MGIC Jumps Most Since July as Housing Rebound Boosts Profit

  • Operating profit climbs as underwriting margin improves
  • BofA analyst advises investors to buy insurer’s shares

MGIC Investment Corp., one of the U.S. mortgage guarantors that survived the financial crisis, posted the biggest gain since July as third-quarter operating profit advanced on lower costs tied to soured home loans.

The insurer rose 41 cents, or 5.1 percent, to $8.44 at 4:02 p.m. in New York trading, narrowing its loss for the year to 4.4 percent. Operating income rose to $102.2 million from $83.2 million a year earlier, the Milwaukee-based company said in a statement Tuesday.

MGIC’s Pat Sinks has been repurchasing debt after taking over last year as chief executive officer as he works to position the company to gain from a rebound in the U.S. housing market. Mortgage insurers cover losses for lenders when homeowners default and foreclosure fails to recoup costs. The company endured elevated costs from policies written before the housing crisis and is counting on better returns from more recent policies.

BofA’s View

“As the legacy portfolio runs off and is replaced by new high-quality mortgages, we expect operating results to improve,” Mihir Bhatia, an analyst at Bank of America Corp., said Monday in a note, advising investors buy MGIC shares. “A supportive housing and macroeconomic backdrop also provides a tailwind for mortgage insurance.”

The insurer spent only 25.7 cents on claims costs for every premium dollar in the third quarter, an improvement from 32 cents a year earlier. Premium revenue slipped less than 1 percent to $237.4 million.

Net income was $56.6 million, compared with $822.9 million a year earlier when results included a one-time tax benefit. The third quarter this year also included costs tied to extinguishment of debt.

Bhatia also recommends that investors buy shares of mortgage insurance rival Radian Group Inc., which is scheduled to report earnings Oct. 27. The Philadelphia-based company jumped 3.9 percent Tuesday, also the most since July. Genworth Financial Inc. rose 1.6 percent.

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