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Radian Performs Best among MI Firms in 4th Quarter

Of the three publicly traded holding companies whose main business is private mortgage insurance, only Radian has topped consensus earnings estimates.

MGIC came in above Friedman Billings Ramsey's own estimate but below consensus while Triad missed the consensus by a wide margin. MGIC is in a deal to acquire Radian.

FBR maintained its "outperform" rating on MGIC and Radian and "market perform" rating on Triad. Fitch Ratings affirmed the insurer financial strength rating of Triad at "AA" and has a ratings outlook of "stable" on the company.

Net income for the fourth quarter at Milwaukee-based MGIC Investment Corp. was $121.5 million, or $1.47 per share, compared with $128.1 million, or $1.44 per share, for the same period one year prior. The reason for those numbers going in opposite directions was that MGIC repurchased 6.1 million shares in 2006.

For the year, MGIC earned $564.7 million, or $6.65 per share, down from $626.9 million, or $6.78 per share, in 2005.

FBR, in a brief statement, said, "The primary difference between our estimate and actual results was better-than-forecasted joint-venture income. Credit trends and top-line growth were relatively in line with our expectations. Higher-incurred losses reflect seasonal trends, which we believe the market often forgets going into the fourth-quarter earnings season. We believe seasonal headwinds will moderate in the first quarter of 2007 and MGIC will again generate a low- to mid-teen return on equity. We maintain our 2007 EPS estimate at $7.15 and introduce our 2008 EPS estimate at $8."

Persistency continues to rebound, from 61.3% on Dec. 31, 2005 to 69.6% on the same day one year later.

For the fourth quarter, the Radian Group Inc., Philadelphia, reported net income of $158.4 million, or $1.96 per share, compared with $104.5 million, or $1.24 per share, reported in the fourth quarter of 2005.

A note from FBR said, "After backing out security gains, operating EPS came in at $1.67 vs. the consensus of $1.50 and FBR's estimate of $1.57. The quarter benefited from higher-than-forecasted joint-venture income and lower-incurred losses."

For the full year, Radian earned record net income of $582.2 million, or $7.08 per share. One year prior, it earned $522.9 million, or $ 5.91 per share. "Forecasts for interest rate stability, strong employment and improved persistency bode well for the mortgage insurance industry," S.A. Ibrahim, chief executive, said. "In this environment, we believe we are well positioned to benefit over the long term from both cyclical and structural opportunities in the mortgage market."

The smallest of the private mortgage insurers, Triad Guaranty Inc., Winston-Salem, N.C., had net income for the fourth quarter of $8.1 million, or $0.54 per share, down from $12.6 million, or $0.85 per share.

A note from FBR said Triad badly missed consensus estimates of 1.32, including FBR's $1.30. "We maintained our 2007 EPS estimate of $5.50, which factors in higher-incurred losses through the year, and introduced our 2008 EPS estimate at $6.25," FBR said.

Mark K. Tonnesen, president and chief executive, said, "Despite many positive developments in the fourth quarter, our earnings are disappointing. While the increase in defaults and the number of paid claims was virtually on target, our average cost per paid claim increased significantly. The fundamental cause of the higher loss per claim was the impact of the slowing housing market on our claims mitigation efforts. A larger percentage of our claims paid in the fourth quarter were full-option settlements, causing the average severity on both primary and modified pool business to increase from the levels observed over the last five quarters.

"In response to this change, which emerged in the fourth quarter, we felt it was both prudent and necessary to adjust the severity factors utilized in our reserving methodology, which increased our reserves and, in turn, our incurred losses. The increase in the severity factors was the major driver of the $24.2 million increase in reserves during the quarter, although a portion of the increase was attributable to changes in our frequency factors and the natural growth and seasoning of our portfolio."

Full-year net income for Triad is $65.6 million, or $4.40 per share, up from $56.8 million, or $3.84 per share. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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