MILWAUKEE, Oct. 17, 2018 /PRNewswire/ -- MGIC
Investment Corporation (NYSE: MTG) today reported operating and
financial results for the third quarter of 2018. Net income for the
quarter was $181.9 million, or
$0.49 per diluted share, compared
with net income of $120.0 million, or
$0.32 per diluted share for the third
quarter of 2017.
Adjusted net operating income for the third quarter of 2018 was
$180.9 million, or $0.48 per diluted share, compared with
$120.7 million, or $0.32 per diluted share for the third quarter of
2017. We present the non-GAAP financial measure "Adjusted net
operating income" to increase the comparability between periods of
our financial results. See "Use of
Non-GAAP financial measures"
below.
Third Quarter Summary
- New Insurance Written of $14.5
billion, compared to $14.1
billion in the third quarter of 2017.
- Insurance in force of $205.8
billion at September 30, 2018
increased by 2.5% during the quarter and 7.7% compared to
September 30, 2017.
- Primary delinquent inventory of 33,398 loans at September 30, 2018 decreased from 46,556 loans at
December 31, 2017. Our primary
delinquent inventory declined 19.0% year-over-year from 41,235
loans at September 30, 2017.
-
- The 2008 and prior books accounted for approximately 18% of the
September 30, 2018 primary risk in
force but accounted for 72% of the new primary delinquent notices
received in the quarter.
- The percentage of primary loans that were delinquent at
September 30, 2018 was 3.19%,
compared to 4.55% at December 31,
2017, and 4.07% at September 30,
2017. The percentage of flow primary loans that were
delinquent at September 30, 2018 was
2.52%, compared to 3.70% at December 31,
2017, and 3.19% at September 30,
2017.
- Persistency, or the percentage of insurance remaining in force
from one year prior, was 81.0% at September
30, 2018, compared with 80.1% at December 31, 2017 and 78.8% at September 30, 2017.
- The loss ratio for the third quarter of 2018 was (0.6%),
compared to (5.4%) for the second quarter of 2018 and 12.5% for the
third quarter of 2017.
- The underwriting expense ratio associated with our insurance
operations for the third quarter of 2018 was 17.6%, compared to
16.4% for the second quarter of 2018 and 15.7% for the third
quarter of 2017.
- Net premium yield was 49.3 basis points in the third quarter of
2018, compared to 49.6 basis points for the second quarter of 2018
and 50.1 basis points for the third quarter of 2017.
- Book value per common share outstanding increased by 5.4%
during the quarter to $9.64.
_______________
Patrick Sinks, CEO of MTG and
Mortgage Guaranty Insurance Corporation ("MGIC"), said, "In the
third quarter we again saw an increase of insurance in force, a
reduction in new primary delinquent notices, and a decline of the
primary delinquent inventory. The current operating
environment enables us to report another quarter of strong
earnings." Sinks added that, "MGIC is, and expects to remain,
in a strong capital position following the finalization of the
revised PMIERs financial requirements and paid a $60 million dividend to the holding company in
the third quarter."
_______________
Revenues
Total revenues for the third quarter of 2018 were $290.4 million, compared to $270.4 million in the third quarter last year.
Net premiums written for the quarter were $251.9 million, compared to $255.9 million for the same period last year. Net
premiums earned for the quarter were $250.4
million, compared to $237.1
million for the same period last year. The increase
was primarily due to the positive primary loss reserve development
during the quarter. The positive loss reserve development resulted
in a decrease in ceded losses, and a decrease in ceded premiums
earned which were driven by a higher profit commission. The
positive loss reserve development also resulted in a decrease of
the accrual for premium refunds as we expect to pay fewer claims on
the delinquent inventory. This benefit was partially offset by a
lower premium yield on the higher average insurance in force in the
quarter compared to the third quarter of 2017. Investment income
for the third quarter increased to $36.4
million, from $30.4 million
for the same period last year, resulting from an increase in the
consolidated investment portfolio as well as higher yields.
Losses and expenses
Losses incurred
Losses incurred in the third quarter of 2018 were ($1.5) million, compared to $29.7 million in the third quarter of
2017. During the third quarter of 2018 there was a
$59 million reduction in losses
incurred due to positive development on our primary loss reserves,
before reinsurance, for previously received delinquent notices,
compared to a reduction of $38
million in the third quarter of 2017. Losses incurred in the
quarter associated with delinquent notices received in the quarter
reflect the 15% decline in delinquent new notices received and a
lower estimated claim rate when compared to the same period last
year.
Underwriting and other expenses
Net underwriting and other expenses were $46.8 million in the third quarter of 2018,
compared to $42.9 million in the same
period last year. The increase in expenses was primarily due to
higher stock based compensation, which resulted from a higher stock
price at the grant date, and non-executive compensation.
Provision for income taxes
The effective income tax rate was 21.6% in the third quarter of
2018, compared to 34.9% in the third quarter of 2017. The decrease
reflects the reduction to the statutory income tax rate.
Capital
- As of September 30, 2018, total
shareholders' equity was $3.49
billion and outstanding principal on borrowings was
$837 million.
- MGIC paid a dividend of $60
million to our holding company during the third quarter of
2018.
- Preliminary Consolidated Risk-to-Capital was 9.8:1 as of
September 30, 2018, compared to
11.1:1 as of September 30, 2017.
- MGIC's PMIERs Available Assets totaled $4.8 billion, or $1.0
billion above its Minimum Required Assets as of September 30, 2018.
Other Balance Sheet and Liquidity
Metrics
- Total assets were $5.7 billion as
of September 30, 2018, compared to
$5.6 billion as of December 31, 2017, and $5.7 billion as of September 30, 2017.
- The fair value of our investment portfolio, cash and cash
equivalents was $5.2 billion as of
September 30, 2018, compared to
$5.1 billion as of December 31, 2017, and $5.0 billion as of September 30, 2017.
- Investments, cash and cash equivalents at the holding company
were $261 million as of September 30, 2018, compared to $216 million as of December 31, 2017, and $182 million as of September 30, 2017.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today,
October 17, 2018, 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
1-844-231-8825. 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
November 17, 2018 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 September 30, 2018, MGIC had $205.8 billion of primary insurance in force
covering approximately 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.
Enrollment information for MGIC alerts can be found
https://www.mgic.com/ClearRates/index.html.
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-Q for the quarter ended
September 30, 2018.
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% in 2018 and
35% in 2017.
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.
