e8vk
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
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Date of report (Date of earliest event reported) |
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July 18, 2006
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MGIC Investment Corporation
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin
(State or Other Jurisdiction of Incorporation)
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1-10816
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39-1486475 |
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(Commission File Number)
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(IRS Employer Identification No.) |
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MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, WI
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53202 |
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(Address of Principal Executive Offices)
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(Zip Code) |
(414) 347-6480
(Registrants 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))
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Item 2.02. |
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Results of Operations and Financial Condition |
The Company issued a press release on July 18, 2006 announcing its results of
operations for the quarter ended June 30, 2006 and certain other information. The
press release is furnished as Exhibit 99.
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Item 9.01. |
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Financial Statements and Exhibits |
(d) Exhibits
Pursuant to General Instruction B.2 to Form 8-K, the Companys July 18, 2006 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.
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MGIC INVESTMENT CORPORATION |
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Date: July 18, 2006
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By:
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\s\ Joseph J. Komanecki
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Joseph J. Komanecki |
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Senior Vice President, Controller and |
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Chief Accounting Officer |
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INDEX TO EXHIBITS
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Exhibit |
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Number |
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Description of Exhibit |
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99
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Press Release dated July 18, 2006. (Pursuant to General Instruction B.2 to Form 8-K, this
press release is furnished and is not filed.) |
exv99w1
Exhibit 99
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Investor Contact:
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Michael J. Zimmerman, Investor Relations, (414) 347-6596, mike_zimmerman@mgic.com |
Media Contact:
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Katie Monfre, Corporate Communications, (414) 347-2650, katie_monfre@mgic.com |
MGIC Investment Corporation
Second Quarter Net Income of $149.8 Million
MILWAUKEE (July 18, 2006) MGIC Investment Corporation (NYSE:MTG) today reported net income
for the quarter ended June 30, 2006 of $149.8 million, compared with the $174.4 million for the
same quarter a year ago. Diluted earnings per share were $1.74 for the quarter ending June 30,
2006, compared to $1.87 for the same quarter a year ago.
Net income for the first six months of 2006 was $313.3 million, compared with $356.4 million for
the same period
last year. For the first six months of 2006, diluted earnings per share were $3.61 compared with
$3.77 for the same
period last year.
Curt S. Culver, chairman and chief executive officer of MGIC Investment Corporation and Mortgage
Guaranty Insurance Corporation (MGIC), said that he was pleased with the resumption of insurance in
force growth during the quarter, the expected seasonal decline in the number of delinquent loans
and the positive joint venture results achieved during the quarter.
Total revenues for the second quarter were $363.5 million, down 8.0 percent from $395.0 million in
the second quarter of 2005. The decline in revenues resulted primarily from a 5.5 percent decrease
in net premiums earned to $294.5 million. Net premiums written for the quarter were $305.3 million,
compared with $309.2 million in the second quarter last year, a decrease of 1.3 percent.
New insurance written in the second quarter was $16.1 billion, compared to $16.6 billion in the
second quarter of 2005. New insurance written for the quarter included $6.0 billion of bulk
business compared with $6.2 billion in the same period last year. New insurance written for the
first six months of 2006 was $26.1 billion compared to $28.0 billion in the first half of 2005 and
includes $8.1 billion of bulk business compared to $8.7 billion in the first half of 2005.
Persistency, or the percentage of insurance remaining in force from one year prior, was 64.1
percent at June 30, 2006, compared with 61.3 percent at December 31, 2005, and 60.9 percent at June
30, 2005.
As of June 30, 2006, MGICs primary insurance in force was $169.8 billion, compared with $170.0
billion at
December 31, 2005, and $171.8 billion at June 30, 2005. The book value of MGIC Investment
Corporations
investment portfolio was $5.3 billion at June 30, 2006, compared with $5.3 billion at December 31,
2005, and $5.2 billion at June 30, 2005.
