MILWAUKEE, Feb. 23, 2021 /PRNewswire/ -- MGIC
Investment Corporation (NYSE: MTG) today reported operating and
financial results for the fourth quarter of 2020. Net income
for the quarter was $151.4 million,
or $0.44 per diluted share, compared
to net income of $177.1 million, or
$0.49 per diluted share, for the
fourth quarter of 2019. Net income for the full year of
2020 was $446.1 million, or
$1.29 per diluted share, compared to
$673.8 million, or $1.85 per diluted share, for the full year of
2019.
Adjusted net operating income for the fourth quarter of 2020 was
$149.5 million, or $0.43 per diluted share, compared to $176.1 million, or $0.49 per diluted share, for the fourth quarter
of 2019. Adjusted net operating income for the full year of 2020
was $456.8 million, or $1.32 per diluted share, compared to $669.7 million, or $1.84 per diluted share for 2019. 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.
Tim Mattke, CEO of MTG and
Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am
pleased to report that we finished 2020 with strong financial
results which reflect the favorable housing market trends we have
been experiencing especially in the second half of the year."
"Despite the economic effects of the COVID-19 pandemic, the
housing market has been resilient and, given our market presence
and the overall market size, we wrote $112.1
billion of new insurance in 2020, including $33.2 billion in the fourth quarter. As a result,
insurance in force increased more than 10% year-over-year, despite
the lower annual persistency associated with the strong refinance
market. In 2020, we further strengthened our already strong
capital and liquidity positions by reducing the amount of holding
company debt due in 2023, increasing liquidity at our holding
company, ceding additional risk through reinsurance transactions,
and increasing MGIC's statutory and PMIERs capital
positions."
Mattke continued, "In 2020 our company wrote a record volume of
new business while being challenged by the economic impact of the
COVID-19 pandemic, including higher losses incurred, especially in
the second quarter of the year. I am very proud of our team
members who remain focused on executing our business strategies and
providing critical support for our customers and the housing
market, especially for first-time homebuyers, as we all continue to
navigate through the current environment."
Mattke concluded, "I am encouraged about the continued
resiliency of the housing market; however, there is still
uncertainty about the timing and pace of the economic recovery and
the long-term impact of the governmental and GSE response to aid
consumers impacted by the pandemic, including loss mitigation
efforts undertaken by the GSEs and loan servicers. I am at
the same time excited about our ability to provide credit
enhancement and low down payment solutions to lenders, GSEs and
borrowers."
Fourth Quarter Summary
- New insurance written was $33.2 billion, compared to $32.8 billion the third quarter of 2020 and
$19.3 billion in the fourth
quarter of 2019, reflecting the resilience of the purchase mortgage
market, the attractive refinance market, and our position in the
market.
- Persistency, or the percentage of insurance remaining in force
from one year prior, was 60.5% at December 31, 2020, compared
to 64.5% at September 30, 2020 and 75.8% at December 31,
2019.
- Insurance in force (IIF) of $246.6
billion at December 31, 2020 increased by 3.2% during
the quarter and 10.9% compared to December 31,
2019.
- Primary delinquency inventory of 57,710 loans at
December 31, 2020 decreased from 64,418 loans at
September 30, 2020, but increased from 30,028 loans at
December 31, 2019 primarily due to the adverse economic impact
of COVID-19.
-
- As of December 31, 2020, 62% of
the loans in our delinquency inventory were reported to us as
subject to a forbearance plan. We believe substantially all of the
reported forbearance plans are COVID-19 related.
- Insurance written in 2008 and prior accounted for approximately
9% of the December 31, 2020 primary
risk in force but accounted for 36% of the new primary delinquency
notices received in the quarter.
- The percentage of loans insured with primary insurance that
were delinquent at December 31, 2020 was 5.11%, compared to
5.79% at September 30, 2020, and
2.78% at December 31,
2019.
- The loss ratio for the fourth quarter of 2020 was 17.5%,
compared to 15.9% for the third quarter of 2020 and 8.9% for the
fourth quarter of 2019.
- The underwriting expense ratio associated with our insurance
operations for the fourth quarter of 2020 was 19.4%, compared to
20.2% for the third quarter of 2020 and 19.6% for the fourth
quarter of 2019.
- Net premium yield was 43.1 basis points in the fourth quarter
of 2020, compared to 43.6 basis points for the third quarter of
2020 and 48.4 basis points for the fourth quarter of 2019.
- MGIC Investment Corporation paid a $0.06 dividend per common share to shareholders
during the fourth quarter of 2020.
- Book value per common share outstanding increased by 4.1% from
September 30, 2020 and by 11.8% from
December 31, 2019 to $13.88
(December 31, 2020 book value per
common share outstanding includes $1.02 in net unrealized gains on securities,
compared to $0.51 at December 31, 2019).
- In October, MGIC entered into a $412.9
million excess of loss reinsurance agreement (executed
through an insurance linked note transaction) that covers a portion
of policies issued from January 1,
2020 through July 31,
2020.
_______________
First Quarter 2021 Activities
- In February, MGIC entered into a $398.8
million excess of loss reinsurance agreement (executed
through an insurance linked note transaction) that covers a portion
of policies issued from August 1,
2020 through December 31,
2020.
- $248.5 billion of IIF at
January 31, 2021, compared to
$246.6 billion of IIF at December 31, 2020.
- MGIC Investment Corporation declared a $0.06 dividend per common share to
shareholders.
Revenues
Total revenues for the fourth quarter of 2020 were $302.3 million, compared to $311.6 million in the fourth quarter last year.
The decrease reflects lower premiums earned and lower net
investment income. Net premiums written for the quarter were
$233.4 million, compared to
$254.0 million for the same period
last year. Net premiums earned for the quarter were $261.4 million, compared to $266.3 million for the same period last year. The
decrease in net premiums written was due to lower premium rates on
our IIF and a decrease in profit commission on our quota share
reinsurance transactions which resulted from higher ceded incurred
losses. These effects were partially offset by higher average
IIF. Net premiums earned were also impacted by an increase in
accelerated premiums earned from single premium policy
cancellations. Investment income for the fourth quarter
decreased to $36.1 million, from
$41.3 million for the same period
last year, resulting from lower investment yields, partially offset
by an increase in the consolidated investment portfolio.
Losses and expenses
Losses incurred
Net losses incurred were $45.8
million, compared to $23.7
million in the same period last year. In the fourth
quarter of 2020, our re-estimation of reserves on previous
delinquencies resulted in insignificant loss development
compared to $24 million of favorable
loss reserve development in the fourth quarter of 2019.
Primarily reflecting the impact of the COVID-19 pandemic, in the
fourth quarter of 2020, we received 11% more new delinquency
notices than we did in the same period last year; however, we
received 27% fewer new delinquency notices compared to the third
quarter of 2020 and 74% fewer delinquency notices compared to the
second quarter of 2020. In the fourth quarter of 2020, we
also decreased our incurred but not reported, or IBNR, reserve from
$34 million to $27 million.
Underwriting and other expenses
Net underwriting and other expenses were $48.3 million in the fourth quarter of 2020,
compared to $52.3 million in the same
period last year.
Interest Expense
Interest expense was $18.0 million in
the fourth quarter of 2020, compared to $12.9 million in the same period last year.
The increase is due to the issuance of the 5.25% Senior Notes in
August 2020, partially offset by the
repurchase of a portion of the 5.75% Senior Notes and the 9%
Convertible Junior Debentures.
Provision for income taxes
The effective income tax rate was 20.4% in the fourth quarter of
2020 and 20.5% in the fourth quarter of 2019.
Capital
- Total consolidated shareholders' equity was $4.7 billion as of December 31, 2020,
compared to $4.3 billion as of
December 31, 2019.
- MGIC's PMIERs Available Assets totaled $5.3 billion, or $1.8
billion above its Minimum Required Assets as of
December 31, 2020.
Other Balance Sheet and Liquidity
Metrics
- Total consolidated assets were $7.4
billion as of December 31, 2020, compared to
$6.2 billion as of December 31, 2019 and $5.7
billion as of December 31,
2018.
- The fair value of our consolidated investment portfolio, cash
and cash equivalents was $7.0 billion
as of December 31, 2020, compared to $5.9 billion as of December 31, 2019 and $5.3
billion as of December 31,
2018.
- Investments, cash and cash equivalents at the holding company
were $847 million as of
December 31, 2020, compared to $325
million as of December 31,
2019 and $248 million as of
December 31, 2018.
- Total consolidated debt as of December 31, 2020 was
$1.2 billion, compared to
$832 million as of December 31, 2019 and December 31, 2018.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call
February 24, 2021, 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
1-866-834-4126 The call is being webcast and can be accessed at the
company's website at http://mtg.mgic.com/. A replay of the
webcast will be available on the company's website through
March 24, 2021 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 by providing
mortgage insurance, which helps families achieve homeownership
sooner by making affordable low-down-payment mortgages a reality.
At December 31, 2020, MGIC had
$246.6 billion of primary insurance
in force covering over 1.1 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 all available on the Company's website at
https://mtg.mgic.com/ under "Newsroom."
From time to time MGIC Investment Corporation releases important
information via postings on its corporate website, and via postings
on MGIC's website for information related to underwriting and
pricing, and intends to continue to do so in the future. Such
postings include corrections of previous disclosures, and may be
made without any other disclosure. Investors and other interested
parties are encouraged to enroll to receive automatic email alerts
and Really Simple Syndication (RSS) feeds regarding new postings.
Enrollment information for MGIC Investment Corporation alerts can
be found at https://mtg.mgic.com/shareholder-services/email-alerts.
For information about our underwriting and rates, see
https://www.mgic.com/underwriting.
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission ("SEC"). These risk factors may also cause actual
results to differ materially from the results contemplated by
forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than
historical fact, including matters that inherently refer to future
events. Among others, statements that include words such as
"believe," "anticipate," "will" or "expect," or words of similar
import, are forward looking statements. These risk factors,
including the discussion of the impact of the COVID-19 pandemic,
speak only as of the date of this press release and are subject to
change without notice as the Company cannot predict all risks
relating to this evolving set of events. 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.
While we communicate with securities analysts from time to time,
it is against our policy to disclose to them any material
non-public information or other confidential information.
Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the
content of the statement or report, and such reports are not our
responsibility.
Use of Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax
operating income (loss), adjusted net operating income (loss) and
adjusted net operating income (loss) per diluted share facilitate
the evaluation of the company's core financial performance thereby
providing relevant information to investors. These measures are not
recognized in accordance with accounting principles generally
accepted in the United States of
America (GAAP) and should not be viewed as alternatives to
GAAP measures of performance.
Adjusted pre-tax operating income (loss) is defined as
GAAP income (loss) before tax, excluding the effects of net
realized investment gains (losses), gain (loss) on debt
extinguishment, net impairment losses recognized in income (loss)
and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as
GAAP net income (loss) excluding the after-tax effects of net
realized investment gains (losses), gain (loss) on debt
extinguishment, net impairment losses recognized in income (loss),
and infrequent or unusual non-operating items where applicable. The
amounts of adjustments to components of pre-tax operating income
(loss) are tax effected using a federal statutory tax rate of
21%.
Adjusted net operating income (loss) per diluted
share is calculated in a manner consistent with the
accounting standard regarding earnings per share by dividing (i)
adjusted net operating income (loss) after making adjustments for
interest expense on convertible debt, whenever the impact is
dilutive, by (ii) diluted weighted average common shares
outstanding, which reflects share dilution from unvested restricted
stock units and from convertible debt when dilutive under the
"if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted
net operating income (loss) exclude certain items that have
occurred in the past and are expected to occur in the future, the
excluded items represent items that are: (1) not viewed as part of
the operating performance of our primary activities; or (2)
impacted by both discretionary and other economic or regulatory
factors and are not necessarily indicative of operating trends, or
both. These adjustments, along with the reasons for their
treatment, are described below. Trends in the profitability of our
fundamental operating activities can be more clearly identified
without the fluctuations of these adjustments. Other companies may
calculate these measures differently. Therefore, their measures may
not be comparable to those used by us.
