MGIC Investment Corporation Reports Fourth Quarter 2018 Results
Adjusted net operating income for the fourth quarter of 2018 was
Fourth Quarter Summary
- New Insurance Written of
$12.2 billion , compared to$12.8 billion in the fourth quarter of 2017. - Insurance in force of
$209.7 billion atDecember 31, 2018 increased by 1.9% during the quarter and 7.6% compared toDecember 31, 2017 . - Primary delinquent inventory of 32,898 loans at
December 31, 2018 decreased 29.3% year-over-year from 46,556 loans atDecember 31, 2017 . - Insurance written in 2008 and before accounted for approximately 16% of the
December 31, 2018 primary risk in force but accounted for 67% of the new primary delinquent notices received in the quarter. - The percentage of primary loans that were delinquent at
December 31, 2018 was 3.11%, compared to 4.55% atDecember 31, 2017 , and 5.04% atDecember 31, 2016 . The percentage of flow primary loans that were delinquent atDecember 31, 2018 was 2.47%, compared to 3.70% atDecember 31, 2017 , and 4.05% atDecember 31, 2016 . - Persistency, or the percentage of insurance remaining in force from one year prior, was 81.7% at
December 31, 2018 , compared with 80.1% atDecember 31, 2017 . - The loss ratio for the fourth quarter of 2018 was 11.3%, compared to (0.6%) for the third quarter of 2018 and (13.1)% for the fourth quarter of 2017.
- The underwriting expense ratio associated with our insurance operations for the fourth quarter of 2018 was 19.1%, compared to 17.6% for the third quarter of 2018 and 15.9% for the fourth quarter of 2017.
- Net premium yield was 47.3 basis points in the fourth quarter of 2018, compared to 49.3 basis points for the third quarter of 2018 and 49.2 basis points for the fourth quarter of 2017.
- MGIC paid a dividend of
$60 million to our holding company during the fourth quarter of 2018. - Repurchased 6.8 million shares of common stock at an average cost per share of
$11.06 . - Book value per common share outstanding increased by 4.6% during the quarter to
$10.08 .
Sinks added, "As we enter 2019, we are well positioned in the marketplace to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers, now, and in the future. We expect that our insurance in force will continue to increase as a result of strong annual persistency and new business writings. Further we anticipate that the number of new mortgage delinquency notices, claims paid and delinquency inventory will continue to decline. We will continue to focus on capital management activities and maintaining our low expense ratio."
Revenues
Total revenues for the fourth quarter of 2018 were
Losses and expenses
Losses incurred
Losses incurred in the fourth quarter of 2018 were
Underwriting and other expenses
Net underwriting and other expenses were
Provision for income taxes
The effective income tax rate was 19.0% in the fourth quarter of 2018, compared to 88.9% in the fourth quarter of 2017. The decrease reflects the reduction to the statutory income tax rate and the remeasurement of our net deferred tax assets in the fourth quarter of 2017 due to the lower enacted statutory income tax rate.
Capital
- As of
December 31, 2018 , total shareholders' equity was$3.6 billion and outstanding principal on borrowings was$837 million . - During 2018, we repurchased approximately 16.0 million shares of our common stock at an average cost per share of
$10.95 , for a total cost of approximately$175 million . Our authorized share repurchase program had approximately$25 million remaining as ofDecember 31, 2018 . Preliminary Consolidated Risk-to-Capital was 9.8:1 as ofDecember 31, 2018 , compared to 10.5:1 as ofDecember 31, 2017 .- MGIC's PMIERs Available Assets totaled
$4.8 billion , or$1.4 billion above its Minimum Required Assets as ofDecember 31, 2018 .
Other Balance Sheet and Liquidity Metrics
- Total assets were
$5.7 billion as ofDecember 31, 2018 , compared to$5.6 billion as ofDecember 31, 2017 , and$5.7 billion as ofDecember 31, 2016 . - The fair value of our investment portfolio, cash and cash equivalents was
$5.3 billion as ofDecember 31, 2018 , compared to$5.1 billion as ofDecember 31, 2017 , and$4.8 billion as ofDecember 31, 2016 . - Investments, cash and cash equivalents at the holding company were
$248 million as ofDecember 31, 2018 , compared to$261 million as ofSeptember 30, 2018 , and$216 million as ofDecember 31, 2017 .
