UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

MGIC Investment Corporation

(Exact Name of Registrant as Specified in Its Charter)

Wisconsin
(State or Other Jurisdiction of Incorporation)

1-10816		39-1486475
(Commission File Number)		(IRS Employer Identification No.)
MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, WI		53202
(Address of Principal Executive Offices)		(Zip Code)

(414) 347-6480
(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition

The Company issued a press release on February 13, 2008 announcing its results of operations for the year ended December 31, 2007 and certain other information. The press release is furnished as Exhibit 99.

Item 9.01. Financial Statements and Exhibits

	(d)		Exhibits
			Pursuant to General Instruction B.2 to Form 8-K, the Company’s February 13, 2008 press release is furnished as Exhibit 99 and is not filed.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

INDEX TO EXHIBITS

Exhibit
Number		Description of Exhibit
99		Press Release dated February 13, 2008. (Pursuant to General Instruction B.2 to Form 8-K, this press release is furnished and is not filed.)

Exhibit 99

Investor Contact:		Michael J. Zimmerman, Investor Relations, (414) 347-6596, mike_zimmerman@mgic.com
Media Contact:		Katie Monfre, Corporate Communications, (414) 347-2650, katie_monfre@mgic.com

MGIC Investment Corporation
Reports Fourth Quarter 2007 Results

     MILWAUKEE (February 13, 2008) ¾ MGIC Investment Corporation (NYSE:MTG) today reported a net loss for the quarter ended December 31, 2007 of $1.47 billion, including certain items described below. This compares with net income of $121.5 million for the same quarter a year ago. Diluted loss per share was $18.17 for the quarter ending December 31, 2007, compared to earnings per share of $1.47 for the same quarter a year ago.

Included in the quarterly results is the establishment of a pre-tax premium deficiency reserve of approximately $1.2 billion relating to Wall Street bulk transactions. The premium deficiency reserve reflects the present value of expected future losses and expenses that exceeded the present value of expected future premium and already established loss reserves for these bulk transactions. Also included in the quarterly results is an after-tax charge of $33 million related to equity losses incurred by C-BASS in the fourth quarter that reduced the carrying value of the $50 million note from C-BASS to zero.

Curt S. Culver, chairman and chief executive officer of MGIC Investment Corporation and Mortgage Guaranty Insurance Corporation (MGIC), said that the low cure rates coupled with higher loss severities and higher delinquencies had a material impact on the company’s financial results both in the quarter and for the year. Mr. Culver said that given the company’s expectations for credit loss development, unless the cure rate and loss severity improves, the company does not foresee net income for 2008. He added that, despite this difficult operating environment, the company has adequate capital to meet its claim obligations and that there have been significant improvements to the company’s business fundamentals, including higher persistency, increased use of mortgage insurance, higher premiums for certain segments of business and improved credit standards, which should benefit the company financially over the long-term.

To strengthen the company’s ability to capitalize on its strong business fundamentals, the Company has retained an advisor to assist it in exploring alternatives for increasing its capital.

The net loss for the full year of 2007 was $1.67 billion, compared with net income of $564.7 million for 2006. Diluted loss per share for the full year was $20.54 compared with diluted earnings per share of $6.65 in 2006.

Total revenues for the fourth quarter were $399.1 million, up 8.7 percent from $367.2 million in the fourth quarter of 2006. The increase in revenues resulted primarily from an increase in earned premiums and investment income partially offset by a decrease in other revenue. Net premiums written for the quarter were $380.5 million, compared with $305.6 million in the fourth quarter last year, an increase of 24.5 percent.

Total revenues for the year were $1.69 billion, compared with $1.47 billion in 2006. The increase in revenues for the year resulted primarily from a 6.3 percent increase in premiums earned to $1.26 billion from $1.19 billion last year and an increase in realized gains due to the $162.9 million pre-tax realized gain from the partial sale of the Sherman joint venture in the third quarter of 2007. Net premiums written for the year were $1.35 billion, compared with $1.22 billion in 2006, an increase of 10.6 percent.

New insurance written in the fourth quarter was $24.0 billion, compared to $15.5 billion in the fourth quarter of 2006. New insurance written for the quarter included $2.4 billion of bulk business compared with $5.1 billion in the same period last year. New insurance written for the full year of 2007 was $76.8 billion compared to $58.2 billion for the full year of 2006 and includes $7.8 billion of bulk business compared to $18.9 billion in 2006.

Persistency, or the percentage of insurance remaining in force from one year prior, was 76.4 percent at December 31, 2007, compared with 69.6 percent at December 31, 2006 and 61.3% at December 31, 2005.

As of December 31, 2007, MGIC’s primary insurance in force was $211.7 billion, compared with $176.5 billion at December 31, 2006, and $170.0 billion at December 31, 2005. The book value of MGIC Investment Corporation’s investment portfolio was $5.9 billion at December 31, 2007, compared with $5.3 billion at December 31, 2006 and December 31, 2005.

