S&P Global Ratings has indicated that Radian’s recent $1.7 billion acquisition of Lloyd’s specialty insurer Inigo could enhance the diversification of its business and create growth opportunities that are currently constrained within its U.S. mortgage insurance operations.

Following the announcement, S&P has placed its ‘BBB-‘ rating on Radian and its ‘A-‘ rating on Radian Guaranty, the firm’s operating subsidiary, on CreditWatch with a developing outlook.

“The business of Inigo is uncorrelated to Radian’s commoditised monoline business model, which could improve our view of Radian’s business diversification and may offer growth opportunities that are currently limited in its current U.S. mortgage insurance operations,” the rating agency explained.

However, S&P additionally noted that Inigo’s significant exposure to property and property catastrophe lines, along with Radian’s current mortgage insurance business, may increase the company’s overall risk profile.

“We want to better understand how the combination of different risks will be integrated, managed, measured and monitored prospectively, given this will be a new business to Radian,” S&P suggested.

The rating agency noted that this risk may be mitigated, in part, once there is better clarity into Radian’s risk management strategy after the acquisition.

S&P continued, “As of year-end 2024, Radian’s capitalisation under our risk-based capital model was substantially redundant at the 99.95% confidence level. However, due to a lack of available information, we are uncertain whether the capital buffers can be maintained prospectively with the addition of a business that may be more prone to earnings and capital volatility.

“Following the acquisition, Inigo will likely operate on a standalone basis. Therefore, we expect the integration to be limited to functions such as risk management, finance and capital, and human resources.

“We think that Inigo will maintain independent underwriting, claims, and actuarial functions, under Radian’s oversight. We expect Radian’s financial leverage will remain unchanged at around 20%, and its fixed charge coverage to be well above 4x. The company does not anticipate raising any new equity or debt raise to fund this transaction.

“Additionally, Radian’s divestiture of non-core businesses, including title insurance, real estate services, and the mortgage conduit operations, may help reduce expenses and allow the company to realign its resources toward its core operations.”

Speaking with Reinsurance News following the announcement, Inigo CEO Richard Watson highlighted the significant growth opportunities arising from the firm’s acquisition by Radian, emphasising that this growth will be measured and focused as Inigo continues to strengthen customer relationships, expand its use of data and analytics, and uphold its strong company culture.

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