MGIC to restructure as losses steepen

As its financial losses continue to compound, Milwaukee-based MGIC Investment Corp. today announced a restructuring plan that will downstream capital to a subsidiary with the hopes of generating additional business.
MGIC reported a second quarter net loss of $339.8 million, or $2.74 per share, compared with a net loss of $99.9 million, or 81 cents per share, for the same quarter a year ago.
Curt Culver, chairman and chief executive officer of MGIC, said that the company’s financial results continue to be adversely impacted by increased delinquencies, which are occurring due to a weakened economy, increased unemployment and lower home prices. Culver added that as MGIC continues to navigate through the most severe housing correction since the Great Depression and the worst economy in his lifetime, the company continues to believe that it has more than adequate resources to pay all of its insured claim obligations on the existing insurance in force.
MGIC’s Mortgage Guaranty Insurance Corp. today announced that the Office of the Commissioner of Insurance for the State of Wisconsin (OCI) will allow a reactivation plan under which MGIC will contribute up to $1 billion to MGIC Indemnity Corp. (MIC), a wholly owned MGIC subsidiary. The restructuring will enable MIC to write new mortgage guaranty insurance.
MIC is currently seeking Fannie Mae’s and Freddie Mac’s approval to be an eligible mortgage insurer for loans. Assuming MIC is approved as an eligible mortgage insurer, MIC plans to begin writing new business as of Jan. 1, 2010.
MIC’s additional capital will be provided in two $500 million installments, the first of which is to be made by July 31, 2009, and the second within five business days after Jan. 1, 2011.
The restructuring plan was not greeted warmly on Wall Street, where Fitch Ratings downgraded the insurer financial strength (IFS) rating of MGIC to "BBB-" from "BBB" and placed it and the long-term debt and senior debt ratings of MGIC Investment Corp. on Rating Watch Negative.