The delinquency inventory is 73,354 as of June 30, 2006 of which the company estimates 1,650
delinquencies are the result of Hurricanes Katrina, Rita and Wilma. At June 30, 2006, the
percentage of loans that were delinquent, excluding bulk loans, was 3.82 percent, compared with
4.52 percent at December 31, 2005, and 3.70 percent at June 30, 2005. Including bulk loans, the
percentage of loans that were delinquent at June 30, 2006 was 5.77 percent, compared to 6.58 percent
at December 31, 2005, and 5.62 percent at June 30, 2005.
Losses incurred in the second quarter were $146.5 million, up from $136.9 million reported for the
same period last year. Underwriting expenses were $72.4 million in the second quarter up from $68.9
million reported for the same period last year.
Income from joint ventures, net of tax, for the second quarter was $47.6 million up from $44.5 million for the
same period last year. For the six months ending June 30, 2006 joint venture contributions, net of
tax, were $86.7 million versus $78.7 million for the same period one year ago.
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is the nations
leading provider of private mortgage insurance coverage with $169.8 billion primary insurance in
force covering 1.3 million mortgages as of June 30, 2006. MGIC serves 5,000 lenders with locations
across the country and in Puerto Rico, 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 companys
quarterly results. The call is being webcast and can be accessed at the companys website at
www.mgic.com. The webcast is also being distributed over CCBNs Investor Distribution Network to
both institutional and individual investors. Investors can listen to the call through CCBNs
individual investor center at www.companyboardroom.com or by visiting any of the investor sites in
CCBNs Individual Investor Network. The webcast will be available for replay through August 18,
2006.
This press release, which includes certain additional statistical and other information, including
non-GAAP financial information, is available on the Companys website at www.mgic.com under
Investor News and Financials News Releases.
Safe Harbor Statement
Forward-Looking Statements and Risk Factors:
The Companys revenues and losses could be affected by the risk factors discussed below, which
should be reviewed in conjunction with the Companys periodic reports to the SEC. These factors may
also cause actual results to differ materially from the results contemplated by forward looking
statements that the Company may make. Forward looking statements consist of statements which relate
to matters other than historical fact. Among others, statements that include words such as the
Company believes, anticipates or expects, or words of similar import, are forward looking
statements. The Company is not undertaking any obligation to update any forward looking statements
it may make even though these statements may be affected by events or circumstances occurring after
the forward looking statements were made.
The amount of insurance the Company writes could be adversely affected if lenders and
investors select alternatives to private mortgage insurance.
These alternatives to private mortgage insurance include:
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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, |
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investors holding mortgages in portfolio and self-insuring, |
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investors using credit enhancements other than private mortgage
insurance or using other credit enhancements in conjunction with
reduced levels of private mortgage insurance coverage, and |
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lenders using government mortgage insurance programs, including
those of the Federal Housing Administration and the Veterans
Administration. |
While no data is publicly available, the Company believes that piggyback loans are a significant
percentage of mortgage originations in which borrowers make down payments of less than 20% and that
their use is primarily by borrowers with higher credit scores. During the fourth quarter of 2004,
the Company introduced on a national basis a program designed to recapture business lost to these
mortgage insurance avoidance products. This program accounted for 9.9% of flow new insurance
written in the second quarter of 2006 and 6.5% of flow new insurance written for all of 2005.
Deterioration in the domestic economy or changes in the mix of business may result in more
homeowners defaulting and the Companys losses increasing.
Losses result from events that reduce a borrowers 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.
Approximately 8.8% of the Companys primary risk in force is located in areas within Alabama
(0.3%), Florida (4.7%), Louisiana (1.0%), Mississippi (0.6%) and Texas (2.2%) that have been
declared eligible for individual and public assistance by the Federal Emergency Management Agency
as a result of Hurricanes Katrina, Rita and Wilma. The effect on the Company from these hurricanes,
however, will not be limited to these areas to the extent that the borrowers in areas that have not
experienced wind or water damage are adversely affected due to deteriorating economic conditions
attributable to these hurricanes.
The mix of business the Company writes also affects the likelihood of losses occurring. In recent
years, the percentage of the Companys volume written on a flow basis that includes segments the
Company views as having a higher probability of claim has continued to increase. These segments
include loans with loan-to-value (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.
