MGIC Investment Corporation Reports Third Quarter 2021 Results
Adjusted net operating income for the third quarter of 2021 was
Mattke further stated, "Reflecting our robust capital position, the long-term confidence in our transformed business model and our market position, we repurchased 3.0% of shares outstanding in the third quarter totaling
Third Quarter Summary
- New insurance written was
$28.7 billion , compared to$33.6 billion the second quarter of 2021 and$32.8 billion in the third quarter of 2020, reflecting a decrease in the refinance market. - Persistency, or the percentage of insurance remaining in force from one year prior, was 59.5% at
September 30, 2021 , compared with 57.1% atJune 30, 2021 and 64.5% atSeptember 30, 2020 . - Insurance in force of
$268.4 billion atSeptember 30, 2021 increased by 2.4% during the quarter and 12.3% compared toSeptember 30, 2020 . - Primary delinquency inventory of 37,379 loans at
September 30, 2021 decreased from 42,999 loans atJune 30, 2021 , and 64,418 loans atSeptember 30, 2020 . - As of
September 30, 2021 , 48% of the loans in our delinquency inventory were reported to us as subject to forbearance plans. We believe substantially all of the reported forbearance plans are COVID-19 related. - The percentage of loans insured with primary insurance that were delinquent at
September 30, 2021 was 3.20%, compared to 3.71% atJune 30, 2021 , and 5.79% atSeptember 30, 2020 . - The loss ratio for the third quarter of 2021 was 8.1%, compared to 11.6% for the second quarter of 2021 and 15.9% for the third quarter of 2020.
- The underwriting expense ratio associated with our insurance operations for the third quarter of 2021 was 21.9%, compared to 22.3% for the second quarter of 2021 and 20.2% for the third quarter of 2020.
- Net premium yield was 38.4 basis points in the third quarter of 2021, compared to 39.1 basis points for the second quarter of 2021 and 43.6 basis points for the third quarter of 2020.
- We paid a dividend of
$0.08 per common share to shareholders during the third quarter of 2021. - Book value per common share outstanding increased by 6.7% from
December 31, 2020 to$14.81 and increased by 11.1% fromSeptember 30, 2020 . (September 30, 2021 book value per common share outstanding includes$0.59 in net unrealized gain on securities, compared to$0.80 atDecember 31, 2020 and$0.72 atSeptember 30, 2020 ). - We repurchased 10.0 million shares of common stock at an average cost of
$15.01 per share. - MGIC paid a
$150 million dividend toMGIC Investment Corporation . - In
August 2021 , MGIC entered into a$398.4 million excess of loss reinsurance agreement (executed through an insurance linked notes transaction) that covers the vast majority of policies issued fromJanuary 1, 2021 throughMay 28, 2021 .
_______________
Fourth Quarter 2021 Activities
- In October, we repurchased an additional 1.1% shares outstanding totaling
$60 million under the remaining authorization that expires at year end 2021. - Our Board of Directors authorized an additional
$500 million common stock repurchase program through the end of 2023. - We declared a dividend of
$0.08 per common share to shareholders payable onNovember 23, 2021 , to shareholders of record at the close of business onNovember 11, 2021 . - MGIC elected to terminate its 2017 and 2018 QSR Transactions effective
December 31, 2021 , and will incur an early termination fee of$5 million atDecember 31, 2021 .
Revenues
Total revenues for the third quarter of 2021 were
Losses and expenses
Losses incurred
Net losses incurred were
Underwriting and other expenses
Net underwriting and other expenses were
Interest expense
Interest expense was
Loss on debt extinguishment
In the third quarter of 2020, the
Provision for income taxes
The effective income tax rate was 20.9% in the third quarter of 2021 and 20.4% in the third quarter of 2020.
Capital
- Total consolidated shareholders' equity was
$4.9 billion as ofSeptember 30, 2021 , compared to$4.7 billion as ofDecember 31, 2020 and$4.5 billion as ofSeptember 30, 2020 . - MGIC's PMIERs Available Assets totaled
$5.8 billion , or$2.6 billion above its Minimum Required Assets as ofSeptember 30, 2021 , compared to PMIERs Available Assets of$5.3 billion , or$1.8 billion above its Minimum Required Assets as ofDecember 31, 2020 and PMIERs Available Assets of$5.0 billion , or$1.4 billion above its Minimum Required Assets as ofSeptember 30, 2020
Other Balance Sheet and Liquidity Metrics
- Total consolidated assets were
$7.5 billion as ofSeptember 30, 2021 , compared to$7.4 billion as ofDecember 31, 2020 , and$7.1 billion as ofSeptember 30, 2020 . - The fair value of our consolidated investment portfolio, cash and cash equivalents was
$7.1 billion as ofSeptember 30, 2021 , compared to$7.0 billion as ofDecember 31, 2020 , and$6.8 billion as ofSeptember 30, 2020 . - The fair value of investments, cash and cash equivalents at the holding company was
$716 million as ofSeptember 30, 2021 , compared to$847 million as ofDecember 31, 2020 , and$871 million as ofSeptember 30, 2020 . - Total consolidated debt as of
September 30, 2021 ,December 31, 2020 andSeptember 30, 2020 was$1.2 billion .
