MGIC Investment Corporation Reports Fourth Quarter 2019 Results and Announces $300 Million Share Repurchase Authorization

MILWAUKEE, Feb. 4, 2020 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the fourth quarter of 2019. Net income for the quarter was $177.1 million, or $0.49 per diluted share, compared with net income of $157.7 million, or $0.43 per diluted share, for the fourth quarter of 2018.  Net Income for the full year of 2019 was $673.8 million, or $1.85 per diluted share, compared to $670.1 million, or $1.78 per diluted share, for the full year of 2018.

Adjusted net operating income for the fourth quarter of 2019 was $176.1 million, or $0.49 per diluted share, compared with $154.0 million, or $0.42 per diluted share, for the fourth quarter of 2018. We present the non-GAAP financial measure "Adjusted net operating income" to increase the comparability between periods of our financial results. Adjusted net operating income for the full year of 2019 was $669.7 million, or $1.84 per diluted share, compared to $668.7 million, or $1.78 per diluted share, for 2018.  See "Use of Non-GAAP financial measures" below.

Tim Mattke, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am pleased to report that the solid financial results of the fourth quarter capped a strong 2019 as we continued to execute on our strategies and focus on long term success.  For 2019, compared to 2018, despite lower persistency our insurance in force increased more than 6%, we wrote nearly 25% more new insurance, and investment income increased. The credit performance for the new business written remains outstanding, the legacy book continued to decrease in size and contribute fewer delinquencies, and we maintained a low expense level." Mattke continued, "In 2019 we repurchased $114 million of our common stock outstanding, established a quarterly common stock dividend mid-year that distributed a total of $42 million, continued to use quota share and excess of loss reinsurance to reduce potential future earnings volatility from credit losses and enhance our returns, decreased our debt ratio, continued our positive credit ratings trajectory, and increased dividends from MGIC to our holding company to $280 million."

Mattke stated, "Reflecting our strong capital position, the Office of the Commissioner of Insurance for the State of Wisconsin approved our $70 million quarterly dividend and an additional $320 million special dividend from MGIC to our holding company, and our Board approved the repurchase of up to an additional $300 million of our common stock through the end of 2021." Mattke further added  "I am excited about our ability to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers, and to deliver meaningful returns to our shareholders in 2020. We expect that our insurance in force will grow modestly, and that the number of new mortgage delinquency notices received and the amount of claims paid will continue to decline in 2020."

Fourth Quarter Summary

• New insurance written of $19.3 billion, compared to $12.2 billion in the fourth quarter of 2018.
• Insurance in force of $222.3 billion at December 31, 2019 increased by 2% during the quarter and 6% compared to December 31, 2018.
• Primary delinquency inventory of 30,028 loans at December 31, 2019 decreased from 32,898 loans at December 31, 2018. Our primary delinquency inventory declined 9% year-over-year.
• Insurance written in 2008 and before accounted for approximately 12% of the December 31, 2019 primary risk in force but accounted for 60% of the new primary delinquency notices received in the quarter.
• The percentage of primary loans that were delinquent at December 31, 2019 was 2.78%, compared to 3.11% at December 31, 2018, and 4.55% at December 31, 2017. The percentage of flow primary loans that were delinquent at December 31, 2019 was 2.23%, compared to 2.47% at December 31, 2018, and 3.70% at December 31, 2017.
• Persistency, or the percentage of insurance remaining in force from one year prior, was 75.8% at December 31, 2019, compared with 81.7% at December 31, 2018 and 80.1% at December 31, 2017.
• The loss ratio for the fourth quarter of 2019 was 8.9%, compared to 12.7% for the third quarter of 2019 and 11.3% for the fourth quarter of 2018.
• The underwriting expense ratio associated with our insurance operations for the fourth quarter of 2019 was 19.6%, compared to 17.7% for the third quarter of 2019 and 19.1% for the fourth quarter of 2018.
• Net premium yield was 48.4 basis points in the fourth quarter of 2019, compared to 49.6 basis points for the third quarter of 2019 and 47.3 basis points for the fourth quarter of 2018.
• MGIC paid a dividend of $70 million to our holding company during the fourth quarter of 2019.
• MGIC Investment Corporation paid a $0.06 dividend per common share to shareholders during the fourth quarter of 2019.
• 1.4 million shares of common stock were repurchased at an average cost per share of $14.26.
• Book value per common share outstanding increased by 4% during the quarter to $12.41.

First Quarter 2020 Activities

• Declared a $0.06 dividend per common share
• Received authorization to repurchase $300 million of our common stock through the end of 2021
• Received appropriate approvals to pay a dividend of $320 million ("special dividend") from MGIC to the holding company
• Received appropriate approvals to pay a dividend of $70 million ("quarterly dividend") from MGIC to the holding company

Revenues

Total revenues for the fourth quarter of 2019 were $311.6 million, compared to $285.6 million in the fourth quarter last year. Net premiums written for the quarter were $254.0 million, compared to $248.0 million for the same period last year. Net premiums earned for the quarter were $266.3 million, compared to $245.7 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 fourth quarter increased to $41.3 million, from $38.3 million for the same period last year, resulting from an increase in the consolidated investment portfolio.

Losses and expenses     

Losses incurred 

Losses incurred in the fourth quarter of 2019 were $23.7 million, compared to $27.7 million in the fourth quarter of 2018. During the fourth quarter of 2019 there was a $24 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 $22 million in the fourth 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 $52.3 million in the fourth quarter of 2019, compared to $50.0 million in the same period last year.

Provision for income taxes

The effective income tax rate was 20.5% in the fourth quarter of 2019, compared to 19.0% in the fourth quarter of 2018.    The lower rate in the fourth quarter of 2018 was primarily due to a benefit recorded for the settlement of our IRS litigation.

Capital

• Total shareholders' equity was $4.3 billion and outstanding principal on borrowings was $837 million as of December 31, 2019.
• MGIC's PMIERs Available Assets totaled $4.6 billion, or $1.2 billion above its Minimum Required Assets as of December 31, 2019.

Other Balance Sheet and Liquidity Metrics

• Total assets were $6.2 billion as of December 31, 2019, compared to $5.7 billion as of December 31, 2018, and $5.6 billion as of December 31, 2017.
• The fair value of our investment portfolio, cash and cash equivalents was $5.9 billion as of December 31, 2019, compared to $5.3 billion as of December 31, 2018, and $5.1 billion as of December 31, 2017.
• Investments, cash and cash equivalents at the holding company were $325 million as of December 31, 2019, compared to $248 million as of December 31, 2018, and $216 million as of December 31, 2017.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, February 4, 2020, 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  March 4, 2020 under "Newsroom."

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality. At December 31, 2019, MGIC had $222.3 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-K for the year ended December 31, 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.