MILWAUKEE, Feb. 4, 2020 /PRNewswire/ -- MGIC Investment
Corporation (NYSE: MTG) today reported operating and financial
results for the fourth quarter of 2019. Net income for the quarter
was $177.1 million, or $0.49 per diluted share, compared with net income
of $157.7 million, or $0.43 per diluted share, for the fourth quarter
of 2018. Net Income for the full year of 2019 was
$673.8 million, or $1.85 per diluted share, compared to $670.1 million, or $1.78 per diluted share, for the full year of
2018.
Adjusted net operating income for the fourth quarter of 2019 was
$176.1 million, or $0.49 per diluted share, compared with
$154.0 million, or $0.42 per diluted share, for the fourth quarter
of 2018. We present the non-GAAP financial measure "Adjusted net
operating income" to increase the comparability between periods of
our financial results. Adjusted net operating income for the full
year of 2019 was $669.7 million, or
$1.84 per diluted share, compared to
$668.7 million, or $1.78 per diluted share, for 2018. See "Use
of Non-GAAP financial measures" below.
Tim Mattke, CEO of MTG and
Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am
pleased to report that the solid financial results of the fourth
quarter capped a strong 2019 as we continued to execute on our
strategies and focus on long term success. For 2019, compared
to 2018, despite lower persistency our insurance in force increased
more than 6%, we wrote nearly 25% more new insurance, and
investment income increased. The credit performance for the new
business written remains outstanding, the legacy book continued to
decrease in size and contribute fewer delinquencies, and we
maintained a low expense level." Mattke continued, "In 2019 we
repurchased $114 million of our
common stock outstanding, established a quarterly common stock
dividend mid-year that distributed a total of $42 million, continued to use quota share and
excess of loss reinsurance to reduce potential future earnings
volatility from credit losses and enhance our returns, decreased
our debt ratio, continued our positive credit ratings trajectory,
and increased dividends from MGIC to our holding company to
$280 million."
Mattke stated, "Reflecting our strong capital position, the
Office of the Commissioner of Insurance for the State of Wisconsin approved our $70 million quarterly dividend and an additional
$320 million special dividend from
MGIC to our holding company, and our Board approved the repurchase
of up to an additional $300 million
of our common stock through the end of 2021." Mattke further
added "I am excited about our ability to provide credit
enhancement and low down payment solutions to lenders, GSEs and
borrowers, and to deliver meaningful returns to our shareholders in
2020. We expect that our insurance in force will grow modestly, and
that the number of new mortgage delinquency notices received and
the amount of claims paid will continue to decline in 2020."
Fourth Quarter Summary
- New insurance written of $19.3
billion, compared to $12.2
billion in the fourth quarter of 2018.
- Insurance in force of $222.3
billion at December 31, 2019
increased by 2% during the quarter and 6% compared to December 31, 2018.
- Primary delinquency inventory of 30,028 loans at December 31, 2019 decreased from 32,898 loans at
December 31, 2018. Our primary
delinquency inventory declined 9% year-over-year.
-
- Insurance written in 2008 and before accounted for
approximately 12% of the December 31,
2019 primary risk in force but accounted for 60% of the new
primary delinquency notices received in the quarter.
- The percentage of primary loans that were delinquent at
December 31, 2019 was 2.78%, compared
to 3.11% at December 31, 2018, and
4.55% at December 31, 2017. The
percentage of flow primary loans that were delinquent at
December 31, 2019 was 2.23%, compared
to 2.47% at December 31, 2018, and
3.70% at December 31, 2017.
- Persistency, or the percentage of insurance remaining in force
from one year prior, was 75.8% at December
31, 2019, compared with 81.7% at December 31, 2018 and 80.1% at December 31, 2017.
- The loss ratio for the fourth quarter of 2019 was 8.9%,
compared to 12.7% for the third quarter of 2019 and 11.3% for the
fourth quarter of 2018.
- The underwriting expense ratio associated with our insurance
operations for the fourth quarter of 2019 was 19.6%, compared to
17.7% for the third quarter of 2019 and 19.1% for the fourth
quarter of 2018.
- Net premium yield was 48.4 basis points in the fourth quarter
of 2019, compared to 49.6 basis points for the third quarter of
2019 and 47.3 basis points for the fourth quarter of 2018.
- MGIC paid a dividend of $70
million to our holding company during the fourth quarter of
2019.
- MGIC Investment Corporation paid a $0.06 dividend per common share to shareholders
during the fourth quarter of 2019.
- 1.4 million shares of common stock were repurchased at an
average cost per share of $14.26.
- Book value per common share outstanding increased by 4% during
the quarter to $12.41.
First Quarter 2020 Activities
- Declared a $0.06 dividend per
common share
- Received authorization to repurchase $300 million of our common stock through the end
of 2021
- Received appropriate approvals to pay a dividend of
$320 million ("special dividend")
from MGIC to the holding company
- Received appropriate approvals to pay a dividend of
$70 million ("quarterly dividend")
from MGIC to the holding company
Revenues
Total revenues for the fourth quarter of 2019 were $311.6 million, compared to $285.6 million in the fourth quarter last year.
Net premiums written for the quarter were $254.0 million, compared to $248.0 million for the same period last year. Net
premiums earned for the quarter were $266.3
million, compared to $245.7
million for the same period last year. The increase was due
to higher average insurance in force and an increase in premiums
from single premium policy cancellations, partially offset by the
effect of lower premium rates. Investment income for the fourth
quarter increased to $41.3 million,
from $38.3 million for the same
period last year, resulting from an increase in the consolidated
investment portfolio.
Losses and
expenses
Losses incurred
Losses incurred in the fourth quarter of 2019 were $23.7 million, compared to $27.7 million in the fourth quarter of
2018. During the fourth quarter of 2019 there was a
$24 million reduction in losses
incurred due to positive development on our primary loss reserves,
before reinsurance, for previously received delinquency notices,
compared to a reduction of $22
million in the fourth quarter of 2018. Losses incurred in
the quarter associated with delinquency notices received in the
quarter reflect a lower estimated claim rate when compared to the
same period of last year.
Underwriting and other expenses
Net underwriting and other expenses were $52.3 million in the fourth quarter of 2019,
compared to $50.0 million in the same
period last year.
Provision for income taxes
The effective income tax rate was 20.5% in the fourth quarter of
2019, compared to 19.0% in the fourth quarter of 2018.
The lower rate in the fourth quarter of 2018 was
primarily due to a benefit recorded for the settlement of our IRS
litigation.
Capital
- Total shareholders' equity was $4.3
billion and outstanding principal on borrowings was
$837 million as of December 31, 2019.
- MGIC's PMIERs Available Assets totaled $4.6 billion, or $1.2
billion above its Minimum Required Assets as of December 31, 2019.
Other Balance Sheet and Liquidity
Metrics
- Total assets were $6.2 billion as
of December 31, 2019, compared to
$5.7 billion as of December 31, 2018, and $5.6 billion as of December 31, 2017.
- The fair value of our investment portfolio, cash and cash
equivalents was $5.9 billion as of
December 31, 2019, compared to
$5.3 billion as of December 31, 2018, and $5.1 billion as of December 31, 2017.
- Investments, cash and cash equivalents at the holding company
were $325 million as of December 31, 2019, compared to $248 million as of December 31, 2018, and $216 million as of December 31, 2017.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today,
February 4, 2020, at 10 a.m. ET
to allow securities analysts and shareholders the opportunity to
hear management discuss the company's quarterly results. The
conference call number is 1-855-493-1443. The call is being webcast
and can be accessed at the company's website at
http://mtg.mgic.com/. A replay of the webcast will be available on
the company's website through March 4, 2020 under
"Newsroom."
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment
Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping
families achieve homeownership sooner by making affordable
low-down-payment mortgages a reality. At December 31, 2019,
MGIC had $222.3 billion of primary
insurance in force covering over one million mortgages.
This press release, which includes certain additional
statistical and other information, including non-GAAP financial
information, and a supplement that contains various portfolio
statistics are both available on the Company's website at
https://mtg.mgic.com/ under "Newsroom."
From time to time MGIC Investment Corporation releases important
information via postings on its corporate website, and via postings
on MGIC's website for information related to underwriting and
pricing, and intends to continue to do so in the future. Such
postings include corrections of previous disclosures, and may be
made without any other disclosure. Investors and other interested
parties are encouraged to enroll to receive automatic email alerts
and Really Simple Syndication (RSS) feeds regarding new postings.
Enrollment information for MGIC Investment Corporation alerts can
be found at https://mtg.mgic.com/shareholder-services/email-alerts.
For information about our underwriting and rate changes, see
https://www.mgic.com/underwriting.
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission ("SEC"). These risk factors may also cause actual
results to differ materially from the results contemplated by
forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than
historical fact, including matters that inherently refer to future
events. Among others, statements that include words such as
"believe," "anticipate," "will" or "expect," or words of similar
import, are forward looking statements. We are not undertaking any
obligation to update any forward looking statements or other
statements we may make even though these statements may be affected
by events or circumstances occurring after the forward looking
statements or other statements were made. No investor should rely
on the fact that such statements are current at any time other than
the time at which this press release was delivered for
dissemination to the public.
In addition, the current period financial results included in
this press release may be affected by additional information that
arises prior to the filing of our Form 10-K for the year ended
December 31, 2019.
While we communicate with security analysts from time to time,
it is against our policy to disclose to them any material
non-public information or other confidential information.
Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the
content of the statement or report, and such reports are not our
responsibility.
Use of Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax
operating income (loss), adjusted net operating income (loss) and
adjusted net operating income (loss) per diluted share facilitate
the evaluation of the company's core financial performance thereby
providing relevant information to investors. These measures are not
recognized in accordance with accounting principles generally
accepted in the United States of
America (GAAP) and should not be viewed as alternatives to
GAAP measures of performance.
Adjusted pre-tax operating income (loss) is defined as
GAAP income (loss) before tax, excluding the effects of net
realized investment gains (losses), gain (loss) on debt
extinguishment, net impairment losses recognized in income (loss)
and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as
GAAP net income (loss) excluding the after-tax effects of net
realized investment gains (losses), gain (loss) on debt
extinguishment, net impairment losses recognized in income (loss),
and infrequent or unusual non-operating items where applicable. The
amounts of adjustments to components of pre-tax operating income
(loss) are tax effected using a federal statutory tax rate of
21%.
Adjusted net operating income (loss) per diluted
share is calculated in a manner consistent with the
accounting standard regarding earnings per share by dividing (i)
adjusted net operating income (loss) after making adjustments for
interest expense on convertible debt, whenever the impact is
dilutive, by (ii) diluted weighted average common shares
outstanding, which reflects share dilution from unvested restricted
stock units and from convertible debt when dilutive under the
"if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted
net operating income (loss) exclude certain items that have
occurred in the past and are expected to occur in the future, the
excluded items represent items that are: (1) not viewed as part of
the operating performance of our primary activities; or (2)
impacted by both discretionary and other economic or regulatory
factors and are not necessarily indicative of operating trends, or
both. These adjustments, along with the reasons for their
treatment, are described below. Trends in the profitability of our
fundamental operating activities can be more clearly identified
without the fluctuations of these adjustments. Other companies may
calculate these measures differently. Therefore, their measures may
not be comparable to those used by us.
- Net realized investment gains (losses). The recognition
of net realized investment gains or losses can vary significantly
across periods as the timing of individual securities sales is
highly discretionary and is influenced by such factors as market
opportunities, our tax and capital profile, and overall market
cycles.
- Gains and losses on debt extinguishment. Gains and
losses on debt extinguishment result from discretionary activities
that are undertaken to enhance our capital position, improve our
debt profile, and/or reduce potential dilution from our outstanding
convertible debt.
- Net impairment losses recognized in earnings. The
recognition of net impairment losses on investments can vary
significantly in both size and timing, depending on market credit
cycles, individual issuer performance, and general economic
conditions.
- Infrequent or unusual non-operating items. Our 2018
income tax expense includes amounts related to our IRS dispute and
is related to past transactions which are non-recurring in nature
and are not part of our primary operating activities.
