Claims Weigh Down Results Of Some Mortgage Insurers

Triad Guaranty Inc., the smallest of the nation's seven private mortgage insurance firms, reported that its second quarter earnings decreased 8% from the prior year. Meanwhile three of its larger publicly traded competitors had significant gains in net income.

At Winston-Salem, N.C.-based Triad, second quarter net income totaled $13.2 million or $0.89 per share, compared with $14.4 million or $0.98 per share for the same period in 2004.

Darryl W. Thompson, president and chief executive, said, "We are disappointed with the decline in our second quarter earnings. This decline is attributable, in part, to an unexpected increase in incurred losses resulting from an abnormal increase in large claims paid and changes in claim processing procedures by one of our larger servicers. It is also attributable to reserve strengthening, primarily to reflect higher severity trends. This dampened what otherwise would have been a strong quarter for Triad.

"We were pleased, however, with the 20% increase in both earned premiums and revenue in the second quarter of 2005 when compared to the same quarter a year ago. We have been able to grow our insurance in force and earned premiums with only a 4% increase in expenses, resulting in a drop in our expense ratio compared to the second quarter of 2004."

The change in procedures by a servicer accelerated the number of claims perfected during the quarter and reduced the time during which Triad could mitigate losses.

Meanwhile at MGIC Investment Corp., Milwaukee, net income for the second quarter was $174.4 million or $1.87 per share, compared with the $154.5 million or $1.56 per share for the same quarter a year ago.

In its earnings release, Curt S. Culver, president and chief executive, said he remained pleased with delinquency inventory and joint-venture performance, but that attractive interest rates and strong home-price appreciation continue to negatively impact insurance in force and associated revenues.

Unlike Triad, total revenues went in the negative direction, going to $395.0 million, down 2% from $403.1 million in the second quarter of 2004. The decline in revenues resulted from a 5.9% decrease in net premiums earned to $311.6 million.

Persistency was at 60.9% on June 30, 2005, compared with 53.8% on the same day in 2004.

The Radian Group, Philadelphia, also showed trends opposite that of Triad. Net income was $140.2 million, or $1.56 per share, up over 16% from $120.5 million or $1.23 per share for the second quarter of 2004. Meanwhile, revenues on a year-to-year basis declined nearly 4%.

Persistency was 56.9% on June 30, 2005, up from 53.9% one year prior. A footnote to the earnings release said persistency for the most recent quarter included the impact of a cancellation of a structured transaction that occurred in the second quarter of 2005 in the amount of $3.6 billion of primary insurance in force, which reduced persistency by approximately three percentage points.

"We are pleased to report the second highest quarterly net income in the company's history," said S.A. Ibrahim, chief executive. "That is a reflection of the successful execution of a diversification strategy that has served us well during cyclical business environments. Also, our ability to maintain credit discipline and our innovative approach to business opportunities have enabled us to build a strong foundation for continued shareholder value creation."

The PMI Group, Walnut Creek, Calif., reported that net income for the second quarter totaled $104.6 million or $1.04 per share compared to $96.7 million or $0.93 per share for the same period a year ago.

Net income for PMI's U.S. MI business for the quarter totaled $69.7 million compared with $63.3 million for the same period a year ago. The increases were due primarily to higher premiums earned and reduced underwriting and operating expenses, partially offset by higher losses and loss adjustment expenses.

The remaining three private mortgage insurers are all parts of companies that do business in other lines of insurance.

At Genworth Financial, Richmond, Va., the mortgage insurance segment had net operating earnings of $121 million for the quarter, up from $114 million the previous year. However, the gain was due to its international operations. Net operating earnings for the U.S business declined by approximately $2 million to $61 million.

Genworth said it had a $12 billion reduction in insurance in force during the 12-month period.

Old Republic International Corp., the Chicago-based parent of Republic Mortgage Insurance Co., said pretax operating income at its mortgage guaranty business increased over 14%, to $67.9 million, up from $59.5 million for the second quarter of 2004.

The parent company's earnings release noted, "Most of the improvement in mortgage guaranty operations stemmed from the basic underwriting and related services function of the business. Year-over-year claim ratio comparisons reflect basic stability in paid loss trends, claim frequency and severity patterns, all of which appear to have leveled off in the three most recent quarters. Profitability was also affected favorably by the combination of lower contract underwriting costs, some reductions in variable sales expenses, and continued attention to operating efficiencies."

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