As of December 31, 2007, the delinquency inventory is 107,120. At December 31, 2007, the percentage of loans that were delinquent, excluding bulk loans, was 4.99 percent, compared with 4.08 percent at December 31, 2006, and 4.52 percent at December 31, 2005. Including bulk loans, the percentage of loans that were delinquent at December 31, 2007 was 7.45 percent, compared to 6.13 percent at December 31, 2006, and 6.58 percent at December 31, 2005.

Losses incurred in the fourth quarter were $1.35 billion, up from $187.3 million reported for the same period last year due primarily to the increase in both the number and size of loans that are delinquent, increased loss severity, decreased cure rates in certain markets, particularly California and Florida, continued weakness in the Midwest, and increased paid losses. Losses incurred for the full year 2007 were $2.37 billion up from $613.6 million in 2006. Underwriting and other expenses were $74.6 million in the fourth quarter down from $75.4 million reported for the same period last year. Underwriting and other expenses for the full year 2007 were $314.6 million up from $294.8 million in 2006 due to $12.3 million of one-time merger related expenses.

Loss from joint ventures, net of tax, for the quarter was $24.7 million, down from income, net of tax of, $47.0 million for the same period last year. Included in the joint venture loss is an additional after-tax charge of the $33 million that resulted from equity losses incurred by C-BASS in the fourth quarter reducing the carrying value of the $50 million note from C-BASS to zero. For the full year of 2007 joint venture losses, net of tax, were $269.3 million versus joint venture income, net of tax, of $169.5 million for the full year of 2006 due primarily to the impairment of the entire equity investment in C-BASS and the associated reduction of the $50 million note from C-BASS.

Historically, a significant portion of the mortgage insurance provided by MGIC through the bulk channel has been used as a credit enhancement for securitizations. During the fourth quarter, the performance of loans included in Wall Street bulk transactions deteriorated materially. Therefore, during the fourth quarter of 2007, we decided to stop writing that portion of our bulk business. A Wall Street bulk transaction is any bulk transaction where we had knowledge that the loans would serve as collateral in a home equity securitization. In general, these bulk transactions on average reflect lower average FICO scores and a higher percentage of ARMs, compared to our other bulk business. We plan to continue to provide mortgage insurance on bulk transactions with the GSEs or portfolio transactions where the lender will hold the loans. Wall Street bulk transactions represented approximately 41%, 66% and 89% of our new insurance written for bulk transactions during 2007, 2006 and 2005, respectively, and at December 31, 2007 included approximately 145,000 loans with insurance in force of approximately $25.5 billion and risk in force of approximately $7.6 billion (which is 74% of our total bulk risk in force).

The $1.2 billion premium deficiency reserve reflects the present value of expected future losses and expenses that exceeded the present value of expected future premium and already established loss reserves. Within the premium deficiency calculation, our expected present value of expected future paid losses and expenses was $3.5 billion, offset by the present value of expected future premium of $0.9 billion and already established loss reserves of $1.4 billion.

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is the nation’s leading provider of private mortgage insurance coverage with $211.7 billion primary insurance in force covering 1.44 million mortgages as of December 31, 2007. MGIC serves 5,000 lenders with locations across the country and in Puerto Rico, Guam and Australia, helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.

Webcast Details

As previously announced, MGIC Investment Corporation will hold a webcast today at 10 a.m. ET to allow securities analysts and shareholders the opportunity to hear management discuss the company’s quarterly results. The call is being webcast and can be accessed at the company’s website at www.mgic.com. The webcast is also being distributed over CCBN’s Investor Distribution Network to both institutional and individual investors. Investors can listen to the call through CCBN’s individual investor center at www.companyboardroom.com or by visiting any of the investor sites in CCBN’s Individual Investor Network. The webcast will be available for replay through March 13, 2008.

This press release, which includes certain additional statistical and other information, including non-GAAP financial information, is available on the Company’s website at www.mgic.com under “Investor — News and Financials – News Releases.” The Company also posted on its website additional information it feels will provide investors useful information about the Company’s primary risk in force under “Investor — News and Financials – News Releases – Webcasts/Presentations”.

Safe Harbor Statement

Forward-Looking Statements and Risk Factors:

Our revenues and losses could be affected by the risk factors discussed below that are applicable to us, and our income from joint ventures could be affected by the risk factors discussed below that are applicable to Sherman. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission. These 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. Among others, statements

that include words such as we “believe”, “anticipate” or “expect”, or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking 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 issued.

Deterioration in home prices in the segment of the market we serve, a downturn in the domestic economy or changes in our mix of business may result in more homeowners defaulting and our losses increasing.

Losses result from events that reduce a borrower’s ability to continue to make mortgage payments, such as unemployment, and whether the home of a borrower who defaults on his mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. Favorable economic conditions generally reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. A deterioration in economic conditions generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect housing values. Housing values 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 mortgage credit due to more stringent underwriting standards or other factors.

