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Press Release

MGIC Investment Corporation Reports Third Quarter 2017 Results

Oct 18, 2017
Q3 Net Income of $120.0 million or $0.32 per Diluted Share
Q3 Adjusted Net Operating Income (Non-GAAP) of $120.7 million or $0.32 per Diluted Share

MILWAUKEE, Oct. 18, 2017 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the quarter ended September 30, 2017. Net income for the quarter ended September 30, 2017 was $120.0 million, or $0.32 per diluted share. Net income for the quarter ended September 30, 2016 was $56.6 million, or $0.14 per diluted share.

Adjusted net operating income for the quarter ended September 30, 2017 was $120.7 million or $0.32 per diluted share. Adjusted net operating income for the quarter ended September 30, 2016 was $102.4 million or $0.25 per diluted share. 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.

Patrick Sinks, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC"), said, "I am pleased to report that we continue to make good progress in executing on our business strategies.  Over the last year we prudently grew our insurance in force by 6 percent, and during the quarter we were able to increase the dividend payment from MGIC to the holding company to $40 million. Further, we maintained our traditionally low expense ratio." Sinks added that, "Reflecting the current economic conditions and underwriting quality of recently written business, new delinquent notices received in the third quarter, and the estimated claim rate associated with those notices declined compared to the same period last year."       

Notable items for the quarter include:

   

Q3 2017

 

Q3 2016

 

Change

New Insurance Written (billions)

 

$

14.1

   

$

14.2

   

(0.7)

%

Insurance in force (billions) (1)

 

$

191.0

   

$

180.1

   

6.1

%

Primary Delinquent Inventory (# loans) (1)

 

41,235

   

51,433

   

(19.8)

%

Annual Persistency (1)

 

78.8

%

 

78.3

%

   

Consolidated Risk-to-Capital Ratio

 

11.1:1

 

(2)

12:6:1

 

(1)

 

GAAP Loss Ratio

 

12.5

%

 

25.7

%

   

GAAP Underwriting Expense Ratio (3)

 

15.7

%

 

14.7

%

   

Book Value per Share (4)

 

$

8.45

   

$

7.48

   

13.0

%

             

1) As of September 30, 2) preliminary as of September 30, 2017, 3) insurance operations, 4) based on shares outstanding

Total revenues for the third quarter of 2017 were $270.4 million, compared to $273.9 million in the third quarter last year. Total revenues in the third quarter of 2017 included $0.05 million of net realized investment losses compared to $5.09 million of net realized investment gains in the third quarter of 2016. Net premiums written for the quarter were $255.9 million, compared to $250.3 million for the same period last year. Net premiums earned were $237.1 million compared to $237.4 million for the same period last year.

New insurance written in the third quarter was $14.1 billion, compared to $14.2 billion in the third quarter of 2016. Persistency, or the percentage of insurance remaining in force from one year prior, was 78.8 percent at September 30, 2017, compared to 76.9 percent at December 31, 2016, and 78.3 percent at September 30, 2016. As of September 30, 2017, MGIC's primary insurance in force was $191.0 billion, compared to $182.0 billion at December 31, 2016, and $180.1 billion at September 30, 2016.

The fair value of MGIC Investment Corporation's investment portfolio, cash and cash equivalents was $5.0 billion at September 30, 2017, compared to $4.8 billion at December 31, 2016, and $5.0 billion at September 30, 2016.

At September 30, 2017, the percentage of loans that were delinquent, excluding bulk loans, was 3.19 percent, compared to 4.05 percent at December 31, 2016, and 4.14 percent at September 30, 2016. Including bulk loans, the percentage of loans that were delinquent at September 30, 2017 was 4.07 percent, compared to 5.04 percent at December 31, 2016, and 5.16 percent at September 30, 2016.

Losses incurred in the third quarter of 2017 were $29.7 million, compared to $60.9 million in the third quarter of 2016. During the third quarter of 2017 there was a $38 million reduction in losses incurred due to positive development on our primary loss reserves for previously received delinquencies compared to a reduction of $30 million in the third quarter of 2016. Losses incurred in the quarter associated with delinquent notices received in the quarter reflect a lower level of new notices received and a lower claim rate when compared to the same quarter last year. 

