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mtg-20220331
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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2022
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number1-10816
https://cdn.kscope.io/0c249bc59079f43f0f341529f2799f73-mtg-20220331_g1.jpg
MGIC Investment Corporation
(Exact name of registrant as specified in its charter)
Wisconsin39-1486475
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
250 E. Kilbourn Avenue53202
Milwaukee,Wisconsin(Zip Code)
(Address of principal executive offices) 
(414)347-6480
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stockMTGNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☒

Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company☐(Do not check if a smaller reporting company)
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 29, 2022, there were 309,601,216 shares of common stock of the registrant, par value $1.00 per share, outstanding.




Forward Looking and Other Statements

All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward looking statements.” Forward looking statements consist of statements that relate to matters other than historical fact. In most cases, forward looking statements may be identified by words such as “believe,” “anticipate” or “expect,” or words of similar import. The Risk Factors referred to in “Forward Looking Statements and Risk Factors – Location of Risk Factors” in Management’s Discussion and Analysis of Financial Condition and Results of Operations below, may cause our actual results to differ materially from the results contemplated by forward looking statements that we may make. We are not undertaking any obligation to update any forward looking statements or other statements we may make in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.

MGIC Investment Corporation - Q1 2022 | 2

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED March 31, 2022
Table of contents
Page
Consolidated Balance Sheets - March 31, 2022 (Unaudited) and December 31, 2021
Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2022 and 2021
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended March 31, 2022 and 2021
Consolidated Statements of Shareholders’ Equity (Unaudited) - Three Months Ended March 31, 2022 and 2021
Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 2022 and 2021
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
MGIC Investment Corporation - Q1 2022 | 3

Glossary of terms and acronyms
/ A
ARMs
Adjustable rate mortgages

ABS
Asset-backed securities

ASC
Accounting Standards Codification

Available Assets
Assets, as designated under the PMIERs, that are readily available to pay claims, and include the most liquid investments

/ B
Book or book year
A group of loans insured in a particular calendar year

BPMI
Borrower-paid mortgage insurance

/ C
CECL
Current expected credit losses covered under ASC 326

CFPB
Consumer Financial Protection Bureau

CLO
Collateralized loan obligations

CMBS
Commercial mortgage-backed securities

COVID-19 Pandemic
An outbreak of the novel coronavirus disease, later named COVID-19, that has spread globally, causing significant adverse effects on populations and economies. The outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency in the United States in March 2020

CRT
Credit risk transfer. The transfer of a portion of mortgage credit risk to the private sector through different forms of transactions and structures

/ D
DAC
Deferred insurance policy acquisition costs

Debt-to-income (“DTI”) ratio
The ratio, expressed as a percentage, of a borrower’s total debt payments to gross income

Delinquent Loan
A loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current or a claim payment has been made. A delinquent loan is also referred to as a default

Delinquency Rate
The percentage of insured loans that are delinquent

Direct
Before giving effect to reinsurance

/ E
EPS
Earnings per share

/ F
Fannie Mae
Federal National Mortgage Association

FCRA
Fair Credit Reporting Act

FHA
Federal Housing Administration

FHFA
Federal Housing Finance Agency

FHLB
Federal Home Loan Bank of Chicago, of which MGIC is a member

FICO score
A measure of consumer credit risk provided by credit bureaus, typically produced from statistical models by Fair Isaac Corporation utilizing data collected by the credit bureaus

Freddie Mac
Federal Home Loan Mortgage Corporation

/ G
GAAP
Generally Accepted Accounting Principles in the United States

GSEs
Collectively, Fannie Mae and Freddie Mac

/ H
HAMP
Home Affordable Modification Program

HARP
Home Affordable Refinance Program
MGIC Investment Corporation - Q1 2022 | 4

Home Re Entities
Unaffiliated special purpose insurers domiciled in Bermuda that participate in our aggregate excess of loss reinsurance transactions.

Home Re Transactions
Excess-of-loss reinsurance transactions with the Home Re Entities

HOPA
Homeowners Protection Act

HUD
Housing and Urban Development

/ I
IBNR Reserves
Loss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us

IIF
Insurance in force, which for loans insured by us, is equal to the unpaid principal balance, as reported to us

ILN
Insurance-linked notes

/ L
LAE
Loss adjustment expenses, which includes the costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.

Loan-to-value ("LTV") ratio
The ratio, expressed as a percentage, of the dollar amount of the first mortgage loan to the value of the property at the time the loan became insured and does not reflect subsequent housing price appreciation or depreciation. Subordinate mortgages may also be present.

