MGIC Investment Corporation Reports Third Quarter 2019 Results
Adjusted net operating income for the third quarter of 2019 was
Third Quarter Summary
- New Insurance Written of
$19.1 billion , compared to$14.5 billion in the third quarter of 2018. - Insurance in force of
$218.1 billion at September 30, 2019 increased by 2.0% during the quarter and 6.0% compared to September 30, 2018. - Primary delinquency inventory of 29,940 loans at September 30, 2019 decreased from 32,898 loans at December 31, 2018. Our primary delinquency inventory declined 10.4% year-over-year from 33,398 loans at September 30, 2018.
- Insurance written in 2008 and before accounted for approximately 13% of the September 30, 2019 primary risk in force but accounted for 61% of the new primary delinquency notices received in the quarter.
- The percentage of primary loans that were delinquent at September 30, 2019 was 2.78%, compared to 3.11% at December 31, 2018, and 3.19% at September 30, 2018. The percentage of flow primary loans that were delinquent at September 30, 2019 was 2.20%, compared to 2.47% at December 31, 2018, and 2.52% at September 30, 2018.
- Persistency, or the percentage of insurance remaining in force from one year prior, was 78.6% at September 30, 2019, compared with 81.7%% at December 31, 2018 and 81.0%% at September 30, 2018.
- The loss ratio for the third quarter of 2019 was 12.7%, compared to 8.8% for the second quarter of 2019 and (0.6)% for the third quarter of 2018.
- The underwriting expense ratio associated with our insurance operations for the third quarter of 2019 was 17.7%, compared to 17.6% for the second quarter of 2019 and 17.6% for the third quarter of 2018.
- Net premium yield was 49.6 basis points in the third quarter of 2019, compared to 46.5 basis points for the second quarter of 2019 and 49.3 basis points for the third quarter of 2018.
- MGIC paid a dividend of
$70 million to our holding company during the third quarter of 2019. MGIC Investment Corporation paid a$0.06 dividend per common share to shareholders during the third quarter of 2019.- Repurchased 5.5 million shares of common stock at an average cost per share of
$12.64 . - Book value per common share outstanding increased by 5% during the quarter to
$11.93 . A$31.4 million after-tax change in net unrealized gains (losses) increased book value per common share outstanding by$0.09 during the quarter.
Revenues
Total revenues for the third quarter of 2019 were
Losses and expenses
Losses incurred
Losses incurred in the third quarter of 2019 were
Underwriting and other expenses
Net underwriting and other expenses were
Provision for income taxes
The effective income tax rate was 20.7% in the third quarter of 2019, compared to 21.6% in the third quarter of 2018.
Capital
- As of September 30, 2019, total shareholders' equity was
$4.2 billion and outstanding principal on borrowings was$837 million . - MGIC's PMIERs Available Assets totaled
$4.5 billion , or$1.2 billion above its Minimum Required Assets as of September 30, 2019.
Other Balance Sheet and Liquidity Metrics
- Total assets were
$6.1 billion as of September 30, 2019, compared to$5.7 billion as of December 31, 2018, and$5.7 billion as of September 30, 2018. - The fair value of our investment portfolio, cash and cash equivalents was
$5.8 billion as of September 30, 2019, compared to$5.3 billion as of December 31, 2018, and$5.2 billion as of September 30, 2018. - Investments, cash and cash equivalents at the holding company were
$308 million as of September 30, 2019, compared to$248 million as of December 31, 2018, and$261 million as of September 30, 2018.
Conference Call and Webcast Details
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, 2019.
While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.
Use of Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with accounting principles generally accepted in
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.
- 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.
- 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.
- 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.
