Arch and Genworth's higher default levels result in lackluster 2Q

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Higher levels of defaults, driven by the coronavirus, led to lower second-quarter earnings for the mortgage insurance units of Arch Capital and Genworth Financial. But new insurance written at both benefited from the low interest rate environment during the quarter.

At Arch, underwriting income from its mortgage insurance segment was $7.4 million in the second quarter, down from $197.6 million in the first quarter and from $258.4 million in the same period last year. Arch's segment results also include its mortgage reinsurance business.

As of June 30, delinquencies made up 5.14% of its U.S. MI portfolio, compared with 1.42% at the end of the first quarter, which was just as the pandemic's spread caused shelter-in-place orders to be issued.

Arch reported $224.1 million in losses and loss-adjusted expenses for the MI business in the second quarter, compared with nearly $26 million for the same period in 2019.

The U.S. mortgage insurance unit's NIW increased to $24.6 billion for the second quarter, up from $16.8 billion in the first quarter and $17.2 billion for the second quarter of 2019.

Genworth's U.S. mortgage insurance business reported an adjusted operating loss of $3 million in the second quarter as the increased delinquencies from the coronavirus led it to record $228 million in losses for the period.

In the first quarter, it had adjusted operating income of $138 million, while a year ago, it had adjusted operating income of $147 million.

New delinquencies contributed $170 million in loss expense for the second quarter. Genworth had 48,249 new delinquency notices during the period, bringing the total to 53,372 as of June 30. As a result, Genworth strengthened its loss reserves by $28 million.

Like Arch, Genworth saw strong improvement in NIW, with $28.4 billion written in the second quarter, compared with $17.9 in the first quarter and $15.8 billion one year ago.

The earnings release reiterated previously disclosed plans by Genworth Financial to spin off 19.9% of the U.S. MI business if its merger agreement with China Oceanwide is terminated.

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