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MGIC Reports Wider Loss YoY

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MGIC Investment Corporation (MTG - Free Report) reported first quarter 2013 operating loss of 31 cents per share, substantially worse than the Zacks Consensus Estimate of a loss of 20 cents per share. MGIC had reported an operating loss of 10 cents per share in the year-ago quarter.

Quarterly Operational Update

Total revenue for the quarter came in at $269.2 million, down 29.1% year over year. Results were also below the Zacks Consensus Estimate of $285 million.

Net premiums written were $248.5 million, down 2.5% year over year. The company’s new insurance written soared 54.8% year over year to $6.5 billion in the quarter.

MGIC’s primary insurance in force stood at $159.5 billion, down 1.6% from $162.1 billion at year end 2012.

Losses incurred were $266.2 million, narrower than the loss of $337.1 million incurred in the year-ago quarter reflecting fewer new notices of default being received.

Total expenses in the quarter declined 14.3% year over year to $341 million.

Net underwriting and other expenses in the first quarter were $50 million, down 0.6% year over year.

Investment income in the quarter declined 51% year over year to $18.3 million.

As of Mar 31, 2013 persistency (the percentage of insurance remaining in force from the previous year) was 78.7%, down 110 basis points from 79.8% at Dec 31, 2012.

Capital Management

In Mar 2013, MGIC raised capital worth $1145.35 million. The capital was raised in two parts with $695.25 million from the issue of shares and $450 million from the issue of 2.00% convertible senior notes due 2020.
Interest on the notes will be paid at a rate of 2.00% per year, semi-annually on Apr 1 and Oct 1 of each year, effective Oct 1, 2013.

The total numbers of shares issued were 135 million. The underwriters were given a 30-day option to purchase up to an additional 20-25 million shares and $50 million of notes.

Financial Position

As of Mar 31, 2013, MGIC’s investment portfolio, cash and cash equivalents was $6.2 billion, down 3.1% year over year.

Total assets of MGIC were $6.5 billion, down 4.5% year over year.

The debt-to-capital ratio of MGIC at mar 31, 2013 was 63.2% compared to 43.4% in the year-ago period.

At Mar 31, 2013 MGIC’s risk-to-capital ratio was 20.4 to 1, lower than the maximum allowed by the jurisdictions with capital requirements, and its policyholder position was $168 million above the required minimum of $1.2 billion.

Book value per share as of Mar 31, 2013 declined 58.9% year over year to $2.30 from $5.60.


In Apr 2013, MGIC partnered with INTEGRA Software Systems to automate the access to its mortgage insurance programs and services.

Our Take

The company has been reporting annual net loss for the past consecutive 6 years with aggregate net loss of $5.3 billion from 2007–2012. We do not expect the company to return to profitability in 2013 given high unemployment rates, low cure rates, low housing values, changes to the company’s rescission practices and unfavorable resolution of ongoing legal proceedings.

Performance of Other Stocks

Genworth Financial Inc. (GNW - Free Report) reported first-quarter 2013 net operating income of 30 cents per share. The result surpassed the Zacks Consensus Estimate of 27 cents and was much above year-ago level of 3 cents.

Cigna Corp.’s (CI - Free Report) first-quarter 2013 net operating earnings of $1.72 per share outpaced the Zacks Consensus Estimate of $1.43 per share. Moreover, the results surged nearly 39% year over year.

Hartford Financial Services Group Inc. (HIG - Free Report) reported first-quarter 2013 operating earnings of $456 million or 92 cents per share, surpassing the Zacks Consensus Estimate of 83 cents. Operating earnings also outperformed the year-ago earnings of $426 million or 87 cents per share.

Zacks Rank

MGIC currently carries a Zacks Rank #2 (Buy).

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