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
December 31,
|
|
Twelve months
ended
December 31,
|
(In thousands,
except per share data)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
|
$
|
254,015
|
|
|
$
|
248,037
|
|
|
$
|
1,001,308
|
|
|
$
|
992,262
|
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums
earned
|
|
$
|
266,267
|
|
|
$
|
245,665
|
|
|
$
|
1,030,988
|
|
|
$
|
975,162
|
|
Net investment
income
|
|
41,322
|
|
|
38,328
|
|
|
167,045
|
|
|
141,331
|
|
Net realized
investment gains (losses)
|
|
1,320
|
|
|
(241)
|
|
|
5,306
|
|
|
(1,353)
|
|
Other
revenue
|
|
2,717
|
|
|
1,881
|
|
|
10,638
|
|
|
8,708
|
|
Total
revenues
|
|
311,626
|
|
|
285,633
|
|
|
1,213,977
|
|
|
1,123,848
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
Losses incurred,
net
|
|
23,690
|
|
|
27,685
|
|
|
118,575
|
|
|
36,562
|
|
Underwriting and
other expenses, net
|
|
52,293
|
|
|
49,983
|
|
|
194,769
|
|
|
190,143
|
|
Interest
expense
|
|
12,934
|
|
|
13,256
|
|
|
52,656
|
|
|
52,993
|
|
Total losses and
expenses
|
|
88,917
|
|
|
90,924
|
|
|
366,000
|
|
|
279,698
|
|
Income before
tax
|
|
222,709
|
|
|
194,709
|
|
|
847,977
|
|
|
844,150
|
|
Provision for income
taxes
|
|
45,599
|
|
|
36,963
|
|
|
174,214
|
|
|
174,053
|
|
Net income
|
|
$
|
177,110
|
|
|
$
|
157,746
|
|
|
$
|
673,763
|
|
|
$
|
670,097
|
|
Net income per
diluted share
|
|
$
|
0.49
|
|
|
$
|
0.43
|
|
|
$
|
1.85
|
|
|
$
|
1.78
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
December 31,
|
|
Year ended December
31,
|
(In thousands,
except per share data)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
|
|
$
|
177,110
|
|
|
$
|
157,746
|
|
|
$
|
673,763
|
|
|
$
|
670,097
|
|
Interest expense, net
of tax:
|
|
|
|
|
|
|
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
4,566
|
|
|
4,566
|
|
|
18,264
|
|
|
18,264
|
|
Diluted net income
available to common shareholders
|
|
$
|
181,676
|
|
|
$
|
162,312
|
|
|
$
|
692,027
|
|
|
$
|
688,361
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares - basic
|
|
348,538
|
|
|
360,111
|
|
|
352,827
|
|
|
365,406
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
Unvested restricted
stock units
|
|
2,377
|
|
|
1,937
|
|
|
2,069
|
|
|
1,644
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
19,028
|
|
|
19,028
|
|
|
19,028
|
|
|
19,028
|
|
Weighted average
shares - diluted
|
|
369,943
|
|
|
381,076
|
|
|
373,924
|
|
|
386,078
|
|
Net income per
diluted share
|
|
$
|
0.49
|
|
|
$
|
0.43
|
|
|
$
|
1.85
|
|
|
$
|
1.78
|
|
NON-GAAP
RECONCILIATIONS
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Three months ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Income before tax /
Net income
|
|
$
|
222,709
|
|
|
$
|
45,599
|
|
|
$
|
177,110
|
|
|
$
|
194,709
|
|
|
$
|
36,963
|
|
|
$
|
157,746
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
benefit related to IRS litigation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,939
|
|
|
(3,939)
|
|
|
Net realized
investment (gains) losses
|
|
(1,336)
|
|
|
(281)
|
|
|
(1,055)
|
|
|
241
|
|
|
51
|
|
|
190
|
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
221,373
|
|
|
$
|
45,318
|
|
|
$
|
176,055
|
|
|
$
|
194,950
|
|
|
$
|
40,953
|
|
|
$
|
153,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average
shares - diluted
|
|
|
|
|
|
369,943
|
|
|
|
|
|
|
381,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
0.49
|
|
|
|
|
|
|
$
|
0.43
|
|
|
Additional income tax
benefit related to IRS litigation
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(0.01)
|
|
|
Net realized
investment (gains) losses
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
0.49
|
|
|
|
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Twelve months ended
December 31,
|
|
|
|
2019
|
|
2018
|
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Income before tax /
Net income
|
|
$
|
847,977
|
|
|
$
|
174,214
|
|
|
$
|
673,763
|
|
|
$
|
844,150
|
|
|
$
|
174,053
|
|
|
$
|
670,097
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
benefit related to IRS litigation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,462
|
|
|
(2,462)
|
|
|
Net realized
investment (gains) losses
|
|
(5,108)
|
|
|
(1,073)
|
|
|
(4,035)
|
|
|
1,353
|
|
|
284
|
|
|
1,069
|
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
842,869
|
|
|
$
|
173,141
|
|
|
$
|
669,728
|
|
|
$
|
845,503
|
|
|
$
|
176,799
|
|
|
$
|
668,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average
shares - diluted
|
|
|
|
|
|
373,924
|
|
|
|
|
|
|
386,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
1.85
|
|
|
|
|
|
|
$
|
1.78
|
|
|
Additional income tax
benefit related to IRS litigation
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(0.01)
|
|
|
Net realized
investment (gains) losses
|
|
|
|
|
|
(0.01)
|
|
|
|
|
|
|
—
|
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
1.84
|
|
|
|
|
|
|
$
|
1.78
|
|
(1)
|
|
(1) For
the twelve months ended December 31, 2018, the Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share does not foot due to rounding of the
adjustments.
|
|
|
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
(In thousands,
except per share data)
|
|
2019
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
|
|
Investments
(1)
|
|
$
|
5,758,320
|
|
|
$
|
5,159,019
|
|
|
$
|
4,990,561
|
|
Cash and cash
equivalents
|
|
161,847
|
|
|
151,892
|
|
|
99,851
|
|
Restricted cash and
cash equivalents
|
|
7,209
|
|
|
3,146
|
|
|
—
|
|
Reinsurance
recoverable on loss reserves (2)
|
|
21,641
|
|
|
33,328
|
|
|
48,474
|
|
Home office and
equipment, net
|
|
50,121
|
|
|
51,734
|
|
|
44,936
|
|
Deferred insurance
policy acquisition costs
|
|
18,531
|
|
|
17,888
|
|
|
18,841
|
|
Deferred income
taxes, net
|
|
5,742
|
|
|
69,184
|
|
|
234,381
|
|
Other
assets
|
|
206,160
|
|
|
191,611
|
|
|
182,455
|
|
Total
assets
|
|
$
|
6,229,571
|
|
|
$
|
5,677,802
|
|
|
$
|
5,619,499
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
$
|
555,334
|
|
|
$
|
674,019
|
|
|
$
|
985,635
|
|
Unearned
premiums
|
|
380,302
|
|
|
409,985
|
|
|
392,934
|
|
Federal home loan
bank advance
|
|
155,000
|
|
|
155,000
|
|
|
155,000
|
|
Senior
notes
|
|
420,867
|
|
|
419,713
|
|
|
418,560
|
|
Convertible junior
debentures
|
|
256,872
|
|
|
256,872
|
|
|
256,872
|
|
Other
liabilities
|
|
151,962
|
|
|
180,322
|
|
|
255,972
|
|
Total
liabilities
|
|
1,920,337
|
|
|
2,095,911
|
|
|
2,464,973
|
|
Shareholders'
equity
|
|
4,309,234
|
|
|
3,581,891
|
|
|
3,154,526
|
|
Total liabilities and
shareholders' equity
|
|
$
|
6,229,571
|
|
|
$
|
5,677,802
|
|
|
$
|
5,619,499
|
|
Book value per share
(3)
|
|
$
|
12.41
|
|
|
$
|
10.08
|
|
|
$
|
8.51
|
|
|
|
|
|
|
|
|
(1) Investments include net
unrealized gains (losses) on securities
|
|
$
|
138,285
|
|
|
$
|
(44,795)
|
|
|
$
|
37,058
|
|
(2) Loss reserves, net of reinsurance
recoverable on loss reserves
|
|
$
|
533,693
|
|
|
$
|
640,691
|
|
|
$
|
937,161
|
|
(3) Shares outstanding
|
|
347,308
|
|
|
355,371
|
|
|
370,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
ADDITIONAL
INFORMATION - NEW INSURANCE WRITTEN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2019
|
|
2018
|
New primary insurance
written (NIW) (billions)
|
$
|
19.3
|
|
|
$
|
19.1
|
|
|
$
|
14.9
|
|
|
$
|
10.1
|
|
|
$
|
12.2
|
|
|
$
|
63.4
|
|
|
$
|
50.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly (including
split premium plans) and annual premium plans
|
16.3
|
|
|
16.2
|
|
|
12.6
|
|
|
8.5
|
|
|
10.2
|
|
|
53.6
|
|
|
42.0
|
|
Single premium
plans
|
3.0
|
|
|
2.9
|
|
|
2.3
|
|
|
1.6
|
|
|
2.0
|
|
|
9.8
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct average
premium rate (bps) on NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
(1)
|
39.0
|
|
|
42.3
|
|
|
45.6
|
|
|
49.1
|
|
|
50.2
|
|
|
43.1
|
|
|
52.8
|
|
Singles
|
102.7
|
|
|
112.8
|
|
|
129.6
|
|
|
141.5
|
|
|
147.0
|
|
|
118.6
|
|
|
158.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO <
680
|
3
|
%
|
|
4
|
%
|
|
6
|
%
|
|
7
|
%
|
|
8
|
%
|
|
5
|
%
|
|
7
|
%
|
>95%
LTVs
|
9
|
%
|
|
12
|
%
|
|
16
|
%
|
|
18
|
%
|
|
17
|
%
|
|
13
|
%
|
|
16
|
%
|
>45% DTI
(2)
|
11
|
%
|
|
12
|
%
|
|
15
|
%
|
|
18
|
%
|
|
19
|
%
|
|
14
|
%
|
|
19
|
%
|
Singles
|
15
|
%
|
|
15
|
%
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
|
17
|
%
|
Refinances
|
30
|
%
|
|
20
|
%
|
|
11
|
%
|
|
8
|
%
|
|
6
|
%
|
|
19
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$
|
4.8
|
|
|
$
|
4.7
|
|
|
$
|
3.8
|
|
|
$
|
2.5
|
|
|
$
|
3.1
|
|
|
$
|
15.8
|
|
|
$
|
12.7
|
|
|
(1) Excludes loans
with split and annual payments.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
ADDITIONAL
INFORMATION - INSURANCE IN FORCE and RISK IN FORCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2019
|
|
2018
|
Primary Insurance In
Force (IIF) (billions)
|
$
|
222.3
|
|
|
$
|
218.1
|
|
|
$
|
213.9
|
|
|
$
|
211.4
|
|
|
$
|
209.7
|
|
|
|
|
|
Total # of
loans
|
1,079,578
|
|
|
1,075,285
|
|
|
1,065,893
|
|
|
1,059,720
|
|
|
1,058,292
|
|
|
|
|
|
Flow # of
loans
|
1,040,667
|
|
|
1,032,936
|
|
|
1,022,157
|
|
|
1,013,291
|
|
|
1,010,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inforce portfolio
yield (1)
|
50.3
|
|
|
51.7
|
|
|
52.2
|
|
|
52.5
|
|
|
52.7
|
|
|
51.4
|
|
|
53.1
|
|
Premium
refunds
|
(0.6)
|
|
|
(0.6)
|
|
|
(0.3)
|
|
|
(0.5)
|
|
|
(0.5)
|
|
|
(0.5)
|
|
|
(0.7)
|
|
Accelerated earnings
on single premium
|
3.6
|
|
|
3.5
|
|
|
2.1
|
|
|
1.1
|
|
|
1.0
|
|
|
2.6
|
|
|
1.2
|
|
Total direct premium
yield
|
53.3
|
|
|
54.6
|
|
|
54.0
|
|
|
53.1
|
|
|
53.2
|
|
|
53.5
|
|
|
53.6
|
|
Ceded premiums
earned, net of profit commission and assumed premiums
(2)
|
(4.9)
|
|
|
(5.0)
|
|
|
(7.5)
|
|
|
(5.7)
|
|
|
(5.9)
|
|
|
(5.8)
|
|
|
(5.4)
|
|
Net premium
yield
|
48.4
|
|
|
49.6
|
|
|
46.5
|
|
|
47.4
|
|
|
47.3
|
|
|
47.7
|
|
|
48.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size of
IIF (thousands)
|
$
|
205.9
|
|
|
$
|
202.9
|
|
|
$
|
200.7
|
|
|
$
|
199.5
|
|
|
$
|
198.2
|
|
|
|
|
|
Flow only
|
$
|
208.2
|
|
|
$
|
205.4
|
|
|
$
|
203.2
|
|
|
$
|
202.0
|
|
|
$
|
200.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Persistency
|
75.8
|
%
|
|
78.6
|
%
|
|
80.8
|
%
|
|
81.7
|
%
|
|
81.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions)
|
$
|
57.2
|
|
|
$
|
56.2
|
|
|
$
|
55.2
|
|
|
$
|
54.5
|
|
|
$
|
54.1
|
|
|
|
|
|
By FICO (%)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 760 &
>
|
39
|
%
|
|
39
|
%
|
|
38
|
%
|
|
38
|
%
|
|
38
|
%
|
|
|
|
|
FICO
740-759
|
17
|
%
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
|
16
|
%
|
|
|
|
|
FICO
720-739
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
|
|
|
FICO
700-719
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
|
|
|
FICO
680-699
|
8
|
%
|
|
8
|
%
|
|
9
|
%
|
|
9
|
%
|
|
8
|
%
|
|
|
|
|
FICO
660-679
|
4
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
|
|
|
FICO
640-659
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
|
|
|
FICO 639 &
<
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage
Ratio (RIF/IIF)
|
25.7
|
%
|
|
25.8
|
%
|
|
25.8
|
%
|
|
25.8
|
%
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss
limits
|
$
|
213
|
|
|
$
|
214
|
|
|
$
|
215
|
|
|
$
|
216
|
|
|
$
|
228
|
|
|
|
|
|
Without aggregate
loss limits
|
$
|
163
|
|
|
$
|
173
|
|
|
$
|
178
|
|
|
$
|
186
|
|
|
$
|
191
|
|
|
|
|
|
|
|
(1)
|
Total direct premiums
earned, excluding accelerated premiums from premium refunds and
single premium policy cancellations divided by average primary
insurance in force.
