MGIC's 3Q profits up 112% as losses incurred fall by over 50%

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MGIC Investment Corp.'s third-quarter net income of $120 million was more than double the $56.6 million for the same period last year as its losses incurred fell by over 50%.

Net losses incurred were $29.7 million, compared with $60.9 million in the third quarter of 2016. Total losses and expenses were $89.9 million, down from $190.1 million; MGIC took a $75.2 million loss related to extinguishing debt in the third quarter of 2016.

Loss reserves were $1.1 billion at the end of the quarter, down from $1.5 billion on Sept. 30, 2016.

"Over the last year we prudently grew our insurance-in-force by 6%, and during the quarter we were able to increase the dividend payment from MGIC to the holding company to $40 million," CEO Patrick Sinks said in a press release.

"Further, we maintained our traditionally low expense ratio. Reflecting the current economic conditions and underwriting quality of recently written business, new delinquent notices received in the third quarter, and the estimated claim rate associated with those notices declined compared to the same period last year."

The lower-than-forecast losses were responsible for MGIC beating earnings-per-share estimates, FBR Capital Markets analyst Randy Binner said in a report. MGIC reported EPS of $0.32 per share versus Binner's projected $0.24 and a consensus estimate of $0.26.

The beat was driven by a much lower-than-expected loss ratio of 12.5%; Binner had forecast 34%.

"The positive call on MGIC centers on our expectation of continued favorable loss development, combined with improving top-line production," said Binner, a stock analyst who has the company with a buy rating.

"Unlike life and property and casualty insurers, MIs can benefit from the potential economic and loan market growth; the policy backdrop is good, with GSE reform a distant priority and questions on how active the FHA will be under the current administration."

MGIC's results should bode well for the other two private mortgage insurers that Binner follows, Radian Group and NMI Holdings. Both "should have similarly strong bottom-line results this quarter," he wrote. His comments on Radian came out after that company announced an update on plans to restructure its services segment.

MGIC had $14.1 billion in new insurance written in the third quarter, down 0.7% from $14.2 billion one year ago. As of Sept. 30, it had $191 billion of insurance-in-force, up 6% from the $180.1 billion on the same day in 2016.

Its delinquent loan inventory fell 20% to 41,235 at the end of the third quarter.

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PMI Underwriting Mortgage defaults MGIC Radian FHA FBR Capital Markets Corp