The mix of business we write also affects the likelihood of losses occurring. In recent years, the percentage of our volume written on a flow basis that includes segments we view as having a higher probability of claim has continued to increase. These segments include loans with LTV ratios over 95% (including loans with 100% LTV ratios), FICO credit scores below 620, limited underwriting, including limited borrower documentation, or total debt-to-income ratios of 38% or higher, as well as loans having combinations of higher risk factors.

As of December 31, 2007 approximately 5% of our primary risk in force written through the flow channel, and 53% of our primary risk in force written through the bulk channel, consists of adjustable rate mortgages in which the initial interest rate may be adjusted during the five years after the mortgage closing (“ARMs”). (We classify as fixed rate loans adjustable rate mortgages in which the initial interest rate is fixed during the five years after the mortgage closing.) We believe that during a prolonged period of rising interest rates, claims on ARMs would be substantially higher than for fixed rate loans. Moreover, even if interest rates remain unchanged, claims on ARMs with a “teaser rate” (an initial interest rate that does not fully reflect the index which determines subsequent rates) may also be substantially higher because of the increase in the mortgage payment that will occur when the fully indexed rate becomes effective. In addition, we believe the volume of “interest-only” loans (which may also be ARMs) and loans with negative amortization features, such as pay option ARMs, increased in 2005 and 2006 and have remained at these levels during the first half of 2007, before declining in the second half of 2007. We believe claim rates on certain of these loans will be substantially higher than on loans without scheduled payment increases that are made to borrowers of comparable credit quality.

The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.

These alternatives to private mortgage insurance include:

	•		lenders and other investors holding mortgages in portfolio and self-insuring,
	•		investors using credit enhancements other than private mortgage insurance, using other credit enhancements in conjunction with reduced levels of private mortgage insurance coverage, or accepting credit risk without credit enhancement.

	•		lenders using government mortgage insurance programs, including those of the Federal Housing Administration and the Veterans Administration, 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 (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% LTV ratio that has private mortgage insurance.

Competition or changes in our relationships with our customers could reduce our revenues or increase our losses.

Competition for private mortgage insurance premiums occurs not only among private mortgage insurers but also with mortgage lenders through captive mortgage reinsurance transactions. In these transactions, a lender’s affiliate reinsures a portion of the insurance written by a private mortgage insurer on mortgages originated or serviced by the lender. As discussed under “The mortgage insurance industry is subject to risk from private litigation and regulatory proceedings” below, we provided information to the New York Insurance Department and the Minnesota Department of Commerce about captive mortgage reinsurance arrangements. Other insurance departments or other officials, including attorneys general, may also seek information about or investigate captive mortgage reinsurance.

The level of competition within the private mortgage insurance industry has also increased as many large mortgage lenders have reduced the number of private mortgage insurers with whom they do business. At the same time, consolidation among mortgage lenders has increased the share of the mortgage lending market held by large lenders.

Our private mortgage insurance competitors include:

	•		PMI Mortgage Insurance Company,
	•		Genworth Mortgage Insurance Corporation,
	•		United Guaranty Residential Insurance Company,
	•		Radian Guaranty Inc.,
	•		Republic Mortgage Insurance Company,
	•		Triad Guaranty Insurance Corporation, and
	•		CMG Mortgage Insurance Company.

While the mortgage insurance industry has not had new entrants in many years, it is possible that positive business fundaments could encourage the formation of start-up mortgage insurers.

If interest rates decline, house prices appreciate or mortgage insurance cancellation requirements change, the length of time that our policies remain in force could decline and result in declines in our revenue.

In each year, most of our premiums are from insurance that has been written in prior years. As a result, the length of time insurance remains in force (which is also generally referred to as persistency) is an important determinant of revenues. The factors affecting the length of time our insurance remains in force include:

	•		the level of current mortgage interest rates compared to the mortgage coupon rates on the insurance in force, which affects the vulnerability of the insurance in force to refinancings, and
	•		mortgage insurance cancellation policies of mortgage investors along with the rate of home price appreciation experienced by the homes underlying the mortgages in the insurance in force.

During the 1990s, our year-end persistency ranged from a high of 87.4% at December 31, 1990 to a low of 68.1% at December 31, 1998. At December 31, 2007 persistency was at 76.4%, compared to the record low of 44.9% at September 30, 2003. Over the past several years, refinancing has become easier to accomplish and less costly for many consumers. Hence, even in an interest rate environment favorable to persistency improvement, we do not expect persistency will reach its December 31, 1990 level.

If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline which would reduce our revenues.

The factors that affect the volume of low-down-payment mortgage originations include:

	•		the level of home mortgage interest rates,
	•		the health of the domestic economy as well as conditions in regional and local economies,
	•		housing affordability,
	•		population trends, including the rate of household formation,
	•		the rate of home price appreciation, which in times of heavy refinancing can affect whether refinance loans have LTV ratios that require private mortgage insurance, and
	•		government housing policy encouraging loans to first-time homebuyers.

