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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-10816
MGIC INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1486475
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 E. KILBOURN AVENUE 53202
MILWAUKEE, WISCONSIN (Zip Code)
(Address of principal executive offices)
(414) 347-6480
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OF STOCK PAR VALUE DATE NUMBER OF SHARES
- -------------- --------- ------- ----------------
Common stock $1.00 9/30/96 58,947,927
PAGE 1
MGIC INVESTMENT CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
September 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statement of Operations for the Three and Nine
Month Periods Ended September 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1996 (Unaudited) and December 31, 1995
September 30, December 31,
1996 1995
------------- ------------
ASSETS (In thousands of dollars)
- ------
Investment portfolio:
Securities, available-for-sale, at market value:
Fixed maturities $1,813,866 $1,602,806
Equity securities 3,836 3,836
Short-term investments 117,033 80,579
---------- ----------
Total investment portfolio 1,934,735 1,687,221
Cash 7,949 9,685
Accrued investment income 26,921 29,213
Reinsurance recoverable on loss reserves 29,482 33,856
Reinsurance recoverable on unearned premiums 11,635 15,485
Home office and equipment, net 35,655 38,782
Deferred insurance policy acquisition costs 33,456 37,956
Other assets 25,731 22,521
---------- ----------
Total assets $2,105,564 $1,874,719
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Loss reserves $ 486,204 $ 371,032
Unearned premiums 220,721 251,163
Mortgages payable 35,516 35,799
Income taxes payable 16,174 33,686
Checks payable 11,697 9,771
Other liabilities 52,803 51,876
---------- ----------
Total liabilities 823,115 753,327
---------- ----------
Contingencies (note 2)
Shareholders' equity:
Common stock, $1 par value, shares authorized
150,000,000; shares issued 60,555,400;
shares outstanding, 9/30/96 - 58,947,927;
1995 - 58,629,420 60,555 60,555
Paid-in surplus 268,415 259,430
Treasury stock (shares at cost, 9/30/96 - 1,607,473;
1995 - 1,925,980) (7,084) (8,172)
Unrealized appreciation in investments, net of tax 25,896 54,737
Retained earnings 934,667 754,842
---------- ----------
Total shareholders' equity 1,282,449 1,121,392
---------- ----------
Total liabilities and shareholders' equity $2,105,564 $1,874,719
========== ==========
See accompanying notes to consolidated financial statements.
PAGE 3
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three and Nine Month Periods Ended September 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
------ ------ ------ ------
(In thousands of dollars, except per share data)
Revenues:
Premiums written:
Direct $152,544 $130,896 $421,203 $352,074
Assumed 10,131 2,045 13,393 6,081
Ceded (4,143) (5,231) (10,952) (14,388)
-------- -------- -------- --------
Net premiums written 158,532 127,710 423,644 343,767
(Increase) decrease in unearned
premiums (1,753) 2,901 28,502 23,617
-------- -------- -------- --------
Net premiums earned 156,779 130,611 452,146 367,384
Investment income, net of expenses 26,926 22,339 76,378 63,839
Realized investment gains, net 566 86 979 43
Other revenue 5,405 6,308 17,081 16,840
-------- -------- -------- --------
Total revenues 189,676 159,344 546,584 448,106
-------- -------- -------- --------
Losses and expenses:
Losses incurred, net 60,247 49,687 173,973 137,034
Underwriting and other expenses 36,401 33,892 109,731 103,314
Interest expense 952 962 2,843 2,861
Ceding commission (958) (1,111) (3,100) (3,584)
-------- -------- -------- --------
Total losses and expenses 96,642 83,430 283,447 239,625
-------- -------- -------- --------
Income before tax 93,034 75,914 263,137 208,481
Provision for income tax 27,249 22,250 76,242 59,654
-------- -------- -------- --------
Net income $ 65,785 $ 53,664 $186,895 $148,827
======== ======== ======== ========
Net income per share $ 1.11 $ 0.90 $ 3.14 $ 2.51
======== ======== ======== ========
Weighted average common shares
outstanding (shares in thousands) 59,497 59,343 59,464 59,249
======== ======== ======== ========
Dividends per share $ 0.04 $ 0.04 $ 0.12 $ 0.12
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
PAGE 4
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
Nine Months Ended
September 30,
---------------------
1996 1995
------ ------
(In thousands of dollars)
Cash flows from operating activities:
Net income $186,895 $148,827
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred insurance policy
acquisition costs 23,332 25,978
Increase in deferred insurance policy