Approximately 9% of the Companys primary risk in force written through the flow channel, and 72%
of the Companys primary risk in force written through the bulk channel, consists of adjustable
rate mortgages (ARMs). The Company believes that during a prolonged period of rising interest
rates, claims on ARMs would be substantially higher than for fixed rate loans, although the
performance of ARMs has not been tested in such an environment. In addition, interest-only loans
(which may also be ARMs) and other loans with negative amortization features, such as pay option
ARMs, remain present in the market. Because interest-only loans and pay option ARMs are a
relatively recent development, the Company has no data on their historical performance. The Company
believes claim rates on certain of these loans will be substantially higher than on comparable
loans that do not have negative amortization.
Competition or changes in the Companys relationships with its customers could reduce the
Companys revenues or increase its 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 lenders 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, the Company provided information to the New York Insurance Department and the Minnesota
Department of Commerce about captive mortgage reinsurance arrangements. It has been publicly
reported that certain other insurance departments may review or investigate such arrangements.
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.
The Companys private mortgage insurance competitors include:
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PMI Mortgage Insurance Company, |
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Genworth Mortgage Insurance Corporation, |
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United Guaranty Residential Insurance Company, |
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Radian Guaranty Inc., |
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Republic Mortgage Insurance Company, |
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Triad Guaranty Insurance Corporation, and |
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CMG Mortgage Insurance Company. |
If interest rates decline, house prices appreciate or mortgage insurance cancellation
requirements change, the length of time that the Companys policies remain in force could decline
and result in declines in the Companys revenue.
In each year, most of the Companys 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 the Companys insurance remains in force include:
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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 |
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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, the Companys 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 June 30, 2006 persistency was at 64.1%, 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, the Company does not expect persistency will
approach its December 31, 1990 level.
If the volume of low down payment home mortgage originations declines, the amount of insurance
that the Company writes could decline which would reduce the Companys revenues.
The factors that affect the volume of low-down-payment mortgage originations include:
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The level of home mortgage interest rates, |
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the health of the domestic economy as well as conditions in regional and local economies, |
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housing affordability, |
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population trends, including the rate of household formation, |
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the rate of home price appreciation, which in times of heavy
refinancing can affect whether refinance loans have loan-to-value
ratios that require private mortgage insurance, and |
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government housing policy encouraging loans to first-time homebuyers. |
In general, the majority of the underwriting profit (premium revenue minus losses) that a book of
mortgage insurance generates occurs in the early years of the book, with the largest portion of the
underwriting profit realized in the first year. Subsequent years of a book generally result in
modest underwriting profit or underwriting losses. This pattern of results occurs because
relatively few of the claims that a book will ultimately experience occur in the first few years of
the book, when premium revenue is highest, while subsequent years are affected by declining premium
revenues, as persistency decreases due to loan prepayments, and higher losses.
If all other things were equal, a decline in new insurance written in a year that followed a number
of years of higher volume could result in a lower contribution to the mortgage insurers overall
results. This effect may occur because the older books will be experiencing declines in revenue and
increases in losses with a lower amount of underwriting profit on the new book available to offset
these results.
Whether such a lower contribution would in fact occur depends in part on the extent of the volume
decline. Even with a substantial decline in volume, there may be offsetting factors that could
increase the contribution in the current year. These offsetting factors include higher persistency
and a mix of business with higher average premiums, which could have the effect of increasing
revenues, and improvements in the economy, which could have the effect of reducing losses. In
addition, the effect on the insurers overall
results from such a lower contribution may be offset
by decreases in the mortgage insurers expenses that are unrelated to claim or default activity,
including those related to lower volume.
Changes in the business practices of Fannie Mae and Freddie Mac could reduce the Companys
revenues or increase its 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:
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the level of private mortgage insurance coverage, subject
to the limitations of Fannie Mae and Freddie Macs
charters, when private mortgage insurance is used as the
required credit enhancement on low down payment mortgages, |
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whether Fannie Mae or Freddie Mac influence the mortgage
lenders selection of the mortgage insurer providing
coverage and, if so, any transactions that are related to
that selection, |
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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, |
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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, |
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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, |
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the terms on which mortgage insurance coverage can be
canceled before reaching the cancellation thresholds
established by law, and |
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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. MGICs 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. There can be no assurance that MGIC will not be subject to material future litigation
under RESPA or FCRA.
