MGIC Stays NeutralZacks Investmentupdated Apr 13, 2012TweetAt GET.com we maintain complete editorial integrity on our content & provide transparent & unbiased information. Companies don't pay us to include their products although we receive a compensation when you successfully apply to products from our partners. See how we make money here.At GET.com we maintain complete editorial integrity.We continue to rate the shares of MGIC Investment Corp. (MTG) at Neutral prior to its fourth quarter earnings release. The company’s business performance is primarily dependent on the housing market, which is recovering gradually. However, MGIC’s continuing weak performance, stressed capital position and uncertainty relating to new business growth keeps us on the sidelines. For the past four years, MGIC has been hit hard by the deteriorating mortgage and housing markets. However, the gradually improving residential mortgage markets are expected to lead the company to profitability. MGIC’s market share has been declining in the face of competition from the Federal Housing Authority (FHA), which implemented a rate increase. This rate hike of its competitor combined with MGIC’s new credit tiered pricing makes its products more competitive. Management expects that these changes will bring about an increase in the company’s market share versus FHA’s. Also, delinquency rates have been declining. The 2011 year end delinquency rate was 16.11% compared with 17.48% at the end of 2010. We expect the delinquencies to decline further and reserve per delinquency to trend down, albeit slowly. However, MGIC’s net investment income has been under pressure. We continue to expect a decline in investment income throughout 2012, compared to 2011, as the average amortized cost of invested assets decrease due to claim payments exceeding premiums received. Also, net premiums written and earned in fiscal year 2011 decreased when compared with fiscal year 2010, due to lower average insurance in force, offset by lower levels of premium refunds related to rescissions and the continued decline in premiums ceded to captives. Management expects average insurance in force to continue declining through 2012 as new insurance written levels are not likely to exceed cancellation activity. MGIC has also been facing an increase in the risk-to-capital ratio, the most common measure of maximum permitted risk. The company expects its risk-to-capital ratio to exceed 25:1 in the second half of the year 2012. If the company breaches the regulatory limit, it may come under regulatory seizure and will be barred from writing new business. Other players in the private mortgage insurance markets such as Radian Group Inc. (RDN) and Genworth Financial Inc. (GNW) have also been suffering badly since the housing downturn. Recently, one of the company closest competitors, the PMI Group Inc. filed for Chapter 11 bankruptcy protection after its mortgage insurance unit was seized by state regulators. GENWORTH FINL (GNW): Free Stock Analysis Report To read this article on Zacks.com click here. Editorial Disclosure: Any personal views and opinions expressed by the author in this article are the author's own and do not necessarily reflect the viewpoint of GET.com. The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities.