MGIC Investment Corp.’s disclosure about a disagreement between its insurance regulator in Wisconsin and the Federal Home Loan Mortgage Corp. over how it uses capital sent its share price plummeting. If the stock doesn’t recovery quickly, the Milwaukee-based firm could be in jeopardy of being de-listed by the Big Board.
A $277 million second-quarter loss before taxes was reported by MGIC on Thursday. Earnings deteriorated from the $162 million loss suffered a year earlier.
Around 33 of the roughly 40 pages in the second-quarter 2012 earnings report were dedicated to risk factors outlined in a “Safe Harbor Statement.”
One of the risk factors involved MGIC Indemnity Corp., which was approved by Freddie Mac in January to conduct business in states where MGIC fell below required capital and couldn’t obtain a waiver. Conditions of the agreement include a 20-to-one capital ratio for MGIC Indemnity.
The agreement also requires the indemnity unit to have access to capital from MGIC necessary to maintain sufficient liquidity to satisfy its obligations under insurance policies issued by MGIC — something that the Office of the Commissioner of Insurance of the State of Wisconsin disagrees with. Wisconsin, which has waived MGIC’s capital requirements through the end of next year, objected to Freddie’s requirement because it does not recognize the OCI’s statutory authority and obligations.
MGIC is operating under an OCI order that waives capital requirements until Dec. 31, 2013.
“As noted above, we cannot assure you that the OCI will not modify or revoke the OCI order, or that it will renew it when it expires,” the report states. “Freddie Mac has approved MIC as an eligible insurer only through Dec. 31, 2012, and Freddie Mac may modify the terms and conditions of its approval at any time without notice and may withdraw its approval of MIC as an eligible 6 insurer at any time in its sole discretion.
“Unless Freddie Mac extends the term of its approval of MIC, whether MIC will continue as an eligible mortgage insurer after Dec. 31, 2012, will be determined by Freddie Mac’s mortgage insurer eligibility requirements then in effect.”
The dispute between Freddie and Wisconsin’s insurance commissioner threatens MGIC’s fragile plan to reemerge as a healthy mortgage insurer.
Shares of MGIC, which trade on the NYSE under the symbol “MTG,” plummeted 64 percent today to 88 cents.
NYSE companies with an average share price of less than $1 for any 30-day period are given six months to bring the average price to the $1 minimum or risk being thrown off the exchange.