Conference Call and Webcast Details
About MGIC
MGIC (www.mgic.com), the principal subsidiary of
This press release, which includes certain additional statistical and other information, including non-GAAP financial information, and a supplement that contains various portfolio statistics are both available on the Company's website at https://mtg.mgic.com/ under "Newsroom."
From time to time
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
In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Form 10-K for the year ended
While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.
Use of Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with accounting principles generally accepted in
Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21% in 2018 and 35% in 2017.
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.
(1) |
Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles. |
(2) |
Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt. |
(3) |
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions. |
(4) |
Infrequent or unusual non-operating items. Our income tax expense includes amounts related to our IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities. Our income tax expense for 2017 reflects a reduction in our net deferred tax asset due to the rate decrease included in the tax reform enacted in the fourth quarter of 2017. |
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) |
2018 |
2017 |
2018 |
2017 |
||||||||||||
Net premiums written |
$ |
248,037 |
$ |
259,523 |
$ |
992,262 |
$ |
997,955 |
||||||||
Revenues |
||||||||||||||||
Net premiums earned |
$ |
245,665 |
$ |
237,425 |
$ |
975,162 |
$ |
934,747 |
||||||||
Net investment income |
38,328 |
31,276 |
141,331 |
120,871 |
||||||||||||
Net realized investment (losses) gains |
(241) |
458 |
(1,353) |
231 |
||||||||||||
Other revenue |
1,881 |
2,343 |
8,708 |
10,205 |
||||||||||||
Total revenues |
285,633 |
271,502 |
1,123,848 |
1,066,054 |
||||||||||||
Losses and expenses |
||||||||||||||||
Losses incurred, net |
27,685 |
(30,996) |
36,562 |
53,709 |
||||||||||||
Underwriting and other expenses, net |
49,983 |
43,786 |
190,143 |
170,749 |
||||||||||||
Interest expense |
13,256 |
13,256 |
52,993 |
57,035 |
||||||||||||
Loss on debt extinguishment |
— |
— |
— |
65 |
||||||||||||
Total losses and expenses |
90,924 |
26,046 |
279,698 |
281,558 |
||||||||||||
Income before tax |
194,709 |
245,456 |
844,150 |
784,496 |
||||||||||||
Provision for income taxes |
36,963 |
218,142 |
174,053 |
428,735 |
||||||||||||
Net income |
$ |
157,746 |
$ |
27,314 |
$ |
670,097 |
$ |
355,761 |
||||||||
Net income per diluted share |
$ |
0.43 |
$ |
0.07 |
$ |
1.78 |
$ |
0.95 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||||||
EARNINGS PER SHARE (UNAUDITED) |
||||||||||||||||
Three Months Ended December 31, |
Year Ended December 31, |
|||||||||||||||
(In thousands, except per share data) |
2018 |
2017 |
2018 |
2017 |
||||||||||||
Net income |
$ |
157,746 |
$ |
27,314 |
$ |
670,097 |
$ |
355,761 |
||||||||
Interest expense, net of tax (1): |
||||||||||||||||
2% Convertible Senior Notes due 2020 |
— |
— |
— |
907 |
||||||||||||
5% Convertible Senior Notes due 2017 |
— |
— |
— |
1,709 |
||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
4,566 |
— |
18,264 |
15,027 |
||||||||||||
Diluted net income available to common shareholders |
$ |
162,312 |
$ |
27,314 |
$ |
688,361 |
$ |
373,404 |
||||||||
Weighted average shares - basic |
360,111 |
370,591 |
365,406 |
362,380 |
||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Unvested restricted stock units |
1,937 |
1,871 |
1,644 |
1,493 |
||||||||||||
