Reuters: Global Markets: MGIC will need to add more capital to unit, shares slump

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MGIC will need to add more capital to unit, shares slump Aug 2nd 2012, 13:39 By Jochelle Mendonca and Sharanya Hrishikesh Thu Aug 2, 2012 9:39am EDT (Reuters) - MGIC Investment Corp (MTG.N) will have to add another $200 million in capital to its main risk-laden unit in order to continue writing insurance throughout the United States as the mortgage insurer's risk ratios continue to climb. MGIC Investment's shares were down 56 percent to $1.07 in early morning trade. The stock traded at as much as $65 in 2007. MGIC Investment's main unit, MGIC, has been writing insurance after receiving waivers on its capital requirements from mortgage financiers Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and a number of state regulators over the last two years. The company said it would use its new unit MIC to write insurance in the jurisdictions in which it has not received capital waivers for the main unit. Mortgage insurers have been creating new units to find a way around soaring risk ratios. But Freddie Mac had on Wednesday asked the holding company to add $200 million in capital to the main unit MGIC in return for allowing MIC to temporarily write mortgage insurance in 7 states. In a letter dated August 1, Freddie Mac - which is one of MGIC Investment's main counterparties - said the capital infusion must occur by September 30. Freddie Mac also requires that the mortgage insurer settle the case it filed against the government-backed entity by October 31, as part of the approval conditions. MGIC Investment had sued Freddie Mac and the Federal Housing Finance Administration in May to settle a dispute over coverage limits on certain insurance policies. Freddie Mac now has the upper hand. MGIC Investment said that if it were unable to write insurance across the United States through a combination of MGIC and MIC, lenders would likely be unwilling to buy insurance from it anywhere in the country. CAPITAL LEVELS FALL MGIC Investment, one of the largest mortgage insurers in the United States, has been pumping cash into its business to bring down risk levels, but with little prolonged effect. At June 30, the preliminary risk-to-capital ratio of its combined insurance operations was 30 to 1. Mortgage insurance regulators commonly allow for a maximum risk-to-capital ratio of 25 to 1. The Wisconsin Insurance Commissioner, which is MGIC Investment's primary regulator, uses a minimum policyholder position (MPP) to gauge the health of an insurer. MPP is the minimum amount of money an insurer would need to meet claims. MGIC failed on that count too. Its preliminary policyholder position was $211 million below the required MPP of $1.3 billion. MGIC Investment, Radian Group Inc (RDN.N) and life insurer Genworth's (GNW.N) mortgage unit, protect lenders in cases where homebuyers make down payments below a certain threshold. They have been struggling to recoup their losses after the housing bubble burst and foreclosures soared, saddling them with large claims on unpaid home loans and thin capital cushions. MGIC also posted its eighth straight quarterly loss on Thursday. (Reporting by Jochelle Mendonca and Sharanya Hrishikesh in Bangalore; Editing by Supriya Kurane) Link this Share this Digg this Email Reprints

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