Document
false0000876437 0000876437 2019-10-22 2019-10-22


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
Date of Report (Date of Earliest Event Reported):
 
October 22, 2019
MGIC Investment Corporation
__________________________________________
(Exact name of registrant as specified in its charter)
Wisconsin
1-10816
39-1486475
__________________________________
(State or other jurisdiction of incorporation)
_____________________
(Commission File Number)
____________________________
(I.R.S. Employer Identification No.)
  
 
 
 
250 E. Kilbourn Avenue
Milwaukee,
Wisconsin
53202
________________________________
(Address of principal executive offices)
___________
(Zip Code)
Registrant’s telephone number, including area code:
 (414)
347-6480
 
Not Applicable
 
 
Former name or former address, if changed since last report
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock
 
MTG
 
New York Stock Exchange
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:
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]





Item 2.02 Results of Operations and Financial Condition.
The Company issued a press release on October 22, 2019 announcing its results of operations for the quarter ended September 30, 2019 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 October 22, 2019 press release is furnished as Exhibit 99 and is not filed.






Exhibit Index
 
 
 
Exhibit No.
 
Description
 
 
 
 
Press Release dated October 22, 2019. (Pursuant to General Instruction B.2 to Form 8-K, this press release is furnished 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.
 
 
 
 
 
MGIC INVESTMENT CORPORATION
 
 
 
 
 
 
Date:
October 22, 2019
By: \s\ Julie K. Sperber
 
 
 
 
 
Julie K. Sperber
 
 
Vice President, Controller and Chief Accounting Officer



Exhibit

Exhibit 99


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=13157322&doc=8
MGIC Investment Corporation Reports Third Quarter 2019 Results
Third Quarter 2019 Net Income of $176.9 million or $0.49 per Diluted Share
Third Quarter 2019 Adjusted Net Operating Income (Non-GAAP) of $173.6 million or $0.48 per Diluted Share

MILWAUKEE (October 22, 2019) - MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the third quarter of 2019. Net income for the quarter was $176.9 million, or $0.49 per diluted share, compared with net income of $181.9 million, or $0.49 per diluted share for the third quarter of 2018.
    
Adjusted net operating income for the third quarter of 2019 was $173.6 million, or $0.48 per diluted share, compared with $180.9 million, or $0.48 per diluted share for the third quarter of 2018. We present the non-GAAP financial measure "Adjusted net operating income" to increase the comparability between periods of our financial results. See “Use of Non-GAAP financial measures" below.

Timothy Mattke, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC") said, “During the quarter we continued to execute on our business strategies, including prudently growing our insurance in force and managing and deploying capital to maximize shareholder value. Year over year insurance in force increased by 6%, and in the third quarter we added $19.1 billion of new insurance written that we expect to produce meaningful returns for our shareholders. In addition, the current economic conditions and the credit characteristics of the new insurance written over the last several years, continue to result in low levels of new delinquency notices.” Mattke added that, “Reflecting our strong capital position and outlook for capital generation, in the third quarter MGIC paid the holding company a $70 million dividend, we repurchased approximately $70 million of common stock and, we distributed $21 million to shareholders with the common share dividend.”
Third Quarter Summary
New Insurance Written of $19.1 billion, compared to $14.5 billion in the third quarter of 2018.
Insurance in force of $218.1 billion at September 30, 2019 increased by 2.0% during the quarter and 6.0% compared to September 30, 2018.
Primary delinquency inventory of 29,940 loans at September 30, 2019 decreased from 32,898 loans at December 31, 2018. Our primary delinquency inventory declined 10.4% year-over-year from 33,398 loans at September 30, 2018.
Insurance written in 2008 and before accounted for approximately 13% of the September 30, 2019 primary risk in force but accounted for 61% of the new primary delinquency notices received in the quarter.
The percentage of primary loans that were delinquent at September 30, 2019 was 2.78%, compared to 3.11% at December 31, 2018, and 3.19% at September 30, 2018. The percentage of flow primary loans that were delinquent at September 30, 2019 was 2.20%, compared to 2.47% at December 31, 2018, and 2.52% at September 30, 2018.
Persistency, or the percentage of insurance remaining in force from one year prior, was 78.6% at September 30, 2019, compared with 81.7%% at December 31, 2018 and 81.0%% at September 30, 2018.
The loss ratio for the third quarter of 2019 was 12.7%, compared to 8.8% for the second quarter of 2019 and (0.6)% for the third quarter of 2018.
The underwriting expense ratio associated with our insurance operations for the third quarter of 2019 was 17.7%, compared to 17.6% for the second quarter of 2019 and 17.6% for the third quarter of 2018.
Net premium yield was 49.6 basis points in the third quarter of 2019, compared to 46.5 basis points for the second quarter of 2019 and 49.3 basis points for the third quarter of 2018.
MGIC paid a dividend of $70 million to our holding company during the third quarter of 2019.
MGIC Investment Corporation paid a $0.06 dividend per common share to shareholders during the third quarter of 2019.
Repurchased 5.5 million shares of common stock at an average cost per share of $12.64.
Book value per common share outstanding increased by 5% during the quarter to $11.93. A $31.4 million after-tax change in net unrealized gains (losses) increased book value per common share outstanding by $0.09 during the quarter.
_______________


Investor Relations: Michael J. Zimmerman | (414) 347-6596 | mike_zimmerman@mgic.com




Revenues

Total revenues for the third quarter of 2019 were $318.4 million, compared to $290.4 million in the third quarter last year. Net premiums written for the quarter were $259.4 million, compared to $251.9 million for the same period last year. Net premiums earned for the quarter were $267.9 million, compared to $250.4 million for the same period last year. The increase was due to higher average insurance in force and an increase in premiums from single premium policy cancellations, partially offset by the effect of lower premium rates. Investment income for the third quarter increased to $42.7 million, from $36.4 million for the same period last year, resulting from an increase in the consolidated investment portfolio as well as higher yields.
    