In June 2005, in response to a letter from the New York Insurance Department (NYID), the Company
provided information regarding captive mortgage reinsurance arrangements and other types of
arrangements in which lenders receive compensation. In February 2006, in response to an
administrative subpoena from the Minnesota Department of Commerce (the MDC), which regulates
insurance, the Company provided the MDC with information about captive mortgage reinsurance and
certain other matters. Insurance departments or other officials in other states may also seek
information about or investigate captive mortgage reinsurance or other matters.
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 the Company believes its 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 the Company or the mortgage
insurance industry.
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 insurers payment of referral
fees, had this regulation been adopted in this form, the Companys revenues could have been
adversely affected to the extent that lenders offered such packages and received value from the
Company 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.
The Companys income from joint ventures could be adversely affected by credit losses,
insufficient liquidity or competition affecting those businesses.
C-BASS: Credit-Based Asset Servicing and Securitization LLC (C-BASS) is particularly exposed to
credit risk and funding risk. In addition, C-BASSs results are sensitive to its ability to
purchase mortgage loans and securities on terms that it projects will meet its return targets. With
respect to credit risk, a higher proportion of non-conforming mortgage originations (the types of
mortgages C-BASS principally purchases) in 2005 compared to 2004 were products, such as interest
only loans to subprime borrowers, that are viewed by C-BASS as having greater credit risk. In
addition, credit losses are a function of housing prices, which in certain regions have experienced
rates of increase greater than historical norms and greater than growth in median incomes.
With respect to liquidity, the substantial majority of C-BASSs on-balance sheet financing for its
mortgage and securities portfolio is short-term and dependent on the value of the collateral that
secures this debt. While C-BASSs policies governing the management of capital at risk are intended
to provide sufficient liquidity to cover an instantaneous and substantial decline in value, such
policies cannot guaranty that all liquidity required will in fact be available.
Although there has been growth in the volume of non-conforming mortgage originations in recent
years, volume is expected to decline in 2006. There is an increasing amount of competition to
purchase non-conforming mortgages, including from real estate investment trusts and from firms that
in the past acted as mortgage securities intermediaries but which are now establishing their own
captive origination capacity. Decreasing credit spreads also heighten competition in the purchase
of non-conforming mortgages and other securities.
Sherman: The results of Sherman Financial Group LLC (Sherman) are sensitive to its ability to
purchase receivable portfolios on terms that it projects will meet its return targets. While the
volume of charged-off consumer receivables and the portion of these receivables that have been sold
to third parties such as
Sherman has grown in recent years, there is an increasing amount of competition to purchase such
portfolios, including from new entrants to the industry, which has resulted in increases in the
prices at which portfolios can be purchased.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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(in thousands of dollars, except per share data) |
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Net premiums written |
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$ |
305,280 |
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$ |
309,220 |
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$ |
605,752 |
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$ |
621,459 |
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Net premiums earned |
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$ |
294,503 |
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$ |
311,633 |
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$ |
594,170 |
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$ |
627,712 |
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Investment income |
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59,380 |
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57,178 |
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117,344 |
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114,181 |
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Realized gains (losses) |
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(1,838 |
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15,187 |
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(1,751 |
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16,752 |
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Other revenue |
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11,459 |
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10,955 |
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22,773 |
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21,216 |
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Total revenues |
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363,504 |
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394,953 |
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732,536 |
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779,861 |
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Losses and expenses: |
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Losses incurred |
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146,467 |
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136,915 |
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261,352 |
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235,781 |
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Underwriting, other expenses |
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72,417 |
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68,946 |
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147,769 |
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137,732 |
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Interest expense |
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8,843 |
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10,512 |
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18,158 |
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21,234 |
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Ceding commission |
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(925 |
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(887 |
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(2,012 |
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(1,778 |
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Total losses and expenses |
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226,802 |
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215,486 |
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425,267 |
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392,969 |
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Income before tax and joint ventures |
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136,702 |
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179,467 |
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307,269 |
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386,892 |
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Provision for income tax |
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34,479 |
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49,605 |
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80,645 |
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109,265 |
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Income from joint ventures, net of tax (1) |
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47,616 |
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44,495 |
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86,668 |
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78,743 |
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Net income |
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$ |
149,839 |
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$ |
174,357 |
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$ |
313,292 |
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$ |
356,370 |
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Diluted weighted average common shares
outstanding (Shares in thousands) |
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86,259 |
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|
|
93,182 |
|
|
|
86,753 |
|
|
|
94,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.74 |
|
|
$ |
1.87 |
|
|
$ |
3.61 |
|
|
$ |
3.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Diluted EPS contribution from C-BASS |
|
$ |
0.34 |
|
|
$ |
0.24 |
|
|
$ |
0.56 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS contribution from Sherman |
|
$ |
0.21 |
|
|
$ |
0.23 |
|
|
$ |
0.42 |
|
|
$ |
0.38 |
|
NOTE: See Certain Non-GAAP Financial Measures for diluted earnings per share contribution from realized gains (losses).
