Financial insurers have steadily declined throughout the week as mortgage insurer Triad Guaranty Inc. said it would stop originating new business and Moody's Investors Service cut the crucial ratings of bond insurers Ambac Financial Group Inc. and MBIA Inc.
UBS analyst Eric Wasserstrom cut his price target on Radian to $3 from $7, saying there is uncertainty surrounding the insurer's financial outlook and how dilutive capital raising would be if the company needs to seek new funds.
Earlier in the week, Standard & Poor's cut the rating on Radian's financial guaranty business, for which Radian said it is now re-evaluating its capital strategy because the lowered rating will likely hinder the subsidiary's "ability to write new business."
Wasserstrom said the downgrade will significantly hurt Radian's ability to pursue public finance insurance and reinsurance business. He did note that the downgrade could allow Radian to shift excess capital at the financial insurance unit to other areas, like the mortgage insurance division.
"However, if this level of capital is insufficient, an additional capital raise would require significant dilution at current valuation levels," Wasserstrom wrote in a research note.
Mortgage insurers have been hit hard since the middle of 2007 by rising defaults triggering a spike in claims. Radian had set aside $1.7 billion to cover claims on mortgage defaults as of March 31.