First quarter earnings data from the private mortgage insurers revealed another shuffling of market share between them, with MGIC Investment being the laggard in new insurance written.
The six companies wrote 15% less business on a dollar volume basis in the first quarter compared with the prior three month period and 38% less versus the prior year. Given that overall mortgage originations were down, it is not a surprise the conforming low down payment segment the MIs serve also reported lower activity.
But MGIC's new insurance written was off 36% from the fourth quarter and 58% year-over-year, making it the second consecutive quarter with the largest share drop in NIW.
However, the gap between private mortgage insurance and the Federal Housing Administration program continued to narrow in the first quarter. Insurance in force for the mortgage insurers grew by 0.5% compared with the fourth quarter; for FHA it grew by 0.6%, the second consecutive three-month period the government program had a larger increase, a Keefe, Bruyette & Woods report said.
The year-over-year growth gap narrowed to 230 basis points for the first quarter versus 400 basis points in the fourth quarter. Right now the mortgage insurers have $1.52 trillion of insurance in force, while FHA has $1.25 trillion. The MI portion includes estimates of the book of business from the three companies in run-off.
Even with the lower NIW industrywide, all six companies remained highly profitable. Here is how each performed during the period:
MGIC's pull-back may be ending
MGIC's net income for the quarter was $154.5 million, compared with $191.4 million in the fourth quarter and $175 million a year ago.
It only did $8.2 billion of NIW, the worst among the active underwriters in the period. In the fourth quarter, MGIC posted NIW of $12.9 billion while it did $19.6 billion during the first quarter of 2022.
"This was modestly below us but largely in line with expectations as the company had noted last quarter that NIW market share would likely decline due to higher pricing reflecting management's view on risk," said Bose George, an analyst at Keefe, Bruyette & Woods in a report.
MGIC previously guided that it expected to lose market share in the fourth quarter last year and the first quarter, CEO Tim Mattke said on the earnings call.
"We recognize that the loss of market share would be the potential trade-off to achieve the returns we believe, reflective of the risk in the environment where interest rates had spiked, affordability was stretched and home prices were expected to fall from their peak," Mattke said.
But MGIC's view of the risk-return equation has started to improve and so "we expect our reported market share in the second quarter will be higher, reflecting this gradual improvement," he continued.
Enact remains No. 1 by market share
At the other end of the spectrum, Enact did the most NIW in the first quarter, but even its business was off by 13% on a quarter-to-quarter basis and 30% year-over-year.
It also reported higher profits with $176 million in net income, compared with $144 million for the fourth quarter and $165 million for the first quarter of 2022.
Enact's net income benefitted by a $70 million reserve release versus its fourth quarter results, while an increase in net investment income was responsible for the year-over-year change.
NIW of $13.2 billion was down from the fourth quarter's $15.1 billion, but that period's business was enhanced by a one-time seasoned loan deal. In the first quarter of 2022, its NIW was $18.8 billion.
On March 9, Fannie Mae and Freddie Mac lifted restrictions on Enact that made it subject to stricter capital requirements than the other MIs. The restrictions were related to the August 2020 senior note issuance by majority shareholder Genworth Financial at a time liquidity was needed prior to the China Oceanwide transaction, which was subsequently cancelled. and Enact was spun off
Its 85% stake in Enact was the driver of the $62 million net income that Genworth Financial reported for the first quarter. Enact contributed $143 million in adjusted operating income to Genworth, up from $135 million one year prior.
Essent's business is flat and that's a good thing
Essent Group was the only private mortgage insurer that reported stable NIW on a quarter-to-quarter and year-over-year basis.
It wrote $12.9 billion in the first quarter, versus $13 billion three months prior and $12.8 billion a year ago.
Essent reported net income of $170.8 million for the most recent quarter, up from $147.4 million in the fourth quarter but well below the $274.2 million for the same period in 2022.
As he has said in the past, Mark Casale, chairman, CEO and president commented during the earnings call that market share ebbs and flows among the six companies from quarter-to-quarter. His company wrote the second most business during the first quarter.
Furthermore, Essent is raising premiums and it will continue to do so going forward. "We have the room, it's not our goal to be No. 1 in market share," Casale said. "And we look at this really just as an opportunity again to raise pricing potentially across the board."
Real estate services still a drag for Radian
Radian Group's net income was relatively flat compared with the fourth quarter, at $158 million versus $162 million; for the first quarter of 2022, the company had earnings of $181 million.
Its NIW fell to $11.3 billion from $12.9 billion in the fourth quarter and $18.7 billion a year ago.
But Radian's real estate services businesses, including title insurance, bundled under the name homegenius, continued to be a money loser for the corporation.
Adjusted pretax operating loss, which is how it determines the financial results for homegenius segment, was $23 million for the first quarter, compared to $31 million for the fourth quarter and $14 million for the first quarter of 2022.
On the other hand, the adjusted pretax operating profit for Radian Guaranty, the mortgage insurance business, was $214.4 million, down from $241.9 three months ago and $277.8 million one year prior.
Homegenius revenues were lower but its operating loss was lower, because of how it managed expenses, Radian Group CEO Rick Thornberry said during the conference call.
"The market conditions continue to be very challenging, homegenius is not alone," Thornberry said. "All you have to do is look at mortgage and real estate businesses across all the markets, and you can see anything that's transaction-related largely has been impacted materially."
NMI's profits increase from prior quarter and year
NMI Holdings, the parent of National MI, reported higher net income versus comparable periods. In the first quarter, it earned $74.5 million, up from $72.9 million for the fourth quarter and $67.7 million during last year's first quarter.
But its new insurance written was the second least among the six companies for the quarter, at $8.7 billion, down 19% from the fourth quarter's $10.7 billion and 38% from the year prior's $14.2 billion.
"We think that could still be enough new business to capitalize growth without necessarily sacrificing returns," Eric Hagen, an analyst with BTIG noted.
The pricing environment when it comes to competition across the entire MI industry is viewed by NMI's management team as a positive.
"We're seeing broad discipline remain across the market, particularly, as the risk environment continues to evolve," said Adam Pollitzer, president and CEO during the earnings call. "It's an encouraging environment where we're able to capture price where we believe it's necessary and appropriate, and it's coming through and contributing to some yield stability that we're seeing."
Arch's underwriting income slips
The mortgage segment at Arch Capital Group Holdings reported $243 million of underwriting income, down from $373.5 million from the prior quarter and $286 million versus one year ago.
This segment, besides the primary U.S. mortgage insurance line, also includes Arch's Australian segment as well as global mortgage reinsurance.
The U.S. business did $10.4 billion for the first quarter, down from $11.4 billion for the fourth quarter and $20 billion from the first quarter of 2022.
"Typical seasonality and tempered demand for housing in the first quarter affected new insurance written," Arch Capital CEO Marc Grandisson said on the conference call. "However, production was in line with our expectations given the healthy market conditions."
Arch Capital, which also underwrites property and casualty as well as other forms of reinsurance, earned $705 million for the first quarter, compared with $186 million one year prior.
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