Changes in the business practices of Fannie Mae and Freddie Mac could reduce our revenues or increase our losses.

The business practices of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), each of which is a government sponsored entity (“GSE”), affect the entire relationship between them and mortgage insurers and include:

	•		the level of private mortgage insurance coverage, subject to the limitations of Fannie Mae and Freddie Mac’s charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,
	•		whether Fannie Mae or Freddie Mac influence the mortgage lender’s selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection,
	•		whether Fannie Mae or Freddie Mac will give mortgage lenders an incentive, such as a reduced guaranty fee, to select a mortgage insurer that has a “AAA” claims-paying ability rating to benefit from the lower capital requirements for Fannie Mae and Freddie Mac when a mortgage is insured by a company with that rating,
	•		the underwriting standards that determine what loans are eligible for purchase by Fannie Mae or Freddie Mac, which thereby 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, and
	•		the circumstances in which mortgage servicers must perform activities intended to avoid or mitigate loss on insured mortgages that are delinquent.

The mortgage insurance industry is subject to the risk of private litigation and regulatory proceedings.

Consumers are bringing a growing number of lawsuits against home mortgage lenders and settlement service providers. In recent years, seven mortgage insurers, including MGIC, have been involved in litigation alleging violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. MGIC’s settlement of class action litigation against it under RESPA became final in October 2003. MGIC settled the named plaintiffs’ claims in litigation against it under FCRA in late December 2004 following denial of class certification in June 2004. Since December 2006, class action litigation was separately brought against a number of large lenders alleging that their captive mortgage reinsurance arrangements violated RESPA. While we are not a defendant in any of these cases, there can be no assurance that MGIC will not be subject to future litigation under RESPA or FCRA or that the outcome of any such litigation would not have a material adverse effect on us.

In June 2005, in response to a letter from the New York Insurance Department (the “NYID”), we provided information regarding captive mortgage reinsurance arrangements and other types of arrangements in which lenders receive compensation. In February 2006, the NYID requested MGIC to review its premium rates in New York and to file adjusted rates based on recent years’ experience or to explain why such experience would not alter rates. In March 2006, MGIC advised the NYID that it believes its premium rates are reasonable and that, given the nature of mortgage insurance risk, premium rates should not be determined only by the experience of recent years. In February 2006, in response to an administrative subpoena from the Minnesota Department of Commerce (the “MDC”), which regulates insurance, we provided the MDC with information about captive mortgage reinsurance and certain other matters. We subsequently provided additional information to the MDC. Other insurance departments or other officials, including attorneys general, may also seek information about or investigate captive mortgage reinsurance.

The anti-referral fee provisions of RESPA provide that the Department of Housing and Urban Development (“HUD”) as well as the insurance commissioner or attorney general of any state may bring an action to enjoin violations of these provisions of RESPA. The insurance law provisions of many states prohibit paying for the referral of insurance business and provide various mechanisms to enforce this prohibition. While we believe our captive reinsurance arrangements are in conformity with applicable laws and regulations, it is not possible to predict the outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.

In October 2007, the Division of Enforcement of the SEC requested that we voluntarily furnish documents and information primarily relating to C-BASS, the now-terminated merger with Radian and the subprime mortgage assets “in the Company’s various lines of business.” We are in the process of providing responsive documents and information to the SEC.

The Internal Revenue Service has proposed significant adjustments to our taxable income for 2000 through 2004.

The Internal Revenue Service (“IRS”) has been conducting an examination of our federal income tax returns for taxable years 2000 though 2004. On June 1, 2007, as a result of this examination, we received a Revenue Agent Report (“RAR”). The adjustments reported on the RAR would substantially increase taxable income for those tax years and resulted in the issuance of an assessment for unpaid taxes totaling $189.5 million in taxes and accuracy related penalties, plus applicable interest. We have agreed with the IRS on certain issues and paid $10.5 million in additional taxes and interest. The remaining open issue relates to our treatment of the flow through income and loss from a portfolio of investments in the residual interests of Real Estate Mortgage Investment Conduits (“REMICs”). This portfolio has been managed and maintained during years prior to, during and subsequent to the examination period. The IRS has indicated that it does not believe that, for various reasons, that we have established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We disagree with this conclusion and believe that the flow through income and loss from these investments was properly reported on our federal income tax returns in accordance with applicable tax laws and regulations in effect during the periods involved and have appealed these adjustments. The appeals process may take some time and a final resolution may not be reached until a date many months or years into the future. In July 2007, the Company made a payment on account of $65.2 million with the United States Department of the Treasury to eliminate the further accrual of interest. We believe, after

discussions with outside counsel about the issues raised in the RAR and the procedures for resolution of the disputed adjustments, that an adequate provision for income taxes has been made for potential liabilities that may result from these notices. If the outcome of this matter results in payments that differ materially from our expectations, it could have a material impact on our effective tax rate, results of operations and cash flows.