- Infrequent or unusual non-operating items. Our 2018 income tax expense includes amounts related to our
IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) |
||||||||||||||||
Three months ended |
Nine months ended |
|||||||||||||||
(In thousands, except per share data) |
2019 |
2018 |
2019 |
2018 |
||||||||||||
Net premiums written |
$ |
259,414 |
$ |
251,883 |
$ |
747,293 |
$ |
744,225 |
||||||||
Revenues |
||||||||||||||||
Net premiums earned |
$ |
267,857 |
$ |
250,426 |
$ |
764,720 |
$ |
729,497 |
||||||||
Net investment income |
42,715 |
36,380 |
125,723 |
103,003 |
||||||||||||
Net realized investment gains (losses) |
4,205 |
1,114 |
3,986 |
(1,112) |
||||||||||||
Other revenue |
3,606 |
2,525 |
7,921 |
6,827 |
||||||||||||
Total revenues |
318,383 |
290,445 |
902,350 |
838,215 |
||||||||||||
Losses and expenses |
||||||||||||||||
Losses incurred, net |
33,985 |
(1,518) |
94,884 |
8,877 |
||||||||||||
Underwriting and other expenses, net |
48,339 |
46,811 |
142,477 |
140,160 |
||||||||||||
Interest expense |
12,939 |
13,258 |
39,722 |
39,737 |
||||||||||||
Total losses and expenses |
95,263 |
58,551 |
277,083 |
188,774 |
||||||||||||
Income before tax |
223,120 |
231,894 |
625,267 |
649,441 |
||||||||||||
Provision for income taxes |
46,186 |
49,994 |
128,614 |
137,090 |
||||||||||||
Net income |
$ |
176,934 |
$ |
181,900 |
$ |
496,653 |
$ |
512,351 |
||||||||
Net income per diluted share |
$ |
0.49 |
$ |
0.49 |
$ |
1.36 |
$ |
1.36 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||||||
EARNINGS PER SHARE (UNAUDITED) |
||||||||||||||||
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
(In thousands, except per share data) |
2019 |
2018 |
2019 |
2018 |
||||||||||||
Net income |
$ |
176,934 |
$ |
181,900 |
$ |
496,653 |
$ |
512,351 |
||||||||
Interest expense, net of tax (1): |
||||||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
4,566 |
4,566 |
13,698 |
13,698 |
||||||||||||
Diluted net income available to common shareholders |
$ |
181,500 |
$ |
186,466 |
$ |
510,351 |
$ |
526,049 |
||||||||
Weighted average shares - basic |
351,475 |
362,180 |
354,272 |
367,190 |
||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Unvested restricted stock units |
2,071 |
1,697 |
1,966 |
1,547 |
||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
19,028 |
19,028 |
19,028 |
19,028 |
||||||||||||
Weighted average shares - diluted |
372,574 |
382,905 |
375,266 |
387,765 |
||||||||||||
Net income per diluted share |
$ |
0.49 |
$ |
0.49 |
$ |
1.36 |
$ |
1.36 |
(1) |
Interest expense for the three and nine months ended September 30, 2019 and 2018 has been tax effected at a rate of 21%. |
NON-GAAP RECONCILIATIONS
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
|||||||||||||||||||||||||
Three months ended September 30, |
|||||||||||||||||||||||||
2019 |
2018 |
||||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net |
Pre-tax |
Tax Effect |
Net |
|||||||||||||||||||
Income before tax / Net income |
$ |
223,120 |
$ |
46,186 |
$ |
176,934 |
$ |
231,894 |
$ |
49,994 |
$ |
181,900 |
|||||||||||||
Adjustments: |
|||||||||||||||||||||||||
Additional income tax benefit (provision) related to IRS litigation |
— |
— |
— |
— |
154 |
(154) |
|||||||||||||||||||
Net realized investment gains |
(4,175) |
(877) |
(3,298) |
(1,114) |
(234) |
(880) |
|||||||||||||||||||
Adjusted pre-tax operating income / Adjusted net operating income |
$ |
218,945 |
$ |
45,309 |
$ |
173,636 |
$ |
230,780 |
$ |
49,914 |
$ |
180,866 |
|||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
|||||||||||||||||||||||||
Weighted average shares - diluted |
372,574 |
382,905 |
|||||||||||||||||||||||
Net income per diluted share |
