MGIC Grows on Housing Market Recovery; Challenges Persist

On Mar 6, 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 $164.9 million.

The company which was devastated by the 2008 financial crisis is slowly turning its fortunes around. The company has been helped by declining delinquencies and improving cure rates on claims from its legacy business. For 2014, claims paid declined 1.6% and new insurance written increased 12.2% year over year. The insurer reported net income of $251.9 million in 2014, marking its first year of annual profitability since 2006.

The prospects of the company also look bright with improvement in persistency and a growing book of high-credit-quality business written since 2009 and increasing market share.

We expect MGIC Investment to gain from improving market conditions characterized by larger origination volume and a rebound in the housing market.

Management is encouraged by the growing demand for home purchases. Moreover, as the majority of purchases involving mortgage does not require 20% down payment, MGIC Investment expects to benefit from this opportunity. Overall, with 30-year mortgage rates remaining affordable and employment situation improving, we expect a relative healthy purchase market in 2015.

Improving mortgage market has also prompted other players like 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 and the reduction of annual premium charged by the Federal Housing Administration might increase competition for the company in the near term.

MGIC Investment currently sports a Zacks Rank #1 (Strong Buy).