Net underwriting and other expenses were $42.9 million in the third quarter of 2017, compared to $40.4 million reported for the same period last year. 

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, October 18, 2017, 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 1-844-231-8825. 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 18, 2017 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, 2017, MGIC had $191.0 billion of primary insurance in force covering approximately 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 without making any other disclosure and intends to continue to do so in the future. 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 can be found at https://mtg.mgic.com under "Newsroom."

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 issued.

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, 2017.

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. The measures described below have been established to increase transparency for the purpose of evaluating our fundamental operating trends.

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 35%.

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 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. Income tax expense related to our IRS dispute 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)

 

2017

 

2016

 

2017

 

2016

 
                   

Net premiums written

 

$

255,896

   

$

250,324

   

$

738,432

   

$

731,620

   

Revenues

                 

Net premiums earned

 

$

237,083

   

$

237,376

   

$

697,322

   

$

690,173

   

Net investment income

 

30,402

   

27,515

   

89,595

   

82,572

   

Net realized investment (losses) gains

 

(47)

   

5,092

   

(211)

   

8,984

   

Other revenue

 

2,922

   

3,867

   

7,846

   

14,234

   

Total revenues

 

270,360

   

273,850

   

794,552

   

795,963

   

Losses and expenses

                 

Losses incurred, net

 

29,747

   

60,897

   

84,705

   

192,499

   

Underwriting and other expenses, net

 

42,873

   

40,445

   

126,963

   

119,776

   

Interest expense

 

13,273

   

13,536

   

43,779

   

40,481

   

Loss on debt extinguishment

 

   

75,223

   

65

   

90,531

   

Total losses and expenses

 

85,893

   

190,101

   

255,512

   

443,287

   

Income before tax

 

184,467

   

83,749

   

539,040

   

352,676

   

Provision for income taxes

 

64,440

   

27,131

   

210,593

   

117,646

   

Net income

 

$

120,027

   

$

56,618

   

$

328,447

   

$

235,030

   

Net income per diluted share

 

$

0.32

   

$

0.14

   

$

0.86

   

$

0.58

   

 

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)

 

2017

 

2016

 

2017

 

2016

Net income

 

$

120,027

   

$

56,618

   

$

328,447

   

$

235,030

 

Interest expense, net of tax:

               

  2% Convertible Senior Notes due 2020

 

   

1,324

   

907

   

5,288

 

  5% Convertible Senior Notes due 2017

 

   

673

   

1,709

   

5,080

 

  9% Convertible Junior Subordinated Debentures due 2063

 

3,757

   

   

11,270

   

 

Diluted net income available to common shareholders

 

$

123,784

   

$

58,615

   

$

342,333

   

$

245,398

 
                 

Weighted average shares - basic

 

370,586

   

349,376

   

359,613

   

343,403

 

Effect of dilutive securities:

               

  Unvested restricted stock units

 

1,473

   

1,395

   

1,367

   

1,428

 

  2% Convertible Senior Notes due 2020

 

   

44,488

   

11,119

   

62,707

 

  5% Convertible Senior Notes due 2017

 

   

10,791

   

4,743

   

13,885

 

  9% Convertible Junior Subordinated Debentures due 2063

 

19,028

   

   

19,028

   

 

Weighted average shares - diluted

 

391,087

   

406,050

   

395,870

   

421,423

 

Net income per diluted share

 

$

0.32

   

$

0.14

   

$

0.86

   

$

0.58

 
                 

 

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,

   

2017

 

2016

(In thousands, except per share amounts)

 

Pre-tax

 

Tax
provision
(benefit)

 

Net
(after-tax)

 

Pre-tax

 

Tax
provision
(benefit)

 

Net
(after-tax)

Income before tax / Net income

 

$

184,467

   

$

64,440

   

$

120,027

   

