a press release. "We pursued our strategy of disciplined growth, maintained a strong balance sheet, took additional steps to enhance our risk profile and financial flexibility, and continued to invest in our business and return capital to our shareholders."
First off, Genworth received $19 million from Enact's first-ever quarterly dividend of 14 cents per share.
Furthermore, Genworth plans to primarily fund an early call of $152 million of debt maturing in 2024 with an Enact special dividend of $150 million being paid later this year, according to a report from KBW's Ryan Krueger.
In the first quarter, Enact earned $165 million, while in the second quarter of 2021, it reported net income of $131 million. Genworth sold 30 million shares of Enact — 15.3 million in an initial public offering and 14.7 million to Bayview Asset Management —
But not only did Enact lose market share compared with the first quarter, its NIW slipped to $17 billion from $19 billion. In the second quarter of 2021, it wrote $27 billion.
"Our performance reflects the continued execution of our strategy, the strength and resiliency of our business model, and the sustained performance of our outstanding team," Rohit Gupta, Enact's president and CEO, said in a press release. "We pursued our strategy of disciplined growth, maintained a strong balance sheet, took additional steps to enhance our risk profile and financial flexibility, and continued to invest in our business and return capital to our shareholders."
National MI misses on new insurance written
NMI Holdings, the parent of National MI, earned $75.4 million, up from $67.7 million in the first quarter and $57.5 million for the second quarter of 2021.
NIW of $16.6 billion topped the first quarter's $14.2 billion but was below the $22.8 billion National MI wrote in the second quarter of 2021.
"We delivered resoundingly strong results in the second 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 a press release.
While National MI's NIW came in below BTIG's $19 million forecast, Gilbert was still positive on the company's performance. The company raised prices on some of its new policies, to reflect a more conservative outlook, Gilbert said.
"Overall another strong quarter from NMI, with continued improvement in credit performance and higher persistency driving a 23% year-over-year increase in insurance-in-force despite a 27% year-over-year decline in new insurance written," said Gilbert.
NIW of $16.6 billion topped the first quarter's $14.2 billion but was below the $22.8 billion National MI wrote in the second quarter of 2021.
"We delivered resoundingly strong results in the second 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 a press release.
While National MI's NIW came in below BTIG's $19 million forecast, Gilbert was still positive on the company's performance. The company raised prices on some of its new policies, to reflect a more conservative outlook, Gilbert said.
"Overall another strong quarter from NMI, with continued improvement in credit performance and higher persistency driving a 23% year-over-year increase in insurance-in-force despite a 27% year-over-year decline in new insurance written," said Gilbert.
