From: Reuters
Published February 13, 2008 01:03 PM

Mortgage insurer MGIC loses $1.47 billion

By Jonathan Stempel

NEW YORK (Reuters) - MGIC Investment Corp <MTG.N>, the largest U.S. mortgage insurer, posted on Wednesday a much larger-than-expected $1.47 billion quarterly loss as more homeowners fell behind on payments, and claims increased sevenfold.

The company also said it hired an outside adviser to help it raise capital, and expects to lose money this year unless the credit environment improves. Its shares fell $2.09, or 14.7 percent, to $12.09 in afternoon trading.

Like many insurers, Milwaukee-based MGIC has been battered as borrowers missed more payments and investors stopped buying a wide variety of debt perceived to carry too much credit risk.


MGIC's fourth-quarter loss equaled $18.17 per share, and compared with a profit of $121.5 million, or $1.47 per share, a year earlier. Revenue rose 9 percent to $399.1 million.

Analysts on average had expected a loss of $8.13 per share on revenue of $388.1 million, according to Reuters Estimates.

MGIC said claims totaled $1.35 billion, up from $187.3 million a year earlier and $50 million more than it had estimated last month. It also set aside $1.2 billion pretax for losses related to Wall Street securitizations and took a $33 million charge for a collapsed subprime mortgage venture.

"Obviously, these financial results are unacceptable," Chief Executive Curt Culver said on a conference call.

Culver said MGIC has been boosting premiums and improving underwriting standards in struggling housing markets such as Arizona, California, Florida, Michigan and Nevada.

"While we may lose share to reflect our underwriting changes, we will lose it for the right reasons," he said.

Defaults on privately insured U.S. mortgages rose 37 percent in December to the highest level on record, according to the Mortgage Insurance Cos of America, a trade group.


"It now seems inevitable that the company will have to raise significant amounts of dilutive capital to preserve its 'double-A' (credit) rating and the long-term viability of the business," wrote Bruce Harting, an analyst at Lehman Brothers Inc. He rates MGIC "underweight."

On the conference call, MGIC executives said the capital-raising could involve reinsurance or convertible securities issuance. MGIC would likely raise less than $1.5 billion, and doesn't need capital immediately, they said.

Shareholder equity fell to $2.59 billion from $4.3 billion a year earlier, and book value per share fell to $31.72 from $51.88, MGIC said.

For all of 2007, MGIC lost $1.67 billion, or $20.54 per share, as claims nearly quadrupled to $2.37 billion.

MGIC's forecast of a 2008 loss was not a surprise. Analysts on average forecast a loss of $7.72 per share for the year.

MGIC and rivals Radian Group Inc <RDN.N> and PMI Group Inc <PMI.N> posted their first-ever losses in the third quarter.

Shares of Radian fell $1.10, or 13.5 percent, to $7.04 in afternoon trading, and PMI fell $1.30, or 15.5 percent, to $7.09. Radian is scheduled to report fourth-quarter results on February 15, and PMI on February 26. Analysts expect losses at both.

A year ago, MGIC had agreed to a $5 billion merger with Radian. The merger collapsed in September after both companies saw their shares plunge and wrote off much of their $1.03 billion investment in the subprime venture Credit-Based Asset Servicing and Securitization LLC, better known as C-BASS.

MGIC's $33 million charge related to losses at C-BASS, which reduced the value of a $50 million note to zero.

(Editing by Gerald E. McCormick and Tim Dobbyn)

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