$

83,749

   

$

27,131

   

$

56,618

 

Adjustments:

                       

  Additional income tax provision related to IRS litigation

 

   

(619)

   

619

   

   

(194)

   

194

 

  Net realized investment losses (gains)

 

47

   

16

   

31

   

(5,092)

   

(1,782)

   

(3,310)

 

  Loss on debt extinguishment

 

   

   

   

75,223

   

26,328

   

48,895

 

Adjusted pre-tax operating income / Adjusted net operating income

 

$

184,514

   

$

63,837

   

$

120,677

   

$

153,880

   

$

51,483

   

$

102,397

 
                         

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share

                         

Weighted average shares - diluted

         

391,087

           

406,050

 
                         

Net income per diluted share

         

$

0.32

           

$

0.14

 

Additional income tax provision related to IRS litigation

         

           

 

Net realized investment losses (gains)

         

           

(0.01)

 

Loss on debt extinguishment

         

           

0.12

 

Adjusted net operating income per diluted share

         

$

0.32

           

$

0.25

 
                         

Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income

                         
   

Nine Months Ended September 30,

   

2017

 

2016

(In thousands, except per share amounts)

 

Pre-tax

 

Tax
provision
(benefit)

 

Net
(after-tax)

 

Pre-tax

 

Tax
provision
(benefit)

 

Net
(after-tax)

Income before tax / Net income

 

$

539,040

   

$

210,593

   

$

328,447

   

$

352,676

   

$

117,646

   

$

235,030

 

Adjustments:

                       

  Additional income tax provision related to IRS litigation

 

   

(28,402)

   

28,402

   

   

(535)

   

535

 

  Net realized investment losses (gains)

 

211

   

74

   

137

   

(8,984)

   

(3,144)

   

(5,840)

 

  Loss on debt extinguishment

 

65

   

23

   

42

   

90,531

   

31,686

   

58,845

 

Adjusted pre-tax operating income / Adjusted net operating income

 

$

539,316

   

$

182,288

   

$

357,028

   

$

434,223

   

$

145,653

   

$

288,570

 
                         

Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share

                         

Weighted average shares - diluted

         

395,870

           

421,423

 
                         

Net income per diluted share

         

$

0.86

           

$

0.58

 

Additional income tax provision related to IRS litigation

         

0.07

           

 

Net realized investment losses (gains)

         

           

(0.01)

 

Loss on debt extinguishment

         

           

0.14

 

Adjusted net operating income per diluted share

         

$

0.93

           

$

0.71

 
                         

 

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

             
   

September 30,

 

December 31,

 

September 30,

(In thousands, except per share data)

 

2017

 

2016

 

2016

ASSETS

           

Investments (1)

 

$

4,717,392

   

$

4,692,350

   

$

4,725,843

 

Cash and cash equivalents

 

250,701

   

155,410

   

274,743

 

Reinsurance recoverable on loss reserves (2)

 

45,878

   

50,493

   

46,863

 

Home office and equipment, net

 

43,157

   

36,088

   

32,009

 

Deferred insurance policy acquisition costs

 

19,024

   

17,759

   

17,408

 

Deferred income taxes, net

 

416,167

   

607,655

   

602,142

 

Other assets

 

183,549

   

174,774

   

174,041

 

    Total assets

 

$

5,675,868

   

$

5,734,529

   

$

5,873,049

 
             

LIABILITIES AND SHAREHOLDERS' EQUITY

           

Liabilities:

           

  Loss reserves (2)

 

$

1,105,151

   

$

1,438,813

   

$

1,535,483

 

  Unearned premiums

 

370,816

   

329,737

   

321,326

 

  Senior notes

 

418,271

   

417,406

   

417,087

 

  Federal home loan bank advance

 

155,000

   

155,000

   

155,000

 

  Convertible senior notes

 

   

349,461

   

349,073

 

  Convertible junior debentures

 

256,872

   

256,872

   

256,872

 

  Other liabilities

 

239,609

   

238,398

   

255,129

 

    Total liabilities

 