$ |
0.49 |
$ |
0.49 |
|||||||||||||||||||||
Additional income tax (benefit) provision related to IRS litigation |
— |
— |
|||||||||||||||||||||||
Net realized investment gains |
(0.01) |
— |
|||||||||||||||||||||||
Adjusted net operating income per diluted share |
$ |
0.48 |
$ |
0.48 |
(1) |
||||||||||||||||||||
(1) For the Three Months Ended September 30, 2018, the Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share does not foot due to rounding of the adjustments. |
|||||||||||||||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
|||||||||||||||||||||||||
Nine months ended September 30, |
|||||||||||||||||||||||||
2019 |
2018 |
||||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net |
Pre-tax |
Tax Effect |
Net |
|||||||||||||||||||
Income before tax / Net income |
$ |
625,267 |
$ |
128,614 |
$ |
496,653 |
$ |
649,441 |
$ |
137,090 |
$ |
512,351 |
|||||||||||||
Adjustments: |
|||||||||||||||||||||||||
Additional income tax benefit (provision) related to IRS litigation |
— |
— |
— |
— |
(1,477) |
1,477 |
|||||||||||||||||||
Net realized investment (gains) losses |
(3,772) |
(792) |
(2,980) |
1,112 |
234 |
878 |
|||||||||||||||||||
Adjusted pre-tax operating income / Adjusted net operating income |
$ |
621,495 |
$ |
127,822 |
$ |
493,673 |
$ |
650,553 |
$ |
135,847 |
$ |
514,706 |
|||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
|||||||||||||||||||||||||
Weighted average shares - diluted |
375,266 |
387,765 |
|||||||||||||||||||||||
Net income per diluted share |
$ |
1.36 |
$ |
1.36 |
|||||||||||||||||||||
Additional income tax (benefit) provision related to IRS litigation |
— |
— |
|||||||||||||||||||||||
Net realized investment (gains) losses |
(0.01) |
— |
|||||||||||||||||||||||
Adjusted net operating income per diluted share |
$ |
1.35 |
$ |
1.36 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||||||||||
September 30, |
December 31, |
September 30, |
||||||||||
(In thousands, except per share data) |
2019 |
2018 |
2018 |
|||||||||
ASSETS |
||||||||||||
Investments (1) |
$ |
5,681,452 |
$ |
5,159,019 |
$ |
4,980,432 |
||||||
Cash and cash equivalents |
165,425 |
151,892 |
266,997 |
|||||||||
Restricted cash and cash equivalents |
6,329 |
3,146 |
— |
|||||||||
Reinsurance recoverable on loss reserves (2) |
19,566 |
33,328 |
33,281 |
|||||||||
Home office and equipment, net |
50,540 |
51,734 |
50,055 |
|||||||||
Deferred insurance policy acquisition costs |
18,010 |
17,888 |
18,665 |
|||||||||
Deferred income taxes, net |
11,583 |
69,184 |
111,613 |
|||||||||
Other assets |
193,846 |
191,611 |
196,065 |
|||||||||
Total assets |
$ |
6,146,751 |
$ |
5,677,802 |
$ |
5,657,108 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||
Liabilities: |
||||||||||||
Loss reserves (2) |
$ |
602,297 |
$ |
674,019 |
$ |
721,046 |
||||||
Unearned premiums |
392,556 |
409,985 |
407,614 |
|||||||||
Federal home loan bank advance |
155,000 |
155,000 |
155,000 |
|||||||||
Senior notes |
420,578 |
419,713 |
419,425 |
|||||||||
Convertible junior debentures |
256,872 |
256,872 |
256,872 |
|||||||||
Other liabilities |
159,831 |
180,322 |
207,620 |
|||||||||
Total liabilities |
1,987,134 |
2,095,911 |
2,167,577 |
|||||||||
Shareholders' equity |
4,159,617 |
3,581,891 |
3,489,531 |
|||||||||
Total liabilities and shareholders' equity |
$ |
6,146,751 |
$ |
5,677,802 |
$ |
5,657,108 |
||||||
Book value per share (3) |
$ |
11.93 |
$ |
10.08 |
$ |
9.64 |
||||||
(1) Investments include net unrealized gains (losses) on securities |
$ |
187,099 |
$ |
(44,795) |
$ |
(72,399) |
||||||
(2) Loss reserves, net of reinsurance recoverable on loss reserves |
$ |
582,731 |
$ |
640,691 |
$ |
687,765 |
||||||
