* Says considering reinsurance, raising cash from markets
* 4th-qtr loss/share $1.91 vs loss/share $0.67 year earlier
* Dec-end prelim combined ops risk-to-capital ratio at 47.8
* Expects risk ratio to rise further
* Shares reverse course, up 11 percent in midday trading
(Adds details from conference call)
By Jochelle Mendonca
Feb 28 Mortgage insurer MGIC Investment Corp
said it was considering reinsuring some of its
businesses and raising capital after it reported a sharp
deterioration in its ability to pay claims at the end of the
The company's shares fell as much as 15 percent on Thursday
morning but reversed course, rising 11 percent to $3.10 in
midday trading. The stock, sold for as much as $70 before the
housing bubble burst in 2007, was the top percentage gainer on
the New York Stock Exchange at 1226 ET.
MGIC and rivals Radian Group Inc and life insurer
Genworth Financial Inc's mortgage unit protect lenders
in cases where homebuyers make down payments below a certain
They have been struggling to recoup their losses after the
housing bubble burst and foreclosures soared, saddling them with
large claims on unpaid home loans and thin capital cushions.
The preliminary risk-to-capital ratio at MGIC's combined
insurance operations was 47.8 to 1 as of Dec. 31. Mortgage
insurance regulators commonly allow for a maximum
risk-to-capital ratio of 25 to 1.
The mortgage insurer said it expects its risk to rise above
the Dec. 31 level in 2013.
"We are evaluating a number of options to address the
elevated risk-to-capital ratio with the objective of materially
reducing it," MGIC Chief Executive Curt Culver said on a
post-earnings conference call.
These options include utilizing existing insurance
subsidiaries for reinsurance, contributing additional capital to
its underwriting units from the holding company, and raising
capital, Culver said.
MGIC is in discussions with regulators and its main
counterparties Freddie Mac and Fannie Mae
regarding the capital options.
Philadelphia-based Radian is also looking to raise about
$700 million through the sale of shares and debt, leading bond
rating agency Moody's to upgrade its senior debt rating.
"Based on what our friends in Philadelphia did, the market
is pretty acceptable to the (mortgage insurance) space. We know
that because we have got a number of inquiries," Culver said.
MGIC's primary regulator uses the minimum policyholder
position to gauge an insurer's strength. MGIC came up short on
that measure as well.
Its minimum policyholder position (MPP) was $640 million
below the required amount of $1.2 billion at the end of the
The MPP is the minimum amount of money an insurer would need
to meet claims.
MGIC has received waivers to allow it to continue to write
insurance despite its high risk levels.
FALLING BEHIND RADIAN
The mortgage insurer has fallen behind its rivals in new
insurance written and its rising risk places it in a much weaker
Radian's risk-to-capital ratio was 20.8 to 1 as of the end
of 2012 and the company expects its risk-to-capital ratio to
stay within regulatory limits this year.
Radian, whose profits on new insurance are increasingly
offsetting legacy losses, expects to return to operating
profitability in 2013.
MGIC, on the other hand, has said it is unable to project a
return to profitability in the near term.
Analysts do not expect the company to post a profit until
the third quarter of 2014, according Thomson Reuters I/B/E/S.
MGIC wrote $7 billion in new insurance in the fourth
quarter, while Radian wrote $11.7 billion in the same period.
MGIC's fourth-quarter loss almost tripled to $386.7 million,
or $1.91 per share, from $135.3 million, or 67 cents per share,
a year earlier.
The loss included a $267.5 million settlement with Freddie
MGIC agreed in November to make the payout to its primary
counterparty to settle a dispute that threatened its future.
The company also said that it had made substantial progress
in resolving its dispute with Bank of America's
MGIC had refused to pay claims on Countrywide's loans,
saying they were improperly written, a fact the mortgage lender
Mortgage bond insurer MBIA Inc, which flagged 'going
concern' doubts and liquidation fears over its unit that insured
mortgage-backed derivatives, is also suing Bank of America on
(Additional reporting by Ashutosh Pandey in Bangalore; Editing
by Maju Samuel)