NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
Note 1. Nature of Business and Basis of Presentation
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.
The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended
December 31, 2018
included in our
2018
Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.
In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for the interim period may not be indicative of the results that may be expected for the year ending
December 31, 2019
.
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 include financial requirements, as well as business, quality control and certain transactional 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, calculated from tables of factors with several risk dimensions and subject to a floor amount). Based on our interpretation of the PMIERs, as of
March 31, 2019
, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the financial requirements of the PMIERs and eligible to insure loans purchased by the GSEs.
Reclassifications
Certain reclassifications to
2018
amounts have been made in the accompanying financial statements to conform to the
2019
presentation.
Subsequent events
We have considered subsequent events through the date of this filing. Refer to
Note 4 - “Reinsurance”
for information regarding our notice of termination of our 2015 quota share reinsurance agreement (“2015 QSR Transaction”).
Note 2. Significant Accounting Policies
Income taxes
Deferred income taxes are provided under the liability method, which recognizes the future tax effects of temporary differences between amounts reported in the consolidated financial statements and the tax bases of these items. The estimated tax effects are computed at the enacted federal statutory income tax rate. Changes in tax laws, rates, regulations, and policies or the final determination of tax audits or examinations, could materially affect our estimates and can be significant to our operating results. We evaluate the realizability of the deferred tax assets based on the weight of all available positive and negative evidence. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that all or some portion of the deferred tax assets will not be realized.
The recognition of a tax position is determined using a two-step approach, a more-likely-than-not threshold for recognition and derecognition, and a measurement attribute that is the greatest amount of benefit that is cumulatively greater than 50% likely of being realized. When evaluating a tax position for recognition and measurement, we presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. We recognize interest accrued and penalties related to unrecognized tax benefits in our provision for income taxes.
Federal tax law permits mortgage guaranty insurance companies to deduct from taxable income, subject to certain limitations, the amounts added to contingency loss reserves, which are recorded for regulatory purposes. The amounts we deduct must generally be included in taxable income in the tenth subsequent year. The deduction is allowed only to the extent that we purchase and hold U.S. government noninterest bearing tax and loss bonds in an amount equal to the tax benefit attributable to the deduction. We account for these purchases as a payment of current federal income tax.
MGIC Investment Corporation - Q1 2019 |
12
Recent accounting and reporting developments
Accounting standards effective in 2019, or early adopted, and relevant to our financial statements
Accounting Standard Update (“ASU”) 2016-02 - Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) amended the previous leasing standard and created
ASC 842, Leases. ASC 842 requires a lessee to recognize a right-of-use asset and lease liability for substantially all leases. Effective for the quarter ended March 31, 2019, we adopted the updated guidance for leases and also elected to apply all practical expedients applicable to us in the updated guidance for transition of leases in effect at adoption, including using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. The adoption of the updated guidance resulted in the recognition of an immaterial right-of-use asset as part of other assets and a lease liability as part of other liabilities in the consolidated balance sheet as of March 31, 2019. The adoption of the updated guidance did not have a material effect on our consolidated results of operations or liquidity.
Our minimum future operating lease payments as of March 31, 2019 totaled
$2.6 million
.
Prospective Accounting Standards
Table
2.1
shows the relevant new amendments to accounting standards, which are not yet effective or adopted.
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Standard / Interpretation
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Table
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2.1
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Amended Standards
|
Effective date
|
|
ASC 326
|
Financial Instruments - Credit Losses
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|
|
|
•
|
ASU 2016-13 - Measurement of Credit Losses on Financial Instruments
|
January 1, 2020
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|
ASC 820
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Fair Value Measurement
|
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|
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•
|
ASU 2018-13 - Changes to the Disclosure Requirements for Fair Value Measurements
|
January 1, 2020
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ASC 715
|
Compensation - Retirement Benefits
|
|
|
|
•
|
ASU 2018-14 - Changes to the Disclosure Requirements for Defined Benefit Plans
|
January 1, 2021
|
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued updated guidance that requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial instruments. Entities will be required to utilize a current expected credit losses (“CECL”) methodology that incorporates their forecast of future economic conditions into their loss estimate unless such forecast is not reasonable and supportable, in which case the entity will revert to historical loss experience. Any allowance for CECL reduces the amortized cost basis of the financial instrument to the amount an entity expects to collect. Credit losses relating to available-for-sale fixed maturity securities are to be recorded through an allowance for credit losses, rather than a write-down of the asset, with the amount of the allowance limited to the amount by which fair value is less than amortized
cost. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The updated guidance is not prescriptive about certain aspects of estimating expected credit losses, including the specific methodology to use, and therefore will require significant judgment in application. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements and disclosures, but do not expect it to have a material impact.
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued updated guidance that changes the disclosure requirements for fair value measurements. The updated guidance removed the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The updated guidance clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurements as of the reporting date. Further, the updated guidance will require disclosure of changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. An entity is permitted to early adopt any guidance that removed or modified disclosures upon issuance of this update and to delay adoption of the additional disclosures until its effective date. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statement disclosures, but do not expect it to have a material impact.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued amendments to modify the disclosure requirements for defined benefit plans. The updated guidance removed the requirements to identify amounts that are expected to be reclassified out of accumulated other comprehensive income and recognized as components of net periodic benefit cost in the coming year and the effects of a one-percentage-point change in assumed health care cost trend rates on service and interest cost and on the postretirement benefit obligation. The updated guidance added disclosures for the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation for the period. The updated guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. An entity should apply the amendments on a retrospective basis to all periods presented. We are currently evaluating the impacts the adoption of this
MGIC Investment Corporation - Q1 2019 |
13
guidance will have on our consolidated financial statement disclosures, but do not expect it to have a material impact.
Note 3. Debt
Debt obligations
The par value of our long-term debt obligations and their aggregate carrying values as of
March 31, 2019
and
December 31, 2018
are presented in table
3.1
below.
