Triad Guaranty Inc. (TGIC, Financial) filed Quarterly Report for the period ended 2009-09-30.
Triad Guaranty Inc. is a holding company which, through its wholly-owned subsidiary, Triad Guaranty Insurance Corporation, provides private mortgage insurance coverage in the United States to residential mortgage lenders, including mortgage bankers, mortgage brokers, commercial banksand savings institutions. Private mortgage insurance, also known as mortgage guaranty insurance, is issued in most home purchases and refinancings involving conventional residential first mortgage loans to borrowers with equity of less than 20%. Triad Guaranty Inc. has a market cap of $13.2 million; its shares were traded at around $0.867 .
On September 4, 2009, we filed a complaint against American Home Mortgage (“AHM”) in the United States Bankruptcy Court for the District of Delaware seeking rescission of multiple master mortgage guaranty insurance policies (“master policies”) and declaratory relief. The complaint seeks relief from AHM as well as all owners of loans insured under the master policies by way of a defendant class action. We alleged that AHM failed to follow the delegated insurance underwriting guidelines approved by TGIC, that this failure breached the master policies as well as the implied covenants of good faith and fair dealing, and that these breaches were so substantial and fundamental that the intent of the master policies could not be fulfilled and TGIC should be excused from its obligations under the master policies. The total amount of risk originated under the AHM master policies, accounting for any applicable stop loss limits associated with modified pool contracts, was $1.7 billion, of which $1.2 billion remains in force at September 30, 2009. We continue to accept premiums and process claims under the master policies but, as a result of this action, we ceased remitting claim payments to companies servicing loans originated by AHM. Both premiums and claim payments subsequent to the filing of the complaint have been segregated pending resolution of this action. We have not recognized any benefit in our financial statements pending the outcome of the litigation.
On October 7, 2009, Triad announced that it had reached a definitive agreement to sell its information technology and operating platform to Essent Guaranty, Inc. (“Essent”), a new mortgage insurer. Under the terms of the agreement, Essent will acquire all of our proprietary mortgage insurance software and substantially all of the supporting hardware, as well as certain other assets, in exchange for up to $30 million in cash and assumption by Essent of certain software contractual obligations. Approximately $15 million of the consideration is fixed and up to an additional $15 million is contingent on Essent writing a certain minimum amount of insurance in the five-year period following closing. The transaction is expected to close in the fourth quarter of 2009. Essent will establish its operations and technology center in Winston-Salem and a number of Triad s information technology and operations employees are expected to join Essent upon closing of the transaction. Under a services agreement, Essent will provide ongoing information systems maintenance and services, customer service and policy administration support to Triad following the successful closing of the transaction. Triad s results of operations for the quarter ended September 30, 2009 were not affected by this transaction.
At September 30, 2009, we reported a GAAP deficit in assets of $625.0 million compared to a deficit in assets of $136.7 million at December 31, 2008 and a deficit in assets of $28.4 million at September 30, 2008. A deficit in assets occurs when recorded liabilities exceed recorded assets and is not necessarily a measure of insolvency. The growth in the deficit in assets is the result of the substantial increase in loss reserves and settled claims since the quarter ended September 30, 2007 reflecting the continued decline in housing and mortgage loan conditions. The Company will have to earn in excess of $625.0 million on a GAAP basis during the remaining run-off period and continue to meet its debt obligations in order to become financially solvent and continue as a going concern. We expect to continue to report a deficit in assets for the foreseeable future. See Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information about our financial solvency and going concern risks and uncertainties.
The net loss for the three months and nine months ended September 30, 2009 was $101.9 million and $516.5 million, respectively, compared to $160.1 million and $508.9 million for the comparable periods of 2008. The decrease in the net loss for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 is primarily due to a lower amount of net losses and loss adjustment expenses (“LAE”) driven by a lower growth rate in the number of new defaults and a greater number of loan rescissions in the third quarter of 2009. The net loss for the nine months ended September 30, 2009 was primarily due to the ongoing effects of the recession and the deteriorated state of the housing and mortgage markets, which required increased reserves and claim settlements.
On July 15, 2008, we ceased issuing commitments for mortgage insurance. Going forward, our production will consist of certificates issued from commitments for mortgage insurance that were entered into prior to July 15, 2008. We wrote approximately $6 million and $41 million of new insurance for the three months and nine months ended September 30, 2009, respectively, all of which was from our Primary flow channel and represented commitments on construction loans issued prior to entering into run-off. For the three months and nine months ended September 30, 2008, we wrote approximately $420 million and $3.5 billion, respectively, of new insurance. We do not expect a material amount of production going forward.
