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KBW cautious about 2Q earnings for mortgage insurers

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Mortgage insurers should focus on growing profitability after analyst firm Keefe, Bryette and Woods cut second-quarter earnings projections for several insurance firms, KBW said in a Tuesday report. KBW analysts lowered the firm's second-quarter earnings estimates for MGIC Investment Corp. (MTG) from 11 cents per share to 5 cents. The firm also reduced its second-quarter projections for Radian Group (RDN) and Old Republic (ORI) — both of which are forecasted to see earnings-per-share losses that are deeper than previous estimates. On the other hand, KBW tempered its loss expectations for The PMI Group (PMI), with KBW predicting a loss of 47 cents per share in the second quarter, improved from a prior estimate of a loss of 50 cents per share. Still, analysts with KBW say they "remain positive in our investment thesis for the monoline mortgage insurers," which includes MGIC Investment Corp., The PMI Group and Radian Group. When it comes to the entire business segment, the firm remains cautiously on the upside even though KBW still noted "some level of investor fatigue in the sector given continued volatility from the high-beta nature of the business." KBW said credit trends weakened in the first quarter, placing additional stress on mortgage insurers, but the analyst firm believes "barring a sustained double dip, delinquency levels should continue to decline as claims are paid" and cures and loss mitigation activities move forward. "Mortgage insurers need to show better progress toward profitability if investors are going to believe that further capital raises are not needed," the firm said. KBW's findings mirror a recent report from CreditSights. Analyst Rob Haines with CreditSights said even though every private mortgage insurer faces extreme liquidity pressures, the possibility of a bankruptcy or insolvency in the near future is unlikely. Standard & Poor's also reported that private mortgage insurer PMI Mortgage Insurance is safe for now, given its ability to maintain solvency through at least the second quarter of next year. KBW said macroeconomic trends that could harm mortgage insurers include ongoing unemployment and any unforeseen regulatory or legislative changes that could impact the landscape of the private mortgage insurance business. Write to Kerri Panchuk.

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