Long-term debt:
5.75% Notes
5.75% Senior Notes due on August 15, 2023, with interest payable semi-annually on February 15 and August 15 of each year

5.25% Notes
5.25% Senior Notes due on August 15, 2028, with interest payable semi-annually on February 15 and August 15 of each year

9% Debentures
9% Convertible Junior Subordinated Debentures due on April 1, 2063, with interest payable semi-annually on April 1 and October 1 of each year

FHLB Advance or the Advance
1.91% Fixed rate advance from the FHLB due on February 10, 2023, with interest payable monthly
Loss ratio
The ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to net premiums earned

Low down payment loans or mortgages
Loans with less than 20% down payments

LPMI
Lender-paid mortgage insurance

/ M
MBS
Mortgage-backed securities

MD&A
Management's discussion and analysis of financial condition and results of operations

MGIC
Mortgage Guaranty Insurance Corporation, a subsidiary of MGIC Investment Corporation

MAC
MGIC Assurance Corporation, a subsidiary of MGIC

Minimum Required Assets
The minimum amount of Available Assets that must be held under the PMIERs which is based on an insurer’s book of RIF and is calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million.

MPP
Minimum Policyholder Position, as required under certain state requirements. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums

/ N
N/A
Not applicable for the period presented

NAIC
The National Association of Insurance Commissioners

NIW
New Insurance Written, is the aggregate original principal amount of the mortgages that are insured during a period

N/M
Data, or calculation, deemed not meaningful for the period presented

NPL
Non-performing loan, which is a delinquent loan, at any stage in its delinquency

MGIC Investment Corporation - Q1 2022 | 5

/ O
OCI
Office of the Commissioner of Insurance of the State of Wisconsin

OTTI
Other than temporary impairment

/ P
Peak COVID-19 delinquencies
A delinquent loan reported to us in the second and third quarter of 2020

Persistency
The percentage of our insurance remaining in force from one year prior

PMI
Private Mortgage Insurance (as an industry or product type)

PMIERs
Private Mortgage Insurer Eligibility Requirements issued by each of Fannie Mae and Freddie Mac to set forth requirements that an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans delivered to or acquired by Fannie Mae or Freddie Mac, as applicable.

Pre-COVID-19 delinquencies
A delinquent loan reported to us prior to the second quarter of 2020.

Premium Yield
The ratio of premium earned divided by the average IIF outstanding for the period measured

Premium Rate
The contractual rate charged for coverage under our insurance policies

Primary Insurance
Insurance that provides mortgage default protection on individual loans. Primary insurance may be written on a "flow" basis, in which loans are insured in individual, loan-by-loan transactions, or on a "bulk" basis, in which each loan in a portfolio of loans is individually insured in a single bulk transaction.

Profit Commission
Payments we receive from reinsurers under each of our quota share reinsurance transactions if the annual loss ratio is below levels specified in the quota share reinsurance transaction

/ Q
QSR Transaction
Quota share reinsurance transaction with a group of unaffiliated reinsurers

2015 QSR
Our QSR transaction that provides coverage on eligible NIW written prior to 2017

2017 QSR
Our QSR transaction that provided coverage on eligible NIW in 2017

2018 QSR
Our QSR transaction that provided coverage on eligible NIW in 2018

2019 QSR
Our QSR transaction that provides coverage on eligible NIW in 2019

2020 QSR
Our QSR transactions that provides coverage on eligible NIW in 2020

2021 QSR
Our QSR transactions that provides coverage on eligible NIW in 2021

2022 QSR
Our QSR transactions that provides coverage on eligible NIW in 2022

2023 QSR
Our QSR transactions that provides coverage on eligible NIW in 2023

Credit Union QSR
Our QSR transaction that provides coverage on eligible NIW from credit union institutions originated from April 1, 2020 through December 31, 2025

/ R
RESPA
Real Estate Settlement Procedures Act

RIF
Risk in force, which for an individual loan insured by us, is equal to the unpaid loan principal balance, as reported to us, multiplied by the insurance coverage percentage. RIF is sometimes referred to as exposure

Risk-to-capital
Under certain state regulations, the ratio of RIF, net of reinsurance and exposure on policies currently in default and for which loss reserves have been established, to the level of statutory capital


MGIC Investment Corporation - Q1 2022 | 6

RMBS
Residential mortgage-backed securities

/ S
State Capital Requirements
Under certain state regulations, the minimum amount of statutory capital relative to risk in force (or similar measure)

/ T
TILA
Truth in Lending Act

/ U
Underwriting expense ratio
The ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance subsidiaries) to net premiums written

Underwriting profit
Net premiums earned minus incurred losses and underwriting and operating expenses