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Long-term debt obligations
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Table
|
3.1
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(In millions)
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March 31,
2019
|
|
December 31,
2018
|
|
FHLB Advance - 1.91%, due February 2023
|
|
$
|
155.0
|
|
|
$
|
155.0
|
|
|
5.75% Notes, due August 2023 (par value: $425 million)
|
|
420.0
|
|
|
419.7
|
|
|
9% Debentures, due April 2063
(1)
|
|
256.9
|
|
|
256.9
|
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|
Long-term debt, carrying value
|
|
$
|
831.9
|
|
|
$
|
831.6
|
|
|
|
|
|
(1)
|
Convertible at any time prior to maturity at the holder’s option, at an initial conversion rate, which is subject to adjustment, of
74.0741
shares per
$1,000
principal amount, representing an initial conversion price of approximately
$13.50
per share. If a holder elects to convert its debentures, deferred interest owed on the debentures being converted is also converted into shares of our common stock. The conversion rate for any 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. In lieu of issuing shares of common stock upon conversion of the debentures, we may, at our option, make a cash payment to converting holders for all or some of the shares of our common stock otherwise issuable upon conversion.
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The
5.75%
Senior Notes (“
5.75%
Notes”),
9%
Convertible Junior Subordinated Debentures (“
9%
Debentures”), and any amounts drawn on our revolving credit facility, are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. In addition to interest on amounts drawn, the unused portion of our revolving credit facility is subject to recurring commitment fees, which are reflected in interest payments. The Federal Home Loan Bank Advance (the “FHLB Advance”) is an obligation of MGIC.
Interest payments
Interest payments for each of the
three months ended March 31,
2019
and
2018
were
$13.1 million
.
Note 4. Reinsurance
The reinsurance agreements to which we are a party, excluding captive agreements (which were immaterial), are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table
4.1
below.
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Reinsurance
|
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Table
|
4.1
|
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|
|
Three Months Ended March 31,
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(In thousands)
|
|
2019
|
|
2018
|
|
Premiums earned:
|
|
|
|
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Direct
|
|
$
|
279,613
|
|
|
$
|
265,251
|
|
|
Assumed
|
|
872
|
|
|
121
|
|
|
Ceded
|
|
(30,724
|
)
|
|
(33,265
|
)
|
|
Net premiums earned
|
|
$
|
249,761
|
|
|
$
|
232,107
|
|
|
|
|
|
|
|
|
Losses incurred:
|
|
|
|
|
|
Direct
|
|
$
|
40,804
|
|
|
$
|
31,501
|
|
|
Assumed
|
|
(67
|
)
|
|
90
|
|
|
Ceded
|
|
(1,674
|
)
|
|
(7,741
|
)
|
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Losses incurred, net
|
|
$
|
39,063
|
|
|
$
|
23,850
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Quota share reinsurance
We utilize quota share reinsurance to manage our exposure to losses resulting from our mortgage guaranty insurance policies and to provide reinsurance capital credit under the PMIERs.
Each of the reinsurers under our QSR Transactions has an insurer financial strength rating of A- or better by Standard and Poor’s Rating Services, A.M. Best or both.
2019 QSR Transaction.
We entered into a QSR transaction with a group of unaffiliated reinsurers with an effective date of January 1, 2019 (“2019 QSR Transaction”), which provides coverage on eligible new insurance written in 2019. Under the 2019 QSR Transaction, we will cede losses and premiums on or after the effective date through December 31, 2030, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021 or bi-annually thereafter, for a fee, or under specified scenarios for
no
fee upon prior written notice, including if we will receive less than
90%
of the full credit amount under the PMIERs for the risk ceded in any required calculation period.
The structure of the 2019 QSR Transaction is a
30%
quota share, with a one-time option, elected by us, to reduce the cede rate to either
25%
or
20%
effective July 1, 2020, or bi-annually thereafter, for a fee, for all policies covered, with a
20%
ceding commission as well as a profit commission. Generally, under the 2019 QSR Transaction, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below
62%
.
2018 and prior QSR Transactions.
See Note 9 of Notes to Consolidated Financial Statements in our 2018 Form 10-K for more information about our QSR Transactions entered into prior to 2019.
MGIC Investment Corporation - Q1 2019 |
14
2015 QSR Transaction.
We have terminated a portion of our 2015 QSR Transaction effective June 30, 2019 and have agreed to terms on an amended quota share reinsurance agreement with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from
30%
to
15%
on the remaining eligible insurance. The amended quota share reinsurance agreement is subject to GSE approval. When the amended terms are effective we will generally receive a profit commission provided that the loss ratio on the covered loans remains below
68%
.
Table
4.2
below presents a summary of our quota share reinsurance agreements for the three months ended March 31, 2019 and 2018.
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|
|
Quota Share Reinsurance
|
|
Table
|
4.2
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
Ceded premiums written and earned, net of profit commission
(1)
|
$
|
28,164
|
|
|
$
|
33,036
|
|
|
Ceded losses incurred
|
|
1,676
|
|
|
7,788
|
|
|
Ceding commissions
(2)
|
|
13,409
|
|
|
12,645
|
|
|
Profit commission
|
|
38,881
|
|
|
30,189
|
|
|
|
|
|
(1)
|
Premiums are ceded on an earned and received basis as defined in the agreements.
|
|
|
|
|
(2)
|
Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.
|
Under the terms of the QSR Transactions, ceded premiums, ceding commission and profit commission are settled net on a quarterly basis. The ceded premiums due after deducting the related ceding commission and profit commission is reported within “Other liabilities” on the consolidated balance sheets.
The reinsurance recoverable on loss reserves related to our QSR Transactions was
$31.8 million
as of
March 31, 2019
and
$33.2 million
as of
December 31, 2018
. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers which are based on the funding requirements of PMIERs that address ceded risk.
Excess of loss reinsurance
Home Re.
We have entered into an aggregate excess of loss reinsurance agreement with Home Re. At the time the Home Re agreement was entered into, we assessed whether Home Re was a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. We concluded that Home Re is a VIE. However, given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect Home Re’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of Home Re, consolidation of Home Re is not required.
The amount of monthly reinsurance coverage premium ceded will fluctuate due to change in one-month LIBOR and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. As the reinsurance premium will vary based on changes in these rates, we concluded that the reinsurance agreement contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair value of the derivative at March 31, 2019, and the change in fair value from December 31, 2018, was not material to our consolidated balance sheet and consolidated statement of operations as of and for the three months ended March 31, 2019, respectively. Total ceded premiums were
$2.5 million
for the three months ended March 31, 2019.
