MGIC Investment Corporation Reports Fourth Quarter 2020 Results

MILWAUKEE, Feb. 23, 2021 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the fourth quarter of 2020. Net income for the quarter was $151.4 million, or $0.44 per diluted share, compared to net income of $177.1 million, or $0.49 per diluted share, for the fourth quarter of 2019.  Net income for the full year of 2020 was $446.1 million, or $1.29 per diluted share, compared to $673.8 million, or $1.85 per diluted share, for the full year of 2019.

Adjusted net operating income for the fourth quarter of 2020 was $149.5 million, or $0.43 per diluted share, compared to $176.1 million, or $0.49 per diluted share, for the fourth quarter of 2019. Adjusted net operating income for the full year of 2020 was $456.8 million, or $1.32 per diluted share, compared to $669.7 million, or $1.84 per diluted share for 2019. 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.

Tim Mattke, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am pleased to report that we finished 2020 with strong financial results which reflect the favorable housing market trends we have been experiencing especially in the second half of the year."

"Despite the economic effects of the COVID-19 pandemic, the housing market has been resilient and, given our market presence and the overall market size, we wrote $112.1 billion of new insurance in 2020, including $33.2 billion in the fourth quarter. As a result, insurance in force increased more than 10% year-over-year, despite the lower annual persistency associated with the strong refinance market.  In 2020, we further strengthened our already strong capital and liquidity positions by reducing the amount of holding company debt due in 2023, increasing liquidity at our holding company, ceding additional risk through reinsurance transactions, and increasing MGIC's statutory and PMIERs capital positions." 

Mattke continued, "In 2020 our company wrote a record volume of new business while being challenged by the economic impact of the COVID-19 pandemic, including higher losses incurred, especially in the second quarter of the year.  I am very proud of our team members who remain focused on executing our business strategies and providing critical support for our customers and the housing market, especially for first-time homebuyers, as we all continue to navigate through the current environment."

Mattke concluded, "I am encouraged about the continued resiliency of the housing market; however, there is still uncertainty about the timing and pace of the economic recovery and the long-term impact of the governmental and GSE response to aid consumers impacted by the pandemic, including loss mitigation efforts undertaken by the GSEs and loan servicers.  I am at the same time excited about our ability to provide credit enhancement and low down payment solutions to lenders, GSEs and borrowers."

Fourth Quarter Summary

• New insurance written was $33.2 billion, compared to $32.8 billion the third quarter of 2020 and $19.3 billion in the fourth quarter of 2019, reflecting the resilience of the purchase mortgage market, the attractive refinance market, and our position in the market. 
• Persistency, or the percentage of insurance remaining in force from one year prior, was 60.5% at December 31, 2020, compared to 64.5% at September 30, 2020 and 75.8% at December 31, 2019.
• Insurance in force (IIF) of $246.6 billion at December 31, 2020 increased by 3.2% during the quarter and 10.9%  compared to December 31, 2019.
• Primary delinquency inventory of 57,710 loans at December 31, 2020 decreased from 64,418 loans at September 30, 2020, but increased from 30,028 loans at December 31, 2019 primarily due to the adverse economic impact of COVID-19.
• As of December 31, 2020, 62% of the loans in our delinquency inventory were reported to us as subject to a forbearance plan. We believe substantially all of the reported forbearance plans are COVID-19 related.
• Insurance written in 2008 and prior accounted for approximately 9% of the December 31, 2020 primary risk in force but accounted for 36% of the new primary delinquency notices received in the quarter.
• The percentage of loans insured with primary insurance that were delinquent at December 31, 2020 was 5.11%, compared to 5.79% at September 30, 2020, and 2.78% at December 31, 2019. 
• The loss ratio for the fourth quarter of 2020 was 17.5%, compared to 15.9% for the third quarter of 2020 and 8.9% for the fourth quarter of 2019.
• The underwriting expense ratio associated with our insurance operations for the fourth quarter of 2020 was 19.4%, compared to 20.2% for the third quarter of 2020 and 19.6% for the fourth quarter of 2019.
• Net premium yield was 43.1 basis points in the fourth quarter of 2020, compared to 43.6 basis points for the third quarter of 2020 and 48.4 basis points for the fourth quarter of 2019.
• MGIC Investment Corporation paid a $0.06 dividend per common share to shareholders during the fourth quarter of 2020.
• Book value per common share outstanding increased by 4.1% from September 30, 2020 and by 11.8% from December 31, 2019 to $13.88 (December 31, 2020 book value per common share outstanding includes $1.02 in net unrealized gains on securities, compared to $0.51 at December 31, 2019).
• In October, MGIC entered into a $412.9 million excess of loss reinsurance agreement (executed through an insurance linked note transaction) that covers a portion of policies issued from January 1, 2020 through July 31, 2020.

