Radian Group Inc.’s core business subsidiary has requested that a dozen states waive capital ratio requirements. The company is exploring a variety of alternatives to continue writing new business in all states where it currently operates.
Waivers are being sought in 12 states by Radian Guaranty Inc. The Philadelphia-based firm has already received approvals for waivers in Illinois, Kentucky and Wisconsin.
The waiver requests were disclosed Tuesday in a presentation by Radian Chief Financial Officer Bob Quint at the FBRÂ 2011 Fall Investor Conference.
Radian’s risk-to-capital ratio was 21.4-to-one as of Sept. 30. Without any capital infusion, the ratio is expected to increase as mortgage insurance losses develop.
The ratio has been impacted by adverse loss development in the mortgage insurance portfolio and Infrastructure Assurance Corp. portfolio. Also at play are settlements that exceed existing reserves.
The presentation indicated that 16 states statutorily impose a risk-based capital requirement, but 15 of the states now permit waivers. The one state that doesn’t is New York.
While the maximum ratio is 25-to-one in 11 states, Radian wants to preserve liquidity at the holding company while continuing to write new business. As much as $600 million in capital is available if needed.
In the states that don’t allow a waiver, the mortgage insurer is seeking the approval of Fannie Mae and Freddie Mac to operate Radian Mortgage Assurance — a new entity.
Other alternatives being explored by Radian include reinsurance, commutations and investment gains.
The PMI Group Inc. warned in its second quarter earnings report that its primary operating subsidiary, PMI Mortgage Insurance Co., was operating under regulatory waivers in 10 states at the time. In six states where the operating subsidiary was already prohibited from writing new policies, PMI Mortgage Assurance Co. — a subsidiary of PMI Mortgage Insurance that was approved by Fannie and Freddie — started writing polices during the third quarter.
By August, PMI Mortgage Insurance had stopped writing new business, and the company was seized by the Arizona Department of Insurance last month. Last week, The PMI Group filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware
Triad Guaranty Insurance Corp. stopped writing business in July 2008 after suffering huge losses on the 2007 vintage and being suspended by Freddie.
If Radian were to stop writing new mortgage insurance policies, the Federal Housing Administration could feel more pressure to pick up the slack on high loan-to-value mortgages at a time when its own capital ratio is severely low.