Losses and expenses
    
Losses incurred    
Losses incurred in the third quarter of 2019 were $34.0 million, compared to $(1.5) million in the third quarter of 2018. During the third quarter of 2019 there was a $27 million reduction in losses incurred due to positive development on our primary loss reserves, before reinsurance, for previously received delinquency notices, compared to a reduction of $59 million in the third quarter of 2018. Losses incurred in the quarter associated with delinquency notices received in the quarter reflect a lower estimated claim rate when compared to the same period of last year.

Underwriting and other expenses
Net underwriting and other expenses were $48.3 million in the third quarter of 2019, compared to $46.8 million in the same period last year.

Provision for income taxes
The effective income tax rate was 20.7% in the third quarter of 2019, compared to 21.6% in the third quarter of 2018.

Capital

As of September 30, 2019, total shareholders' equity was $4.2 billion and outstanding principal on borrowings was $837 million.
MGIC's PMIERs Available Assets totaled $4.5 billion, or $1.2 billion above its Minimum Required Assets as of September 30, 2019.


Other Balance Sheet and Liquidity Metrics

Total assets were $6.1 billion as of September 30, 2019, compared to $5.7 billion as of December 31, 2018, and $5.7 billion as of September 30, 2018.
The fair value of our investment portfolio, cash and cash equivalents was $5.8 billion as of September 30, 2019, compared to $5.3 billion as of December 31, 2018, and $5.2 billion as of September 30, 2018.
Investments, cash and cash equivalents at the holding company were $308 million as of September 30, 2019, compared to $248 million as of December 31, 2018, and $261 million as of September 30, 2018.






Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today, October 22, 2019, at 10 a.m. ET to allow securities analysts and shareholders the opportunity to hear management discuss the company’s quarterly results. The conference call number is 1-855-493-1443. The call is being webcast and can be accessed at the company's website at http://mtg.mgic.com/. A replay of the webcast will be available on the company’s website through November 22, 2019 under “Newsroom.”
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality. At September 30, 2019, MGIC had $218.1 billion of primary insurance in force covering over one million mortgages.

This press release, which includes certain additional statistical and other information, including non-GAAP financial information, and a supplement that contains various portfolio statistics are both available on the Company's website at https://mtg.mgic.com/ under “Newsroom.”
    
From time to time MGIC Investment Corporation releases important information via postings on its corporate website, and via postings on MGIC’s website for information related to underwriting and pricing, and intends to continue to do so in the future. Such postings include corrections of previous disclosures, and may be made without any other disclosure. Investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information for MGIC Investment Corporation alerts can be found at https://mtg.mgic.com/shareholder-services/email-alerts. For information about our underwriting and rate changes, see https://www.mgic.com/underwriting.
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission (“SEC”). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as “believe,” “anticipate,” “will” or “expect,” or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was delivered for dissemination to the public.

In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Form 10-Q for the quarter ended September 30, 2019.

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







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

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items where applicable.
    
Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.
    
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.

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

(1)
Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)
Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)
Infrequent or unusual non-operating items. Our 2018 income tax expense includes amounts related to our IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.








MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net premiums written
 
$
259,414

 
$
251,883

 
$
747,293

 
$
744,225

Revenues
 
 
 
 
 
 
 
 
Net premiums earned
 
$
267,857

 
$
250,426

 
$
764,720

 
$
729,497

Net investment income
 
42,715

 
36,380

 
125,723

 
103,003

Net realized investment gains (losses)
 
4,205

 
1,114

 
3,986

 
(1,112
)
Other revenue
 
3,606

 
2,525

 
7,921

 
6,827

Total revenues
 
318,383

 
290,445

 
902,350

 
838,215

Losses and expenses
 
 
 
 
 
 
 
 
Losses incurred, net
 
33,985

 
(1,518
)
 
94,884

 
8,877

Underwriting and other expenses, net
 
48,339

 
46,811

 
142,477

 
140,160

Interest expense
 
12,939

 
13,258

 
39,722

 
39,737

Total losses and expenses
 
95,263

 
58,551

 
277,083

 
188,774

Income before tax
 
223,120

 
231,894

 
625,267

 
649,441

Provision for income taxes
 
46,186

 
49,994

 
128,614

 
137,090

Net income
 
$
176,934

 
$
181,900

 
$
496,653

 
$
512,351

Net income per diluted share
 
$
0.49

 
$
0.49

 
$
1.36

 
$
1.36









MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
EARNINGS PER SHARE (UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(In thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Net income
 
$
176,934

 
$
181,900

 
$
496,653

 
$
512,351

Interest expense, net of tax (1):
 