(3) Shares outstanding |
348,709 |
355,371 |
362,155 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - NEW INSURANCE WRITTEN |
|||||||||||||||||||||||||||
2019 |
2018 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2019 |
2018 |
|||||||||||||||||||||
New primary insurance written (NIW) (billions) |
$ |
19.1 |
$ |
14.9 |
$ |
10.1 |
$ |
12.2 |
$ |
14.5 |
$ |
44.1 |
$ |
38.3 |
|||||||||||||
Monthly (including split premium plans) and annual premium plans |
16.2 |
12.6 |
8.5 |
10.2 |
12.2 |
37.3 |
31.8 |
||||||||||||||||||||
Single premium plans |
2.9 |
2.3 |
1.6 |
2.0 |
2.3 |
6.8 |
6.5 |
||||||||||||||||||||
Direct average premium rate (bps) on NIW |
|||||||||||||||||||||||||||
Monthly (1) |
42.3 |
45.6 |
49.1 |
50.2 |
51.3 |
45.0 |
53.7 |
||||||||||||||||||||
Singles |
112.8 |
129.6 |
141.5 |
147.0 |
153.5 |
125.4 |
161.8 |
||||||||||||||||||||
Product mix as a % of primary NIW |
|||||||||||||||||||||||||||
FICO < 680 |
4 |
% |
6 |
% |
7 |
% |
8 |
% |
7 |
% |
6 |
% |
7 |
% |
|||||||||||||
>95% LTVs |
12 |
% |
16 |
% |
18 |
% |
17 |
% |
17 |
% |
15 |
% |
16 |
% |
|||||||||||||
>45% DTI |
12 |
% |
(2) |
15 |
% |
(2) |
18 |
% |
(2) |
19 |
% |
(2) |
20 |
% |
15 |
% |
20 |
% |
|||||||||
Singles |
15 |
% |
16 |
% |
16 |
% |
16 |
% |
16 |
% |
16 |
% |
17 |
% |
|||||||||||||
Refinances |
20 |
% |
11 |
% |
8 |
% |
6 |
% |
5 |
% |
14 |
% |
7 |
% |
|||||||||||||
New primary risk written (billions) |
$ |
4.7 |
$ |
3.8 |
$ |
2.5 |
$ |
3.1 |
$ |
3.7 |
$ |
11.0 |
$ |
9.6 |
(1) |
Excludes loans with split and annual payments |
(2) |
In the fourth quarter of 2018 we changed our methodology for calculating DTI ratios for pricing and eligibility purposes to exclude the impact of mortgage insurance premiums. As a result, loan originators may have changed the information they provide to us, and therefore we cannot be sure that the DTI ratio we report for each loan includes the related mortgage insurance premiums in the calculation. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||
ADDITIONAL INFORMATION - INSURANCE IN FORCE and RISK IN FORCE |
|||||||||||||||||||
2019 |
2018 |
||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|||||||||||||||
Primary Insurance In Force (IIF) (billions) |
$ |
218.1 |
$ |
213.9 |
$ |
211.4 |
$ |
209.7 |
$ |
205.8 |
|||||||||
Total # of loans |
1,075,285 |
1,065,893 |
1,059,720 |
1,058,292 |
1,048,088 |
||||||||||||||
Flow # of loans |
1,032,936 |
1,022,157 |
1,013,291 |
1,010,944 |
999,382 |
||||||||||||||
Average Loan Size of IIF (thousands) |
$ |
202.9 |
$ |
200.7 |
$ |
199.5 |
$ |
198.2 |
$ |
196.4 |
|||||||||
Flow only |
$ |
205.4 |
$ |
203.2 |
$ |
202.0 |
$ |
200.7 |
$ |
198.9 |
|||||||||
Annual Persistency |
78.6 |
% |
80.8 |
% |
81.7 |
% |
81.7 |
% |
81.0 |
% |
|||||||||
Primary Risk In Force (RIF) (billions) |
$ |
56.2 |
$ |
55.2 |
$ |
54.5 |
$ |
54.1 |
$ |
53.1 |
|||||||||
By FICO (%) |
|||||||||||||||||||
FICO 760 & > |
39 |
% |
38 |
% |
38 |
% |
38 |
% |
38 |
% |
|||||||||
FICO 740-759 |
16 |
% |
16 |
% |
16 |
% |
16 |
% |
15 |
% |
|||||||||
FICO 720-739 |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
|||||||||
FICO 700-719 |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
|||||||||
FICO 680-699 |
8 |
% |
9 |
% |
9 |
% |
8 |
% |
9 |
% |
|||||||||
FICO 660-679 |
5 |
% |
5 |
% |
5 |
% |
5 |
% |
5 |
% |
|||||||||
FICO 640-659 |
3 |
% |
3 |
% |
3 |
% |
3 |
% |
3 |
% |
|||||||||
FICO 639 & < |
4 |
% |
4 |
% |
4 |
% |
5 |
% |
5 |
% |
|||||||||
Average Coverage Ratio (RIF/IIF) |
25.8 |
% |
25.8 |
% |
25.8 |
% |
25.8 |
% |
25.8 |
% |
|||||||||
Direct Pool RIF (millions) |
|||||||||||||||||||
With aggregate loss limits |
$ |
214 |
$ |
215 |
$ |
216 |
$ |
228 |
$ |