(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.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
(In thousands,
except per share data)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
|
$
|
233,396
|
|
|
$
|
254,015
|
|
|
$
|
928,742
|
|
|
$
|
1,001,308
|
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums
earned
|
|
$
|
261,367
|
|
|
$
|
266,267
|
|
|
$
|
1,021,943
|
|
|
$
|
1,030,988
|
|
Net investment
income
|
|
36,118
|
|
|
41,322
|
|
|
154,396
|
|
|
167,045
|
|
Net realized
investment gains
|
|
2,901
|
|
|
1,320
|
|
|
13,752
|
|
|
5,306
|
|
Other
revenue
|
|
1,895
|
|
|
2,717
|
|
|
9,055
|
|
|
10,638
|
|
Total
revenues
|
|
302,281
|
|
|
311,626
|
|
|
1,199,146
|
|
|
1,213,977
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
Losses incurred,
net
|
|
45,758
|
|
|
23,690
|
|
|
364,774
|
|
|
118,575
|
|
Underwriting and other
expenses, net
|
|
48,296
|
|
|
52,293
|
|
|
188,778
|
|
|
194,769
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
26,736
|
|
|
—
|
|
Interest
expense
|
|
18,015
|
|
|
12,934
|
|
|
59,595
|
|
|
52,656
|
|
Total losses and
expenses
|
|
112,069
|
|
|
88,917
|
|
|
639,883
|
|
|
366,000
|
|
Income before
tax
|
|
190,212
|
|
|
222,709
|
|
|
559,263
|
|
|
847,977
|
|
Provision for income
taxes
|
|
38,782
|
|
|
45,599
|
|
|
113,170
|
|
|
174,214
|
|
Net income
|
|
$
|
151,430
|
|
|
$
|
177,110
|
|
|
$
|
446,093
|
|
|
$
|
673,763
|
|
Net income per
diluted share
|
|
$
|
0.44
|
|
|
$
|
0.49
|
|
|
$
|
1.29
|
|
|
$
|
1.85
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
(In thousands,
except per share data)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net income
|
|
$
|
151,430
|
|
|
$
|
177,110
|
|
|
$
|
446,093
|
|
|
$
|
673,763
|
|
Interest expense, net
of tax:
|
|
|
|
|
|
|
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
3,712
|
|
|
4,566
|
|
|
17,004
|
|
|
18,264
|
|
Diluted net income
available to common shareholders
|
|
$
|
155,142
|
|
|
$
|
181,676
|
|
|
$
|
463,097
|
|
|
$
|
692,027
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares - basic
|
|
338,599
|
|
|
348,538
|
|
|
339,953
|
|
|
352,827
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
Unvested restricted
stock units
|
|
1,877
|
|
|
2,377
|
|
|
1,589
|
|
|
2,069
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
15,553
|
|
|
19,028
|
|
|
17,751
|
|
|
19,028
|
|
Weighted average
shares - diluted
|
|
356,029
|
|
|
369,943
|
|
|
359,293
|
|
|
373,924
|
|
Net income per
diluted share
|
|
$
|
0.44
|
|
|
$
|
0.49
|
|
|
$
|
1.29
|
|
|
$
|
1.85
|
|
NON-GAAP
RECONCILIATIONS
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
Three Months Ended
December 31,
|
|
|
2020
|
|
2019
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
190,212
|
|
|
$
|
38,782
|
|
|
$
|
151,430
|
|
|
$
|
222,709
|
|
|
$
|
45,599
|
|
|
$
|
177,110
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net realized
investment gains
|
|
(2,472)
|
|
|
(519)
|
|
|
(1,953)
|
|
|
(1,336)
|
|
|
(281)
|
|
|
(1,055)
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
187,740
|
|
|
$
|
38,263
|
|
|
$
|
149,477
|
|
|
$
|
221,373
|
|
|
$
|
45,318
|
|
|
$
|
176,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
Weighted average
shares - diluted
|
|
|
|
|
|
356,029
|
|
|
|
|
|
|
369,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
0.49
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Net realized
investment gains
|
|
|
|
|
|
(0.01)
|
|
|
|
|
|
|
—
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
0.43
|
|
|
|
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
Year Ended December
31,
|
|
|
2020
|
|
2019
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
559,263
|
|
|
$
|
113,170
|
|
|
$
|
446,093
|
|
|
$
|
847,977
|
|
|
$
|
174,214
|
|
|
$
|
673,763
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt
extinguishment
|
|
26,736
|
|
|
5,615
|
|
|
21,121
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net realized
investment gains
|
|
(13,245)
|
|
|
(2,781)
|
|
|
(10,464)
|
|
|
(5,108)
|
|
|
(1,073)
|
|
|
(4,035)
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
572,754
|
|
|
$
|
116,004
|
|
|
$
|
456,750
|
|
|
$
|
842,869
|
|
|
$
|
173,141
|
|
|
$
|
669,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
Weighted average
shares - diluted
|
|
|
|
|
|
359,293
|
|
|
|
|
|
|
373,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
1.29
|
|
|
|
|
|
|
$
|
1.85
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
0.06
|
|
|
|
|
|
|
—
|
|
Net realized
investment gains
|
|
|
|
|
|
(0.03)
|
|
|
|
|
|
|
(0.01)
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
1.32
|
|
|
|
|
|
|
$
|
1.84
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
(In thousands,
except per share data)
|
|
2020
|
|
2019
|
|
2018
|
ASSETS
|
|
|
|
|
|
|
Investments
(1)
|
|
$
|
6,682,911
|
|
|
$
|
5,758,320
|
|
|
$
|
5,159,019
|
|
Cash and cash
equivalents
|
|
287,953
|
|
|
161,847
|
|
|
151,892
|
|
Restricted cash and
cash equivalents
|
|
8,727
|
|
|
7,209
|
|
|
3,146
|
|
Reinsurance
recoverable on loss reserves (2)
|
|
95,042
|
|
|
21,641
|
|
|
33,328
|
|
Home office and
equipment, net
|
|
47,144
|
|
|
50,121
|
|
|
51,734
|
|
Deferred insurance
policy acquisition costs
|
|
21,561
|
|
|
18,531
|
|
|
17,888
|
|
Other
assets
|
|
211,188
|
|
|
211,902
|
|
|
260,795
|
|
Total
assets
|
|
$
|
7,354,526
|
|
|
$
|
6,229,571
|
|
|
$
|
5,677,802
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
$
|
880,537
|
|
|
$
|
555,334
|
|
|
$
|
674,019
|
|
Unearned
premiums
|
|
287,099
|
|
|
380,302
|
|
|
409,985
|
|
Federal home loan bank
advance
|
|
155,000
|
|
|
155,000
|
|
|
155,000
|
|
Senior
notes
|
|
879,379
|
|
|
420,867
|
|
|
419,713
|
|
Convertible junior
debentures
|
|
208,814
|
|
|
256,872
|
|
|
256,872
|
|
Other
liabilities
|
|
244,711
|
|
|
151,962
|
|
|
180,322
|
|
Total
liabilities
|
|
2,655,540
|
|
|
1,920,337
|
|
|
2,095,911
|
|
Shareholders'
equity
|
|
4,698,986
|
|
|
4,309,234
|
|
|
3,581,891
|
|
Total liabilities and
shareholders' equity
|
|
$
|
7,354,526
|
|
|
$
|
6,229,571
|
|
|
$
|
5,677,802
|
|
Book value per share
(3)
|
|
$
|
13.88
|
|
|
$
|
12.41
|
|
|
$
|
10.08
|
|
|
|
|
|
|
|
|
(1) Investments include net
unrealized gains on securities
|
|
$
|
345,124
|
|
|
$
|
175,482
|
|
|
$
|
(44,795)
|
|
(2) Loss reserves, net of reinsurance
recoverable on loss reserves
|
|
$
|
785,495
|
|
|
$
|
533,693
|
|
|
$
|
640,691
|
|
(3) Shares outstanding
|
|
338,573
|
|
|
347,308
|
|
|
355,371
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION - NEW INSURANCE WRITTEN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2020
|
|
2019
|
New primary insurance
written (NIW) (billions)
|
$
|
33.2
|
|
|
$
|
32.8
|
|
|
$
|
28.2
|
|
|
$
|
17.9
|
|
|
$
|
19.3
|
|
|
$
|
112.1
|
|
|
$
|
63.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly (including
split premium plans) and annual premium plans
|
31.3
|
|
|
30.6
|
|
|
24.9
|
|
|
15.2
|
|
|
16.3
|
|
|
102.0
|
|
|
53.6
|
|
Single premium
plans
|
1.9
|
|
|
2.2
|
|
|
3.3
|
|
|
2.7
|
|
|
3.0
|
|
|
10.1
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO <
680
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
3
|
%
|
|
3
|
%
|
|
4
|
%
|
|
5
|
%
|
>95%
LTVs
|
9
|
%
|
|
9
|
%
|
|
9
|
%
|
|
8
|
%
|
|
9
|
%
|
|
9
|
%
|
|
13
|
%
|
>45% DTI
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
13
|
%
|
|
11
|
%
|
|
11
|
%
|
|
14
|
%
|
Singles
|
6
|
%
|
|
7
|
%
|
|
12
|
%
|
|
15
|
%
|
|
15
|
%
|
|
9
|
%
|
|
16
|
%
|
Refinances
|
34
|
%
|
|
31
|
%
|
|
43
|
%
|
|
35
|
%
|
|
30
|
%
|
|
36
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$
|
7.9
|
|
|
$
|
7.9
|
|
|
$
|
6.6
|
|
|
$
|
4.4
|
|
|
$
|
4.8
|
|
|
$
|
26.8
|
|
|
$
|
15.8
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL
INFORMATION - INSURANCE IN FORCE and RISK IN FORCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Year-to-date
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2020
|
|
2019
|
Primary Insurance In
Force (IIF) (billions)
|
$
|
246.6
|
|
|
$
|
238.9
|
|
|
$
|
230.5
|
|
|
$
|
225.5
|
|
|
$
|
222.3
|
|
|
|
|
|
Total # of
loans
|
1,126,079
|
|
|
1,111,910
|
|
|
1,092,437
|
|
|
1,083,717
|
|
|
1,079,578
|
|
|
|
|
|
Flow # of
loans
|
1,090,877
|
|
|
1,075,794
|
|
|
1,055,486
|
|
|
1,045,843
|
|
|
1,040,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inforce portfolio
yield (1)
|
45.0
|
|
|
46.3
|
|
|
48.1
|
|
|
49.2
|
|
|
50.3
|
|
|
46.7
|
|
|
51.4
|
|
Premium
refunds
|
(0.3)
|
|
|
(0.6)
|
|
|
(0.3)
|
|
|
(0.7)
|
|
|
(0.6)
|
|
|
(0.5)
|
|
|
(0.5)
|
|
Accelerated earnings
on single premium
|
5.3
|
|
|
5.5
|
|
|
5.9
|
|
|
3.3
|
|
|
3.6
|
|
|
5.0
|
|
|
2.6
|
|
Total direct premium
yield
|
50.0
|
|
|
51.2
|
|
|
53.7
|
|
|
51.8
|
|
|
53.3
|
|
|
51.2
|
|
|
53.5
|
|
Ceded premiums earned,
net of profit commission and assumed premiums
(2)
|
(6.9)
|
|
|
(7.6)
|
|
|
(11.0)
|
|
|
(5.2)
|
|
|
(4.9)
|
|
|
(7.6)
|
|
|
(5.8)
|
|
Net premium
yield
|
43.1
|
|
|
43.6
|
|
|
42.7
|
|
|
46.6
|
|
|
48.4
|
|
|
43.6
|
|
|
47.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size of
IIF (thousands)
|
$
|
219.0
|
|
|
$
|
214.9
|
|
|
$
|
211.0
|
|
|
$
|
208.1
|
|
|
$
|
205.9
|
|
|
|
|
|
Flow only
|
$
|
221.5
|
|
|
$
|
217.3
|
|
|
$
|
213.4
|
|
|
$
|
210.4
|
|
|
$
|
208.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Persistency
|
60.5
|
%
|
|
64.5
|
%
|
|
68.2
|
%
|
|
73.0
|
%
|
|
75.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions)
|
$
|
61.8
|
|
|
$
|
60.4
|
|
|
$
|
58.7
|
|
|
$
|
57.9
|
|
|
$
|
57.2
|
|
|
|
|
|
By FICO (%)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 760 &
>
|
40
|
%
|
|
40
|
%
|
|
39
|
%
|
|
39
|
%
|
|
39
|
%
|
|
|
|
|
FICO
740-759
|
17
|
%
|
|
17
|
%
|
|
17
|
%
|
|
17
|
%
|
|
17
|
%
|
|
|
|
|
FICO
720-739
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|
|
|
|
FICO
700-719
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
11
|
%
|
|
|
|
|
FICO
680-699
|
8
|
%
|
|
8
|
%
|
|
8
|
%
|
|
8
|
%
|
|
8
|
%
|
|
|
|
|
FICO
660-679
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
|
|
|
FICO
640-659
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
|
|
|
FICO 639 &
<
|
3
|
%
|
|
3
|
%
|
|
4
|
%
|
|
4
|
%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage
Ratio (RIF/IIF)
|
25.1
|
%
|
|
25.3
|
%
|
|
25.5
|
%
|
|
25.7
|
%
|
|
25.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss
limits
|
$
|
210
|
|
|
$
|
211
|
|
|
$
|
212
|
|
|
$
|
212
|
|
|
$
|
213
|
|
|
|
|
|
Without aggregate loss
limits
|
$
|
130
|
|
|
$
|
139
|
|
|
$
|
148
|
|
|
$
|
156
|
|
|
$
|
163
|
|
|
|
|
|
(1)
|
Total direct premiums
earned, excluding accelerated premiums from premium refunds and
single premium policy cancellations divided by average primary
insurance in force.