USDA
U.S. Department of Agriculture

/ V
VA
U.S. Department of Veterans Affairs

VIE
Variable interest entity
MGIC Investment Corporation - Q1 2022 | 7

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)NoteMarch 31,
2022		December 31, 2021
(Unaudited)
ASSETS
Investment portfolio: 7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2022 - $6,088,948; 2021 - $6,397,658)$5,935,916 $6,587,581 
Equity securities, at fair value (cost 2022 - $15,966; 2021 - $15,838)15,191 16,068 
Other invested assets, at cost850 3,100 
Total investment portfolio5,951,957 6,606,749 
Cash and cash equivalents477,113 284,690 
Restricted cash and cash equivalents12,784 20,268 
Accrued investment income50,400 51,902 
Reinsurance recoverable on loss reserves464,717 66,905 
Reinsurance recoverable on paid losses4203 36,275 
Premiums receivable57,338 56,540 
Home office and equipment, net45,184 45,614 
Deferred insurance policy acquisition costs21,538 21,671 
Other assets163,567 134,394 
Total assets$6,844,801 $7,325,008 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves$851,272 $883,522 
Unearned premiums229,115 241,690 
Federal Home Loan Bank advance— 155,000 
Senior notes882,040 881,508 
Convertible junior subordinated debentures53,239 110,204 
Other liabilities218,780 191,702 
Total liabilities2,234,446 2,463,626 
Contingencies
Shareholders’ equity:
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2022 - 371,353; 2021 - 371,353; shares outstanding 2022 - 312,581; 2021 - 320,336)371,353 371,353 
Paid-in capital1,783,611 1,794,906 
Treasury stock at cost (shares 2022 - 58,772; 2021 - 51,017)(793,696)(675,265)
Accumulated other comprehensive income, net of tax(150,848)119,697 
Retained earnings3,399,935 3,250,691 
Total shareholders’ equity4,610,355 4,861,382 
Total liabilities and shareholders’ equity$6,844,801 $7,325,008 
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q1 2022 | 8



MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31,
(In thousands, except per share data)Note20222021
Revenues:
Premiums written:
Direct$274,793 $283,005 
Assumed2,031 2,131 
Ceded(34,159)(43,637)
Net premiums written242,665 241,499 
Decrease in unearned premiums, net12,575 13,546 
Net premiums earned255,240 255,045 
Investment income, net of expenses38,262 37,893 
Net realized investment gains (losses)(1,505)2,215 
Other revenue2,619 2,804 
Total revenues294,616 297,957 
Losses and expenses:
Losses incurred, net(19,314)39,636 
Amortization of deferred policy acquisition costs2,740 2,696 
Other underwriting and operating expenses, net54,732 48,023 
Loss on debt extinguishment22,107 — 
Interest expense14,912 17,985 
Total losses and expenses75,177 108,340 
Income before tax219,439 189,617 
Provision for income tax44,426 39,596 
Net income$175,013 $150,021 
Earnings per share:
Basic$0.55 $0.44 
Diluted$0.54 $0.43 
Weighted average common shares outstanding - basic315,975 338,904 
Weighted average common shares outstanding - diluted324,538 356,383 

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2022 | 9



MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31,
(In thousands)Note20222021
Net income$175,013 $150,021 
Other comprehensive income (loss), net of tax:
Change in unrealized investment gains and losses(270,938)(94,129)
Benefit plan adjustments393 873 
Other comprehensive income (loss), net of tax(270,545)(93,256)
Comprehensive income (loss)$(95,532)$56,765 

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2022 | 10



MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended March 31,
(In thousands)Note20222021
Common stock
Balance, beginning and end of period$371,353 $371,353 
Paid-in capital
Balance, beginning of period, as previously reported1,794,906 1,862,042 
Cumulative effect of debt with conversion options accounting standards update— (68,289)
Balance, beginning of the period, as adjusted1,794,906 1,793,753 
Reissuance of treasury stock, net under share-based compensation plans(17,867)(15,397)
Equity compensation6,572 3,685 
Balance, end of period1,783,611 1,782,041 
Treasury stock
Balance, beginning of period(675,265)(393,326)
Reissuance of treasury stock, net under share-based compensation plans9,179 8,776 
Repurchase of common stock(127,610)— 
Balance, end of period(793,696)(384,550)
Accumulated other comprehensive income (loss)
Balance, beginning of period119,697 216,821 
Other comprehensive income (loss), net of tax(270,545)(93,256)
Balance, end of period(150,848)123,565 
Retained earnings
Balance, beginning of period, as previously reported3,250,691 2,642,096 
Cumulative effect of debt with conversion options accounting standards update— 68,289 
Balance, beginning of the period, as adjusted3,250,691 2,710,385 
Net income175,013 150,021 
Cash dividends(25,769)(20,522)
Balance, end of period3,399,935 2,839,884 
Total shareholders’ equity$4,610,355 $4,732,293 

See accompanying notes to consolidated financial statements.