acquisition costs (18,832) (21,660)
Depreciation and amortization 6,884 6,443
Decrease in accrued investment income 2,292 393
Decrease (increase) in reinsurance recoverable
on loss reserves 4,374 (695)
Decrease in reinsurance recoverable on unearned
premiums 3,850 3,710
Increase in loss reserves 115,172 69,739
Decrease in unearned premiums (30,442) (27,328)
Other (3,508) (2,636)
-------- --------
Net cash provided by operating activities 290,017 202,771
-------- --------
Cash flows from investing activities:
Purchase of fixed maturities:
Available-for-sale securities (859,864) (348,216)
Held-to-maturity securities - (26,987)
Proceeds from sale or maturity of fixed maturities:
Available-for-sale securities 601,845 90,214
Held-to-maturity securities - 19,653
-------- --------
Net cash used in investing activities (258,019) (265,336)
-------- --------
Cash flows from financing activities:
Dividends paid to shareholders (7,070) (7,023)
Principal repayments on mortgages payable (283) (265)
Reissuance of treasury stock 10,073 5,503
-------- --------
Net cash provided by (used in) financing activities 2,720 (1,785)
-------- --------
Net increase (decrease) in cash and short-term
investments 34,718 (64,350)
Cash and short-term investments at beginning of year 90,264 167,289
-------- --------
Cash and short-term investments at end of period $124,982 $102,939
======== ========
See accompanying notes to consolidated financial statements.
PAGE 5
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial
statements of MGIC Investment Corporation (the "Company") and
its wholly-owned subsidiaries have been prepared in accordance
with the instructions to Form 10-Q and do not include all of
the other information and disclosures required by generally
accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 1995
included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have
not been audited by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments,
consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results
of operations. The results of operations for the nine months
ended September 30, 1996 may not be indicative of the results
that may be expected for the year ending December 31, 1996.
Note 2 - Contingencies
The Internal Revenue Service ("IRS") is presently
examining the Company's income tax returns for 1991 and 1992.
The Company has received proposed tax assessments relating to
1989 and 1990. Management does not agree with all of the
findings of the IRS and has appealed the proposed tax
assessments.
In examinations through 1988, the IRS had proposed to
delay the deduction for loss reserves on mortgage loans in
default until the lender takes title to the mortgaged
property. In August 1992, this issue was decided in favor of
another private mortgage insurer by the Court of Appeals for
the federal circuit applicable to the Company. However, the
IRS has continued to pursue this position with other private
mortgage insurers in other circuits.
Management believes that adequate provision has been made
in the financial statements for any amounts which may become
due with respect to the open years.
The Company is also involved in litigation in the normal
course of business. In the opinion of management, the
ultimate disposition of the pending litigation will not have a
material adverse effect on the financial position of the
Company.
PAGE 6
In addition to the litigation referred to above, Mortgage
Guaranty Insurance Corporation ("MGIC") is a defendant in a
lawsuit commenced by a borrower challenging the necessity of
maintaining mortgage insurance in certain circumstances,
primarily when the loan-to-value ratio is below 80%. The
lawsuit purports to be brought on behalf of a class of
borrowers. This case appears to be based to some degree upon
guidelines issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association to
their respective mortgage servicers under which the mortgage
servicers may be required in certain circumstances to cancel
borrower-purchased insurance upon the borrower's request. The
plaintiff alleges that MGIC has a common law duty to inform a
borrower that the insurance may be cancelled in these
circumstances. The relief sought is equitable relief as well
as the return of premiums paid after the insurance was
cancellable under the applicable guidelines. The Company
believes that MGIC has a meritorious defense to this action in
that, in the absence of a specific statute (no statutory duty
other than under a general consumer fraud statute is alleged),
there appears to be no legal authority requiring a mortgage
insurer to inform a borrower that insurance may be cancelled.