|
(2)
|
Ceded premiums
earned, net of profit commissions and assumed premiums. Assumed
premiums include our participation in GSE Credit Risk Transfer
programs, of which the impact on the net premium yield was 0.5 bps
in 2020 and 0.2 bps in 2019.
|
(3)
|
The FICO credit score
at the time of origination for a loan with multiple borrowers is
the lowest of the borrowers' "decision FICO scores." A
borrower's "decision FICO score" is determined as follows: if there
are three FICO scores available, the middle FICO score is used; if
two FICO scores are available, the lower of the two is used; if
only one FICO score is available, it is used.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
ADDITIONAL
INFORMATION - DELINQUENCY STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Primary IIF -
Delinquent Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
Beginning Delinquent
Inventory
|
64,418
|
|
|
69,326
|
|
|
27,384
|
|
|
30,028
|
|
|
29,940
|
|
|
New Notices
|
15,193
|
|
|
20,924
|
|
|
57,584
|
|
|
12,398
|
|
|
13,694
|
|
|
Cures
|
(21,584)
|
|
|
(25,446)
|
|
|
(14,964)
|
|
|
(14,113)
|
|
|
(12,213)
|
|
|
Paid claims
|
(312)
|
|
|
(375)
|
|
|
(661)
|
|
|
(897)
|
|
|
(922)
|
|
|
Rescissions and
denials
|
(5)
|
|
|
(11)
|
|
|
(17)
|
|
|
(32)
|
|
|
(27)
|
|
|
Other items removed
from inventory
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(444)
|
|
|
Ending Delinquent
Inventory
|
57,710
|
|
(1)
|
64,418
|
|
(1)
|
69,326
|
|
(1)
|
27,384
|
|
|
30,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF
Delinquency Rate
|
5.11
|
%
|
|
5.79
|
%
|
|
6.35
|
%
|
|
2.53
|
%
|
|
2.78
|
%
|
|
Primary claim
received inventory included in ending delinquent
inventory
|
159
|
|
|
172
|
|
|
247
|
|
|
472
|
|
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans - Flow only
|
52,459
|
|
|
58,933
|
|
|
63,135
|
|
|
21,322
|
|
|
23,240
|
|
|
Primary IIF
Delinquency Rate - Flow only
|
4.80
|
%
|
|
5.48
|
%
|
|
5.98
|
%
|
|
2.04
|
%
|
|
2.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Cures
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent
and cured intraquarter
|
3,304
|
|
|
4,405
|
|
|
6,751
|
|
|
4,652
|
|
|
4,122
|
|
|
Number of payments
delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
6,425
|
|
|
13,954
|
|
|
5,905
|
|
|
6,551
|
|
|
5,724
|
|
|
4-11
payments
|
11,471
|
|
|
6,683
|
|
|
1,961
|
|
|
2,354
|
|
|
2,001
|
|
|
12 payments or
more
|
384
|
|
|
404
|
|
|
347
|
|
|
556
|
|
|
366
|
|
|
Total Cures in
Quarter
|
21,584
|
|
|
25,446
|
|
|
14,964
|
|
|
14,113
|
|
|
12,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Paids
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
3
|
|
|
1
|
|
|
3
|
|
|
1
|
|
|
2
|
|
|
4-11
payments
|
28
|
|
|
49
|
|
|
58
|
|
|
107
|
|
|
83
|
|
|
12 payments or
more
|
281
|
|
|
325
|
|
|
600
|
|
|
789
|
|
|
837
|
|
|
Total Paids in
Quarter
|
312
|
|
|
375
|
|
|
661
|
|
|
897
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Delinquent Inventory
|
|
|
|
|
|
|
|
|
|
|
Consecutive months
delinquent
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
11,542
|
|
20
|
%
|
15,879
|
|
25
|
%
|
50,646
|
|
73
|
%
|
7,567
|
|
28
|
%
|
9,447
|
|
32
|
%
|
4-11 months
|
34,620
|
|
60
|
%
|
37,702
|
|
58
|
%
|
8,370
|
|
12
|
%
|
9,535
|
|
35
|
%
|
9,664
|
|
32
|
%
|
12 months or
more
|
11,548
|
|
20
|
%
|
10,837
|
|
17
|
%
|
10,310
|
|
15
|
%
|
10,282
|
|
37
|
%
|
10,917
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
14,183
|
|
25
|
%
|
18,541
|
|
29
|
%
|
51,877
|
|
75
|
%
|
12,961
|
|
47
|
%
|
14,895
|
|
50
|
%
|
4-11
payments
|
35,977
|
|
62
|
%
|
38,999
|
|
60
|
%
|
11,026
|
|
16
|
%
|
8,178
|
|
30
|
%
|
8,519
|
|
28
|
%
|
12 payments
or
more
|
7,550
|
|
13
|
%
|
6,878
|
|
11
|
%
|
6,423
|
|
9
|
%
|
6,245
|
|
23
|
%
|
6,614
|
|
22
|
%
|
(1)
|
As of December 31,
2020, September 30, 2020, and June 30, 2020, 62%, 67%, and 67%,
respectively, of our delinquency inventory were reported to us as
subject to forbearance plans, and we believe substantially
all represent forbearances related to COVID-19.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
ADDITIONAL
INFORMATION - RESERVES and CLAIMS PAID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Year-to-date
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
|
2020
|
|
2019
|
|
Reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Direct Loss
Reserves
|
$
|
871
|
|
|
$
|
831
|
|
|
$
|
787
|
|
|
$
|
566
|
|
|
$
|
546
|
|
|
|
|
|
|
|
Pool Direct loss
reserves
|
8
|
|
|
8
|
|
|
10
|
|
|
8
|
|
|
9
|
|
|
|
|
|
|
|
Other Gross
Reserves
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
|
|
|
|
|
Total Gross Loss
Reserves
|
$
|
881
|
|
|
$
|
840
|
|
|
$
|
797
|
|
|
$
|
575
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Direct
Reserve Per Delinquency
|
$
|
15,100
|
|
|
$
|
12,907
|
|
|
$
|
11,357
|
|
|
$
|
20,658
|
|
|
$
|
18,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (1)
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
32
|
|
|
$
|
46
|
|
|
$
|
73
|
|
|
|
$
|
114
|
|
|
$
|
240
|
|
|
Total primary
(excluding settlements)
|
12
|
|
|
15
|
|
|
29
|
|
|
42
|
|
|
42
|
|
|
|
$
|
98
|
|
|
193
|
|
|
Rescission and NPL
settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
|
$
|
—
|
|
|
30
|
|
|
Pool
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
|
$
|
2
|
|
|
4
|
|
|
Reinsurance
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
(1)
|
|
|
(1)
|
|
|
|
$
|
(4)
|
|
|
(8)
|
|
|
Other
|
6
|
|
|
3
|
|
|
5
|
|
|
4
|
|
|
4
|
|
|
|
$
|
18
|
|
|
21
|
|
|
Reinsurance
terminations (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
—
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim
Payment (thousands)
|
$
|
40.4
|
|
|
$
|
40.6
|
|
|
$
|
42.9
|
|
|
$
|
47.2
|
|
|
$
|
46.3
|
|
(2)
|
|
$
|
43.9
|
|
|
$
|
45.3
|
|
(2)
|
Flow only
|
$
|
31.2
|
|
|
$
|
37.2
|
|
|
$
|
36.7
|
|
|
$
|
41.4
|
|
|
$
|
41.2
|
|
(2)
|
|
$
|
37.9
|
|
|
$
|
39.5
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net paid claims, as
presented, does not include amounts received in conjunction with
terminations or commutations of reinsurance agreements.
|
(2)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of policies.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
ADDITIONAL
INFORMATION - REINSURANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Year-to-date
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
2020
|
|
2019
|
|
Quota Share
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% insurance inforce
subject to reinsurance
|
75.9
|
%
|
|
76.5
|
%
|
|
77.0
|
%
|
|
78.0
|
%
|
|
78.5
|
%
|
|
|
|
|
|
% NIW subject to
reinsurance
|
74.9
|
%
|
|
76.0
|
%
|
|
73.5
|
%
|
|
71.9
|
%
|
|
79.4
|
%
|
|
74.4
|
%
|
|
81.5
|
%
|
|
Ceded premiums written
and earned (millions)
|
$
|
36.2
|
|
|
$
|
43.5
|
|
|
$
|
61.4
|
|
|
$
|
26.8
|
|
|
$
|
23.8
|
|
|
$
|
167.9
|
|
|
$
|
111.5
|
|
(1)
|
Ceded losses incurred
(millions)
|
$
|
12.5
|
|
|
$
|
20.7
|
|
|
$
|
39.0
|
|
|
$
|
5.8
|
|
|
$
|
3.6
|
|
|
$
|
78.0
|
|
|
$
|
11.4
|
|
|
Ceding commissions
(millions) (included in underwriting and other expenses)
|
$
|
12.6
|
|
|
$
|
12.1
|
|
|
$
|
12.0
|
|
|
$
|
11.4
|
|
|
$
|
11.0
|
|
|
$
|
48.1
|
|
|
$
|
48.8
|
|
|
Profit commission
(millions) (included in ceded premiums)
|
$
|
26.6
|
|
|
$
|
17.1
|
|
|
$
|
(1.2)
|
|
|
$
|
30.0
|
|
|
$
|
31.1
|
|
|
$
|
72.5
|
|
|
$
|
139.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess-of-Loss
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums earned
(millions)
|
$
|
8.0
|
|
|
$
|
3.7
|
|
|
$
|
4.4
|
|
|
$
|
4.7
|
|
|
$
|
5.2
|
|
|
$
|
20.8
|
|
|
$
|
17.6
|
|
|
Ceded losses incurred
(millions)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
(1)
|
Includes a $6.8
million termination fee paid to terminate a portion of our 2015
quota share reinsurance agreement.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
ADDITIONAL
INFORMATION: BULK STATISTICS AND MI RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Year-to-date
|
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
|
2020
|
|
2019
|
|
Bulk Primary
Insurance Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance in force
(billions)
|
$5.0
|
|
$5.1
|
|
$5.3
|
|
$5.4
|
|
$5.6
|
|
|
|
|
|
|
Risk in force
(billions)
|
$1.4
|
|
$1.4
|
|
$1.5
|
|
$1.5
|
|
$1.6
|
|
|
|
|
|
|
Average loan size
(thousands)
|
$141.5
|
|
$142.4
|
|
$142.9
|
|
$144.0
|
|
$144.1
|
|
|
|
|
|
|
Number of delinquent
loans
|
5,251
|
|
5,485
|
|
6,191
|
|
6,062
|
|
6,788
|
|
|
|
|
|
|
Delinquency
rate
|
14.92%
|
|
15.19%
|
|
16.75%
|
|
16.01%
|
|
17.45%
|
|
|
|
|
|
|
Primary paid claims
(excluding settlements) (millions)
|
$5
|
|
$4
|
|
$9
|
|
$14
|
|
$14
|
|
|
$32
|
|
$63
|
|
Average claim payment
(thousands)
|
$79.0
|
|
$53.6
|
|
$66.0
|
|
$66.5
|
|
$62.8
|
(1)
|
|
$65.8
|
|
$65.4
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
9.2:1
|
(2)
|
9.4:1
|
|
9.6:1
|
|
10.2:1
|
|
9.7:1
|
|
|
|
|
|
|
Combined Insurance
Companies - Risk to Capital
|
9.1:1
|
(2)
|
9.4:1
|
|
9.5:1
|
|
10.2:1
|
|
9.6:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio
(insurance operations only)
|
17.5%
|
|
15.9%
|
|
89.2%
|
|
23.4%
|
|
8.9%
|
|
|
35.7%
|
|
11.5%
|
|
GAAP underwriting
expense ratio (insurance operations only)
|
19.4%
|
|
20.2%
|
|
20.1%
|
|
17.3%
|
|
19.6%
|
|
|
19.2%
|
|
18.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of policies.
|
(2)
|
Preliminary
|
Risk Factors
As used below, "we," "our" and "us" refer to MGIC Investment
Corporation's consolidated operations or to MGIC Investment
Corporation, as the context requires; and "MGIC" refers to Mortgage
Guaranty Insurance Corporation.
