Contribution of Capital to MGIC Indemnity Corp. Faces Delay

Mortgage Guaranty Insurance Corp., Milwaukee, has delayed its first contribution of capital to MGIC Indemnity Corp., as plans to reactivate the unit are fluid. There were plans for MGIC Indemnity Corp. to write a new book of business beginning on Jan. 1, 2010; MGIC was worried it would not be able to write new business because of a failure to meet individual state regulatory capital requirements. As part of that plan, Wisconsin insurance regulators permitted MGIC to make a $1 billion capital contribution to MGIC Indemnity Corp., with the first $500 billion installment due on July 31. In its statement, MGIC said that in obtaining approval from the government-sponsored enterprises for MGIC Indemnity Corp. as an eligible mortgage insurer, the latter entity might only write new business in certain states where MGIC might not meet regulatory capital requirements. MGIC would continue to write new business in other states that do not have specific capital requirements. If this were to happen, MGIC would reduce its capital contribution to MGIC Indemnity Corp. The specific amount will be determined as part of the discussions with the GSEs. When the plan was first revealed, FBR Capital Markets issued an upgrade on its ratings of MGIC, because the transaction would have avoided a highly dilutive capital raise. In its comments on the latest news, FBR Capital Markets said, "While we would have preferred to have seen a quick resolution with the GSEs, this delay does not change our outlook or residual value expectations for the company as a whole." It added investors could use any weakness in the stock price from this announcement to add to their positions. As of noon on Aug. 3, MGIC was trading down $0.20 per share on the day, at $6.40.