Summary judgment was granted to MGIC in another case involving
similar issues. Similar cases are pending against other
mortgage insurers, mortgage lenders and mortgage loan
servicers.
PAGE 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Consolidated Operations
Three Months Ended September 30, 1996 Compared With Three
Months Ended September 30, 1995
Net income for the three months ended September 30, 1996
was $65.8 million, compared to $53.7 million for the same
period of 1995, an increase of 23%. Net income per share for
the three months ended September 30, 1996 was $1.11 compared
to $0.90 in the same period last year, an increase of 23%.
The amount of new primary insurance written by Mortgage
Guaranty Insurance Corporation ("MGIC") during the three
months ended September 30, 1996 was $8.6 billion, compared to
$9.0 billion in the same period of 1995. Refinancing activity
accounted for 10% of new primary insurance written in the
third quarter of 1996, compared to 13% in the third quarter of
1995.
New insurance written for the third quarter of 1996
reflected an increase in the usage of the monthly premium
product to 90% of new insurance written from 86% of new
insurance written in the third quarter of 1995. New insurance
written for adjustable-rate mortgages ("ARMS") increased to
31% of new insurance written in the third quarter of 1996 from
25% of new insurance written in the same period of 1995.
The $8.6 billion of new primary insurance written during
the third quarter of 1996 was partially offset by the
cancellation of $5.0 billion of insurance in force, and
resulted in a net increase of $3.6 billion in primary
insurance in force, compared to new primary insurance written
of $9.0 billion, the cancellation of $4.4 billion, and a net
increase of $4.6 billion during the third quarter of 1995.
Direct primary insurance in force was $128.6 billion at
September 30, 1996 compared to $116.7 billion at September 30,
1995.
Net premiums written were $158.5 million during the third
quarter of 1996, compared to $127.7 million during the third
quarter of 1995, an increase of $30.8 million or 24%. The
increase includes premiums received from the WMAC transaction
(as described under Liquidity and Capital Resources) as well
as the growth in insurance in force.
Net premiums earned were $156.8 million for the third
quarter of 1996, compared to $130.6 million for the third
quarter of 1995, an increase of $26.2 million, or 20%,
primarily reflecting the growth of insurance in force.
PAGE 8
Investment income for the third quarter of 1996 was $26.9
million, an increase of 21% over the $22.3 million in the
third quarter of 1995. This increase was primarily the result
of an increase in the amortized cost of average invested
assets to $1,828.3 million for the third quarter of 1996 from
$1,485.0 million for the third quarter of 1995, an increase of
23%. The portfolio's average pre-tax investment yield was 5.9%
for the third quarter of 1996 compared to 6.0% in the same
period of 1995. The portfolio's average after-tax investment
yield was 5.0% for the third quarter of 1996 compared to 5.2%
for the third quarter of 1995.
Other revenue, primarily contracts with government
agencies for premium reconciliation and claim administration
and fee-based services for underwriting, was $5.4 million in
the third quarter of 1996, compared to $6.3 million in the
same period of 1995. The decrease is primarily due to a
decrease in fees from contracts with government agencies.