Risk Factors Relating to the COVID-19 Pandemic
The COVID-19 pandemic may continue to materially impact
our financial results and may also materially impact our business,
liquidity and financial condition.
The COVID-19 pandemic had a material impact on our 2020
financial results. While uncertain, the future impact of the
COVID-19 pandemic on the Company's business, financial results,
liquidity and/or financial condition may also be material. The
magnitude of the impact will be influenced by various factors,
including the length and severity of the pandemic in the United States, the length of time that
measures intended to reduce the transmission of COVID-19 remain in
place, the level of unemployment, and the impact of government
initiatives and actions taken by Fannie Mae and Freddie Mac (the
"GSEs") (including mortgage forbearance and modification programs)
to mitigate the economic harm caused by COVID-19.
The COVID-19 pandemic may continue to impact our business in
various ways, including the following, each of which is described
in more detail in the remainder of these risk factors:
- Our incurred losses will increase if the number of insured
mortgages in our delinquency inventory increases. We establish
reserves for insurance losses when delinquency notices are received
on loans that are two or more payments past due and for loans we
estimate are delinquent prior to the close of the accounting period
but for which delinquency notices have not yet been reported to us
(this is often referred to as "IBNR").
- We may be required to maintain more capital under the private
mortgage insurer eligibility requirements ("PMIERs") of the GSEs,
which generally require more capital to be held for delinquent
loans than for performing loans and require more capital to be held
as the number of payments missed on delinquent loans
increases.
- If the number of delinquencies increases, the number of claims
that we must pay over time generally increases. In addition, our
current estimates of the number of delinquencies for which we will
receive claims, and the amount, or severity, of each claim, may
increase.
- If the number of purchase and/or refinance mortgage
originations decreases, the number of mortgages available for us to
insure in the near term may decrease.
- Our access to the reinsurance markets may be limited and the
terms under which we are able to secure reinsurance may be less
attractive than the terms of our previous transactions.
- Our access to the capital markets may be limited and the terms
under which we may access the capital markets may be less
attractive than the terms of our previous transactions.
- Our operations may be impacted if our management or other
employees are unable to perform their duties as a result of
COVID-19-related illnesses.
Risk Factors Relating to the Mortgage Insurance Industry and
its Regulation
Downturns in the domestic economy or declines in home
prices 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 make mortgage payments, such as unemployment, health
issues, family status, and whether the home of a borrower who
defaults on a mortgage can be sold for an amount that will cover
unpaid principal and interest and the expenses of the sale. 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 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, changes to the tax deductibility of mortgage
interest, decreases in the rate of household formations, or other
factors.
The unemployment rate rose from 3.5% as of December 31, 2019, to 14.7% as of April 30, 2020. It was 6.7% as of December 31, 2020. High levels of unemployment
may result in an increasing number of loans in our delinquency
inventory and an increasing number of insurance claims; however,
the increases are difficult to predict given the uncertainty in the
current market environment, including uncertainty about the length
and severity of the COVID-19 pandemic; the length of time that
measures intended to reduce the transmission of COVID-19 remain in
place; effects of forbearance programs enacted by the GSEs, various
states and municipalities; and effects of past and future
government stimulus programs. Current programs include, among
others:
- Payment forbearance on federally-backed mortgages (including
those delivered to or purchased by the GSEs) to borrowers
experiencing a hardship during the COVID-19 pandemic.
- Additional cash payments to individuals provided for in the
Consolidated Appropriations Act signed into law in December 2020.
- For those mortgages that are not subject to forbearance, a
suspension of foreclosures and evictions until at least
March 31, 2021, on mortgages
purchased or securitized by the GSEs.
- Enhanced unemployment payments for pay periods between
December 26, 2020 and March 14, 2021.
- An extension of the maximum duration for unemployment benefits,
generally through March 14,
2021.
- Employee retention tax credits for certain small
businesses.
- "Paycheck Protection Program" to provide small businesses with
funds to pay certain payroll and other costs.
Forbearance for federally-insured mortgages allows for mortgage
payments to be suspended for up to 360 days; an initial forbearance
period of up to 180 days and, if requested by the borrower
following contact by the servicer, an extension of up to 180 days.
The servicer of the loan must begin attempts to contact the
borrower no later than 30 days prior to the expiration of any
forbearance plan term and must continue outreach attempts until
appropriate contact is made or the forbearance plan term has
expired. In certain circumstances, the servicer will be unable to
contact the borrower and the forbearance plan will expire after the
first 180-day plan. A delinquent loan for which the borrower was
unable to be contacted and that is not in a forbearance plan may be
more likely to result in a claim than a delinquent loan in a
forbearance plan. For loans in a COVID-19 forbearance plan as
of February 28, 2021, the plan may be
extended for an additional three months, subject to certain
limits.
Of our insurance in force written through the first half of
2020, approximately 10.9% was not delivered to or purchased by the
GSEs. While servicers of some non-GSE loans may not be required to
offer forbearance to borrowers, we allow servicers to apply GSE
loss mitigation programs to non-GSE loans. In addition, the
Consumer Financial Protection Bureau ("CFPB") requires substantial
loss mitigation efforts be made prior to servicers initiating
foreclosures, therefore, servicers of non-GSE loans may have an
incentive to offer forbearance or deferment.
Historically, forbearance plans have reduced the incidence of
our losses on affected loans. However, given the uncertainty
surrounding the long-term economic impact of COVID-19, it is
difficult to predict the ultimate effect of COVID-19 related
forbearances on our loss incidence. Of the loans in our delinquency
inventory at December 31, 2020,
35,878 were reported to us as in forbearance. Approximately 2,500
loans that had been reported to us as in forbearance as of
September 30, 2020, were no longer
reported to us as in forbearance as of December 31, 2020, but remained delinquent. Based
on the date each loan in our delinquency inventory was reported to
us as being in forbearance, we estimate that during the first two
quarters of 2021, 69% of those will reach their twelve-month
anniversary of having been in forbearance and, unless their
forbearance plans are extended, their forbearance plans may end.
Whether a loan's delinquency will cure, including through
modification, when its forbearance plan ends will depend on the
economic circumstances of the borrower at that time. The severity
of losses associated with loans whose delinquencies do not cure
will depend on economic conditions at that time, including home
prices.
We may not continue to meet the GSEs' private mortgage
insurer eligibility requirements and our returns may decrease if we
are required to maintain more capital in order to maintain our
eligibility.
We must comply with a GSE's PMIERs to be eligible to insure
loans delivered to or purchased by that GSE. The PMIERs include
financial requirements, as well as business, quality control and
certain transaction approval requirements. The financial
requirements of the PMIERs require a mortgage insurer's "Available
Assets" (generally only the most liquid assets of an insurer) to
equal or exceed its "Minimum Required Assets" (which are generally
based on an insurer's book of risk in force and calculated from
tables of factors with several risk dimensions, reduced for credit
given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of December 31, 2020, MGIC's Available Assets
totaled $5.3 billion, or $1.8 billion in excess of its Minimum Required
Assets. MGIC is in compliance with the PMIERs and eligible to
insure loans purchased by the GSEs. Our "Minimum Required Assets"
reflect a credit for risk ceded under our reinsurance transactions,
which are discussed in our risk factor titled "The mix of business
we write affects our Minimum Required Assets under the PMIERs, our
premium yields and the likelihood of losses occurring." The
calculated credit for excess of loss reinsurance transactions under
PMIERs is generally based on the PMIERs requirement of the covered
loans and the attachment and detachment point of the coverage, all
of which fluctuate over time. PMIERs credit is generally not given
for the reinsured risk above the PMIERs requirement. The GSEs have
discretion to further limit reinsurance credit under the PMIERs.
The total credit for risk ceded under our reinsurance transactions
is subject to a modest reduction and is subject to periodic review
by the GSEs. There is a risk we will not receive our current level
of credit in future periods for ceded risk. In addition, we may not
receive the same level of credit under future reinsurance
transactions that we receive under existing transactions. If MGIC
is not allowed certain levels of credit under the PMIERs, under
certain circumstances, MGIC may terminate the reinsurance
transactions without penalty.
The PMIERs generally require us to hold significantly more
Minimum Required Assets for delinquent loans than for performing
loans and the Minimum Required Assets required to be held increases
as the number of payments missed on a delinquent loan increases.
For delinquent loans whose initial missed payment occurred on or
after March 1, 2020 and prior to
April 1, 2021 (the "COVID-19 Crisis
Period"), the Minimum Required Assets are generally reduced by 70%
for at least three months. The 70% reduction will continue, or be
newly applied, for delinquent loans that are subject to a
forbearance plan that is granted in response to a financial
hardship related to COVID-19, the terms of which are materially
consistent with terms of forbearance plans offered by Freddie Mac
or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with
an initial missed payment occurring during the COVID-19 Crisis
Period is assumed to have been granted in response to a financial
hardship related to COVID-19. Loans considered to be subject to a
forbearance plan include those that are in a repayment plan or loan
modification trial period following the forbearance plan. As noted
above, if a servicer of a loan is unable to contact the borrower
prior to the expiration of the first 180-day forbearance plan term,
or if the forbearance plan reaches its twelve-month anniversary and
is not further extended, the forbearance plan generally will
expire. In such case, the 70% reduction in Minimum Required Assets
for that loan will no longer be applicable, our Minimum Required
Assets will increase and our excess of Available Assets over
Minimum Required Assets will decrease. As of December 31, 2020, application of the 70%
reduction decreased our Minimum Required Assets from approximately
$4.2 billion to approximately
$3.5 billion. We do not expect our
Minimum Required Assets for the loans in forbearance at
December 31, 2020 to increase by the
full amount of the reduction upon expiration of the forbearance
plans because we expect some loans whose forbearance plans expire
to have their delinquencies cured through modification or
otherwise.
Despite reducing the Minimum Required Assets for certain
delinquent loans by 70%, an increasing number of loan delinquencies
caused by the COVID-19 pandemic may cause our Minimum Required
Assets to exceed our Available Assets. As of December 31, 2020, there were 57,710 loans in our
delinquency inventory, of which 62% were reported to us as being
subject to a forbearance plan. We believe substantially all of the
reported forbearance plans are COVID-19-related. We are unable to
predict the ultimate number of loans that will become delinquent as
a result of the COVID-19 pandemic.
If our Available Assets fall below our Minimum Required Assets,
we would not be in compliance with the PMIERs. The PMIERs provide a
list of remediation actions for a mortgage insurer's
non-compliance, with additional actions possible in the GSEs'
discretion. At the extreme, the GSEs may suspend or terminate our
eligibility to insure loans purchased by them. Such suspension or
termination would significantly reduce the volume of our new
insurance written ("NIW"); the substantial majority of which is for
loans delivered to or purchased by the GSEs. In addition to the
increase in Minimum Required Assets associated with delinquent
loans, factors that may negatively impact MGIC's ability to
continue to comply with the financial requirements of the PMIERs
include the following:
- The GSEs may make the PMIERs more onerous in the future. The
PMIERs provide that the factors that determine Minimum Required
Assets will be updated periodically, or as needed if there is a
significant change in macroeconomic conditions or loan performance.
We do not anticipate that the regular periodic updates will occur
more frequently than once every two years. The PMIERs state that
the GSEs will provide notice 180 days prior to the effective date
of updates to the factors; however, the GSEs may amend the PMIERs
at any time.
- There may be future implications for PMIERs as a result of
changes to the regulatory capital requirements for the GSEs. In
November 2020, the Federal Housing
Finance Agency (the "FHFA") adopted a rule containing a risk-based
capital framework for the GSEs that will increase their capital
requirements, effective on the later of (i) the date of
termination of the FHFA's conservatorship of the applicable GSE;
(ii) sixty days after publication of the adopted rule in the
Federal Register; or (iii) any later compliance date provided in a
consent order or other transition order applicable to a GSE. The
increase in capital requirements may ultimately result in an
increase in the Minimum Required Assets required to be held by
mortgage insurers.
- 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.
Because we establish loss reserves only upon a loan
delinquency rather than based on estimates of our ultimate losses
on risk in force, losses may have a disproportionate adverse effect
on our earnings in certain periods.