Conference Call and Webcast Details
About MGIC
This press release, which includes certain additional statistical and other information, including non-GAAP financial information and a supplement that contains various portfolio statistics, are all available on the Company's website at https://mtg.mgic.com/ under "Newsroom."
From time to time
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
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 and losses on debt extinguishment, net impairment losses recognized in earnings 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 and losses on debt extinguishment, net impairment losses recognized in earnings, and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.
Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.
(1) |
Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles. |
(2) |
Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt. |
(3) |
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions. |
(4) |
Infrequent or unusual non-operating items. Items that 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 |
|||||||||||||||
(In thousands, except per share data) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net premiums written |
$ |
247,610 |
$ |
227,954 |
$ |
730,846 |
$ |
695,346 |
||||||||
Revenues |
||||||||||||||||
Net premiums earned |
$ |
254,844 |
$ |
256,113 |
$ |
761,428 |
$ |
760,576 |
||||||||
Net investment income |
38,282 |
37,252 |
117,304 |
118,278 |
||||||||||||
Net realized investment gains |
1,009 |
2,259 |
5,397 |
10,851 |
||||||||||||
Other revenue |
1,611 |
380 |
7,426 |
7,160 |
||||||||||||
Total revenues |
295,746 |
296,004 |
891,555 |
896,865 |
||||||||||||
Losses and expenses |
||||||||||||||||
Losses incurred, net |
20,766 |
40,686 |
89,566 |
319,016 |
||||||||||||
Underwriting and other expenses, net |
57,237 |
48,528 |
164,779 |
140,482 |
||||||||||||
Loss on debt extinguishment |
— |
26,736 |
— |
26,736 |
||||||||||||
Interest expense |
18,011 |
15,725 |
53,993 |
41,580 |
||||||||||||
Total losses and expenses |
96,014 |
131,675 |
308,338 |
527,814 |
||||||||||||
Income before tax |
199,732 |
164,329 |
583,217 |
369,051 |
||||||||||||
Provision for income taxes |
41,755 |
33,518 |
122,168 |
74,388 |
||||||||||||
Net income |
$ |
157,977 |
$ |
130,811 |
$ |
461,049 |
$ |
294,663 |
||||||||
Net income per diluted share |
$ |
0.46 |
$ |
0.38 |
$ |
1.33 |
$ |
0.85 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||||||
EARNINGS PER SHARE (UNAUDITED) |
||||||||||||||||
Three Months |
Nine Months Ended |
|||||||||||||||
(In thousands, except per share data) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net income |
$ |
157,977 |
$ |
130,811 |
$ |
461,049 |
$ |
294,663 |
||||||||
Interest expense, net of tax: |
||||||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
3,712 |
4,161 |
11,135 |
13,293 |
||||||||||||
Diluted net income available to common shareholders |
$ |
161,689 |
$ |
134,972 |
$ |
472,184 |
$ |
307,956 |
||||||||
Weighted average shares - basic |
335,938 |
338,598 |
338,045 |
340,408 |
||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Unvested restricted stock units |
1,834 |
1,377 |
1,651 |
1,492 |
||||||||||||
9% Convertible Junior Subordinated Debentures due 2063 |
15,785 |
17,220 |
15,785 |
18,489 |
||||||||||||
Weighted average shares - diluted |
353,557 |
357,195 |
355,481 |
360,389 |
||||||||||||
Net income per diluted share |
$ |
0.46 |
$ |
0.38 |
$ |
1.33 |
$ |
0.85 |
NON-GAAP RECONCILIATIONS |
||||||||||||||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
||||||||||||||||||||||||
Three Months Ended |
||||||||||||||||||||||||
2021 |
2020 |
|||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net (after-tax) |