2,545,719

   

3,185,687

   

3,289,970

 

Shareholders' equity

 

3,130,149

   

2,548,842

   

2,583,079

 

    Total liabilities and shareholders' equity

 

$

5,675,868

   

$

5,734,529

   

$

5,873,049

 

Book value per share (3)

 

$

8.45

   

$

7.48

   

$

7.48

 
             

(1) Investments include net unrealized gains (losses) on securities

 

$

44,027

   

$

(32,006)

   

$

116,291

 

(2) Loss reserves, net of reinsurance recoverable on loss reserves

 

$

1,059,273

   

$

1,388,320

   

$

1,488,620

 

(3) Shares outstanding

 

370,562

   

340,663

   

345,474

 

 

 

Additional Information

 

Q3 2017

 

Q2 2017

 

Q1 2017

 

Q4 2016

 

Q3 2016

 

Q2 2016

 

New primary insurance written (NIW) (billions)

$

14.1

   

$

12.9

   

$

9.3

   

$

12.8

   

$

14.2

   

$

12.6

   
                         

Monthly premium plans (1)

11.4

   

10.6

   

7.8

   

10.6

   

11.7

   

9.9

   

Single premium plans

2.7

   

2.3

   

1.5

   

2.2

   

2.5

   

2.7

   
                         

Direct average premium rate (bps) on NIW

                       

Monthly (1)

65.3

   

63.5

   

60.8

   

57.5

   

58.3

   

60.5

   

Singles

176.8

   

177.4

   

172.2

   

163.0

   

167.2

   

166.3

   
                         

New primary risk written (billions)

$

3.5

   

$

3.2

   

$

2.3

   

$

3.1

   

$

3.5

   

$

3.1

   
                         

Product mix as a % of primary flow NIW

                       

>95% LTVs

12

%

 

10

%

 

8

%

 

7

%

 

6

%

 

5

%

 

Singles

20

%

 

18

%

 

17

%

 

17

%

 

18

%

 

21

%

 

Refinances

9

%

 

9

%

 

17

%

 

24

%

 

19

%

 

17

%

 
                         

Primary Insurance In Force (IIF) (billions)

$

191.0

   

$

187.3

   

$

183.5

   

$

182.0

   

$

180.1

   

$

177.5

   

Flow only

$

182.7

   

$

178.6

   

$

174.5

   

$

172.8

   

$

170.5

   

$

167.5

   
                         

Annual Persistency

78.8

%

 

77.8

%

 

76.9

%

 

76.9

%

 

78.3

%

 

79.6

%

 
                         

Primary Risk In Force (RIF) (billions)

$

49.4

   

$

48.5

   

$

47.5

   

$

47.2

   

$

46.8

   

$

46.2

   

Flow only

$

47.0

   

$

46.0

   

$

45.0

   

$

44.6

   

$

44.1

   

$

43.4

   
                         

Total Primary RIF by FICO (%)

                       

FICO 740 & >

51

%

 

50

%

 

50

%

 

49

%

 

49

%

 

48

%

 

FICO 700-739

25

%

 

25

%

 

24

%

 

25

%

 

24

%

 

24

%

 

FICO 660-699

14

%

 

15

%

 

15

%

 

15

%

 

15

%

 

16

%

 

FICO 659 & <

10

%

 

10

%

 

11

%

 

11

%

 

12

%

 

12

%

 
                         

Average Coverage Ratio (RIF/IIF)

25.9

%

 

25.9

%

 

25.9

%

 

25.9

%

 

26.0

%

 

26.1

%

 
                         

Average Loan Size of IIF (thousands)

$

188.36

   

$

186.09

   

$

183.91

   

$

182.35

   

$

180.71

   

$

178.89

   

Flow only

$

190.94

   

$

188.70

   

$

186.52

   

$

184.90

   

$

183.18

   

$

181.23

   
                         

Primary IIF - # of loans

1,014,092

   

1,006,392

   

997,650

   

998,294

   

996,816

   

992,076

   