Net losses incurred increased to $60.2 million during the
third quarter of 1996 from $49.7 million during the third
quarter of 1995, an increase of 21%. Such increase was
primarily a result of higher reserve levels necessitated by
increased notice of default activity on loans insured in 1994
and 1995, the continued growth and maturation of the insurance
in force and higher coverages for business written during 1995
and 1996. The increase was partially offset by a redundancy
in prior year loss reserves resulting from actual claim rates
and actual claim amounts being lower than those estimated by
the Company when originally establishing the reserve at
December 31, 1995. The Company expects that, in general,
incurred losses will continue to rise as a result of
increased delinquency activity primarily related to the higher
risk profile of loans insured in 1994 and 1995, and the
continued growth and maturing of its insurance in force as
well as anticipated higher severity resulting from higher
coverages for business written beginning in 1995. At
September 30, 1996, 58% of MGIC's insurance in force was
written during the preceding eleven quarters, compared to 70%
at September 30, 1995. The highest claim frequency years have
typically been the third through fifth year after the year of
loan origination. However, the pattern of claims frequency for
refinance loans may be different from the historical pattern
of other loans. A substantial portion of the insurance
written in 1992 and 1993 represented insurance on the
refinance of mortgage loans originated in earlier years. (See
Safe Harbor Statement at the end of this document.)
Underwriting and other expenses increased 7% to $36.4
million in the third quarter of 1996 from $33.9 million in the
third quarter of 1995. This increase was primarily due to an
increase in expenses associated with the fee-based services
for underwriting and an increase in premium tax due to higher
premiums written.
The consolidated insurance operations loss ratio was 38.4%
for the third quarter of 1996 compared to 38.0% for the third
quarter of 1995. The consolidated insurance operations
expense and combined ratios were 19.8% and 58.2%,
respectively, for the third quarter of 1996 compared to 22.3%
and 60.3% for the third quarter of 1995.
PAGE 9
The effective tax rate was 29.3% in the third quarter of
1996 and 1995. During both periods, the effective tax rate
was below the statutory rate of 35%, reflecting the benefits
of tax-preferenced investment income.
Nine Months Ended September 30, 1996 Compared With Nine
Months Ended September 30, 1995
Net income for the nine months ended September 30, 1996
was $186.9 million, compared to $148.8 million for the same
period of 1995, an increase of 26%. Net income per share for
the nine months ended September 30, 1996 was $3.14 compared to
$2.51 in the same period last year, an increase of 25%.
The amount of new primary insurance written by MGIC
during the nine months ended September 30, 1996 was $25.1
billion, compared to $22.1 billion in the same period of 1995.
Refinancing activity accounted for 19% of new primary
insurance written in the first nine months of 1996, compared
to 9% in the first nine months of 1995.
New insurance written for 1996 reflected an increase in
the usage of the monthly premium product to 90% of new
insurance written from 82% of new insurance written in the
first nine months of 1995. New insurance written for ARMS
decreased to 24% of new insurance written in the first three
quarters of 1996 from 36% of new insurance written in the same
period of 1995. Also, mortgages with loan-to-value ("LTV")
ratios in excess of 90% but not more than 95% ("95%")
decreased to 41% of new insurance written in the first nine
months of 1996 from 44% of new insurance written in the same
period of 1995.
Principally as a result of changes in the coverage
requirements by the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation, new insurance
written for mortgages with LTV ratios in excess of 80% but not
more than 90% and coverage of 25% was 39% of new insurance
written in the first nine months of 1996 compared to 31% in
the same period of 1995. New insurance written for mortgages
with LTV ratios of 95% and coverage of 30% was 38% of new
insurance written in the first nine months of 1996 compared to
33% in the first nine months of 1995.
The $25.1 billion of new primary insurance written during
the first three quarters of 1996 was partially offset by the
cancellation of $16.8 billion of insurance in force, and
resulted in a net increase of $8.3 billion in primary
insurance in force, compared to new primary insurance written
of $22.1 billion, the cancellation of $9.8 billion, and a net
increase of $12.3 billion during the first three quarters of
1995. Direct primary insurance in force was $128.6
billion at September 30, 1996 compared to $116.7 billion at
September 30, 1995.