In accordance with accounting principles generally accepted in
the United States, we establish
case reserves for insurance losses and loss adjustment expenses
only when delinquency notices are received for insured loans that
are two or more payments past due and for loans we estimate are
delinquent but for which delinquency notices have not yet been
received (this is often referred to as "IBNR"). Losses that may
occur from loans that are not delinquent are not reflected in our
financial statements, except in the case where a premium deficiency
exists. A premium deficiency would be recorded if the present value
of expected future losses and expenses exceeds the present value of
expected future premiums and already established loss reserves on
the applicable loans. As a result, future losses on loans that are
not currently delinquent may have a material impact on future
results as such losses emerge. As of December 31, 2020, we had established case
reserves and reported losses incurred for 57,710 loans in our
delinquency inventory and our IBNR reserve totaled $27 million. Though not reflected in our
December 31, 2020 financial results,
as of January 31, 2021, our
delinquency inventory had decreased to 56,315 loans. The number of
loans in our delinquency inventory may increase from that level as
a result of the COVID-19 pandemic, including as a result of high
unemployment associated with initiatives intended to reduce the
transmission of COVID-19. As a result, our losses incurred may
increase in future periods. The impact of the COVID-19 pandemic on
the number of delinquencies and our losses incurred will be
influenced by various factors, including those discussed in our
risk factor titled "The COVID-19 pandemic may continue to
materially impact our financial results and may also materially
impact our business, liquidity and financial condition."
Because loss reserve estimates are subject to
uncertainties, paid claims may be substantially different than our
loss reserves.
When we establish case reserves, we estimate our ultimate loss
on delinquent loans by estimating the number of such loans that
will result in a claim payment (the "claim rate"), and further
estimating the amount of the claim payment (the "claim severity").
Our estimates incorporate anticipated cures, loss mitigation
activity, rescissions and curtailments. The establishment of loss
reserves is subject to inherent uncertainty and requires judgment
by management. Our actual 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, the impact of past and future
government initiatives and actions taken by the GSEs to mitigate
the economic harm caused by the COVID-19 pandemic (including
foreclosure moratoriums and mortgage forbearance and modification
programs) and efforts to reduce the transmission of COVID-19, and a
change in the length of time loans are delinquent before claims are
received. All else being equal, the longer a loan is
delinquent before a claim is received, the greater the severity. In
light of the uncertainty caused by the COVID-19 pandemic, including
the impact of foreclosure moratoriums and forbearance programs, the
average time it takes to receive a claim may increase. The change
in economic conditions may include changes in unemployment,
including prolonged unemployment as a result of the COVID-19
pandemic, which may affect the ability of borrowers to make
mortgage payments, and changes in home prices, which may affect the
willingness of borrowers to make mortgage payments when the value
of the home is below the mortgage balance. The economic effects of
the COVID-19 pandemic may be disproportionately concentrated in
certain geographic regions. Information about the geographic
dispersion of our insurance in force can be found in our Annual
Reports on Form 10-K and our Quarterly Reports on Form 10-Q filed
with the SEC. Changes to our claim rate and claim severity
estimates could have a material impact on our future results, even
in a stable economic environment. Losses incurred generally 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; however, the effects
of the COVID-19 pandemic affected this pattern in 2020.
The amount of insurance we write could be adversely
affected if lenders and investors select alternatives to private
mortgage insurance.
Alternatives to private mortgage insurance include:
- investors using risk mitigation and credit risk transfer
techniques other than private mortgage insurance,
- lenders and other investors holding mortgages in portfolio and
self-insuring,
- lenders using Federal Housing Administration ("FHA"), U.S.
Department of Veterans Affairs ("VA") and other government mortgage
insurance programs, and
- lenders originating mortgages using piggyback structures to
avoid private mortgage insurance, such as a first mortgage with an
80% loan-to-value ("LTV") ratio and a second mortgage with a 10%,
15% or 20% LTV ratio rather than a first mortgage with a 90%, 95%
or 100% LTV ratio that has private mortgage insurance.
The GSEs' charters generally require credit enhancement for a
low down payment mortgage loan (a loan in an amount that exceeds
80% of a home's value) in order for such loan to be eligible for
purchase by the GSEs. Private mortgage insurance generally has been
purchased by lenders in primary mortgage market transactions to
satisfy this credit enhancement requirement. In 2018, the GSEs
initiated secondary mortgage market programs with loan level
mortgage default coverage provided by various (re)insurers that are
not mortgage insurers governed by PMIERs, and that are not selected
by the lenders. These programs, which currently account for a small
percentage of the low down payment market, compete with traditional
private mortgage insurance and, due to differences in policy terms,
they may offer premium rates that are below prevalent single
premium lender-paid mortgage insurance ("LPMI") rates. We
participate in these programs from time to time. See our risk
factor titled "Changes in the business practices of the GSEs,
federal legislation that changes their charters or a restructuring
of the GSEs could reduce our revenues or increase our losses"
for a discussion of various business practices of the GSEs that may
be changed, including through expansion or modification of these
programs.
The GSEs (and other investors) have also used other forms of
credit enhancement that did not involve traditional private
mortgage insurance, such as engaging in credit-linked note
transactions executed in the capital markets, or using other forms
of debt issuances or securitizations that transfer credit risk
directly to other investors, including competitors and an affiliate
of MGIC; using other risk mitigation techniques in conjunction with
reduced levels of private mortgage insurance coverage; or accepting
credit risk without credit enhancement.
The FHA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 24.4% in the first three quarters of 2020, 28.2% in
2019 and 30.5% in 2018. In the past ten years, the FHA's share has
been as low as 24.4% (in the first three quarters of 2020) and as
high as 64.5% (in 2010). Factors that influence the FHA's market
share include relative rates and fees, underwriting guidelines and
loan limits of the FHA, VA, private mortgage insurers and the GSEs;
lenders' perceptions of legal risks under FHA versus GSE programs;
flexibility for the FHA to establish new products as a result of
federal legislation and programs; returns expected to be obtained
by lenders for Ginnie Mae
securitization of FHA-insured loans compared to those obtained from
selling loans to the GSEs for securitization; and differences in
policy terms, such as the ability of a borrower to cancel insurance
coverage under certain circumstances. The current Presidential
Administration appears more likely than the last Administration to
reduce the FHA's mortgage insurance premium rates. Such a rate
reduction would negatively impact our NIW; however, given the many
factors that influence the FHA's market share, it is difficult to
predict the impact. In addition, 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 30.6% in the first three quarters of 2020, 25.2% in
2019 and 22.9% in 2018. In the past ten years, the VA's share has
been as low as 15.7% (in 2010) and as high as 30.6% (in the first
three quarters of 2020). We believe that the VA's market share has
generally been elevated in recent years because of an increase in
the number of borrowers that are eligible for the VA's program,
which offers 100% LTV ratio loans and charges a one-time funding
fee that can be included in the loan amount, and because eligible
borrowers have opted to use the VA program when refinancing their
mortgages.
Changes in the business practices of the GSEs, federal
legislation that changes their charters or a restructuring of the
GSEs could reduce our revenues or increase our losses.
The substantial majority of our NIW is for loans purchased by
the GSEs; therefore, the business practices of the GSEs greatly
impact our business and they include:
- The GSEs' PMIERs, the financial requirements of which are
discussed in our risk factor titled "We may not continue to meet
the GSEs' private mortgage insurer eligibility requirements and our
returns may decrease if we are required to maintain more capital in
order to maintain our eligibility."
- The capital and collateral requirements for participants in the
GSEs' alternative forms of credit enhancement discussed in our risk
factor titled "The amount of insurance we write could be
adversely affected if lenders and investors select alternatives to
private mortgage insurance."
- The level of private mortgage insurance coverage, subject to
the limitations of the GSEs' charters, when private mortgage
insurance is used as the required credit enhancement on low down
payment mortgages (the GSEs generally require a level of mortgage
insurance coverage that is higher than the level of coverage
required by their charters; any change in the required level of
coverage will impact our new risk written).
- The amount of loan level price adjustments and guaranty fees
(which result in higher costs to borrowers) that the GSEs assess on
loans that require private mortgage insurance. The GSEs announced
an adjustment for certain loans, effective December 1, 2020, and the recently adopted GSE
capital framework may lead the GSEs to increase their guaranty
fees.
- Whether the GSEs select or influence the mortgage lender's
selection of the mortgage insurer providing coverage.
- The underwriting standards that determine which loans are
eligible for purchase by the GSEs, which can affect the quality of
the risk insured by the mortgage insurer and the availability of
mortgage loans.
- The terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by
law.
- The programs established by the GSEs intended to avoid or
mitigate loss on insured mortgages and the circumstances in which
mortgage servicers must implement such programs.
- The terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase, including
limitations on the rescission rights of mortgage insurers.
- The extent to which the GSEs intervene in mortgage insurers'
claims paying practices, rescission practices or rescission
settlement practices with lenders.
- The maximum loan limits of the GSEs compared to those of the
FHA and other investors.
The FHFA has been the conservator of the GSEs since 2008 and has
the authority to control and direct their operations. The increased
role that the federal government has assumed in the residential
housing finance system through the GSE conservatorship may increase
the likelihood that the business practices of the GSEs change,
including through administrative action, in ways that have a
material adverse effect on us and that the charters of the GSEs are
changed by new federal legislation.
In 2019, the U.S. Treasury Department ("Treasury") released the
"Treasury Housing Reform Plan" (the "Plan"). The Plan recommends
administrative and legislative reforms for the housing finance
system, with such reforms intended to achieve the goals of ending
the conservatorships of the GSEs; increasing competition and
participation by the private sector in the mortgage market
including by authorizing the FHFA to approve additional guarantors
of conventional mortgages in the secondary market, simplifying the
qualified mortgage ("QM") rule of the CFPB, transferring risk to
the private sector, and eliminating the "GSE Patch" (discussed
below); establishing regulation of the GSEs that safeguards their
safety and soundness and minimizes the risks they pose to the
financial stability of the United
States; and providing that the federal government is
properly compensated for any explicit or implicit support it
provides to the GSEs or the secondary housing finance market. The
GSE capital framework adopted in November
2020 establishes a post-conservatorship regulatory capital
framework intended to ensure that the GSEs operate in a safe and
sound manner. In January 2021, the
GSEs' Preferred Stock Purchase Agreements ("PSPAs") were amended to
allow the GSEs to continue to retain earnings until they satisfy
the requirements of the 2020 GSE capital framework. In addition, a
proposed rule issued by the FHFA in December
2020 would require minimum funding requirements and new
liquidity standards. The impact of the Plan on private mortgage
insurance is unclear. The Plan does not refer to mortgage insurance
explicitly; however, it refers to a requirement for credit
enhancement on high LTV ratio loans, which is a requirement of the
current GSE charters. The Plan also indicates that the FHFA should
continue to support efforts to expand credit risk transfer ("CRT")
programs and should encourage the GSEs to continue to engage in a
diverse mix of economically sensible CRT programs, including by
increasing reliance on institution-level capital (presumably, as
distinguished from capital obtained in the capital markets).
For more information about CRT programs, see our risk factor titled
"The amount of insurance we write could be adversely affected if
lenders and investors select alternatives to private mortgage
insurance."
In December 2020, the CFPB adopted
a rule that will eliminate the GSE Patch effective upon the earlier
of the GSEs' exit from conservatorship or July 1, 2021. The GSE Patch had expanded the
definition of QM under the Truth in Lending Act (Regulation Z)
("TILA") to include mortgages eligible to be purchased by the GSEs,
even if the mortgages did not meet the debt-to-income ("DTI") ratio
limit of 43% that was included in the standard QM definition.
Originating a QM may provide a lender with legal protection from
lawsuits that claim the lender failed to verify a borrower's
ability to repay. Approximately 20% of our NIW in 2020 was on loans
with DTI ratios greater than 43%. However, not all future loans
with DTI ratios greater than 43% will be affected by the expiration
of the GSE Patch. The new QM definition that becomes effective
March 1, 2021, continues to require
lenders to consider a borrower's DTI ratio; however, it replaces
the DTI ratio cap with a pricing threshold that excludes from the
definition of QM a loan whose annual percentage rate ("APR")
exceeds the average prime offer rate for comparable loans by 2.25
percentage points or more. We believe less than 2% of our 2020 NIW
was on loans whose APR exceeded the maximum to qualify as a QM.
Treasury's Plan indicated that the FHFA and the Department of
Housing and Urban Development ("HUD") should develop and implement
a specific understanding as to the appropriate roles and overlap
between the GSEs and FHA, including with respect to the GSEs'
acquisitions of high LTV ratio loans and high DTI ratio loans. In
connection with the 2021 amendment to the PSPAs, the GSEs must
limit the acquisition of certain loans with multiple higher risk
characteristics related to LTV, DTI and credit score, to levels
indicated to be their current levels at the time of the
amendment.
As a result of the matters referred to above and the change in
the Presidential Administration occurring in January 2021, it is uncertain what role the GSEs,
FHA and private capital, including private mortgage insurance, will
play in the residential housing finance system in the future. The
timing and impact on our business of any resulting changes is
uncertain. Many of the proposed changes would require Congressional
action to implement and it is difficult to estimate when
Congressional action would be final and how long any associated
phase-in period may last.