Pre-tax |
Tax Effect |
Net (after-tax) |
||||||||||||||||||
Income before tax / Net income |
$ |
199,732 |
$ |
41,755 |
$ |
157,977 |
$ |
164,329 |
$ |
33,518 |
$ |
130,811 |
||||||||||||
Adjustments: |
||||||||||||||||||||||||
Loss on debt extinguishment |
— |
— |
— |
26,736 |
5,615 |
21,121 |
||||||||||||||||||
Net realized investment gains |
(1,115) |
(234) |
(881) |
(2,624) |
(551) |
(2,073) |
||||||||||||||||||
Adjusted pre-tax operating income / Adjusted |
$ |
198,617 |
$ |
41,521 |
$ |
157,096 |
$ |
188,441 |
$ |
38,582 |
$ |
149,859 |
||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
||||||||||||||||||||||||
Weighted average shares - diluted |
353,557 |
357,195 |
||||||||||||||||||||||
Net income per diluted share |
$ |
0.46 |
$ |
0.38 |
||||||||||||||||||||
Loss on debt extinguishment |
— |
0.06 |
||||||||||||||||||||||
Net realized investment gains |
— |
(0.01) |
||||||||||||||||||||||
Adjusted net operating income per diluted |
$ |
0.46 |
$ |
0.43 |
||||||||||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income |
||||||||||||||||||||||||
Nine Months Ended |
||||||||||||||||||||||||
2021 |
2020 |
|||||||||||||||||||||||
(In thousands, except per share amounts) |
Pre-tax |
Tax Effect |
Net (after-tax) |
Pre-tax |
Tax Effect |
Net (after-tax) |
||||||||||||||||||
Income before tax / Net income |
$ |
583,217 |
$ |
122,168 |
$ |
461,049 |
$ |
369,051 |
$ |
74,388 |
$ |
294,663 |
||||||||||||
Adjustments: |
||||||||||||||||||||||||
Loss on debt extinguishment |
— |
— |
— |
26,736 |
5,615 |
21,121 |
||||||||||||||||||
Net realized investment gains |
(5,665) |
(1,190) |
(4,475) |
(10,773) |
(2,262) |
(8,511) |
||||||||||||||||||
Adjusted pre-tax operating income / Adjusted |
$ |
577,552 |
$ |
120,978 |
$ |
456,574 |
$ |
385,014 |
$ |
77,741 |
$ |
307,273 |
||||||||||||
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share |
||||||||||||||||||||||||
Weighted average shares - diluted |
355,481 |
360,389 |
||||||||||||||||||||||
Net income per diluted share |
$ |
1.33 |
$ |
0.85 |
||||||||||||||||||||
Loss on debt extinguishment |
— |
0.06 |
||||||||||||||||||||||
Net realized investment gains |
(0.01) |
(0.02) |
||||||||||||||||||||||
Adjusted net operating income per diluted |
$ |
1.32 |
$ |
0.89 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||||||||||
|
|
|
||||||||||
(In thousands, except per share data) |
2021 |
2020 |
2020 |
|||||||||
ASSETS |
||||||||||||
Investments (1) |
$ |
6,916,195 |
$ |
6,682,911 |
$ |
6,365,878 |
||||||
Cash and cash equivalents |
176,426 |
287,953 |
380,056 |
|||||||||
Restricted cash and cash equivalents |
9,486 |
8,727 |
8,755 |
|||||||||
Reinsurance recoverable on loss reserves (2) |
107,029 |
95,042 |
83,143 |
|||||||||
Home office and equipment, net |
45,303 |
47,144 |
47,546 |
|||||||||
Deferred insurance policy acquisition costs |
22,284 |
21,561 |
21,238 |
|||||||||
Other assets |
234,586 |
211,188 |
242,894 |
|||||||||
Total assets |
$ |
7,511,309 |
$ |
7,354,526 |
$ |
7,149,510 |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||
Liabilities: |
||||||||||||
Loss reserves (2) |
$ |
932,909 |
$ |
880,537 |
$ |
840,449 |
||||||
Unearned premiums |
256,517 |
287,099 |
315,071 |
|||||||||
Federal home loan bank advance |
155,000 |
155,000 |
155,000 |
|||||||||
Senior notes |
880,976 |
879,379 |
878,838 |
|||||||||
Convertible junior debentures |
208,814 |
208,814 |
208,814 |
|||||||||
Other liabilities |
199,673 |
244,711 |
237,716 |
|||||||||
Total liabilities |
2,633,889 |
2,655,540 |
2,635,888 |
|||||||||
Shareholders' equity |
4,877,420 |
4,698,986 |
4,513,622 |
|||||||||
Total liabilities and shareholders' equity |
$ |
7,511,309 |
$ |
