Reuters: Hot Stocks: UPDATE 3-MGIC capital position deteriorates sharply; shares fall

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UPDATE 3-MGIC capital position deteriorates sharply; shares fall Feb 28th 2013, 14:47 Thu Feb 28, 2013 9:47am EST * 4th-qtr loss/share $1.91 vs loss/share $0.67 year earlier * Dec-end prelim combined ops risk-to-capital ratio at 47.8 to 1 * Expects risk ratio to rise further * Shares fall as much as 15 pct (Adds Radian results, new insurance written at MGIC) By Jochelle Mendonca Feb 28 (Reuters) - Mortgage insurer MGIC Investment Corp reported a sharp deterioration in its ability to pay claims in the fourth quarter and posted its tenth straight quarterly loss as it continues to lose money on loans insured during the housing boom. Shares of the company fell 15 percent to $2.37 in early trading. They traded at as much as $70 before the housing bubble burst in 2007. MGIC and rivals Radian Group Inc and life insurer Genworth Financial Inc's mortgage unit protect lenders in cases where homebuyers make down payments below a certain threshold. They have been struggling to recoup their losses after the housing bubble burst and foreclosures soared, saddling them with large claims on unpaid home loans and thin capital cushions. The preliminary risk-to-capital ratio at MGIC's combined insurance operations was 47.8 to 1 as of Dec. 31. Mortgage insurance regulators commonly allow for a maximum risk-to-capital ratio of 25 to 1. The mortgage insurer said it expects its risk to rise above the Dec. 31 level in 2013. The soaring risk ratio is a cause for concern. Triad Guaranty Insurance Corp, which stopped selling new mortgage insurance in 2008, had a risk ratio of 42.7 to 1. PMI Group Inc had a risk ratio of 58 to 1 before regulators shut the insurer down in 2011. MGIC's primary regulator uses the minimum policyholder position to gauge an insurer's strength. MGIC came up short on that measure as well. Its minimum policyholder position (MPP) was $640 million below the required amount of $1.2 billion at the end of the year. The policyholder position deficit was $344 million below the minimum requirement at the end of September. The MPP is the minimum amount of money an insurer would need to meet claims. MGIC has received waivers to allow it to continue to write insurance despite its high risk levels. FALLING BEHIND RADIAN The mortgage insurer is also falling behind its rivals in new insurance written and its rising risk places it in a much weaker competitive position. Radian's risk-to-capital ratio was 20.8 to 1 as of the end of 2012 and the company expects its risk-to-capital ratio to stay within regulatory limits this year. Radian, whose profits on new insurance are increasingly offsetting legacy losses, expects to return to operating profitability in 2013. MGIC, on the other hand, has said it is unable to project a return to profitability in the near term. Analysts do not expect the company to post a profit until the third quarter of 2014, according Thomson Reuters I/B/E/S. MGIC wrote $7 billion in new insurance in the fourth quarter, while Radian wrote $11.7 billion in the same period. Radian is also looking to raise about $700 million through the sale of shares and debt, leading bond rating agency Moody's to upgrade its senior debt rating. MGIC's fourth-quarter loss almost tripled to $386.7 million, or $1.91 per share, from $135.3 million, or 67 cents per share, a year earlier. The loss included a $267.5 million settlement with Freddie Mac. MGIC agreed in November to make the payout to its primary counterparty to settle a dispute that threatened its future. Shares of the company were down 5 percent at $2.66 on the New York Stock Exchange. (Additional reporting by Ashutosh Pandey in Bangalore; Editing by Maju Samuel) Link this Share this Digg this Email Reprints

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