2% Convertible Senior Notes due 2020 |
— |
— |
— |
8,317 |
||||||||||||
5% Convertible Senior Notes due 2017 |
— |
— |
— |
3,548 |
||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
19,028 |
— |
19,028 |
19,028 |
||||||||||||
Weighted average shares - diluted |
381,076 |
372,462 |
386,078 |
394,766 |
||||||||||||
Net income per diluted share |
$ |
0.43 |
$ |
0.07 |
$ |
1.78 |
$ |
0.95 |
||||||||
(1) |
Interest expense for the three months and year ended December 31, 2018 and 2017 has been tax effected at a rate of 21% and 35%, respectively. |
NON-GAAP RECONCILIATIONS |
||||||||||||||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
||||||||||||||||||||||||
Three Months Ended December 31, |
||||||||||||||||||||||||
2018 |
2017 |
|||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net |
Pre-tax |
Tax Effect |
Net |
||||||||||||||||||
Income before tax / Net income |
$ |
194,709 |
$ |
36,963 |
$ |
157,746 |
$ |
245,456 |
$ |
218,142 |
$ |
27,314 |
||||||||||||
Adjustments: |
||||||||||||||||||||||||
Additional income tax (provision) related to the rate decrease included in the Tax Act |
— |
— |
— |
— |
(132,999) |
132,999 |
||||||||||||||||||
Additional income tax benefit (provision) related to IRS litigation |
— |
3,939 |
(3,939) |
— |
(637) |
637 |
||||||||||||||||||
Net realized investment losses (gains) |
241 |
51 |
190 |
(458) |
(160) |
(298) |
||||||||||||||||||
Adjusted pre-tax operating income / Adjusted net operating income |
$ |
194,950 |
$ |
40,953 |
$ |
153,997 |
$ |
244,998 |
$ |
84,346 |
$ |
160,652 |
||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
||||||||||||||||||||||||
Weighted average shares - diluted |
381,076 |
372,462 |
||||||||||||||||||||||
Net income per diluted share |
$ |
0.43 |
$ |
0.07 |
||||||||||||||||||||
Additional income tax provision related to the rate decrease included in the Tax Act |
— |
0.36 |
||||||||||||||||||||||
Additional income tax (benefit) provision related to IRS litigation |
(0.01) |
— |
||||||||||||||||||||||
Net realized investment losses (gains) |
— |
— |
||||||||||||||||||||||
Adjusted net operating income per diluted share |
$ |
0.42 |
$ |
0.43 |
||||||||||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
||||||||||||||||||||||||
Year Ended December 31, |
||||||||||||||||||||||||
2018 |
2017 |
|||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net |
Pre-tax |
Tax Effect |
Net |
||||||||||||||||||
Income before tax / Net income |
$ |
844,150 |
$ |
174,053 |
$ |
670,097 |
$ |
784,496 |
$ |
428,735 |
$ |
355,761 |
||||||||||||
Adjustments: |
||||||||||||||||||||||||
Additional income tax (provision) related to the rate decrease included in the Tax Act |
— |
— |
— |
— |
(132,999) |
132,999 |
||||||||||||||||||
Additional income tax benefit (provision) related to IRS litigation |
— |
2,462 |
(2,462) |
— |
(29,039) |
29,039 |
||||||||||||||||||
Net realized investment losses (gains) |
1,353 |
284 |
1,069 |
(231) |
(81) |
(150) |
||||||||||||||||||
Loss on debt extinguishment |
— |
— |
— |
65 |
23 |
42 |
||||||||||||||||||
Adjusted pre-tax operating income / Adjusted net operating income |
$ |
845,503 |
$ |
176,799 |
$ |
668,704 |
$ |
784,330 |
$ |
266,639 |
$ |
517,691 |
||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
||||||||||||||||||||||||
Weighted average shares - diluted |
386,078 |
394,766 |
||||||||||||||||||||||
Net income per diluted share |
$ |
1.78 |
$ |
0.95 |
||||||||||||||||||||
Additional income tax provision related to the rate decrease included in the Tax Act |
— |
0.34 |
||||||||||||||||||||||
Additional income tax (benefit) provision related to IRS litigation |
