MGIC Investment Corporation Reports Third Quarter 2017 Results
Adjusted net operating income for the quarter ended September 30, 2017 was
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
New insurance written in the third quarter was
The fair value of
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
Net underwriting and other expenses were
Conference Call and Webcast Details
About MGIC
MGIC (www.mgic.com), the principal subsidiary of
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
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
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
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 |
Net |
Pre-tax |
Tax |
Net |
||||||||||||||||||
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 |
Net |
Pre-tax |
Tax |
Net |
||||||||||||||||||
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 |
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
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 , andRadian 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
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 fromStandard & 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
The VA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was an estimated 24.2% in the first half of 2017, 26.6% in 2016, and 23.9% in 2015. In the past ten years, the VA's share has been as low as 5.4% in 2007 and as high as 26.6% in 2016. We believe that the VA's market share has generally been increasing because the VA offers 100% LTV loans and charges a one-time funding fee that can be included in the loan amount but no additional monthly expense, and because of an increase in the number of borrowers who are eligible for the VA's program.
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 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 and low down payment mortgages purchased by the GSEs generally are insured with private mortgage insurance. As a result, the business practices of the GSEs greatly impact our business and include:
- private mortgage insurer eligibility requirements of the GSEs (for information about the financial requirements included in the PMIERs, see 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 level of private mortgage insurance coverage, subject to the limitations of the GSEs' charters (which may be changed by federal legislation), 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 influence the mortgage lender's selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection,
- 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,
- the terms on which the GSEs offer lenders relief on their representations and warranties made at the time of sale of a loan to the GSEs, which creates pressure on mortgage insurers to limit their rescission rights to conform to such relief, and 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 in comparison to those of the FHA and other investors.