(1)
|
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.
|
|
|
(2)
|
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.
|
|
|
(3)
|
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.
|
|
|
(4)
|
Infrequent or
unusual non-operating items. Our 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
September 30,
|
|
Nine Months Ended
September 30,
|
|
(In thousands,
except per share data)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
|
$
|
251,883
|
|
|
$
|
255,896
|
|
|
$
|
744,225
|
|
|
$
|
738,432
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net premiums
earned
|
|
$
|
250,426
|
|
|
$
|
237,083
|
|
|
$
|
729,497
|
|
|
$
|
697,322
|
|
|
Net investment
income
|
|
36,380
|
|
|
30,402
|
|
|
103,003
|
|
|
89,595
|
|
|
Net realized
investment gains (losses)
|
|
1,114
|
|
|
(50)
|
|
|
(1,112)
|
|
|
(227)
|
|
|
Other
revenue
|
|
2,525
|
|
|
2,925
|
|
|
6,827
|
|
|
7,862
|
|
|
Total
revenues
|
|
290,445
|
|
|
270,360
|
|
|
838,215
|
|
|
794,552
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
Losses incurred,
net
|
|
(1,518)
|
|
|
29,747
|
|
|
8,877
|
|
|
84,705
|
|
|
Underwriting and
other expenses, net
|
|
46,811
|
|
|
42,873
|
|
|
140,160
|
|
|
126,963
|
|
|
Interest
expense
|
|
13,258
|
|
|
13,273
|
|
|
39,737
|
|
|
43,779
|
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
Total losses and
expenses
|
|
58,551
|
|
|
85,893
|
|
|
188,774
|
|
|
255,512
|
|
|
Income before
tax
|
|
231,894
|
|
|
184,467
|
|
|
649,441
|
|
|
539,040
|
|
|
Provision for income
taxes
|
|
49,994
|
|
|
64,440
|
|
|
137,090
|
|
|
210,593
|
|
|
Net income
|
|
$
|
181,900
|
|
|
$
|
120,027
|
|
|
$
|
512,351
|
|
|
$
|
328,447
|
|
|
Net income per
diluted share
|
|
$
|
0.49
|
|
|
$
|
0.32
|
|
|
$
|
1.36
|
|
|
$
|
0.86
|
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands,
except per share data)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
|
$
|
181,900
|
|
|
$
|
120,027
|
|
|
$
|
512,351
|
|
|
$
|
328,447
|
|
Interest expense, net
of tax (1):
|
|
|
|
|
|
|
|
|
2% Convertible Senior
Notes due 2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
907
|
|
5% Convertible Senior
Notes due 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,709
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
4,566
|
|
|
3,757
|
|
|
13,698
|
|
|
11,270
|
|
Diluted net income
available to common shareholders
|
|
$
|
186,466
|
|
|
$
|
123,784
|
|
|
$
|
526,049
|
|
|
$
|
342,333
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares - basic
|
|
362,180
|
|
|
370,586
|
|
|
367,190
|
|
|
359,613
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
Unvested restricted
stock units
|
|
1,697
|
|
|
1,473
|
|
|
1,547
|
|
|
1,367
|
|
2% Convertible Senior
Notes due 2020
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,119
|
|
5% Convertible Senior
Notes due 2017
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,743
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
19,028
|
|
|
19,028
|
|
|
19,028
|
|
|
19,028
|
|
Weighted average
shares - diluted
|
|
382,905
|
|
|
391,087
|
|
|
387,765
|
|
|
395,870
|
|
Net income per
diluted share
|
|
$
|
0.49
|
|
|
$
|
0.32
|
|
|
$
|
1.36
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Interest expense for
the three and nine months ended September 30, 2018 and 2017 has
been tax effected at a rate of 21% and 35%,
respectively.
|
NON-GAAP
RECONCILIATIONS
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Three Months Ended
September 30,
|
|
|
2018
|
|
2017
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
231,894
|
|
|
$
|
49,994
|
|
|
$
|
181,900
|
|
|
$
|
184,467
|
|
|
$
|
64,440
|
|
|
$
|
120,027
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
benefit (provision) related to IRS litigation
|
|
—
|
|
|
154
|
|
|
(154)
|
|
|
—
|
|
|
(619)
|
|
|
619
|
|
Net realized
investment (gains) losses
|
|
(1,114)
|
|
|
(234)
|
|
|
(880)
|
|
|
50
|
|
|
18
|
|
|
32
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
230,780
|
|
|
$
|
49,914
|
|
|
$
|
180,866
|
|
|
$
|
184,517
|
|
|
$
|
63,839
|
|
|
$
|
120,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
Weighted average
shares - diluted
|
|
|
|
|
|
382,905
|
|
|
|
|
|
|
391,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
0.49
|
|
|
|
|
|
|
$
|
0.32
|
|
Additional income tax
(benefit) provision related to IRS litigation
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Net realized
investment (gains) losses
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
0.48
|
|
(1)
|
|
|
|
|
$
|
0.32
|
|
(1) For
the Three Months Ended September 30, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
649,441
|
|
|
$
|
137,090
|
|
|
$
|
512,351
|
|
|
$
|
539,040
|
|
|
$
|
210,593
|
|
|
$
|
328,447
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
provision related to IRS litigation
|
|
—
|
|
|
(1,477)
|
|
|
1,477
|
|
|
—
|
|
|
(28,402)
|
|
|
28,402
|
|
Net realized
investment losses
|
|
1,112
|
|
|
234
|
|
|
878
|
|
|
227
|
|
|
79
|
|
|
148
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
23
|
|
|
42
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
650,553
|
|
|
$
|
135,847
|
|
|
$
|
514,706
|
|
|
$
|
539,332
|
|
|
$
|
182,293
|
|
|
$
|
357,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
Weighted average
shares - diluted
|
|
|
|
|
|
387,765
|
|
|
|
|
|
|
395,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
1.36
|
|
|
|
|
|
|
$
|
0.86
|
|
Additional income tax
provision related to IRS litigation
|
|
|
|
|
|
—
|
|
|
|