|
(2)
|
Ceded premiums
earned, net of profit commissions and assumed premiums. Assumed
premiums include our participation in GSE Credit Risk Transfer
programs, of which the impact on the net premium yield was 0.2 bps
in 2019 and 0.1 bps in 2018.
|
(3)
|
The FICO credit score
for a loan with multiple borrowers is the lowest of the borrowers'
"decision FICO scores." A borrower's "decision FICO score" is
determined as follows: if there are three FICO scores available,
the middle FICO score is used; if two FICO scores are available,
the lower of the two is used; if only one FICO score is available,
it is used.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
ADDITIONAL
INFORMATION - DELINQUENCY STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
|
Primary IIF -
Delinquent Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Delinquent
Inventory
|
29,940
|
|
|
29,795
|
|
|
30,921
|
|
|
32,898
|
|
|
33,398
|
|
|
|
New
Notices
|
13,694
|
|
|
14,019
|
|
|
12,915
|
|
|
13,611
|
|
|
14,097
|
|
|
|
Cures
|
(12,213)
|
|
|
(12,592)
|
|
|
(12,882)
|
|
|
(14,348)
|
|
|
(12,891)
|
|
|
|
Paid
claims
|
(922)
|
|
|
(1,045)
|
|
|
(1,112)
|
|
|
(1,188)
|
|
|
(1,304)
|
|
|
|
Rescissions and
denials
|
(27)
|
|
|
(42)
|
|
|
(47)
|
|
|
(52)
|
|
|
(67)
|
|
|
|
Other items removed
from inventory
|
(444)
|
|
|
(195)
|
|
|
—
|
|
|
—
|
|
|
(335)
|
|
|
|
Ending Delinquent
Inventory
|
30,028
|
|
|
29,940
|
|
|
29,795
|
|
|
30,921
|
|
|
32,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF
Delinquency Rate
|
2.78
|
%
|
|
2.78
|
%
|
|
2.80
|
%
|
|
2.92
|
%
|
|
3.11
|
%
|
|
|
Primary claim
received inventory included in ending delinquent
inventory
|
538
|
|
|
557
|
|
|
630
|
|
|
665
|
|
|
809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans - Flow only
|
23,240
|
|
|
22,688
|
|
|
22,227
|
|
|
23,483
|
|
|
24,919
|
|
|
|
Primary IIF
Delinquency Rate - Flow only
|
2.23
|
%
|
|
2.20
|
%
|
|
2.17
|
%
|
|
2.32
|
%
|
|
2.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Cures
|
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent
and cured intraquarter
|
4,122
|
|
|
4,397
|
|
|
3,735
|
|
|
4,884
|
|
|
4,081
|
|
|
|
Number of payments
delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
5,724
|
|
|
5,631
|
|
|
6,221
|
|
|
6,506
|
|
|
5,623
|
|
|
|
4-11
payments
|
2,001
|
|
|
2,075
|
|
|
2,401
|
|
|
2,419
|
|
|
2,616
|
|
|
|
12 payments or
more
|
366
|
|
|
489
|
|
|
525
|
|
|
539
|
|
|
571
|
|
|
|
Total Cures in
Quarter
|
12,213
|
|
|
12,592
|
|
|
12,882
|
|
|
14,348
|
|
|
12,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Paids
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
2
|
|
|
—
|
|
|
4
|
|
|
2
|
|
|
6
|
|
|
|
4-11
payments
|
83
|
|
|
104
|
|
|
121
|
|
|
149
|
|
|
125
|
|
|
|
12 payments or
more
|
837
|
|
|
941
|
|
|
987
|
|
|
1,037
|
|
|
1,173
|
|
|
|
Total Paids in
Quarter
|
922
|
|
|
1,045
|
|
|
1,112
|
|
|
1,188
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Delinquent Inventory
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive months
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
9,447
|
|
32
|
%
|
9,462
|
|
32
|
%
|
8,970
|
|
30
|
%
|
8,568
|
|
28
|
%
|
9,829
|
|
30
|
%
|
|
4-11 months
|
9,664
|
|
32
|
%
|
9,082
|
|
30
|
%
|
8,951
|
|
30
|
%
|
9,997
|
|
32
|
%
|
9,655
|
|
29
|
%
|
|
12 months or
more
|
10,917
|
|
36
|
%
|
11,396
|
|
38
|
%
|
11,874
|
|
40
|
%
|
12,356
|
|
40
|
%
|
13,414
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
14,895
|
|
50
|
%
|
14,690
|
|
49
|
%
|
14,071
|
|
47
|
%
|
14,129
|
|
46
|
%
|
15,519
|
|
47
|
%
|
|
4-11
payments
|
8,519
|
|
28
|
%
|
8,225
|
|
27
|
%
|
8,194
|
|
28
|
%
|
8,833
|
|
28
|
%
|
8,842
|
|
27
|
%
|
|
12 payments
or
more
|
6,614
|
|
22
|
%
|
7,025
|
|
24
|
%
|
7,530
|
|
25
|
%
|
7,959
|
|
26
|
%
|
8,537
|
|
26
|
%
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
ADDITIONAL
INFORMATION - RESERVES and CLAIMS PAID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Year-to-date
|
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2019
|
|
2018
|
|
|
Reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Direct Loss
Reserves
|
$
|
546
|
|
|
$
|
591
|
|
|
$
|
610
|
|
|
$
|
642
|
|
|
$
|
660
|
|
|
|
|
|
|
|
Pool Direct loss
reserves
|
9
|
|
|
11
|
|
|
11
|
|
|
12
|
|
|
13
|
|
|
|
|
|
|
|
Other Gross
Reserves
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
Total Gross Loss
Reserves
|
$
|
555
|
|
|
$
|
602
|
|
|
$
|
622
|
|
|
$
|
655
|
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average
Direct Reserve Per Delinquency
|
$
|
18,171
|
|
|
$
|
18,955
|
|
|
$
|
19,684
|
|
|
$
|
20,014
|
|
|
$
|
20,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (1)
|
$
|
73
|
|
|
$
|
55
|
|
|
$
|
55
|
|
|
$
|
57
|
|
|
$
|
75
|
|
|
$
|
240
|
|
|
$
|
335
|
|
|
|
Total primary
(excluding settlements)
|
42
|
|
|
47
|
|
|
52
|
|
|
52
|
|
|
62
|
|
|
193
|
|
|
282
|
|
|
|
Rescission and NPL
settlements
|
26
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
30
|
|
|
50
|
|
|
|
Pool
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
4
|
|
|
6
|
|
|
|
Reinsurance
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
(3)
|
|
|
(2)
|
|
|
(8)
|
|
|
(19)
|
|
|
|
Other
|
4
|
|
|
5
|
|
|
5
|
|
|
7
|
|
|
4
|
|
|
21
|
|
|
16
|
|
|
|
Reinsurance
terminations (1)
|
—
|
|
|
—
|
|
|
(14)
|
|
|
—
|
|
|
—
|
|
|
(14)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim
Payment (thousands)
|
$
|
46.3
|
|
(2)
|
$
|
44.4
|
|
(2)
|
$
|
46.9
|
|
|
$
|
43.9
|
|
|
$
|
48.0
|
|
(2)
|
$
|
45.3
|
|
(2)
|
$
|
49.2
|
|
(2)
|
|
Flow only
|
$
|
41.2
|
|
(2)
|
$
|
39.4
|
|
(2)
|
$
|
40.0
|
|
|
$
|
37.6
|
|
|
$
|
41.6
|
|
(2)
|
$
|
39.5
|
|
(2)
|
$
|
43.6
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net paid claims, as
presented, does not include amounts received in conjunction with
terminations or commutations of reinsurance agreements.
