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MGIC Investment Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 9, 2009 10:19PM
MGIC Investment Corp. (MTG) filed Quarterly Report for the period ended 2009-09-30. MGIC Investment Corporation is a holding company which, through its wholly owned subsidiary, Mortgage Guaranty Insurance Corporation, is the leading provider of private mortgage insurance coverage in the United States to the home mortgage lending industry. Private mortgage insurance covers residential first mortgage loans and expands home ownership opportunitiesby enabling people to purchase homes with less than 20% down payments. If the home owner defaults, private mortgage insurance reduces and, in some instances, eliminates the loss to the insured institution. Mgic Investment Corp. has a market cap of $584.23 million; its shares were traded at around $4.67 with and P/S ratio of 0.34.
Highlight of Business Operations:
At September 30, 2009, MGICs policyholders position exceeded the required regulatory minimum by approximately $456 million, and we exceeded the required minimum by approximately $543 million on a combined statutory basis. (The combined figures give effect to reinsurance with subsidiaries of our holding company.) At September 30, 2009 MGICs risk-to-capital was 17.3:1 and was 19.7:1 on a combined statutory basis. Beginning with our June 30, 2009 risk-to-capital calculations we have deducted risk in force on policies currently in default and for which loss reserves have been established. For additional information about how we calculate risk-to-capital, see Liquidity and Capital Resources Risk to Capital below.
Interest expense reflects the interest associated with our outstanding debt obligations. Our long-term debt obligations at September 30, 2009 include approximately $86.1 million of 5.625% Senior Notes due in September 2011, $300 million of 5.375% Senior Notes due in November 2015, and $390 million in convertible debentures due in 2063 (interest on these debentures accrues even if we defer the payment of interest and compounds), as discussed in Notes 2 and 3 of our Notes to Consolidated Financial Statements and under Liquidity and Capital Resources below. Also as discussed in Note 1 of the Consolidated Financial Statements, we adopted new guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), on a retrospective basis, and our interest expense now reflects our non-convertible debt borrowing rate on the convertible debentures of approximately 19% at the time of issuance. At September 30, 2009, the convertible debentures are reflected as a liability on our consolidated balance sheet at the current amortized value of $286.5 million, with the unamortized discount reflected in equity.
Realized gains for the third quarter of 2009 included $33.5 million in net realized gains on the sale of fixed income investments. Realized gains for the third quarter of 2008 included $62.8 million from the sale of our interest in Sherman, which was offset by realized losses on sales of investments of $3.2 million and other-than-temporary impairments on our investment portfolio of $31.7 million.
During the third quarter of 2009 the premium deficiency reserve on Wall Street bulk transactions declined by $19 million from $227 million, as of June 30, 2009, to $208 million as of September 30, 2009. The decrease in the premium deficiency represents the net result of actual premiums, losses and expenses as well as a net change in assumptions primarily related to lower estimated premiums. The $208 million premium deficiency reserve as of September 30, 2009 reflects the present value of expected future losses and expenses that exceeded the present value of expected future premium and already established loss reserves.
We had a benefit from income taxes of $100.3 million in the third quarter of 2009, compared to a benefit from income taxes of $90.1 million in the third quarter of 2008. In the third quarter of 2009, our deferred tax asset valuation allowance decreased by the deferred tax liability related to $279.7 million of unrealized gains that were recorded to equity. This decrease in the valuation allowance resulted in a tax benefit of $100.3 million in the third quarter of 2009. Any tax credit on our operating losses is reduced due to the establishment of a valuation allowance for deferred taxes of $133.5 million.
Direct primary insurance in force was $216.8 billion at September 30, 2009 compared to $227.0 billion at December 31, 2008 and $228.2 billion at September 30, 2008.Richard Snow of Snow Capital Management, L.P., Richard Snow of Snow Capital Management, L.P., Donald Yacktman of Yacktman Asset Management Co..
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