MGIC Beats on Lower Losses - Analyst Blog

MGIC Investment Corp.’s (MTG) second-quarter profit of 13 cents per share was significantly higher than the Zacks Consensus Estimate of a loss of 63 cents. The company reported a loss of $2.74 in the year-ago quarter. Results were aided by a decline in losses related to loan foreclosures.

Total revenues for the quarter were $406 million, down 11% year over year. Net premiums written were $295.3 million, down 11% year over year. The decline was due to a lower average insurance in force and higher levels of recessions, partially offset by lower ceded premiums.

Net income for the quarter came in at $24.6 million, which improved substantially over a net loss of $339.8 million in the prior year quarter. This was due to a decline in loan loss which more than halved to $320.1 million from $769.6 million in the prior year quarter, related to the decline in default inventory.

Net underwriting and other expenses were $54.1 million, down 12.3% year over year. The decrease reflected lower contract underwriting volume as well as a focus on expenses in difficult market conditions.

New insurance written was $2.7 billion, down 54% year over year. The decrease was primarily due to a lower overall origination market and a loss of business as a result of recession practices. This was made worse by Federal Housing Administration (“FHA"), the company’s largest competitor, which garnered a large share of high loan-to-value ratios.

Investment income was $62.9 million, down 19.4% year-over-year due to a decrease in pre-tax yield, offset by an increase in the average amortized cost of invested assets.

Persistency (the percentage of insurance remaining in force from a year earlier) was 86.4% as of June 30, 2010, compared with 85.1% in the prior-year period. MGIC’s primary insurance in force fell 8.0% year-over-year to $202.4 million due to lower volumes of new insurance written, partially offset by a slight increase in persistency.

Net paid claims totaled $580 million, sharply up 52.6% year-over-year due to an increase in delinquency, which was 17.59%, a spike from 14.97% recorded in the prior-year period. However, a decline in delinquent loans has been noted for the past two quarters. A decline in delinquency rates is expected due to the ongoing loan modification program.

Claims rescissions have also helped MGIC to reduce losses. For the quarter, approximately 25%–30% of claims received were resolved by rescission, while in the first half of this year rescissions mitigated the company’s paid loss by $640 million.

As of June 30, 2010, MGIC’s risk-to-capital ratio was 17.8:1 compared with 13.8:1 as of June 30, 2009. The ratio, however, improved from 20.2:1 in the prior year quarter due to capital contribution from funds raised in the month of April.

Book value decreased 61.2% year-over-year to $9.84 per share. The quarterly loss ratio declined to 103.5% from 221.7% in the prior-year quarter.

MGIC’s results reflect the benefit of loan modification under the HAMP. However, there remains a concern about how the results will be in the latter half of the year, when the maximum benefit has been reaped from the programs.
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