Recovery in the mortgage insurance sector will continue during 2011, as the sector eyes sustained profitability in 2012, according to an analyst at Credit Suisse.
Leading the pack will be PMI Group, Douglas Harter wrote, because they believe the company's stock has the most potential upside in the shares in their projected scenario of MI's recovery.
"We see long-term value in all of the standalone mortgage insurers as the recovery in credit and growth of new business drives value," Harter said.
Harter outlined three issues for the mortgage insurance sector this year. The sector's credit outlook is expected to see continued improvement and comfortable reserve levels. In addition, new business will increase from the housing crash bottom, "but recent pricing increases by GSEs could slow the rebound."
Lastly, Harter said the industry is adequately capitalized following its 2010 recapitalization efforts and should not need to raise additional capital.
"In 2011 we see reserve adequacy as the key issue for the performance of the mortgage insurance stocks," he wrote. "The current level of disclosure makes judging reserve adequacy on an absolute basis challenging, but we are generally comfortable with reserve levels based on cure expectations."