|
|
|
0.07
|
|
Net realized
investment losses
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
1.36
|
|
|
|
|
|
|
$
|
0.93
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
September
|
|
December
31,
|
|
September
|
(In thousands,
except per share data)
|
|
2018
|
|
2017
|
|
2017
|
ASSETS
|
|
|
|
|
|
|
Investments
(1)
|
|
$
|
4,980,432
|
|
|
$
|
4,990,561
|
|
|
$
|
4,717,392
|
|
Cash and cash
equivalents
|
|
266,997
|
|
|
99,851
|
|
|
250,701
|
|
Reinsurance
recoverable on loss reserves (2)
|
|
33,281
|
|
|
48,474
|
|
|
45,878
|
|
Home office and
equipment, net
|
|
50,055
|
|
|
44,936
|
|
|
43,157
|
|
Deferred insurance
policy acquisition costs
|
|
18,665
|
|
|
18,841
|
|
|
19,024
|
|
Deferred income
taxes, net
|
|
111,613
|
|
|
234,381
|
|
|
416,167
|
|
Other
assets
|
|
196,065
|
|
|
182,455
|
|
|
183,549
|
|
Total
assets
|
|
$
|
5,657,108
|
|
|
$
|
5,619,499
|
|
|
$
|
5,675,868
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
$
|
721,046
|
|
|
$
|
985,635
|
|
|
$
|
1,105,151
|
|
Unearned
premiums
|
|
407,614
|
|
|
392,934
|
|
|
370,816
|
|
Federal home loan
bank advance
|
|
155,000
|
|
|
155,000
|
|
|
155,000
|
|
Senior
notes
|
|
419,425
|
|
|
418,560
|
|
|
418,271
|
|
Convertible junior
debentures
|
|
256,872
|
|
|
256,872
|
|
|
256,872
|
|
Other
liabilities
|
|
207,620
|
|
|
255,972
|
|
|
239,609
|
|
Total
liabilities
|
|
2,167,577
|
|
|
2,464,973
|
|
|
2,545,719
|
|
Shareholders'
equity
|
|
3,489,531
|
|
|
3,154,526
|
|
|
3,130,149
|
|
Total liabilities and
shareholders' equity
|
|
$
|
5,657,108
|
|
|
$
|
5,619,499
|
|
|
$
|
5,675,868
|
|
Book value per share
(3)
|
|
$
|
9.64
|
|
|
$
|
8.51
|
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
(1)
Investments include net unrealized (losses) gains on
securities
|
|
$
|
(72,399)
|
|
|
$
|
37,058
|
|
|
$
|
44,027
|
|
(2) Loss
reserves, net of reinsurance recoverable on loss
reserves
|
|
$
|
687,765
|
|
|
$
|
937,161
|
|
|
$
|
1,059,273
|
|
(3) Shares
outstanding
|
|
362,155
|
|
|
370,567
|
|
|
370,562
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION - NEW INSURANCE WRITTEN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
2018
|
|
2017
|
New primary insurance
written (NIW) (billions)
|
$
|
14.5
|
|
|
$
|
13.2
|
|
|
$
|
10.6
|
|
|
$
|
12.8
|
|
|
$
|
14.1
|
|
|
$
|
38.3
|
|
|
$
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly (including
split premium plans) and annual premium plans
|
12.2
|
|
|
11.1
|
|
|
8.5
|
|
|
10.1
|
|
|
11.4
|
|
|
31.8
|
|
|
29.8
|
|
Single premium
plans
|
2.3
|
|
|
2.1
|
|
|
2.1
|
|
|
2.7
|
|
|
2.7
|
|
|
6.5
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct average
premium rate (bps) on NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
(1)
|
51.3
|
|
|
54.6
|
|
|
55.8
|
|
|
56.3
|
|
|
55.5
|
|
|
53.7
|
|
55.3
|
|
Singles
|
153.5
|
|
|
165.6
|
|
|
167.4
|
|
|
170.5
|
|
|
176.8
|
|
|
161.8
|
|
175.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO <
680
|
7
|
%
|
|
6
|
%
|
|
7
|
%
|
|
8
|
%
|
|
7
|
%
|
|
7
|
%
|
|
7
|
%
|
>95%
LTVs
|
17
|
%
|
|
15
|
%
|
|
13
|
%
|
|
13
|
%
|
|
12
|
%
|
|
16
|
%
|
|
10
|
%
|
>45%
DTI
|
20
|
%
|
|
19
|
%
|
|
20
|
%
|
|
19
|
%
|
|
9
|
%
|
|
20
|
%
|
|
10
|
%
|
Singles
|
16
|
%
|
|
16
|
%
|
|
19
|
%
|
|
21
|
%
|
|
20
|
%
|
|
17
|
%
|
|
18
|
%
|
Refinances
|
5
|
%
|
|
6
|
%
|
|
12
|
%
|
|
13
|
%
|
|
9
|
%
|
|
7
|
%
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$
|
3.7
|
|
|
$
|
3.3
|
|
|
$
|
2.6
|
|
|
$
|
3.2
|
|
|
$
|
3.5
|
|
|
$
|
9.6
|
|
|
$
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes loans with
split and annual payments
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION - INSURANCE IN FORCE and RISK IN FORCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
|
|
|
Primary Insurance In
Force (IIF) (billions)
|
$
|
205.8
|
|
|
$
|
200.7
|
|
|
$
|
197.5
|
|
|
$
|
194.9
|
|
|
$
|
191.0
|
|
|
|
|
|
Total # of
loans
|
1,048,088
|
|
|
1,033,323
|
|
|
1,026,797
|
|
|
1,023,951
|
|
|
1,014,092
|
|
|
|
|
|
Flow # of
loans
|
999,382
|
|
|
982,208
|
|
|
973,187
|
|
|
968,649
|
|
|
956,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size of
IIF (thousands)
|
$
|
196.4
|
|
|
$
|
194.2
|
|
|
$
|
192.3
|
|
|
$
|
190.4
|
|
|
$
|
188.4
|
|
|
|
|
|
Flow only
|
$
|
198.9
|
|
|
$
|
196.8
|
|
|
$
|
195.0
|
|
|
$
|
193.0
|
|
|
$
|
190.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Persistency
|
81.0
|
%
|
|
80.1
|
%
|
|
80.2
|
%
|
|
80.1
|
%
|
|
78.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions)
|
$
|
53.1
|
|
|
$
|
51.7
|
|
|
$
|
50.9
|
|
|
$
|
50.3
|
|
|
$
|
49.4
|
|
|
|
|
|
By FICO
(%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 760 &
>
|
38
|
%
|
|
37
|
%
|
|
37
|
%
|
|
36
|
%
|
|
36
|
%
|
|
|
|
|
FICO
740-759
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
|
|
|
FICO
720-739
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
|
|
|
FICO
700-719
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
|
|
|
FICO
680-699
|
9
|
%
|
|
9
|
%
|
|
9
|
%
|
|
9
|
%
|
|
9
|
%
|
|
|
|
|
FICO
660-679
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
|
|
|
|
FICO
640-659
|
3
|
%
|
|
4
|
%
|
|
3
|
%
|
|
4
|
%
|
|
4
|
%
|
|
|
|
|
FICO 639 &
<
|
5
|
%
|
|
5
|
%
|
|
6
|
%
|
|
6
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage
Ratio (RIF/IIF)
|
25.8
|
%
|
|
25.8
|
%
|
|
25.8
|
%
|
|
25.8
|
%
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss
limits
|
$
|
232
|
|
|
$
|
233
|
|
|
$
|
233
|
|
|
$
|
236
|
|
|
$
|
238
|
|
|
|
|
|
Without aggregate
