March 25 (Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, raised $745 million, more than it projected, with the sale of stock and convertible debt after a record fourth-quarter loss. The insurer dropped 7.9 percent in New York trading to reach its lowest close in more than 15 years.

Underwriters sold 37.3 million shares of MGIC for $11.25 each, and the company also agreed to sell $325 million in debt, Milwaukee-based MGIC said in statements today. The company had estimated it would sell about $350 million of shares.

The insurer needs to bolster capital to avoid a downgrade of its claims-paying ability after a $1.47 billion quarterly loss, Fitch Ratings said Feb. 25. Mortgage insurers, which reimburse lenders when borrowers don't repay, are facing a surge in claims amid the worst housing slump in at least 25 years. They've also raised prices and tightened underwriting standards as demand for the coverage has increased.

MGIC had ``no choice'' other than selling shares, even though it diluted the holdings of earlier investors, said Rob Haines, an analyst at CreditSights Inc. in New York. ``For a company that's capital constrained right now, it's always good news when you can sell more than you expected,'' he said.

MGIC fell $1.05, or 7.9 percent, to $12.25 at 4:01 p.m. in New York Stock Exchange composite trading, its lowest close since ending the day at $12.09 on Dec. 28, 1992. The shares have fallen 80 percent in the past year.

`New Business'

The insurer said it will use the new capital at its main subsidiary ``to expand the volume of its new business and for MGIC's general corporate purposes.'' Rivals including PMI Group Inc. and Radian Group Inc., the No. 2 and No. 3 mortgage insurers, have also said they are seeking to raise new capital and are no longer selling policies to the riskiest borrowers.

``The standards of the business they're writing now have improved,'' Haines said. ``The deals that are getting done are high-quality deals.''

MGIC, PMI and Radian reported an increase in premium revenue while claims costs increased in the fourth quarter. The Mortgage Insurance Companies of America in Washington said premiums from new policies rose 66 percent in January from a year earlier as banks, weary of record foreclosures, forced more borrowers to buy policies.

Bank of America Corp. handled the public offering. MGIC also granted the underwriters an option to purchase an additional 5.6 million shares at the offering price.

The 9 percent convertible junior subordinated debt is due in 2063. Buyers of the debt were granted an option to purchase an additional $65 million.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

Last Updated: March 25, 2008 16:40 EDT