Flow only

956,772

   

946,435

   

935,470

   

934,350

   

931,047

   

924,474

   
                         

Primary IIF - Default Roll Forward - # of Loans

                       

Beginning Default Inventory

41,317

   

45,349

   

50,282

   

51,433

   

52,558

   

55,590

   

New Notices

15,950

   

14,463

   

14,939

   

17,016

   

17,607

   

16,080

   

Cures

(13,546)

   

(14,708)

   

(17,128)

   

(15,267)

   

(15,556)

   

(15,640)

   

Paids (including those charged to a deductible or captive)

(2,195)

   

(2,573)

   

(2,635)

   

(2,748)

   

(3,051)

   

(3,195)

   

Rescissions and denials

(82)

   

(100)

   

(95)

   

(152)

   

(125)

   

(142)

   

Items removed from inventory

(209)

   

(1,114)

   

(14)

   

   

   

(135)

   

Ending Default Inventory

41,235

   

41,317

   

45,349

   

50,282

   

51,433

   

52,558

   
                         
   
 

Q3 2017

   

Q2 2017

   

Q1 2017

   

Q4 2016

   

Q3 2016

   

Q2 2016

   

Primary claim received inventory included in ending default inventory

1,063

   

1,258

   

1,390

   

1,385

   

1,636

   

1,829

   
                         

Composition of Cures

                       

Reported delinquent and cured intraquarter

4,347

   

3,854

   

5,476

   

4,543

   

4,986

   

4,306

   
                         

Number of payments delinquent prior to cure

                       

      3 payments or less

6,011

   

6,803

   

7,585

   

7,006

   

6,455

   

7,002

   

      4-11 payments

2,374

   

2,964

   

3,036

   

2,580

   

2,786

   

3,099

   

      12 payments or more

814

   

1,087

   

1,031

   

1,138

   

1,329

   

1,233

   

Total Cures in Quarter

13,546

   

14,708

   

17,128

   

15,267

   

15,556

   

15,640

   
                         

Composition of Paids

                       

Number of payments delinquent at time of claim payment

                       

     3 payments or less

13

   

8

   

13

   

6

   

16

   

18

   

     4-11 payments

222

   

279

   

306

   

273

   

325

   

320

   

     12 payments or more

1,960

   

2,286

   

2,316

   

2,469

   

2,710

   

2,857

   

Total Paids in Quarter

2,195

   

2,573

   

2,635

   

2,748

   

3,051

   

3,195

   
                         

Aging of Primary Default Inventory

                       

Consecutive months in default

                       

        3 months or less

11,331

 

27

%

10,299

 

25

%

9,184

 

20

%

12,194

 

24

%

12,333

 

24

%

11,547

 

22

%

        4-11 months

11,092

 

27

%

11,018

 

27

%

13,617

 

30

%

13,450

 

27

%

12,648

 

25

%

12,680

 

24

%

        12 months or more

18,812

 

46

%

20,000

 

48

%

22,548

 

50

%

24,638

 

49

%

26,452

 

51

%

28,331

 

54

%

                         

Number of payments delinquent

                       

        3 payments or less

16,916

 

41

%

15,858

 

38

%

15,692

 

35

%

18,419

 

36

%

18,374

 

36

%

17,299

 

33

%

        4-11 payments

10,583

 

26

%

10,560

 

26

%

12,275

 

27

%

12,892

 

26

%

12,282

 

24

%

12,746

 

24

%

        12 payments or more

13,736

 

33

%

14,899

 

36

%

17,382

 

38

%

18,971

 

38

%

20,777

 

40

%

22,513

 

43

%

                         

Primary IIF - # of Delinquent Loans

41,235

   

41,317

   

45,349

   

50,282

   

51,433

   

52,558

   

Flow only

30,501

   

30,571

   

33,850

   

37,829

   

38,552

   

39,177

   
                         

Primary IIF Default Rates

4.07

%

 

4.11

%

 

4.55

%

 

5.04

%

 

5.16

%

 

5.30

%

 