(0.01) |
0.07 |
||||||||||||||||||||||
Net realized investment losses (gains) |
— |
— |
||||||||||||||||||||||
Loss on debt extinguishment |
— |
— |
||||||||||||||||||||||
Adjusted net operating income per diluted share |
$ |
1.78 |
(1) |
$ |
1.36 |
(1) For the Year Ended December 31, 2018, the Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share does not foot due to rounding of the adjustments. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||||||||||
December 31, |
December 31, |
December 31, |
||||||||||
(In thousands, except per share data) |
2018 |
2017 |
2016 |
|||||||||
ASSETS |
||||||||||||
Investments (1) |
$ |
5,159,019 |
$ |
4,990,561 |
$ |
4,692,350 |
||||||
Cash and cash equivalents |
151,892 |
99,851 |
155,410 |
|||||||||
Restricted cash and cash equivalents |
3,146 |
— |
— |
|||||||||
Reinsurance recoverable on loss reserves (2) |
33,328 |
48,474 |
50,493 |
|||||||||
Home office and equipment, net |
51,734 |
44,936 |
36,088 |
|||||||||
Deferred insurance policy acquisition costs |
17,888 |
18,841 |
17,759 |
|||||||||
Deferred income taxes, net |
69,184 |
234,381 |
607,655 |
|||||||||
Other assets |
191,611 |
182,455 |
174,774 |
|||||||||
Total assets |
$ |
5,677,802 |
$ |
5,619,499 |
$ |
5,734,529 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||
Liabilities: |
||||||||||||
Loss reserves (2) |
$ |
674,019 |
$ |
985,635 |
$ |
1,438,813 |
||||||
Unearned premiums |
409,985 |
392,934 |
329,737 |
|||||||||
Federal home loan bank advance |
155,000 |
155,000 |
155,000 |
|||||||||
Senior notes |
419,713 |
418,560 |
417,406 |
|||||||||
Convertible senior notes |
— |
— |
349,461 |
|||||||||
Convertible junior debentures |
256,872 |
256,872 |
256,872 |
|||||||||
Other liabilities |
180,322 |
255,972 |
238,398 |
|||||||||
Total liabilities |
2,095,911 |
2,464,973 |
3,185,687 |
|||||||||
Shareholders' equity |
3,581,891 |
3,154,526 |
2,548,842 |
|||||||||
Total liabilities and shareholders' equity |
$ |
5,677,802 |
$ |
5,619,499 |
$ |
5,734,529 |
||||||
Book value per share (3) |
$ |
10.08 |
$ |
8.51 |
$ |
7.48 |
||||||
(1) Investments include net unrealized (losses) gains on securities |
$ |
(44,795) |
$ |
37,058 |
$ |
(32,006) |
||||||
(2) Loss reserves, net of reinsurance recoverable on loss reserves |
$ |
640,691 |
$ |
937,161 |
$ |
1,388,320 |
||||||
(3) Shares outstanding |
355,371 |
370,567 |
340,663 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - NEW INSURANCE WRITTEN |
|||||||||||||||||||||||||||
2018 |
2017 |
Year-to-date |
|||||||||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
2018 |
2017 |
|||||||||||||||||||||
New primary insurance written (NIW) (billions) |
$ |
12.2 |
$ |
14.5 |
$ |
13.2 |
$ |
10.6 |
$ |
12.8 |
$ |
50.5 |
$ |
49.1 |
|||||||||||||
Monthly (including split premium plans) and annual premium plans |
10.2 |
12.2 |
11.1 |
8.5 |
10.1 |
42.0 |
39.9 |
||||||||||||||||||||
Single premium plans |
2.0 |
2.3 |
2.1 |
2.1 |
2.7 |
8.5 |
9.2 |
||||||||||||||||||||
Direct average premium rate (bps) on NIW |
|||||||||||||||||||||||||||
Monthly (1) |
50.2 |
51.3 |
54.6 |
55.8 |
56.3 |
52.8 |
55.3 |
||||||||||||||||||||
Singles |
147.0 |
153.5 |
165.6 |
167.4 |
170.5 |
158.3 |
174.3 |
||||||||||||||||||||
Product mix as a % of primary NIW |
|||||||||||||||||||||||||||
FICO < 680 |
8 |
% |
7 |
% |
6 |
% |
7 |
% |
8 |
% |
7 |
% |
7 |
% |
|||||||||||||
>95% LTVs |
17 |
% |
17 |
% |
15 |
% |
13 |
% |
13 |
% |
16 |
% |
11 |
% |
|||||||||||||
>45% DTI |
18 |
% |
20 |
% |
19 |
% |
20 |
% |
19 |
% |
19 |
% |
10 |
% |
|||||||||||||
Singles |
16 |
% |
16 |
% |
16 |
% |
19 |
% |
21 |
% |
17 |
% |
19 |
% |
|||||||||||||
Refinances |