Cancellation activity increased in the first nine months
of 1996 from the first nine months of 1995 due to the
increased refinancing activity which resulted in a decrease in
the MGIC persistency rate (percentage of insurance remaining
in force from one year prior) to 81.7% at September 30, 1996
from 87.1% at September 30, 1995.
PAGE 10
Net premiums written were $423.6 million during the first
nine months of 1996, compared to $343.8 million during the
first nine months of 1995, an increase of $79.8 million or
23%. The increase includes premiums received from the WMAC
transaction (as described under Liquidity and Capital
Resources) as well as the growth in insurance in force.
Net premiums earned were $452.1 million for the first nine
months of 1996, compared to $367.4 million for the first nine
months of 1995, an increase of $84.7 million, or 23%,
primarily reflecting the growth of insurance in force.
Investment income for 1996 was $76.4 million, an increase
of 20% over the $63.8 million in the first nine months of
1995. This increase was primarily the result of an increase
in the amortized cost of average invested assets to $1,749.0
million for the first nine months of 1996 from $1,428.0
million for the first nine months of 1995, an increase of 22%.
The portfolio's average pre-tax investment yield was 5.8% for
the first nine months of 1996 compared to 6.0% in the first
nine months of 1995. The portfolio's average after-tax
investment yield was 5.1% for 1996 compared to 5.2% for the
first nine months of 1995.
Other revenue, primarily contracts with government
agencies for premium reconciliation and claim administration,
and fee-based services for underwriting, was $17.1 million in
the first nine months of 1996, compared to $16.8 million in
the same period of 1995. Fees from underwriting services
increased $2.4 million, offset by a decrease in fees from
contracts with government agencies of $2.2 million.
Ceding commission for 1996 was $3.1 million, compared to
$3.6 million for the first nine months of 1995, a decrease of
14%. The decrease was primarily attributable to reductions in
premiums ceded under quota share reinsurance agreements.
Net losses incurred increased to $174.0 million during
the first nine months of 1996 from $137.0 million during the
first nine months of 1995, an increase of 27%. Such increase
was primarily a result of higher reserve levels necessitated
by increased notice of default activity on loans insured in
1994 and 1995, the continued growth and maturation of the
insurance in force and higher coverages for business written
during 1995 and 1996. The increase was partially offset by a
redundancy in prior year loss reserves resulting from actual
claim rates and actual claim amounts being lower than those
estimated by the Company when originally establishing
the reserve at December 31, 1995. The Company expects that, in
general, incurred losses will continue to rise as a result of
increased delinquency activity primarily related to the higher
risk profile on loans insured in 1994 and 1995, and the
continued growth and maturing of its insurance in force as
well as anticipated higher severity resulting from higher
coverages for business written beginning in 1995. At
September 30, 1996, 58% of MGIC's insurance in force was
written during the preceding eleven quarters, compared to 70%
at September 30, 1995. The highest claim frequency years have
typically been the third through fifth year after the year of
loan origination. However, the pattern of claims frequency
for refinance loans may be different from the historical
pattern of other loans. A substantial portion of the
insurance written in 1992 and 1993 represented insurance on
the refinance of mortgage loans originated in earlier years.
(See Safe Harbor Statement at the end of this document.)
PAGE 11
Underwriting and other expenses increased 6% to $109.7
million in the first nine months of 1996 from $103.3 million
in the same period of 1995. This increase was primarily due
to an increase in expenses associated with the fee-based
services for underwriting and an increase in premium tax due
to higher premiums written.
The consolidated insurance operations loss ratio was 38.5%
for the first nine months of 1996 compared to 37.3% for the
same period of 1995. The consolidated insurance operations
expense and combined ratios were 22.4% and 60.9%,
respectively, for the first nine months of 1996 compared to
26.0% and 63.3% for the first nine months of 1995.