Reinsurance may not always be available or
affordable.
We have in place quota share reinsurance ("QSR") and excess of
loss reinsurance ("XOL") transactions providing various amounts of
coverage on 88% of our risk in force as of December 31, 2020. Our QSR transactions with
unaffiliated reinsurers cover most of our insurance written from
2013 through 2022, and smaller portions of our insurance written
prior to 2013 and from 2023 through 2025. The weighted average
coverage percentage of our QSR transactions was 23%, based on risk
in force as of December 31, 2020.
Considering the transaction we entered into in February 2021, our XOL transactions provide
excess-of-loss reinsurance coverage for a portion of the risk
associated with certain mortgage insurance policies having
insurance coverage in force dates from July
1, 2016 through March 31, 2019
and January 1, 2020 through
December 31, 2020, all dates
inclusive. The XOL transactions were entered into with special
purpose insurers that issued notes linked to the reinsurance
coverage ("Insurance Linked Notes" or "ILNs"). The reinsurance
transactions reduce the tail-risk associated with stress scenarios.
As a result, they reduce the capital that we are required to hold
to support the risk and they allow us to earn higher returns on our
business than we would without them. However, reinsurance may not
always be available to us or available on similar terms, the quota
share reinsurance transactions subject us to counterparty credit
risk, and the GSEs may change the credit they allow under the
PMIERs for risk ceded under our reinsurance transactions. If we are
unable to obtain reinsurance for NIW, our returns may decrease
absent an increase in premium rates. An increase in our premium
rates may lead to a decrease in our NIW.
We are subject to comprehensive regulation and other
requirements, which we may fail to satisfy.
We are subject to comprehensive regulation, including by state
insurance departments. Many regulations are designed for the
protection of our insured policyholders and consumers, rather than
for the benefit of investors. Mortgage insurers, including MGIC,
have in the past been involved in litigation and regulatory actions
related to alleged violations of the anti-referral fee provisions
of the Real Estate Settlement Procedures Act ("RESPA"), and the
notice provisions of the Fair Credit Reporting Act ("FCRA"). While
these proceedings in the aggregate did not result in material
liability for MGIC, there can be no assurance that the outcome of
future proceedings, if any, under these laws would not have a
material adverse effect on us. To the extent that we are construed
to make independent credit decisions in connection with our
contract underwriting activities, we also could be subject to
increased regulatory requirements under the Equal Credit
Opportunity Act ("ECOA"), FCRA, and other laws. Under ECOA,
examination may also be made of whether a mortgage insurer's
underwriting decisions have a disparate impact on persons belonging
to a protected class in violation of the law.
Although their scope varies, state insurance laws generally
grant broad supervisory powers to agencies or officials to examine
insurance companies and enforce rules or exercise discretion
affecting almost every significant aspect of the insurance
business, including payment for the referral of insurance business,
premium rates and discrimination in pricing, and minimum capital
requirements. The increased use, by the private mortgage insurance
industry, of risk-based pricing systems that establish premium
rates based on more attributes than previously considered may
result in increased state and/or federal scrutiny of premium rates.
The increased use of algorithms, artificial intelligence and data
and analytics in the mortgage insurance industry may also lead to
additional regulatory scrutiny related to other matters such as
discrimination in pricing and underwriting, data privacy and access
to insurance. For more information about state capital
requirements, see our risk factor titled "State capital
requirements may prevent us from continuing to write new insurance
on an uninterrupted basis." For information about regulation of
data privacy, see our risk factor titled "We could be adversely
affected if personal information on consumers that we maintain is
improperly disclosed; our information technology systems are
damaged or their operations are interrupted; or our automated
processes do not operate as expected." For more details about
the various ways in which our subsidiaries are regulated, see
"Business - Regulation" in Item 1 of our Annual Report on Form 10-K
for the year ended December 31, 2020.
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 reviews or investigations nor is
it possible to predict their effect on us or the mortgage insurance
industry.
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 the health of the U.S. economy,
conditions in regional and local economies and the level of
consumer confidence; 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; housing affordability; new
and existing housing availability; the rate of household formation,
which is influenced, in part, by population and immigration trends;
homeownership rates; the rate of home price appreciation, which in
times of heavy refinancing can affect whether refinanced loans have
LTV ratios that require private mortgage insurance; and government
housing policy encouraging loans to first-time homebuyers.
A decline in the volume of low down payment home mortgage
originations could decrease demand for mortgage insurance and limit
our NIW. The COVID-19 pandemic, including the related restrictions
on business in many parts of the U.S., its effect on unemployment
and consumer confidence, and changing underwriting standards may
affect the number of purchase mortgage originations. For other
factors that could decrease the demand for mortgage insurance, see
our risk factor titled "The amount of insurance we write could
be adversely affected if lenders and investors select alternatives
to private mortgage insurance."
State capital requirements may prevent us from continuing
to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a
mortgage insurer to maintain a minimum amount of statutory capital
relative to its risk in force (or a similar measure) in order for
the mortgage insurer to continue to write new business. We refer to
these requirements as the "State Capital Requirements." While they
vary among jurisdictions, the most common State Capital
Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
A risk-to-capital ratio will increase if (i) the percentage
decrease in capital exceeds the percentage decrease in insured
risk, or (ii) the percentage increase in capital is less than the
percentage increase in insured risk. Wisconsin does not regulate capital by using a
risk-to-capital measure but instead requires a minimum policyholder
position ("MPP"). The "policyholder position" of a mortgage insurer
is its net worth or surplus, contingency reserve and a portion of
the reserves for unearned premiums.
At December 31, 2020, MGIC's
risk-to-capital ratio was 9.2 to 1, below the maximum allowed by
the jurisdictions with State Capital Requirements, and its
policyholder position was $3.2
billion above the required MPP of $1.7 billion. At December
31, 2020, the risk-to-capital ratio of our combined
insurance operations was 9.1 to 1. Our risk-to-capital ratio and
MPP reflect full credit for the risk ceded under our quota share
reinsurance and excess of loss transactions with unaffiliated
reinsurers. It is possible that under the revised State
Capital Requirements discussed below, MGIC will not be allowed full
credit for the risk ceded under such transactions. If MGIC is not
allowed an agreed level of credit under the State Capital
Requirements, MGIC may terminate the reinsurance transactions,
without penalty.
The NAIC previously announced plans to revise the State Capital
Requirements that are provided for in its Mortgage Guaranty
Insurance Model Act. In December
2019, a working group of state regulators released an
exposure draft of a revised Mortgage Guaranty Insurance Model Act
and a risk-based capital framework to establish capital
requirements for mortgage insurers, although no date has been
established by which the NAIC must propose revisions to the capital
requirements and certain items have not yet been completely
addressed by the framework, including the treatment of ceded risk
and minimum capital floors. Currently we believe that the PMIERs
contain more restrictive capital requirements than the draft
Mortgage Guaranty Insurance Model Act in most circumstances.
While MGIC currently meets, and expects to continue to meet, the
State Capital Requirements of Wisconsin and all other jurisdictions, it
could be prevented from writing new business in the future in all
jurisdictions if it fails to meet the State Capital Requirements of
Wisconsin, or it could be
prevented from writing new business in a particular jurisdiction if
it fails to meet the State Capital Requirements of that
jurisdiction, and in each case if MGIC does not obtain a waiver of
such requirements. It is possible that regulatory action by one or
more jurisdictions, including those that do not have specific State
Capital Requirements, may prevent MGIC from continuing to write new
insurance in such jurisdictions. If we are unable to write business
in a particular jurisdiction, lenders may be unwilling to procure
insurance from us anywhere. In addition, a lender's assessment of
the future ability of our insurance operations to meet the State
Capital Requirements or the PMIERs may affect its willingness to
procure insurance from us. In this regard, see our risk factor
titled "Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and/or increase our losses." A possible future failure by MGIC
to meet the State Capital Requirements or the PMIERs will not
necessarily mean that MGIC lacks sufficient resources to pay claims
on its insurance liabilities. While we believe MGIC has sufficient
claims paying resources to meet its claim obligations on its
insurance in force on a timely basis, you should read the rest of
these risk factors for information about matters that could
negatively affect MGIC's compliance with State Capital Requirements
and its claims paying resources, including the effects of the
COVID-19 pandemic.
We are susceptible to disruptions in the servicing of
mortgage loans that we insure and we rely on third-party reporting
for information regarding the mortgage loans we insure.
We depend on reliable, consistent third-party servicing of the
loans that we insure. An increase in delinquent loans, including as
a result of the COVID-19 pandemic, may result in liquidity issues
and operational burdens for servicers. When a mortgage loan that is
collateral for a mortgage backed security ("MBS") becomes
delinquent, the servicer is usually required to continue to pay
principal and interest to the MBS investors, generally for four
months, even though the servicer is not receiving payments from
borrowers. This may cause liquidity issues for especially non-bank
servicers (who service approximately 42.1% of the loans underlying
our insurance in force as of December 31,
2020) because they do not have the same sources of liquidity
that bank servicers have.
While there has been no disruption in our premium receipts
through the end of December 2020,
servicers who experience future liquidity issues may be less likely
to advance premiums to us on policies covering delinquent loans or
to remit premiums on policies covering loans that are not
delinquent. Our policies allow us to cancel coverage on loans that
are not delinquent if the premiums are not paid within a grace
period. However, in response to the COVID-19 pandemic, many states
have enacted moratoriums on the cancellation of insurance due to
non-payment. The specific provisions of the moratoriums vary from
state-to-state. In addition, the GSEs amended the PMIERs to require
that mortgage insurers notify the GSEs before coverage is cancelled
in specific circumstances and to give the GSEs the opportunity to
pay the premium on behalf of the servicer to keep coverage in
force.
The increased operational burdens associated with the current
numbers of delinquent loans and the potential increase in
delinquent loans caused by the COVID-19 pandemic, as well as the
possible transfer of servicing resulting from liquidity issues, may
cause a disruption in the servicing of delinquent loans and reduce
servicers' abilities to undertake mitigation efforts that could
help limit our losses.
The information presented in this report and on our website with
respect to the mortgage loans we insure is based on information
reported to us by third parties, including the servicers and
originators of the mortgage loans, and information presented may be
subject to lapses or inaccuracies in reporting from such third
parties. In many cases, we may not be aware that information
reported to us is incorrect until such time as a claim is made
against us under the relevant insurance policy. We do not receive
monthly information from servicers for single premium policies, and
may not be aware that the mortgage loans insured by such policies
have been repaid. We periodically attempt to determine if coverage
is still in force on such policies by asking the last servicer of
record or through the periodic reconciliation of loan information
with certain servicers. It may be possible that our reports
continue to reflect, as active, policies on mortgage loans that
have been repaid.
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 60.5% at December 31, 2020, 75.8% at December 31,
2019 and 81.7% at December 31, 2018.
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.
Pandemics, hurricanes and other natural disasters may
impact our incurred losses, the amount and timing of paid claims,
our inventory of notices of default and our Minimum Required Assets
under PMIERs.
Pandemics and other natural disasters, such as hurricanes,
tornadoes, earthquakes, wildfires and floods, or other events
related to changing climatic conditions, could trigger an economic
downturn in the affected areas, or in areas with similar risks,
which could result in a decline in our business and an increased
claim rate on policies in those areas. Natural disasters and rising
sea levels could lead to a decrease in home prices in the affected
areas, or in areas with similar risks, which could result in an
increase in claim severity on policies in those areas. In addition,
the inability of a borrower to obtain hazard insurance, or the
increased cost of hazard insurance, could lead to an increase in
defaults or a decrease in home prices in the affected 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.
Pandemics and other natural disasters could also lead to
increased reinsurance rates or reduced availability of reinsurance.
This may cause us to retain more risk than we otherwise would
retain and could negatively affect our compliance with the
financial requirements of the PMIERs.
The PMIERs require us to maintain significantly more "Minimum
Required Assets" for delinquent loans than for performing loans;
however, the increase in Minimum Required Assets is not as great
for certain delinquent loans in areas that the Federal Emergency
Management Agency has declared major disaster areas and for certain
loans whose borrowers have been affected by COVID-19. An increase
in delinquency notices resulting from a pandemic, such as the
COVID-19 pandemic, or other natural disaster may result in an
increase in "Minimum Required Assets" and a decrease in the level
of our excess "Available Assets" which is discussed in our risk
factor titled "We may not continue to meet the GSEs' private
mortgage insurer eligibility requirements and our returns may
decrease if we are required to maintain more capital in order to
maintain our eligibility."
