MGIC Investment Sees Growth on Housing Market Recovery

On Sep 30, we issued an updated research report on Private mortgage insurer, MGIC Investment Corp. (MTG).

MGIC Investment is one of the nation’s oldest private mortgage insurers with insurance in force of $159.3 million.

The company which was devastated by the 2008 financial crisis is now crawling back. The company’s fortunes have been helped by declining delinquencies and improving cure rates on claims from its legacy business. For the first half of 2014, incurred losses declined 43%, paid losses moderated 29%, and default inventory shrunk 27% year over year.

The prospects of the company also look bright with new insurance written up 5.5% to $15.3 billion for first six months of 2014, improvement in persistency and a growing book of high-credit-quality business written since 2009.

We expect the company to gain from improving market conditions characterized by larger origination volume and a gain in the private mortgage insurance industry’s market share, especially a rebound in the housing market.

Sensing improved fundamentals, the company also expanded it sales team and appointed two specialists – William Todd Pittman and Geoffrey Cooper – from the mortgage industry with enough experience to develop the overall business.

Management at MGIC Investment is encouraged by the growing demand for home purchases. Moreover, as the majority of purchases involving mortgage does not require 20% down payment, the company expects to benefit from this opportunity. Improving mortgage market has also prompted other players Radian Group Inc. (RDN), Essent Guaranty, Inc. (ESNT) and Arch Capital Group Ltd. (ACGL) to expand their operations in this market.

However, strict regulatory oversight on maintaining sufficient capital might be a burden for the company.