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First Quarter 2021 Activities

• In February, MGIC entered into a $398.8 million excess of loss reinsurance agreement (executed through an insurance linked note transaction) that covers a portion of policies issued from August 1, 2020 through December 31, 2020.
• $248.5 billion of IIF at January 31, 2021, compared to $246.6 billion of IIF at December 31, 2020.
• MGIC Investment Corporation declared a $0.06 dividend per common share to shareholders.

Revenues

Total revenues for the fourth quarter of 2020 were $302.3 million, compared to $311.6 million in the fourth quarter last year. The decrease reflects lower premiums earned and  lower net investment income. Net premiums written for the quarter were $233.4 million, compared to $254.0 million for the same period last year. Net premiums earned for the quarter were $261.4 million, compared to $266.3 million for the same period last year. The decrease in net premiums written was due to lower premium rates on our IIF and a decrease in profit commission on our quota share reinsurance transactions which resulted from higher ceded incurred losses.  These effects were partially offset by higher average IIF. Net premiums earned were also impacted by an increase in accelerated premiums earned from single premium policy cancellations.  Investment income for the fourth quarter decreased to $36.1 million, from $41.3 million for the same period last year, resulting from lower investment yields, partially offset by an increase in the consolidated investment portfolio.

Losses and expenses

Losses incurred 
Net losses incurred were $45.8 million, compared to $23.7 million in the same period last year.  In the fourth quarter of 2020, our re-estimation of reserves on previous delinquencies resulted in insignificant loss development  compared to $24 million of favorable loss reserve development in the fourth quarter of 2019.  Primarily reflecting the impact of the COVID-19 pandemic, in the fourth quarter of 2020, we received 11% more new delinquency notices than we did in the same period last year; however, we received 27% fewer new delinquency notices compared to the third quarter of 2020 and 74% fewer delinquency notices compared to the second quarter of 2020.  In the fourth quarter of 2020, we also decreased our incurred but not reported, or IBNR, reserve from $34 million to $27 million.

Underwriting and other expenses
Net underwriting and other expenses were $48.3 million in the fourth quarter of 2020, compared to $52.3 million in the same period last year.

Interest Expense
Interest expense was $18.0 million in the fourth quarter of 2020, compared to $12.9 million in the same period last year.  The increase is due to the issuance of the 5.25% Senior Notes in August 2020, partially offset by the repurchase of a portion of the 5.75% Senior Notes and the 9% Convertible Junior Debentures.

Provision for income taxes
The effective income tax rate was 20.4% in the fourth quarter of 2020 and 20.5% in the fourth quarter of 2019.

Capital

• Total consolidated shareholders' equity was $4.7 billion as of December 31, 2020, compared to $4.3 billion as of December 31, 2019.
• MGIC's PMIERs Available Assets totaled $5.3 billion, or $1.8 billion above its Minimum Required Assets as of December 31, 2020.

Other Balance Sheet and Liquidity Metrics

• Total consolidated assets were $7.4 billion as of December 31, 2020, compared to $6.2 billion as of December 31, 2019 and $5.7 billion as of December 31, 2018.
• The fair value of our consolidated investment portfolio, cash and cash equivalents was $7.0 billion as of December 31, 2020, compared to $5.9 billion as of December 31, 2019 and $5.3 billion as of December 31, 2018.
• Investments, cash and cash equivalents at the holding company were $847 million as of December 31, 2020, compared to $325 million as of December 31, 2019 and $248 million as of December 31, 2018.
• Total consolidated debt as of December 31, 2020 was $1.2 billion, compared to $832 million as of December 31, 2019 and December 31, 2018.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call February 24, 2021, 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 1-866-834-4126 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 24, 2021 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 by providing mortgage insurance, which helps families achieve homeownership sooner by making affordable low-down-payment mortgages a reality. At December 31, 2020, MGIC had $246.6 billion of primary insurance in force covering over 1.1 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 all 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 rates, 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. These risk factors, including the discussion of the impact of the COVID-19 pandemic, speak only as of the date of this press release and are subject to change without notice as the Company cannot predict all risks relating to this evolving set of events. 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.

While we communicate with securities 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

Risk Factors Relating to the COVID-19 Pandemic

The COVID-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition.

The COVID-19 pandemic had a material impact on our 2020 financial results. While uncertain, the future impact of the COVID-19 pandemic on the Company's business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the level of unemployment, and the impact of government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

The COVID-19 pandemic may continue to impact our business in various ways, including the following, each of which is described in more detail in the remainder of these risk factors:

• Our incurred losses will increase if the number of insured mortgages in our delinquency inventory increases. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (this is often referred to as "IBNR").
• We may be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
• If the number of delinqu