|
(2)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of policies.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION - REINSURANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2019
|
|
2018
|
Quota Share
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% insurance inforce
subject to reinsurance
|
78.5
|
%
|
|
78.4
|
%
|
|
78.2
|
%
|
|
77.8
|
%
|
|
77.5
|
%
|
|
|
|
|
% NIW subject to
reinsurance
|
79.4
|
%
|
|
81.2
|
%
|
|
83.0
|
%
|
|
84.0
|
%
|
|
75.5
|
%
|
|
81.5
|
%
|
|
75.1
|
%
|
Ceded premiums
written and earned (millions)
|
$
|
23.8
|
|
|
$
|
23.0
|
|
|
$
|
36.5
|
|
(1)
|
$
|
28.2
|
|
|
$
|
28.6
|
|
|
$
|
111.5
|
|
|
$
|
108.2
|
|
Ceded losses incurred
(millions)
|
$
|
3.6
|
|
|
$
|
2.7
|
|
|
$
|
3.4
|
|
|
$
|
1.7
|
|
|
$
|
3.0
|
|
|
$
|
11.4
|
|
|
$
|
6.6
|
|
Ceding commissions
(millions) (included in underwriting and other expenses)
|
$
|
11.0
|
|
|
$
|
11.0
|
|
|
$
|
13.4
|
|
|
$
|
13.4
|
|
|
$
|
12.9
|
|
|
$
|
48.8
|
|
|
$
|
51.1
|
|
Profit commission
(millions) (included in ceded premiums)
|
$
|
31.1
|
|
|
$
|
32.2
|
|
|
$
|
37.0
|
|
|
$
|
38.9
|
|
|
$
|
36.0
|
|
|
$
|
139.2
|
|
|
$
|
147.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess-of-Loss
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums earned
(millions)
|
$
|
5.2
|
|
|
$
|
5.4
|
|
|
$
|
4.5
|
|
|
$
|
2.5
|
|
|
$
|
2.8
|
|
|
$
|
17.6
|
|
|
$
|
2.8
|
|
Ceded losses incurred
(millions)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes a $6.8
million termination fee paid to terminate a portion of our 2015
quota share reinsurance agreement.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION: BULK STATISTICS AND MI RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2019
|
|
2018
|
Bulk Primary
Insurance Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance in force
(billions)
|
$5.6
|
|
$6.0
|
|
$6.2
|
|
$6.7
|
|
$6.8
|
|
|
|
|
Risk in force
(billions)
|
$1.6
|
|
$1.7
|
|
$1.7
|
|
$1.9
|
|
$1.9
|
|
|
|
|
Average loan size
(thousands)
|
$144.1
|
|
$141.3
|
|
$141.8
|
|
$144.1
|
|
$144.8
|
|
|
|
|
Number of delinquent
loans
|
6,788
|
|
7,252
|
|
7,568
|
|
7,438
|
|
7,979
|
|
|
|
|
Delinquency
rate
|
17.45%
|
|
17.13%
|
|
17.31%
|
|
16.02%
|
|
16.86%
|
|
|
|
|
Primary paid claims
(excluding settlements) (millions)
|
$14
|
|
$15
|
|
$16
|
|
$18
|
|
$19
|
|
$63
|
|
$83
|
Average claim payment
(thousands)
|
$62.8
|
(2)
|
$60.1
|
|
$74.6
|
|
$65.1
|
|
$73.2
|
|
$65.4
|
(2)
|
$70.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
9.7:1
|
(3)
|
9.9:1
|
|
10.1:1
|
(1)
|
8.9:1
|
|
9.0:1
|
|
|
|
|
Combined Insurance
Companies - Risk to Capital
|
9.6:1
|
(3)
|
9.8:1
|
|
10.0:1
|
|
9.6:1
|
|
9.8:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio
(insurance operations only)
|
8.9%
|
|
12.7%
|
|
8.8%
|
|
15.6%
|
|
11.3%
|
|
11.5%
|
|
3.7%
|
GAAP underwriting
expense ratio (insurance operations only)
|
19.6%
|
|
17.7%
|
|
17.6%
|
|
18.9%
|
|
19.1%
|
|
18.4%
|
|
18.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A reinsurance
agreement in effect between Mortgage Guaranty Insurance Corporation
and an affiliate was terminated during the quarter.
|
(2)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of policies.
|
(3)
|
Preliminary
|
Risk Factors
As used below, "we," "our" and "us" refer to MGIC Investment
Corporation's consolidated operations or to MGIC Investment
Corporation, as the context requires; and "MGIC" refers to Mortgage
Guaranty Insurance Corporation.
Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission ("SEC"). These risk factors may also cause actual
results to differ materially from the results contemplated by
forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than
historical fact, including matters that inherently refer to future
events. Among others, statements that include words such as
"believe," "anticipate," "will" or "expect," or words of similar
import, are forward looking statements. We are not undertaking any
obligation to update any forward looking statements or other
statements we may make even though these statements may be affected
by events or circumstances occurring after the forward looking
statements or other statements were made. No investor should rely
on these statements being current at any time other than the time
at which this press release was delivered for dissemination to the
public.
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses.
The private mortgage insurance industry is highly competitive
and is expected to remain so. We believe we currently compete with
other private mortgage insurers based on premium rates,
underwriting requirements, financial strength (including based on
credit or financial strength ratings), customer relationships, name
recognition, reputation, strength of management teams and field
organizations, the ancillary products and services provided to
lenders and the effective use of technology and innovation in the
delivery and servicing of our mortgage insurance products.
Our relationships with our customers, which may affect the
amount of our NIW, could be adversely affected by a variety of
factors, including if our premium rates are higher than those of
our competitors, our underwriting requirements are more restrictive
than those of our competitors, or our customers are dissatisfied
with our claims-paying practices (including insurance policy
rescissions and claim curtailments).
Much of the competition in the industry in the last few years
has centered on pricing practices which have included:
(i) reductions in standard filed rates; (ii) use of
customized rate plans (typically lower than standard rates) that
are made available to lenders that meet certain criteria; and (iii)
use of a spectrum of filed rates to allow for formulaic, risk-based
pricing that may be quickly adjusted within certain parameters
(referred to as "risk-based pricing systems"). We expect premium
rates to continue to decline. While our increased use of
reinsurance over the past several years has helped to mitigate the
negative effect of declining premium rates on our returns, refer to
our risk factor titled "Reinsurance may not always be available
or affordable" for a discussion of the risks associated with
the availability of reinsurance.
In 2019, we introduced MiQâ„¢, our risk-based pricing system that
establishes our premium rates based on more risk attributes than
were considered in 2018. The widespread use of risk-based pricing
systems by the private mortgage insurance industry makes it more
difficult to compare our rates to those offered by our competitors.
We may not be aware of industry rate changes until we observe that
our volume of new insurance written ("NIW") has changed. In
addition, business under customized rate plans is awarded by
certain customers for only limited periods of time. As a
result, our NIW may fluctuate more than it had in the past.
Regarding the concentration of our new business, our top ten
customers accounted for approximately 24% of our NIW, in each of
the twelve months ended December 31,
2018 and 2019.
We monitor various competitive and economic factors while
seeking to balance both profitability and market share
considerations in developing our pricing strategies. A reduction in
our premium rates will reduce our premium yield (net premiums
earned divided by the average insurance in force) over time as
older insurance policies with higher premium rates run off and new
insurance policies with lower premium rates are written. Our
premium rates are subject to approval by state regulatory agencies,
which can delay or limit our ability to change them, outside of the
parameters already approved.
There can be no assurance that our premium rates adequately
reflect the risk associated with the underlying mortgage insurance
policies. For additional information, see our risk factors titled
"The premiums we charge may not be adequate to compensate us for
our liabilities for losses and as a result any inadequacy could
materially affect our financial condition and results of
operations" and "If our risk management programs are not
effective in identifying, or adequate in controlling or mitigating,
the risks we face, or if the models used in our businesses are
inaccurate, it could have a material adverse impact on our
business, results of operations and financial condition."
Certain of our competitors have access to capital at a lower
cost than we do (including, through off-shore reinsurance vehicles,
which are tax-advantaged). As a result, they may be able to achieve
higher after-tax rates of return on their NIW compared to us, which
could allow them to leverage reduced premium rates to gain market
share, and they may be better positioned to compete outside of
traditional mortgage insurance, including by participating in
alternative forms of credit enhancement pursued by Fannie Mae and
Freddie Mac (the "GSEs") discussed in our risk factor titled
"The amount of insurance we write could be adversely affected if
lenders and investors select alternatives to private mortgage
insurance."
Substantially all of our insurance written since 2008 has been
for loans purchased by the GSEs. The current private mortgage
insurer eligibility requirements ("PMIERs") of each of the GSEs
require a mortgage insurer to maintain a minimum amount of assets
to support its insured risk, as discussed in our risk factor titled
"We may not continue to meet the GSEs' private mortgage insurer
eligibility requirements and our returns may decrease if we are
required to maintain more capital in order to maintain our
eligibility." The PMIERs do not require an insurer to maintain
minimum financial strength ratings; however, our financial strength
ratings can affect us in the following ways:
- A downgrade in our financial strength ratings could result in
increased scrutiny of our financial condition by the GSEs and/or
our customers, potentially resulting in a decrease in the amount of
our NIW.
- Our ability to participate in the non-GSE mortgage market (the
size of which has been limited since 2008, but may grow in the
future), could depend on our ability to maintain and improve our
investment grade ratings for our insurance subsidiaries. We could
be competitively disadvantaged with some market participants
because the financial strength ratings of our insurance
subsidiaries are lower than those of some competitors. MGIC's
financial strength rating from A.M. Best is A- (with a stable
outlook), from Moody's is Baa1 (with a stable outlook) and from
Standard & Poor's is BBB+ (with a stable outlook).
- Financial strength ratings may also play a greater role if the
GSEs no longer operate in their current capacities, for example,
due to legislative or regulatory action. In addition, although the
PMIERs do not require minimum financial strength ratings, the GSEs
consider financial strength ratings to be important when using
forms of credit enhancement other than traditional mortgage
insurance, as discussed in our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage
insurance."
If we are unable to compete effectively in the current or any
future markets as a result of the financial strength ratings
assigned to our insurance subsidiaries, our future new insurance
written could be negatively affected.
The amount of insurance we write could be adversely
affected if lenders and investors select alternatives to private
mortgage insurance.
Alternatives to private mortgage insurance include:
- investors using risk mitigation and credit risk transfer
techniques other than private mortgage insurance,
- lenders and other investors holding mortgages in portfolio and
self-insuring,
- lenders using Federal Housing Administration ("FHA"), U.S.
Department of Veterans Affairs ("VA") and other government mortgage
insurance programs, and
- lenders originating mortgages using piggyback structures to
avoid private mortgage insurance, such as a first mortgage with an
80% loan-to-value ("LTV") ratio and a second mortgage with a 10%,
15% or 20% LTV ratio (referred to as 80-10-10, 80-15-5 or 80-20
loans, respectively) rather than a first mortgage with a 90%, 95%
or 100% LTV ratio that has private mortgage insurance.
The GSEs' charters generally require credit enhancement for a
low down payment mortgage loan (a loan with an amount that exceeds
80% of a home's value) in order for such loan to be eligible for
purchase by the GSEs. Private mortgage insurance has generally been
purchased by lenders in primary mortgage market transactions to
satisfy this credit enhancement requirement. In 2018, Freddie Mac
and Fannie Mae initiated secondary mortgage market programs with
loan level mortgage default coverage provided by various
(re)insurers that are not mortgage insurers governed by PMIERs, and
that are not selected by the lenders. These programs compete with
traditional private mortgage insurance and, due to differences in
policy terms, they may offer premium rates that are below prevalent
single premium lender paid mortgage insurance ("LPMI") rates. We
participate in these programs from time to time. See our risk
factor titled "Changes in the business practices of the GSEs,
federal legislation that changes their charters or a restructuring
of the GSEs could reduce our revenues or increase our losses"
for a discussion of various business practices of the GSEs that may
be changed, including through expansion or modification of these
programs.
The GSEs (and other investors) have also used other forms of
credit enhancement that did not involve traditional private
mortgage insurance, such as engaging in credit-linked note
transactions executed in the capital markets, or using other forms
of debt issuances or securitizations that transfer credit risk
directly to other investors, including competitors and an affiliate
of MGIC; using other risk mitigation techniques in conjunction with
reduced levels of private mortgage insurance coverage; or accepting
credit risk without credit enhancement.
The GSEs' charters also permit the use of "Lender Risk Sharing"
transactions as a form of credit enhancement. In these
transactions, the lender may issue securities to transfer all or a
portion of its risk or the lender may retain the credit risk. While
the use of Lender Risk Sharing transactions has recently been
increasing, we are not aware that their use has displaced private
mortgage insurance. The amount of business we write would be
adversely affected if Lender Risk Sharing transactions are
structured in a manner that displaces private mortgage
insurance.
The FHA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 27.8% in the first nine months of 2019, 30.5% in 2018
and 33.9% in 2017. In the past ten years, the FHA's share has been
as low as 27.8% in 2019 and as high as 64.5% in 2010. Factors that
influence the FHA's market share include relative rates and fees,
underwriting guidelines and loan limits of the FHA, VA, private
mortgage insurers and the GSEs; lenders' perceptions of legal risks
under FHA versus GSE programs; flexibility for the FHA to establish
new products as a result of federal legislation and programs;
returns expected to be obtained by lenders for Ginnie Mae securitization of FHA-insured loans
compared to those obtained from selling loans to the GSEs for
securitization; and differences in policy terms, such as the
ability of a borrower to cancel insurance coverage under certain
circumstances. We cannot predict how the factors that affect the
FHA's share of new insurance written will change in the future.