 
 
 
 
 
 
 
9% Convertible Junior Subordinated Debentures due 2063
 
4,566

 
4,566

 
13,698

 
13,698

Diluted net income available to common shareholders
 
$
181,500

 
$
186,466

 
$
510,351

 
$
526,049

 
 
 
 
 
 
 
 
 
Weighted average shares - basic
 
351,475

 
362,180

 
354,272

 
367,190

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Unvested restricted stock units
 
2,071

 
1,697

 
1,966

 
1,547

9% Convertible Junior Subordinated Debentures due 2063
 
19,028

 
19,028

 
19,028

 
19,028

Weighted average shares - diluted
 
372,574

 
382,905

 
375,266

 
387,765

Net income per diluted share
 
$
0.49

 
$
0.49

 
$
1.36

 
$
1.36


(1) 
Interest expense for the three and nine months ended September 30, 2019 and 2018 has been tax effected at a rate of 21%.







NON-GAAP RECONCILIATIONS
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
 
 
 
Three months ended September 30,
 
 
 
2019
 
2018
 
(In thousands, except per share amounts)
 
Pre-tax
 
Tax Effect
 
Net
(after-tax)
 
Pre-tax
 
Tax Effect
 
Net
(after-tax)
 
Income before tax / Net income
 
$
223,120

 
$
46,186

 
$
176,934

 
$
231,894

 
$
49,994

 
$
181,900

 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional income tax benefit (provision) related to IRS litigation
 

 

 

 

 
154

 
(154
)
 
Net realized investment gains
 
(4,175
)
 
(877
)
 
(3,298
)
 
(1,114
)
 
(234
)
 
(880
)
 
Adjusted pre-tax operating income / Adjusted net operating income
 
$
218,945

 
$
45,309

 
$
173,636

 
$
230,780

 
$
49,914

 
$
180,866

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
 
Weighted average shares - diluted
 
 
 
 
 
372,574

 
 
 
 
 
382,905

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per diluted share
 
 
 
 
 
$
0.49

 
 
 
 
 
$
0.49

 
Additional income tax (benefit) provision related to IRS litigation
 
 
 
 
 

 
 
 
 
 

 
Net realized investment gains
 
 
 
 
 
(0.01
)
 
 
 
 
 

 
Adjusted net operating income per diluted share
 
 
 
 
 
$
0.48

 
 
 
 
 
$
0.48

(1) 
(1) For the Three Months Ended September 30, 2018, the Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share does not foot due to rounding of the adjustments.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income
 
 
 
Nine months ended September 30,
 
 
 
2019
 
2018
 
(In thousands, except per share amounts)
 
Pre-tax
 
Tax Effect
 
Net
(after-tax)
 
Pre-tax
 
Tax Effect
 
Net
(after-tax)
 
Income before tax / Net income
 
$
625,267

 
$
128,614

 
$
496,653

 
$
649,441

 
$
137,090

 
$
512,351

 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional income tax benefit (provision) related to IRS litigation
 

 

 

 

 
(1,477
)
 
1,477

 
Net realized investment (gains) losses
 
(3,772
)
 
(792
)
 
(2,980
)
 
1,112

 
234

 
878

 
Adjusted pre-tax operating income / Adjusted net operating income
 
$
621,495

 
$
127,822

 
$
493,673

 
$
650,553

 
$
135,847

 
$
514,706

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share
 
Weighted average shares - diluted
 
 
 
 
 
375,266

 
 
 
 
 
387,765

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income per diluted share
 
 
 
 
 
$
1.36

 
 
 
 
 
$
1.36

 
Additional income tax (benefit) provision related to IRS litigation
 
 
 
 
 

 
 
 
 
 

 
Net realized investment (gains) losses
 
 
 
 
 
(0.01
)
 
 
 
 
 

 
Adjusted net operating income per diluted share
 
 
 
 
 
$
1.35

 
 
 
 
 
$
1.36

 






MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 
 
 
 
 
 
 
 
 
September 30,
 
December 31,
 
September 30,
(In thousands, except per share data)
 
2019
 
2018
 
2018
ASSETS
 
 
 
 
 
 
Investments (1)
 
$
5,681,452

 
$
5,159,019

 
$
4,980,432

Cash and cash equivalents
 
165,425

 
151,892

 
266,997

Restricted cash and cash equivalents
 
6,329

 
3,146

 

Reinsurance recoverable on loss reserves (2)
 
19,566

 
33,328

 
33,281

Home office and equipment, net
 
50,540

 
51,734

 
50,055

Deferred insurance policy acquisition costs
 
18,010

 
17,888

 
18,665

Deferred income taxes, net
 
11,583

 
69,184

 
111,613

Other assets
 
193,846

 
191,611

 
196,065

Total assets
 
$
6,146,751

 
$
5,677,802

 
$
5,657,108

 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Loss reserves (2)
 
$
602,297

 
$
674,019

 
$
721,046

Unearned premiums
 
392,556

 
409,985

 
407,614

Federal home loan bank advance
 
155,000

 
155,000

 
155,000

Senior notes
 
420,578

 
419,713

 
419,425

Convertible junior debentures
 
256,872

 
256,872

 
256,872

Other liabilities
 
159,831

 
180,322

 
207,620

Total liabilities
 
1,987,134

 
2,095,911

 
2,167,577

Shareholders' equity
 
4,159,617

 
3,581,891

 
3,489,531

Total liabilities and shareholders' equity
 
$
6,146,751

 
$
5,677,802

 
$
5,657,108

Book value per share (3)
 
