MGIC Investment Corp. (MTG) reported net income of $24.6m in Q210, the first quarterly profit in years. The report comes as some observers predicted a Q210 turnaround for mortgage insurers in light of ongoing credit shift. But after three years of net annual losses, the Milwaukee-based company said it’s not out of the woods yet. The present value of expected future paid losses after net future premiums is $1.42bn, and the company only has established loss reserves of $1.25bn. In addition, the company said it does not expect to maintain certain statutory risk-to-capital requirements in various states. The company, whose primary subsidiary is the Mortgage Guaranty Insurance Corp. (MGIC), said its Q210 profits amount to $0.13 per share, compared to a net loss of $2.74 per share in the same quarter one year ago. MGIC insures mortgage lenders against unrecoverable default and foreclosure losses. The company said that, as of the end of Q209, it insures 1.3m mortgages. MGIC posted a $150m loss in Q110, just two days before it priced a $700m public stock offering in April. Year-to-date losses through Q210 totaled $125.5m, compared to a net loss of $524.4m during the first six months of 2009. Losses in 2009 totaled $1.3bn. Troubles began for MGIC as early as Q407, when it posted a $1.4bn quarterly loss and warned the industry continued losses were sure to come. Total revenues for Q210 were $406.4m, compared with $454.5m in Q209. Net premiums written for the quarter were $295.3m, compared with $330.4m for the same period last year. For the first half of the year, net premiums written for H110 were $551.4m, compared with $677.9m in H109. MGIC said losses declined more than 58% year-over-year for the second quarter, $320.1m in Q210 compared to $769.6m in Q209. The improvement was attributed to a decrease in the default inventory. Net underwriting and other expenses were $54.1m in the Q209, compared to $61.7m reported one year ago. New insurance written for Q210 was $2.7bn, compared to $5.9bn in Q209. In addition, MGIC wrote $639m in new insurance under the Home Affordable Refinance Program (HARP), which is considered modification of existing insurance. For the first half of the year, new insurance written was $4.5bn compared to $12.3bn in H109. HARP activity in the first half of 2010 was $1.3bn. In addition, MGIC said “persistency,” or the rate of insurance remaining in force for a year ago, was 86.4% at the end of Q210, compared to 84.7% at the end of 2009 and 85.1% at the end of Q209. At the end of H110, primary insurance in force was $202.4bn, compared with $212.2bn at the end of H209 and $220.1bn at the end of H109. The company said the fair value of its investment portfolio, cash and cash equivalents $9.5bn at the end of Q210, due primarily to the April equity and debt offering. That compares to $8.4bn at the end of 2009 and $8.5bn at the end of Q209. The April stock offering allowed MGIC to allocate $200m to its risk-to-capital ratio, meeting requirements to resume writing insurance for Fannie Mae-guaranteed mortgages. Freddie Mac said earlier this year it will use the company as a limited insurer. In addition, the company received a waiver of state risk-to-capital requirements from the Wisconsin Office of the Commissioner of Insurance (OCI), but that expires at the end of 2011. Other state waivers expire earlier, the soonest at the end of 2010. The company warned its risk-to-capital ratio — which reached 17.8 to 1 at the end of Q210 — may rise as high as 40 to 1, which could limit its ability to write new business in certain states. “If we were prevented from writing new business in all states, our insurance operations would be in run-off, meaning no new loans would be insured but loans previously insured would continue to be covered, with premiums continuing to be received and losses continuing to be paid, on those loans, until we either met the applicable risk-to-capital requirement or obtained a necessary waiver to allow us to once again write new business,” MGIC said in its statement. Write to Austin Kilgore. The author held no relevant investments.

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