loss limits
|
$
|
199
|
|
|
$
|
210
|
|
|
$
|
222
|
|
|
$
|
235
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: 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 - DEFAULT STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
|
|
|
Primary IIF -
Delinquent Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Delinquent
Inventory
|
36,037
|
|
|
41,243
|
|
|
46,556
|
|
|
41,235
|
|
|
41,317
|
|
|
|
|
|
New
Notices
|
13,569
|
|
|
12,159
|
|
|
14,623
|
|
|
22,916
|
|
|
15,950
|
|
|
|
|
|
Cures
|
(14,197)
|
|
|
(15,350)
|
|
|
(18,073)
|
|
|
(15,712)
|
|
|
(13,546)
|
|
|
|
|
|
Paids (including
those charged to a deductible or captive)
|
(1,374)
|
|
|
(1,501)
|
|
|
(1,571)
|
|
|
(1,803)
|
|
|
(2,195)
|
|
|
|
|
|
Rescissions and
denials
|
(56)
|
|
|
(76)
|
|
|
(68)
|
|
|
(80)
|
|
|
(82)
|
|
|
|
|
|
Items removed from
inventory
|
(581)
|
|
|
(438)
|
|
|
(224)
|
|
|
—
|
|
|
(209)
|
|
|
|
|
|
Ending Delinquent
Inventory
|
33,398
|
|
|
36,037
|
|
|
41,243
|
|
|
46,556
|
|
|
41,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF
Delinquency Rate
|
3.19
|
%
|
|
3.49
|
%
|
|
4.02
|
%
|
|
4.55
|
%
|
|
4.07
|
%
|
|
|
|
|
Primary claim
received inventory included in ending delinquent
inventory
|
766
|
|
|
827
|
|
|
819
|
|
|
954
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans - Flow only
|
25,130
|
|
|
27,250
|
|
|
31,621
|
|
|
35,791
|
|
|
30,501
|
|
|
|
|
|
Primary IIF
Delinquency Rate - Flow only
|
2.52
|
%
|
|
2.77
|
%
|
|
3.25
|
%
|
|
3.70
|
%
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Cures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent
and cured intraquarter
|
3,938
|
|
|
3,447
|
|
|
5,530
|
|
|
5,520
|
|
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
5,671
|
|
|
7,204
|
|
|
8,285
|
|
|
6,324
|
|
|
6,011
|
|
|
|
|
|
4-11
payments
|
3,896
|
|
|
4,000
|
|
|
3,501
|
|
|
2,758
|
|
|
2,374
|
|
|
|
|
|
12 payments or
more
|
692
|
|
|
699
|
|
|
757
|
|
|
1,110
|
|
|
814
|
|
|
|
|
|
Total Cures in
Quarter
|
14,197
|
|
|
15,350
|
|
|
18,073
|
|
|
15,712
|
|
|
13,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Paids
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
7
|
|
|
3
|
|
|
2
|
|
|
6
|
|
|
13
|
|
|
|
|
|
4-11
payments
|
140
|
|
|
147
|
|
|
184
|
|
|
181
|
|
|
222
|
|
|
|
|
|
12 payments or
more
|
1,227
|
|
|
1,351
|
|
|
1,385
|
|
|
1,616
|
|
|
1,960
|
|
|
|
|
|
Total Paids in
Quarter
|
1,374
|
|
|
1,501
|
|
|
1,571
|
|
|
1,803
|
|
|
2,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Delinquent Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive months
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
9,484
|
|
28
|
%
|
8,554
|
|
24
|
%
|
8,770
|
|
21
|
%
|
17,119
|
|
37
|
%
|
11,331
|
|
27
|
%
|
|
|
|
4-11 months
|
9,564
|
|
29
|
%
|
12,506
|
|
35
|
%
|
16,429
|
|
40
|
%
|
12,050
|
|
26
|
%
|
11,092
|
|
27
|
%
|
|
|
|
12 months or
more
|
14,350
|
|
43
|
%
|
14,977
|
|
41
|
%
|
16,044
|
|
39
|
%
|
17,387
|
|
37
|
%
|
18,812
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
14,813
|
|
44
|
%
|
14,178
|
|
39
|
%
|
16,023
|
|
39
|
%
|
21,678
|
|
46
|
%
|
16,916
|
|
41
|
%
|
|
|
|
4-11
payments
|
9,156
|
|
28
|
%
|
11,429
|
|
32
|
%
|
13,734
|
|
33
|
%
|
12,446
|
|
27
|
%
|
10,583
|
|
26
|
%
|
|
|
|
12 payments
or
more
|
9,429
|
|
28
|
%
|
10,430
|
|
29
|
%
|
11,486
|
|
28
|
%
|
12,432
|
|
27
|
%
|
13,736
|
|
33
|
%
|
|
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
ADDITIONAL
INFORMATION - RESERVES and CLAIMS PAID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Year-to-date
|
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
2018
|
|
2017
|
|
Reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Direct Loss
Reserves
|
$
|
707
|
|
|
$
|
799
|
|
|
$
|
910
|
|
|
$
|
971
|
|
|
$
|
1,090
|
|
|
|
|
|
|
Pool Direct loss
reserves
|
13
|
|
|
13
|
|
|
14
|
|
|
14
|
|
|
15
|
|
|
|
|
|
|
Other Gross
Reserves
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
Total Gross Loss
Reserves
|
$
|
721
|
|
|
$
|
813
|
|
|
$
|
924
|
|
|
$
|
986
|
|
|
$
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average
Direct Reserve Per Delinquency
|
$21,184
|
|
$22,178
|
(1)
|
$22,060
|
(1)
|
$20,851
|
(1)
|
$26,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (3)
|
$
|
87
|
|
|
$
|
91
|
|
|
$
|
82
|
|
|
$
|
91
|
|
|
$
|
113
|
|
|
$
|
260
|
|
|
$
|
414
|
|
|
Total primary
(excluding settlements)
|
65
|
|
|
75
|
|
|
80
|
|
|
89
|
|
|
101
|
|
|
220
|
|
|
357
|
|
|
Rescission and NPL
settlements
|
19
|
|
|
14
|
|
|
7
|
|
|
—
|
|
|
9
|
|
|
40
|
|
|
54
|
|
|
Pool
|
2
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
2
|
|
|
5
|
|
|
8
|
|
|
Reinsurance
|
(3)
|
|
|
(3)
|
|
|
(11)
|
|
|
(5)
|
|
|
(3)
|
|
|
(17)
|
|
|
(18)
|
|
|
Other
|
4
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
4
|
|
|
12
|
|
|
13
|
|
|
Reinsurance
terminations (3)
|
—
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim
Payment (thousands)
|
$
|
47.2
|
|
(2)
|
$
|
50.2
|
|
(2)
|
$
|
51.1
|
|
(2)
|
$
|
49.2
|
|
|
$
|
46.4
|
|
(2)
|
$
|
49.6
|
|
(2)
|
$
|
48.3
|
|
(2)
|
Flow only
|
$
|
42.0
|
|
(2)
|
$
|
45.2
|
|
(2)
|
$
|
45.2
|
|
(2)
|
$
|
45.1
|
|
|
$
|
43.7
|
|
(2)
|
$
|
44.2
|
|
(2)
|
$
|
44.7
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excluding our
estimate of delinquencies resulting from hurricane activity and
their associated loss reserves, the average direct reserve per
delinquency was approximately $24,000.
|
(2)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of non-performing loans.
