MGIC Posts Loss Yet Again - Analyst Blog

By Zacks | August 03, 2012 AAA

Mortgage insurer, MGIC Investment Corp. (MTG) suffered an operating loss of $1.49 per share owing to higher claim costs and lower premiums written. The reported loss was much wider than the Zacks Consensus Estimate loss of 53 cents.  Operating loss was significantly higher than the prior-year quarter's loss of 86 cents per share.  The results reflected repercussions faced by the company due to the housing market crisis. Total revenues for the reported quarter came in at $321.1 million, compared with $367.0 million recorded in the prior-year quarter, due to lower premiums earned and lower investment income, partially offset by higher realized investment gains.

Net premiums written dropped 12% year over year to $255.0 million due to adherence to stricter loan payout requirements that caused an overall decline in business for mortgage insurers insuring these loans. 

New insurance written was $5.9 billion, compared with $3.1% in the year-ago quarter. Persistency, which measures the percentage of insurance remaining in force since the previous year, was 81.4% as of June 30, 2012, down 190 basis points year over year.

MGIC incurred losses or claim costs of $551.4 million, up 20.0% year over year attributable to a rise in claim rate.

Net underwriting and other expenses were $48.9 million down 9.4% year over year.

Combined risk to capital ratio for the company increased to 27.8:1 at the end of the second quarter, exceeding the regulatory limit of 25:1. We are concerned about the steep capital to risk ratio, which poses a significant regulatory seizure risk for the company. MGIC's close rival, PMI Group Inc. (PMI), had suffered on the same ground. The main insurance subsidiary of PMI Group, PMI Mortgage Insurance Co., faced regulatory seizure as it breached its risk to capital ratio limit. 

Book value per share, measuring the net worth of a company, decreased 43% year over year to $4.29 as of June 30, 2012.

Another mortgage insurer, Radian Group Inc. (RDN) reported second quarter net loss of 90 cents per share, compared with net income of $1.03 per share in the year-ago quarter.

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