MGIC Falls as Burch Says Insurer’s Valuation Out of Whack

MGIC Investment Corp., the mortgage insurer that breached regulators’ capital limits, declined after Macquarie Group Ltd. told investors to sell the stock on the prospect that claims costs and legal expenses will drain assets.

MGIC dropped 5.6 percent to $2.88 in New York trading at 4:03 p.m. The Milwaukee-based insurer has slumped 30 percent in the past 12 months.

The insurer’s settlement last year with Freddie Mac over a coverage dispute, costing $267.5 million, will probably fuel a decline in book value to about $1 a share at the end of 2013 from more than $3 on Sept. 30, 2012, Macquarie’s Jasper Burch said in note today. MGIC and competitor Radian Group Inc. both traded yesterday at more than 90 percent of their third-quarter book value, a measure of assets minus liabilities.

The valuation of MGIC is “out of whack,” given costs since Sept. 30, wrote Burch, who cut the stock to underperform from neutral. “We see continued earnings and book value pressure.”

He estimates the company will post an operating loss of $1.69 a share when it reports fourth-quarter results. Katie Monfre, a spokeswoman for MGIC, had no immediate comment.

Radian advanced 3.3 percent to $6.60. The Philadelphia-based company has more than doubled in the past 12 months.

MGIC said in August it had breached the 25-to-1 ratio of risk relative to capital that some state regulators require to permit the company to sell new coverage. The company has received waivers to allow it to keep selling policies in some states.

“While regulators have been accommodative to rising risk to capital levels to date, there is still a, perhaps outside, chance that they could hit the kill switch and cease new business writing,” Burch said.

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