Risk Factors Relating to Our Business Generally
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. Generally, we cannot cancel mortgage insurance
coverage or adjust renewal premiums during the life of a 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. Our premiums are
subject to approval by state regulatory agencies, which can delay
or limit our ability to increase premiums on future policies. In
addition, our customized rate plans may delay our ability to
increase premiums on future policies covered by such plans. The
premiums we charge, the investment income we earn and the amount of
reinsurance we carry may not be adequate to compensate us for the
risks and costs associated with the insurance coverage provided to
customers. An increase in the number or size of claims, compared to
what we anticipated when we set the premiums, 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 we set the premiums, our returns may be lower
than we assumed. For a discussion of the effect of the COVID-19
pandemic on the amount of capital we are required to hold, see our
risk factor titled "We may not continue to meet the GSEs'
private mortgage insurer eligibility requirements and our returns
may decrease if we are required to maintain more capital in order
to maintain our eligibility."
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses.
The private mortgage insurance industry is highly competitive
and is expected to remain so. We believe we currently compete with
other private mortgage insurers based on premium rates,
underwriting requirements, financial strength (including based on
credit or financial strength ratings), customer relationships, name
recognition, reputation, strength of management teams and field
organizations, the ancillary products and services provided to
lenders and the effective use of technology and innovation in the
delivery and servicing of our mortgage insurance products.
Our relationships with our customers, which may affect the
amount of our NIW, could be adversely affected by a variety of
factors, including if our premium rates are higher than those of
our competitors, our underwriting requirements are more restrictive
than those of our competitors, or our customers are dissatisfied
with our claims-paying practices (including insurance policy
rescissions and claim curtailments).
In recent years, much of the competition in the industry has
centered on pricing practices which have included:
(a) decreased use of standard rate cards; and (b) increased
use of (i) "risk-based pricing systems" that use a spectrum of
filed rates to allow for formulaic, risk-based pricing based on
multiple attributes that may be quickly adjusted within certain
parameters, and (ii) customized rate plans, both of which
typically have rates lower than the standard rate card. While our
increased use of reinsurance over the past several years has helped
to mitigate the negative effect of declining premium rates on our
returns, refer to our risk factor titled "Reinsurance may not
always be available or affordable" for a discussion of the
risks associated with the availability of reinsurance.
The widespread use of risk-based pricing systems by the private
mortgage insurance industry makes it more difficult to compare our
rates to those offered by our competitors. We may not be aware of
industry rate changes until we observe that our volume of NIW has
changed. In addition, business under customized rate plans is
awarded by certain customers for only limited periods of
time. As a result, our NIW may fluctuate more than it had in
the past. Regarding the concentration of our new business, our top
ten customers accounted for approximately 41% and 24% of our NIW,
in each of 2020 and 2019, respectively.
We monitor various competitive and economic factors while
seeking to balance both profitability and market share
considerations in developing our pricing strategies. Premium rates
on NIW will change our premium yield (net premiums earned divided
by the average insurance in force) over time as older insurance
policies run off and new insurance policies with different premium
rates are written.
Certain of our competitors have access to capital at a lower
cost than we do (including, through off-shore reinsurance vehicles,
which are tax-advantaged). As a result, they may be able to achieve
higher after-tax rates of return on their NIW compared to us, which
could allow them to leverage reduced premium rates to gain market
share, and they may be better positioned to compete outside of
traditional mortgage insurance, including by participating in
alternative forms of credit enhancement pursued by the GSEs
discussed in our risk factor titled "The amount of insurance we
write could be adversely affected if lenders and investors select
alternatives to private mortgage insurance."
Although the current PMIERs of the GSEs do not require an
insurer to maintain minimum financial strength ratings, our
financial strength ratings can affect us in the ways set forth
below. 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.
- A downgrade in our financial strength ratings could result in
increased scrutiny of our financial condition by the GSEs and/or
our customers, potentially resulting in a decrease in the amount of
our NIW. In 2020, Standard and Poor's revised its outlook, to
"negative," for MGIC and other U.S. mortgage insurers due to the
risks associated with the COVID-19 pandemic, and A.M. Best revised
its outlook for the U.S. Private Mortgage Insurers market segment
to "negative," but has since reaffirmed MGIC's rating with no
change.
- Our ability to participate in the non-GSE residential
mortgage-backed securities market (the size of which has been
limited since 2008, but may grow in the future), could depend on
our ability to maintain and improve our investment grade ratings
for our insurance subsidiaries. We could be competitively
disadvantaged with some market participants because the financial
strength ratings of our insurance subsidiaries are lower than those
of some competitors. MGIC's financial strength rating from A.M.
Best is A- (with a stable outlook), from Moody's is Baa1 (with a
stable outlook) and from Standard & Poor's is BBB+ (with a
negative outlook).
- Financial strength ratings may also play a greater role if the
GSEs no longer operate in their current capacities, for example,
due to legislative or regulatory action. In addition, although the
PMIERs do not require minimum financial strength ratings, the GSEs
consider financial strength ratings to be important when using
forms of credit enhancement other than traditional mortgage
insurance, as discussed in our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage
insurance." The final GSE capital framework provides more
capital credit for transactions with higher rated counterparties,
as well as those who are diversified. Although we are
currently unaware of a direct impact on MGIC, this could
potentially become a competitive disadvantage in the future.
We are involved in legal proceedings and are subject to
the risk of additional legal proceedings in the future.
Before paying an insurance claim, generally 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 or deny a claim on the loan (both
referred to as "rescissions"). In addition, our insurance policies
generally provide that we can reduce a claim if the servicer did
not comply with its obligations under our insurance policy (such
reduction referred to as a "curtailment"). In recent quarters, an
immaterial percentage of claims received in a quarter have been
resolved by rescissions. In 2020 and 2019, curtailments reduced our
average claim paid by approximately 3.6% and 5.0%, respectively.
Our loss reserving methodology incorporates our estimates of future
rescissions, curtailments, and reversals of rescissions and
curtailments. A variance between ultimate actual rescission,
curtailment and reversal rates and our estimates, as a result of
the outcome of litigation, settlements or other factors, could
materially affect our losses.
When the insured disputes our right to rescind coverage or
curtail claims, we generally engage in discussions in an attempt to
settle the dispute. If we are unable to reach a settlement, the
outcome of a dispute ultimately may be determined by legal
proceedings. Under ASC 450-20, until a loss associated with
settlement discussions or legal proceedings becomes probable and
can be reasonably estimated, we consider our claim payment or
rescission resolved for financial reporting purposes and do not
accrue an estimated loss. When we determine that a loss is probable
and can be reasonably estimated, we record our best estimate of our
probable loss. In those cases, until settlement negotiations or
legal proceedings are concluded (including the receipt of any
necessary GSE approvals), it is reasonably possible that we will
record an additional loss. We are currently involved in discussions
and/or proceedings with respect to our claims paying practices.
Although it is reasonably possible that, when resolved, we will not
prevail on all matters, we are unable to make a reasonable estimate
or range of estimates of the potential liability. We estimate the
maximum exposure where a loss is reasonably possible to be
approximately $40 million. This
estimate of maximum exposure is based on currently available
information; is subject to significant judgment, numerous
assumptions and known and unknown uncertainties; will include an
amount for matters for which we have recorded a probable loss until
such matters are concluded; will include different matters from
time to time; and does not include interest or consequential or
exemplary damages.
In addition to the matters described above, we are involved in
other legal proceedings in the ordinary course of business. In our
opinion, based on the facts known at this time, the ultimate
resolution of these ordinary course legal proceedings will not have
a material adverse effect on our financial position or results of
operations.
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 for the year ended December 31, 2020, may not be effective in
identifying, or adequate in controlling or mitigating, the risks we
face in our business.
We employ proprietary and third party models to project returns,
price products (including through our risk-based pricing system),
determine the techniques used to underwrite insurance, estimate
reserves, generate projections used to estimate future pre-tax
income and to evaluate loss recognition testing, evaluate risk,
determine internal capital requirements, perform stress testing,
and for other uses. These models rely on estimates and projections
that are inherently uncertain and may not operate as intended,
especially in unprecedented circumstances such as those surrounding
the COVID-19 pandemic, or with respect to emerging risks, such as
changing climatic conditions. 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.
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.
In response to the COVID-19 pandemic, the Company activated its
business continuity program by transitioning to a virtual workforce
model with certain essential activities supported by limited staff
in controlled office environments. This transition was made to
responsibly provide for the safety of employees and to continue to
serve customers across our businesses. We have established a
temporary succession plan for each of our key executives, should an
executive be unable to perform his or her duties due to a COVID-19
related illness; however, it is uncertain what impact
COVID-19-related illnesses may have on our operations in the
future.
The mix of business we write affects our Minimum Required
Assets under the PMIERs, our premium yields and the likelihood of
losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a
function of the direct risk-in-force and the risk profile of the
loans we insure, considering LTV ratio, credit score, vintage, Home
Affordable Refinance Program ("HARP") status and delinquency
status; and whether the loans were insured under lender-paid
mortgage insurance policies or other policies that are not subject
to automatic termination consistent with the Homeowners Protection
Act requirements for borrower-paid mortgage insurance. Therefore,
if our direct risk-in-force increases through increases in NIW, or
if our mix of business changes to include loans with higher LTV
ratios or lower FICO scores, for example, all other things equal,
we will be required to hold more Available Assets in order to
maintain GSE eligibility.
The minimum capital required by the risk-based capital framework
contained in the exposure draft released by the NAIC in
December 2019 would be, in part, a
function of certain loan and economic factors, including property
location, LTV ratio and credit score; general underwriting quality
in the market at the time of loan origination; the age of the loan;
and the premium rate we charge. Depending on the provisions of the
capital requirements when they are released in final form and
become effective, our mix of business may affect the minimum
capital we are required to hold under the new framework.
The percentage of our NIW from all single-premium policies was
9% in 2020 and 16% in 2019, and has ranged from approximately 9% in
2020 to 19% in 2017. 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.
As discussed in our risk factor titled "Reinsurance may not
always be available or affordable," we have in place various
QSR transactions. Although the transactions reduce our premiums,
they have a lesser impact on our overall results, as losses ceded
under the transactions reduce our losses incurred and the ceding
commissions we receive reduce our underwriting expenses. The effect
of the QSR transactions on the various components of pre-tax income
will vary from period to period, depending on the level of ceded
losses. We also have in place various excess-of-loss ("XOL")
reinsurance transactions, under which we cede premiums. Under the
XOL reinsurance transactions, for the respective reinsurance
coverage periods, we retain the first layer of aggregate losses,
and a special purpose entity provides second layer coverage up to
the outstanding reinsurance coverage amount.
In addition to the effect of reinsurance on our premiums, we
expect a decline in our premium yield because an increasing
percentage of our insurance in force is from recent book years
whose premium rates had been trending lower.
Our ability to rescind insurance coverage became more limited
for new insurance written beginning in mid-2012, and it became
further limited for new insurance written under our revised master
policy that became effective March 1,
2020. These limitations may result in higher losses than
would be the case under our previous master policies. In addition,
our rescission rights temporarily have become more limited due to
accommodations we have made in connection with the COVID-19
pandemic. We have waived our rescission rights in certain
circumstances where the failure to make payments was associated
with a COVID-19 pandemic-related forbearance.
From time to time, in response to market conditions, we change
the types of loans that we insure. We also may change our
underwriting guidelines, in part by agreeing with certain approval
recommendations from a GSE automated underwriting system. We also
make exceptions to our underwriting requirements on a loan-by-loan
basis and for certain customer programs. Our underwriting
requirements are available on our website at
https://www.mgic.com/underwriting.
Even when home prices are stable or rising, mortgages with
certain characteristics have higher probabilities of claims. As of
December 31, 2020, mortgages with
these characteristics in our primary risk in force included
mortgages with LTV ratios greater than 95% (14.7%), mortgages with
borrowers having FICO scores below 680 (9.2%), including those with
borrowers having FICO scores of 620-679 (7.8%), mortgages with
limited underwriting, including limited borrower documentation
(1.3%), and mortgages with borrowers having DTI ratios greater than
45% (or where no ratio is available) (13.5%), each attribute as
determined at the time of loan origination. Loans with more than
one of these attributes accounted for 2.7% of our primary risk in
force as of December 31, 2020, and
less than one percent of our NIW in 2020 and 1.0% of our NIW in
2019.
From time to time, we change the processes we use to underwrite
loans. For example, we may rely on information provided to us by a
lender that was obtained from certain of the GSEs' automated
appraisal and income verification tools. Those tools may produce
results that differ from the results that would have determined
using different methods. For example, the appraisal tools may
indicate property values that differ from the values that would
have been determined by onsite appraisals. In addition, we continue
to further automate our underwriting processes. It is possible that
our automated processes result in our insuring loans that we would
not otherwise have insured under our prior processes.