$
11.93

 
$
10.08

 
$
9.64

 
 
 
 
 
 
 
(1) Investments include net unrealized gains (losses) on securities
 
$
187,099

 
$
(44,795
)
 
$
(72,399
)
(2) Loss reserves, net of reinsurance recoverable on loss reserves
 
$
582,731

 
$
640,691

 
$
687,765

(3) Shares outstanding
 
348,709

 
355,371

 
362,155








MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
 
 
 
ADDITIONAL INFORMATION - NEW INSURANCE WRITTEN
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
Year-to-date
 
Q3
 
Q2
 
Q1
 
Q4
 
Q3
 
2019
 
2018
New primary insurance written (NIW) (billions)
$
19.1

 
$
14.9

 
$
10.1

 
$
12.2

 
$
14.5

 
$
44.1

 
$
38.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Monthly (including split premium plans) and annual premium plans
16.2

 
12.6

 
8.5

 
10.2

 
12.2

 
37.3

 
31.8

Single premium plans
2.9

 
2.3

 
1.6

 
2.0

 
2.3

 
6.8

 
6.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct average premium rate (bps) on NIW
 
 
 
 
 
 
 
 
 
 
 
 
 
Monthly (1)
42.3

 
45.6

 
49.1

 
50.2

 
51.3

 
45.0

 
53.7

Singles
112.8

 
129.6

 
141.5

 
147.0

 
153.5

 
125.4

 
161.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product mix as a % of primary NIW
 
 
 
 
 
 
 
 
 
 
 
 
 
FICO < 680
4
%
 
6
%
 
7
%
 
8
%
 
7
%
 
6
%
 
7
%
>95% LTVs
12
%
 
16
%
 
18
%
 
17
%
 
17
%
 
15
%
 
16
%
>45% DTI
12
%
(2)
15
%
(2)
18
%
(2)
19
%
(2)
20
%
 
15
%
 
20
%
Singles
15
%
 
16
%
 
16
%
 
16
%
 
16
%
 
16
%
 
17
%
Refinances
20
%
 
11
%
 
8
%
 
6
%
 
5
%
 
14
%
 
7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New primary risk written (billions)
$
4.7

 
$
3.8

 
$
2.5

 
$
3.1

 
$
3.7

 
$
11.0

 
$
9.6



(1) Excludes loans with split and annual payments

(2) In the fourth quarter of 2018 we changed our methodology for calculating DTI ratios for pricing and eligibility purposes to exclude the impact of mortgage insurance premiums. As a result, loan originators may have changed the information they provide to us, and therefore we cannot be sure that the DTI ratio we report for each loan includes the related mortgage insurance premiums in the calculation.





























MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
 
 
 
 
ADDITIONAL INFORMATION - INSURANCE IN FORCE and RISK IN FORCE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
Q3
 
Q2
 
Q1
 
Q4
 
Q3
Primary Insurance In Force (IIF) (billions)
$
218.1

 
$
213.9

 
$
211.4

 
$
209.7

 
$
205.8

Total # of loans
1,075,285

 
1,065,893

 
1,059,720

 
1,058,292

 
1,048,088

Flow # of loans
1,032,936

 
1,022,157

 
1,013,291

 
1,010,944

 
999,382

 
 
 
 
 
 
 
 
 
 
Average Loan Size of IIF (thousands)
$
202.9

 
$
200.7

 
$
199.5

 
$
198.2

 
$
196.4

Flow only
$
205.4

 
$
203.2

 
$
202.0

 
$
200.7

 
$
198.9

 
 
 
 
 
 
 
 
 
 
Annual Persistency
78.6
%
 
80.8
%
 
81.7
%
 
81.7
%
 
81.0
%
 
 
 
 
 
 
 
 
 
 
Primary Risk In Force (RIF) (billions)
$
56.2

 
$
55.2

 
$
54.5

 
$
54.1

 
$
53.1

By FICO (%)
 
 
 
 
 
 
 
 
 
FICO 760 & >
39
%
 
38
%
 
38
%
 
38
%
 
38
%
FICO 740-759
16
%
 
16
%
 
16
%
 
16
%
 
15
%
FICO 720-739
14
%
 
14
%
 
14
%
 
14
%
 
14
%
FICO 700-719
11
%
 
11
%
 
11
%
 
11
%
 
11
%
FICO 680-699
8
%
 
9
%
 
9
%
 
8
%
 
9
%
FICO 660-679
5
%
 
5
%
 
5
%
 
5
%
 
5
%
FICO 640-659
3
%
 
3
%
 
3
%
 
3
%
 
3
%
FICO 639 & <
4
%
 
4
%
 
4
%
 
5
%
 
5
%
 
 
 
 
 
 
 
 
 
 
Average Coverage Ratio (RIF/IIF)
25.8
%
 
25.8
%
 
25.8
%
 
25.8
%
 
25.8
%
 
 
 
 
 
 
 
 
 
 
Direct Pool RIF (millions)
 
 
 
 
 
 
 
 
 
With aggregate loss limits
$
214

 
$
215

 
$
216

 
$
228

 
$
232

Without aggregate loss limits
$
173

 
$
178

 
$
186

 
$
191

 
$
199



Note: The FICO credit score for a loan with multiple borrowers is the lowest of the borrowers’ “decision FICO scores.” A borrower’s “decision FICO score” is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used.









MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
 
ADDITIONAL INFORMATION - DELINQUENCY STATISTICS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
 
 
Q3
 
Q2
 
Q1
 
Q4
 
Q3
 
 
Primary IIF - Delinquent Roll Forward - # of Loans
 
 
 
 
 
 
 
 
 
 
 
Beginning Delinquent Inventory
29,795

 
30,921

 
32,898

 
33,398

 
36,037

 
 
New Notices
14,019

 
12,915

 
13,611

 
14,097

 
13,569

 
 
Cures
(12,592
)
 
(12,882
)
 
(14,348
)
 
(12,891
)
 
(14,197
)
 
 
Paid claims
(1,045
)
 
(1,112
)
 
(1,188
)
 
(1,304
)
 
(1,374
)
 
 
Rescissions and denials
(42
)
 
(47
)
 
(52
)
 
(67
)
 
(56
)
 
 
Other items removed from inventory
(195
)
 

 

 
(335
)
 
(581
)
 
 
Ending Delinquent Inventory
29,940

 
29,795

 
30,921

 
32,898

 
33,398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary IIF Delinquency Rate
2.78
%
 
2.80
%
 
2.92
%
 
3.11
%
 
3.19
%
 
 
Primary claim received inventory included in ending delinquent inventory
557

 
630

 
665

 
809

 
766

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary IIF - # of Delinquent Loans - Flow only
22,688

 
22,227

 
23,483

 
24,919

 
25,130

 
 
Primary IIF Delinquency Rate - Flow only
2.20
%
 
2.17
%
 
2.32
%
 
2.47
%
 
2.52
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of Cures
 
 
 
 
 
 
 
 
 
 
 
Reported delinquent and cured intraquarter
4,397

 
3,735

 
4,884

 
4,081

 
3,938

 
 
Number of payments delinquent prior to cure
 
 
 
 
 
 
 
 
 
 
 
3 payments or less
5,631

 
6,221

 
6,506

 
5,623

 
5,671

 
 
4-11 payments
2,075

 
2,401

 
2,419

 
2,616

 
3,896

 
 
12 payments or more
489

 
525

 
539

 
571

 
692

 
 
Total Cures in Quarter
12,592

 
12,882

 
14,348

 
12,891

 
14,197

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Composition of Paids
 
 
 
 
 
 
 
 
 
 
 
Number of payments delinquent at time of claim payment
 
 
 
 
 
 
 
 
 
 
 
3 payments or less

 
4

 
2

 
6

 
7

 
 
4-11 payments
104

 
121

 
149

 
125

 
140

 
 
12 payments or more
941

 
987

 
1,037

 
1,173

 
1,227

 
 
Total Paids in Quarter
1,045

 
1,112

 
1,188

 
1,304

 
1,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aging of Primary Delinquent Inventory
 
 
 
 
 
 
 
 
 
 
 
Consecutive months delinquent
 
 
 
 
 
 
 
 
 
 
 
      3 months or less
9,462

32
%
8,970

30
%
8,568

28
%
9,829

30
%
9,484

28
%
 
      4-11 months
9,082

30
%
8,951

30
%
9,997

32
%
9,655

29
%
9,564

29
%
 
      12 months or more
11,396

38
%
11,874

40
%
12,356

40
%
13,414

41
%
14,350

43
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of payments delinquent
 
 
 
 
 
 
 
 
 
 
 
      3 payments or less
14,690

49
%
14,071

47
%
14,129

46
%
15,519

47
%
14,813

44
%
 
      4-11 payments
8,225

27
%
8,194

28
%
8,833

28
%
8,842

27
%
9,156

28
%
 
      12 payments or
      more
7,025

24
%
7,530

25
%
7,959

26
%
8,537

26
%
9,429

28
%
 






MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
ADDITIONAL INFORMATION - RESERVES and CLAIMS PAID
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
Year-to-date
 
Q3
 
Q2
 
Q1
 
Q4
 
Q3
 
2019
 
2018
Reserves (millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Direct Loss Reserves
$
591

 
$
610

 
$
642

 
$
660

 
$
707

 

 
 
Pool Direct loss reserves
11

 
11

 
12

 
13

 
13

 

 
 
Other Gross Reserves

 
1

 
1

 
1

 
1

 

 
 
Total Gross Loss Reserves
$
602

 
$
622

 
$
655

 
$
674

 
$
721

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Average Direct Reserve Per Delinquency
$
18,955

 
$
19,684

 
$
20,014

 
$
20,077

 
$
21,184

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Paid Claims (millions) (1)
$
55

 
$
55

 
$
57

 
$
75

 
$
87

 
$
167

 
$
260

Total primary (excluding settlements)
47

 
52

 
52

 
62

 
65

 
151

 
220

Rescission and NPL settlements
4

 

 

 
10

 
19

 
4

 
40

Pool
1

 