6 |
% |
5 |
% |
6 |
% |
12 |
% |
13 |
% |
7 |
% |
11 |
% |
|||||||||||||
New primary risk written (billions) |
$ |
3.1 |
$ |
3.7 |
$ |
3.3 |
$ |
2.6 |
$ |
3.2 |
$ |
12.7 |
$ |
12.2 |
|||||||||||||
(1) |
Excludes loans with split and annual payments |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||
ADDITIONAL INFORMATION - INSURANCE IN FORCE and RISK IN FORCE |
|||||||||||||||||||
2018 |
2017 |
||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
|||||||||||||||
Primary Insurance In Force (IIF) (billions) |
$ |
209.7 |
$ |
205.8 |
$ |
200.7 |
$ |
197.5 |
$ |
194.9 |
|||||||||
Total # of loans |
1,058,292 |
1,048,088 |
1,033,323 |
1,026,797 |
1,023,951 |
||||||||||||||
Flow # of loans |
1,010,944 |
999,382 |
982,208 |
973,187 |
968,649 |
||||||||||||||
Average Loan Size of IIF (thousands) |
$ |
198.2 |
$ |
196.4 |
$ |
194.2 |
$ |
192.3 |
$ |
190.4 |
|||||||||
Flow only |
$ |
200.7 |
$ |
198.9 |
$ |
196.8 |
$ |
195.0 |
$ |
193.0 |
|||||||||
Annual Persistency |
81.7 |
% |
81.0 |
% |
80.1 |
% |
80.2 |
% |
80.1 |
% |
|||||||||
Primary Risk In Force (RIF) (billions) |
$ |
54.1 |
$ |
53.1 |
$ |
51.7 |
$ |
50.9 |
$ |
50.3 |
|||||||||
By FICO (%) |
|||||||||||||||||||
FICO 760 & > |
38 |
% |
38 |
% |
37 |
% |
37 |
% |
36 |
% |
|||||||||
FICO 740-759 |
16 |
% |
15 |
% |
15 |
% |
15 |
% |
15 |
% |
|||||||||
FICO 720-739 |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
|||||||||
FICO 700-719 |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
|||||||||
FICO 680-699 |
8 |
% |
9 |
% |
9 |
% |
9 |
% |
9 |
% |
|||||||||
FICO 660-679 |
5 |
% |
5 |
% |
5 |
% |
5 |
% |
5 |
% |
|||||||||
FICO 640-659 |
3 |
% |
3 |
% |
4 |
% |
3 |
% |
4 |
% |
|||||||||
FICO 639 & < |
5 |
% |
5 |
% |
5 |
% |
6 |
% |
6 |
% |
|||||||||
Average Coverage Ratio (RIF/IIF) |
25.8 |
% |
25.8 |
% |
25.8 |
% |
25.8 |
% |
25.8 |
% |
|||||||||
Direct Pool RIF (millions) |
|||||||||||||||||||
With aggregate loss limits |
$ |
228 |
$ |
232 |
$ |
233 |
$ |
233 |
$ |
236 |
|||||||||
Without aggregate loss limits |
$ |
191 |
$ |
199 |
$ |
210 |
$ |
222 |
$ |
235 |
|||||||||
Note: The FICO credit score for a loan with multiple borrowers is the lowest of the borrowers' "decision FICO scores." A borrower's "decision FICO score" is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||||||||||
ADDITIONAL INFORMATION - DEFAULT STATISTICS |
||||||||||||||||||||
2018 |
2017 |
|||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
||||||||||||||||
Primary IIF - Delinquent Roll Forward - # of Loans |
||||||||||||||||||||
Beginning Delinquent Inventory |
33,398 |
36,037 |
41,243 |
46,556 |
41,235 |
|||||||||||||||
New Notices |
14,097 |
13,569 |
12,159 |
14,623 |
22,916 |
|||||||||||||||
Cures |
(12,891) |
(14,197) |
(15,350) |
(18,073) |
(15,712) |
|||||||||||||||
Paids (including those charged to a deductible or captive) |
(1,304) |
(1,374) |
(1,501) |
(1,571) |
(1,803) |
|||||||||||||||
Rescissions and denials |
(67) |
(56) |
(76) |
(68) |
(80) |
|||||||||||||||
Items removed from inventory |
(335) |
(581) |
(438) |
(224) |
— |
|||||||||||||||
Ending Delinquent Inventory |
32,898 |
33,398 |
36,037 |
41,243 |
46,556 |
|||||||||||||||
Primary IIF Delinquency Rate |
3.11 |
% |
3.19 |
% |
3.49 |
% |
4.02 |
% |
4.55 |
% |
||||||||||
Primary claim received inventory included in ending delinquent inventory |
809 |
766 |
827 |
819 |
954 |
|||||||||||||||
Primary IIF - # of Delinquent Loans - Flow only |
24,919 |
25,130 |
27,250 |
31,621 |
35,791 |
|||||||||||||||
Primary IIF Delinquency Rate - Flow only |
2.47 |
% |
2.52 |
% |
2.77 |
% |
3.25 |
% |
3.70 |
% |
||||||||||
Composition of Cures |
||||||||||||||||||||