Net premiums written could be adversely affected if the Department of Housing and Urban Development reproposes and adopts a regulation under the Real Estate Settlement Procedures Act that is equivalent to a proposed regulation that was withdrawn in 2004.

HUD regulations under RESPA prohibit paying lenders for the referral of settlement services, including mortgage insurance, and prohibit lenders from receiving such payments. In July 2002, HUD proposed a regulation that would exclude from these anti-referral fee provisions settlement services included in a package of settlement services offered to a borrower at a guaranteed price. HUD withdrew this proposed regulation in March 2004. Under the proposed regulation, if mortgage insurance were required on a loan, the package must include any mortgage insurance premium paid at settlement. Although certain state insurance regulations prohibit an insurer’s payment of referral fees, had this regulation been adopted in this form, our revenues could have been adversely affected to the extent that lenders offered such packages and received value from us in excess of what they could have received were the anti-referral fee provisions of RESPA to apply and if such state regulations were not applied to prohibit such payments.

We could be adversely affected if personal information on consumers that we maintain is improperly disclosed.

As part of our business, we maintain large amounts of personal information on consumers. While we believe we have appropriate information security policies and systems to prevent unauthorized disclosure, there can be no assurance that unauthorized disclosure, either through the actions of third parties or employees, will not occur. Unauthorized disclosure could adversely affect our reputation and expose us to material claims for damages.

The implementation of the Basel II capital accord may discourage the use of mortgage insurance.

In 1988, the Basel Committee on Banking Supervision (BCBS) developed the Basel Capital Accord (the Basel I), which set out international benchmarks for assessing banks’ capital adequacy requirements. In June 2005, the BCBS issued an update to Basel I (as revised in November 2005, Basel II). Basel II, which is scheduled to become effective in the United States and many other countries in 2008, affects the capital treatment provided to mortgage insurance by domestic and international banks in both their origination and securitization activities.

The Basel II provisions related to residential mortgages and mortgage insurance may provide incentives to certain of our bank customers not to insure mortgages having a lower risk of claim and to insure mortgages having a higher risk of claim. The Basel II provisions may also alter the competitive positions and financial performance of mortgage insurers in other ways, including reducing our ability to successfully establish or operate our planned international operations.

Our international operations will subject us to numerous risks.

We have committed significant resources to begin international operations, initially in Australia, where we started to write business June 2007. We plan to expand our international activities to other countries, including Canada. Accordingly, in addition to the general economic and insurance business-related factors discussed above, we are subject to a number of risks associated with our international business activities, including:

	•		risks of war and civil disturbances or other events that may limit or disrupt markets;
	•		dependence on regulatory and third-party approvals;
	•		changes in rating or outlooks assigned to our foreign subsidiaries by rating agencies;

	•		challenges in attracting and retaining key foreign-based employees, customers and business partners in international markets;
	•		foreign governments’ monetary policies and regulatory requirements;
	•		economic downturns in targeted foreign mortgage origination markets;
	•		interest-rate volatility in a variety of countries;
	•		the burdens of complying with a wide variety of foreign regulations and laws, some of which may be materially different than the regulatory and statutory requirements we face in our domestic business, and which may change unexpectedly;
	•		potentially adverse tax consequences;
	•		restrictions on the repatriation of earnings;
	•		foreign currency exchange rate fluctuations; and
	•		the need to develop and market products appropriate to the various foreign markets.

Any one or more of the risks listed above could limit or prohibit us from developing our international operations profitably. In addition, we may not be able to effectively manage new operations or successfully integrate them into our existing operations.

Downgrades in the financial strength ratings of MGIC below Aa3 (or its equivalent) could have a material adverse affect on us.