7,354,526 |
$ |
7,149,510 |
||||||
Book value per share (3) |
$ |
14.81 |
$ |
13.88 |
$ |
13.33 |
||||||
(1) Investments include net unrealized gains on securities |
$ |
247,799 |
$ |
345,124 |
$ |
307,591 |
||||||
(2) Loss reserves, net of reinsurance recoverable on loss reserves |
$ |
825,880 |
$ |
785,495 |
$ |
757,305 |
||||||
(3) Shares outstanding |
329,335 |
338,573 |
338,573 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - NEW INSURANCE WRITTEN |
|||||||||||||||||||||||||||
2021 |
2020 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2021 |
2020 |
|||||||||||||||||||||
New primary insurance written (NIW) (billions) |
$ |
28.7 |
$ |
33.6 |
$ |
30.8 |
$ |
33.2 |
$ |
32.8 |
$ |
93.1 |
$ |
78.9 |
|||||||||||||
Monthly (including split premium plans) and annual premium plans |
26.5 |
31.4 |
27.9 |
31.3 |
30.6 |
85.8 |
70.7 |
||||||||||||||||||||
Single premium plans |
2.2 |
2.2 |
2.9 |
1.9 |
2.2 |
7.3 |
8.2 |
||||||||||||||||||||
Product mix as a % of primary NIW |
|||||||||||||||||||||||||||
FICO < 680 |
5 |
% |
5 |
% |
4 |
% |
4 |
% |
4 |
% |
5 |
% |
4 |
% |
|||||||||||||
>95% LTVs |
13 |
% |
12 |
% |
8 |
% |
9 |
% |
9 |
% |
11 |
% |
9 |
% |
|||||||||||||
>45% DTI |
15 |
% |
13 |
% |
12 |
% |
11 |
% |
11 |
% |
13 |
% |
11 |
% |
|||||||||||||
Singles |
8 |
% |
7 |
% |
9 |
% |
6 |
% |
7 |
% |
8 |
% |
10 |
% |
|||||||||||||
Refinances |
10 |
% |
21 |
% |
40 |
% |
34 |
% |
31 |
% |
24 |
% |
36 |
% |
|||||||||||||
New primary risk written (billions) |
$ |
7.4 |
$ |
8.5 |
$ |
7.2 |
$ |
7.9 |
$ |
7.9 |
$ |
23.1 |
$ |
18.9 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||
ADDITIONAL INFORMATION - INSURANCE IN FORCE and RISK IN FORCE |
|||||||||||||||||||
2021 |
2020 |
||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
|||||||||||||||
Primary Insurance In Force (IIF) (billions) |
$ |
268.4 |
$ |
262.0 |
$ |
251.7 |
$ |
246.6 |
$ |
238.9 |
|||||||||
Total # of loans |
1,161,907 |
1,151,692 |
1,130,362 |
1,126,079 |
1,111,910 |
||||||||||||||
Flow # of loans |
1,130,056 |
1,118,713 |
1,096,132 |
1,090,877 |
1,075,794 |
||||||||||||||
Premium Yield |
|||||||||||||||||||
Inforce portfolio yield (1) |
41.8 |
42.6 |
43.9 |
45.0 |
46.3 |
||||||||||||||
Premium refunds |
(1.0) |
(0.2) |
(0.8) |
(0.3) |
(0.6) |
||||||||||||||
Accelerated earnings on single premium |
2.5 |
3.1 |
4.4 |
5.3 |
5.5 |
||||||||||||||
Total direct premium yield |
43.3 |
45.5 |
47.5 |
50.0 |
51.2 |
||||||||||||||
Ceded premiums earned, net of profit commission and |
(4.9) |
(6.4) |
(6.6) |
(6.9) |
(7.6) |
||||||||||||||
Net premium yield |
38.4 |
39.1 |
40.9 |
43.1 |
43.6 |
||||||||||||||
Average Loan Size of IIF (thousands) |
$ |
231.0 |
$ |
227.5 |
$ |
222.7 |
$ |
219.0 |
$ |
214.9 |
|||||||||
Flow only |
$ |
233.6 |
$ |
230.1 |
$ |
225.2 |
$ |
221.5 |
$ |
217.3 |
|||||||||
Annual Persistency |
59.5 |
% |
57.1 |
% |
56.2 |
% |
60.5 |
% |
64.5 |
% |
|||||||||
Primary Risk In Force (RIF) (billions) |
$ |
67.2 |
$ |
65.3 |
$ |
62.6 |
$ |
61.8 |
$ |
60.4 |
|||||||||
By FICO (%) (3) |
|||||||||||||||||||
FICO 760 & > |
42 |
% |
41 |
% |
41 |
% |
40 |
% |
40 |
% |
|||||||||
FICO 740-759 |
17 |
% |
17 |
% |
17 |
% |
17 |
% |
17 |
% |
|||||||||
FICO 720-739 |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
14 |
% |
|||||||||
FICO 700-719 |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
11 |
% |
|||||||||
FICO 680-699 |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
|||||||||
FICO 660-679 |
3 |
% |
4 |
% |
4 |
% |
4 |
% |
4 |
% |
|||||||||
FICO 640-659 |
2 |
% |
2 |
% |
2 |
% |
3 |
% |
3 |
% |
|||||||||
FICO 639 & < |
3 |
% |
3 |
% |
3 |
% |
3 |
% |
3 |
% |
|||||||||
Average Coverage Ratio (RIF/IIF) |
25.1 |
% |
24.9 |
% |
24.9 |
% |