Reported delinquent and cured intraquarter |
4,081 |
3,938 |
3,447 |
5,530 |
5,520 |
|||||||||||||||
Number of payments delinquent prior to cure |
||||||||||||||||||||
3 payments or less |
5,623 |
5,671 |
7,204 |
8,285 |
6,324 |
|||||||||||||||
4-11 payments |
2,616 |
3,896 |
4,000 |
3,501 |
2,758 |
|||||||||||||||
12 payments or more |
571 |
692 |
699 |
757 |
1,110 |
|||||||||||||||
Total Cures in Quarter |
12,891 |
14,197 |
15,350 |
18,073 |
15,712 |
|||||||||||||||
Composition of Paids |
||||||||||||||||||||
Number of payments delinquent at time of claim payment |
||||||||||||||||||||
3 payments or less |
6 |
7 |
3 |
2 |
6 |
|||||||||||||||
4-11 payments |
125 |
140 |
147 |
184 |
181 |
|||||||||||||||
12 payments or more |
1,173 |
1,227 |
1,351 |
1,385 |
1,616 |
|||||||||||||||
Total Paids in Quarter |
1,304 |
1,374 |
1,501 |
1,571 |
1,803 |
|||||||||||||||
Aging of Primary Delinquent Inventory |
||||||||||||||||||||
Consecutive months delinquent |
||||||||||||||||||||
3 months or less |
9,829 |
30 |
% |
9,484 |
28 |
% |
8,554 |
24 |
% |
8,770 |
21 |
% |
17,119 |
37 |
% |
|||||
4-11 months |
9,655 |
29 |
% |
9,564 |
29 |
% |
12,506 |
35 |
% |
16,429 |
40 |
% |
12,050 |
26 |
% |
|||||
12 months or more |
13,414 |
41 |
% |
14,350 |
43 |
% |
14,977 |
41 |
% |
16,044 |
39 |
% |
17,387 |
37 |
% |
|||||
Number of payments delinquent |
||||||||||||||||||||
3 payments or less |
15,519 |
47 |
% |
14,813 |
44 |
% |
14,178 |
39 |
% |
16,023 |
39 |
% |
21,678 |
46 |
% |
|||||
4-11 payments |
8,842 |
27 |
% |
9,156 |
28 |
% |
11,429 |
32 |
% |
13,734 |
33 |
% |
12,446 |
27 |
% |
|||||
12 payments or more |
8,537 |
26 |
% |
9,429 |
28 |
% |
10,430 |
29 |
% |
11,486 |
28 |
% |
12,432 |
27 |
% |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - RESERVES and CLAIMS PAID |
|||||||||||||||||||||||||||
2018 |
2017 |
Year-to-date |
|||||||||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
2018 |
2017 |
|||||||||||||||||||||
Reserves (millions) |
|||||||||||||||||||||||||||
Primary Direct Loss Reserves |
$ |
660 |
$ |
707 |
$ |
799 |
$ |
910 |
$ |
971 |
|||||||||||||||||
Pool Direct loss reserves |
13 |
13 |
13 |
14 |
14 |
||||||||||||||||||||||
Other Gross Reserves |
1 |
1 |
1 |
— |
1 |
||||||||||||||||||||||
Total Gross Loss Reserves |
$ |
674 |
$ |
721 |
$ |
813 |
$ |
924 |
$ |
986 |
|||||||||||||||||
Primary Average Direct Reserve Per Delinquency |
$ |
20,077 |
$ |
21,184 |
$ |
22,178 |
(1) |
$ |
22,060 |
(1) |
$ |
20,851 |
(1) |
||||||||||||||
Net Paid Claims (millions) (3) |
$ |
75 |
$ |
87 |
$ |
91 |
$ |
82 |
$ |
91 |
$ |
335 |
$ |
505 |
|||||||||||||
Total primary (excluding settlements) |
62 |
65 |
75 |
80 |
89 |
282 |
446 |
||||||||||||||||||||
Rescission and NPL settlements |
10 |
19 |
14 |
7 |
— |
50 |
54 |
||||||||||||||||||||
Pool |
1 |
2 |
1 |
2 |
2 |
6 |
10 |
||||||||||||||||||||
Reinsurance |
(2) |
(3) |
(3) |
(11) |
(5) |
(19) |
(23) |
||||||||||||||||||||
Other |
4 |
4 |
4 |
4 |
5 |
16 |
18 |
||||||||||||||||||||
Reinsurance terminations (3) |
— |
— |
(2) |
— |
— |
(2) |
— |
||||||||||||||||||||
Primary Average Claim Payment (thousands) |
$ |
48.0 |
(2) |
$ |
47.2 |
(2) |
$ |
50.2 |
(2) |
$ |
51.1 |
(2) |
$ |
49.2 |
$ |
49.2 |
(2) |
$ |
48.5 |
(2) |
|||||||
Flow only |
$ |
41.6 |
(2) |
$ |
42.0 |
(2) |
$ |
45.2 |
(2) |
$ |
45.2 |
(2) |
$ |
45.1 |
$ |
43.6 |
(2) |
$ |
44.8 |
(2) |
|||||||
(1) |
Excluding our estimate of delinquencies resulting from hurricane activity and their associated loss reserves, the average direct reserve per delinquency was approximately $24,000. |
(2) |
Excludes amounts paid in settlement disputes for claims paying practices and/or commutations of non-performing loans. |
