MGIC Investment Corporation (MTG - Free Report) , which boasts being the largest private mortgage insurer in the United States, has been experiencing a sustained improvement in new business written for a considerable period of time. The company expects this momentum to continue on the back of a solid purchase market and a probable share gain from The Federal Housing Administration (FHA). In fact, the company estimates writing $50 billion in new insurance during 2018.
Also, the Multi line insurer continues to witness favorable persistency while the credit trends consistently get better owing to legacy book. It is important to note here that higher level of new business written coupled with the anticipated increase in persistency will result in an improved insurance in force.
Interestingly, insurance in force is the main driver of the insurer’s revenues and the metric has been impressive for the past several years. In the last three years, the top line has grown 4.2% and we expect this growth trend to sustain in the future as well.
Another important factor to consider is the growing private mortgage market share and the company is committed to increase the same with each passing year. The insurer’s current market share is 18% and it projects to reach 19-20% in the industry it operates in. This will also help improve its insurance in force, leading to higher revenues.
Further, the company has been displaying a persistent decline in paid claims and going by this declining pattern of claim filings, we expect lower paid claims in the near term. This in turn, will enable the company to strengthen its balance sheet, boosting its financial profile in turn. Moreover, the insurer anticipates the number of loans in delinquent inventory along with claim rate applied to new delinquent notices to decrease in the future.
MGIC Investment has been bolstering its capital position ever since it entered into a reinsurance transaction in 2013 together with its own capital contribution. To that end, the company has been witnessing improved risk-to-capital as well as debt-to-capital ratios in the last few quarters.
Although shares of this Zacks Rank #2 (Buy) Multi line insurer have lost 27.5% year to date, slightly wider than the industry’s decline of 23%, we expect the aforementioned positives to turn the stock around in the near term.
The stock also carries a favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back-tested results have shown that stocks with a VGM Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 offer best investment opportunities.
Shares of MGIC Investment are trading at a price-to-book multiple of 1.06, lower than the industry average of 1.19. Price to book value ratio is the best multiple for valuing life insurers because of large variations in earnings results from one quarter to the next. This ratio essentially measures a life insurer’s current market value, relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are profitable picks.
Other Stocks That Warrant a Look
Investors interested in other top-ranked stocks from the same space can also consider Cigna Corporation (CI - Free Report) , Radian Group Inc. (RDN - Free Report) and MetLife, Inc. (MET - Free Report) , each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cigna operates as a health service company worldwide. Its products and services include an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits and other related products including group life, accident and disability insurance. The company delivered positive surprises in all the trailing four reported quarters, the average being 13.46%.
Radian Group provides mortgage and real estate products and services in the United States. The company pulled off earnings surprises in all the previous four reported quarters, the average being 11.33%.
MetLife engages in insurance, annuities, employee benefits and asset management businesses. The company surpassed estimates in all the preceding four reported quarters, the average beat being 9.67%.
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