California Insurance

MTG MGIC Investment reported a loss of network fourth quarter of $ 1.47 billion of revenue against $ 22 million last year. This translation of a loss of $ 18.17 per share, against $ 1.47 Net earnings per share last year and Street estimates loss of $ 6.77 per share loss. The biggest factor in the loss of more than expected, the establishment of a lack of premium reserves of $ 1.2 billion for the insurance pool for Wall Street securitization.

A Premium is the lack of reservations because of the difference in net present value of premiums in the business world in their lifetime, compared to losses expected. Indeed, the losses expected in the coming years are recognized. This type of operation is no more writing.

This was the worst part of the MGIC’s bulk business, business and bulk is generally worse than the results of sinking. Wall Street accounted for 89%, 66% and 41% by mass of the new insurance written, you have to in 2005, 2006 and 2007 and 74% of the largest party came into force. The loss for dealings 2006 should be 150% 175% Range, 2005 will likely be losses from 100% to 120% and pre-2004 should achieve by the end of 60%.

In the fourth quarter, net premiums of 25%. The persistence rose to 76.4% against 69.6% last year. The insurance in force has increased by 20%.

The geographical distribution of bulk insurance in California 20% and 12% to 13% in Florida. (California is only 4% of flux.).

Regarding capital, the rating agencies have indicated this lack of reserve Premium, and it is in its current form opinions. The Covenants in their credits are not change with the recognition that premium, the lack of reserves on their book value, which has up to $ 32 per share. The company operates 12 for-1 Now the leverage but think it could go up 15 to-1 if necessary. Historically, the range was 7-for-1 and 12 for-1.

Two mortgage makers of large captive mortgage insurance operations are Drop (MGIC non-clients, however). Most higher losses in the current, which are not yet too, go to the prisoners in the years 2008 and 2009.

Competitors have their price increases terms, and 100% financing of the evaluation relations are down (but increasingly obvious yet).

Will funds for the management of new growth opportunities and has hired a financial advisor.

The Florida and California cure rates are now near the national average. Price of crime are not as quickly nationally, but cure rates. Management indicates that losses of this slowdown has been front-loaded with mortgage speculators and fraud. That is why the company has estimated that the problem of loss of “next year, be replaced.”

Approximately half of the loans by the end of Delinquent heal the longer term. The speech is 30 days of closure of the moratorium means little. Rate of failure in the old companies are not increased, but not heal normally.

From management planned for 2008 lies in the fact that unemployment did not significantly increase. Home Price depreciation of 5% to 6%. With these losses are $ 1.8 billion to 2.0 billion dollars.

There is an apparent split between, for more specific or reinsurance companies with a capacity of the economy, while the losses are still alive. On the one hand, administration, research on the valley greater market share and better conditions. But the company could also cover, with sufficient capital to cover the expected loss of capacity.

Given the success for the first lack of protest was a sign of strength. (The company said that nobody asked to do so.)

The situation could grow to something very attractive, if the management is true, on the front-end loading losses when the company’s share capital, and if there is no recession. But these are big IFS. I could see the action of a big jump, if the reinsurance undertaking someone obtain a large portion of its troubled insurance book. This makes more sense as equity, at this stage, I think.