(3) |
Net paid claims, as presented, does not include amounts received in conjunction with terminations or commutations of reinsurance agreements. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - REINSURANCE, BULK STATISTICS and MI RATIOS |
|||||||||||||||||||||||||||
2018 |
2017 |
Year-to-date |
|||||||||||||||||||||||||
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
2018 |
2017 |
|||||||||||||||||||||
Quota Share Reinsurance |
|||||||||||||||||||||||||||
% insurance inforce subject to reinsurance |
77.5 |
% |
77.6 |
% |
78.2 |
% |
77.9 |
% |
78.2 |
% |
|||||||||||||||||
% NIW subject to reinsurance |
75.5 |
% |
75.4 |
% |
75.9 |
% |
73.3 |
% |
77.0 |
% |
75.1 |
% |
84.2 |
% |
|||||||||||||
Ceded premiums written and earned (millions) |
$ |
28.6 |
$ |
25.2 |
$ |
21.4 |
$ |
33.0 |
$ |
32.3 |
$ |
108.2 |
$ |
121.0 |
|||||||||||||
Ceded losses incurred (millions) |
$ |
3.0 |
$ |
(0.5) |
$ |
(3.7) |
$ |
7.8 |
$ |
7.3 |
$ |
6.6 |
$ |
22.3 |
|||||||||||||
Ceding commissions (millions) (included in underwriting and other expenses) |
$ |
12.9 |
$ |
13.0 |
$ |
12.6 |
$ |
12.6 |
$ |
12.6 |
$ |
51.1 |
$ |
49.3 |
|||||||||||||
Profit commission (millions) (included in ceded premiums) |
$ |
36.0 |
$ |
39.7 |
$ |
41.8 |
$ |
30.2 |
$ |
30.6 |
$ |
147.7 |
$ |
125.6 |
|||||||||||||
Bulk Primary Insurance Statistics |
|||||||||||||||||||||||||||
Insurance in force (billions) |
$ |
6.8 |
$ |
7.0 |
$ |
7.4 |
$ |
7.7 |
$ |
8.0 |
|||||||||||||||||
Risk in force (billions) |
$ |
1.9 |
$ |
2.0 |
$ |
2.1 |
$ |
2.2 |
$ |
2.2 |
|||||||||||||||||
Average loan size (thousands) |
$ |
144.8 |
$ |
145.4 |
$ |
144.5 |
$ |
143.8 |
$ |
144.6 |
|||||||||||||||||
Number of delinquent loans |
7,979 |
8,268 |
8,787 |
9,622 |
10,765 |
||||||||||||||||||||||
Delinquency rate |
16.86 |
% |
16.98 |
% |
17.19 |
% |
17.95 |
% |
19.47 |
% |
|||||||||||||||||
Primary paid claims (millions) |
$ |
19 |
$ |
18 |
$ |
22 |
$ |
24 |
$ |
25 |
$ |
83 |
$ |
115 |
|||||||||||||
Average claim payment (thousands) |
$ |
73.2 |
$ |
69.6 |
$ |
67.7 |
$ |
72.8 |
$ |
64.4 |
$ |
70.8 |
$ |
63.7 |
|||||||||||||
Mortgage Guaranty Insurance Corporation - Risk to Capital |
9.0:1 |
(1) |
9.0:1 |
9.1:1 |
9.4:1 |
9.5:1 |
|||||||||||||||||||||
Combined Insurance Companies - Risk to Capital |
9.8:1 |
(1) |
9.8:1 |
10.0:1 |
10.3:1 |
10.5:1 |
|||||||||||||||||||||
GAAP loss ratio (insurance operations only) |
11.3 |
% |
(0.6) |
% |
(5.4) |
% |
10.3 |
% |
(13.1) |
% |
3.7 |
% |
5.7 |
% |
|||||||||||||
GAAP underwriting expense ratio (insurance operations only) |
19.1 |
% |
17.6 |
% |
16.4 |
% |
19.5 |
% |
15.9 |
% |
18.2 |
% |
16.0 |
% |
|||||||||||||
(1) |
Preliminary |
Risk Factors
As used below, "we," "our" and "us" refer to
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
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
Our private mortgage insurance competitors include:
Arch Mortgage Insurance Company ,Essent Guaranty, Inc. ,Genworth Mortgage Insurance Corporation ,National Mortgage Insurance Corporation , andRadian Guaranty Inc.
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, the strength of our management team and field organization, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.