25.1 |
% |
25.3 |
% |
|||||||||
Direct Pool RIF (millions) |
|||||||||||||||||||
With aggregate loss limits |
$ |
207 |
$ |
208 |
$ |
209 |
$ |
210 |
$ |
211 |
|||||||||
Without aggregate loss limits |
$ |
106 |
$ |
114 |
$ |
122 |
$ |
130 |
$ |
139 |
(1) |
Total direct premiums earned, excluding accelerated premiums from premium refunds and single premium policy cancellations divided by average |
(2) |
Ceded premiums earned, net of profit commissions and assumed premiums. Assumed premiums include our participation in GSE Credit Risk Transfer programs, of which the impact on the net premium yield was 0.4 bps for the first nine months of 2021 and 0.5 bps in 2020. |
(3) |
The FICO credit score at the time of origination 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 |
||||||||||||||||
2021 |
2020 |
|||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
||||||||||||
Primary IIF - Delinquent Roll Forward - # of |
||||||||||||||||
Beginning Delinquent Inventory |
42,999 |
52,775 |
57,710 |
64,418 |
69,326 |
|||||||||||
New Notices |
9,862 |
9,036 |
13,011 |
15,193 |
20,924 |
|||||||||||
Cures |
(14,813) |
(18,460) |
(17,628) |
(21,584) |
(25,446) |
|||||||||||
Paid claims |
(298) |
(346) |
(312) |
(312) |
(375) |
|||||||||||
Rescissions and denials |
(11) |
(6) |
(6) |
(5) |
(11) |
|||||||||||
Other items removed from inventory (1) |
(360) |
— |
— |
— |
— |
|||||||||||
Ending Delinquent Inventory (2) |
37,379 |
42,999 |
52,775 |
57,710 |
64,418 |
|||||||||||
Primary IIF Delinquency Rate |
3.20 |
% |
3.71 |
% |
4.65 |
% |
5.11 |
% |
5.79 |
% |
||||||
Primary claim received inventory included in |
154 |
159 |
151 |
159 |
172 |
|||||||||||
Primary IIF - # of Delinquent Loans - Flow only |
33,271 |
38,715 |
47,880 |
52,459 |
58,933 |
|||||||||||
Primary IIF Delinquency Rate - Flow only |
2.93 |
% |
3.44 |
% |
4.35 |
% |
4.80 |
% |
5.48 |
% |
||||||
Composition of Cures |
||||||||||||||||
Reported delinquent and cured intraquarter |
2,727 |
2,334 |
3,452 |
3,304 |
4,405 |
|||||||||||
Number of payments delinquent prior to cure |
||||||||||||||||
3 payments or less |
3,346 |
5,378 |
5,547 |
6,425 |
13,954 |
|||||||||||
4-11 payments |
4,075 |
7,075 |
8,166 |
11,471 |
6,683 |
|||||||||||
12 payments or more |
4,665 |
3,673 |
463 |
384 |
404 |
|||||||||||
Total Cures in Quarter |
14,813 |
18,460 |
17,628 |
21,584 |
25,446 |
|||||||||||
Composition of Paids |
||||||||||||||||
Number of payments delinquent at time |
||||||||||||||||
3 payments or less |
2 |
— |
— |
3 |
1 |
|||||||||||
4-11 payments |
10 |
14 |
25 |
28 |
49 |
|||||||||||
12 payments or more |
286 |
332 |
287 |
281 |
325 |
|||||||||||
Total Paids in Quarter |
298 |
346 |
312 |
312 |
375 |
|||||||||||
Aging of Primary Delinquent Inventory |
||||||||||||||||
Consecutive months delinquent |
||||||||||||||||
3 months or less |
6,948 |
19% |
6,513 |
15% |
9,194 |
17% |
11,542 |
20% |
15,879 |
25% |
||||||
4-11 months |
9,371 |
25% |
12,840 |
30% |
29,832 |
57% |
34,620 |
60% |
37,702 |
58% |
||||||
12 months or more |
21,060 |
56% |
23,646 |
55% |
13,749 |
26% |
11,548 |
20% |
10,837 |
17% |
||||||
Number of payments delinquent |
||||||||||||||||
3 payments or less |
8,911 |
24% |
8,619 |
20% |
11,440 |
22% |
14,183 |
25% |
18,541 |
29% |
||||||
4-11 payments |
11,165 |
30% |
14,894 |
35% |
25,016 |
47% |
35,977 |
62% |
38,999 |
60% |
||||||
12 payments or more |
17,303 |
46% |
19,486 |
45% |
16,319 |
31% |
7,550 |
13% |
6,878 |
11% |
(1) |
Items removed from inventory are associated with commutations of coverage on non-performing policies. |
(2) |
As of |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - RESERVES and CLAIMS PAID |
|||||||||||||||||||||||||||
2021 |
