MGIC beats expectations, but new insurance written underwhelms

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MGIC Investment Corp. posted better-than-expected first-quarter earnings as expenses were lower than projected while net premiums came in higher. New insurance written however was less than anticipated.

Even with the lower interest rate environment for most of the period, MGIC's new insurance written of $10.1 billion came in well below B. Riley FBR analyst Randy Binner's $12.6 billion estimate, as well as under the $10.5 billion estimate from Keefe, Bruyette & Woods analyst Bose George.

The company had $12.2 billion of NIW in the fourth quarter. The drop might be explained by seasonality; one year ago, MGIC wrote $10.6 billion of NIW in the first quarter of 2018, compared with $12.8 billion in the fourth quarter of 2017.

"We saw the 30-year fixed mortgage rate drop approximately 45 basis points in the first quarter," said Binner in a research note that came out after the MGIC announcement. "This could support a moderate increase to new insurance written over the course of the year. We expect losses to remain low, given the good unemployment trend, but legacy reserve releases may diminish."

Net income for the quarter was $151.9 million, compared with $157.7 million in the fourth quarter and $143.6 million for the same period last year.

The earnings per share of $0.42 beat Binner's and BTIG analyst Mark Palmer's estimate of $0.41 along with George's and the consensus estimate of $0.39.

MGIC's expense ratio was 19.4%, compared with Binner's estimate of 21%. But the loss ratio was higher, at 15.6% from the 13% estimate. In the fourth quarter it was 11.3% and in the first quarter last year it was 10.3%.

The change in the loss ratio was likely a blip due to the accounting treatment for a legal matter.

Losses incurred during the first quarter were $39.1 million, up from $23.9 million one year ago. That included recognition for a probable loss of $23.5 million related to litigation over MGIC's claims paying practices.

However, MGIC's delinquent loan inventory fell to 30,921 as of March 31, from 41,243 on the same day in 2018. The delinquency rate was 2.92% at the end of the quarter, compared with 4.02% on March 31, 2018.

"The current conditions of the employment and housing markets contributed to the continued decline in the primary delinquent inventory and low level of new delinquent notices received," said MGIC CEO Patrick Sinks. "Given our strong capital position, we were able to increase the dividend paid to the holding company to $70 million in the first quarter and received authorization by our board to repurchase, over time, an additional $200 million of common stock."

Insurance-in-force was $211.4 billion at the end of the period, up from $197.5 billion.

Lower rates did not affect MGIC's persistency, the measure of how much of the book of business remains in force one year later. It was 81.7%, unchanged from the fourth quarter and up from 80.2% one year ago.

"Overall, we view this as a favorable result for MGIC and expect this trend to continue to the other PMIs, like National MI and Radian," said Binner.

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