Approximately 70.2% of our 2020 NIW (by risk written) was
originated under delegated underwriting programs pursuant to which
the loan originators had authority on our behalf to underwrite the
loans for our mortgage insurance. For loans originated through a
delegated underwriting program, we depend on the originators'
compliance with our guidelines and rely on the originators'
representations that the loans being insured satisfy the
underwriting guidelines, eligibility criteria and other
requirements. While we have established systems and processes to
monitor whether certain aspects of our underwriting guidelines were
being followed by the originators, such systems may not ensure that
the guidelines were being strictly followed at the time the loans
were originated.
The widespread use of risk-based pricing systems by the private
mortgage insurance industry (discussed in our risk factor titled
"Competition or changes in our relationships with our customers
could reduce our revenues, reduce our premium yields
and / or increase our losses") makes it more
difficult to compare our premium rates to those offered by our
competitors. We may not be aware of industry rate changes until we
observe that our mix of new insurance written has changed and our
mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways
that ease mortgage lending standards and/or requirements, or if
lenders seek ways to replace business in times of lower mortgage
originations, it is possible that more mortgage loans could be
originated with higher risk characteristics than are currently
being originated, such as loans with lower FICO scores and higher
DTI ratios. Lenders could pressure mortgage insurers to insure such
loans, which are expected to experience higher claim rates.
Although we attempt to incorporate these higher expected claim
rates into our underwriting and pricing models, there can be no
assurance that the premiums earned and the associated investment
income will be adequate to compensate for actual losses even under
our current underwriting requirements.
Our holding company debt obligations materially exceed our
holding company cash and investments.
At December 31, 2020, we had
approximately $847 million in cash
and investments at our holding company and our holding company's
debt obligations were $1.1 billion in
aggregate principal amount, consisting of $242 million of 5.75% Senior Notes due in 2023
("5.75% Notes"), $650 million of
5.25% Senior Notes due 2028 (the 5.25% Notes), and $209 million of 9% Convertible Junior
Subordinated Debentures due in 2063 ("9% Debentures"). Annual debt
service on the 5.75% Notes, 5.25% Notes and 9% Debentures
outstanding as of December 31, 2020,
is approximately $67 million.
The 5.75% Senior Notes, 5.25% 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. In addition, through June 30,
2021, dividends paid by MGIC to our holding company require
GSE approval. MGIC is the principal source of dividends, and in the
first quarter of 2020 and in the full year 2019, it paid a total of
$390 million and $280 million, respectively, in dividends of cash
and investments to our holding company. We ask the OCI not to
object before MGIC pays dividends and, due to the uncertainty
surrounding the COVID-19 pandemic, MGIC did not pay a dividend of
cash and/or investment securities to the holding company after the
first quarter of 2020; however, in the third quarter of 2020, MGIC
distributed to the holding company, as a dividend, its ownership in
$133 million of the 9% Debentures,
with a fair value of $167 million.
Future dividend payments from MGIC to the holding company will be
determined on a quarterly basis in consultation with the board of
directors, and after considering any updated estimates about the
length and severity of the economic impacts of the COVID-19
pandemic on our business.
In the third quarter of 2020, we issued the 5.25% Senior Notes
and used a portion of the proceeds to repurchase $183 million of our 5.75% Senior Notes and
$48 million of our 9% Debentures. We
may, from time to time, repurchase our debt obligations on the open
market (including through 10b5-1 plans) or through privately
negotiated transactions.
In the first quarter of 2020 and in 2019, we repurchased
approximately 9.6 million and 8.7 million shares of our common
stock, respectively, using approximately $120 million and $114
million of holding company resources, respectively. As of
December 31, 2020, we had
$291 million of authorization
remaining to repurchase our common stock through the end of 2021
under a share repurchase program approved by our Board of Directors
in January 2020. Repurchases may be
made from time to time on the open market (including through 10b5-1
plans) or through privately negotiated transactions. The repurchase
program may be suspended for periods or discontinued at any time.
Due to the uncertainty caused by the COVID-19 pandemic, we have
temporarily suspended stock repurchases, but may resume them in the
future. If any additional capital contributions to our subsidiaries
were required, such contributions would decrease our holding
company cash and investments. As described in our Current Report on
Form 8-K filed on February 11, 2016,
MGIC borrowed $155 million from the
Federal Home Loan Bank of Chicago.
This is an obligation of MGIC and not of our holding company.
Your ownership in our company may be diluted by additional
capital that we raise or if the holders of our outstanding
convertible debt convert that debt into shares of our common
stock.
As noted above under our risk factor titled "We may not
continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease if we are required to
maintain more capital in order to maintain our eligibility,"
although we are currently in compliance with the requirements of
the PMIERs, there can be no assurance that we would not seek to
issue additional debt capital or to raise additional equity or
equity-linked capital to manage our capital position under the
PMIERs or for other purposes. Any future issuance of equity
securities may dilute your ownership interest in our company. In
addition, the market price of our common stock could decline as a
result of sales of a large number of shares or similar securities
in the market or the perception that such sales could occur.
At December 31, 2020, we had
outstanding $209 million principal
amount of 9% Debentures. The principal amount of the 9% Debentures
is currently convertible, at the holder's option, at a conversion
rate, which is subject to adjustment, of 75.5932 common shares per
$1,000 principal amount of
debentures. This represents a conversion price of approximately
$13.23 per share. The payment of
dividends by our holding company results in an adjustment to the
conversion rate and price, with such adjustment generally deferred
until the end of the year.
We may redeem the 9% Debentures in whole or in part from time to
time, at our option, at a redemption price equal to 100% of the
principal amount of the 9% Debentures being redeemed, plus any
accrued and unpaid interest, if the closing sale price of our
common stock exceeds $17.20 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 9% Debentures in the future. If a holder elects to convert its
9% Debentures, the interest that has been deferred on the 9%
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 more information
about the 9% Debentures, including additional requirements
resulting from the deferral of interest, see Note 7 – "Debt" to our
consolidated financial statements in Item 8 of our Annual Report on
Form 10-K for the year ended December 31,
2020.
For a discussion of the dilutive effects of our convertible
securities on our earnings per share, see Note 4 – "Earnings
Per Share" to our consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2020. As noted above, in the first
quarter of 2020 and in 2019, we repurchased shares of our common
stock and may do so again in the future. In addition, in the third
quarter of 2020, we repurchased a portion of our debt obligations,
and may do so again in the future.
The price of our common stock may fluctuate significantly,
which may make it difficult for holders to resell common stock when
they want or at a price they find attractive.
The market price for our common stock may fluctuate
significantly. In addition to the risk factors described herein,
the following factors may have an adverse impact on the market
price for our common stock: changes in general conditions in the
economy, the mortgage insurance industry or the financial markets;
announcements by us or our competitors of acquisitions or strategic
initiatives; our actual or anticipated quarterly and annual
operating results; changes in expectations of future financial
performance (including incurred losses on our insurance in force);
changes in estimates of securities analysts or rating agencies;
actual or anticipated changes in our share repurchase program or
dividends; changes in operating performance or market valuation of
companies in the mortgage insurance industry; the addition or
departure of key personnel; changes in tax law; and adverse press
or news announcements affecting us or the industry. In addition,
ownership by certain types of investors may affect the market price
and trading volume of our common stock. For example, ownership in
our common stock by investors such as index funds and
exchange-traded funds can affect the stock's price when those
investors must purchase or sell our common stock because the
investors have experienced significant cash inflows or outflows,
the index to which our common stock belongs has been rebalanced, or
our common stock is added to and/or removed from an index (due to
changes in our market capitalization, for example).
We could be adversely affected if personal information on
consumers that we maintain is improperly disclosed, our information
technology systems are damaged or their operations are interrupted,
or our automated processes do not operate as expected.
As part of our business, we maintain large amounts of personal
information of consumers. Federal and state laws designed to
promote the protection of such information require businesses that
collect or maintain consumer information to adopt information
security programs, and to notify individuals, and in some
jurisdictions, regulatory authorities, of security breaches
involving personally identifiable information. Those laws may
require free credit monitoring services to be provided to
individuals affected by security breaches. While we believe we have
appropriate information security policies and systems to prevent
unauthorized disclosure, there can be no assurance that
unauthorized disclosure, either through the actions of third
parties or employees, will not occur. Unauthorized disclosure could
adversely affect our reputation, result in a loss of business and
expose us to material claims for damages.
We rely on the efficient and uninterrupted operation of complex
information technology systems. All information technology systems
are potentially vulnerable to damage or interruption from a variety
of sources, including by third-party cyber-attacks. Due to our
reliance on information technology systems, including ours and
those of our customers and third-party service providers, their
damage or interruption could severely disrupt our operations, which
could have a material adverse effect on our business, business
prospects and results of operations.
In response to the COVID-19 pandemic, the Company activated its
business continuity program by transitioning to a virtual workforce
model with certain essential activities supported by limited staff
in controlled office environments. While we continue to maintain
our full operations, the virtual workforce model may be more
vulnerable to security breaches, damage or disruption.
We are in the process of upgrading certain of our information
systems, and transforming and automating certain of our business
processes, that have been in place for a number of years and we
continue to deploy and enhance our risk-based pricing system. The
implementation of these technological and business process
improvements, as well as their integration with customer and
third-party systems when applicable, is complex, expensive and time
consuming. If we fail to timely and successfully implement and
integrate the new technology systems, if the third party providers
to which we are becoming increasingly reliant do not perform as
expected, or if the systems and/or transformed and automated
business processes 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. The value of our investment portfolio may also be
adversely affected by ratings downgrades, increased bankruptcies
and credit spreads widening in distressed industries, such as
energy, lodging and leisure, autos, transportation and
retail. In addition, the collectability and valuation of our
municipal bond portfolio may be adversely affected if state and
local municipalities incur increased costs to respond to COVID-19
and receive fewer tax revenues due to adverse economic conditions.
Our investment portfolio also includes commercial mortgage-backed
securities, collateralized loan obligations, and asset-backed
securities, which could be adversely affected by declines in real
estate valuations and/or financial market disruption, including a
heightened collection risk on the underlying loans. As a result of
these matters, we may not achieve our investment objectives and a
reduction in the market value of our investments could have an
adverse effect on our liquidity, financial condition and results of
operations.
For the significant portion of our investment portfolio that is
held by MGIC, to receive full capital credit under insurance
regulatory requirements and under the PMIERs, we generally are
limited to investing in investment grade fixed income securities
whose yields reflect their lower credit risk profile. Our
investment income depends upon the size of the portfolio and its
reinvestment at prevailing interest rates. A prolonged period of
low investment yields would have an adverse impact on our
investment income as would a decrease in the size of the
portfolio.
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.
The Company may be adversely impacted by the transition
from LIBOR as a reference rate.
The United Kingdom's Financial
Conduct Authority, which regulates LIBOR, announced that after 2021
it would no longer compel banks to submit rate quotations required
to calculate LIBOR. However, in December
2020, ICE Benchmark Administration, the administrator of
LIBOR, began consulting on its intention to cease publishing after
2021, with respect to USD LIBOR, only the one-week and two-month
tenors and, on June 30, 2023, all
other USD LIBOR tenors. Efforts are underway to identify and
transition to a set of alternative reference rates. The set
of alternative rates includes the Secured Overnight Financing Rate
("SOFR"), which the Federal Reserve Bank of New York began publishing in 2018. Because
SOFR is calculated based on different criteria than LIBOR, SOFR and
LIBOR may diverge.
While it is not currently possible to determine precisely
whether, or to what extent, the replacement of LIBOR would affect
us, the implementation of alternative benchmark rates to LIBOR may
have an adverse effect on our business, results of operations or
financial condition. We have three primary types of transactions
that involve financial instruments referencing LIBOR. First, as of
December 31, 2020, approximately 5%
of the fair value of our investment portfolio consisted of
securities referencing LIBOR, none of which reference one-week and
two-month tenors. Second, as of December 31,
2020, approximately $1 billion of our risk in force was
on adjustable rate mortgages whose interest is referenced to
one-month USD LIBOR. A change in reference rate associated with
these loans may affect their principal balance, which may affect
our risk-in-force and the amount of Minimum Required Assets we are
required to maintain under PMIERs. A change in reference rate may
also affect the amount of principal and/or accrued interest we are
required to pay in the event of a claim payment. Third, we enter
into reinsurance agreements under which our premiums are
determined, in part, by the difference between interest payable on
the reinsurers' notes which reference one-month USD LIBOR and
earnings from a pool of securities receiving interest that may
reference LIBOR (in 2020, our total premiums on such transactions
were approximately $20.8 million).
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SOURCE MGIC Investment Corporation