|
(3)
|
Net paid claims, as
presented, does not include amounts received in conjunction with
terminations or commutations of reinsurance agreements.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
ADDITIONAL
INFORMATION - REINSURANCE, BULK STATISTICS and MI RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
2018
|
|
2017
|
Quota Share
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% insurance inforce
subject to reinsurance
|
77.6
|
%
|
|
78.2
|
%
|
|
77.9
|
%
|
|
78.2
|
%
|
|
78.3
|
%
|
|
|
|
|
% NIW subject to
reinsurance
|
75.4
|
%
|
|
75.9
|
%
|
|
73.3
|
%
|
|
77.0
|
%
|
|
86.1
|
%
|
|
75
|
%
|
|
86.8
|
%
|
Ceded premiums
written and earned (millions)
|
$
|
25.2
|
|
|
$
|
21.4
|
|
|
$
|
33.0
|
|
|
$
|
32.3
|
|
|
$
|
30.9
|
|
|
$
|
79.6
|
|
|
$
|
88.7
|
|
Ceded losses incurred
(millions)
|
$
|
(0.5)
|
|
|
$
|
(3.7)
|
|
|
$
|
7.8
|
|
|
$
|
7.3
|
|
|
$
|
5.9
|
|
|
$
|
3.6
|
|
|
$
|
15.0
|
|
Ceding commissions
(millions) (included in underwriting and other expenses)
|
$
|
13.0
|
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
|
$
|
12.6
|
|
|
$
|
12.5
|
|
|
$
|
38.2
|
|
|
$
|
36.7
|
|
Profit commission
(millions) (included in ceded premiums)
|
$
|
39.7
|
|
|
$
|
41.8
|
|
|
$
|
30.2
|
|
|
$
|
30.6
|
|
|
$
|
31.6
|
|
|
$
|
111.7
|
|
|
$
|
95.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk Primary
Insurance Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance in force
(billions)
|
$
|
7.0
|
|
|
$
|
7.4
|
|
|
$
|
7.7
|
|
|
$
|
8.0
|
|
|
$
|
8.3
|
|
|
|
|
|
Risk in force
(billions)
|
$
|
2.0
|
|
|
$
|
2.1
|
|
|
$
|
2.2
|
|
|
$
|
2.2
|
|
|
$
|
2.4
|
|
|
|
|
|
Average loan size
(thousands)
|
$
|
145.4
|
|
|
$
|
144.5
|
|
|
$
|
143.8
|
|
|
$
|
144.6
|
|
|
$
|
145.4
|
|
|
|
|
|
Number of delinquent
loans
|
8,268
|
|
|
8,787
|
|
|
9,622
|
|
|
10,765
|
|
|
10,734
|
|
|
|
|
|
Delinquency
rate
|
16.98
|
%
|
|
17.19
|
%
|
|
17.95
|
%
|
|
19.47
|
%
|
|
18.73
|
%
|
|
|
|
|
Primary paid claims
(millions)
|
$
|
18
|
|
|
$
|
22
|
|
|
$
|
24
|
|
|
$
|
25
|
|
|
$
|
26
|
|
|
$
|
64
|
|
|
$
|
90
|
|
Average claim payment
(thousands)
|
$
|
69.6
|
|
|
$
|
67.7
|
|
|
$
|
72.8
|
|
|
$
|
64.4
|
|
|
$
|
56.1
|
|
|
$
|
70.1
|
|
|
$
|
63.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
9.0:1
|
(1)
|
9.1:1
|
|
9.4:1
|
|
9.5:1
|
|
10.1:1
|
|
|
|
|
Combined Insurance
Companies - Risk to Capital
|
9.8:1
|
(1)
|
10.0:1
|
|
10.3:1
|
|
10.5:1
|
|
11.1:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio
(insurance operations only)
|
(0.6)%
|
|
|
(5.4)%
|
|
|
10.3
|
%
|
|
(13.1)%
|
|
|
12.5
|
%
|
|
1.2
|
%
|
|
12.1
|
%
|
GAAP underwriting
expense ratio (insurance operations only)
|
17.6
|
%
|
|
16.4
|
%
|
|
19.5
|
%
|
|
15.9
|
%
|
|
15.7
|
%
|
|
17.8
|
%
|
|
16.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, including forward
looking statements in these risk factors. 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.
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses.
Our private mortgage insurance competitors include:
- Arch Mortgage Insurance Company,
- Essent Guaranty, Inc.,
- Genworth Mortgage Insurance Corporation,
- National Mortgage Insurance Corporation, and
- Radian Guaranty Inc.
The private mortgage insurance industry is highly competitive
and is expected to remain so. We believe that we currently compete
with other private mortgage insurers based on pricing, underwriting
requirements, financial strength (including based on credit or
financial strength ratings), customer relationships, name
recognition, reputation, the strength of our management team and
field organization, 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.
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 for borrower-paid
mortgage insurance policies ("BPMI"); (ii) use by certain
competitors of a spectrum of filed rates to allow for formulaic,
risk-based pricing that may be adjusted more frequently within
certain parameters (commonly referred to as "black-box" pricing);
and (iii) use of customized rates (discounted from standard
rates) that are made available to many, but not all, lenders.
Because the industry is currently experiencing relatively low
levels of mortgage insurance losses and acceptable returns on new
business, we expect price competition to remain strong.
We monitor various competitive and economic factors while
seeking to balance both profitability and market share
considerations in developing our pricing strategies. In 2018, we
continued to evolve our pricing from a standard rate card approach,
where prices vary based on relatively few attributes, to a more
granular approach, where more attributes are considered. We reduced
certain of our rates in the second through fourth quarters of 2018.
Those changes 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. We
continue to develop our "black-box" pricing approach and expect to
release it in 2019. As noted above, black-box pricing allows for
formulaic, risk-based pricing that may be adjusted more
frequently.
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."
Our relationships with our customers, which may affect the
amount of our new business written, could be adversely affected by
a variety of factors, including if our premium rates are higher
than those of our competitors, our underwriting requirements result
in our declining to insure some of the loans originated by our
customers, or our insurance policy rescissions and claim
curtailments affect the customer. Regarding the concentration of
our new business, our largest customer accounted for approximately
4% of our new insurance written in each of 2017 and the first nine
months of 2018.
Certain of our competitors have access to capital at a lower
cost of capital than we do (including, as a result of off-shore
reinsurance vehicles, which are also tax-advantaged). As a result,
they may be better positioned to compete outside of traditional
mortgage insurance, including by participating in the pilot
programs referred to above and other alternative forms of credit
enhancement pursued by the GSEs. In addition, because of their tax
advantages, certain competitors may be able to achieve higher
after-tax rates of return on their new insurance written ("NIW")
compared to us, which could allow them to leverage reduced pricing
to gain market share.
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 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 as 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 new insurance written.
- Our ability to participate in the non-GSE mortgage market
(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 mortgage 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 Moody's is Baa2 (with a stable outlook) , from Standard
& Poor's is BBB+ (with a stable outlook) and from A.M. Best is
A- (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 utilizing
forms of credit enhancement other than traditional mortgage
insurance, including the pilot programs referred to above, and 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:
- lenders using FHA, VA and other government mortgage insurance
programs,
- 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, and
- lenders originating mortgages using piggyback structures to
avoid private mortgage insurance, such as a first mortgage with an
80% loan-to-value ratio and a second mortgage with a 10%, 15% or
20% loan-to-value 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% loan-to-value ratio that has private mortgage
insurance.