The VA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 23.9% in the first nine months of 2019, 22.9% in 2018
and 24.7% in 2017. In the past ten years, the VA's share has been
as low as 15.7% in 2010 and as high as 27.2% in 2016. We believe
that the VA's market share has generally been elevated in recent
years because of an increase in the number of borrowers that are
eligible for the VA's program, which offers 100% LTV ratio loans
and charges a one-time funding fee that can be included in the loan
amount, and because eligible borrowers have opted to use the VA
program when refinancing their mortgages.
Changes in the business practices of the GSEs, federal
legislation that changes their charters or a restructuring of the
GSEs could reduce our revenues or increase our losses.
Substantially all of our insurance written since 2008 has been
for loans purchased by the GSEs, therefore, the business practices
of the GSEs greatly impact our business and include:
- the GSEs' PMIERs, the financial requirements of which are
discussed in our risk factor titled "We may not continue to meet
the GSEs' private mortgage insurer eligibility requirements and our
returns may decrease if we are required to maintain more capital in
order to maintain our eligibility,"
- the capital and collateral requirements for participants in the
GSEs' alternative forms of credit enhancement discussed in our risk
factor titled "The amount of insurance we write could be
adversely affected if lenders and investors select alternatives to
private mortgage insurance,"
- the level of private mortgage insurance coverage, subject to
the limitations of the GSEs' charters, when private mortgage
insurance is used as the required credit enhancement on low down
payment mortgages (the GSEs generally require a level of mortgage
insurance coverage that is higher than the level of coverage
required by their charters; any change in the required level of
coverage will impact our new risk written),
- the amount of loan level price adjustments and guaranty fees
(which result in higher costs to borrowers) that the GSEs assess on
loans that require private mortgage insurance,
- whether the GSEs select or influence the mortgage lender's
selection of the mortgage insurer providing coverage,
- the underwriting standards that determine which loans are
eligible for purchase by the GSEs, which can affect the quality of
the risk insured by the mortgage insurer and the availability of
mortgage loans,
- the terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by
law,
- the programs established by the GSEs intended to avoid or
mitigate loss on insured mortgages and the circumstances in which
mortgage servicers must implement such programs,
- the terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase, including
limitations on the rescission rights of mortgage insurers,
- the extent to which the GSEs intervene in mortgage insurers'
claims paying practices, rescission practices or rescission
settlement practices with lenders, and
- the maximum loan limits of the GSEs compared to those of the
FHA and other investors.
The FHFA has been the conservator of the GSEs since 2008 and has
the authority to control and direct their operations. The increased
role that the federal government has assumed in the residential
housing finance system through the GSE conservatorship may increase
the likelihood that the business practices of the GSEs change,
including through administrative action, in ways that have a
material adverse effect on us and that the charters of the GSEs are
changed by new federal legislation.
In September 2019, at the
direction of President Trump, the U.S. Treasury Department
("Treasury") released the "Treasury Housing Reform Plan" (the
"Plan"). The Plan recommends administrative and legislative reforms
for the housing finance system, with such reforms intended to
achieve the goals of ending the conservatorships of the GSEs;
increasing competition and participation by the private sector in
the mortgage market including by authorizing the FHFA to approve
additional guarantors of conventional mortgages in the secondary
market, simplifying the qualified mortgage ("QM") rule of the
Consumer Financial Protection Bureau ("CFPB"), transferring risk to
the private sector, and eliminating the "GSE Patch" (discussed
below); establishing regulation of the GSEs that safeguards their
safety and soundness and minimizes the risks they pose to the
financial stability of the United
States; and providing that the federal government is
properly compensated for any explicit or implicit support it
provides to the GSEs or the secondary housing finance market. Also
in September 2019, the Treasury and
FHFA entered into a letter agreement that will allow the GSEs to
remit less of their earnings to the government, which will help
them rebuild their capital.
The impact of the Plan on private mortgage insurance is unclear.
The Plan does not refer to mortgage insurance explicitly; however,
it refers to a requirement for credit enhancement on high LTV ratio
loans, which is a requirement of the current GSE charters. The Plan
also indicates that the FHFA should continue to support efforts to
expand credit risk transfer ("CRT") programs and should encourage
the GSEs to continue to engage in a diverse mix of economically
sensible CRT programs, including by increasing reliance on
institution-level capital (presumably, as distinguished from
capital obtained in the capital markets). For more
information about CRT programs, see our risk factor titled "The
amount of insurance we write could be adversely affected if lenders
and investors select alternatives to private mortgage
insurance."
The current GSE Patch expands the definition of QM under the
Truth in Lending Act (Regulation Z) ("TILA") to include mortgages
eligible to be purchased by the GSEs, even if the mortgages do not
meet the debt-to-income ("DTI") ratio limit of 43% that is included
in the standard QM definition. Originating a QM may provide a
lender with legal protection from lawsuits that claim the lender
failed to verify a borrower's ability to repay. The GSE Patch is
scheduled to expire no later than January
2021. Approximately 27% and 22% of our NIW in the first and
second halves of 2019, respectively, was on loans with DTI ratios
greater than 43%. However, it is possible that expiration of the
GSE Patch will be delayed and that not all future loans with DTI
ratios greater than 43% will be affected by such expiration. In
this regard, we note that the CFPB recently indicated that it
expects to issue for comment, no later than May 2020, a proposed new "ability-to-repay"
("ATR") rule that would replace the use of DTI ratio in the
definition of QM with an alternative measure, such as a pricing
threshold. The CFPB also indicated that it would extend the
expiration of the GSE Patch until the earlier of the effective date
of the proposed alternative or until one of the GSEs exits
conservatorship.
We insure loans that do not qualify as QMs; however, we are
unsure the extent to which lenders will make non-QM loans because
they will not be entitled to the presumptions about compliance with
the ATR rule that the law allows with respect to QM loans. We are
also unsure the extent to which lenders will purchase private
mortgage insurance for loans that cannot be sold to the GSEs.
The QM definition for loans insured by the FHA, which was issued
by the Department of Housing and Urban Development ("HUD"), is less
restrictive than the CFPB's definition in certain respects,
including that (i) it has no DTI ratio limit, and (ii) it allows
lenders certain presumptions about compliance with the ATR rule on
higher priced loans. It is possible that, in the future, lenders
will prefer FHA-insured loans to loans insured by private mortgage
insurance as a result of the FHA's less restrictive QM definition.
However, in September 2019, HUD
released its Housing Reform Plan and indicated that the FHA should
refocus on its mission of providing housing finance support to low-
and moderate-income families that cannot be fulfilled through
traditional underwriting. In addition, Treasury's Plan indicated
that the FHFA and HUD should develop and implement a specific
understanding as to the appropriate roles and overlap between the
GSEs and FHA, including with respect to the GSEs' acquisitions of
high LTV ratio and high DTI ratio loans.
As a result of the matters referred to above, it is uncertain
what role the GSEs, FHA and private capital, including private
mortgage insurance, will play in the residential housing finance
system in the future. The timing and impact on our business of any
resulting changes is uncertain. Many of the proposed changes would
require Congressional action to implement and it is difficult to
estimate when Congressional action would be final and how long any
associated phase-in period may last.
We may not continue to meet the GSEs' private mortgage
insurer eligibility requirements and our returns may decrease if we
are required to maintain more capital in order to maintain our
eligibility.
We must comply with a GSE's PMIERs to be eligible to insure
loans delivered to or purchased by that GSE. The PMIERs include
financial requirements, as well as business, quality control and
certain transaction approval requirements. The financial
requirements of the PMIERs require a mortgage insurer's "Available
Assets" (generally only the most liquid assets of an insurer) to
equal or exceed its "Minimum Required Assets" (which are based on
an insurer's book of insurance in force and calculated from tables
of factors with several risk dimensions, reduced for credit given
for risk ceded under reinsurance agreements, and subject to a floor
amount).
Based on our interpretation of the more restrictive application
of PMIERs, as of December 31, 2019, MGIC's Available Assets
totaled $4.6 billion, or $1.2 billion in excess of its Minimum Required
Assets. MGIC is in compliance with the PMIERs and eligible to
insure loans purchased by the GSEs. In calculating these "Minimum
Required Assets," the total credit for risk ceded under our
reinsurance transactions is subject to a modest reduction. Our
reinsurance transactions are discussed in our risk factor titled
"The mix of business we write affects our Minimum Required
Assets under the PMIERs, our premium yields and the likelihood of
losses occurring." Our existing reinsurance transactions are
subject to periodic review by the GSEs and there is a risk we will
not receive our current level of credit in future periods for the
risk ceded under them. In addition, we may not receive the same
level of credit under future reinsurance transactions that we
receive under existing transactions. If MGIC is not allowed certain
levels of credit under the PMIERs, under certain circumstances,
MGIC may terminate the reinsurance transactions, without
penalty.
If MGIC ceases to be eligible to insure loans purchased by one
or both of the GSEs, it would significantly reduce the volume of
our new business writings. Factors that may negatively impact
MGIC's ability to continue to comply with the financial
requirements of the PMIERs include the following:
- The GSEs may make the PMIERs more onerous in the future. The
PMIERs provide that the factors that determine Minimum Required
Assets will be updated periodically, or as needed if there is a
significant change in macroeconomic conditions or loan performance.
We do not anticipate that the regular periodic updates will occur
more frequently than once every two years. The PMIERs state that
the GSEs will provide notice 180 days prior to the effective date
of updates to the factors; however, the GSEs may amend any portion
of the PMIERs at any time.
- There may be future implications for PMIERs based upon
forthcoming regulatory capital requirements for the GSEs. In 2018,
the FHFA issued a proposed capital rule for the GSEs, which
included a framework for determining the capital relief allowed to
the GSEs for loans with private mortgage insurance. The FHFA
recently indicated that it plans to re-propose a capital rule as
early as the first quarter of 2020, although the timing and content
of the proposal is uncertain. Further, any changes to the GSEs'
capital and liquidity requirements resulting from the Treasury
Housing Reform Plan could have future implications for PMIERs.
- Our future operating results may be negatively impacted by the
matters discussed in the rest of these risk factors. Such matters
could decrease our revenues, increase our losses or require the use
of assets, thereby creating a shortfall in Available Assets.
- Should capital be needed by MGIC in the future, capital
contributions from our holding company may not be available due to
competing demands on holding company resources, including for
repayment of debt.
Reinsurance may not always be available or
affordable.
As discussed in our risk factor titled "The mix of business
we write affects our Minimum Required Assets under the PMIERs, our
premium yields and the likelihood of losses occurring," we have
in place quota share and excess of loss reinsurance transactions
covering a portion of our risk in force. These reinsurance
transactions enable us to earn higher returns on our business than
we would without them because fewer Available Assets are required
to be held under PMIERs. However, reinsurance may not always be
available to us or available on similar terms, the quota share
reinsurance transactions subject us to counterparty credit risk and
the GSEs may change the credit they allow under the PMIERs for risk
ceded under our reinsurance transactions. If we are unable to
obtain reinsurance for NIW, our returns may decrease absent an
increase in premium rates. An increase in our premium rates may
lead to a decrease in our NIW.
We are involved in legal proceedings and are subject to
the risk of additional legal proceedings in the future.
Before paying an insurance claim, we review the loan and
servicing files to determine the appropriateness of the claim
amount. When reviewing the files, we may determine that we have the
right to rescind coverage on the loan. In our SEC reports, we refer
to insurance rescissions and denials of claims collectively as
"rescissions" and variations of that term. In addition, our
insurance policies generally provide that we can reduce or deny a
claim if the servicer did not comply with its obligations under our
insurance policy. We call such reduction of claims "curtailments."
In recent quarters, an immaterial percentage of claims received in
a quarter have been resolved by rescissions. In 2018 and 2019,
curtailments reduced our average claim paid by approximately 5.8%
and 5.0%, respectively.
Our loss reserving methodology incorporates our estimates of
future rescissions, curtailments, and reversals of rescissions and
curtailments. A variance between ultimate actual rescission,
curtailment and reversal rates and our estimates, as a result of
the outcome of litigation, settlements or other factors, could
materially affect our losses.
When the insured disputes our right to rescind coverage or
curtail claims, we generally engage in discussions in an attempt to
settle the dispute. If we are unable to reach a settlement, the
outcome of a dispute ultimately may be determined by legal
proceedings.