232 |
|||||||||
Without aggregate loss limits |
$ |
173 |
$ |
178 |
$ |
186 |
$ |
191 |
$ |
199 |
Note: The FICO credit score for a loan with multiple borrowers is the lowest of the borrowers' "decision FICO scores." A borrower's "decision FICO score" is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||
ADDITIONAL INFORMATION - DELINQUENCY STATISTICS |
|||||||||||||||||||||
2019 |
2018 |
||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|||||||||||||||||
Primary IIF - Delinquent Roll Forward - # of Loans |
|||||||||||||||||||||
Beginning Delinquent Inventory |
29,795 |
30,921 |
32,898 |
33,398 |
36,037 |
||||||||||||||||
New Notices |
14,019 |
12,915 |
13,611 |
14,097 |
13,569 |
||||||||||||||||
Cures |
(12,592) |
(12,882) |
(14,348) |
(12,891) |
(14,197) |
||||||||||||||||
Paid claims |
(1,045) |
(1,112) |
(1,188) |
(1,304) |
(1,374) |
||||||||||||||||
Rescissions and denials |
(42) |
(47) |
(52) |
(67) |
(56) |
||||||||||||||||
Other items removed from inventory |
(195) |
— |
— |
(335) |
(581) |
||||||||||||||||
Ending Delinquent Inventory |
29,940 |
29,795 |
30,921 |
32,898 |
33,398 |
||||||||||||||||
Primary IIF Delinquency Rate |
2.78 |
% |
2.80 |
% |
2.92 |
% |
3.11 |
% |
3.19 |
% |
|||||||||||
Primary claim received inventory included in ending delinquent inventory |
557 |
630 |
665 |
809 |
766 |
||||||||||||||||
Primary IIF - # of Delinquent Loans - Flow only |
22,688 |
22,227 |
23,483 |
24,919 |
25,130 |
||||||||||||||||
Primary IIF Delinquency Rate - Flow only |
2.20 |
% |
2.17 |
% |
2.32 |
% |
2.47 |
% |
2.52 |
% |
|||||||||||
Composition of Cures |
|||||||||||||||||||||
Reported delinquent and cured intraquarter |
4,397 |
3,735 |
4,884 |
4,081 |
3,938 |
||||||||||||||||
Number of payments delinquent prior to cure |
|||||||||||||||||||||
3 payments or less |
5,631 |
6,221 |
6,506 |
5,623 |
5,671 |
||||||||||||||||
4-11 payments |
2,075 |
2,401 |
2,419 |
2,616 |
3,896 |
||||||||||||||||
12 payments or more |
489 |
525 |
539 |
571 |
692 |
||||||||||||||||
Total Cures in Quarter |
12,592 |
12,882 |
14,348 |
12,891 |
14,197 |
||||||||||||||||
Composition of Paids |
|||||||||||||||||||||
Number of payments delinquent at time of claim payment |
|||||||||||||||||||||
3 payments or less |
— |
4 |
2 |
6 |
7 |
||||||||||||||||
4-11 payments |
104 |
121 |
149 |
125 |
140 |
||||||||||||||||
12 payments or more |
941 |
987 |
1,037 |
1,173 |
1,227 |
||||||||||||||||
Total Paids in Quarter |
1,045 |
1,112 |
1,188 |
1,304 |
1,374 |
||||||||||||||||
Aging of Primary Delinquent Inventory |
|||||||||||||||||||||
Consecutive months delinquent |
|||||||||||||||||||||
3 months or less |
9,462 |
32 |
% |
8,970 |
30 |
% |
8,568 |
28 |
% |
9,829 |
30 |
% |
9,484 |
28 |
% |
||||||
4-11 months |
9,082 |
30 |
% |
8,951 |
30 |
% |
9,997 |
32 |
% |
9,655 |
29 |
% |
9,564 |
29 |
% |
||||||
12 months or more |
11,396 |
38 |
% |
11,874 |
40 |
% |
12,356 |
40 |
% |
13,414 |
41 |
% |
14,350 |
43 |
% |
||||||
Number of payments delinquent |
|||||||||||||||||||||
3 payments or less |
14,690 |
49 |
% |
14,071 |
47 |
% |
14,129 |
46 |
% |
15,519 |
47 |
% |
14,813 |
44 |
% |
||||||
4-11 payments |
8,225 |
27 |
% |
8,194 |
28 |
% |
8,833 |
28 |
% |
8,842 |
27 |
% |
9,156 |
28 |
% |
||||||
12 payments or more |
7,025 |
24 |
% |
7,530 |
25 |
% |
7,959 |
26 |
% |
8,537 |
26 |
% |
9,429 |
28 |
% |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - RESERVES and CLAIMS PAID |
|||||||||||||||||||||||||||
2019 |
2018 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2019 |
2018 |
|||||||||||||||||||||
Reserves (millions) |
|||||||||||||||||||||||||||
Primary Direct Loss Reserves |
$ |
591 |
$ |
610 |
$ |
642 |
$ |
660 |
$ |
