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MGIC Investment's (MTG) Q2 Earnings Miss, Revenues Fall Y/Y

MGIC Investment Corporation MTG reported second-quarter 2020 adjusted net operating income per share of 3 cents, which missed the Zacks Consensus Estimate by 80%. The bottom line also declined 93.5% year over year.

The results were impacted by creation of loan loss reserves for expected losses on new loan delinquencies, which witnessed a surge primarily due to the COVID-19 pandemic.

Operational Update

Insurance in force improved 7.7% to $230.5 billion, primarily attributable to new business writings partly offset by lower persistency.

The company witnessed a surge of 133% in primary delinquency to 69,326 loans due to adverse economic impact of COVID-19. Notably, as of Jun 30, 2020, 67% of the company’s delinquency inventory stemmed from COVID-19 related forbearance plans.

MGIC Investment reported total operating revenues of $287 million, which declined 1.7% year over year on lower net investment income and net premiums earned.

Net premiums earned fell 1.4% year over year to $243.6 million in the second quarter. The downside is mainly due to lower premium rates and reduced profit commission as a result of higher ceded incurred losses, partly mitigated by improved average insurance in force and a rise in premiums from single premium policy cancellations.

Net investment income decreased 6.4% year over year to $39.7 million, due to reduced investment yields partly offset by growth in the consolidated investment portfolio.

Persistency, the percentage of insurance remaining in force from one year prior, was 68.2% as of Jun 30, 2020, down 1260 basis points (bps) year over year.

New insurance written was $28.2 billion, up 89.3% year over year. The surge clearly highlights strength of the purchase mortgage market and the refinance market amid the pandemic-induced market volatility.

Net underwriting and other expenses totaled $47.2 million, which increased 3.3% year over year.

In the quarter under review, loss ratio was 89.2%, which deteriorated 8040 bps year over year.

MGIC Investment Corporation Price, Consensus and EPS Surprise

MGIC Investment Corporation Price, Consensus and EPS Surprise

MGIC Investment Corporation price-consensus-eps-surprise-chart | MGIC Investment Corporation Quote

Financial Update

Book value per share, a measure of net worth, grew 4.4% to $12.95 as of Jun 30, 2020 from 2019 end.

MGIC Investment had $530 million in investments, cash and cash equivalents, up 63.1% from the figure at 2019 end.

Total assets were $6.6 billion, up 6.5% from 2019-end level.

PMIERs available assets were $4.5 billion, which is $1.1 billion above its minimum required assets as of Jun 30, 2020.

Capital Deployment

MGIC did not pay dividends to its holding company during second-quarter 2020. Nevertheless on Jul 30, 2020, MGIC Investment Corporation announced quarterly cash dividend of 6 cents per share, which will be paid on Aug 28, 2020 to shareholders of record as on Aug 11.

The company also did not buy back shares during the quarter under review.

Zacks Rank & Performance of Other Insurers

MGIC Investment carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other insurance industry players, which have reported second-quarter earnings so far, the bottom lines of Arch Capital Group Ltd. ACGL, Prudential Financial, Inc. PRU and Assurant, Inc. AIZ beat the Zacks Consensus Estimate.

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