Flow only

3.19

%

 

3.23

%

 

3.62

%

 

4.05

%

 

4.14

%

 

4.24

%

 
                         

Reserves

                       

  Primary

                       

    Direct Loss Reserves (millions)

$

1,090

   

$

1,165

   

$

1,311

   

$

1,413

   

$

1,493

   

$

1,574

   

    Average Direct Reserve Per Default

$

26,430

   

$

28,206

   

$

28,911

   

$

28,104

   

$

29,027

   

$

29,939

   

  Pool

                       

    Direct loss reserves (millions)

$

15

   

$

21

   

$

23

   

$

25

   

$

32

   

$

37

   

    Ending default inventory

1,426

   

1,511

   

1,714

   

1,883

   

1,979

   

2,024

   

    Pool claim received inventory included in ending default inventory

42

   

63

   

64

   

72

   

87

   

95

   

    Reserves related to Freddie Mac settlement (millions)

$

   

$

   

$

   

$

   

$

10

   

$

21

   

    Other Gross Reserves (millions)

$

   

$

1

   

$

1

   

$

1

   

$

   

$

   
                         
   
 

Q3 2017

 

Q2 2017

   

Q1 2017

 

Q4 2016

 

Q3 2016

 

Q2 2016

 

Net Paid Claims (millions) (3)

$

113

   

$

173

   

$

128

   

$

149

   

$

161

   

$

172

   

Total primary (excluding settlements)

101

   

126

   

130

   

133

   

147

   

153

   

Rescission and NPL settlements

9

   

45

   

   

1

   

1

   

4

   

Pool - with aggregate loss limits

1

   

2

   

1

   

2

   

1

   

2

   

Pool - without aggregate loss limits

1

   

2

   

1

   

2

   

2

   

2

   

Pool - Freddie Mac settlement

   

   

   

10

   

11

   

10

   

Reinsurance

(3)

   

(6)

   

(9)

   

(4)

   

(5)

   

(4)

   

Other (2)

4

   

4

   

5

   

5

   

4

   

5

   

Reinsurance terminations (3)

   

   

   

   

(3)

   

   

Primary Average Claim Payment (thousands) (2)

$

46.4

   

$

49.1

   

$

49.1

   

$

48.3

   

$

48.1

   

$

48.0

   

Flow only (2)

$

43.7

   

$

45.0

   

$

45.2

   

$

44.0

   

$

44.8

   

$

45.9

   
                         

Reinsurance excluding captives

                       

% insurance inforce subject to reinsurance

78.3

%

 

77.6

%

 

76.8

%

 

76.3

%

 

75.3

%

 

74.7

%

 

% quarterly NIW subject to reinsurance

86.1

%

 

88.2

%

 

85.9

%

 

89.3

%

 

88.4

%

 

90.2

%

 

Ceded premium written and earned (millions)

$

30.9

   

$

28.9

   

$

28.9

   

$

32.1

   

$

31.7

   

$

30.0

   

Ceded losses incurred (millions)

$

5.9

   

$

4.4

   

$

4.7

   

$

8.2

   

$

7.4

   

$

6.1

   

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

$

12.5

   

$

12.2

   

$

12.0

   

$

12.0

   

$

12.1

   

$

11.9

   

Profit commission (millions) (included in ceded premiums)

$

31.6

   

$

32.3

   

$

31.1

   

$

27.7

   

$

29.0

   

$

29.8

   
                         

Direct Pool RIF (millions)

                       

With aggregate loss limits

$

238

   

$

239

   

$

242

   

$

244

   

$

247

   

$

249

   

Without aggregate loss limits

$

251

   

$

267

   

$

284

   

$

303

   

$

321

   

$

343

   
                         

Bulk Primary Insurance Statistics

                       

Insurance in force (billions)

$

8.3

   

$

8.7

   

$

9.0

   

$

9.2

   

$

9.6

   

$

10.0

   

Risk in force (billions)

$

2.4

   

$

2.5

   

$

2.5

   

$

2.6

   

$

2.7

   