707 |
|||||||||||||||||
Pool Direct loss reserves |
11 |
11 |
12 |
13 |
13 |
||||||||||||||||||||||
Other Gross Reserves |
— |
1 |
1 |
1 |
1 |
||||||||||||||||||||||
Total Gross Loss Reserves |
$ |
602 |
$ |
622 |
$ |
655 |
$ |
674 |
$ |
721 |
|||||||||||||||||
Primary Average Direct Reserve Per Delinquency |
$18,955 |
$19,684 |
$20,014 |
$20,077 |
$21,184 |
||||||||||||||||||||||
Net Paid Claims (millions) (1) |
$ |
55 |
$ |
55 |
$ |
57 |
$ |
75 |
$ |
87 |
$ |
167 |
$ |
260 |
|||||||||||||
Total primary (excluding settlements) |
47 |
52 |
52 |
62 |
65 |
151 |
220 |
||||||||||||||||||||
Rescission and NPL settlements |
4 |
— |
— |
10 |
19 |
4 |
40 |
||||||||||||||||||||
Pool |
1 |
— |
1 |
1 |
2 |
2 |
5 |
||||||||||||||||||||
Reinsurance |
(2) |
(2) |
(3) |
(2) |
(3) |
(7) |
(17) |
||||||||||||||||||||
Other |
5 |
5 |
7 |
4 |
4 |
17 |
12 |
||||||||||||||||||||
Reinsurance terminations (1) |
— |
(14) |
— |
— |
— |
(14) |
(2) |
||||||||||||||||||||
Primary Average Claim Payment (thousands) |
$ |
44.4 |
(2) |
$ |
46.9 |
$ |
43.9 |
$ |
48.0 |
(2) |
$ |
47.2 |
(2) |
$ |
45.1 |
$ |
49.6 |
||||||||||
Flow only |
$ |
39.4 |
(2) |
$ |
40.0 |
$ |
37.6 |
$ |
41.6 |
(2) |
$ |
42.0 |
(2) |
$ |
39.0 |
$ |
44.2 |
(1) |
Net paid claims, as presented, does not include amounts received in conjunction with terminations or commutations of reinsurance agreements. |
(2) |
Excludes amounts paid in settlement disputes for claims paying practices and/or commutations of non-performing loans. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - REINSURANCE, BULK STATISTICS and MI RATIOS |
|||||||||||||||||||||||||||
2019 |
2018 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2019 |
2018 |
|||||||||||||||||||||
Quota Share Reinsurance |
|||||||||||||||||||||||||||
% insurance inforce subject to reinsurance |
78.4 |
% |
78.2 |
% |
77.8 |
% |
77.5 |
% |
77.6 |
% |
|||||||||||||||||
% NIW subject to reinsurance |
81.2 |
% |
83.0 |
% |
84.0 |
% |
75.5 |
% |
75.4 |
% |
82.5 |
% |
75 |
% |
|||||||||||||
Ceded premiums written and earned (millions) |
$ |
23.0 |
$ |
36.5 |
(1) |
$ |
28.2 |
$ |
28.6 |
$ |
25.2 |
$ |
87.7 |
$ |
79.6 |
||||||||||||
Ceded losses incurred (millions) |
$ |
2.7 |
$ |
3.4 |
$ |
1.7 |
$ |
3.0 |
$ |
(0.5) |
$ |
7.8 |
$ |
3.6 |
|||||||||||||
Ceding commissions (millions) (included in underwriting and other expenses) |
$ |
11.0 |
$ |
13.4 |
$ |
13.4 |
$ |
12.9 |
$ |
13.0 |
$ |
37.8 |
$ |
38.2 |
|||||||||||||
Profit commission (millions) (included in ceded premiums) |
$ |
32.2 |
$ |
37.0 |
$ |
38.9 |
$ |
36.0 |
$ |
39.7 |
$ |
108.1 |
$ |
111.7 |
|||||||||||||
Excess-of-Loss Reinsurance |
|||||||||||||||||||||||||||
Ceded premiums earned (millions) |
$ |
5.4 |
$ |
4.5 |
$ |
2.5 |
$ |
2.8 |
$ |
— |
$ |
12.4 |
$ |
— |
|||||||||||||
Ceded losses incurred (millions) |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
— |
|||||||||||||
Bulk Primary Insurance Statistics |
|||||||||||||||||||||||||||
Insurance in force (billions) |
$ |
6.0 |
$ |
6.2 |
$ |
6.7 |
$ |
6.8 |
$ |
7.0 |
|||||||||||||||||
Risk in force (billions) |
$ |
1.7 |
$ |
1.7 |
$ |
1.9 |
$ |
1.9 |
$ |
2.0 |
|||||||||||||||||
Average loan size (thousands) |
$ |
141.3 |
$ |
141.8 |
$ |
144.1 |
$ |
144.8 |
$ |
145.4 |
|||||||||||||||||
Number of delinquent loans |
7,252 |
7,568 |
7,438 |
7,979 |
8,268 |
||||||||||||||||||||||
Delinquency rate |
17.13 |
% |
17.31 |
% |
16.02 |
% |
16.86 |
% |
16.98 |
% |
|||||||||||||||||
Primary paid claims (millions) |
$ |
15 |
$ |
16 |
$ |
18 |
$ |
19 |
$ |
18 |
$ |
49 |
$ |
64 |
|||||||||||||
Average claim payment (thousands) |
$ |
60.1 |
$ |
74.6 |
$ |
65.1 |
$ |
73.2 |
$ |
69.6 |
$ |
66.2 |
$ |
70.1 |
|||||||||||||
