MGIC Investment Corp. plunged by more than half after the Milwaukee-based mortgage insurer reported its biggest loss since 2009 and the company's risk-to-capital ratio exceeded regulatory standards.
MGIC fell 56 percent to $1.07 at 9:37 a.m. in New York, its largest-ever intraday decline, after posting a net loss of $273.9 million compared with $151.7 million a year earlier. The cost to protect the debt of MGIC from default soared.
The deepest housing crash in seven decades drained capital at mortgage insurers including MGIC, which cover losses when homeowners default and foreclosures fail to recoup costs. MGIC said its preliminary ratio of risk to capital for combined operations rose to 30-to-1 as of June 30, exceeding the level required by some regulators to write new policies, and it has received waivers from some overseers to continue sales.
"This is an extremely troubled company and its ongoing viability, obviously the markets are putting a big question mark about that," said Rob Haines, an analyst at CreditSights Inc. "It seems like it's inevitable that the company will ultimately end up in some kind of regulatory receivership."
Mortgage-guarantor PMI Group Inc. filed for bankruptcy protection in November and Triad Guaranty Inc. stopped selling new policies in 2008 as capital ran short. Losses also prompted Old Republic International Corp. to retreat from the business.
Swaps Soar
Credit-default swaps tied to MGIC increased 13 percentage points to 44.2 percent upfront, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That's in addition to 5 percent a year, meaning it would cost $4.42 million initially and $500,000 annually to protect $10 million of the company's debt for five years.
Credit-default swaps typically rise as investor confidence deteriorates and fall as it improves. The contracts pay the buyer face value if a borrower fail to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
