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Press Release

MGIC Investment Corporation Reports Fourth Quarter 2018 Results

Jan 17, 2019
Fourth Quarter 2018 Net Income of $157.7 million or $0.43 per Diluted Share
Fourth Quarter 2018 Adjusted Net Operating Income (Non-GAAP) of $154.0 million or $0.42 per Diluted Share

MILWAUKEE, Jan. 17, 2019 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the fourth quarter of 2018. Net income for the quarter was $157.7 million, or $0.43 per diluted share, compared with net income of $27.3 million, or $0.07 per diluted share for the fourth quarter of 2017.

Adjusted net operating income for the fourth quarter of 2018 was $154.0 million, or $0.42 per diluted share, compared with $160.7 million, or $0.43 per diluted share for the fourth quarter of 2017. We present the non-GAAP financial measure "Adjusted net operating income" to increase the comparability between periods of our financial results. See "Use of Non-GAAP financial measures" below.

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 at December 31, 2018 increased by 1.9% during the quarter and 7.6% compared to December 31, 2017.
  • Primary delinquent inventory of 32,898 loans at December 31, 2018 decreased 29.3% year-over-year from 46,556 loans at December 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% at December 31, 2017, and 5.04% at December 31, 2016. The percentage of flow primary loans that were delinquent at December 31, 2018 was 2.47%, compared to 3.70% at December 31, 2017, and 4.05% at December 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% at December 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.

Patrick Sinks, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am pleased to report that 2018 produced strong financial results.  Specifically compared to 2017, our insurance in force increased more than 7%, persistency continued to increase, investment income increased, and we wrote nearly 3% more new insurance.  The credit performance for the new business written since 2008 remains outstanding, the legacy book continued to decrease in size and contribute fewer delinquencies, and we maintained a low expense ratio." Sinks continued, "In 2018 we repurchased more than 4% of our common stock outstanding, executed an insurance linked note transaction that reduces potential future earnings volatility from credit losses, decreased our debt ratios, received an A- rating from A.M. Best for the main operating subsidiaries, and increased dividends to our holding company to $220 million."

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 $285.6 million, compared to $271.5 million in the fourth quarter last year. Net premiums written for the quarter were $248.0 million, compared to $259.5 million for the same period last year. Net premiums earned for the quarter were $245.7 million, compared to $237.4 million for the same period last year. The increase was primarily due to higher average insurance in force and a decrease in ceded premiums during the quarter, partially offset by the effect of lower premium rates. The ceded premiums decreased due to lower ceded losses, resulting in a higher profit commission. Investment income for the fourth quarter increased to $38.3 million, from $31.3 million for the same period last year, resulting from an increase in the consolidated investment portfolio as well as higher yields.

Losses and expenses

Losses incurred 

Losses incurred in the fourth quarter of 2018 were $27.7 million, compared to $(31.0) million in the fourth quarter of 2017. During the fourth quarter of 2018 there was a $22 million reduction in losses incurred due to positive development on our primary loss reserves, before reinsurance, for previously received delinquent notices, compared to a reduction of $103 million in the fourth quarter of 2017.

Underwriting and other expenses

Net underwriting and other expenses were $50.0 million in the fourth quarter of 2018, compared to $43.8 million in the same period last year. The increase in expenses was due to higher compensation and other expenses.

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 of December 31, 2018.
  • Preliminary Consolidated Risk-to-Capital was 9.8:1 as of December 31, 2018, compared to 10.5:1 as of December 31, 2017.
  • MGIC's PMIERs Available Assets totaled $4.8 billion, or $1.4 billion above its Minimum Required Assets as of December 31, 2018.

Other Balance Sheet and Liquidity Metrics

  • Total assets were $5.7 billion as of December 31, 2018, compared to $5.6 billion as of December 31, 2017, and $5.7 billion as of December 31, 2016.
  • The fair value of our investment portfolio, cash and cash equivalents was $5.3 billion as of December 31, 2018, compared to $5.1 billion as of December 31, 2017, and $4.8 billion as of December 31, 2016.
  • Investments, cash and cash equivalents at the holding company were $248 million as of December 31, 2018, compared to $261 million as of September 30, 2018, and $216 million as of December 31, 2017.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, January 17, 2019, 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 February 17, 2019 under "Newsroom."

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality. At December 31, 2018, MGIC had $209.7 billion of primary insurance in force covering over one million mortgages.

This press release, which includes certain additional statistical and other information, including non-GAAP financial information, and a supplement that contains various portfolio statistics are both available on the Company's website at https://mtg.mgic.com/ under "Newsroom."

From time to time MGIC Investment Corporation releases important information via postings on its corporate website, and via postings on MGIC's website for information related to underwriting and pricing, and intends to continue to do so in the future. Such postings include corrections of previous disclosures, and may be made without any other disclosure. Investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information for MGIC Investment Corporation alerts can be found at https://mtg.mgic.com/shareholder-services/email-alerts. Enrollment information for MGIC alerts can be found https://www.mgic.com/ClearRates/index.html.

Safe Harbor Statement

Forward Looking Statements and Risk Factors:

Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission ("SEC"). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as "believe," "anticipate," "will" or "expect," or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was delivered for dissemination to the public.

In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Form 10-K for the year ended December 31, 2018.

While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.

Use of Non-GAAP financial measures

We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as alternatives to GAAP measures of performance.

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items where applicable.

Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21% in 2018 and 35% in 2017.

Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.

Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

(1)

Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.



(2)

Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.



(3)

Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.



(4)

Infrequent or unusual non-operating items. Our income tax expense includes amounts related to our IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities. 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
(after-tax)


Pre-tax


Tax Effect


Net
(after-tax)

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
(after-tax)


Pre-tax


Tax Effect


Net
(after-tax)

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 MGIC Investment Corporation's consolidated operations or to MGIC Investment Corporation, as the context requires; and "MGIC" refers to Mortgage Guaranty Insurance Corporation.

Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission ("SEC"). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make, including forward looking statements in these risk factors. Forward looking statements consist of statements that relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as "believe," "anticipate," "will" or "expect," or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was delivered for dissemination to the public.

Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.

Our private mortgage insurance competitors include:

  • Arch Mortgage Insurance Company,
  • Essent Guaranty, Inc.,
  • Genworth Mortgage Insurance Corporation,
  • National Mortgage Insurance Corporation, and
  • Radian Guaranty Inc.

The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on 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 Fannie Mae and Freddie Mac (the "GSEs") discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance." In addition, because of their tax advantages, all other things equal, certain competitors 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.

Substantially all of our insurance written since 2008 has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs require a mortgage insurer to maintain a minimum amount of assets to support its insured risk, as discussed in our risk factor titled "We may not continue to meet the GSEs' private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility." The PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the following ways:

  • A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our new insurance written.
  • Our ability to participate in the non-GSE mortgage market (which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our mortgage insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from Moody's is Baa2 (with a stable outlook) , from Standard & Poor's is BBB+ (with a stable outlook) and from A.M. Best is A- (with a stable outlook).
  • Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when 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, Freddie Mac and Fannie Mae initiated 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 offer premium rates that are generally below prevalent single premium lender paid mortgage insurance ("LPMI") rates. While we view these programs as competing with traditional private mortgage insurance, we have participated in them and may participate in future GSE or other programs.

The GSEs (and other invest