2020 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2021 |
2020 |
|||||||||||||||||||||
Reserves (millions) |
|||||||||||||||||||||||||||
Primary Direct Loss Reserves |
$ |
926 |
$ |
928 |
$ |
905 |
$ |
871 |
$ |
831 |
|||||||||||||||||
Pool Direct loss reserves |
7 |
7 |
7 |
8 |
8 |
||||||||||||||||||||||
Other Gross Reserves |
— |
1 |
1 |
2 |
1 |
||||||||||||||||||||||
Total Gross Loss Reserves |
$ |
933 |
$ |
936 |
$ |
913 |
$ |
881 |
$ |
840 |
|||||||||||||||||
Primary Average Direct |
$ |
24,597 |
$ |
21,147 |
$ |
17,147 |
$ |
15,100 |
$ |
12,907 |
|||||||||||||||||
Net Paid Claims (millions) (1) |
$ |
20 |
$ |
14 |
$ |
15 |
$ |
18 |
$ |
18 |
$ |
49 |
$ |
96 |
|||||||||||||
Total primary (excluding settlements) |
11 |
11 |
12 |
12 |
15 |
34 |
86 |
||||||||||||||||||||
Rescission and NPL settlements |
7 |
— |
— |
— |
— |
7 |
— |
||||||||||||||||||||
Pool |
— |
— |
— |
1 |
— |
— |
1 |
||||||||||||||||||||
Reinsurance |
(1) |
— |
(1) |
(1) |
— |
(2) |
(3) |
||||||||||||||||||||
Other |
3 |
3 |
4 |
6 |
3 |
10 |
12 |
||||||||||||||||||||
Primary Average Claim Payment |
$ |
36.1 |
(2) |
$ |
34.1 |
$ |
36.7 |
$ |
40.4 |
$ |
40.6 |
$ |
35.6 |
(2) |
$ |
44.5 |
|||||||||||
Flow only |
$ |
32.0 |
(2) |
$ |
34.8 |
$ |
32.3 |
$ |
31.2 |
$ |
37.2 |
$ |
33.1 |
(2) |
$ |
39.0 |
|||||||||||
(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 policies. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||||||||||||||||
ADDITIONAL INFORMATION - REINSURANCE |
|||||||||||||||||||||||||||
2021 |
2020 |
Year-to-date |
|||||||||||||||||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2021 |
2020 |
|||||||||||||||||||||
Quota Share Reinsurance |
|||||||||||||||||||||||||||
% NIW subject to reinsurance |
85.0 |
% |
81.6 |
% |
73.7 |
% |
74.9 |
% |
76.0 |
% |
80.0 |
% |
74.2 |
% |
|||||||||||||
Ceded premiums written and earned (millions) |
$ |
22.9 |
$ |
34.0 |
$ |
33.4 |
$ |
36.2 |
$ |
43.5 |
$ |
90.3 |
$ |
131.7 |
|||||||||||||
Ceded losses incurred (millions) |
$ |
(3.6) |
$ |
8.9 |
$ |
8.4 |
$ |
12.5 |
$ |
20.7 |
$ |
13.7 |
$ |
65.5 |
|||||||||||||
Ceding commissions (millions) (included in |
$ |
13.7 |
$ |
12.9 |
$ |
13.1 |
$ |
12.6 |
$ |
12.1 |
$ |
39.7 |
$ |
35.5 |
|||||||||||||
Profit commission (millions) (included in |
$ |
45.1 |
$ |
31.0 |
$ |
31.9 |
$ |
26.6 |
$ |
17.1 |
$ |
108.0 |
$ |
45.9 |
|||||||||||||
Excess-of-Loss Reinsurance |
|||||||||||||||||||||||||||
Ceded premiums earned (millions) |
$ |
12.1 |
$ |
10.0 |
$ |
10.3 |
$ |
8.0 |
$ |
3.7 |
$ |
32.4 |
$ |
12.8 |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||||||
ADDITIONAL INFORMATION: BULK STATISTICS AND |
|||||||||||||
2021 |
2020 |
Year-to-date |
|||||||||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
2021 |
2020 |
|||||||
Bulk Primary Insurance Statistics |
|||||||||||||
Insurance in force (billions) |
|
|
|
|
|
||||||||
Risk in force (billions) |
|
|
|
|
|
||||||||
Average loan size (thousands) |
|
|
|
|
|
||||||||
Number of delinquent loans |
4,108 |
4,284 |
4,895 |
5,251 |
5,485 |
||||||||
Delinquency rate |
12.90% |
12.99% |
14.30% |
14.92% |
15.19% |
||||||||
Primary paid claims (excluding settlements) |
|
|
|
|
|
|
|
||||||
Average claim payment (thousands) |
|
|
|
|
|
|
|
||||||
|
9.0:1 |
(1) |
8.9:1 |
8.8:1 |
9.2:1 |
9.4:1 |
|||||||
Combined Insurance Companies - Risk to Capital |
9.0:1 |
(1) |
8.9:1 |
8.8:1 |
9.1:1 |
9.4:1 |
|||||||
GAAP loss ratio (insurance operations only) |
8.1% |
11.6% |
15.5% |
17.5% |
15.9% |
11.8% |
41.9% |
||||||
GAAP underwriting expense ratio (insurance |
21.9% |
22.3% |
19.8% |
19.4% |
20.2% |
21.3% |
19.1% |
||||||
(1) |
Preliminary |
Risk Factors
As used below, "we," "our" and "us" refer to
Risk Factors Relating to the COVID-19 Pandemic