We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statement of operations, as a result of our involvement with this VIE. As of
March 31, 2019
and December 31, 2018, we did not have material exposure to the VIE as we have no investment in the VIE and had no reinsurance claim payments due from the VIE under our reinsurance agreement. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance agreement. The VIE assets are deposited in a reinsurance trust for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trust is to provide security to MGIC for the obligations of the VIE under the reinsurance agreement. The trustee of the reinsurance trust, a recognized provider of corporate trust services, has established a segregated account within the reinsurance trust for the benefit of MGIC, pursuant to the trust agreement. The trust agreement is governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trust failed to distribute claim payments to us as provided in the reinsurance trust, we would incur a loss related to our losses ceded under the reinsurance agreement and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreement may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our involvement with the VIE. MGIC has certain termination rights under the reinsurance agreement should its claims not be paid. We consider our exposure to loss from our reinsurance agreement with the VIE to be remote.
The following presents the total assets of Home Re as of
March 31, 2019
and
December 31, 2018
.
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|
|
|
|
|
|
|
|
|
Home Re total assets
|
|
Table
|
4.3
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Home Re entity (Issue date)
|
|
Total VIE Assets
|
|
March 31, 2019
|
|
|
|
Home Re 2018-01 Ltd. (Oct - 2018)
|
|
$
|
318,636
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
Home Re 2018-01 Ltd. (Oct - 2018)
|
|
$
|
318,636
|
|
MGIC Investment Corporation - Q1 2019 |
15
Basis of Presentation”
). A decline in the assets available to pay claims would reduce the capital credit available to MGIC.
Note 5. Litigation and Contingencies
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. We refer to insurance rescissions and denials of claims collectively as “rescissions” and variations of that term. In addition, our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy. We call such reduction of claims “curtailments.” In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In 2018, and the first quarter of 2019, curtailments reduced our average claim paid by approximately
5.8%
and
3.9%
, respectively.
Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.
When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings.
Under ASC 450-20, until a 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, including recording a probable loss of
$23.5 million
in the first quarter of 2019. Until settlement negotiations or legal proceedings for which we have recorded a probable loss are concluded, it is reasonably possible that we will record an additional loss. 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 all of these matters are resolved we will not prevail in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately
$266.2 million
more than the amount of probable loss we have recorded. This estimate of maximum exposure is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties, and will include an amount for matters for which we have recorded a probable loss until such matters are concluded. The matters underlying 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 effect 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.
Through a non-insurance subsidiary, we utilize our underwriting skills to provide an outsourced underwriting service to our customers known as contract underwriting. As part of the contract underwriting activities, that subsidiary is responsible for the quality of the underwriting decisions in accordance with the terms of the contract underwriting agreements with customers. That subsidiary may be required to provide certain remedies to its customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such future obligations. Claims for remedies may be made a number of years after the underwriting work was performed. The underwriting remedy expense for
2018
and the first
three
months of
2019
was immaterial to our consolidated financial statements.
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 consolidated results of operations.
Note 6. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. For purposes of calculating basic EPS, vested restricted stock and restricted stock units (“RSUs”) are considered outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our
9%
Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive.
MGIC Investment Corporation - Q1 2019 |
16
Table
6.1
reconciles the numerators and denominators used to calculate basic and diluted EPS.
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|
|
|
|
|
Earnings per share
|
|
Table
|
6.1
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands, except per share data)
|
|
2019
|
|
2018
|
|
Basic earnings per share:
|
|
|
|
|
|
Net income
|
|
$
|
151,941
|
|
|
$
|
143,637
|
|
|
Weighted average common shares outstanding - basic
|
|
355,653
|
|
|
370,908
|
|
|
Basic earnings per share
|
|
$
|
0.43
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
Net income
|
|
$
|
151,941
|
|
|
$
|
143,637
|
|
|
Interest expense, net of tax
(1)
:
|
|
|
|
|
|
9% Debentures
|
|
4,566
|
|
|
4,566
|
|
|
Diluted income available to common shareholders
|
|
$
|
156,507
|
|
|
$
|
148,203
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
355,653
|
|
|
370,908
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Unvested RSUs
|
|
1,986
|
|
|
1,626
|
|
|
9% Debentures
|
|
19,028
|
|
|
19,028
|
|
|
Weighted average common shares outstanding - diluted
|
|
376,667
|
|
|
391,562
|
|
|
Diluted earnings per share
|
|
$
|
0.42
|
|
|
$
|
0.38
|
|
|
|
|
|
(1)
|
The periods ended
March 31, 2019
and
2018
were tax-effected at a rate of 21%.
|
Note 7. Investments
Fixed income securities
The amortized cost, gross unrealized gains and losses, and fair value of investments in fixed income securities classified as available-for-sale at
March 31, 2019
and
December 31, 2018
are shown in tables
7.1a
and
7.1b
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of fixed income securities by category as of March 31, 2019
|
|
Table
|
7.1a
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
(1)
|
|
Fair Value
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
167,821
|
|
|
$
|
910
|
|
|
$
|
(589
|
)
|
|
$
|
168,142
|
|
|
Obligations of U.S. states and political subdivisions
|
|
1,611,092
|
|
|
58,372
|
|
|
(2,226
|
)
|
|
1,667,238
|
|
|
Corporate debt securities
|
|
2,442,354
|
|
|
23,363
|
|
|
(9,648
|
)
|
|
2,456,069
|
|
|
Asset backed securities (“ABS”)
|
|
217,469
|
|
|
1,045
|
|
|
(33
|
)
|
|
218,481
|
|
|
Residential mortgage backed securities (“RMBS”)
|
|
188,201
|
|
|
143
|
|
|
(7,859
|
)
|
|
180,485
|
|
|
Commercial mortgage backed securities (“CMBS”)
|
|
272,074
|
|
|
1,808
|
|
|
(4,599
|
)
|
|
269,283
|
|
|
Collateralized loan obligations (“CLO”)
|
|
330,524
|
|
|
—
|
|
|
(2,862
|
)
|
|
327,662
|
|
|
Total fixed income securities
|
|
$
|
5,229,535
|
|
|
$
|
85,641
|
|
|
$
|
(27,816
|
)
|
|
$
|
5,287,360
|
|
MGIC Investment Corporation - Q1 2019 |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of fixed income securities by category as of December 31, 2018
|
|
Table
|
7.1b
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
(1)
|
|
Fair Value
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
167,655
|
|
|
$
|
597
|
|
|
$
|
(1,076
|
)
|
|
$
|
167,176
|
|
|
Obligations of U.S. states and political subdivisions
|
|
1,701,826
|
|
|
29,259
|
|
|
(10,985
|
)
|
|
1,720,100
|
|
|
Corporate debt securities
|
|
2,439,173
|
|
|
2,103
|
|
|
(40,514
|
)
|
|
2,400,762
|
|
|
ABS
|
|
111,953
|
|
|
226
|
|
|
(146
|
)
|
|
112,033
|
|
|
RMBS
|
|
189,238
|
|
|
32
|
|
|
(10,309
|
)
|
|
178,961
|
|
|
CMBS
|
|
276,352
|
|
|
888
|
|
|
(9,580
|
)
|
|
267,660
|
|
|
CLOs
|
|
310,587
|
|
|
2
|
|
|
(5,294
|
)
|
|
305,295
|
|
|
Total fixed income securities
|
|
$
|
5,196,784
|
|
|
$
|
33,107
|
|
|
$
|
(77,904
|
)
|
|
$
|
5,151,987
|
|
|
|
|
|
(1)
|
At
March 31, 2019
and
December 31, 2018
, there were no other-than-temporary impairment losses recorded in other comprehensive income.
