Radian Group RDN is well-poised for growth, driven by higher insurance in force, increased monthly premium policies, higher average investment balances and prudent capital deployment.
The company continues to benefit from strong mortgage origination market including higher refinance activity, aided by a historically low interest rate environment and increased private mortgage insurance penetration rates, which have been aiding new mortgage insurance written (NIW) to increase. Despite the risks and uncertainties due to the COVID-19 pandemic, it continues to expect NIW to be more than $75 billion in 2020.
Recent trends of lower persistency and higher levels of new insurance written have contributed to a faster rate of change in the yield of mortgage insurance portfolio.
Its premium should benefit from increase in insurance in force IIF (primary driver of future premiums), higher monthly premium policies, and increase in single premium policy cancellations due to an increase in refinance activity.
Given higher investment yields, higher average investment balances owing to investing positive cash flow from operations, investment income is expected to improve despite the current low interest rate environment.
Additionally, this mortgages insurer improved its capital and liquidity positions through the extension of the maturity of unsecured revolving credit facility of $267.5 million and the issuance of $525 million aggregate principal amount of Senior Notes due 2025. Also, total debt to total capital of 28.4% compares favorably with the industry average of 30.8%.
The company increased its dividend at a six-year (2014-2020) CAGR of 99.2% and currently yields 3.4% compared with the industry average of 3%. These make the stock appealing to yield-seeking investors.
Radian’s return on equity was 11% in the trailing 12-month period, higher than the industry average of 7.5%. Return on equity is a profitability measure that identifies a company’s efficiency in utilizing its shareholders’ funds.
However, we remain concerned about the company’s high expenses, which have been putting pressure on margins.
Other key players in the multi-line insurance industry include James River Group Holdings Ltd. JRVR, Assurant Inc. AIZ, Horace Mann Educators Corporation HMN.
James River Group surpassed estimates in three of the last four quarters, with the average being 14.86%.
Assurant surpassed estimates in three of the last four quarters, with the average being 6%.
Horace Mann Educators surpassed estimates in three of the last four quarters, with the average being 24.77%.
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