Mortgage Guaranty Insurance Corporation - Risk to Capital |
9.9:1 |
(3) |
10.1:1 |
(2) |
8.9:1 |
9.0:1 |
9.0:1 |
||||||||||||||||||||
Combined Insurance Companies - Risk to Capital |
9.8:1 |
(3) |
10.0:1 |
9.6:1 |
9.8:1 |
9.8:1 |
|||||||||||||||||||||
GAAP loss ratio (insurance operations only) |
12.7 |
% |
8.8 |
% |
15.6 |
% |
11.3 |
% |
(0.6) |
% |
12.4 |
% |
1.2 |
% |
|||||||||||||
GAAP underwriting expense ratio (insurance operations only) |
17.7 |
% |
17.6 |
% |
18.9 |
% |
19.1 |
% |
17.6 |
% |
18.1 |
% |
17.8 |
% |
|||||||||||||
(1) |
Includes a $6.8 million termination fee paid to terminate a portion of our 2015 quota share reinsurance agreement. |
(2) |
A reinsurance agreement in effect between Mortgage Guaranty Insurance Corporation and an affiliate was terminated during the quarter. |
(3) |
Preliminary |
Risk Factors
As used below, "we," "our" and "us" refer to
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
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
The private mortgage insurance industry is highly competitive and is expected to remain so. We believe that we currently compete with other private mortgage insurers based on premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of management teams and field organizations, the ancillary products and services provided to lenders and the effective use of technology and innovation in the delivery and servicing of our mortgage insurance products.
Much of the competition in the industry in the last few years has centered on pricing practices which have included: (i) reductions in standard filed rates; (ii) use of customized rates (typically lower than standard rates) that are made available to lenders that meet certain criteria; and (iii) use of a spectrum of filed rates to allow for formulaic, risk-based pricing that may be quickly adjusted within certain parameters (referred to as "risk-based pricing systems").
In the first quarter of 2019, we introduced MiQ™, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. The widespread use of risk-based pricing systems by the private mortgage insurance industry makes it more difficult to compare our rates to those offered by our competitors. We may not be aware of industry rate changes until we observe that our volume of new insurance written ("NIW") has changed. In addition, business under customized rate plans is awarded by certain customers for only a limited period of time. As a result, our volume may fluctuate more than it had in the past.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. A reduction in our premium rates will reduce our premium yield (net premiums earned divided by the average insurance in force) over time as older insurance policies with higher premium rates run off and new insurance policies with lower premium rates are written. Our premium rates are subject to approval by state regulatory agencies, which can delay or limit our ability to change them, outside of the parameters already approved.
There can be no assurance that our premium rates adequately reflect the risk associated with the underlying mortgage insurance policies. For additional information, see our risk factors titled "The premiums we charge may not be adequate to compensate us for our liabilities for losses and as a result any inadequacy could materially affect our financial condition and results of operations" and "If our risk management programs are not effective in identifying, or adequate in controlling or mitigating, the risks we face, or if the models used in our businesses are inaccurate, it could have a material adverse impact on our business, results of operations and financial condition."