|
We had
$13.6 million
and
$13.5 million
of investments at fair value on deposit with various states as of
March 31, 2019
and
December 31, 2018
, respectively, due to regulatory requirements of those state insurance departments.
The amortized cost and fair values of fixed income securities at
March 31, 2019
, by contractual maturity, are shown in table
7.2
below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS, and CLOs provide for periodic payments throughout their lives, they are listed in separate categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities maturity schedule
|
|
Table
|
7.2
|
|
|
|
|
|
|
|
March 31, 2019
|
|
(In thousands)
|
|
Amortized cost
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
375,772
|
|
|
$
|
375,241
|
|
|
Due after one year through five years
|
|
1,748,834
|
|
|
1,753,881
|
|
|
Due after five years through ten years
|
|
948,568
|
|
|
966,862
|
|
|
Due after ten years
|
|
1,148,093
|
|
|
1,195,465
|
|
|
|
|
4,221,267
|
|
|
4,291,449
|
|
|
|
|
|
|
|
|
ABS
|
|
217,469
|
|
|
218,481
|
|
|
RMBS
|
|
188,201
|
|
|
180,485
|
|
|
CMBS
|
|
272,074
|
|
|
269,283
|
|
|
CLOs
|
|
330,524
|
|
|
327,662
|
|
|
Total as of March 31, 2019
|
|
$
|
5,229,535
|
|
|
$
|
5,287,360
|
|
Proceeds from sales of fixed income securities classified as available-for-sale were
$106.0 million
and
$10.8 million
during the three months ended
March 31, 2019
and
2018
, respectively. Gross gains of
$0.7 million
and
$0.1 million
and gross losses of
$1.3 million
and
$0.3 million
were realized on those sales during the three months ended
March 31, 2019
and
2018
, respectively. During the three months ended
March 31, 2019
, we recorded other-than-temporary impairment (“OTTI”) losses of
$0.1 million
. During the
three
months ended
March 31, 2018
, there were no OTTI losses recognized.
Equity securities
The cost and fair value of investments in equity securities at
March 31, 2019
and
December 31, 2018
are shown in tables
7.3a
and
7.3b
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of equity security investments as of March 31, 2019
|
|
Table
|
7.3a
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Fair Value
|
|
Equity securities
|
|
$
|
4,016
|
|
|
$
|
60
|
|
|
$
|
(19
|
)
|
|
$
|
4,057
|
|
MGIC Investment Corporation - Q1 2019 |
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of equity security investments as of December 31, 2018
|
|
Table
|
7.3b
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Fair Value
|
|
Equity securities
|
|
$
|
3,993
|
|
|
$
|
11
|
|
|
$
|
(72
|
)
|
|
$
|
3,932
|
|
For the
three
months ended
March 31, 2019
, we recognized
$0.1 million
of net gains on equity securities still held as of
March 31, 2019
. For the three months ended March 31, 2018, we recognized
$0.1 million
of net losses on equity securities still held as of March 31, 2018.
Other invested assets
Other invested assets include an investment in Federal Home Loan Bank (“FHLB”) stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of
102%
of the outstanding principal balance. As of
March 31, 2019
, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of
$171.6 million
.
Unrealized investment losses
Tables
7.4a
and
7.4b
below summarize, for all available-for-sale investments in an unrealized loss position at
March 31, 2019
and
December 31, 2018
, the aggregate fair value and gross unrealized loss by the length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in tables
7.4a
and
7.4b
are estimated using the process described in
Note 8 - “Fair Value Measurements”
to these consolidated financial statements and in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our
2018
Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss aging for securities by type and length of time as of March 31, 2019
|
|
Table
|
7.4a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
(In thousands)
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
68,951
|
|
|
$
|
(589
|
)
|
|
$
|
68,951
|
|
|
$
|
(589
|
)
|
|
Obligations of U.S. states and political subdivisions
|
|
17,518
|
|
|
(444
|
)
|
|
213,567
|
|
|
(1,782
|
)
|
|
231,085
|
|
|
(2,226
|
)
|
|
Corporate debt securities
|
|
149,625
|
|
|
(1,315
|
)
|
|
852,102
|
|
|
(8,333
|
)
|
|
1,001,727
|
|
|
(9,648
|
)
|
|
ABS
|
|
18,444
|
|
|
(33
|
)
|
|
—
|
|
|
—
|
|
|
18,444
|
|
|
(33
|
)
|
|
RMBS
|
|
—
|
|
|
—
|
|
|
175,437
|
|
|
(7,859
|
)
|
|
175,437
|
|
|
(7,859
|
)
|
|
CMBS
|
|
9,757
|
|
|
(94
|
)
|
|
189,785
|
|
|
(4,505
|
)
|
|
199,542
|
|
|
(4,599
|
)
|
|
CLOs
|
|
317,663
|
|
|
(2,862
|
)
|
|
—
|
|
|
—
|
|
|
317,663
|
|
|
(2,862
|
)
|
|
Total
|
|
$
|
513,007
|
|
|
$
|
(4,748
|
)
|
|
$
|
1,499,842
|
|
|
$
|
(23,068
|
)
|
|
$
|
2,012,849
|
|
|
$
|
(27,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss aging for securities by type and length of time as of December 31, 2018
|
|
Table
|
7.4b
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
(In thousands)
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
23,710
|
|
|
$
|
(15
|
)
|
|
$
|
69,146
|
|
|
$
|
(1,061
|
)
|
|
$
|
92,856
|
|
|
$
|
(1,076
|
)
|
|
Obligations of U.S. states and political subdivisions
|
|
316,655
|
|
|
(3,875
|
)
|
|
358,086
|
|
|
(7,110
|
)
|
|
674,741
|
|
|
(10,985
|
)
|
|
Corporate debt securities
|
|
1,272,279
|
|
|
(18,130
|
)
|
|
785,627
|
|
|
(22,384
|
)
|
|
2,057,906
|
|
|
(40,514
|
)
|
|
ABS
|
|
51,324
|
|
|
(146
|
)
|
|
—
|
|