In the first quarter of 2018, Freddie Mac began marketing a
pilot program to lenders that would have loan level mortgage
default coverage provided by various (re)insurers that are not
mortgage insurers and that are not selected by the lenders. The
pilot offers pricing below prevalent single premium lender paid
mortgage insurance ("LPMI") rates. In July
2018, Fannie Mae announced a similar pilot program that
would have loan level mortgage default coverage provided by a panel
of reinsurers (which may include affiliates of private mortgage
insurers). While we view these pilot programs as competing with
traditional private mortgage insurance, we have participated in the
Fannie Mae pilot program and may participate in future GSE or other
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 MGIC, its affiliate and
competitors; using other risk mitigation techniques in conjunction
with reduced levels of private mortgage insurance coverage; or
accepting credit risk without credit enhancement.
The FHA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 34.8% in the first half of 2018, 35.6% in 2017 and
35.5% in 2016. In the past ten years, the FHA's share has been as
low as 32.4% in 2014 and as high as 68.7% in 2009. 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 Fannie Mae or
Freddie Mac 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 24.7% in the first half of 2018, 24.1% in 2017 and
26.6% in 2016. In the past ten years, the VA's share has been as
low as 8.2% in 2008 and as high as 26.6% in 2016. We believe that
the VA's market share has generally been increasing because of an
increase in the number of borrowers that are eligible for the VA's
program, which offers 100% loan-to-value ratio ("LTV") 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.
The GSEs' charters generally require credit enhancement for a
low down payment mortgage loan (a loan amount that exceeds 80% of a
home's value) in order for such loan to be eligible for purchase by
the GSEs. Lenders generally have used private mortgage insurance to
satisfy this credit enhancement requirement. (For information about
GSE pilot programs initiated in 2018 that provide loan level
default coverage by various (re)insurers (which may include
affiliates of private mortgage insurers), 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.") Because low down payment mortgages
purchased by the GSEs have generally been insured with private
mortgage insurance, the business practices of the GSEs greatly
impact our business and include:
- private mortgage insurer eligibility requirements of the GSEs
(for information about the financial requirements included in the
PMIERs, see our risk factor titled "We may not continue to meet
the GSEs' private mortgage insurer eligibility requirements and our
returns may decrease as 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 (which may be changed by
federal legislation), when private mortgage insurance is used as
the required credit enhancement on low down payment mortgages,
- 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 influence the mortgage lender's selection of
the mortgage insurer providing coverage and, if so, any
transactions that are related to that selection,
- 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,
- the terms on which the GSEs offer lenders relief on their
representations and warranties made at the time of sale of a loan
to the GSEs, which creates pressure on mortgage insurers to limit
their rescission rights to conform to such relief, and 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 Federal Housing Finance Agency ("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 in ways that have a
material adverse effect on us and that the charters of the GSEs are
changed by new federal legislation. In the past, members of
Congress have introduced several bills intended to change the
business practices of the GSEs and the FHA; however, no legislation
has been enacted.
The Administration issued a June
2018 report indicating that the conservatorship of the GSEs
should end and that the GSEs should transition to fully private
entities, competing on a level playing field with private issuers
of mortgage-backed securities ("MBS") (such issuers, collectively
with the GSEs, referred to in the report as the "guarantors"). The
report further indicated that a federal entity should regulate the
guarantors, including their capital adequacy, and that guarantors
should have access to an explicit federal guarantee on the MBS that
is exposed only after substantial losses are incurred by the
private market, including the guarantors. The report also indicated
that a fee on the outstanding volume of MBS would be transferred to
the Department of Housing and Urban Development (of which the FHA
is a part) to be used for affordable housing purposes. 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 or the impact of any such changes on our business. In
addition, the timing of the impact of any resulting changes on our
business is uncertain. Most meaningful 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 as we
are required to maintain more capital in order to maintain our
eligibility.
We must comply with the PMIERs to be eligible to insure loans
delivered to or purchased by the GSEs. 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 are calculated from tables
of factors with several risk dimensions and are subject to a floor
amount). Based on our interpretation of the PMIERs, as of September
30, 2018, MGIC's Available Assets totaled $4.8 billion, or $1.0
billion in excess of its Minimum Required Assets. MGIC is in
compliance with the PMIERs and eligible to insure loans purchased
by the GSEs.
Revised PMIERs were published in September 2018 and will become effective
March 31, 2019. If the revised PMIERs had been effective
as of September 30, 2018, we estimate
that MGIC's pro forma excess of Available Assets over Minimum
Required Assets would have been approximately $600 million.
The decrease in the pro forma excess from the reported excess of
$1.0 billion is primarily due to the
elimination of any credit for future premiums that had previously
been allowed for certain insurance policies. Although MGIC's
excess Minimum Required Assets will decrease when the revised
PMIERs become effective, we do not expect the revised PMIERs to
impact MGIC's current plans to pay quarterly dividends to our
holding company, subject to any necessary approvals by its Board of
Directors and the Wisconsin Office of the Commissioner of
Insurance.
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 amend the PMIERs at any time and may make the
PMIERs more onerous in the future. In June
2018, the FHFA issued a proposed rule on regulatory capital
requirements for the GSEs ("Enterprise Capital Requirements"),
which included a framework for determining the capital relief
allowed to the GSEs for loans with private mortgage insurance. The
GSEs have indicated that there may be potential future implications
for PMIERs based upon feedback the FHFA receives on its proposed
rule on Enterprise Capital Requirements. In addition, the PMIERs
provide that the factors that determine Minimum Required Assets
will be updated every two years and may be updated more frequently
to reflect changes in macroeconomic conditions or loan performance.
The GSEs have indicated that they will generally provide notice 180
days prior to the effective date of such updates.
- 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.
While on an overall basis, the amount of Available Assets MGIC
must hold in order to continue to insure GSE loans is greater under
the PMIERs than what state regulation currently requires, our
reinsurance transactions mitigate the negative effect of the PMIERs
on our returns. However, reinsurance may not always be available to
us or available on similar terms, it subjects us to counterparty
credit risk and the GSEs may change the credit they allow under the
PMIERs for risk ceded under our reinsurance transactions.
The benefit of our net operating loss carryforwards may
become substantially limited.
As of September 30, 2018, we had
approximately $153.5 million of net
operating losses for tax purposes that we can use in certain
circumstances to offset future taxable income and thus reduce our
federal income tax liability. Any unutilized carryforwards are
scheduled to expire at the end of tax years 2032 through 2033. Our
ability to utilize these net operating losses to offset future
taxable income may be significantly limited if we experience an
"ownership change" as defined in Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"). In general, an
ownership change will occur if there is a cumulative change in our
ownership by "5-percent shareholders" (as defined in the Code) that
exceeds 50 percentage points over a rolling three-year period. A
corporation that experiences an ownership change will generally be
subject to an annual limitation on the corporation's subsequent use
of net operating loss carryovers that arose from pre-ownership
change periods and use of losses that are subsequently recognized
with respect to assets that had a built-in-loss on the date of the
ownership change. The amount of the annual limitation generally
equals the fair value of the corporation immediately before the
ownership change multiplied by the long-term tax-exempt interest
rate (subject to certain adjustments). To the extent that the
limitation in a post-ownership-change year is not fully utilized,
the amount of the limitation for the succeeding year will be
increased.
