To the naked eye, the $387 million 4Q12 loss posted by MGIC Investment Corp., coupled with the 44.7-to-1 risk to capital ratio as of the end of the year would spell disaster for the future of the company.
But company executives, led by chairman and CEO Curt Culver, were upbeat about MGIC’s prospects, noting that what was behind the bad numbers was the settlement of the Freddie Mac pool dispute and a potential settlement of the rescission dispute with Countrywide/Bank of America and another unnamed lender.
Those two events added $368 million in charges to MGIC’s results ($268 million for Freddie Mac, $100 million for Countrywide).
For the full year, MGIC lost $927 million. In 4Q11, it lost $135 million and for the full year lost $486 million.
The risk-to-capital ratio increase is a result of the settlements, Culver explained, adding that this was expected by its regulator in Wisconsin. Besides Mortgage Guaranty Insurance Corp., its primary underwriting subsidiary, the holding company has been writing business in seven states and Puerto Rico through MGIC Indemnity Corp.
Overall, the company had $7 billion of new insurance written in the fourth quarter, similar to 3Q12. In the second half of the year, MIC wrote $2.4 billion. Culver said MIC could do 100% of the NIW for the next five years if Mortgage Guaranty Insurance Corp. was unable to write any new business.
Another $3.5 billion of insurance (which MGIC does not include in NIW) was a result of the Home Affordable Refinance Program.
For the full year, MGIC had $24.1 billion of NIW and $11.2 billion of HARP activity, compared with $14.2 billion and $2.9 billion respectively in 2011.
Culver said the risk-to-capital ratio is expected to continue to rise, so MGIC is looking at options to reduce it, such as using internal subsidiaries for reinsurance, obtaining external reinsurance, additional capital contributions from the holding company, and/or raising external capital.
Even so, MGIC said it has excess claim paying ability of $4.5 billion.
Radian Group’s equity and debt offerings this week raised nearly $690 million in net proceeds, a good sign for the industry, MGIC executives noted.
When asked about the company’s losing market share, Culver said it was due mainly to the fact that MGIC does not put an emphasis on single-premium policies because of the return (single digits versus the 20% for monthly premiums) and because of new entrants in the private mortgage insurance business.
But as a whole, private mortgage insurance should benefit going forward from continuing increased mortgage insurance premiums for the Federal Housing Administration program. And MGIC’s NIW should benefit from that in 2013, Culver said.
A statement in MGIC’s press release said the company expects to continue reporting annual net losses. When asked during the conference call about when it expects to return to profitability, the company’s executives said they would not comment.