|
—
|
|
|
51,324
|
|
|
(146
|
)
|
|
RMBS
|
|
24
|
|
|
—
|
|
|
178,573
|
|
|
(10,309
|
)
|
|
178,597
|
|
|
(10,309
|
)
|
|
CMBS
|
|
65,704
|
|
|
(1,060
|
)
|
|
163,272
|
|
|
(8,520
|
)
|
|
228,976
|
|
|
(9,580
|
)
|
|
CLOs
|
|
296,497
|
|
|
(5,294
|
)
|
|
—
|
|
|
—
|
|
|
296,497
|
|
|
(5,294
|
)
|
|
Total
|
|
$
|
2,026,193
|
|
|
$
|
(28,520
|
)
|
|
$
|
1,554,704
|
|
|
$
|
(49,384
|
)
|
|
$
|
3,580,897
|
|
|
$
|
(77,904
|
)
|
MGIC Investment Corporation - Q1 2019 |
19
The unrealized losses in all categories of our investments at
March 31, 2019
and
December 31, 2018
were primarily caused by changes in interest rates between the time of purchase and the respective fair value measurement date. There were
420
and
721
securities in an unrealized loss position at
March 31, 2019
and
December 31, 2018
, respectively.
Note 8. Fair Value Measurements
Recurring fair value measurements
The following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.
Level 1 measurements
|
|
|
|
•
|
Fixed income securities: Consist of primarily U.S. Treasury securities with valuations derived from quoted prices for identical instruments in active markets that we can access.
|
|
|
|
|
•
|
Equity securities: Consist of actively traded, exchange-listed equity securities with valuations derived from quoted prices for identical assets in active markets that we can access.
|
|
|
|
|
•
|
Other: Consists of money market funds with valuations derived from quoted prices for identical assets in active markets that we can access.
|
Level 2 measurements
|
|
|
|
•
|
Fixed income securities:
|
Corporate Debt & U.S. Government and Agency Bonds
are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process.
Obligations of U.S. States & Political Subdivisions
are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation.
Residential Mortgage-Backed Securities ("RMBS")
are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities.
Commercial Mortgage-Backed Securities ("CMBS")
are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable.
Asset-Backed Securities ("ABS")
are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices.
Collateralized loan obligations ("CLO")
are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity.
Level 3 measurements
|
|
|
|
•
|
Real estate acquired is valued at the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.
|
MGIC Investment Corporation - Q1 2019 |
20
Assets measured at fair value, by hierarchy level, as of
March 31, 2019
and
December 31, 2018
are shown in tables
8.1a
and
8.1b
below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our
2018
Annual Report on Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets carried at fair value by hierarchy level as of March 31, 2019
|
|
Table
|
8.1a
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
168,142
|
|
|
$
|
42,479
|
|
|
$
|
125,663
|
|
|
$
|
—
|
|
|
Obligations of U.S. states and political subdivisions
|
|
1,667,238
|
|
|
—
|
|
|
1,667,238
|
|
|
—
|
|
|
Corporate debt securities
|
|
2,456,069
|
|
|
—
|
|
|
2,456,069
|
|
|
—
|
|
|
ABS
|
|
218,481
|
|
|
—
|
|
|
218,481
|
|
|
—
|
|
|
RMBS
|
|
180,485
|
|
|
—
|
|
|
180,485
|
|
|
—
|
|
|
CMBS
|
|
269,283
|
|
|
—
|
|
|
269,283
|
|
|
—
|
|
|
CLOs
|
|
327,662
|
|
|
—
|
|
|
327,662
|
|
|
—
|
|
|
Total fixed income securities
|
|
5,287,360
|
|
|
42,479
|
|
|
5,244,881
|
|
|
—
|
|
|
Equity securities
|
|
4,057
|
|
|
4,057
|
|
|
—
|
|
|
—
|
|
|
Other
(1)
|
|
205,444
|
|
|
205,444
|
|
|
—
|
|
|
—
|
|
|
Real estate acquired
(2)
|
|
11,639
|
|
|
—
|
|
|
—
|
|
|
11,639
|
|
|
Total
|
|
$
|
5,508,500
|
|
|
$
|
251,980
|
|
|
$
|
5,244,881
|
|
|
$
|
11,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets carried at fair value by hierarchy level as of December 31, 2018
|
|
Table
|
8.1b
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
|
$
|
167,176
|
|
|
$
|
42,264
|
|
|
$
|
124,912
|
|
|
$
|
—
|
|
|
Obligations of U.S. states and political subdivisions
|
|
1,720,100
|
|
|
—
|
|
|
1,720,087
|
|
|
13
|
|
|
Corporate debt securities
|
|
2,400,762
|
|
|
—
|
|
|
2,400,762
|
|
|
—
|
|
|
ABS
|
|
112,033
|
|
|
—
|
|
|
112,033
|
|
|
—
|
|
|
RMBS
|
|
178,961
|
|
|
—
|
|
|
178,961
|
|
|
—
|
|
|
CMBS
|
|
267,660
|
|
|
—
|
|
|
267,660
|
|
|
—
|
|
|
CLOs
|
|
305,295
|
|
|
—
|
|
|
305,295
|
|
|
—
|
|
|
Total fixed income securities
|
|
5,151,987
|
|
|
42,264
|
|
|
5,109,710
|
|
|
13
|
|
|
Equity securities
|
|
3,932
|
|
|
3,932
|
|
|
—
|
|
|
—
|
|
|
Other
(1)
|
|
96,403
|
|
|
96,403
|
|
|
—
|
|
|
—
|
|
|
Real estate acquired
(2)
|
|
14,535
|
|
|
—
|
|
|
—
|
|
|
14,535
|
|
|
Total
|
|
$
|
5,266,857
|
|
|
$
|
142,599
|
|
|
$
|
5,109,710
|
|
|
$
|
14,548
|
|
|
|
|
|
(1)
|
Consists of money market funds included in “Cash and Cash Equivalents” and “Restricted Cash and Cash Equivalents” on the consolidated balance sheets.
|
|
|
|
|
(2)
|
Real estate acquired through claim settlement, which is held for sale, is reported in “Other assets” on the consolidated balance sheets.
|
MGIC Investment Corporation - Q1 2019 |
21
Reconciliations of Level 3 assets
For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three months ended
March 31, 2019
and
2018
is shown in tables
8.2a
and
8.2b
below. As shown in table
8.2b
below, we transferred our FHLB stock out of Level 3 assets, and it is carried at cost, which approximates fair value, on our consolidated balance sheet in
“Other invested assets.”