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Triad Guaranty Inc. is a holding company which, through its wholly-owned subsidiary, Triad Guaranty Insurance Corporation, provides private mortgage insurance coverage in the United States to residential mortgage lenders, including mortgage bankers, mortgage brokers, commercial banksand savings institutions. Private mortgage insurance, also known as mortgage guaranty insurance, is issued in most home purchases and refinancings involving conventional residential first mortgage loans to borrowers with equity of less than 20%. Triad Guaranty Inc. has a market cap of $13.2 million; its shares were traded at around $0.867 .
Highlight of Business Operations:
The DPO recording requirements of the second Corrective Order became effective on June 1, 2009. At September 30, 2009, the recorded DPOs, including a carrying charge of $0.5 million, amounted to $97.0 million. The recording of a DPO does not impact reported settled losses as we will continue to report the entire amount. The accounting for the DPO on a SAP basis is similar to a surplus note which is reported as a component of statutory surplus and, as such, is dependent on the approval by the Department for any repayment of the DPO or the associated carrying charge. However, in our financial statements prepared in accordance with GAAP, the DPO is reported as a liability.On September 4, 2009, we filed a complaint against American Home Mortgage (“AHM”) in the United States Bankruptcy Court for the District of Delaware seeking rescission of multiple master mortgage guaranty insurance policies (“master policies”) and declaratory relief. The complaint seeks relief from AHM as well as all owners of loans insured under the master policies by way of a defendant class action. We alleged that AHM failed to follow the delegated insurance underwriting guidelines approved by TGIC, that this failure breached the master policies as well as the implied covenants of good faith and fair dealing, and that these breaches were so substantial and fundamental that the intent of the master policies could not be fulfilled and TGIC should be excused from its obligations under the master policies. The total amount of risk originated under the AHM master policies, accounting for any applicable stop loss limits associated with modified pool contracts, was $1.7 billion, of which $1.2 billion remains in force at September 30, 2009. We continue to accept premiums and process claims under the master policies but, as a result of this action, we ceased remitting claim payments to companies servicing loans originated by AHM. Both premiums and claim payments subsequent to the filing of the complaint have been segregated pending resolution of this action. We have not recognized any benefit in our financial statements pending the outcome of the litigation.
On October 7, 2009, Triad announced that it had reached a definitive agreement to sell its information technology and operating platform to Essent Guaranty, Inc. (“Essent”), a new mortgage insurer. Under the terms of the agreement, Essent will acquire all of our proprietary mortgage insurance software and substantially all of the supporting hardware, as well as certain other assets, in exchange for up to $30 million in cash and assumption by Essent of certain software contractual obligations. Approximately $15 million of the consideration is fixed and up to an additional $15 million is contingent on Essent writing a certain minimum amount of insurance in the five-year period following closing. The transaction is expected to close in the fourth quarter of 2009. Essent will establish its operations and technology center in Winston-Salem and a number of Triad s information technology and operations employees are expected to join Essent upon closing of the transaction. Under a services agreement, Essent will provide ongoing information systems maintenance and services, customer service and policy administration support to Triad following the successful closing of the transaction. Triad s results of operations for the quarter ended September 30, 2009 were not affected by this transaction.
At September 30, 2009, we reported a GAAP deficit in assets of $625.0 million compared to a deficit in assets of $136.7 million at December 31, 2008 and a deficit in assets of $28.4 million at September 30, 2008. A deficit in assets occurs when recorded liabilities exceed recorded assets and is not necessarily a measure of insolvency. The growth in the deficit in assets is the result of the substantial increase in loss reserves and settled claims since the quarter ended September 30, 2007 reflecting the continued decline in housing and mortgage loan conditions. The Company will have to earn in excess of $625.0 million on a GAAP basis during the remaining run-off period and continue to meet its debt obligations in order to become financially solvent and continue as a going concern. We expect to continue to report a deficit in assets for the foreseeable future. See Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q for more information about our financial solvency and going concern risks and uncertainties.
The net loss for the three months and nine months ended September 30, 2009 was $101.9 million and $516.5 million, respectively, compared to $160.1 million and $508.9 million for the comparable periods of 2008. The decrease in the net loss for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 is primarily due to a lower amount of net losses and loss adjustment expenses (“LAE”) driven by a lower growth rate in the number of new defaults and a greater number of loan rescissions in the third quarter of 2009. The net loss for the nine months ended September 30, 2009 was primarily due to the ongoing effects of the recession and the deteriorated state of the housing and mortgage markets, which required increased reserves and claim settlements.
On July 15, 2008, we ceased issuing commitments for mortgage insurance. Going forward, our production will consist of certificates issued from commitments for mortgage insurance that were entered into prior to July 15, 2008. We wrote approximately $6 million and $41 million of new insurance for the three months and nine months ended September 30, 2009, respectively, all of which was from our Primary flow channel and represented commitments on construction loans issued prior to entering into run-off. For the three months and nine months ended September 30, 2008, we wrote approximately $420 million and $3.5 billion, respectively, of new insurance. We do not expect a material amount of production going forward.
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