MGIC Lags Est on High Claims Cost - Analyst Blog
19 7월 2011 - 9:45PM
Zacks
Mortgage insurer MGIC Investment
Corp. (MTG) reported second quarter 2011
operating loss of 86 cents per share, significantly lagging the
Zacks Consensus Estimate of a profit of 5 cents per share. It is
highly reflective of the repercussions that the company is still
facing in relation to the U.S housing market fiasco.
Total revenues for the quarter were $367.0 million, down 9.7%
year over year. Net premiums written dropped 8.4% year over year to
$270.4 million due to adherence to stricter loan payout
requirements that caused an overall decline in business for
mortgage insurers insuring these loans.
New insurance written was $3.1 billion, up 14.8% year over year.
Persistency, which measures the percentage of insurance remaining
in force since previous year, was 83.3% at June 30, 2011 as against
84.4% at December 31, 2010, and 86.4% at June 30, 2010.
As of June 30, 2011, MGIC's primary insurance in force was
$182.4 billion compared with $191.3 billion at December 31,
2010, and $202.4 billion at June 30, 2010.
MGIC reported incurred losses or claim cost of $459.6 million,
up 43.5% year over year due to new notices exceeding
cures. Net underwriting and other expenses stood at $54.0
million, almost in line the prior-year quarter figure, which was
$54.1 million.
MGIC’s risk to capital ratio of 20.4:1at second quarter end was
in compliance with the risk to capital ratio requirements of
25:1.
Book value per share, measuring the net worth of a company,
decreased to $7.52 as of June 30, 2011compared with $8.00 as of
March 31, 2011.
Suffering Peers
Results of MGIC fuelled investor’s pessimism over the private
mortgage insurance industry, driving down the shares of other
players. While the share price of MGIC fell 23% to close at $4.62,
Radian Group(RDN) deteriorated 13.79% to close at
$3.50, and PMI Group, Inc.(PMI) went down 12.60%
to $1.11. All of these companies, which protect lenders from losses
if a homeowner defaults and lenders fail to recoup costs
through foreclosure, have been suffering since the subprime
mortgage crisis in 2007. This, in turn, set delinquencies and
foreclosures soaring.
Our Take
Long term- In the long term, the housing market
recession, coupled with the rise in subprime mortgage defaults,
could lead to positive results for mortgage insurers. As a
consequence, such conditions could facilitate more conservative
lending practices, leading to more rational borrower and lender
behavior, and cause mortgage originators to recognize the value of
mortgage insurance.
Short to medium term - The operating
environment of the U.S. mortgage insurance
industry remains highly uncertain, particularly in light of
the recent regulatory proposals dealing with the housing reform.
Most players are expected to continue reporting losses for the
foreseeable future, and the implications from broader housing
reforms are not yet clear.
Rating agency Standard and Poor’s does not expect mortgage
insurers to become profitable until at least 2012. The rating
agency has maintained a negative outlook on the sector. It stated
that the performance of the mortgage insurer is contingent on the
overall U.S. economy and unemployment figures. While Moody’s has
assigned a financial strength rating of Ba3 to MGIC, with a
positive outlook, Standard & Poor’s has rated it B+ with a
negative outlook.
MGIC has been reporting in red for the past four years.The
company reported net losses of $0.4 billion, $1.3 billion, $0.5
billion and $1.7 billion in 2010, 2009, 2008 and 2007 respectively.
For the first two quarters of 2011, MGIC reported a net loss
of $185.4 million. Management currently expects the company to
continue reporting annual net losses, the size of which will depend
primarily on the amount of incurred and paid losses from its
existing business and, to a lesser extent, on the amount and
profitability of its new business. We therefore continue to remain
cautious on the stock until signs of greater stability become more
evident and its operating results, along with the industry’s legal
and regulatory environment, become clearer.
Milwaukee-based MGIC carries a Zacks Rank # 4, which translates
into a short term (1-3 months) Sell rating.
MGIC INVSTMT CP (MTG): Free Stock Analysis Report
PMI GROUP (PMI): Free Stock Analysis Report
RADIAN GRP INC (RDN): Free Stock Analysis Report
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