There were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2019
|
|
Table
|
8.2a
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fixed income
|
|
Equity Securities
|
|
Total Investments
|
|
Real Estate Acquired
|
|
Balance at December 31, 2018
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
14,535
|
|
|
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,084
|
|
|
Sales
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
|
(10,872
|
)
|
|
Included in earnings and reported as losses incurred, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(108
|
)
|
|
Balance at March 31, 2019
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value roll-forward for financial instruments classified as Level 3 for the three months ended March 31, 2018
|
|
Table
|
8.2b
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Fixed income
|
|
Equity
Securities
|
|
Total
Investments
|
|
Real Estate
Acquired
|
|
Balance at December 31, 2017
|
|
271
|
|
|
4,268
|
|
|
4,539
|
|
|
12,713
|
|
|
Transfers out of Level 3
|
|
—
|
|
|
(3,100
|
)
|
|
(3,100
|
)
|
|
—
|
|
|
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,894
|
|
|
Sales
|
|
(17
|
)
|
|
—
|
|
|
(17
|
)
|
|
(8,870
|
)
|
|
Included in earnings and reported as losses incurred, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
341
|
|
|
Balance at March 31, 2018
|
|
$
|
254
|
|
|
$
|
1,168
|
|
|
$
|
1,422
|
|
|
$
|
10,078
|
|
Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included in
Note 7 – “Investments.”
Financial assets and liabilities not measured at fair value
Other invested assets include an investment in FHLB stock that is carried at cost, which
due to restrictions that require it to be redeemed or sold only to the security issuer at par value,
approximates fair value. The fair value of other invested assets is categorized as Level 2.
Financial liabilities include our outstanding debt obligations. The fair values of our
5.75%
Notes and
9%
Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements. In all cases the fair values of the financial liabilities below are categorized as Level 2.
Table
8.3
presents the carrying value and fair value of our financial assets and liabilities disclosed, but not carried, at fair value at
March 31, 2019
and
December 31, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets and liabilities not measured at fair value
|
|
Table
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
FHLB Advance
|
|
$
|
155,000
|
|
|
$
|
153,133
|
|
|
$
|
155,000
|
|
|
$
|
150,551
|
|
|
5.75% Senior Notes
|
|
420,002
|
|
|
449,387
|
|
|
419,713
|
|
|
425,791
|
|
|
9% Convertible Junior Subordinated Debentures
|
|
256,872
|
|
|
332,580
|
|
|
256,872
|
|
|
338,069
|
|
|
Total financial liabilities
|
|
$
|
831,874
|
|
|
$
|
935,100
|
|
|
$
|
831,585
|
|
|
$
|
914,411
|
|
MGIC Investment Corporation - Q1 2019 |
22
Note 9. Other Comprehensive Income
The pretax and related income tax (expense) benefit components of our other comprehensive income (loss) for the
three
months ended
March 31, 2019
and
2018
are included in table
9.1
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss)
|
|
Table
|
9.1
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
Net unrealized investment gains (losses) arising during the period
|
|
$
|
102,621
|
|
|
$
|
(81,587
|
)
|
|
Income tax (expense) benefit
|
|
(21,550
|
)
|
|
17,134
|
|
|
Net of taxes
|
|
81,071
|
|
|
(64,453
|
)
|
|
|
|
|
|
|
|
Net changes in benefit plan assets and obligations
|
|
2,089
|
|
|
625
|
|
|
Income tax expense
|
|
(439
|
)
|
|
(131
|
)
|
|
Net of taxes
|
|
1,650
|
|
|
494
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
104,710
|
|
|
(80,962
|
)
|
|
Total income tax (expense) benefit
|
|
(21,989
|
)
|
|
17,003
|
|
|
Total other comprehensive income (loss), net of tax
|
|
$
|
82,721
|
|
|
$
|
(63,959
|
)
|
The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive loss (“AOCL”) to our consolidated statements of operations for the
three
months ended
March 31, 2019
and
2018
are included in table
9.2
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications from AOCL
|
|
Table
|
9.2
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
Reclassification adjustment for net realized (losses)
(1)
|
|
$
|
(2,679
|
)
|
|
$
|
(91
|
)
|
|
Income tax benefit
|
|
563
|
|
|
19
|
|
|
Net of taxes
|
|
(2,116
|
)
|
|
(72
|
)
|
|
|
|
|
|
|
|
Reclassification adjustment related to benefit plan assets and obligations
(2)
|
|
(2,089
|
)
|
|
(625
|
)
|
|
Income tax benefit (expense)
|
|
439
|
|
|
131
|
|
|
Net of taxes
|
|
(1,650
|
)
|
|
(494
|
)
|
|
|
|
|
|
|
|
Total reclassifications
|
|
(4,768
|
)
|
|
(716
|
)
|
|
Total income tax benefit
|
|
1,002
|
|
|
150
|
|
|
Total reclassifications, net of tax
|
|
$
|
(3,766
|
)
|
|
$
|
(566
|
)
|
|
|
|
|
(1)
|
Increases (decreases) Net realized investment (losses) gains on the consolidated statements of operations.
|
|
|
|
|
(2)
|
Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.