Under ASC 450-20, until a loss associated with settlement
discussions or legal proceedings becomes probable and can be
reasonably estimated, we consider our claim payment or rescission
resolved for financial reporting purposes and do not accrue an
estimated loss. When we determine that a loss is probable and can
be reasonably estimated, we record our best estimate of our
probable loss. In those cases, until settlement negotiations or
legal proceedings are concluded (including the receipt of any
necessary GSE approvals), it is reasonably possible that we will
record an additional loss. In the fourth quarter of 2019, the
agreement for which we had recorded a probable loss of $23.5 million, received necessary GSE approvals.
There was no additional loss recognized as a result of entering
into the agreement, as the settlement amount was
consistent with our original estimate of the probable loss. We are
currently involved in discussions and/or proceedings with insureds
with respect to our claims paying practices. Although it is
reasonably possible that when all of these matters are resolved we
will not prevail in all cases, we are unable to make a reasonable
estimate or range of estimates of the potential liability. We
estimate the maximum exposure associated with matters where a loss
is reasonably possible to be approximately $46 million. This estimate of maximum exposure is
based upon currently available information; is subject to
significant judgment, numerous assumptions and known and unknown
uncertainties; will include an amount for matters for which we have
recorded a probable loss until such matters are concluded; will
include different matters from time to time; and does not include
interest or consequential or exemplary damages.
In addition to the matters described above, we are involved in
other legal proceedings in the ordinary course of business. In our
opinion, based on the facts known at this time, the ultimate
resolution of these ordinary course legal proceedings will not have
a material adverse effect on our financial position or results of
operations.
We are subject to comprehensive regulation and other
requirements, which we may fail to satisfy.
We are subject to comprehensive, detailed regulation, including
by state insurance departments. Many of these regulations are
designed for the protection of our insured policyholders and
consumers, rather than for the benefit of investors. Mortgage
insurers, including MGIC, have in the past been involved in
litigation and regulatory actions related to alleged violations of
the anti-referral fee provisions of the Real Estate Settlement
Procedures Act ("RESPA"), and the notice provisions of the Fair
Credit Reporting Act ("FCRA"). While these proceedings in the
aggregate did not result in material liability for MGIC, there can
be no assurance that the outcome of future proceedings, if any,
under these laws would not have a material adverse effect on us. To
the extent that we are construed to make independent credit
decisions in connection with our contract underwriting activities,
we also could be subject to increased regulatory requirements under
the Equal Credit Opportunity Act ("ECOA"), FCRA, and other laws.
Under ECOA, examination may also be made of whether a mortgage
insurer's underwriting decisions have a disparate impact on persons
belonging to a protected class in violation of the law.
Although their scope varies, state insurance laws generally
grant broad supervisory powers to agencies or officials to examine
insurance companies and enforce rules or exercise discretion
affecting almost every significant aspect of the insurance
business, including payment for the referral of insurance business,
premium rates and discrimination in pricing, and minimum capital
requirements. For more information about state capital
requirements, see our risk factor titled "State capital
requirements may prevent us from continuing to write new insurance
on an uninterrupted basis." For information about regulation of
data privacy, see our risk factor titled "We could be adversely
affected if personal information on consumers that we maintain is
improperly disclosed and our information technology systems may
become outdated and we may not be able to make timely modifications
to support our products and services." For more details
about the various ways in which our subsidiaries are regulated, see
"Business - Regulation" in Item 1 of our Annual Report on Form 10-K
filed with the SEC on February 22,
2019.While we believe our practices are in conformity with
applicable laws and regulations, it is not possible to predict the
eventual scope, duration or outcome of any such reviews or
investigations nor is it possible to predict their effect on us or
the mortgage insurance industry.
If our risk management programs are not effective in
identifying, or adequate in controlling or mitigating, the risks we
face, or if the models used in our businesses are inaccurate, it
could have a material adverse impact on our business, results of
operations and financial condition.
Our enterprise risk management program, described in "Business -
Our Products and Services - Risk Management" in Item 1 of our
Annual Report on Form 10-K filed with the SEC on February 22, 2019, may not be effective in
identifying, or adequate in controlling or mitigating, the risks we
face in our business.
We employ proprietary and third party models to project returns,
price products (including through our risk-based pricing system),
determine the techniques used to underwrite insurance, estimate
reserves, generate projections used to estimate future pre-tax
income and to evaluate loss recognition testing, evaluate risk,
determine internal capital requirements, perform stress testing,
and for other uses. These models rely on estimates and projections
that are inherently uncertain and may not operate as intended. In
addition, from time to time we seek to improve certain models, and
the conversion process may result in material changes to
assumptions, including those about returns and financial results.
The models we employ are complex, which increases our risk of error
in their design, implementation or use. Also, the associated input
data, assumptions and calculations may not be correct, and the
controls we have in place to mitigate that risk may not be
effective in all cases. The risks related to our models may
increase when we change assumptions and/or methodologies, or when
we add or change modeling platforms. We have enhanced, and we
intend to continue to enhance, our modeling capabilities. Moreover,
we may use information we receive through enhancements to refine or
otherwise change existing assumptions and/or methodologies.
Because we establish loss reserves only upon a loan
delinquency rather than based on estimates of our ultimate losses
on risk in force, losses may have a disproportionate adverse effect
on our earnings in certain periods.
In accordance with accounting principles generally accepted in
the United States, we establish
reserves for insurance losses and loss adjustment expenses only
when notices of default on insured mortgage loans are received and
for loans we estimate are in default but for which notices of
default have not yet been reported to us by the servicers (this is
often referred to as "IBNR"). Because our reserving method does not
take account of losses that could occur from loans that are not
delinquent, such losses are not reflected in our financial
statements, except in the case where a premium deficiency exists.
As a result, future losses on loans that are not currently
delinquent may have a material impact on future results as such
losses emerge.
Because loss reserve estimates are subject to
uncertainties, paid claims may be substantially different than our
loss reserves.
When we establish reserves, we estimate the ultimate loss on
delinquent loans by estimating the number of loans in our inventory
of delinquent loans that will result in a claim payment, which is
referred to as the claim rate, and further estimating the amount of
the claim payment, which is referred to as claim severity. The
estimated claim rate and claim severity represent our best
estimates of what we will actually pay on the loans in default as
of the reserve date and incorporate anticipated mitigation from
rescissions and curtailments. The establishment of loss reserves is
subject to inherent uncertainty and requires judgment by
management. The actual amount of the claim payments may be
substantially different than our loss reserve estimates. Our
estimates could be affected by several factors, including a change
in regional or national economic conditions, and a change in the
length of time loans are delinquent before claims are received. The
change in conditions may include changes in unemployment, affecting
borrowers' income and thus their ability to make mortgage payments,
and changes in home prices, which may affect borrower willingness
to continue to make mortgage payments when the value of the home is
below the mortgage balance. Changes to our estimates could have a
material impact on our future results, even in a stable economic
environment. In addition, historically, losses incurred have
followed a seasonal trend in which the second half of the year has
weaker credit performance than the first half, with higher new
default notice activity and a lower cure rate.
We rely on our management team and our business could be
harmed if we are unable to retain qualified personnel or
successfully develop and/or recruit their replacements.
Our success depends, in part, on the skills, working
relationships and continued services of our management team and
other key personnel. The unexpected departure of key personnel
could adversely affect the conduct of our business. In such event,
we would be required to obtain other personnel to manage and
operate our business. In addition, we will be required to replace
the knowledge and expertise of our aging workforce as our workers
retire. In either case, there can be no assurance that we would be
able to develop or recruit suitable replacements for the departing
individuals; that replacements could be hired, if necessary, on
terms that are favorable to us; or that we can successfully
transition such replacements in a timely manner. We currently have
not entered into any employment agreements with our officers or key
personnel. Volatility or lack of performance in our stock price may
affect our ability to retain our key personnel or attract
replacements should key personnel depart. Without a properly
skilled and experienced workforce, our costs, including
productivity costs and costs to replace employees may increase, and
this could negatively impact our earnings.
If the volume of low down payment home mortgage
originations declines, the amount of insurance that we write could
decline.
The factors that may affect the volume of low down payment
mortgage originations include:
- restrictions on mortgage credit due to more stringent
underwriting standards, liquidity issues or risk-retention and/or
capital requirements affecting lenders,
- the level of home mortgage interest rates,
- the health of the domestic economy as well as conditions in
regional and local economies and the level of consumer
confidence,
- housing affordability,
- new and existing housing availability,
- the rate of household formation, which is influenced, in part,
by population and immigration trends,
- the rate of home price appreciation, which in times of heavy
refinancing can affect whether refinanced loans have LTV ratios
that require private mortgage insurance, and
- government housing policy encouraging loans to first-time
homebuyers.
A decline in the volume of low down payment home mortgage
originations could decrease demand for mortgage insurance and limit
our NIW. For other factors that could decrease the demand for
mortgage insurance, see our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage
insurance."
State capital requirements may prevent us from continuing
to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a
mortgage insurer to maintain a minimum amount of statutory capital
relative to its risk in force (or a similar measure) in order for
the mortgage insurer to continue to write new business. We refer to
these requirements as the "State Capital Requirements." While they
vary among jurisdictions, the most common State Capital
Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
A risk-to-capital ratio will increase if (i) the percentage
decrease in capital exceeds the percentage decrease in insured
risk, or (ii) the percentage increase in capital is less than the
percentage increase in insured risk. Wisconsin does not regulate capital by using a
risk-to-capital measure but instead requires a minimum policyholder
position ("MPP"). The "policyholder position" of a mortgage insurer
is its net worth or surplus, contingency reserve and a portion of
the reserves for unearned premiums.
At December 31, 2019, MGIC's risk-to-capital ratio was 9.7
to 1, below the maximum allowed by the jurisdictions with State
Capital Requirements, and its policyholder position was
$3.0 billion above the required MPP
of $1.7 billion. Our risk-to-capital
ratio and MPP reflect full credit for the risk ceded under our
quota share reinsurance and excess of loss transactions with
unaffiliated reinsurers. It is possible that under the
revised State Capital Requirements discussed below, MGIC will not
be allowed full credit for the risk ceded under such transactions.
If MGIC is not allowed an agreed level of credit under the State
Capital Requirements, MGIC may terminate the reinsurance
transactions, without penalty. At this time, we expect MGIC to
continue to comply with the current State Capital Requirements;
however, you should read the rest of these risk factors for
information about matters that could negatively affect such
compliance. At December 31, 2019, the risk-to-capital ratio of
our combined insurance operations was 9.6 to 1.
The NAIC has previously announced plans to revise the minimum
capital and surplus requirements for mortgage insurers that are
provided for in its Mortgage Guaranty Insurance Model Act. In
December 2019, a working group of
state regulators released an exposure draft of a revised Mortgage
Guaranty Insurance Model Act and a risk-based capital framework to
establish capital requirements for mortgage insurers, although no
date has been established by which the NAIC must propose revisions
to the capital requirements and certain items have not yet been
completely addressed by the framework, including the treatment of
ceded risk and minimum capital floors. Currently we believe that
the PMIERs contain more restrictive capital requirements than the
draft Mortgage Guaranty Insurance Model Act in most
circumstances.
While MGIC currently meets, and expects to continue to meet, the
State Capital Requirements of Wisconsin and all other jurisdictions, it
could be prevented from writing new business in the future in all
jurisdictions if it fails to meet the State Capital Requirements of
Wisconsin, or it could be
prevented from writing new business in a particular jurisdiction if
it fails to meet the State Capital Requirements of that
jurisdiction, and in each case if MGIC does not obtain a waiver of
such requirements. It is possible that regulatory action by one or
more jurisdictions, including those that do not have specific State
Capital Requirements, may prevent MGIC from continuing to write new
insurance in such jurisdictions. If we are unable to write business
in a particular jurisdiction, lenders may be unwilling to procure
insurance from us anywhere. In addition, a lender's assessment of
the future ability of our insurance operations to meet the State
Capital Requirements or the PMIERs may affect its willingness to
procure insurance from us. In this regard, see our risk factor
titled "Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and/or increase our losses." A possible future failure by MGIC
to meet the State Capital Requirements or the PMIERs will not
necessarily mean that MGIC lacks sufficient resources to pay claims
on its insurance liabilities. While we believe MGIC has sufficient
claims paying resources to meet its claim obligations on its
insurance in force on a timely basis, you should read the rest of
these risk factors for information about matters that could
negatively affect MGIC's claims paying resources.