     The financial strength ratings of our wholly owned subsidiary Mortgage Guaranty Insurance Corporation (“MGIC”) are ‘AA-’ (Standard & Poors Rating Services), ‘Aa2’ (Moody’s Investors Service) and ‘AA’ (Fitch Ratings). Fitch Ratings has announced that its rating is under review with negative implications. In assigning financial strength ratings, in addition to considering the adequacy of the mortgage insurer’s capital to withstand extreme loss scenarios under assumptions determined by the rating agency, rating agencies review a mortgage insurer’s historical and projected operating performance, business outlook, competitive position, management, corporate strategy, and other factors. We believe a financial strength rating of at least Aa3/AA- is critical to a mortgage insurer’s ability to continue to write new business. Any downgrade below such level could have a material adverse affect on us.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2007				2006				2007				2006
						(in thousands of dollars, except per share data)
Net premiums written		$	380,528			$	305,614			$	1,345,794			$	1,217,236
Net premiums earned		$	335,952			$	297,032			$	1,262,390			$	1,187,409
Investment income			70,154				61,791				259,828				240,621
Realized (losses) gains			(9,961	)			(2,698	)			142,195				(4,264	)
Other revenue			2,940				11,111				28,793				45,403
Total revenues			399,085				367,236				1,693,206				1,469,169
Losses and expenses:
Losses incurred			1,346,165				187,286				2,365,423				613,635
Change in premium deficiency reserves			1,210,841				—				1,210,841				—
Underwriting, other expenses			74,607				75,446				314,643				294,809
Interest expense			11,507				11,341				41,986				39,348
Ceding commission			(1,724	)			(1,049	)			(5,033	)			(3,951	)
Total losses and expenses			2,641,396				273,024				3,927,860				943,841
(Loss) income before tax and joint ventures			(2,242,311	)			94,212				(2,234,654	)			525,328
(Credit) provision for income tax			(800,358	)			19,721				(833,977	)			130,097
(Loss) income from joint ventures, net of tax (1)			(24,674	)			46,978				(269,341	)			169,508
Net (Loss) income		$	(1,466,627	)		$	121,469			$	(1,670,018	)		$	564,739
Diluted weighted average common shares outstanding (Shares in thousands)			80,738				82,435				81,294				84,950
Diluted (loss) earnings per share		$	(18.17	)		$	1.47			$	(20.54	)		$	6.65
(1)   Diluted EPS contribution from C-BASS		$	(0.40	)		$	0.24			$	(3.99	)		$	1.02
Diluted EPS contribution from Sherman		$	0.08			$	0.32			$	0.64			$	0.94

NOTE: See “Certain Non-GAAP Financial Measures” for diluted earnings per share contribution from realized (losses) gains.

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF

		December 31,				December 31,				December 31,
		2007				2006				2005
		(in thousands of dollars, except per share data)
ASSETS
Investments (1)		$	5,896,233			$	5,252,422			$	5,295,430
Cash and cash equivalents			288,933				293,738				195,256
Reinsurance recoverable on loss reserves (2)			35,244				13,417				14,787
Prepaid reinsurance premiums			8,715				9,620				9,608
Home office and equipment, net			34,603				32,603				32,666
Deferred insurance policy acquisition costs			11,168				12,769				18,416
Other assets			1,441,465				1,007,102				791,406
		$	7,716,361			$	6,621,671			$	6,357,569
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves (2)			2,642,479				1,125,715				1,124,454
Premium deficiency reserves			1,210,841				—				—
Unearned premiums			272,233				189,661				159,823
Short- and long-term debt			798,250				781,277				685,163
Other liabilities			198,215				229,141				223,074
Total liabilities			5,122,018				2,325,794				2,192,514
Shareholders’ equity			2,594,343				4,295,877				4,165,055
		$	7,716,361			$	6,621,671			$	6,357,569
Book value per share		$	31.72			$	51.88			$	47.31
(1) Investments include unrealized gains on securities marked to market pursuant to FAS 115			101,982				128,752				119,836
(2) Loss reserves, net of reinsurance recoverable on loss reserves			2,607,235				1,112,298				1,109,667

CERTAIN NON-GAAP FINANCIAL MEASURES

		Three Months Ended December 31,								Twelve Months Ended December 31,
		2007				2006				2007				2006
Diluted earnings per share contribution from realized (losses) gains:
Realized (losses) gains		$	(9,961	)		$	(2,698	)		$	142,195			$	(4,264	)
Income taxes at 35%			(3,486	)			(944	)			49,768				(1,492	)
After tax realized (losses) gains			(6,475	)			(1,754	)			92,427				(2,772	)
Weighted average shares			80,738				82,435				81,294				84,950
Diluted EPS contribution from realized (losses) gains		$	(0.08	)		$	(0.02	)		$	1.14			$	(0.03	)

Management believes the diluted earnings per share contribution from realized (losses) gains provides useful information to investors because it shows the after-tax effect that sales of securities from the Company’s investment portfolio and the sale of interest in joint ventures, which are discretionary transactions, had on earnings.

OTHER INFORMATION

New primary insurance written (“NIW”) ($ millions)		$	24,031			$	15,482			$	76,806			$	58,242
New risk written ($ millions):
Primary		$	6,283			$	4,181			$	19,632			$	15,937
Pool (1)		$	60			$	40			$	211			$	240
Product mix as a % of primary flow NIW
> 95% LTVs			38	%			38	%			42	%			34	%
ARMs			1	%			8	%			3	%			10	%
Refinances			26	%			24	%			24	%			23	%

