Mortgage Insurance Losses Narrow to $1.9bn

Underwriting losses in the mortgage and finance guaranty segment reached $1.9bn for Q109, but compared to the same quarter for 2008, losses might reach a plateau, according to a report from A.M. Best, a global credit rating system.

In Q108, mortgage and financial insurance companies registered $3.3bn in losses, an analyst at A.M. Best said. The losses are decreasing, but their magnitude still impacts the US property and casualty insurance industry’s net income, which plummeted by 87% in Q109 from the same quarter last year to $1.2bn.

“The year over year decline in earnings was primarily due to the severe and prolonged turmoil in the financial markets and the related impact on the industry’s net investment income and realized capital losses,” analysts said in the report.

Mortgage insurance companies protect lenders against loss on defaulted loans. Analysts couldn’t point to a specific cause for the quarterly losses, and a mortgage insurance firm could not comment ahead of Q2 earnings releases.

Mortgage Insurance Stocks Move Lower Amid Economic Concerns

NEW YORK (Dow Jones)--Mortgage insurance stocks were in the red Monday, weighed down by continued worries about the economy, though the rest of the insurance sector managed to buck the trend as Sandler O'Neill issued a positive second-quarter outlook for property/casualty insurers.

Among the insurance sector's worst performers Monday was mortgage insurer Radian Group Inc. (RDN), which fell 10% recently to $2.49. Fox-Pitt analyst Matthew Howlett noted in an interview, "mortgage insurers are more levered to economic fundamentals" such as jobs and housing. "People are getting more skeptical on housing and the default cycle," Howlett said.

Among other mortgage insurers, PMI Group Inc. (PMI) slid 3.7%, to $1.80, and MGIC Investment Corp. (MTG) dropped 1.7%, to $3.97. Struggling insurance giant American International Group Inc. (AIG), which has mortgage insurance operations, dropped 12%, to $16.03.

Several bond insurers were also down Monday, as Amabac Financial Group Inc. (ABK) fell 3%, to 85 cents, and Assured Guaranty Ltd. (AGO) slumped 2.2%, to $11.79. But MBIA Inc. (MBI) rose 1.8% to $4.03.

Most other insurers were also in the black. The Dow Jones U.S. Insurance Index was recently up 1.2%.

Sandler O'Neill issued a note to clients Monday predicting second-quarter book values for most of the insurers it covers will have had "significantly positive book value growth during the quarter." The firm projected the property/casualty group will show average growth of 9.4%, thanks to equity and bond market increases during the quarter.

The firm also said it expects "a fairly positive" earnings season for the property/casualty insurers. However, the firm noted there is a big unknown for the quarter: how much in favorable reserves will have been released. Noting 2008 and first-quarter 2009 results benefited from favorable reserve releases, the firm said "we believe that these favorable reserve releases can't last forever and expect favorable development to decline significantly over the course of 2009."

As for the mortgage insurers, Motley Fool analyst James Early told Dow Jones Newswires "we still have had a lot of negative housing news and a lot of negative employment news, which can morph into negative housing news. That's a negative from a business perspective; if the money's not coming in the door for those insurers, and they're paying out more, that's not good."

Consumer Protection on Wide Scale

WASHINGTON -- The Obama administration's proposed consumer-protection agency would have broad oversight for a range of products, beefing up the government's regulation of credit cards, mortgages and gift cards, as well as expanding its authority over financial firms.

Draft legislation unveiled Tuesday by the Treasury Department would for the first time make a single entity, the Consumer Financial Protection Agency, responsible for writing and enforcing rules across a range of financial products used by consumers.

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What Would Consumer Protection Agency Do? "This agency will have only one mission -- to protect consumers," Treasury Secretary Timothy Geithner said.

Securities products overseen by the Securities and Exchange Commission and most of the insurance industry wouldn't fall under the new agency's oversight, a Treasury official said. But the agency would have subpoena power and would be funded in part by the financial-services industry.

The Treasury and White House plan to work with Democratic leaders in Congress to try to move the legislation quickly.

The measure is expected to draw opposition from the financial-services and business communities, which argue that the new agency would stifle product innovation and prevent firms from offering tailored products to customers.

"Basically, the government is deciding what every bank in every circumstance should offer," said Ed Yingling, president and chief executive of the American Bankers Association.

The proposed new agency is part of the Obama administration's efforts to revamp regulation of the U.S. financial system.

The new agency's reach would allow it to streamline federal mortgage-disclosure rules, and enforce recently enacted credit-card rules, Mr. Barr said. It could also potentially write rules to require banks to get permission from customers before enrolling them in costly overdraft plans.