Downturns in the domestic economy or declines in the value
of borrowers' homes from their value at the time their loans closed
may result in more homeowners defaulting and our losses increasing,
with a corresponding decrease in our returns.
Losses result from events that reduce a borrower's ability or
willingness to continue to make mortgage payments, such as
unemployment, health issues, family status, and whether the home of
a borrower who defaults on his mortgage can be sold for an amount
that will cover unpaid principal and interest and the expenses of
the sale. In general, favorable economic conditions reduce the
likelihood that borrowers will lack sufficient income to pay their
mortgages and also favorably affect the value of homes, thereby
reducing and in some cases even eliminating a loss from a mortgage
default. A deterioration in economic conditions, including an
increase in unemployment, generally increases the likelihood that
borrowers will not have sufficient income to pay their mortgages
and can also adversely affect home prices, which in turn can
influence the willingness of borrowers with sufficient resources to
make mortgage payments to do so when the mortgage balance exceeds
the value of the home. Home prices may decline even absent a
deterioration in economic conditions due to declines in demand for
homes, which in turn may result from changes in buyers' perceptions
of the potential for future appreciation, restrictions on and the
cost of mortgage credit due to more stringent underwriting
standards, higher interest rates generally, changes to the
deductibility of mortgage interest for income tax purposes,
decreases in the rate of household formations, or other factors.
Changes in home prices and unemployment levels are inherently
difficult to forecast given the uncertainty in the current market
environment, including uncertainty about the effect of actions the
federal government has taken and may take with respect to tax
policies, mortgage finance programs and policies, and housing
finance reform.
The mix of business we write affects our Minimum Required
Assets under the PMIERs, our premium yields and the likelihood of
losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a
function of the direct risk-in-force and the risk profile of the
loans we insure, considering LTV ratio, credit score, vintage, Home
Affordable Refinance Program ("HARP") status and delinquency
status; and whether the loans were insured under lender-paid
mortgage insurance policies or other policies that are not subject
to automatic termination consistent with the Homeowners Protection
Act requirements for borrower paid mortgage insurance. Therefore,
if our direct risk-in-force increases through increases in NIW, or
if our mix of business changes to include loans with higher LTV
ratios or lower FICO scores, for example, or if we insure a higher
percentage of loans under lender-paid mortgage insurance policies,
all other things equal, we will be required to hold more Available
Assets in order to maintain GSE eligibility.
The minimum capital required by the risk-based capital framework
contained in the exposure draft released by the NAIC in
December 2019 would be, in part, a
function of certain loan and economic factors, including property
location, LTV ratio and credit score; general underwriting quality
in the market at the time of loan origination; the age of the loan;
and the premium rate we charge. Depending on the provisions of the
capital requirements when they are released in final form and
become effective, our mix of business may affect the minimum
capital we are required to hold under the new framework.
The percentage of our NIW from all single-premium policies has
ranged from approximately 10% in 2013 to 19% in 2017 and was 17% in
2018 and 16% in 2019. Depending on the actual life of a single
premium policy and its premium rate relative to that of a monthly
premium policy, a single premium policy may generate more or less
premium than a monthly premium policy over its life.
We have in place quota share reinsurance ("QSR") transactions
with unaffiliated reinsurers that cover most of our insurance
written from 2013 through 2019, and a portion of our insurance
written prior to 2013. Although the transactions reduce our
premiums, they have a lesser impact on our overall results, as
losses ceded under the transactions reduce our losses incurred and
the ceding commissions we receive reduce our underwriting expenses.
The effect of the QSR transactions on the various components of
pre-tax income will vary from period to period, depending on the
level of ceded losses.
In 2018 and 2019, MGIC entered into reinsurance agreements that
provide excess-of-loss reinsurance coverage for a portion of the
risk associated with certain mortgage insurance policies having an
insurance coverage in force date on or after July 1, 2016 and before April 1, 2019. The transactions were entered into
with special purpose insurers that issued notes linked to the
reinsurance coverage ("Insurance Linked Notes" or "ILNs"). We
expect that we may enter into other ILN transactions if capital
market conditions remain favorable.
In addition to the effect of reinsurance on our premiums, we
expect a decline in our premium yield because an increasing
percentage of our insurance in force is from recent book years
whose premium rates have been trending lower.
Our ability to rescind insurance coverage became more limited
for insurance we wrote beginning in mid-2012. As a result of
revised PMIERs requirements, we have revised our master policy and
expect it to be effective for new insurance written beginning
March 1, 2020. Our ability to rescind
insurance coverage will become further limited for insurance we
write under the new master policy, potentially resulting in higher
losses than would be the case under our existing master
policies.
From time to time, in response to market conditions, we change
the types of loans that we insure and the requirements under which
we insure them. We also change our underwriting guidelines, in part
through aligning most of them with the GSEs for loans that receive
and are processed in accordance with certain approval
recommendations from a GSE automated underwriting system. We also
make exceptions to our underwriting requirements on a loan-by-loan
basis and for certain customer programs. Our underwriting
requirements are available on our website at
http://www.mgic.com/underwriting/index.html.
Even when home prices are stable or rising, mortgages with
certain characteristics have higher probabilities of claims. As of
December 31, 2019, mortgages with these characteristics in our
primary risk in force included mortgages with LTV ratios greater
than 95% (15.3%), loans with borrowers having FICO scores below 620
(2.0%), mortgages with borrowers having FICO scores of 620-679
(9.0%), mortgages with limited underwriting, including limited
borrower documentation (1.7%), and mortgages with borrowers having
DTI ratios greater than 45% (or where no ratio is available)
(14.2%), each attribute as determined at the time of loan
origination. An individual loan may have more than one of these
attributes.
Beginning in 2017, the percentage of NIW that we have written on
mortgages with LTV ratios greater than 95% and mortgages with DTI
ratios greater than 45% has increased, although the percentage of
NIW that we have written on mortgages with DTI ratios greater than
45% has declined in 2019 from its 2018 level. In 2018, we started
considering DTI ratios when setting our premium rates, and we
changed our methodology for calculating DTI ratios for pricing and
eligibility purposes to exclude the impact of mortgage insurance
premiums. As a result of this change, loan originators may have
changed the information they provide to us. Although we have
revised our operational procedures to account for this possibility,
we cannot be sure that the DTI ratio we report for each loan
beginning in late 2018 includes the related mortgage insurance
premiums in the calculation. In addition, we expect to insure
certain loans that would not have previously met our guidelines and
to offer premium rates for certain loans lower than would have been
offered under our previous methodology.
The widespread use of risk-based pricing systems by the
private mortgage insurance industry (discussed in our risk factor
titled "Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses") makes it more
difficult to compare our premium rates to those offered by our
competitors. We may not be aware of industry rate changes until we
observe that our mix of new insurance written has changed and our
mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways
that ease mortgage lending standards and/or requirements, or if
lenders seek ways to replace business in times of lower mortgage
originations, it is possible that more mortgage loans could be
originated with higher risk characteristics than are currently
being originated, such as loans with lower FICO scores and higher
DTI ratios. Lenders could pressure mortgage insurers to insure such
loans, which are expected to experience higher claim rates.
Although we attempt to incorporate these higher expected claim
rates into our underwriting and pricing models, there can be no
assurance that the premiums earned and the associated investment
income will be adequate to compensate for actual losses even under
our current underwriting requirements.
The premiums we charge may not be adequate to compensate
us for our liabilities for losses and as a result any inadequacy
could materially affect our financial condition and results of
operations.
We set premiums at the time a policy is issued based on our
expectations regarding likely performance of the insured risks over
the long term. Our premiums are subject to approval by state
regulatory agencies, which can delay or limit our ability to
increase our premiums. Generally, we cannot cancel mortgage
insurance coverage or adjust renewal premiums during the life of a
mortgage insurance policy. As a result, higher than anticipated
claims generally cannot be offset by premium increases on policies
in force or mitigated by our non-renewal or cancellation of
insurance coverage. The premiums we charge, the investment income
we earn and the amount of reinsurance we carry may not be adequate
to compensate us for the risks and costs associated with the
insurance coverage provided to customers. An increase in the number
or size of claims, compared to what we anticipate, could adversely
affect our results of operations or financial condition. Our
premium rates are also based in part on the amount of capital we
are required to hold against the insured risk. If the amount of
capital we are required to hold increases from the amount we were
required to hold when a policy was written, we cannot adjust
premiums to compensate for this and our returns may be lower than
we assumed.
The losses we have incurred on our 2005-2008 books of business
have exceeded our premiums from those books. The incurred losses
from those books, although declining, continue to generate a
material portion of our total incurred losses. The ultimate amount
of these losses will depend in part on general economic conditions,
including unemployment, and the direction of home prices.
We are susceptible to disruptions in the servicing of
mortgage loans that we insure.
We depend on reliable, consistent third-party servicing of the
loans that we insure. Over the last several years, the mortgage
loan servicing industry has experienced consolidation and an
increase in the number of specialty servicers servicing delinquent
loans. The resulting change in the composition of servicers could
lead to disruptions in the servicing of mortgage loans covered by
our insurance policies. Further changes in the servicing industry
resulting in the transfer of servicing could cause a disruption in
the servicing of delinquent loans which could reduce servicers'
ability to undertake mitigation efforts that could help limit our
losses. Future housing market conditions could lead to additional
increases in delinquencies and transfers of servicing.
Changes in interest rates, house prices or mortgage
insurance cancellation requirements may change the length of time
that our policies remain in force.
The premium from a single premium policy is collected upfront
and generally earned over the estimated life of the policy. In
contrast, premiums from a monthly premium policy are received and
earned each month over the life of the policy. In each year, most
of our premiums earned are from insurance that has been written in
prior years. As a result, the length of time insurance remains in
force, which is generally measured by persistency (the percentage
of our insurance remaining in force from one year prior), is a
significant determinant of our revenues. Future premiums on our
monthly premium policies in force represent a material portion of
our claims paying resources and a low persistency rate will reduce
those future premiums. In contrast, a higher than expected
persistency rate will decrease the profitability from single
premium policies because they will remain in force longer than was
estimated when the policies were written.
Our persistency rate was 75.8% at December 31, 2019, 81.7%
at December 31, 2018, and 80.1% at
December 31, 2017. Since 2000, our
year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at
December 31, 2003.
Our persistency rate is primarily affected by the level of
current mortgage interest rates compared to the mortgage coupon
rates on our insurance in force, which affects the vulnerability of
the insurance in force to refinancing. Our persistency rate is also
affected by the mortgage insurance cancellation policies of
mortgage investors along with the current value of the homes
underlying the mortgages in the insurance in force. In 2018, the
GSEs announced changes to various mortgage insurance termination
requirements that are intended to further simplify the process of
evaluating borrower-initiated requests for mortgage insurance
termination and may reduce our persistency rate in the future.
Our holding company debt obligations materially exceed our
holding company cash and investments.
At December 31, 2019, we had approximately $325 million in cash and investments at our
holding company and our holding company's debt obligations were
$815 million in aggregate principal
amount, consisting of $425 million of
5.75% Senior Notes due in 2023 ("5.75% Notes") and $390 million of 9% Debentures due in 2063 (of
which approximately $133 million was
purchased, and is held, by MGIC, and is eliminated on the
consolidated balance sheet). Annual debt service on the 5.75% Notes
and 9% Debentures outstanding as of December 31, 2019, is
approximately $60 million (of which
approximately $12 million will be
paid to MGIC and will be eliminated on the consolidated statement
of operations).
The 5.75% Senior Notes and 9% Debentures are obligations of our
holding company, MGIC Investment Corporation, and not of its
subsidiaries. The payment of dividends from our insurance
subsidiaries which, other than investment income and raising
capital in the public markets, is the principal source of our
holding company cash inflow, is restricted by insurance regulation.