While we have adopted our Amended and Restated Rights Agreement
to minimize the likelihood of transactions in our stock resulting
in an ownership change, future issuances of equity-linked
securities or transactions in our stock and equity-linked
securities that may not be within our control may cause us to
experience an ownership change. If we experience an ownership
change, we may not be able to fully utilize our net operating
losses, resulting in additional income taxes and a reduction in our
shareholders' equity.
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 each of 2017 and
the first nine months of 2018, curtailments reduced our average
claim paid by approximately 5.6% and 6.3%, 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 would be determined by legal
proceedings.
Under ASC 450-20, until a liability 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. Where we have determined that a loss is probable
and can be reasonably estimated, we have recorded our best estimate
of our probable loss. If we are not able to implement settlements
we consider probable, we intend to defend MGIC vigorously against
any related legal proceedings.
In addition to matters for which we have recorded a probable
loss, we are involved in other discussions and/or proceedings with
insureds with respect to our claims paying practices. Although it
is reasonably possible that when 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 $286 million. This estimate of maximum exposure
is based upon currently available information and is subject to
significant judgment, numerous assumptions and known and unknown
uncertainties. The matters underling the estimate of maximum
exposure will change from time to time. This estimate of our
maximum exposure does not include interest or consequential or
exemplary damages.
Mortgage insurers, including MGIC, have been involved in
litigation and regulatory actions related to alleged violations of
the anti-referral fee provisions of the Real Estate Settlement
Procedures Act, which is commonly known as RESPA, and the notice
provisions of the Fair Credit Reporting Act, which is commonly
known as FCRA. While these proceedings in the aggregate have not
resulted 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 affect on us. In addition,
various regulators, including the CFPB, state insurance
commissioners and state attorneys general may bring other actions
seeking various forms of relief in connection with alleged
violations of RESPA. The insurance law provisions of many states
prohibit paying for the referral of insurance business and provide
various mechanisms to enforce this prohibition. 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.
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 by state
insurance departments. These regulations are principally designed
for the protection of our insured policyholders, rather than for
the benefit of investors. 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. State insurance regulatory authorities
could take actions, including changes in capital requirements, that
could have a material adverse effect on us. 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." 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, commonly known as ECOA, FCRA, and other
laws. For more details about the various ways in which our
subsidiaries are regulated, see "Regulation" in Item 1 of our
Annual Report on Form 10-K filed with the SEC on February 23, 2018. In addition to regulation by
state insurance regulators, the CFPB may issue additional rules or
regulations, which may materially affect our business.
In December 2013, the U.S.
Treasury Department's Federal Insurance Office released a report
that calls for federal standards and oversight for mortgage
insurers to be developed and implemented. It is uncertain if and
when the standards and oversight will become effective and what
form they will take.
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 23, 2018, 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, calculate 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, commonly
referred to as GAAP, 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 using estimated claim rates and claim amounts. The
estimated claim rates and claim amounts 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 loan-to-value
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
decrease our new insurance written. 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 September 30, 2018, MGIC's
risk-to-capital ratio was 9.0 to 1, below the maximum allowed by
the jurisdictions with State Capital Requirements, and its
policyholder position was $2.5
billion above the required MPP of $1.3 billion. In calculating our risk-to-capital
ratio and MPP, we are allowed full credit for the risk ceded under
our reinsurance transactions with a group of 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 to the reinsurers. If MGIC is not allowed an
agreed level of credit under either the State Capital Requirements
or the PMIERs, 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 September 30, 2018, the
risk-to-capital ratio of our combined insurance operations (which
includes a reinsurance affiliate) was 9.8 to 1. Reinsurance
transactions with our affiliate permit MGIC to write insurance with
a higher coverage percentage than it could on its own under certain
state-specific requirements. A higher risk-to-capital ratio on a
combined basis may indicate that, in order for MGIC to continue to
utilize reinsurance arrangements with its reinsurance affiliate,
additional capital contributions to the affiliate could be
needed.
The NAIC plans to revise the minimum capital and surplus
requirements for mortgage insurers that are provided for in its
Mortgage Guaranty Insurance Model Act. In May 2016, a working group of state regulators
released an exposure draft of 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, minimum capital floors, and action level triggers.
Currently we believe that the PMIERs contain the more restrictive
capital requirements in most circumstances.
While MGIC currently meets 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 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 all jurisdictions, 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 or mortgage insurance premiums
for income tax purposes, decreases in the rate of household
formations, or other factors. Recently enacted tax legislation
could have some negative impact on home prices especially on higher
priced homes, but we cannot predict the magnitude of the impact, if
any, on the values of the homes we insure. 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 loan-to-value 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 new insurance written, or if our mix of business changes to
include loans with higher loan-to-value 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
May 2016 would be, in part, a
function of certain loan and economic factors, including property
location, loan-to-value 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 new insurance written from all
single-premium policies (LPMI and BPMI, combined) has ranged from
approximately 10% in 2013 to 19% in 2017 and was 17% in the first
nine months of 2018. 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 a group of unaffiliated reinsurers that cover most of our
insurance written from 2013 through 2018, 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 blended pre-tax cost of reinsurance under our different
transactions is less than 6% (but will decrease if losses are
materially higher than we expect). This blended pre-tax cost is
derived by dividing the reduction in our pre-tax income on loans
covered by reinsurance by our direct (that is, without reinsurance)
premiums from such loans. Although the pre-tax cost of the
reinsurance under each transaction is generally constant, the
effect of the reinsurance on the various components of pre-tax
income will vary from period to period, depending on the level of
ceded losses. Although the GSEs have approved the terms of our QSR
transactions, they will be reviewed under the PMIERs at least
annually. We may not receive full credit under the PMIERs in future
periods for the risk ceded under our QSR transactions.
In addition to the effect of reinsurance on our premiums, we
expect a decline in our premium yield resulting from the premium
rates themselves. An increasing percentage of our insurance in
force is from book years with lower premium rates because premium
rates have trended lower in recent periods (and will continue to do
so after the 2018 changes to our premium rates).