 
1

 
1

 
2

 
2

 
5

Reinsurance
(2
)
 
(2
)
 
(3
)
 
(2
)
 
(3
)
 
(7
)
 
(17
)
Other
5

 
5

 
7

 
4

 
4

 
17

 
12

Reinsurance terminations (1)

 
(14
)
 

 

 

 
(14
)
 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary Average Claim Payment (thousands)
$
44.4

(2)
$
46.9

 
$
43.9

 
$
48.0

(2)
$
47.2

(2)
$
45.1

 
$
49.6

Flow only
$
39.4

(2)
$
40.0

 
$
37.6

 
$
41.6

(2)
$
42.0

(2)
$
39.0

 
$
44.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 


(1) Net paid claims, as presented, does not include amounts received in conjunction with terminations or commutations of reinsurance agreements.

(2) Excludes amounts paid in settlement disputes for claims paying practices and/or commutations of non-performing loans.







MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
ADDITIONAL INFORMATION - REINSURANCE, BULK STATISTICS and MI RATIOS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
 
Year-to-date
 
Q3
 
Q2
 
Q1
 
Q4
 
Q3
 
2019
 
2018
Quota Share Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
 
% insurance inforce subject to reinsurance
78.4
%
 
78.2
%
 
77.8
%
 
77.5
%
 
77.6
 %
 
 
 
 
% NIW subject to reinsurance
81.2
%
 
83.0
%
 
84.0
%
 
75.5
%
 
75.4
 %
 
82.5
%
 
75.0
%
Ceded premiums written and earned (millions)
$
23.0

 
$
36.5

(1)
$
28.2

 
$
28.6

 
$
25.2

 
$
87.7

 
$
79.6

Ceded losses incurred (millions)
$
2.7

 
$
3.4

 
$
1.7

 
$
3.0

 
$
(0.5
)
 
$
7.8

 
$
3.6

Ceding commissions (millions) (included in underwriting and other expenses)
$
11.0

 
$
13.4

 
$
13.4

 
$
12.9

 
$
13.0

 
$
37.8

 
$
38.2

Profit commission (millions) (included in ceded premiums)
$
32.2

 
$
37.0

 
$
38.9

 
$
36.0

 
$
39.7

 
$
108.1

 
$
111.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Excess-of-Loss Reinsurance
 
 
 
 
 
 
 
 
 
 
 
 
 
Ceded premiums earned (millions)
$
5.4

 
$
4.5

 
$
2.5

 
$
2.8

 
$

 
$
12.4

 
$

Ceded losses incurred (millions)
$

 
$

 
$

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bulk Primary Insurance Statistics
 
 
 
 
 
 
 
 
 
 
 
 
 
Insurance in force (billions)
$
6.0

 
$
6.2

 
$
6.7

 
$
6.8

 
$
7.0

 
 
 
 
Risk in force (billions)
$
1.7

 
$
1.7

 
$
1.9

 
$
1.9

 
$
2.0

 
 
 
 
Average loan size (thousands)
$
141.3

 
$
141.8

 
$
144.1

 
$
144.8

 
$
145.4

 
 
 
 
Number of delinquent loans
7,252

 
7,568

 
7,438

 
7,979

 
8,268

 
 
 
 
Delinquency rate
17.13
%
 
17.31
%
 
16.02
%
 
16.86
%
 
16.98
 %
 
 
 
 
Primary paid claims (millions)
$
15

 
$
16

 
$
18

 
$
19

 
$
18

 
$
49

 
$
64

Average claim payment (thousands)
$
60.1

 
$
74.6

 
$
65.1

 
$
73.2

 
$
69.6

 
$
66.2

 
$
70.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage Guaranty Insurance Corporation - Risk to Capital
9.9:1

(3)
10.1:1

(2)
8.9:1

 
9.0:1

 
9.0:1

 
 
 
 
Combined Insurance Companies - Risk to Capital
9.8:1

(3)
10.0:1

 
9.6:1

 
9.8:1

 
9.8:1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP loss ratio (insurance operations only)
12.7
%
 
8.8
%
 
15.6
%
 
11.3
%
 
(0.6
)%
 
12.4
%
 
1.2
%
GAAP underwriting expense ratio (insurance operations only)
17.7
%
 
17.6
%
 
18.9
%
 
19.1
%
 
17.6
 %
 
18.1
%
 
17.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 


(1) Includes a $6.8 million termination fee paid to terminate a portion of our 2015 quota share reinsurance agreement.

(2) A reinsurance agreement in effect between Mortgage Guaranty Insurance Corporation and an affiliate was terminated during the quarter.

(3) Preliminary







Risk Factors

As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires; and “MGIC” refers to Mortgage Guaranty Insurance Corporation.

Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission ("SEC"). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as “believe,” “anticipate,” “will” or “expect,” or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on these statements being current at any time other than the time at which this press release was delivered for dissemination to the public.
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.

Much of the competition in the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates; (ii) use of customized rates (typically lower than standard rates) that are made available to lenders that meet certain criteria; and (iii) use of a spectrum of filed rates to allow for formulaic, risk-based pricing that may be quickly adjusted within certain parameters (referred to as "risk-based pricing systems").

