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MGIC's (MTG) Solid Insurance Written Aids, Expense Woes Stay

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MGIC Investment Corporation’s (MTG - Free Report) solid insurance in force, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and a solid capital position poise it well for growth. Earnings of this largest private mortgage insurer in the United States have risen 16% over the last five years, better than the industry average of 6.2%.

MTG has a solid surprise history. It surpassed estimates in the last four quarters, with the average surprise being 29.57%.

MGIC Investment has been witnessing an increase in new business written. The insurer expects new business, combined with increasing annual persistency, to result in continued growth of the insurance-in-force portfolio.

As MTG has been witnessing a declining pattern of claim filings, we expect paid claims to decrease further. A decline in loss and claims will strengthen the company's balance sheet and hence improve its financial profile.

MTG has been improving its capital position, banking on capital contribution, reinsurance transaction and cash position. Both leverage and times interest earned ratio has improved.

Riding on a solid capital position, the mortgage insurer returned approximately $500 million of capital to shareholders through a combination of shares repurchases and dividends. In January 2023, MTG repurchased additional shares for $28 million.

However, the insurer has been witnessing an increase in underwriting and other expenses weighing on margins. The loss ratio was negative 25.3% in 2022 compared with the year-ago figure of 6.4%. MTG expects operating expenses in 2023 in the range of $235 million to $245 million.

Nonetheless, MTG’s trailing 12-month ROE was 19.7%, which expanded 610 basis points year over year and came ahead of the industry average of 8.4%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Some Key Industry Players

Other players in the multi-line insurance industry include Radian Group Inc. (RDN - Free Report) , American International Group, Inc. (AIG - Free Report) and EverQuote, Inc. (EVER - Free Report) .

Radian’s earnings surpassed estimates in each of the last four quarters, the average being 38.62%.

Radian remains focused on improving its mortgage insurance portfolio, growing the Homegenius business and managing capital resources. Continued high levels of the new mortgage insurance business, as well as an increase in persistency, are likely to drive primary insurance in force, the main driver of Radian Group’s future earnings.

American International’s earnings surpassed estimates in three of the last four quarters and missed in one, the average earnings surprise being 6.94%.

American International is well-poised to grow on the back of acquisitions and prudent capital allocation. Improving travel and warranty operations are likely to drive AIG’s personal lines insurance business. Strategic business de-risking and acquisitions, cost-control efforts and accelerated capital deployment will drive American International’s growth.

EverQuote’s earnings surpassed estimates in each of the last four quarters, the average being 39.08%.

EverQuote is well-poised for growth, owing to the solid performance of automotive and other insurance marketplace verticals. EVER remains focused on rapidly expanding into new verticals. Increasing consumer traffic, higher quote request volume and innovating advertiser products and services will continue to boost revenues.

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