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
(in thousands of dollars, except per share data) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Investments (1) |
|
$ |
5,272,521 |
|
|
$ |
5,295,430 |
|
|
$ |
5,151,741 |
|
Cash and cash equivalents |
|
|
106,442 |
|
|
|
195,256 |
|
|
|
345,109 |
|
Reinsurance recoverable on loss reserves (2) |
|
|
13,236 |
|
|
|
14,787 |
|
|
|
15,460 |
|
Prepaid reinsurance premiums |
|
|
10,481 |
|
|
|
9,608 |
|
|
|
8,244 |
|
Home office and equipment, net |
|
|
32,261 |
|
|
|
32,666 |
|
|
|
33,334 |
|
Deferred insurance policy acquisition costs |
|
|
15,449 |
|
|
|
18,416 |
|
|
|
23,156 |
|
Other assets |
|
|
852,872 |
|
|
|
791,406 |
|
|
|
760,069 |
|
|
|
|
|
|
|
|
|
|
$ |
6,303,262 |
|
|
$ |
6,357,569 |
|
|
$ |
6,337,113 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss reserves (2) |
|
|
1,087,337 |
|
|
|
1,124,454 |
|
|
|
1,112,286 |
|
Unearned premiums |
|
|
172,277 |
|
|
|
159,823 |
|
|
|
138,589 |
|
Short- and long-term debt |
|
|
631,104 |
|
|
|
685,163 |
|
|
|
599,850 |
|
Other liabilities |
|
|
222,601 |
|
|
|
223,074 |
|
|
|
264,435 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,113,319 |
|
|
|
2,192,514 |
|
|
|
2,115,160 |
|
Shareholders equity |
|
|
4,189,943 |
|
|
|
4,165,055 |
|
|
|
4,221,953 |
|
|
|
|
|
|
|
|
|
|
$ |
6,303,262 |
|
|
$ |
6,357,569 |
|
|
$ |
6,337,113 |
|
|
|
|
|
|
|
|
Book value per share |
|
$ |
48.90 |
|
|
$ |
47.31 |
|
|
$ |
45.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Investments include unrealized gains on securities marked to market pursuant to FAS 115 |
|
19,753 |
|
|
|
119,836 |
|
|
|
208,511 |
|
(2) Loss reserves, net of reinsurance recoverable on loss reserves |
|
|
1,074,101 |
|
|
|
1,109,667 |
|
|
|
1,096,826 |
|
CERTAIN NON-GAAP FINANCIAL MEASURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(in thousands of dollars, except per share data) |
|
Diluted earnings per share contribution from realized gains (losses): |
Realized gains (losses) |
|
$ |
(1,838 |
) |
|
$ |
15,187 |
|
|
$ |
(1,751 |
) |
|
$ |
16,752 |
|
Income taxes at 35% |
|
|
(643 |
) |
|
|
5,315 |
|
|
|
(613 |
) |
|
|
5,863 |
|
|
|
|
|
|
|
|
|
|
After tax realized gains |
|
|
(1,195 |
) |
|
|
9,872 |
|
|
|
(1,138 |
) |
|
|
10,889 |
|
Weighted average shares |
|
|
86,259 |
|
|
|
93,182 |
|
|
|
86,753 |
|
|
|
94,545 |
|
|
|
|
|
|
|
|
|
|
Diluted EPS contribution from realized gains (losses) |
$ |
(0.01 |
) |
|
$ |
0.11 |
|
|
$ |
(0.01 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
Management believes the diluted earnings per share contribution from realized gains
(losses) provides useful information to investors because it shows the after-tax
effect that sales of securities from the Companys investment portfolio, which are
discretionary transactions, had on earnings.
OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary insurance written (NIW) ($ millions) |
|
$ |
16,100 |
|
|
$ |
16,628 |
|
|
$ |
26,132 |
|
|
$ |
28,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New risk written ($ millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary |
|
$ |
4,434 |
|
|
$ |
4,434 |
|
|
$ |
7,159 |
|
|
$ |
7,499 |
|
|
|
|
|
|
|
|
|
|
Pool (1) |
|
$ |
89 |
|
|
$ |
58 |
|
|
$ |
157 |
|
|
$ |
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of primary flow NIW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95% LTVs |
|
|
25 |
% |
|
|
28 |
% |
|
|
24 |
% |
|
|
27 |
% |
ARMs |
|
|
10 |
% |
|
|
13 |
% |
|
|
11 |
% |
|
|
13 |
% |
Refinances |
|
|
22 |
% |
|
|
26 |
% |
|
|
25 |
% |
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net paid claims ($ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow |
|
$ |
72 |
|
|
$ |
74 |
|
|
$ |
134 |
|
|
$ |
145 |
|
Bulk (2) |
|
|
65 |
|
|
|
64 |
|
|
|
118 |
|
|
|
122 |
|
Other |
|
|
25 |
|
|
|
20 |
|
|
|
45 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
162 |
|
|
$ |
158 |
|
|
$ |
297 |
|
|
$ |
307 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents contractual aggregate loss limits and, for the three and six months ended June 30, 2006 and 2005, for $11 million and $30 million,
$441 million and $802 million, respectively, of risk without such limits, risk is calculated at $0.9 million, $2 million, $24 million and $44 million,
respectively, the estimated amount that would credit enhance these loans to a AA level based on a rating agency model. |
(2) |
|
Bulk loans are those that are part of a negotiated transaction between the lender and the mortgage insurer. |
OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|
2006 |
|
2005 |
|
2005 |
Direct Primary Insurance In Force ($ millions) |
|
|
169,760 |
|
|
|
170,029 |
|
|
|
171,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Primary Risk In Force ($ millions) |
|
|
45,070 |
|
|
|
44,860 |
|
|
|
44,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool Risk In Force ($ millions) (1) |
|
|
3,145 |
|
|
|
2,909 |
|
|
|
2,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty Insurance Corporation Risk-to-capital ratio |
|
|
6.3 |
:1 |
|
|
6.3 |
:1 |
|
|
6.7 |
:1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured Loans |
|
|
1,270,718 |
|
|
|
1,303,084 |
|
|
|
1,353,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Persistency |
|
|
64.1% |
|
|
|
61.3% |
|
|
|
60.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans delinquent |
|
|
73,354 |
|
|
|
85,788 |
|
|
|
76,081 |
|
Percentage of loans delinquent (delinquency rate) |
|
|
5.77% |
|
|
|
6.58% |
|
|
|
5.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans delinquent excluding bulk loans |
|
|
39,049 |
|
|
|
47,051 |
|
|
|
39,958 |
|
Percentage of loans delinquent excluding bulk loans (delinquency rate) |
|
|
3.82% |
|
|
|
4.52% |
|
|
|
3.70% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk loans delinquent |
|
|
34,305 |
|
|
|
38,737 |
|
|
|
36,123 |
|
Percentage of bulk loans delinquent (delinquency rate) |
|
|
13.84% |
|
|
|
14.72% |
|
|
|
13.13% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-minus and subprime credit loans delinquent (2) |