In the first quarter of 2019, we introduced MiQ™, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of new insurance written ("NIW") has changed. In addition, business under customized rate plans is awarded by certain customers for only a limited period of time. As a result, our volume may fluctuate more than it had in the past.

We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. A reduction in our premium rates will reduce our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies with higher premium rates run off and new insurance policies with lower premium rates are written. Our premium rates are subject to approval by state regulatory agencies, which can delay or limit our ability to change them, outside of the parameters already approved.
There can be no assurance that our premium rates adequately reflect the risk associated with the underlying mortgage insurance policies. For additional information, see our risk factors titled “The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations" and "If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our business, results of operations and financial condition.
Our relationships with our customers, which may affect the amount of our NIW, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments). Regarding the concentration of our new business, our largest customer accounted for approximately 5% and 7% of our NIW, and our top ten customers accounted for approximately 24% and 26% of our NIW, in each of 2018 and the first nine months of 2019, respectively.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore reinsurance vehicles, which are tax-advantaged). As a result, they may be able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by Fannie Mae and Freddie Mac (the "GSEs") discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."






Substantially all of our insurance written since 2008 has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs require a mortgage insurer to maintain a minimum amount of assets to support its insured risk, as discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.” The PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the following ways:
A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our new insurance written.
Our ability to participate in the non-GSE mortgage market (the size of which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our mortgage insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from A.M. Best is A- (with a stable outlook), from Moody’s is Baa1 (with a stable outlook) and from Standard & Poor’s is BBB+ (with a stable outlook).
Financial strength ratings may also play a greater role if the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action. In addition, although the PMIERs do not require minimum financial strength ratings, the GSEs consider financial strength ratings to be important when using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected.
The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
lenders using FHA, VA and other government mortgage insurance programs,
investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance,
lenders and other investors holding mortgages in portfolio and self-insuring, and
lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
In 2018, Freddie Mac and Fannie Mae initiated programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. These programs compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer premium rates that are below prevalent single premium lender paid mortgage insurance ("LPMI") rates. We participate in these programs from time to time. See our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” for a discussion of various business practices of the GSEs that may be changed, including through expansion or modification of these programs.
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement.
The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 29.0% in the first half of 2019, 30.5% in 2018 and 33.9% in 2017. In the past ten years, the FHA’s share has been as low as 29.0% in 2019 and as high as 66.8% in 2009. Factors that influence the FHA’s market share include relative rates and fees, underwriting guidelines and loan limits of the FHA, VA, private mortgage insurers and the GSEs; lenders' perceptions of legal risks under FHA versus GSE programs; flexibility for the FHA to establish new






products as a result of federal legislation and programs; returns expected to be obtained by lenders for Ginnie Mae securitization of FHA-insured loans compared to those obtained from selling loans to the GSEs for securitization; and differences in policy terms, such as the ability of a borrower to cancel insurance coverage under certain circumstances. We cannot predict how the factors that affect the FHA’s share of new insurance written will change in the future.
The VA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 22.6% in the first half of 2019, 22.9% in 2018 and 24.7% in 2017. In the past ten years, the VA’s share has been as low as 14.3% in 2009 and as high as 27.2% in 2016. We believe that the VA’s market share has generally been elevated in recent years because of an increase in the number of borrowers that are eligible for the VA’s program, which offers 100% loan-to-value ratio ("LTV") loans and charges a one-time funding fee that can be included in the loan amount, and because eligible borrowers have opted to use the VA program when refinancing their mortgages.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
The GSEs’ charters generally require credit enhancement for a low down payment mortgage loan (a loan with an amount that exceeds 80% of a home’s value) in order for such loan to be eligible for purchase by the GSEs. Lenders generally have used private mortgage insurance to satisfy this credit enhancement requirement. (For information about GSE programs initiated in 2018 that provide for loan level default coverage by various (re)insurers (which may include affiliates of private mortgage insurers), see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.") Because low down payment mortgages purchased by the GSEs have generally been insured with private mortgage insurance, the business practices of the GSEs greatly impact our business and include:
the GSEs' private mortgage insurer eligibility requirements, the financial requirements of which are discussed in our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility,”
the capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance,"
the level of private mortgage insurance coverage, subject to the limitations of the GSEs’ charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,
the amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage insurance,
whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage,
the underwriting standards that determine which loans are eligible for purchase by the GSEs, which can 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,
the programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs,
the terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers,
the extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders, and
the maximum loan limits of the GSEs compared to those of the FHA and other investors.
The Federal Housing Finance Agency (“FHFA”) has been the conservator of the GSEs since 2008 and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential housing finance system through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change, including through administrative action, in ways that have a material adverse effect on us and that the charters of the GSEs are changed by new federal legislation.







In September 2019, at the direction of President Trump, the U.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to achieve the goals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the Consumer Financial Protection Bureau ("CFPB"), transferring risk to the private sector, and eliminating the GSE Patch (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and providing that the Federal Government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. Also in September 2019, the Treasury and FHFA entered into a letter agreement that will allow the GSEs to remit less of their earnings to the government, which will help them rebuild their capital.

The impact of the Plan on private mortgage insurance is unclear. It does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."

