Radian Group Inc. (RDN:US) declined in New York trading after Barron’s said the mortgage insurer may eventually incur costs for claims that it denied.
Radian dropped 51 cents, or 9.5 percent, to $4.87 at 9:51 a.m. in New York. The Philadelphia-based company has more than doubled this year as Chief Executive Officer S.A. Ibrahim purchased reinsurance and booked investment gains that helped meet regulators’ capital standards. That compares with a 50 percent decline at MGIC Investment Corp. (MTG:US), which breached regulatory limits.
Radian may be more aggressive than Milwaukee-based MGIC in refusing to pay claims, sometimes citing missing paperwork, the weekly publication said Nov. 3. Mortgage insurers agree to cover losses when homeowners default and foreclosures fail to recoup costs. The benefit from turning down claims may be short lived, according to Barron’s, which said Radian’s mortgage unit also benefits from ties with a bond insurer.
“Radian is propping up its balance sheet (RDN:US) by rejecting claims and effectively double-pledging assets,” Barron’s said. “When these short-term fixes run out, the shares could tumble.”
A spokeswoman for the insurer said one reason Radian has a higher rejection rate than rivals is its policy to wait until claims are received before saying it won’t pay, according to Barron’s.
To contact the reporter on this story: Susanna Pak in New York at Spak10@bloomberg.net
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