The COVID-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition.
The COVID-19 pandemic had a material impact on our 2020 financial results. While uncertain, the future impact of the COVID-19 pandemic on the Company's business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in
The COVID-19 pandemic may continue to impact our business in various ways, including the following, each of which is described in more detail in the remainder of these risk factors:
- Our incurred losses will increase if the number of insured mortgages in our delinquency inventory increases. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (this is often referred to as "IBNR"). In addition, our current estimates of the number of delinquencies for which we will receive claims, and the amount, or severity, of each claim, may increase.
- We may be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
- If the number of delinquencies increases, the number of claims we must pay over time will generally increase.
- Our access to the reinsurance and capital markets may be limited and the terms under which we are able to access such markets may be less attractive than the terms of our previous transactions.
Risk Factors Relating to the Mortgage Insurance Industry and its Regulation
Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower's ability or willingness to make mortgage payments, such as unemployment, health issues, family status, and whether the home of a borrower who defaults on a mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home. The seasonally-adjusted Purchase-Only
The unemployment rate rose from 3.5% as of
Forbearance for federally-insured mortgages (including those delivered to or purchased by the GSEs) allows for mortgage payments to be suspended for up to 18 months: an initial forbearance period of up to six months; if requested by the borrower following contact by the servicer, an extension of up to six months; and, for loans in a COVID-19 forbearance plan as of
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. At
Foreclosures on mortgages purchased or securitized by the GSEs were suspended through
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.
We must comply with a GSE's PMIERs to be eligible to insure loans delivered to or purchased by that GSE. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The financial requirements of the PMIERs require a mortgage insurer's "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are generally based on an insurer's book of risk in force and calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of
The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after
Despite reducing the Minimum Required Assets for certain delinquent loans by 70%, if the number of loan delinquencies caused by the COVID-19 pandemic increases, it may cause our Minimum Required Assets to exceed our Available Assets. As of
If our Available Assets fall below our Minimum Required Assets, we would not be in compliance with the PMIERs. The PMIERs provide a list of remediation actions for a mortgage insurer's non-compliance, with additional actions possible in the GSEs' discretion. At the extreme, the GSEs may suspend or terminate our eligibility to insure loans purchased by them. Such suspension or termination would significantly reduce the volume of our new insurance written ("NIW"); the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC's ability to continue to comply with the financial requirements of the PMIERs include the following:
- The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend the PMIERs at any time, including by imposing restrictions specific to our company.
