The private mortgage insurer Triad Guaranty Inc. reported Tuesday that its first-quarter net income rose more than 26% from the year-earlier period, to $10.9 million, or 79 cents a share.
Ron Kessinger, executive vice president and chief financial officer of the Winston-Salem, N.C., company, said in an interview that a 240% increase in new insurance writings drove increases in insurance premiums, and low loss levels also contributed to the quarter's strong performance.
Triad's operating earnings for the three months were $10.6 million, or 77 cents a share, against the Thomson Financial/First Call analyst consensus estimate of 68 cents. The 77-cent figure, however, includes a one-time gain of 9 cents from a reinsurance company's cancellation of a contract with Triad. Excluding that, per-share earnings matched the 68-cent estimate, Wachovia Securities analyst John B. Moore said.
Analysts and Triad executives say the company's loan losses will probably rise as the bulk of its loans originated in the refinance boom of 1998 to 1999 enter their third or fourth year, when borrowers are more apt to default.
But Mr. Kessinger said any deterioration will not be greater than what his company has seen historically. Triad's loan losses remain low, he said.
In a conference call with analysts Tuesday, the company said that it has raised its operating earnings guidance for 2001 to $2.93 to $2.96 a share, which would give it 16.5% growth and is well above analysts' consensus of $2.82.
Wachovia's Mr. Moore said in an interview that Triad is "a really nice private mortgage insurance company that is relatively small and has an enormous amount of flexibility in the pricing of its product. Larger firms don't have that sort of flexibility."
Gary Gordon, an analyst with UBS Warburg, noted that Triad's market share grew by 1 percentage point between 1996 and 2000 - 1.7% to 2.7% - and will probably top 3% this year.
In a report released Tuesday morning, David Graifman, an analyst with Keefe, Bruyette & Woods Inc. in New York, said the volume of Triad's bulk mortgage insurance business was the biggest surprise of the quarter, coming in at $1.038 billion.
But he cautioned that "while it is always good for companies to get bulk business, this will tend to be lumpy business and not necessarily a good indicator of future business volumes."
Though Triad's growth in insurance writings should beat the 6% to 8% Mr. Gordon expects from the private mortgage insurance industry, he said it will be hard for Triad and other private mortgage insurers to maintain 16% growth beyond this year.
A big reason for private mortgage insurance's outstanding growth over the last five years, Mr. Gordon continued, was falling credit costs created by a strong economy.
A worsening economy, he said, means "less wind at the backs" of private mortgage insurers, because more borrowers will be in trouble, leading to higher losses.
Still, Mr. Moore said, Triad's outlook is good. Business deriving from refinances grew 20.9 percentage points in the first quarter compared with the year-earlier period, to 33.6%, and he said he expects the refinancing market to keep giving Triad a lift.
Mr. Kessinger remarked: "We continue to have strong writing. Our business model will continue to be successful."
