* Q2 loss/shr $0.90 vs EPS $1.03 year earlier
* Radian Guaranty's risk-to-capital ratio rises to 21:1
* Radian Asset to pay about $40 mln dividend to Radian Guaranty in 2013
* Shares rise more than 18 pct
By Sharanya Hrishikesh
Aug 1 (Reuters) - Mortgage insurer Radian Inc expects to turn a profit next year as it takes advantage of fewer players in a slowly recovering U.S. housing market to aggressively write new business.
Radian doubled the insurance volumes it wrote during the latest quarter to $8.3 billion as it gained market share from its major competitors who have either been shut down, or are hobbled by falling capital levels and tighter regulations.
PMI Group Inc went bankrupt last year, while Old Republic Inc was forced to stop writing new insurance. The state-backed Federal Housing Administration (FHA), which backs about a third of all new mortgages, is cutting down on its exposure to the market given its depleting cash reserves.
"If the pace of our new business volume continues, we expect that by mid-2013 our book of business written after 2008 will be larger than the book written in 2008 and prior," Chief Executive S.A. Ibrahim told analysts on a post-earnings conference call.
The housing market, which collapsed during the 2007-2009 recession, has been a relative bright spot in the economy this year, although it continues to face tight mortgage availability and on-going foreclosures.
U.S. home prices rose for the fourth month in a row in May, suggesting the recovery in the housing market continued to gain traction.
Radian still expects its main mortgage insurance unit to breach the level set by most states in the U.S. in the second half of the year, if it does not get enough capital cushion.
Radian Guaranty's risk ratio has increased to 21:1 from the previous quarter, even as the company continues to pump in money to ensure the risk ratio does not breach the permissible level.
Radian Asset Assurance, which sells financial guarantee products, paid a dividend of $54 million to Radian Guaranty in July, and expects to pay another dividend of about $40 million in 2013 to boost its capital levels.
The company expects a larger mortgage insurance operating loss in the second half of the year due to seasonality that may also affect its risk ratio.
Mortgage insurers like Radian, MGIC Investment Inc and life insurer Genworth's mortgage unit, protect lenders in cases where homebuyers make down payments below a certain threshold.
They have been struggling to recoup their losses after the housing bubble burst and foreclosures soared, saddling them with large claims on unpaid home loans.
Genworth reported narrowing losses from its U.S. mortgage insurance unit on Tuesday and said its primary insurance regulator extended its capital waiver by another two years.
Mortgage insurers have been struggling to meet capital adequacy benchmarks and have time and again sought waivers to continue writing business in many states in the United States.
Radian's net loss for the second quarter was $119.3 million, or 90 cents per share, compared with net income of $137.1 million, or $1.03 per share, a year earlier.
The loss for the quarter included combined losses from the change in fair value of derivatives and other financial instruments of $95.0 million.
The total number of primary delinquent loans fell 12 percent from a year earlier.
Radian's shares, which traded at more than $67 before the housing meltdown in 2007, were up more than 12 percent at $3.13 in afternoon trade on the New York Stock Exchange. They touched a high of $3.33 earlier in the session.
They have risen more than 37 percent since the beginning of the year while the broader KBW Mortgage Finance Index has risen more than 27 percent in the same period.