Radian (RDN) profits from insurance written off as an expense, woes remain
Radian (RDN) profits from insurance written off as an expense, woes remain

Radian Group Inc. RDN is poised to grow thanks to its improving mortgage insurance portfolio, declining receivables, well-performing homegenius segment, solid capital position and efficient capital deployment. RDN’s earnings have grown 8.5% over the past five years, better than the industry average of 7.5%.

RDN has a solid earnings surprise history. It has beaten estimates in each of the past four quarters, with the average earnings surprise being 24.00%.

Based on projections of private mortgage insurance penetration of the total mortgage insurable market, Radian expects the private mortgage insurance market to be between $300 billion and $350 billion in 2024. Management expects a healthy buying market in 2024, driven by continued demand from home buyers and the expected decline in interest rates, which are positive for mortgage insurers.

This mortgage underwriter has seen an increase in new business. The insurer expects new business, combined with increasing annual resilience, to lead to continued growth in the portfolio of policies in force. Also, given the increase in market mortgage interest rates, the company expects a continued positive impact on tenure levels.

RDN is witnessing a declining claim pattern. Therefore, we expect paid claims to decrease further. Reduction in losses and claims will strengthen the balance sheet and therefore improve its financial profile.

The company enjoys a solid capital position, relying on capital contributions, reinsurance transactions and cash position. This, in turn, helps the mortgage underwriter get involved in paying off the capital. RDN has increased its quarterly dividend with a total increase of 96% over the past four years. In addition, there is $167 million remaining under the repurchase authorization.

However, the insurer is witnessing an increase in insurance and other costs that are weighing on margins. Net margin contracted 1,377 basis points in 2023. Loss ratio was negative 4.6% in 2023.

Also, Radian has seen a decline in Homegenius revenue due to a rapid decline in mortgage and real estate transaction volume across the industry. Despite steps taken to align the workforce with current and anticipated business needs and reduce operational costs, RDN expects this trend to continue. This, in turn, may impact the results of the homegenius segment at least in the short term based on current market conditions and expectations that overall refinancing volumes will remain low.

Nonetheless, RDN’s trailing 12-month return on equity was 14.8%, ahead of the industry average of 13.3%. Return on equity, a measure of profitability, reflects how efficiently a company uses its equity capital.

Additionally, the return on invested capital over the last 12 months was 8.5%, better than the industry average of 1.8%. It reflects RDN’s efficiency in using funds to generate revenue.

Some key players in the industry

Other players in the insurance industry are Assurant Inc. BEHIND, Reinsurance Group of America, Incorporated RGA and Manulife Financial Corporation MFC.

Assurant’s earnings beat estimates in each of the last four quarters, with the average surprise being 42.15%.

Mobile subscriber growth in North America, inorganic and organic growth strategies, higher average insurance values ​​and efficient capital deployment bode well for growth. For 2024, AIZ expects adjusted EBITDA, excluding reportable catastrophes, to increase in the mid-single digits, driven by both Global Lifestyle and Global Housing at similar growth rates.

Adjusted EPS, excluding catastrophes, is expected to grow modestly below adjusted EBITDA, primarily reflecting an increase in amortization expense from strategic technology investments. A strong franchise, steady cash flow generation and a solid solutions segment are a tailwind. It plans to deploy capital, primarily to finance business growth and return capital to shareholders through share buybacks and dividends.

Reinsurance Group’s earnings beat estimates in each of the last four quarters, with the average surprise being 24.39%.

RGA benefited from increased volumes of new business, favorable years of experience, stronger invested asset base, expanding business in the pension risk transfer market and efficient capital deployment.

Manulife Financial’s earnings beat estimates in each of the last four quarters, with the average surprise being 7.01%.

The strength of the business in Asia, the expansion of the wealth and asset management business and the strong capital position continue to drive MFC. Its inorganic growth is impressive as this life insurer prudently deploys capital in high-growth, less capital-intensive and higher-returning businesses.

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