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Housing Recovery Aids MGIC's Q3 Earnings

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Mortgage insurer MGIC Investment Corporation (MTG - Free Report) reported third quarter 2013 operating profit of 4 cents per share, in contrast to the Zacks Consensus Estimate of a loss of 12 cents per share. MGIC had reported an operating loss of $1.25 per share in the year-ago quarter.
Results benefited from fewer new delinquency notices received, a lower claim rate and favorable development in severity.  The home price appreciation as well as modest improvements in the employment scenario continued to positively impact the company’s financial results during the third quarter.
Quarterly Operational Update
Total revenue for the quarter came in at $254.4 million, down 17% year over year. 
Net premiums written were $234.3 million, down 11% year over year. The company’s new insurance written soared 23% year over year to $8.6 billion in the quarter. 
MGIC wrote $8.6 billion of new business, up 7% from last quarter and 23% from the same period last year. 
Losses incurred in the third quarter were $180.2 million, down 63% year over year. Paid claims in the third quarter were $414 million, down 29% from last year and down 4% from last quarter.
Net underwriting and other expenses were $48.0 million down 5.3% year over year. 
As of Sep 30, 2013 persistency (the percentage of insurance remaining in force from the previous year) was 78.3%, down 190 basis points year over year.
Total assets of MGIC were $5.9 billion, down 2.5% year over year. At quarter end, cash and investments totaled $5.5 billion, including $594 million of cash and investments at the holding company.
At Sep 30, 2013 MGIC’s risk-to-capital ratio was 20.0 to 1, lower than the maximum allowed by the jurisdictions with capital requirements, and its policyholder position was $190 million above the required minimum of $1.2 billion.
Book value per share as of Sep 30, 2013 declined 37% year over year to $2.08.
Our Take
MGIC’s third quarter results marked second quarterly profit, continuing with favorable performance during the previous quarter. MGIC also reported operating profit during the last quarter, its first quarterly profit since the second quarter of 2010. Going forward, we expect the company to benefit from an improving housing market, outstanding credit quality of the company’s new business and its growing share of business.  
MGIC carries a Zacks Rank #4 (Sell). Other players Radian Group Inc. (RDN - Free Report) , CIGNA Corp. (CI - Free Report) , Assurant Inc. (AIZ - Free Report) all with Zacks Rank #2 (Buy) are scheduled to report third quarter earnings shortly. 

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