Radian Group is diversifying its operations away from real estate finance, exiting its businesses outside of mortgage insurance and purchasing a specialty underwriter.
In related moves, Radian will be acquiring Inigo Limited, a Lloyds specialty insurer for $1.7 billion in what it termed "a primarily all-cash transaction."
Meanwhile, in what Radian lately has called its "all other" category in its earnings reports — a mortgage conduit it started three years ago; title underwriter and agency; and a real estate services business — are being divested, with the process expected to be completed by the third quarter of next year.
Initial investor reaction to the news was highly positive, with Radian's common stock price up nearly 7.2% from Wednesday's close as of 3 p.m., when it was trading at $37.22 per share.
The strategic shift followed a multiyear process in which Radian leaders looked at where they wanted to take the company in the future, and examined different paths, said Rick Thornberry, the CEO of Radian Group, in an interview.
"We determined along the way that the right path for us was to evolve from a monoline mortgage insurer to more of a global multiline insurer," Thornberry said.
"After we thoughtfully reviewed the markets and the different segments of the specialty insurance market, we came to meet the Inigo team, got to learn more about their business and this transaction brings reality to our vision."
What Inigo brings to Radian
Thornberry called the combination "a perfect match. Their focus on underwriting and risk management and use of data and analytics is similar to the way we approach our mortgage insurance business." He noted many of Inigo's customers are blue chip companies.
Plus, the two businesses do not correlate from a risk perspective. Inigo business is 64% insurance and 36% reinsurance. On the insurance side, 23% is property and 17% is casualty. It also has financial lines that make up 7% of its business. The largest chunk of its reinsurance writing is catastrophe excess of loss coverage at 26%.
The U.S. accounts for 70% of Inigo's specialty insurance operations. All of Inigo's business is through the Lloyd's marketplace.
Why Radian is exiting the non-MI businesses
As for the businesses Radian will be exiting, Thornberry said he was very proud of what these units have accomplished, calling each "leaders in their marketplace."
The decision to exit is "not about the businesses themselves," Thornberry explained.
"It's really about as we define our strategic direction, and we really sharpen our focus on insurance and we think about the path forward, these businesses don't really fit that construct," he said.
While right now, these units are categorized as all-other by the company, at one point the title and real estate services
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So as it did the strategic review process, Radian came to the conclusion that those businesses really deserved a different owner, someone who appreciated the long-term possibilities each possesses, Thornberry said.
Moreover, it is likely each of the three will end up being sold to different parties. The aim is to find the right home for each, he added.
A stock analyst's view of the deal
Radian follows a similar path as one seen at a competitor, Arch Capital, one analyst commented.
"We think this transaction could be seen positively given [the]
Arch's performance has shown that the market likes the combination of those two lines, he continued.
Becoming a diversified multiline special insurer should help optimize Radian's deployment of excess capital, George added.
Thornberry would not comment on Arch's business strategy directly; but said he does understand why the comparison is being made.
The tie up with Inigo gives Radian significant capital synergies and allows it to further leverage that structure in "a very efficient and effective way," he said.
