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Old Republic Buys Competitor Stakes

November 12, 2007

NEW YORK (AP) -- The mortgage insurer Old Republic International Corp. has built stakes in competitors over the past few months, as mounting defaults have dragged stocks in the industry to their lowest prices in years.

In regulatory filings with the Securities and Exchange Commission on Friday, Old Republic disclosed it has bought a 15 percent stake in PMI Group Inc. and an 11 percent stake in MGIC Investment Corp.

These companies underwrite mortgage insurance policies, which are contracts promising to reimburse a lender if a borrower fails to repay a home loan.

The industry has struggled this year as more lenders submit claims stemming from missed mortgage payments. The chief risk officer of American International Group Inc., which runs a mortgage insurance business, this week said the spike in claims this year is the equivalent of a catastrophe for property insurers.

PMI's stock closed Thursday down more than 75 percent for the year and 64 percent in the past five years. MGIC Investment's stock was down nearly 71 percent for the year and at its cheapest price since 1995.

Bear Stearns analyst David Hochstim wrote in a research report PMI and MGIC trade at "unprecedented discounts" to the value of their assets. However, Old Republic's discount is more modest. That means it makes more sense for Old Republic to buy competitors' stock than buy its own, Hochstim said.

PMI Group's stock leaped $4.39, or 39.4 percent, to $15.50 in afternoon trading Friday. Shares of MGIC Investment surged $3.80, or 20.7 percent, to $22.16.

Shares of Old Republic initially slipped to their cheapest trade in more than four years before recovering. The stock was up 9.1 percent to $15.46 in afternoon trading.

Shares of another mortgage insurer, Radian Group Inc. jumped $1.35, or 13.2 percent, to $11.55. The stock closed Thursday down 81.1 percent for the year.

Copyright 2007 Associated Press

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