Low Credit Losses Help Offset Persistency Woes at MGIC
MGIC Investment Corp. here reported an increase in its third-quarter net earnings of 6.2% and an increase in year-to-date earnings of 19.1%.
Curt Culver, president and chief executive of MGIC, said he was pleased with the improvement in credit losses at the company as well as the contribution its joint ventures have made to earnings. But insurance-in-force and associated revenue continue to be affected by low mortgage interest rates and strong home price appreciation.
MGIC reported net income of $142.4 million, or $1.55 per share, for the three months ended Sept. 30, 2005, up from $134.1 million, or $1.36 per share, for the same period one year earlier. However, revenue fell nearly 4% to $375.7 million for the quarter, which MGIC said was the result of a 5.7% decline in net premiums earned to $305.8 million. There was a decline in persistency between the second quarter of this year, when it was 60.9%, and the most recent quarter at 60.2%. At Sept. 30, 2004, persistency was 59.4%.
MGIC noted its year-end high watermark for persistency was at Dec. 31, 1990, when it was 87.4%. The low point was 44.9% on Sept. 30, 2003. A note in the release said because of the ease to refinance "even in an interest rate environment favorable to persistency improvement, the company does not expect persistency will approach its Dec. 31, 1990 level."
Delinquency rates in its portfolio totaled 5.95%, up from 5.80% as of Sept. 30, 2004. Minus bulk loans, the delinquency rate was 3.95%, up from 3.80% one year prior.
In the safe harbor section of its press release, MGIC said less than 3% of its risk-in-force is located in the parts of Alabama, Louisiana, Mississippi and Texas that were declared eligible for individual and public assistance by the Federal Emergency Management Agency because of Hurricanes Katrina and Rita.
"The effect on the company from these hurricanes, however, will likely not be these areas to the extent that the borrowers in areas that have not experienced wind or water damage are adversely affected due to deteriorating economic conditions attributable to the hurricanes," the release said.
Another part of the safe harbor addresses interest-only loans, stating it believes the volume of these loans in its book of business has increased recently. But it has no data on the historical performance of these loans and believes that claim rates on "certain interest-only loans will be substantially higher than on comparable loans requiring amortization."
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