Radian Group Inc. Announces $96 Million Loss Reserves Increase Due to Manufactured Housing Transaction

Strategic Insights -

Radian Group Inc. has announced an increase of $96 million to its loss reserves as a result of expected claims from a manufactured housing transaction originated and serviced by Conseco Finance Corp., St. Paul, Minn. This increase will result in a reduction of Radian's fourth-quarter 2003 earnings by $62 million, or $0.66 per share. The additional reserves bring the total to $111 million, and although Radian has not yet paid any losses, it expects to do so over the next several years.

Key Takeaways:

  • Radian Group Inc. is increasing its loss reserves by $96 million due to expected claims from a manufactured housing transaction.
  • The transaction was originated and serviced by Conseco Finance Corp., St. Paul, Minn., and was later reinsured by Radian Asset Assurance Inc.
  • The increase in reserves will result in a reduction of Radian's fourth-quarter 2003 earnings by $62 million, or $0.66 per share.
  • Radian has direct exposure in two other transactions with a different manufactured housing lender, representing a total exposure of $140 million.
  • Another unit, Radian Reinsurance Inc., has $255 million in exposure from manufactured housing loans.
  • Frank P. Filipps, chairman and chief executive of Radian, stated that the company prides itself on its prudent approach to risk management and has learned a difficult lesson on limiting single market exposure.
  • Fitch Ratings commented on the announcement, stating that the unexpected writedown of the entire insured exposure is concerning and highlights the risks of Radian Asset's business strategy.
  • PMI Mortgage Insurance Co. has stated that its primary risk in force on manufactured housing loans was less than 1.5% as of the end of 2003, with over 90% of those loans originated on a flow basis.

Statistics:

  • $111 million: Total loss reserves set aside by Radian Group Inc.
  • $96 million: Increase in loss reserves due to expected claims from a manufactured housing transaction.
  • $62 million: Reduction of Radian's fourth-quarter 2003 earnings due to the increase in loss reserves.
  • $0.66: Reduction in Radian's earnings per share due to the increase in loss reserves.
  • $140 million: Total exposure of Radian from direct transactions with a different manufactured housing lender.
  • $255 million: Exposure of Radian Reinsurance Inc. from manufactured housing loans.

Sources:

  • [Radian Group Inc. statement]
  • [Thomson Media Inc. article: "Radian Increases Loss Reserves Due to Manufactured Housing Transaction"]
  • [PMI Mortgage Insurance Co. statement]
  • [Fitch Ratings comment]