More mortgage insurers see their 3Q business grow because of refis

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More private mortgage insurers reported significant year-over-year gains in new business during the third quarter as refinancing boomed.

But issues on the merger-and-acquisition front also played a role in third-quarter results at one of the MIs, as well as at the nation's largest title underwriter.

Even with the distraction of its parent company's long-delayed acquisition by a Chinese holding company still in play, Genworth's U.S. MI business had another banner quarter, with $18.9 billion of new insurance written, compared with $15.8 billion in the second quarter and $10.3 billion in the third quarter of 2018.

Adjusted operating income for the U.S. MI unit of $137 million was down from $147 million in the second quarter, but up from $118 million last year.

"There was some significant improvement in the traditional refinance penetration levels. What we're seeing is some of the loans that are being refinanced are more recent loans. So there are newer loans and they haven't had the opportunity to amortize or pay down to the levels of some of the older books where we have experienced refinancing before," Genworth Financial's CEO Thomas McInerney said during the call.

Genworth still must get Fannie Mae and Freddie Mac to grant new approvals to its acquisition by China Oceanwide in part due to the proposed sale of its Canadian business, the company said.

Genworth is selling its 57% stake in the separately traded Genworth MI Canada to Brookfield Business Partners. Canadian regulators had been slow to review the China Oceanwide transaction; because of a transition period after the sale closes, those regulators are now asking for a data risk mitigation plan to be developed.

But some of the money Genworth earned from the Canadian business supported the U.S. MI capital cushion under the Private Mortgage Insurer Eligibility Requirements.

In September, there was a special dividend from the Canadian unit where the proceeds were split between $36 million to the holding company and $15 million to the U.S. MI business; that dividend will reduce net proceeds expected from the sale.

The U.S. MI business was able to upstream a $250 million dividend to the parent company in the quarter.

"We expect U.S. MI to be able to pay an annual dividend going forward, based on our current plans, which assumes favorable trends in performance continue within the business as well as macroeconomic factors such as a strong U.S. housing market and employment levels and strength in the overall U.S. economy," Kelly Grow, chief financial officer at Genworth, said on the call. "As we look forward, we will assess the appropriate amount and timing of future dividends based on a variety of factors, including economic factors, regulatory constraints, business performance, and we will also consider the Oceanwide transaction and related capital plan."

Radian Group reported net income of $173.4 million, up 21% from the year prior. Its mortgage insurance business had over $22 billion of new insurance written, up 40% from $15.8 billion for the third quarter of 2018.

"We broke another company record in the third quarter for volume of new mortgage insurance business, which drove a 9% year-over-year increase in our high-quality insurance-in-force portfolio to $237 billion," said Radian CEO Rick Thornberry in a press release.

B. Riley FBR had expected just a 2.5% year-over-year increase in NIW, analyst Randy Binner said in a report.

Arch Capital Group's mortgage segment reported $262.5 million in underwriting income, up nearly 14% from $230.6 million the prior year. The results include U.S primary mortgage insurance, reinsurance, credit-risk sharing deals and international insurance.

Arch MI U.S. generated $25.3 billion of NIW quarter, compared to $21.4 billion in the third quarter of 2018.

Previously MGIC Investment Corp. reported third-quarter NIW of $19.1 billion, up from $14.5 billion a year ago.

Meanwhile, the nation's largest title underwriter, Fidelity National Financial, reported results for the first time since the collapse of its attempted purchase of Stewart Information Services.

"Now that Stewart is behind us, we're going to get back to where we were a couple of years ago, looking at agents, small midsized agents, and infilling our footprint," Fidelity CEO Randy Quirk said on its conference call. "We have a very distributed and pretty solid footprint. But there are areas where we can complement our existing brands through acquisition. So we will be back on that track."

FNF reported 592,000 orders opened during the third quarter, with 52% being for a home purchase. This was up from 456,000 for the third quarter of 2018, of which 69% were purchase.

"Purchase orders opened increased by 1% versus the third quarter of 2018, a sequential improvement from the 2% decrease in the second quarter of 2019 versus the prior year," Quirk said. "Refinance orders opened increased by 114% versus the third quarter of 2018 as a decline in mortgage rates continues to drive strong refinance volumes."

The company had $250 million in net earnings for the quarter; the title business actually earned more than the parent, $291 million, but Fidelity's corporate and other segment posted a $41 million loss.

In the third quarter of 2018, FNF earned $236 million.

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Earnings Stocks PMI M&A Refinance GSEs Genworth Radian Arch Mortgage Insurance Co. Fidelity National Financial