$

2.8

   

Average loan size (thousands)

$

145.37

   

$

144.93

   

$

144.68

   

$

145.05

   

$

145.73

   

$

146.84

   

Number of delinquent loans

10,734

   

10,746

   

11,499

   

12,453

   

12,881

   

13,381

   

Default rate

18.73

%

 

17.92

%

 

18.49

%

 

19.48

%

 

19.59

%

 

19.79

%

 

Primary paid claims (millions)

$

26

   

$

31

   

$

33

   

$

35

 

(2)

 

$

37

 

(2)

 

$

35

   

Average claim payment (thousands)

$

56.1

   

$

67.7

   

$

66.6

   

$

65.8

 

(2)

 

$

61.4

 

(2)

 

$

56.8

   
                         

Mortgage Guaranty Insurance Corporation - Risk to Capital

10.1:1

 

(4)

 

10.2:1

   

10.4:1

   

10.7:1

   

11.1:1

   

11.6:1

   

Combined Insurance Companies - Risk to Capital

11.1:1

 

(4)

 

11.3:1

   

11.6:1

   

12.0:1

   

12.6:1

   

13.2:1

   
                         

GAAP loss ratio
(insurance operations only)

12.5

%

 

11.8

%

 

12.1

%

 

20.3

%

 

25.7

%

 

20.1

%

 

GAAP underwriting expense ratio (insurance operations only)

15.7

%

 

15.6

%

 

17.0

%

 

15.8

%

 

14.7

%

 

13.9

%

 
 

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.

 

Note: Average claim paid may vary from period to period due to amounts associated with mitigation efforts.

 

(1)  Includes loans with annual and split payments.

 

(2)  Excludes claims paying practices and non-performing loan settlements

 

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

 

(4)  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.

Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.

Our private mortgage insurance competitors include:

  • Arch Mortgage Insurance Company,
  • Essent Guaranty, Inc.,
  • Genworth Mortgage Insurance Corporation,
  • National Mortgage Insurance Corporation, and
  • Radian Guaranty Inc.

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 pricing, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, the strength of our management team and field organization, 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 has centered on pricing practices which, in the last few years included: (i) reductions in standard filed rates on borrower-paid policies, (ii) use by certain competitors of a spectrum of filed rates to allow for formulaic, risk-based pricing (commonly referred to as "black-box" pricing); and (iii) use of customized rates (discounted from published rates) on lender-paid, single premium policies. The willingness of mortgage insurers to offer reduced pricing (through filed or customized rates) has been met with an increased demand from various lenders for reduced rate products.  There can be no assurance that pricing competition will not intensify further, which could result in a decrease in our new insurance written and/or returns.

In 2016 and the first nine months of 2017, approximately 5% and 4%, respectively, of our new insurance written was for loans for which one lender was the original insured. Our relationships with our customers could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements result in our declining to insure some of the loans originated by our customers, or our insurance policy rescissions and claim curtailments affect the customer.

Certain of our competitors have access to capital at a lower cost of capital than we do (including, as a result of off-shore reinsurance vehicles, which are also tax-advantaged). As a result, they may be better positioned to compete outside of traditional mortgage insurance, including if Fannie Mae and Freddie Mac (the "GSEs") pursue alternative forms of credit enhancement. In addition, because of their tax advantages, certain competitors may be able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced pricing to gain market share.

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 as 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 (which has been limited since the financial crisis, 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 Moody's is Baa2 (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 utilizing 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.

The GSEs (and other investors) have used alternative forms of credit enhancement other than private mortgage insurance, such as obtaining insurance from non-mortgage insurers, 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; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement. Although the alternative forms of credit enhancement used by the GSEs in the past several years have not displaced primary mortgage insurance, the forms continue to evolve.

The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was an estimated 37.6% in the first half of 2017, 35.5% in 2016, and 39.3% in 2015. In the past ten years, the FHA's share has been as low as 17.1% in 2007 and as high as 68.7% 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 Fannie Mae or Freddie Mac 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 s