|
A rollforward of AOCL for the
three
months ended
March 31, 2019
, including amounts reclassified from AOCL, are included in table
9.3
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rollforward of AOCL
|
|
Table
|
9.3
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
(In thousands)
|
|
Net unrealized gains and (losses) on available-for-sale securities
|
|
Net benefit plan assets and (obligations) recognized in shareholders' equity
|
|
Total AOCL
|
|
Balance, December 31, 2018, net of tax
|
|
$
|
(35,389
|
)
|
|
$
|
(88,825
|
)
|
|
$
|
(124,214
|
)
|
|
Other comprehensive income before reclassifications
|
|
78,955
|
|
|
—
|
|
|
78,955
|
|
|
Less: Amounts reclassified from AOCL
|
|
(2,116
|
)
|
|
(1,650
|
)
|
|
(3,766
|
)
|
|
Balance, March 31, 2019, net of tax
|
|
$
|
45,682
|
|
|
$
|
(87,175
|
)
|
|
$
|
(41,493
|
)
|
MGIC Investment Corporation - Q1 2019 |
23
Note 10. Benefit Plans
Table
10.1
provides the components of net periodic benefit cost for our pension, supplemental executive retirement and other postretirement benefit plans for the
three
months ended
March 31, 2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost
|
|
Table
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Pension and Supplemental Executive Retirement Plans
|
|
Other Postretirement Benefit Plans
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
|
$
|
1,996
|
|
|
$
|
2,562
|
|
|
$
|
312
|
|
|
$
|
270
|
|
|
Interest cost
|
|
3,955
|
|
|
3,782
|
|
|
291
|
|
|
214
|
|
|
Expected return on plan assets
|
|
(4,908
|
)
|
|
(5,570
|
)
|
|
(1,445
|
)
|
|
(1,588
|
)
|
|
Amortization of net actuarial losses/(gains)
|
|
2,167
|
|
|
1,785
|
|
|
—
|
|
|
(46
|
)
|
|
Amortization of prior service cost/(credit)
|
|
(70
|
)
|
|
(87
|
)
|
|
(8
|
)
|
|
(1,026
|
)
|
|
Net periodic benefit cost (benefit)
|
|
$
|
3,140
|
|
|
$
|
2,472
|
|
|
$
|
(850
|
)
|
|
$
|
(2,176
|
)
|
We currently intend to make contributions totaling
$10.7 million
to our qualified pension plan and supplemental executive retirement plan in 2019.
Note 11. Loss Reserves
We establish reserves to recognize the estimated liability for losses and loss adjustment expenses (“LAE”) related to defaults on insured mortgage loans. Loss reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.
Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between default and claim filing; and curtailments and rescissions. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, and a drop in housing values 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 result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.
The “Losses incurred” section of table
11.1
below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on
delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquent inventory, such as percentages of delinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.
Losses incurred on delinquencies that occurred in the current year decreased in the first three months of
2019
compared to the same period in
2018
, due to a decrease in the number of new delinquencies, net of related cures and a decrease in the estimated claim rate on delinquencies that occurred in the current year.
For the three months ended
March 31, 2019
and
2018
, we experienced favorable loss reserve development on previously received delinquencies. This was, in large part, due to the resolution of approximately
32%
and
31%
, respectively, of the prior year delinquent inventory, with lower claim rates due to improved cure rates. The favorable loss reserve development resulting from a reduction in the estimated claim rate was partially offset in the three months ended
March 31, 2019
by the recognition of a probable loss of
$23.5 million
related to litigation of our claims paying practices, and for the three months ended
March 31, 2018
, by an increase in our severity assumption on previously received delinquencies.
The “Losses paid” section of table
11.1
below shows the amount of losses paid on delinquencies that occurred in the current year and losses paid on delinquencies that occurred in prior years. For several years, the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately
twelve
months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. In recent quarters, we have
MGIC Investment Corporation - Q1 2019 |
24
experienced a decline in the average time servicers are utilizing to process foreclosures, which has reduced the average time to receive a claim associated with new delinquent notices that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity.
During the first three months of 2018, our losses paid included
$7 million
paid upon commutation of coverage of pools of non-performing loans (“NPLs”). The commutations reduced our delinquent inventory by
224
delinquencies and had no material impact on our losses incurred, net.
Premium refunds
Our estimate of premiums to be refunded on expected claim payments is accrued for separately in “Other Liabilities” on our consolidated balance sheets and approximated
$37 million
and
$40 million
at
March 31, 2019
and
December 31, 2018
, respectively.
Table
11.1
provides a reconciliation of beginning and ending loss reserves as of and for the
three
months ended
March 31, 2019
and
2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development of reserves for losses and loss adjustment expenses
|
|
Table
|
11.1
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2019
|
|
2018
|
|
Reserve at beginning of period
|
|
$
|
674,019
|
|
|
$
|
985,635
|
|
|
Less reinsurance recoverable
|
|
33,328
|
|
|
48,474
|
|
|
Net reserve at beginning of period
|
|
640,691
|
|
|
937,161
|
|
|
|
|
|
|
|
|
Losses incurred:
|
|
|
|
|
|
Losses and LAE incurred in respect of delinquency notices received in:
|
|
|
|
|
|
Current year
|
|
47,488
|
|
|
59,070
|
|
|
Prior years
(1)
|
|
(8,425
|
)
|
|
(35,220
|
)
|
|
Total losses incurred
|
|
39,063
|
|
|
23,850
|
|
|
|
|
|
|
|
|
Losses paid:
|
|
|
|
|
|
Losses and LAE paid in respect of delinquency notices received in:
|
|
|
|
|
|
Current year
|
|
—
|
|
|
95
|
|
|
Prior years
|
|
56,365
|
|
|
81,983
|
|
|
Reinsurance terminations
|
|
—
|
|
|
236
|
|
|
Total losses paid
|
|
56,365
|
|
|
82,314
|
|
|
Net reserve at end of period
|
|
623,389
|
|
|
878,697
|
|
|
Plus reinsurance recoverables
|
|
31,875
|
|
|
45,474
|
|
|
Reserve at end of period
|
|
$
|
655,264
|
|
|
$
|
924,171
|
|
|
|
|
|
(1)
|
A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves. See the following table for more information about prior year loss development.
|
The prior year development of the reserves in the first
three
months of
2019
and
2018
is reflected in table
11.2
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve development on previously received delinquencies
|
|
Table
|
11.2
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
(In millions)
|
|
2019
|
|
2018
|
|
Decrease in estimated claim rate on primary defaults
|
|
$
|
(31
|
)
|
|
$
|
(47
|
)
|
|
Increase in estimated severity on primary defaults
|
|
—
|
|
|
16
|
|
|
Change in estimates related to pool reserves, LAE reserves, reinsurance, and other
|
|
23
|
|
|
(4
|
)
|
|
Total prior year loss development
(1)
|
|
$
|
(8
|
)
|
|
$
|
(35
|
)
|
|
|
|
|
(1)
|
A negative number for prior year loss development indicates a redundancy of prior year loss reserves.
|
MGIC Investment Corporation - Q1 2019 |
25
Delinquent inventory
A rollforward of our primary delinquent inventory for the
three
months ended
March 31, 2019
and
2018
appears in table
11.3
below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month can be influenced by, among other things, the date on which a servicer generates its report, the accuracy of the data provided by servicers, the number of business days in a month, transfers of servicing between loan servicers and whether all servicers have provided the reports in a given month.
