Bloomberg News

MGIC Leads Mortgage Insurer Slump as Loss Widens on Claims

October 21, 2011

(Updates with CEO’s comment in the 11th paragraph.)

Oct. 21 (Bloomberg) -- MGIC Investment Corp. led a mortgage insurer slump after reporting a wider third-quarter loss as the cost of claims from mortgage delinquencies rose.

MGIC, the largest U.S. insurer of home loans, declined 18 cents, or 7.4 percent, to $2.26 at 11:27 a.m. in New York Stock Exchange composite trading. No. 2 Radian Group Inc. fell 6.5 percent to $2.46. PMI Group Inc., the Walnut Creek, California- based mortgage insurer that was forced by regulators to cease writing coverage after exceeding statutory risk-to-capital levels, slumped 7 percent.

The worst U.S. housing crash in seven decades has pressured mortgage insurers like MGIC, Radian and PMI, which pay lenders when homeowners default and foreclosures fail to recoup costs. Home prices fell 3.3 percent in the 12 months through July as a U.S. unemployment rate of more than 9 percent sapped the confidence of potential home buyers.

“These companies obviously went through the biggest recession since the Great Depression, and clearly their capital levels have been depleted,” said Matthew Howlett, an analyst at Macquarie Group Ltd., before results were released. “They’re up against a wall and they need things to begin going right for them.” He rates MGIC and Radian “outperform.”

MGIC’s third-quarter net loss widened to $165.2 million, or 82 cents a share, from $51.5 million, or 26 cents, in the year- earlier period, the Milwaukee-based company said today in a statement. The insurer, which has been unprofitable for 16 of the last 17 quarters, had plunged 76 percent this year through yesterday in New York. Radian, based in Philadelphia, had declined 67 percent and PMI 89 percent

Claims Cost

MGIC’s cost of claims from mortgage defaults rose to $462.7 million from $384.6 million in the year-earlier period, as more homeowners fell behind on payments and claims were made on previously disclosed delinquencies.

The insurer spent $1.85 on claims and expenses at its mortgage business for every dollar it collected in premiums in the first quarter. That’s up from $1.46 in the year-earlier period. Policy sales slipped about 8 percent to $255.7 million from $279 million a year earlier.

“Economic growth remains slow,” Federal Reserve policy makers said Sept. 21 as they announced a plan to bring down longer-term lending rates. Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.

MGIC’s book value per share, a measure of assets minus liabilities used by analysts and investors, slipped to $6.90 from $7.52 as of June 30.

Risk Ratios

The risk-to-capital ratio rose to 22.2-to-1 from 20.4-to-1 at the end of June. The regulatory maximum set by some state watchdogs is 25-to-1. MGIC is applying to extend waivers from states that allow it to keep writing business if fails to meet capital requirements. The agreements generally expire at the end of this year.

“I don’t see an issue with getting those waivers,” Chief Executive Officer Curt Culver said on a conference call today with analysts.

New accounting rules being weighed by the National Association of Insurance Commissioners may eliminate a $133 million benefit from deferred tax assets when calculating statutory capital, the company said in today’s statement.

Mortgage insurers probably won’t “be able to handle a sustained increase in delinquencies” that would come with another recession, Howlett said.

About 82 insured borrowers caught up on overdue payments in August for every 100 who defaulted, compared with a so-called cure ratio of 91 a year earlier, according to the most recent industrywide data from the Mortgage Insurance Companies of America. Borrowers tend to catch up on loan payments in the second quarter after receiving tax refunds then slip behind in the last six months of the year, said Howlett.

Radian is scheduled to report third-quarter results next month.

--With assistance from Maryellen Tighe in New York. Editors: Dan Kraut, Steve Dickson

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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