MGIC is the principal source of dividends, and in 2019 and 2018, it
paid a total of $280 million and
$220 million, respectively, in
quarterly dividends to our holding company. We have received the
appropriate approvals for MGIC to pay to our holding company, in
the first quarter of 2020, a special dividend of $320 million
and a quarterly dividend of $70
million. We expect to use most of the proceeds of the
special dividend to repurchase our common stock as discussed below.
We expect MGIC to pay quarterly dividends totaling at least
$280 million per year, subject to
approval by its Board of Directors. We ask the OCI not to object
before MGIC pays dividends.
In 2019 and 2018, we repurchased approximately 8.7 million and
16.0 million shares of our common stock, respectively, using
approximately $114 million and
$175 million of holding company resources, respectively. We
may repurchase up to an additional $111
million of our common stock through the end of 2020 under a
share repurchase program approved by our Board of Directors in
2019. In addition, in January 2020,
our Board of Directors approved the repurchase of up to an
additional $300 million of our common
stock through the end of 2021. Repurchases may be made from time to
time on the open market or through privately negotiated
transactions. The repurchase program may be suspended for periods
or discontinued at any time. If any additional capital
contributions to our subsidiaries were required, such contributions
would decrease our holding company cash and investments. As
described in our Current Report on Form 8-K filed on February 11, 2016, MGIC borrowed $155 million from the Federal Home Loan Bank of
Chicago. This is an obligation of
MGIC and not of our holding company.
Your ownership in our company may be diluted by additional
capital that we raise or if the holders of our outstanding
convertible debt convert that debt into shares of our common
stock.
As noted above under our risk factor titled "We may not
continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease if we are required to
maintain more capital in order to maintain our eligibility,"
although we are currently in compliance with the requirements of
the PMIERs, there can be no assurance that we would not seek to
issue non-dilutive debt capital or to raise additional equity
capital to manage our capital position under the PMIERs or for
other purposes. Any future issuance of equity securities may dilute
your ownership interest in our company. In addition, the market
price of our common stock could decline as a result of sales of a
large number of shares or similar securities in the market or the
perception that such sales could occur.
At December 31, 2019, we had outstanding $390 million principal amount of 9% Convertible
Junior Subordinated Debentures due in 2063 ("9% Debentures") (of
which approximately $133 million was
purchased, and is held, by MGIC, and is eliminated on the
consolidated balance sheet). The principal amount of the 9%
Debentures is currently convertible, at the holder's option, at a
conversion rate, which is subject to adjustment, of 74.4718 common
shares per $1,000 principal amount of
debentures. This represents a conversion price of approximately
$13.43 per share. The payment of
dividends by our holding company will result in an adjustment to
the conversion rate and price, with such adjustment generally
deferred until the end of the year.
We may redeem the 9% Debentures in whole or in part from time to
time, at our option, at a redemption price equal to 100% of the
principal amount of the 9% Debentures being redeemed, plus any
accrued and unpaid interest, if the closing sale price of our
common stock exceeds $17.46 for at
least 20 of the 30 trading days preceding notice of the
redemption.
We have the right, and may elect, to defer interest payable
under the debentures in the future. If a holder elects to convert
its debentures, the interest that has been deferred on the
debentures being converted is also convertible into shares of our
common stock. The conversion rate for such deferred interest is
based on the average price that our shares traded at during a 5-day
period immediately prior to the election to convert the associated
debentures. We may elect to pay cash for some or all of the shares
issuable upon a conversion of the debentures.
For a discussion of the dilutive effects of our convertible
securities on our earnings per share, see Note 4 – "Earnings
Per Share" to our consolidated financial statements in our Annual
Report on Form 10-K filed with the SEC on February 22, 2019. As noted above, during 2019
and 2018, we repurchased shares of our common stock and may do so
in the future. In addition, we have in the past purchased, and may
in the future purchase, our debt securities.
The price of our common stock may fluctuate significantly,
which may make it difficult for holders to resell common stock when
they want or at a price they find attractive.
The market price for our common stock may fluctuate
significantly. In addition to the risk factors described herein,
the following factors may have an adverse impact on the market
price for our common stock: announcements by us or our competitors
of acquisitions or strategic initiatives; our actual or anticipated
quarterly and annual operating results; changes in expectations of
future financial performance (including incurred losses on our
insurance in force); changes in estimates of securities analysts or
rating agencies; actual or anticipated changes in our share
repurchase program or dividends; changes in general conditions in
the economy, the mortgage insurance industry or the financial
markets; changes in operating performance or market valuation of
companies in the mortgage insurance industry; the addition or
departure of key personnel; changes in tax law; and adverse press
or news announcements affecting us or the industry. In
addition, ownership by certain types of investors may affect the
market price and trading volume of our common stock. For example,
ownership in our common stock by investors such as index funds and
exchange-traded funds can affect the stock's price when those
investors must purchase or sell our common stock because the
investors have experienced significant cash inflows or outflows,
the index to which our common stock belongs has been rebalanced, or
our common stock is added to and/or removed from an index (due to
changes in our market capitalization, for example).
We could be adversely affected if personal information on
consumers that we maintain is improperly disclosed, and damage to,
or interruption in, our information technology systems may disrupt
our operations.
As part of our business, we maintain large amounts of personal
information on consumers. Federal and state laws designed to
promote the protection of personal information of consumers require
businesses that collect or maintain consumer information to adopt
information security programs, notify individuals, and in some
jurisdictions, regulatory authorities, of security breaches
involving personally identifiable information. Those laws may
require free credit monitoring services to be provided to
individuals affected by security breaches. While we believe we have
appropriate information security policies and systems to prevent
unauthorized disclosure, there can be no assurance that
unauthorized disclosure, either through the actions of third
parties or employees, will not occur. Unauthorized disclosure could
adversely affect our reputation, result in a loss of business and
expose us to material claims for damages.
We rely on the efficient and uninterrupted operation of complex
information technology systems. All information technology systems
are potentially vulnerable to damage or interruption from a variety
of sources, including through the actions of third parties. Due to
our reliance on information technology systems, including ours and
those of our customers and third party service providers, their
damage or interruption could severely disrupt our operations, which
could have a material adverse effect on our business, business
prospects and results of operations.
In addition, we are in the process of upgrading certain of our
information systems that have been in place for a number of years
and continue to deploy and enhance our risk-based pricing system.
The implementation of these technological improvements, as well as
their integration with customer and third party systems when
applicable, is complex, expensive and time consuming. If we fail to
timely and successfully implement and integrate the new technology
systems, or if the systems do not operate as expected, it could
have an adverse impact on our business, business prospects and
results of operations.
Our success depends, in part, on our ability to manage
risks in our investment portfolio.
Our investment portfolio is an important source of revenue and
is our primary source of claims paying resources. Although our
investment portfolio consists mostly of highly-rated fixed income
investments, our investment portfolio is affected by general
economic conditions and tax policy, which may adversely affect the
markets for credit and interest-rate-sensitive securities,
including the extent and timing of investor participation in these
markets, the level and volatility of interest rates and credit
spreads and, consequently, the value of our fixed income
securities, and as such, we may not achieve our investment
objectives. Volatility or lack of liquidity in the markets in which
we hold securities has at times reduced the market value of some of
our investments, and if this worsens substantially it could have a
material adverse effect on our liquidity, financial condition and
results of operations.
For the significant portion of our investment portfolio that is
held by MGIC, to receive full capital credit under insurance
regulatory requirements and under the PMIERs, we generally are
limited to investing in investment grade fixed income securities
whose yields reflect their lower credit risk profile. Our
investment income depends upon the size of the portfolio and its
reinvestment at prevailing interest rates. A prolonged period of
low investment yields would have an adverse impact on our
investment income as would a decrease in the size of the
portfolio.
In addition, we structure our investment portfolio to satisfy
our expected liabilities, including claim payments in our mortgage
insurance business. If we underestimate our liabilities or
improperly structure our investments to meet these liabilities, we
could have unexpected losses resulting from the forced liquidation
of fixed income investments before their maturity, which could
adversely affect our results of operations.
Hurricanes and other natural disasters may impact our
incurred losses, the amount and timing of paid claims, our
inventory of notices of default and our Minimum Required Assets
under PMIERs.
Natural disasters, such as hurricanes, tornadoes, earthquakes,
wildfires and floods, or other events related to changing climatic
conditions, could trigger an economic downturn in the affected
areas, which could result in a decline in our business and an
increased claim rate on policies in those areas. Natural disasters,
rising sea levels and increased cost of flood insurance could lead
to a decrease in home prices in the affected areas, or in areas
with similar risks, which could result in an increase in claim
severity on policies in those areas. If we were to attempt to limit
our new insurance written in disaster-prone areas, lenders may be
unwilling to procure insurance from us anywhere.
Natural disasters could also lead to increased reinsurance rates
or reduced availability of reinsurance. This may cause us to retain
more risk than we otherwise would retain and could negatively
affect our compliance with the financial requirements of the
PMIERs.
The PMIERs require us to maintain significantly more "Minimum
Required Assets" for delinquent loans than for performing loans;
however, the increase in Minimum Required Assets is not as great
for certain delinquent loans in areas that the Federal Emergency
Management Agency has declared major disaster areas. An increase in
delinquency notices resulting from a natural disaster may result in
an increase in "Minimum Required Assets" and a decrease in the
level of our excess "Available Assets" which is discussed in our
risk factor titled "We may not continue to meet the GSEs'
private mortgage insurer eligibility requirements and our returns
may decrease if we are required to maintain more capital in order
to maintain our eligibility."
The Company may be adversely impacted by the transition
from LIBOR as a reference rate.
In 2017, the United Kingdom's
Financial Conduct Authority, which regulates LIBOR, announced that
after 2021 it would no longer compel banks to submit rate
quotations required to calculate LIBOR. As a result, it is
uncertain whether LIBOR will continue to be quoted after 2021.
Efforts are underway to identify and transition to a set of
alternative reference rates. The set of alternative rates
includes the Secured Overnight Financing Rate ("SOFR"), which the
Federal Reserve Bank of New York
began publishing in 2018. SOFR is calculated based on different
criteria than LIBOR. Accordingly, SOFR and LIBOR may diverge. In
addition, SOFR may be subject to direct influence by activities of
the Federal Reserve and the Federal Reserve Bank of New York in ways that other rates may not
be.
There is considerable uncertainty as to how the financial
services industry will address the discontinuance of LIBOR in
financial instruments. Financial instruments indexed to LIBOR could
experience disparate outcomes based on their contractual terms,
ability to amend those terms, market or product type, legal or
regulatory jurisdiction, and other factors. Alternative reference
rates that replace LIBOR may not yield the same or similar economic
results over the lives of the financial instruments, which could
adversely affect the value of and return on these instruments.
While it is not currently possible to determine precisely
whether, or to what extent, the replacement of LIBOR would affect
us, the implementation of alternative benchmark rates to LIBOR may
have an adverse effect on our business, results of operations or
financial condition.
Our transactions involving financial instruments that reference
LIBOR, include:
- Buying and selling fixed income securities (as of December 31, 2019, approximately 6.0% of the fair
value of our investment portfolio consisted of securities
referencing LIBOR).
- Insuring adjustable rate mortgages ("ARMs") whose interest is
referenced to LIBOR (as of December 31,
2019, approximately $1.1
billion of our risk in force was on ARMs referencing LIBOR).
A change in reference rate associated with these loans may affect
their principal balance, which may affect our risk-in-force and the
amount of Minimum Required Assets we are required to maintain under
PMIERs. A change in reference rate may also affect the amount of
principal and/or accrued interest we are required to pay in the
event of a claim payment.
- Entering into reinsurance agreements under which our premiums
are determined, in part, by the difference between interest payable
on the reinsurers' notes which reference LIBOR and earnings from a
pool of securities receiving interest that may reference LIBOR (in
2019, our total premiums on such transactions was approximately
$17.6 million).
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SOURCE MGIC Investment Corporation