The current GSE Patch expands the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the debt-to-income ("DTI") ratio limit of 43% included in the standard QM definition. The GSE Patch is scheduled to expire no later than January 2021. In July 2019, the CFPB released an Advanced Notice of Proposed Rulemaking on the QM definition. The director of the CFPB indicated that the CFPB would consider only a short-term extension of the GSE Patch. Approximately 30%, 24% and 22% of our NIW in the first, second and third quarters of 2019, respectively, was on loans with DTI ratios greater than 43%. However, it is possible that not all future loans with DTI ratios greater than 43% will be affected by a sunset of the GSE Patch, in part because the standard QM definition may be liberalized under the new rules. In this regard, we note that the CFPB asked for comment about whether the definition of QM should retain a direct measure of a consumer’s personal finances (for example, DTI ratio); whether the definition should include an alternative method for assessing financial capacity; whether, if the QM definition retains a DTI ratio limit, the limit should remain 43% or be increased or decreased; and whether loans with DTI ratios above a prescribed limit should be given QM status if certain compensating factors are present. In addition, the Plan indicates that, pending legislation, the GSE Patch should expire; the CFPB should amend its ability-to-repay rule under TILA ("ATR rule") to establish a clear bright line safe harbor that replaces the GSE Patch; and the FHFA and the CFPB should continue to coordinate their efforts to avoid market disruption in connection with the expiration of the GSE Patch and the implementation of any amendments to the CFPB’s ATR rule.

We may insure loans that do not qualify as QMs; however, we are unsure the extent to which lenders will make non-QM loans because they will not be entitled to the presumptions about compliance with the “ability to repay” rules that the law allows with respect to QM loans. We are also unsure the extent to which lenders will purchase private mortgage insurance for loans that cannot be sold to the GSEs.
The rule that includes the QM definition that applies to loans insured by the FHA was issued by the Department of Housing and Urban Development (“HUD”) and that definition is less restrictive than the CFPB’s definition in certain respects, including that (i) it has no DTI ratio limit, and (ii) it allows the lender certain presumptions about compliance with the ATR rule on higher priced loans. It is possible that, in the future, lenders will prefer FHA-insured loans to loans insured by private mortgage insurance as a result of the FHA’s less restrictive QM definition. However, in September 2019, HUD released its Housing Reform Plan and indicated that the FHA should refocus on its mission of providing housing finance support to low- and moderate-income families that cannot be fulfilled through traditional underwriting. In addition, Treasury's Plan indicated that the FHFA and HUD should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV and high DTI loans.
As a result of the matters referred to above, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Many of the proposed changes would require Congressional action to implement and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last.
We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility.
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The






financial requirements of the PMIERs require a mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which are based on an insurer’s book of insurance in force and are calculated from tables of factors with several risk dimensions and are subject to a floor amount).
Based on our interpretation of the most restrictive PMIERs, as of September 30, 2019, MGIC’s Available Assets totaled $4.5 billion, or $1.2 billion in excess of its Minimum Required Assets. MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs. In calculating these "Minimum Required Assets," the total credit for risk ceded under our reinsurance transactions is subject to a modest haircut. Our reinsurance transactions are discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring." Our existing reinsurance transactions are subject to periodic review by the GSEs and there is a risk we will not receive our current level of credit in future periods for the risk ceded under them. In addition, we may not receive the same level of credit under future transactions that we receive under existing transactions. If MGIC is not allowed certain levels of credit under the PMIERs, under certain circumstances, MGIC may terminate the reinsurance transactions, without penalty.
If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our new business writings. Factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:
The GSEs may amend the PMIERs at any time and may make the PMIERs more onerous in the future. The GSEs have indicated that there may be potential future implications for PMIERs based upon feedback the FHFA receives on its June 2018 proposed rule on regulatory capital requirements for the GSEs, which included a framework for determining the capital relief allowed to the GSEs for loans with private mortgage insurance. The FHFA recently indicated that the capital requirements will be finalized no earlier than the end of 2019 and may not be finalized until Spring 2020. Further, any changes to the GSEs' capital and liquidity requirements resulting from the Treasury Housing Reform Plan could have future implications for PMIERs. In addition, the PMIERs provide that the factors that determine Minimum Required Assets will be updated every two years and may be updated more frequently to reflect changes in macroeconomic conditions or loan performance. The GSEs have indicated that they will generally provide notice 180 days prior to the effective date of such updates.
Our future operating results may be negatively impacted by the matters discussed in the rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Reinsurance may not always be available or affordable.
As discussed in our risk factor titled "The mix of business we write affects our Minimum Required Assets under the PMIERs, our premium yields and the likelihood of losses occurring," we have in place quota share and excess of loss reinsurance transactions covering a portion of our risk in force. While on an overall basis, the amount of Available Assets that MGIC must hold in order to continue to insure GSE loans is greater under the PMIERs than what state regulation currently requires, these reinsurance transactions mitigate the negative effect of the PMIERs on our returns. However, reinsurance may not always be available to us or available on similar terms, the quota share reinsurance transactions subject us to counterparty credit risk and the GSEs may change the credit they allow under the PMIERs for risk ceded under our reinsurance transactions. If we are unable to obtain reinsurance for NIW, our returns may decrease absent an increase in premium rates. An increase in our premium rates may lead to a decrease in our NIW.
We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future.
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