How Genworth Financial Could Dominate Radian Group and MGIC Investment

Genworth Financial (NYSE: GNW  ) will release its quarterly report on Tuesday, and the insurance company has seen some impressive gains lately from the mortgage-insurance side of its business. Even as smaller mortgage insurers Radian Group (NYSE: RDN  ) and MGIC Investment (NYSE: MTG  ) have seen their share prices soar after recovering from the brink of failure during the financial crisis, Genworth is in a position to use its size to its advantage in making the most of the recovery in the housing market and its positive impact on insuring mortgages.

Genworth Financial has taken steps to slim down its business to core insurance lines that it believes have the most potential. The company chose to get out of the variable annuity business two years ago, and although it has stayed in the long-term care insurance business even as some of its rivals have exited, Genworth has hinted at the possibility of raising prices for long-term care policies in order to avoid the losses that the industry has suffered from writing long-term care insurance. Will mortgage insurance prove to be the most profitable way for Genworth to grow? Let's take an early look at what's been happening with Genworth Financial over the past quarter and what we're likely to see in its report.

Stats on Genworth Financial

Analyst EPS Estimate

$0.25

Change From Year-Ago EPS

0%

Revenue Estimate

$2.39 billion

Change From Year-Ago Revenue

(5.3%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

The path ahead for Genworth Financial
In recent months, analysts' views on Genworth earnings have been mixed, with small reductions in third-quarter and full-year 2013 estimates largely getting offset by higher projections for 2014. The stock has continued to rise, gaining about 7% since late July.

Genworth and its peers have benefited greatly from the drop in delinquent loans in the years since the financial crisis, with rebounding home prices giving homeowners more incentive to try to make good on their mortgage obligations. Just in the past year, Genworth reported a 23% drop in U.S. delinquencies, and Radian Group and MGIC Investment saw similar percentage declines that helped cut their delinquency ratios to around the 10% range from previous levels of 13.3% and 12.5% respectively.

One thing to remember, though, is that Genworth Financial still writes insurance outside the mortgage area. Last month, the company started filing for rate increases for many of the long-term care policies it has written over the past decade. The 6% to 13% rate hike will help Genworth either by increasing the number of customers who let their policies lapse or simply by raising premium income.

In addition, Genworth has exposure to foreign mortgage-insurance risk that Radian Group and MGIC Investment largely don't. In particular, writing mortgage insurance in Canada and Australia accounted for more than half of Genworth's revenue in the second quarter, and concerns about both property markets potentially overheating could translate into losses for Genworth's international business if they suffer housing busts of their own.

In Genworth Financial's earnings report, look closely to see how the company's various segments perform. Watching both mortgage insurance, long-term care, and Genworth's other insurance lines should give you a better picture of where the company's best growth opportunities will be in the future.

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