FBR: MGIC Might Not Need New Capital

Analysts at FBR Capital Markets are making what they call the "bull case" that MGIC Investment Corp., Milwaukee, will not have to undertake a capital raise that would be highly dilutive to current shareholders. Steve Stelmach and Amy DeBone noted that MGIC had a relatively high rate, 20%, of policy rescissions in the first quarter. The case against a capital raise is by the company's current capital proving sufficient or by MGIC entering a hibernation period in which little to no new business is written. "We note that 20% is relatively high and, if sustainable, could have a material impact on lowering ultimate loss assumptions and could move MGIC toward profitability sooner than forecasted. We note that our own estimates incorporate modest profitability returning in the second half of 2009, an improvement from our prior estimates," the analysts said. While it is still too early to make the call on the need for more capital, the analysts said they were "highly encouraged" by the rate of rescissions.