The circumstances in which we are entitled to rescind coverage
have narrowed for insurance we have written in recent years. During
the second quarter of 2012, we began writing a portion of our new
insurance under an endorsement to our then existing master policy
(the "Gold Cert Endorsement"), which limited our ability to rescind
coverage compared to that master policy. To comply with
requirements of the GSEs, we introduced our current master policy
in 2014. Our rescission rights under our current master policy are
comparable to those under our previous master policy, as modified
by the Gold Cert Endorsement, but may be further narrowed if the
GSEs permit modifications to them. Our current master policy is
filed as Exhibit 99.19 to our quarterly report on Form 10-Q for the
quarter ended September 30, 2014
(filed with the SEC on November 7,
2014). All of our primary new insurance on loans with
mortgage insurance application dates on or after October 1, 2014, was written under our current
master policy. As of September 30,
2018, approximately 80% of our flow, primary insurance in
force was written under our Gold Cert Endorsement or our current
master policy. The FHFA and the GSEs have issued revised GSE
rescission relief principles to, among other things, further limit
the circumstances under which mortgage insurers may rescind
coverage. It has been proposed that these principles be
incorporated into new master policies which the GSEs have indicated
should be effective for new business written in 2019, subject to
state regulatory approvals. These proposed principles are likely to
further reduce our ability to rescind insurance coverage in the
future, potentially resulting in higher losses than would be the
case under our existing master insurance 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 some of them with Fannie Mae and Freddie Mac 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. As a result
of changes to our underwriting guidelines and requirements
(including those related to debt to income ("DTI") ratios, credit
scores, and the manner in which income levels and property values
are determined) and other factors, our business written beginning
in the second half of 2013 is expected to have a somewhat higher
claim incidence than business written in 2009 through the first
half of 2013, but materially below that on business written in
2005-2008. However, we believe this business presents an acceptable
level of risk. 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. These
characteristics include higher LTV ratios, lower FICO scores,
limited underwriting, including limited borrower documentation, or
higher DTI ratios, as well as loans having combinations of higher
risk factors. As of September 30,
2018, mortgages with these characteristics in our primary
risk in force included mortgages with LTV ratios greater than 95%
(14.5%), loans with borrowers having FICO scores below 620 (2.5%),
mortgages with borrowers having FICO scores of 620-679 (10.5%),
mortgages with limited underwriting, including limited borrower
documentation (2.3%), and mortgages with borrowers having DTI
ratios greater than 45% (or where no ratio is available) (13.9%),
each attribute as determined at the time of loan origination. An
individual loan may have more than one of these attributes. A
material number of these loans were originated in 2005 - 2007 or
the first half of 2008. 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% have increased. For
information about our classification of loans by FICO score and
documentation, see footnotes (5) and (6) to the Characteristics of
Primary Risk in Force table under "Business - Our Products and
Services" in Item 1 of our Annual Report on Form 10-K filed
with the SEC on February 23,
2018.
We are unable to adjust our prices as quickly as those
competitors using black-box pricing, which is 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." The use of black-box
pricing by an increasing number of our competitors increases the
risk that we are adversely selected by lenders to insure certain
loans, which may result in an increase in the credit risk we bear
and/or a decrease in the volume of loans we insure, before we
implement our black-box pricing solution.
As of September 30, 2018,
approximately 1% of our primary risk in force consisted of
adjustable rate mortgages which allow for adjustment of the initial
interest rate during the five years after the mortgage closing
("ARMs"). We classify as fixed rate loans adjustable rate mortgages
with an initial interest rate that is fixed during the five years
after the mortgage closing and loans with temporary interest rate
adjustments during the initial five years, commonly referred to as
"buydowns," that convert to a fixed rate for the duration of the
loan term. If interest rates should rise between the time of
origination of such loans and when their interest rates may be
reset, claim rates on such loans may be substantially higher than
for loans without variable interest rate features. In addition,
prior to 2011, we insured "interest-only" loans, which may also be
ARMs, and loans with negative amortization features, such as pay
option ARMs. We believe claim rates on these loans will be
substantially higher than on loans without scheduled payment
increases that are made to borrowers of comparable credit
quality.
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
DTIs. 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. We do, however, believe that
our insurance written beginning in the second half of 2008 will
generate underwriting profits.
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, and the associated
investment income, 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. Our current
expectation is that the incurred losses from those books, although
declining, will continue to generate a material portion of our
total incurred losses for a number of years. 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 81.0% at September 30, 2018, 80.1% at December 31, 2017 and 76.9% at December 31, 2016. 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 September 30, 2018, we had
approximately $261 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 (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 September 30, 2018, 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 dividend-paying capacity. In
the first nine months of 2018 and in 2017, MGIC paid a total of
$160 million and $140 million, respectively, in dividends to our
holding company. We expect MGIC to continue to pay quarterly
dividends of at least the $60 million
amount paid in the third quarter of 2018, subject to approval by
its Board of Directors. We ask the OCI not to object before MGIC
pays dividends.
On April 26, 2018, our Board of
Directors authorized a share repurchase program under which we may
repurchase up to $200 million of our
common stock through the end of 2019. During the second quarter of
2018, we repurchased approximately 9.2 million shares of our common
stock using approximately $100.1 million of holding company resources.
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 as 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 September 30, 2018, 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 an initial conversion rate, which is subject to
adjustment, of 74.0741 common shares per $1,000 principal amount of debentures. This
represents an initial conversion price of approximately
$13.50 per share. 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 $17.55 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 6 – "Earnings
Per Share" to our consolidated financial statements in our
Quarterly Report on Form 10-Q filed with the SEC on August 3, 2018. As noted above, during the second
quarter of 2018, we repurchased shares of our common stock and may
do so in the future. In addition, we have in the past, and may in
the future, purchase our debt securities.
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.
As part of our business, we maintain large amounts of personal
information on consumers. 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 our information technology systems, 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.
The implementation of these technological improvements is complex,
expensive and time consuming. If we fail to timely and successfully
implement 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 is dependent 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.
Further, the PMIERs impact our investment choices; changes could
negatively impact our investment income and could reduce our
Available Assets through mark-to-market adjustments.
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.
Our financial results may be adversely impacted by natural
disasters; certain hurricanes 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 and floods,
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 could lead to a
decrease in home prices in the affected areas, 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
prices 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.
We insure mortgages for homes in areas that have been impacted
by recent natural disasters, including 2017 and 2018 hurricanes.
While the percentage of our delinquency inventory that is related
to loans in the areas affected by those hurricanes remains (or may
become) somewhat elevated, based on our analysis and past
experience, we do not expect those hurricanes to result in a
material increase in our incurred losses or paid claims. However,
the following factors could cause our actual results to differ from
our expectation in the forward looking statement in the preceding
sentence:
- Home values in hurricane-affected areas may decrease at the
time claims are filed from their current levels thereby adversely
affecting our ability to mitigate loss.
- Hurricane-affected areas may experience deteriorating economic
conditions resulting in more borrowers defaulting on their loans in
the future (or failing to cure existing defaults) than we currently
expect.
- If an insured contests our claim denial or curtailment, there
can be no assurance we will prevail. We describe how claims under
our policy are affected by damage to the borrower's home in our
Current Report on Form 8-K filed with the SEC on September 14, 2017.
Due to the suspension of certain foreclosures by the GSEs from
time-to-time, our receipt of claims associated with foreclosed
mortgages in hurricane-affected areas may be delayed.
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 hurricanes 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 as we are required to maintain more capital in order to
maintain our eligibility."
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SOURCE MGIC Investment Corporation