Additional Information

		Q2 2006				Q3 2006				Q4 2006				Q1 2007				Q2 2007				Q3 2007				Q4 2007
New insurance written (billions)
Total		$	16.1			$	16.6			$	15.5			$	12.7			$	19.0			$	21.1			$	24.0
Flow		$	10.1			$	10.8			$	10.4			$	10.4			$	17.3			$	19.7			$	21.6
Bulk		$	6.0			$	5.8			$	5.1			$	2.3			$	1.7			$	1.4			$	2.4
Insurance in force (billions)
Total		$	169.8			$	173.4			$	176.5			$	178.3			$	186.1			$	196.6			$	211.7
Flow		$	129.5			$	131.9			$	134.4			$	137.6			$	147.2			$	159.6			$	174.7
Bulk		$	40.3			$	41.5			$	42.1			$	40.7			$	38.9			$	37.0			$	37.0
Annual Persistency			64.1	%			67.8	%			69.6	%			70.3	%			72.0	%			74.0	%			76.4	%
Primary IIF (billions)		$	169.8			$	173.4			$	176.5			$	178.3			$	186.1			$	196.6			$	211.7
Prime (620 & >)		$	124.8			$	126.3			$	128.3			$	130.3			$	137.2			$	146.8			$	161.3
A minus (575 - 619)		$	13.9			$	13.5			$	14.0			$	14.0			$	14.5			$	15.1			$	15.9
Sub-Prime (< 575)		$	6.2			$	5.8			$	5.8			$	5.5			$	5.3			$	5.0			$	4.7
Reduced Doc (All FICOs)		$	24.8			$	27.9			$	28.5			$	28.4			$	29.1			$	29.8			$	29.9
Primary RIF (billions)		$	45.1			$	46.2			$	47.1			$	47.5			$	49.2			$	51.8			$	55.8
Prime (620 & >)		$	32.3			$	32.8			$	33.3			$	33.9			$	35.5			$	38.0			$	41.9
A minus (575 - 619)		$	3.9			$	3.8			$	4.0			$	4.0			$	4.1			$	4.2			$	4.4
Sub-Prime (< 575)		$	1.8			$	1.7			$	1.7			$	1.6			$	1.5			$	1.4			$	1.4
Reduced Doc (All FICOs)		$	7.1			$	7.9			$	8.1			$	8.0			$	8.1			$	8.2			$	8.2
Risk in force by FICO
% (FICO 620 & >)			85.1	%			86.0	%			85.8	%			86.2	%			86.7	%			87.5	%			88.4	%
% (FICO 575 - 619)			10.4	%			9.8	%			10.0	%			9.9	%			9.7	%			9.3	%			8.8	%
% (FICO < 575)			4.5	%			4.2	%			4.2	%			3.9	%			3.6	%			3.2	%			2.8	%
Average Coverage Ratio (RIF/IIF)
Total			26.6	%			26.6	%			26.7	%			26.6	%			26.4	%			26.4	%			26.3	%
Prime (620 & >)			25.9	%			26.0	%			26.0	%			26.0	%			25.9	%			25.9	%			26.0	%
A minus (575 - 619)			28.3	%			28.3	%			28.5	%			28.4	%			28.1	%			27.8	%			27.4	%
Sub-Prime (< 575)			28.5	%			28.7	%			29.1	%			29.2	%			28.3	%			29.1	%			28.9	%
Reduced Doc (All FICOs)			28.4	%			28.5	%			28.4	%			28.3	%			27.9	%			27.6	%			27.4	%
Average Loan Size (thousands)
Total IIF		$	133.59			$	135.93			$	137.57			$	138.74			$	141.16			$	143.46			$	147.31
Flow		$	126.53			$	127.99			$	129.32			$	130.82			$	134.17			$	137.74			$	142.26
Bulk		$	162.77			$	169.29			$	172.83			$	174.47			$	175.57			$	174.82			$	177.00
Prime (620 & >)		$	127.09			$	128.36			$	129.70			$	131.07			$	133.79			$	136.74			$	141.69
A minus (575 - 619)		$	126.51			$	126.19			$	129.12			$	129.72			$	130.78			$	131.58			$	133.46
Sub-Prime (< 575)		$	125.93			$	125.16			$	127.30			$	126.29			$	127.21			$	125.03			$	124.53
Reduced Doc (All FICOs)		$	191.88			$	200.65			$	202.98			$	204.58			$	207.53			$	208.69			$	209.99
Primary IIF — # of loans			1,270,718				1,275,822				1,283,174				1,284,926				1,318,318				1,370,426				1,437,432
Prime (620 & >)			981,983				983,749				989,111				994,504				1,025,658				1,073,219				1,138,300
A minus (575 - 619)			110,113				106,754				108,143				108,081				110,905				114,792				119,057
Sub-Prime (< 575)			49,234				46,429				45,633				43,480				41,665				39,754				37,894
Reduced Doc (All FICOs)			129,388				138,890				140,287				138,861				140,090				142,661				142,181
Primary IIF — # of Delinquent Loans			73,354				76,301				78,628				76,122				80,588				90,829				107,120
Flow			39,049				41,130				42,438				40,911				43,328				50,124				61,352
Bulk			34,305				35,171				36,190				35,211				37,260				40,705				45,768
Prime (620 & >)			34,268				35,838				36,727				35,436				36,712				41,412				49,333
A minus (575 - 619)			17,575				18,063				18,182				17,047				17,943				19,918				22,863
Sub-Prime (< 575)			12,001				12,150				12,227				11,246				11,679				12,186				12,915
Reduced Doc (All FICOs)			9,510				10,250				11,492				12,393				14,254				17,313				22,009

