Private mortgage insurer Radian Group Inc. reported a $618 million fourth quarter loss today, bringing losses for the year to $1.2 billion.
Net premiums written for the quarter were up 11.1 percent from a year ago, to $309.6 million, but were more than offset by a $458.5 million write-down in the value of derivative investments and a $687.8 million boost in mortgage insurance loss reserves.
For the year, net premiums rose 6.5 percent, to $1.18 billion, but Radian posted a loss for the year as write-downs of derivate investments totaled $1.2 billion and loss reserves rose to $1.3 billion, compared to $369 million a year ago.
Analysts at Standard & Poor’s Ratings Services last month boosted by 20 percent their loss projections for mortgage and bond insurers, citing deteriorating performance of subprime loans packaged into securities (see Inman News story).
Moody’s Investors Service announced in September that it had placed the Aa3 insurance financial strength ratings of Radian Guaranty Inc., Radian Insurance Inc. and another subsidiary, Amerin Guaranty Corp., under review for possible downgrade . Radian Group’s A2 senior debt rating was also placed under review.
Radian Chief Executive Officer S.A. Ibrahim said in a statement that the company’s ability to pay claims remains strong, but that challenges "may intensify."
In an effort to stem losses, Radian and other private mortgage insurers have tightened standards and raised their rates for borrowers with low credit scores and for loans with low down payments. On Dec. 17, Radian announced that beginning this month, it would not insure alt-A loans with down payments of less than 5 percent, and said down payment requirements would be boosted by 5 percent on all loans in markets experiencing price declines. Radian has also introduced new rate cards effective Feb. 1.
Because they were often packaged into complex investments known as collateralized debt obligations, losses in mortgage loans have also spread to bond insurers, causing turmoil in already stressed financial markets.
With many bond insurers short on capital, banks could see greater than expected losses on investments tied to mortgage loans, and bond insurers could lose the AAA ratings needed to back municipal bonds.
Testifying before Senate lawmakers Thursday, New York Governor Eliot Spitzer said that if bond insurers can’t raise more capital, state regulators intend to break the companies up in order to protect their municipal bond insurance businesses from riskier CDO guarantees.
That could leave banks and other financial institutions that had been counting on bond insurers to cover some of their losses in CDOs to declare larger write-downs, and prolong the credit crunch.
Bond insurers that have seen their ratings downgraded include Financial Guaranty Insurance Co., Ambac Financial Group Inc. and Security Capital Assurance Ltd.