MILWAUKEE - Continued strength in the economy and the resulting low default rate helped the biggest private mortgage insurer beat Wall Street's second-quarter earnings forecast by a solid margin.
MGIC Investment Corp.'s second-quarter earnings up 21% from the same period last year, to $136 million. Earnings per share, up 25% to $1.27, beat First Call/Thomson Financial's consensus estimate of $1.21.
David M. Graifman, an analyst at Keefe, Bruyette & Woods, said the solid performance was attributable to lower losses, both in terms of actual losses paid and reserves taken.
MGIC paid claims equal to 13.2% of the premiums it earned in the second quarter, down from 15.9%. It took provisions for future losses equal to 13.2% of premiums earned, down from 17.8%.
Although MGIC took more out of its reserves than it put back in, it can afford to do so because it is "over-reserved," Mr. Graifman said.
The company has $626 million of reserves, or $22,000 per delinquent loan, he noted, while its competitors Radian Guaranty and PMI Mortgage Insurance Co. are "comfortably reserved" with just $15,000 per delinquent loan.
Wednesday afternoon MGIC's stock was trading at $51.25, up 6.77% from Tuesday's close.