MGIC's Earnings Preview

MGIC Investment Corporation (MTG - Analyst Report) is expected to release third quarter results on Oct 15. The Zacks Consensus Estimate for the company is a loss of $1.64 per share. The company’s financial results have been adversely impacted by increased delinquencies, which are occurring due to a weakened economy, increased unemployment and lower home prices. I

t is also expected that the amount of loans insured by MGIC during the quarter should be lower than the average book written over the past four years. As a result of its underwriting changes, the company will be insuring fewer loans with loan-to-value ratios greater than 95% as well as loans classified as A-minus and reduced documentation loans, which carry higher premium rates. 

We expect that it will adversely affect the company’s results in the coming quarter. The level of incurred losses is expected to be higher than prior-year levels as the company continues to experience increases in delinquencies in certain markets such as Florida and California , with higher-than-average loan balances. 

Management expects statutory policyholders’ position to decline as losses are recognized, particularly on Wall Street bulk transactions, which have no premium deficiency reserve for statutory purposes. As a result, it is expected that the risk-to-capital ratio that stood at 15.8X at the end of the second quarter will increase in the coming quarter. 

MGIC has not made any share repurchases since the fourth quarter of 2007 and we don’t expect it to do so in the coming quarters. Peer PMI Group (PMI - Analyst Report) and Radian Guaranty (RDN - Snapshot Report) are expected to report losses of $1.26 and $1.18 per share, respectively, while Genworth Financial Inc. (GNW - Snapshot Report) is expected to post a narrow profit of 6 cents according to the Zacks Consensus Estimate.