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Mortgage Insurers See Improved Persistency

Record net income for the fourth quarter and year was the earnings story at two of the four publicly traded mortgage insurance companies, with a third reporting only record annual profits.

Philadelphia's Radian Group has the highest level of earnings of the four during the fourth quarter, with net income of $156 million, or $1.62 per share, compared with just $55.5 million, or $0.57 per share, for the same period one year prior.

Its annual earnings were a record $518.7 million, or $5.33 per share, up some 34% from 2003's $385.9 million or $3.95 per share.

Persistency, which during the refinance boom was a drag on the industry, increased at Radian from 46.7% on Dec. 31, 2003, to 58.8% one year later.

Meanwhile, MGIC Investment Corp., the Milwaukee-based firm that is usually the leader in industry earnings, was the only firm whose release did not call its report a record.

Fourth quarter income was $134.5 million, or $1.39 per share, compared with $103.9 million, or $1.05 per share, for the final quarter of 2003.

Full-year income was up 12%, to $553.2 million, or $5.63 per share, from $493.9 million, or $4.99 per share.

Curt S. Culver, president and chief executive, said earnings were higher because of improved credit loss performance, higher contributions from joint ventures and lower operating expenses during the year that were partially offset by the expected decline in earned premiums.

New insurance written was $15.8 billion for the quarter and $62.9 billion for the year, down from $19.3 billion and $96.8 billion, respectively, for the prior year.

Persistency rose from 47.1% on Dec. 31, 2003, to 60.2% one year later.

It was a record year for The PMI Group Inc., Walnut Creek, Calif., with annual profits of $399.3 million, or $3.87 per share, up from 2003's $299.4 million, or $3.09 per share.

For the quarter, profits compared with the same period in 2003 were almost flat, $80.5 million, or $0.79 per share, compared with $80.2 million, or $0.80 per share. The results for the quarter include a realized capital loss from PMI's investment in Select Portfolio Servicing Inc. (formerly Fairbanks Capital) of $13.3 million, or $0.14 per share; a reduction of the realized capital gain from the sale of American Pioneer Title Insurance Co. of $1.1 million, or $0.01 per share; and the dilutive effect of a change in accounting principle related to contingent convertible debentures of $0.05 per share.

The smallest of the private mortgage insurers, Triad Guaranty Inc., reported record quarterly net income of $15.2 million, or $1.03 per share, up from $13.6 million, or $0.93 per share, one year prior.

For the full year, Triad had net profits of $58.4 million, or $3.98 per share, compared with $51.1 million, or $3.52 per share, for all of 2002.

Darryl W. Thompson, president and chief executive, said, "We are pleased to report record earnings for both the fourth quarter and the full year. We continued to experience strong earned premium growth and improvements in persistency rates.

"Despite an overall decline in mortgage originations, our insurance-in-force had solid growth and our results continue to demonstrate the strength of our company. We are encouraged by our core results and the continued success of our strategic initiatives to expand our relationships and penetration in the marketplace."

The other three mortgage insurance companies are subsidiaries of insurance holding companies that break out the data in their earnings reports.

The mortgage insurance segment at Genworth Financial of Richmond, Va., had pro forma net operating earnings of $107 million for the quarter, compared with $77 million one year prior. This was due to strong international growth, plus $13 million of higher taxes in the prior year.

Old Republic International Corp., the Chicago-based parent of Republic Mortgage Guaranty Corp., reported a decline of 12% in pretax operating income for the fourth quarter 2004 compared to the prior year.

There was $53.3 million of pretax operating income, down from $61.4 million for the fourth quarter 2003.

For the year, pretax operating income was down by nearly 19%, to $224.5 million from $276.4 million for all of 2003.

ORI said, "The group's performance for the quarter and the full year was generally reflective of level or moderate premium growth and rising claim costs."

The other parent company of a mortgage insurer, New York-based American International Group (whose subsidiary is United Guaranty Corp.), had not released earnings by deadline.

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