Genworth to Radian Rally as Mortgage Insurer Results Rebound

Feb 05, 2014 1:09 pm ET

(Updates with Moody’s upgrade in the 11th paragraph.)

Feb. 5 (Bloomberg) -- Radian Group Inc. and Genworth Financial Inc. rallied in New York trading after posting profits from insuring U.S. mortgages.

Genworth gained 3.3 percent to $15.01 at 1 p.m., the second-biggest advance in the Standard & Poor’s 500 Index. Radian, which isn’t in the S&P benchmark, climbed 3.9 percent to $14.89.

Genworth, which also offers life insurance and long-term care coverage, had a $6 million operating profit at its U.S. mortgage insurer in the fourth quarter, compared with a loss a year earlier. Philadelphia-based Radian today reported net income of $36.4 million, after a $177.3 million loss in the last three months of 2012.

“We expect significantly higher earnings for U.S. MI in 2014 than in 2013 as the 2005-to-2008 blocks continue to burn out,” Genworth Chief Executive Officer Tom McInerney said on a conference call today.

Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. The firms are rebounding after posting years of losses when home prices tumbled in the financial crisis.

Rising rates for home loans have reduced the number of borrowers refinancing their mortgages, weighing on that portion of the business, McInerney said in an interview today. That’s been cushioned by higher profits from backing mortgages used to purchase homes, he said.

Higher Margins

“The purchase market is doing fine,” McInerney said. “And we do earn significantly higher margins on new purchase mortgages than we do on refinancing.”

Shares of Radian and Richmond, Virginia-based Genworth more than doubled last year as investors bet on a housing recovery. Milwaukee-based MGIC Investment Corp. more than tripled in 2013.

The improving real estate market has drawn fresh competitors into the business. NMI Holdings Inc., the mortgage insurer backed by Kyle Bass and Carlyle Group LP, held an initial public offering last year, as did Essent Group Ltd., which counts JPMorgan Chase & Co. and Goldman Sachs Group Inc. among its investors.

“We expect improved operating profitability in 2014, driven by the MI premium generated from the high quality and profitable new business we wrote since 2008,” Radian CEO S.A. Ibrahim said on a conference call with analysts today.

Moody’s Upgrade

Moody’s Investors Service today lifted its financial strength rating on Genworth’s mortgage insurer by one level to Ba1. The ratings firm cited a capital contribution by Genworth into its mortgage guarantors and improving results from the business.

Genworth also backs home loans in countries including Australia and Canada. The company is working to sell a minority stake in its Australia mortgage insurer this year in an initial public offering, and has said the sale depends on the state of the country’s IPO markets, as well as on pending regulations on the coverage.

“We may or may not be able to do the Australia IPO this year,” McInerney said in the interview. “I think things are looking OK for that, but a lot of things have to go right.”

--Editors: Dan Kraut, Steven Crabill