MGIC has smaller-than-expected loss

By Lilla Zuill

NEW YORK (Reuters) - MGIC Investment Corp (MTG.N), the largest U.S. mortgage insurer, posted a smaller-than-expected quarterly loss on Thursday and said net premiums and new insurance rose, sending its shares up as much as 20 percent.

The company also said it was buying more reinsurance to protect against future losses and expected the mortgage market to deteriorate further this year before stabilizing in 2009.

MGIC said its first-quarter net loss was $34.4 million, or 41 cents a share, compared with year-earlier net income of $92.4 million, or $1.12 a share.

Analysts, on average, had expected a loss of $1.69 a share, according to Reuters Estimates.

"It is back to underwriting 101," said Chief Executive Curt Culver, on the company's investor call. MGIC said it had strengthened underwriting guidelines and discontinued writing Wall Street bulk transactions, or loans bundled into securities.

MGIC shares traded as high as $12.65 before paring their gains to be up 14.95 percent to $12.07 in afternoon trading on the New York Stock Exchange. The stock has fallen sharply from a high of $67.05 set last year on May 23.

Losses incurred in the first quarter rose to $691.6 million from $181.8 million a year earlier as the rate of delinquent loans rose sharply. Like many mortgage insurers, MGIC has been battered as borrowers have missed more payments.

A benefit of $236.7 million from a change in premium deficiency reserves offset the losses.

MGIC told investors it was not comfortable giving an outlook on future earnings, but some analysts feel there are more losses ahead.

"Despite the beat, paid claims continue to rise and show no signs of slowing, which should force (MGIC) to continue to set aside reserves at elevated levels for some time, preventing the company from generating profits for at least a year," wrote Lehman Bros. analyst Bruce Harting, in a research note.

The company said return on equity was improving; it said 15 percent return on equity would not be unreasonable for 2008, and ROE could be in range of 20 percent in 2009 and 2010.

Demand was steady in the quarter for the company's mortgage insurance, which protects lenders from defaults on loans secured by down payments of 20 percent or less.

Revenue rose 14.7 percent to $423.9 million from $369.6 million, but missed the average Wall Street forecast of $435.69 million.

MGIC said net written premiums rose more than 20 percent to $368.5 million, while new insurance written rose 50 percent to $19.1 billion.

The delinquency rate on individual loans was 5.19 percent as of March 31, up from 4.99 percent at December 31 and 3.89 percent a year earlier. Including bulk loans, the delinquency rate was 7.68 percent, MGIC said.