Credit default swap spreads have widened substantially for MGIC Investment Corp. since the start of the new year, reflecting changes in policy pricing, according to a report from Fitch Solutions.
Five-year CDS spreads expanded by more than 100% since the beginning of the year and now price at the widest levels observed since June 2013, Fitch Solutions noted Wednesday in its latest CDS case study snapshot.
The dampened market sentiment producing these results stems from changes in MGIC's pricing strategy, Fitch Solutions Director Diana Allmendinger said. This strategy may lead to a reduction in policies over the next year, she said.
Concurrently, MGIC's debt now prices in "B+" territory, which places it closer to distressed territory, Fitch said.
In response to the report from Fitch, Mike Zimmerman, MGIC senior vice president of investor relations, reiterated the company's statements in the fourth-quarter earnings call that it expects insurance-in-force to increase and delinquent and paid claims to decline. He added that the company grew its capital position and maintained enough liquidity to pay off bonds in 2017 and service remaining debt interest.
"As for the pricing change our exhibits clearly show the returns will be maintained," Zimmerman said in an email. "So it's confusing why Fitch would cite this as the reason. Spreads in all financials have widened as more investors anticipate a recession despite no weakening of consumer credit."