|
|
32,508 |
|
|
|
36,485 |
|
|
|
32,613 |
|
Percentage of A-minus and subprime credit loans delinquent (delinquency rate) |
|
|
17.35% |
|
|
|
18.30% |
|
|
|
15.47% |
|
(1) |
|
Represents contractual aggregate loss limits and, at June 30, 2006, December 31, 2005 and June 30, 2005, respectively, for $4.7 billion, $5.0
billion and $5.3 billion of risk without such limits, risk is calculated at $471 million, $469 million and $462 million, the estimated amounts that would
credit enhance these loans to a AA level based on a rating agency model. |
(2) |
|
A-minus and subprime credit is included in flow, bulk and total. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2005 |
|
|
Q2 2005 |
|
|
Q3 2005 |
|
|
Q4 2005 |
|
|
Q1 2006 |
|
|
Q2 2006 |
|
Insurance inforce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow ($ bil) |
|
|
$135.1 |
|
|
|
$132.8 |
|
|
|
$130.9 |
|
|
|
$129.5 |
|
|
|
$128.6 |
|
|
|
$129.5 |
|
Bulk ($ bil) |
|
|
$37.0 |
|
|
|
$39.0 |
|
|
|
$39.3 |
|
|
|
$40.5 |
|
|
|
$38.3 |
|
|
|
$40.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk inforce |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Prime (FICO 620 & >) |
|
|
84.6% |
|
|
|
84.2% |
|
|
|
84.0% |
|
|
|
84.3% |
|
|
|
84.8% |
|
|
|
85.1% |
|
% A minus (FICO 575 - 619) |
|
|
11.0% |
|
|
|
11.1% |
|
|
|
11.1% |
|
|
|
10.9% |
|
|
|
10.6% |
|
|
|
10.4% |
|
% Subprime (FICO < 575) |
|
|
4.4% |
|
|
|
4.7% |
|
|
|
4.9% |
|
|
|
4.8% |
|
|
|
4.6% |
|
|
|
4.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk % of risk inforce by credit grade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime (FICO 620 & >) |
|
|
58.4% |
|
|
|
58.0% |
|
|
|
57.5% |
|
|
|
59.6% |
|
|
|
59.9% |
|
|
|
62.2% |
|
A minus (FICO 575 - 619) |
|
|
27.1% |
|
|
|
26.7% |
|
|
|
26.8% |
|
|
|
25.3% |
|
|
|
25.2% |
|
|
|
23.7% |
|
Subprime (FICO < 575) |
|
|
14.5% |
|
|
|
15.3% |
|
|
|
15.7% |
|
|
|
15.1% |
|
|
|
14.9% |
|
|
|
14.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow % of risk inforce by credit grade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Prime (FICO 700 and >) |
|
|
51.4% |
|
|
|
51.9% |
|
|
|
52.3% |
|
|
|
52.6% |
|
|
|
52.7% |
|
|
|
52.9% |
|
% Prime (FICO 620 - 699) |
|
|
41.8% |
|
|
|
41.5% |
|
|
|
41.2% |
|
|
|
41.0% |
|
|
|
41.0% |
|
|
|
40.8% |
|
% A minus (FICO 575 - 619) |
|
|
5.7% |
|
|
|
5.6% |
|
|
|
5.5% |
|
|
|
5.4% |
|
|
|
5.4% |
|
|
|
5.4% |
|
% Subprime (FICO < 575) |
|
|
1.1% |
|
|
|
1.0% |
|
|
|
1.0% |
|
|
|
1.0% |
|
|
|
0.9% |
|
|
|
0.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New insurance written |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow ($ bil) |
|
|
$8.9 |
|
|
|
$10.4 |
|
|
|
$11.4 |
|
|
|
$9.4 |
|
|
|
$7.9 |
|
|
|
$10.1 |
|
Bulk ($ bil) |
|
|
$2.5 |
|
|
|
$6.2 |
|
|
|
$6.8 |
|
|
|
$5.9 |
|
|
|
$2.1 |
|
|
|
$6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loan size of Insurance in force (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow |
|
|
$122.7 |
|
|
|
$123.2 |
|
|
|
$123.8 |
|
|
|
$124.6 |
|
|
|
$125.3 |
|
|
|
$126.5 |
|
Bulk |
|
|
$136.7 |
|
|
|
$141.7 |
|
|
|
$147.8 |
|
|
|
$153.9 |
|
|
|
$155.2 |
|
|
|
$162.8 |
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
