At Radian, Loss Provisions Sink Q2 Results

Radian Group Inc. (RDN) posted a $392.5 million loss for the second quarter, due largely to a decision to establish a $421.8 million first-lien premium deficiency reserve (think loss provision) tied to its mortgage insurance business. The $4.91 per share loss compared to net income of $21.2 million, or $.26 per share, one year earlier. The loss provision came after the company updated its future mortgage insurance loss expections, according to CEO S.A. Ibrahim. “While our industry continues to be challenged, we remain highly committed to our mortgage insurance business,” he said. And while the MI business continues to ail at Radian, the company said it will not look to raise fresh capital via a stock sale; instead, it will look to fulfill any capital needs for its mortgage insurance business by funneling money from its financial guaranty business, which has $960 million of statutory surplus. The financial guaranty sub also declared a $107.5 million dividend payable to Radian Group, $100 million of which was subsequently contributed to the company’s mortgage insurance business. Shares were up 8.4 percent to $2.97 on the news when this story was published, as investors were clearly cheered by the short-term implications of funding the MI business via internal resources. The company said that while first-lien primary defaults continued to rise quarter-over-quarter, the Q2 jump was less than the quarterly jump observed between Q4 2007 and the first quarter of this year; including pool defaults, the increase was 8.9 percent during the second quarter of 2008, compared to 9.9 percent during the first quarter of 2008. Radian has been looking to jumpstart investor confidence, announcing a management shake-up on July 7 that saw Teresa Bryce tapped as president of the company’s mortgage insurance business, after the resignation of former president David Applegate. On April 8, Radian’s mortgage insurance business saw its insurer financial strength rating downgraded from AA- to A by Standard & Poor’s Ratings Services. For more information, visit http://www.radian.biz.