		Q2 2006				Q3 2006				Q4 2006				Q1 2007				Q2 2007				Q3 2007				Q4 2007
Primary IIF Delinquency Rates			5.77	%			5.98	%			6.13	%			5.92	%			6.11	%			6.63	%			7.45	%
Flow			3.82	%			3.99	%			4.08	%			3.89	%			3.95	%			4.33	%			4.99	%
Bulk			13.84	%			14.33	%			14.87	%			15.11	%			16.80	%			19.25	%			21.91	%
Prime (620 & >)			3.49	%			3.64	%			3.71	%			3.56	%			3.58	%			3.86	%			4.33	%
A minus (575 - 619)			15.96	%			16.92	%			16.81	%			15.77	%			16.18	%			17.35	%			19.20	%
Sub-Prime (< 575)			24.38	%			26.17	%			26.79	%			25.86	%			28.03	%			30.65	%			34.08	%
Reduced Doc (All FICOs)			7.35	%			7.38	%			8.19	%			8.92	%			10.17	%			12.14	%			15.48	%
Net Paid Claims (millions)		$	162			$	157			$	157			$	166			$	188			$	232			$	284
Flow		$	72			$	67			$	72			$	71			$	82			$	89			$	108
Bulk		$	65			$	69			$	65			$	75			$	84			$	121			$	154
Prime (620 & >)		$	67			$	62			$	65			$	67			$	75			$	87			$	103
A minus (575 - 619)		$	32			$	33			$	32			$	34			$	36			$	43			$	48
Sub-Prime (< 575)		$	18			$	20			$	17			$	19			$	23			$	26			$	33
Reduced Doc (All FICOs)		$	20			$	21			$	23			$	26			$	32			$	54			$	78
Other		$	25			$	21			$	20			$	20			$	22			$	22			$	22
Primary Average Claim Payment (thousands)		$	27.2			$	29.6			$	29.3			$	30.8			$	33.2			$	39.0			$	43.8
Flow		$	27.1			$	28.5			$	27.4			$	28.9			$	30.1			$	31.8			$	34.6
Bulk		$	27.2			$	30.8			$	31.7			$	33.0			$	36.9			$	46.9			$	53.8
Prime (620 & >)		$	26.6			$	28.3			$	27.7			$	29.1			$	30.6			$	34.1			$	36.5
A minus (575 - 619)		$	27.8			$	29.9			$	29.1			$	30.6			$	33.5			$	37.5			$	40.1
Sub-Prime (< 575)		$	24.6			$	28.3			$	27.3			$	27.8			$	31.3			$	35.7			$	40.2
Reduced Doc (All FICOs)		$	31.2			$	35.2			$	37.9			$	40.8			$	43.4			$	56.6			$	67.8
Risk sharing Arrangements — Flow Only
% insurance inforce subject to risk sharing (1)			47.6	%			47.5	%			47.6	%			47.3	%			46.7	%			46.9	%
% Quarterly NIW subject to risk sharing (1)			47.4	%			46.5	%			48.3	%			45.6	%			49.7	%			47.3	%
Premium ceded (millions)		$	32.6			$	33.0			$	35.4			$	36.7			$	36.6			$	43.4			$	47.6
Captive trust fund assets (millions)																										$	637
Other:
Direct Pool Risk in Force (millions) (2)		$	3,128			$	3,071			$	3,063			$	3,029			$	3,029			$	3,036			$	2,800
Mortgage Guaranty Insurance Corporation — Risk to Capital			6.3:1				6.4:1				6.4:1				6.4:1				6.7:1				7.9:1				10.3:1
Shares repurchased
# of shares (thousands)			1,824.8				2,697.0				216.9				—				1,115.1				150.0				—
Average price		$	67.25			$	58.88			$	58.00			$	—			$	60.67			$	53.40			$	—
C-BASS Investment (millions) (3)		$	413.9			$	430.1			$	449.5			$	442.9			$	466.0			$	—			$	—
Sherman Investment (millions) (3)		$	74.4			$	124.9			$	163.8			$	138.2			$	164.6			$	104.1			$	115.3
GAAP loss ratio (insurance operations only) (4)			49.7	%			55.7	%			63.0	%			60.8	%			76.7	%			187.6	%			400.6	%
GAAP expense ratio (insurance operations only)			16.7	%			16.4	%			17.2	%			17.8	%			16.7	%			15.4	%			13.6	%