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent inventory rollforward
|
|
Table
|
11.3
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
2018
|
|
Delinquent inventory at beginning of period
|
|
32,898
|
|
|
46,556
|
|
|
New notices
|
|
13,611
|
|
|
14,623
|
|
|
Cures
|
|
(14,348
|
)
|
|
(18,073
|
)
|
|
Paid claims
|
|
(1,188
|
)
|
|
(1,571
|
)
|
|
Rescissions and denials
|
|
(52
|
)
|
|
(68
|
)
|
|
Other items removed from inventory
|
|
—
|
|
|
(224
|
)
|
|
Delinquent inventory at end of period
|
|
30,921
|
|
|
41,243
|
|
The decrease in the primary delinquent inventory experienced during
2019
and
2018
was generally across all markets and primarily in book years 2008 and prior. Historically as a delinquency ages it becomes more likely to result in a claim.
Hurricane activity
New delinquent notice activity increased in the fourth quarter of 2017 because of hurricane activity that primarily impacted Puerto Rico, Texas, and Florida in the third quarter of 2017. Many of the loans from the hurricane impacted areas remained delinquent through the period ending
March 31, 2018
and are shown in the 4-11 months delinquent category in table
11.4
. The majority of the delinquent notices received from the hurricane activity cured as of December 31, 2018.
Table
11.4
below shows the number of consecutive months a borrower is delinquent.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary delinquent inventory - consecutive months delinquent
|
|
Table
|
11.4
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
March 31, 2018
|
|
3 months or less
|
8,568
|
|
|
9,829
|
|
|
8,770
|
|
|
4-11 months
|
9,997
|
|
|
9,655
|
|
|
16,429
|
|
|
12 months or more
(1)
|
12,356
|
|
|
13,414
|
|
|
16,044
|
|
|
Total
|
30,921
|
|
|
32,898
|
|
|
41,243
|
|
|
|
|
|
|
|
|
|
3 months or less
|
28
|
%
|
|
30
|
%
|
|
21
|
%
|
|
4-11 months
|
32
|
%
|
|
29
|
%
|
|
40
|
%
|
|
12 months or more
|
40
|
%
|
|
41
|
%
|
|
39
|
%
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Primary claims received inventory included in ending delinquent inventory:
|
665
|
|
|
809
|
|
|
819
|
|
|
|
|
|
(1)
|
Approximately
38%
,
38%
,
and
44%
of the primary delinquent inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of
March 31, 2019
,
December 31, 2018
, and
March 31, 2018
, respectively.
|
Pool insurance delinquent inventory decreased to
723
at
March 31, 2019
from
859
at
December 31, 2018
, and
1,200
at
March 31, 2018
.
Claims paying practices
Our loss reserving methodology incorporates our estimates of future rescissions and curtailments. A variance between ultimate actual rescission and curtailment rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. Our estimate of premiums to be refunded on expected future rescissions is accrued for separately and is included in “Other liabilities” on our consolidated balance sheets. For information about discussions and legal proceedings with customers with respect to our claims paying practices see
Note 5 – “Litigation and Contingencies.”
Note 12. Shareholders’ Equity
Share repurchase programs
In March 2019, our board of directors authorized an additional share repurchase program under which we may repurchase up to
$200 million
of our common stock through the end of 2020. We have approximately
$25 million
remaining on an existing share repurchase authorization announced in April 2018 that remains in place through the end of 2019. 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. We did not repurchase any shares during the three months ended March 31, 2019.
MGIC Investment Corporation - Q1 2019 |
26
Note 13. Share-Based Compensation
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period. Awards under our plans generally vest over periods ranging from
one
to
three years
.
Table
13.1
shows the number of shares granted to employees and the weighted average fair value per share during the periods presented (shares in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock grants
|
|
Table
|
13.1
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
2018
|
|
|
|
Shares
Granted
|
|
Weighted Average Share Fair Value
|
|
Shares
Granted
|
|
Weighted Average Share Fair Value
|
|
RSUs subject to performance conditions
|
1,378
|
|
|
$
|
11.76
|
|
|
1,239
|
|
|
$
|
15.80
|
|
|
RSUs subject only to service conditions
|
412
|
|
|
11.76
|
|
|
412
|
|
|
15.71
|
|
Note 14. Statutory Information
Statutory Capital Requirements
The insurance laws of
16
jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the net 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
March 31, 2019
, MGIC’s risk-to-capital ratio was
8.9 to 1
, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was
$2.7 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 QSR 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 financial requirements of 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, matters that could negatively affect such compliance are discussed in the rest of these consolidated financial statement footnotes.
At
March 31, 2019
, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was
9.6 to 1
.
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 more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act 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 a particular jurisdiction, lenders may be unwilling to procure insurance from us anywhere. In addition, a lender’s assessment of the future ability of our insurance operations to meet the State Capital Requirements or the PMIERs may affect its willingness to procure insurance from us. 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, matters that could negatively affect MGIC’s claims paying resources are discussed in the rest of these consolidated financial statement footnotes.
MGIC Investment Corporation - Q1 2019 |
27
Dividend restrictions
In the first quarter of 2019, MGIC paid a
$70 million
dividend to our holding company. MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without such dividends being subject to regulatory disapproval by the OCI is the lesser of adjusted statutory net income or
10%
of statutory policyholders’ surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the
three
calendar years preceding the date of the dividend less dividends paid within the first
two
of the preceding three calendar years. The OCI recognizes only statutory accounting principles prescribed, or practices permitted by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in their contingency reserves through their income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency reserves, statutory net income is lowered.
MGIC Investment Corporation - Q1 2019 |
28