Loss Streak Continues for MGIC - Analyst Blog
26 January 2012 - 12:15AM
Zacks
Higher claim costs coupled with lower premium written led
mortgage insurer MGIC Investment Corp. (MTG)
report fourth quarter operating loss of $1.19 per share,
substantially worse than the Zacks Consensus Estimate of a loss of
77 cents per share. Operating loss in the quarter also widened
compared with a loss of 98 cents per share incurred in the
prior-year quarter. The results reflect the repercussions that the
company is still facing in relation to the U.S. housing market
fiasco.
Total revenues for the quarter were $447.0 million, down 24%
year over year. Net premiums written dropped 2.8% year over year to
$263.8 million due to adherence to stricter loan payout
requirements that caused an overall decline in business for
mortgage insurers insuring these loans.
New insurance writings were worth $4.2 billion, unchanged from
the prior-year quarter. Persistency, which measures the percentage
of insurance remaining in force since previous year, was 82.9% on
December 31, 2011, down from 84.4% on December 31, 2010, and 84.7%
on December 31, 2010.
Combined ratio, a measure of an insurer’s profitability (the
lower, the better) was 189.7% at the end of the fourth quarter
compared with 169.4% in the prior-year quarter. A combined ratio
below 100% signifies profitability. This means that MGIC has been
paying $1.89 on claims and expenses for every dollar of premium
earned.
MGIC reported incurred losses or claim cost of $482.1 million,
up 7.5% year over year, due to new notices exceeding cures along
with higher claims paid on previously disclosed delinquencies.
Combined risk to capital ratio for the company increased to
22.2:1 at the end of the fourth quarter, close to the regulatory
limit of 25:1. We are concerned about the steep capital to risk
ratio which poses a significant regulatory seizure risk for the
company once it transcends the 25:1 mark. Its close rival
PMI Group Inc. (PMI) had suffered on the same
ground. The main insurance subsidiary of PMI Group named PMI
Mortgage Insurance Co. was seized by regulators as it breached its
risk to capital ratio limit.
Book value per share, measuring the net worth of a company,
decreased to $5.95 as of December 31, 2011, compared with $8.33 as
of December 31, 2010.
MGIC results in this quarter continue the loss trend of the past
four years when the housing market trouble started leading to loan
payment default by the borrowers and a consequent increase in the
company’s claims cost. We expect continuing elevated defaults amid
a weak housing market with homeowners struggling to meet their
mortgage payments.
MGIC rivals, Genworth Financial Inc. (GNW),
Radian Group Inc. (RDN), and PMI Group
Inc. (PMI), have all been suffering badly ever since the
housing downturn.
GENWORTH FINL (GNW): Free Stock Analysis Report
MGIC INVSTMT CP (MTG): Free Stock Analysis Report
RADIAN GRP INC (RDN): Free Stock Analysis Report
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