The effective tax rate was 29.0% in the first nine months
of 1996, compared to 28.6% in the same period of 1995. During
both periods, the effective tax rate was below the statutory
rate of 35%, reflecting the benefits of tax-preferenced
investment income. The higher effective tax rate in 1996
resulted from a lower percentage of total income before tax
being generated from tax-preferenced investments in 1996.
Liquidity and Capital Resources
The Company's consolidated sources of funds consist
primarily of premiums written and investment income. The
Company generated positive cash flows from operating
activities for the nine months ended September 30, 1996, as
shown on the Consolidated Statement of Cash Flows. Funds are
applied primarily to the payment of claims and expenses. The
Company's business does not require significant capital
expenditures on an ongoing basis. Positive cash flows are
invested pending future payments of claims and other expenses;
cash flow shortfalls, if any, could be funded through sales of
short-term investments and other investment portfolio
securities. In January 1997, the Company is obligated to
repay mortgages payable of $35.4 million, which are secured by
the home office and substantially all of the furniture and
fixtures of the Company.
In September 1996, MGIC signed an agreement with Wisconsin
Mortgage Assurance Corporation ("WMAC") and a WMAC reinsurer
to assume all of the reinsurer's interest in WMAC mortgage
insurance writings, which had been previously ceded to that
reinsurer ("WMAC transaction"). WMAC wrote mortgage insurance
on first mortgages collateralized by one-to-four-family
residences until February 28, 1985.
Under the agreement, MGIC assumed reinsurance on
approximately $4.2 billion of WMAC's insurance in force
(representing approximately $1.1 billion of risk in force)
committed to, or written, through February 28, 1985. As a
result, the amount of WMAC's insurance in force ceded to MGIC
increased to approximately $6.2 billion (representing
approximately $1.6 billion of risk in force), with the portion
of WMAC's insurance in force reinsured by MGIC increasing from
approximately 21% to approximately 65%. MGIC received
approximately $40 million as payment for its assumption of
existing loss and unearned premium reserves related to the
insurance in force being assumed from WMAC.
PAGE 12
Consolidated total investments were $1,934.7 million at
September 30, 1996, compared to $1,687.2 million at December
31, 1995, an increase of 15%. This increase is due primarily
to positive cash flow from operations and approximately $40
million received in conjunction with the WMAC transaction
offset by a decrease of $44.4 million in unrealized gains. The
investment portfolio includes unrealized gains on securities
marked to market at September 30, 1996 and December 31, 1995
of $39.8 million and $84.2 million, respectively. As of
September 30, 1996, the Company had $117.0 million of short-
term investments with maturities of 90 days or less. In
addition, at September 30, 1996, based on amortized cost, the
Company's total investments, which were virtually all
comprised of fixed maturities, were approximately 98% invested
in "A" rated and above, readily marketable securities,
concentrated in maturities of less than 15 years.
Consolidated loss reserves increased 31% to $486.2
million at September 30, 1996 from $371.0 million at December
31, 1995, reflecting the higher level of defaults for the
reasons described above and the increase in loss reserves
assumed from the WMAC transaction. Consistent with industry
practices, the Company does not establish loss reserves for
future claims on insured loans which are not currently in
default.
Consolidated unearned premiums decreased $30.5 million
from $251.2 million at December 31, 1995 to $220.7 million at
September 30, 1996, primarily reflecting the continued high
level of monthly premium policies written, for which there is
no unearned premium. Reinsurance recoverable on unearned
premiums decreased $3.9 million to $11.6 million at
September 30, 1996 from $15.5 million at December 31, 1995,
primarily reflecting the reduction in unearned premiums.
Consolidated shareholder's equity increased to $1,282.4
million at September 30, 1996, from $1,121.4 million at
December 31, 1995, an increase of 14%. This increase
consisted of $186.9 million of net income during the first
nine months of 1996 and $10.0 million from the reissuance of
treasury stock, offset by a decrease in net unrealized gains
on investments of $28.8 million, net of tax, and dividends
declared of $7.1 million.
MGIC is the principal insurance subsidiary of the Company.
