Jul. 17--MGIC Investment Corp. hopes to accelerate the writing of mortgage insurance beginning next year through a subsidiary that it plans to inject with as much as $1 billion in capital.

Getting new business is crucial for the future of the nation's largest mortgage insurer, which on Thursday reported its eighth straight unprofitable quarter. The insurer posted a $339.8 million second-quarter loss as the worst housing decline since the Great Depression caused more mortgage defaults.

MGIC reported a second-quarter loss of $2.74 a share, compared with a loss of $99.9 million, or 81 cents a share, for the same quarter a year ago.

Fitch Ratings downgraded MGIC's financial strength rating to BBB- from BBB, the ratings firm said Thursday. It said MGIC's move "reduces the resources that are immediately available to pay claims at MGIC over the short term," and that capital "will be utilized to underwrite new business and thus increase the risk profile of this capital."

Wall Street reacted favorably to the news, however, sending the shares up 19 percent, or 76 cents, to $4.70.

Company officials released details of a plan to begin writing new mortgage insurance beginning next year through the subsidiary, MGIC Indemnity Corp. MGIC has received permission from the state Office of the Commissioner of Insurance to infuse MGIC Indemnity Corp. with up to $1 billion in capital for use toward that purpose.

The additional capital would be provided in two $500 million installments, the first of which is to be made by the end of this month and the second shortly after the first of the year.

Before the subsidiary can begin writing new business, it must obtain licenses in the states in which it plans to do business. It also must get approval from Fannie Mae and Freddie Mac to be an eligible mortgage insurer for loans purchased by Fannie Mae and Freddie Mac.

In a teleconference with analysts and in a company statement, MGIC officials said the economic challenge "has not been our ability to pay current and future claims; rather, our challenge lies with increasing delinquencies and slow run-off of the existing insurance in force, which has created the risk that MGIC may not meet the minimum regulatory capital required to insure new loans."

As a result, company executives said, the subsidiary is needed to write new business with a lower risk-to-capital ratio. The company said in April that it was exploring use of a subsidiary with a clean slate of ratios.

MGIC does not expect that the U.S. Treasury will offer any capital or capital support.

When the subsidiary becomes active, MGIC plans to stop writing new business and will go into "run-off," meaning it will continue to collect premiums and will pay claims but will no longer write new business.

Curt S. Culver, MGIC's chairman and CEO, said the mortgage insurer's poor results continued to be "adversely impacted" by increased delinquencies. He blamed those delinquencies on a weakened economy, increased joblessness and lower home prices.

Culver noted that the company has adequate resources to pay all of its insured claim obligations on the existing insurance in force.

Net loss for the first six months of 2009 was $524.4 million, compared with a net loss of $134.4 million for the same six-month period last year. For the first six months of 2009, loss per share was $4.22 per share compared with $1.29 per share for the same period last year.

Total revenue for the second quarter was $454.5 million, compared with $424.5 million in the second quarter last year. Net premiums written for the quarter were $330.4 million, compared with $371.8 million for the same period last year.

The company reported that new insurance for the second quarter totaled $5.9 billion, compared with $14 billion in the second quarter of 2008.

Bloomberg News contributed to this report.

-----

To see more of the Milwaukee Journal Sentinel, or to subscribe to the newspaper, go to http://www.jsonline.com.

Copyright (c) 2009, Milwaukee Journal Sentinel

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

MTG,

A service of YellowBrix, Inc.