Average Coverage Rate of Insurance in force |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Flow |
|
|
24.8% |
|
|
|
25.0% |
|
|
|
25.1% |
|
|
|
25.2% |
|
|
|
25.3% |
|
|
|
25.4% |
|
Bulk |
|
|
30.3% |
|
|
|
30.0% |
|
|
|
30.1% |
|
|
|
30.3% |
|
|
|
30.3% |
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|
|
30.4% |
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|
Paid Losses (000s) |
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|
|
|
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|
Average claim payment flow |
|
|
$26.5 |
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|
|
$25.8 |
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|
|
$26.4 |
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|
|
$26.5 |
|
|
|
$26.4 |
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|
|
$27.1 |
|
Average claim payment bulk |
|
|
$25.6 |
|
|
|
$25.6 |
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|
|
$27.1 |
|
|
|
$27.5 |
|
|
|
$27.3 |
|
|
|
$27.2 |
|
Average claim payment total |
|
|
$26.1 |
|
|
|
$25.7 |
|
|
|
$26.7 |
|
|
|
$27.0 |
|
|
|
$26.9 |
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|
|
$27.2 |
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Risk sharing Arrangements Flow Only |
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
% insurance inforce subject to risk sharing (1) |
|
|
48.0% |
|
|
|
48.0% |
|
|
|
47.7% |
|
|
|
47.8% |
|
|
|
48.0% |
|
|
|
|
|
% Quarterly NIW subject to risk sharing (1) |
|
|
47.0% |
|
|
|
46.7% |
|
|
|
47.8% |
|
|
|
49.0% |
|
|
|
48.0% |
|
|
|
|
|
Premium ceded (millions) |
|
|
$30.2 |
|
|
|
$30.3 |
|
|
|
$30.5 |
|
|
|
$31.9 |
|
|
|
$32.4 |
|
|
|
$32.6 |
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|
|
|
|
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|
Documentation Type % of Risk in Force that is Alt A |
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
Bulk |
|
|
26.7% |
|
|
|
27.8% |
|
|
|
29.5% |
|
|
|
32.5% |
|
|
|
33.4% |
|
|
|
37.9% |
|
Flow |
|
|
6.7% |
|
|
|
6.6% |
|
|
|
6.7% |
|
|
|
6.9% |
|
|
|
7.1% |
|
|
|
7.3% |
|
Total |
|
|
11.7% |
|
|
|
12.1% |
|
|
|
12.7% |
|
|
|
13.9% |
|
|
|
14.0% |
|
|
|
15.6% |
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
Other: |
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|
|
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Shares repurchased |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of shares (000) |
|
|
1,100.1 |
|
|
|
3,350.0 |
|
|
|
1,109.3 |
|
|
|
3,183.1 |
|
|
|
1,372.9 |
|
|
|
1,824.8 |
|
Average price |
|
|
$62.33 |
|
|
|
$60.73 |
|
|
|
$62.84 |
|
|
|
$60.35 |
|
|
|
$66.67 |
|
|
|
$67.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-BASS Investment |
|
|
$304.8 |
|
|
|
$330.6 |
|
|
|
$341.8 |
|
|
|
$362.6 |
|
|
|
$385.5 |
|
|
|
$413.9 |
|
Sherman Investment |
|
|
$69.4 |
|
|
|
$101.4 |
|
|
|
$50.9 |
|
|
|
$79.3 |
|
|
|
$47.2 |
|
|
|
$74.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio (insurance operations only) |
|
|
31.3% |
|
|
|
43.9% |
|
|
|
47.8% |
|
|
|
56.2% |
|
|
|
38.3% |
|
|
|
49.7% |
|
GAAP expense ratio (insurance operations only) |
|
|
15.9% |
|
|
|
15.1% |
|
|
|
15.7% |
|
|
|
16.9% |
|
|
|
17.5% |
|
|
|
16.7% |
|
Footnotes:
(1) Latest Quarter data not available due to lag in reporting