- There may be future implications for PMIERs as a result of changes to the regulatory capital requirements for the GSEs. In 2020, the FHFA adopted a rule containing a capital framework for the GSEs that would have increased their capital requirements, including through a decrease in credit received for credit risk transfer "CRT" transactions, effective on the later of (i) the date of termination of the FHFA's conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the
Federal Register ; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. InSeptember 2021 , the FHFA issued a notice of proposed rule-making that would modify that capital framework, making it more likely that a risk-based capital requirement would be the binding constraint, instead of a leverage-based capital requirement, and increasing the credit for CRT transactions. When the final GSE capital requirements have been determined and become effective, they may affect the Minimum Required Assets required to be held by mortgage insurers, including through a change in credit received for mortgage insurers' reinsurance transactions and they may affect the volume of CRT transactions entered into by the GSEs. - Our future operating results may be negatively impacted by the matters discussed in the rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.
In accordance with accounting principles generally accepted in
Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.
When we establish case reserves, we estimate our ultimate loss on delinquent loans by estimating the number of such loans that will result in a claim payment (the "claim rate"), and further estimating the amount of the claim payment (the "claim severity"). Our estimates incorporate anticipated cures, loss mitigation activity, rescissions and curtailments. The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. Our actual claim payments may be substantially different than our loss reserve estimates. Our estimates could be affected by several factors, including a change in regional or national economic conditions, the impact of past and future government initiatives and actions taken by the GSEs to mitigate the economic harm caused by the COVID-19 pandemic (including foreclosure moratoriums and mortgage forbearance and modification programs) and efforts to reduce the transmission of COVID-19, and a change in the length of time loans are delinquent before claims are received. All else being equal, the longer a loan is delinquent before a claim is received, the greater the severity. In light of the uncertainty caused by the COVID-19 pandemic, including the impact of foreclosure moratoriums and forbearance programs, the average time it takes to receive a claim may increase. The change in economic conditions may include changes in unemployment, including prolonged unemployment as a result of the COVID-19 pandemic, which may affect the ability of borrowers to make mortgage payments, and changes in home prices, which may affect the willingness of borrowers to make mortgage payments when the value of the home is below the mortgage balance. The economic effects of the COVID-19 pandemic may be disproportionately concentrated in certain geographic regions. Information about the geographic dispersion of our insurance in force can be found in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q. Changes to our claim rate and claim severity estimates could have a material impact on our future results, even in a stable economic environment. Losses incurred generally have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new default notice activity and a lower cure rate; however, the effects of the COVID-19 pandemic affected this pattern in 2020 when new delinquency notice activity was higher in the second quarter of the year.
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:
- investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance, or accepting credit risk without credit enhancement,
- lenders and other investors holding mortgages in portfolio and self-insuring,
- lenders using
Federal Housing Administration ("FHA"),U.S. Department of Veterans Affairs ("VA ") and other government mortgage insurance programs, and - lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ("LTV") ratio and a second mortgage with a 10%, 15% or 20% LTV ratio rather than a first mortgage with a 90%, 95% or 100% LTV ratio that has private mortgage insurance.
The GSEs' charters generally require credit enhancement for a low down payment mortgage loan (a loan in an amount that exceeds 80% of a home's value) in order for such loan to be eligible for purchase by the GSEs. Private mortgage insurance generally has been purchased by lenders in primary mortgage market transactions to satisfy this credit enhancement requirement. In 2018, the GSEs initiated secondary mortgage market programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. These programs, which currently account for a small percentage of the low down payment market, compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer premium rates that are below prevalent single premium lender-paid mortgage insurance ("LPMI") rates. We participate in these programs from time to time. See our risk factor titled "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" for a discussion of various business practices of the GSEs that may be changed, including through expansion or modification of these programs.
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,
The
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 substantial majority of our NIW is for loans purchased by the GSEs; therefore, the business practices of the GSEs greatly impact our business. The GSEs are required to submit Equitable Housing Finance Plans to the FHFA by the end of 2021. The plans are to identify and address barriers to sustainable housing opportunities, including the GSEs' goals and action plans to advance equity in housing finance for the next three years. The GSEs' action plans will likely change certain of the GSEs' business practices and those changes may affect the mortgage insurance industry. The GSEs' business practices that currently affect the mortgage insurance industry include:
- The GSEs' PMIERs, 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 t