MGIC's risk-to-capital was 18.6:1 at September 30, 1996
compared to 19.1:1 at December 31, 1995. The decrease was due
to MGIC's increased policyholders' reserves, partially offset
by the additional risk in force of $3.5 billion resulting from
the $11.2 billion addition to insurance in force, net of
reinsurance, during the first nine months of 1996. Part of
the increase in risk in force and insurance in force was due
to the reinsurance assumed from the WMAC transaction described
above.
The Company's combined insurance risk-to-capital ratio was
19.3:1 at September 30, 1996, compared to 19.9:1 at December
31, 1995. The decrease was due to the same reasons as
described above.
PAGE 13
SAFE HARBOR STATEMENT
The following is a "Safe Harbor" Statement under the Private
Securities Litigation Reform Act of 1995, which applies as
follows to all statements relating to incurred losses,
delinquency activity and claims frequency in this Form 10-Q
that are not historical facts:
Such statements that are not historical facts are
forward looking statements. Actual future incurred
losses, increased delinquency activity and claims
frequency may differ materially from those expected or
projected in the forward looking statements. These
forward looking statements involve risks and
uncertainties that the incidence and severity of
losses, delinquencies and claims may increase beyond
expectations or projections for various reasons,
including but not limited to, the following: a
reduction in the growth of borrower income, a reduced
level of borrower creditworthiness, and increased
unemployment; higher interest rates and adverse
economic conditions; and a reduced level of housing
price appreciation and a reduced ability of homeowners
to sell homes to satisfy their mortgage obligations.
PAGE 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
For a discussion of certain litigation brought by
borrowers challenging the necessity of maintaining
mortgage insurance in certain circumstances, see the
last paragraph of Note 2 to the Consolidated Financial
Statements (Unaudited) of the Company contained in Part
I above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits listed in the
accompanying Index to Exhibits are filed as part of
this Form 10-Q.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the
quarter ended September 30, 1996.
PAGE 15
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 thereunto duly authorized, on
November 11, 1996.
MGIC INVESTMENT CORPORATION
/s/ J. Michael Lauer
-------------------------------
J. Michael Lauer
Executive Vice President and
Chief Financial Officer
/s/ Patrick Sinks
-------------------------------
Patrick Sinks
Vice President, Controller and
Chief Accounting Officer
PAGE 16
INDEX TO EXHIBITS
(Item 6)
Exhibit
Number Description of Exhibit
- ------- ----------------------
11.1 Statement Re Computation of Net Income
Per Share
27 Financial Data Schedule
PAGE 17
EXHIBIT 11.1
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
Three and Nine Month Periods Ended September 30, 1996 and 1995
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
----- ------ ------ ------
(In thousands of dollars, except per share data)
PRIMARY NET INCOME PER SHARE
Adjusted shares outstanding:
Average common shares outstanding 58,933 58,589 58,875 58,515
Net shares to be issued upon
exercise of dilutive stock
options after applying treasury
stock method 564 754 589 734
-------- -------- -------- --------
Adjusted shares outstanding 59,497 59,343 59,464 59,249
======== ======== ======== ========
Net income $ 65,785 $ 53,664 $186,895 $148,827
======== ======== ======== ========
Primary net income per share $ 1.11 $ 0.90 $ 3.14 $ 2.51
======== ======== ======== ========
FULLY DILUTED NET INCOME PER SHARE
Adjusted shares outstanding:
Average common shares outstanding 58,933 58,589 58,875 58,515
Net shares to be issued upon
exercise of dilutive stock
options after applying treasury
stock method 589 782 628 824
-------- -------- -------- --------
Adjusted shares outstanding 59,522 59,371 59,503 59,339
======== ======== ======== ========
Net income $ 65,785 $ 53,664 $186,895 $148,827
======== ======== ======== ========
Fully diluted net income per share $ 1.11 $ 0.90 $ 3.14 $ 2.51
======== ======== ======== ========