Our relationships with our customers, which may affect the amount of our NIW, could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements are more restrictive than those of our competitors, or our customers are dissatisfied with our claims-paying practices (including insurance policy rescissions and claim curtailments). Regarding the concentration of our new business, our largest customer accounted for approximately 5% and 7% of our NIW, and our top ten customers accounted for approximately 24% and 26% of our NIW, in each of 2018 and the first nine months of 2019, respectively.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore reinsurance vehicles, which are tax-advantaged). As a result, they may be able to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced premium rates to gain market share, and they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement pursued by
Substantially all of our insurance written since 2008 has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs require a mortgage insurer to maintain a minimum amount of assets to support its insured risk, as discussed in our risk factor titled "We may not continue to meet the GSEs' private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility." The PMIERs do not require an insurer to maintain minimum financial strength ratings; however, our financial strength ratings can affect us in the following ways:
- A downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our new insurance written.
- Our ability to participate in the non-GSE mortgage market (the size of which has been limited since 2008, but may grow in the future), could depend on our ability to maintain and improve our investment grade ratings for our mortgage insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiaries are lower than those of some competitors. MGIC's financial strength rating from
A.M. Best is A- (with a stable outlook), fromMoody's is Baa1 (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 using forms of credit enhancement other than traditional mortgage insurance, as discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance."
If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our insurance subsidiaries, our future new insurance written could be negatively affected.
The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
- lenders using FHA, VA and other government mortgage insurance programs,
- investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance,
- lenders and other investors holding mortgages in portfolio and self-insuring, and
- lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
In 2018,
The GSEs (and other investors) have also used other forms of credit enhancement that did not involve traditional private mortgage insurance, such as engaging in credit-linked note transactions executed in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors, including competitors and an affiliate of MGIC; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement.
The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 29.0% in the first half of 2019, 30.5% in 2018 and 33.9% in 2017. In the past ten years, the FHA's share has been as low as 29.0% in 2019 and as high as 66.8% in 2009. Factors that influence the FHA's market share include relative rates and fees, underwriting guidelines and loan limits of the FHA, VA, private mortgage insurers and the GSEs; lenders' perceptions of legal risks under FHA versus GSE programs; flexibility for the FHA to establish new products as a result of federal legislation and programs; returns expected to be obtained by lenders for
The VA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 22.6% in the first half of 2019, 22.9% in 2018 and 24.7% in 2017. In the past ten years, the VA's share has been as low as 14.3% in 2009 and as high as 27.2% in 2016. We believe that the VA's market share has generally been elevated in recent years because of an increase in the number of borrowers that are eligible for the VA's program, which offers 100% loan-to-value ratio ("LTV") loans and charges a one-time funding fee that can be included in the loan amount, and because eligible borrowers have opted to use the VA program when refinancing their mortgages.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
The GSEs' charters generally require credit enhancement for a low down payment mortgage loan (a loan with an amount that exceeds 80% of a home's value) in order for such loan to be eligible for purchase by the GSEs. Lenders generally have used private mortgage insurance to satisfy this credit enhancement requirement. (For information about GSE programs initiated in 2018 that provide for loan level default coverage by various (re)insurers (which may include affiliates of private mortgage insurers), see our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.") Because low down payment mortgages purchased by the GSEs have generally been insured with private mortgage insurance, the business practices of the GSEs greatly impact our business and include:
- the GSEs' private mortgage insurer eligibility requirements, the financial requirements of which are discussed in our risk factor titled "We may not continue to meet the GSEs' private mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain more capital in order to maintain our eligibility,"
- the capital and collateral requirements for participants in the GSEs' alternative forms of credit enhancement discussed in our risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance,"
- the level of private mortgage insurance coverage, subject to the limitations of the GSEs' charters, when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,
- the amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require private mortgage insurance,
- whether the GSEs select or influence the mortgage lender's selection of the mortgage insurer providing coverage,
- the underwriting standards that determine which loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans,
- the terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law,
- the programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs,
- the terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase, including limitations on the rescission rights of mortgage insurers,
- the extent to which the GSEs intervene in mortgage insurers' claims paying practices, rescission practices or rescission settlement practices with lenders, and
- the maximum loan limits of the GSEs compared to those of the FHA and other investors.
In
The impact of the Plan on private mortgage insurance is unclear. It does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should