Much of the competition in the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates for borrower-paid mortgage insurance policies ("BPMI"); (ii) use by competitors of a spectrum of filed rates to allow for formulaic, risk-based pricing that may be adjusted more frequently within certain parameters (referred to as "loan level pricing systems"); and (iii) use of customized rates (discounted from standard rates) that are made available to lenders that meet certain criteria.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. We reduced certain of our rates in 2018, which will reduce our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies with higher premium rates run off and new insurance policies with lower premium rates are written. Because the industry is currently experiencing relatively low levels of mortgage insurance losses and acceptable returns on new business, we expect price competition to remain strong.
In 2018, we continued to evolve our pricing from a standard rate card approach, where premium rates vary based on relatively few attributes, to a more granular approach, where more attributes are considered. In the first quarter of 2019 we introduced MiQ™, our loan level pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. The widespread use of loan level pricing systems by the private mortgage industry will make it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry changes until we observe that our volume of new insurance written ("NIW") has changed and our volume may fluctuate more as a result.
There can be no assurance that our premium rates adequately reflect the risk associated with the underlying mortgage insurance policies. For additional information, see our risk factors titled "The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations" and "If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our business, results of operations and financial condition."
Our relationships with our customers, which may affect the amount of our new business written, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements result in our declining to insure some of the loans originated by our customers, or our insurance policy rescissions and claim curtailments affect the customer. Regarding the concentration of our new business, our largest customer accounted for approximately 4% and 5% of our NIW in each of 2017 and 2018, respectively, and our top ten customers accounted for approximately 23% and 24% of our NIW, in each of 2017 and 2018, respectively.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore reinsurance vehicles, which are also tax-advantaged). As a result, they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by
Substantially all of our insurance written since 2008 has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs require a mortgage insurer to maintain a minimum amount of assets to support its insured risk, as discussed in our risk factor titled "We may not continue to meet the GSEs' private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility." The PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the following ways:
- A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our new insurance written.
- Our ability to participate in the non-GSE mortgage market (which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our mortgage insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from
Moody's is Baa2 (with a stable outlook) , fromStandard & Poor's is BBB+ (with a stable outlook) and fromA.M. Best is A- (with a stable outlook). - Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected.
The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
- lenders using FHA, VA and other government mortgage insurance programs,
- investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance,
- lenders and other investors holding mortgages in portfolio and self-insuring, and
- lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
In 2018,
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as en