Doug Noland this weekend on credit insurers:
It is especially interesting to analyze the business practices of the Credit insurers. It has been a case of waiting to see if these acutely exposed risk players would “retrench” – with major ramifications for the Credit creation process - or instead simply put peddle-to-the metal and attempt to race past festering systemic problems?
Ambac is racing. The company reported Net Income up 19% y-o-y, as total Adjusted Gross Premiums Written surged 52% y-o-y (Public Finance up 20%, Structured Finance 36%, and International 114%). It is truly amazing to witness the continued transformation of the Credit insurers from institutions guaranteeing low risk municipal debt to Structured Finance Kingpins. Looking back at Ambac’s Financial Guarantee Portfolio distribution at the end of year-2000, we see that Public Finance accounted for 65.3% of total exposure, Structured Finance 23.4% (Mortgage-back and Home Equity 13.8% and Asset-backed and Conduits 8%), and International 11.3%. During the this year’s first quarter – observing the distribution of new guarantees put in force - Public Finance accounted for 29%, Structured Finance (Mortgage-back and Home Equity 25.4% and Asset-backed and Conduits 10.4%) 43.7%, and International 27.3%. For the quarter, Net Financial Claims in Force (NFCF) increased $18 billion, or about 13% annualized, to $575 billion. Year-over-year, NFCF jumped $91.3 billion, or 19%, while Qualified Statutory Capital increased $560 million to $3.9 billon (Total Claims Paying Resources increased $1.4 billion to $8.5 billion). NFCF is up $148 billion, or 35%, in twenty-four months. And, viewing the balance sheet, we see that Total Assets increased at a 26% annualized rate during the quarter to $16.3 billion. Year-over-year, Total Assets jumped 27%.
Mortgage Insurer MGIC continues to struggle. While total Insured Loans increased 1% y-o-y to 1.64 million, Total Loans Delinquent surged 36% to 76,837 (from 3.48% to 4.69%). Delinquencies were up 24 bps during the quarter. Delinquencies excluding Bulk Loans rose eight bps during the quarter to 3.27%, up from the year earlier 2.53%. Losses Incurred rose slightly during the quarter to $142 million, but were up 138% y-o-y. Total Assets expanded at a 9% rate during the quarter and were up 11% y-o-y to $5.4 billion. MGIC increased its risky mortgage “pool” exposure by 12% during the quarter (up 40% y-o-y).
Mortgage Insurer Radian saw Debt Service Outstanding grow at a 16% annualized rate to $109 billion, the strongest pace of growth since the third quarter of 2001. Total Assets expanded at a 29% annualized rate to $5.8 billion. Direct Claims Paid (losses) were up 44% y-o-y to $53.3 million. The insured portfolio’s risk profile changed markedly, as the number of risky “A Minus and below” insured loans surged 34% during the quarter (107,181), while the number of Prime loans declined by 12% (690,647). Delinquencies declined 21 basis points during the quarter (up 46 bps y-o-y). |