MGIC Investment Corporation - Q1 2022 | 11


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
(In thousands)20222021
Cash flows from operating activities:
Net income$175,013 $150,021 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,395 17,422 
Deferred tax expense5,945 2,635 
Loss on debt extinguishment22,107 — 
Net realized investment (gains) losses1,505 (2,215)
Change in certain assets and liabilities:
Accrued investment income1,502 (1,130)
Reinsurance recoverable on loss reserves2,188 (7,859)
Reinsurance recoverable on paid losses36,072 63 
Premium receivable(798)937 
Deferred insurance policy acquisition costs133 (774)
Profit commission receivable6,779 (5,430)
Loss reserves(32,250)32,573 
Unearned premiums(12,575)(13,546)
Return premium accrual(900)2,900 
Current income taxes38,445 36,897 
Other, net(30,550)(14,461)
Net cash provided by (used in) operating activities228,011 198,033 
Cash flows from investing activities:
Purchases of investments(94,017)(652,328)
Proceeds from sales of investments218,373 59,378 
Proceeds from maturity of fixed income securities225,972 318,892 
Additions to property and equipment(888)(441)
Net cash provided by (used in) investing activities349,440 (274,499)
Cash flows from financing activities:
Purchase of convertible junior subordinated debentures(56,965)— 
Repayment of FHLB Advance(155,000)— 
Cash portion of loss on debt extinguishment(22,107)— 
Repurchase of common stock(123,640)— 
Dividends paid(26,112)(20,827)
Payment of withholding taxes related to share-based compensation net share settlement(8,688)(6,621)
Net cash provided by (used in) financing activities(392,512)(27,448)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents184,939 (103,914)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period304,958 296,680 
Cash and cash equivalents and restricted cash and cash equivalents at end of period$489,897 $192,766 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q1 2022 | 12

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)

Note 1. Nature of Business and Basis of Presentation
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation (“MGIC”), is principally engaged in the mortgage insurance business. We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. MGIC Assurance Corporation (“MAC”) and MGIC Indemnity Corporation (“MIC”), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the “GSEs”) credit risk transfer programs.

The accompanying unaudited consolidated financial statements of MGIC Investment Corporation and its wholly-owned subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (“SEC”) for interim reporting and do not include all of the other information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our 2021 Annual Report on Form 10-K. As used below, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as the context requires.

In the opinion of management, the accompanying financial statements include all adjustments, consisting primarily of normal recurring accruals, necessary to fairly state our consolidated financial position and consolidated results of operations for the periods indicated. The consolidated results of operations for an interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The substantial majority of our NIW has been for loans purchased by the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs include financial requirements, as well as business, quality control and certain transactional 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 based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions). Based on our application of the PMIERs, as of March 31, 2022, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the PMIERs and eligible to insure loans purchased by the GSEs.

Subsequent events
We have considered subsequent events through the date of this filing.



Note 2. Significant Accounting Policies

Prospective Accounting Standards
Table 2.1 shows the relevant new amendments to accounting standards, which are not yet effective or adopted.
Standard / Interpretation
Table
2.1
Amended StandardsEffective date
ASC 944Long-Duration Contracts
•ASU 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration ContractsJanuary 1, 2023
Targeted Improvements for Long Duration Contracts: ASU 2018-12
In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies the amortization of deferred insurance policy acquisition costs. It also provides updates to the recognition, measurement, presentation and disclosure requirements for long duration contracts, which generally do not apply to mortgage insurance. The updated guidance requires deferred acquisition costs to be amortized on a constant level basis over the expected term of the related contracts, versus in proportion to premium, gross profits, or gross margins. In November 2020, FASB issued ASU 2020-11 deferring the effective date, so that it applies for annual periods beginning after December 15, 2022, including interim periods within those annual periods. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact.

MGIC Investment Corporation - Q1 2022 | 13

Note 3. Debt
Debt obligations
The aggregate carrying values of our long-term debt obligations and their par values, if different, as of March 31, 2022 and December 31, 2021 are presented in table 3.1 below.
Long-term debt obligations
Table
3.1
(In millions)March 31, 2022December 31, 2021
FHLB Advance - 1.91%, due February 2023$— $155.0 
5.75% Notes, due August 2023 (par value: $242.3 million)241.4 241.3 
5.25% Notes, due August 2028 (par value: $650 million)640.6 640.2 
9% Debentures, due April 2063 (1)
53.3 110.2 
Long-term debt, carrying value$935.3 $1,146.7 
(1)Convertible at any time prior to maturity at the holder’s option, at a conversion rate, which is subject to adjustment, of 76.5496 shares per $1,000 principal amount, representing a conversion price of approximately $13.06 per share. The payment of dividends by our holding company results in adjustments to the conversion rate, with such adjustment generally deferred until the end of the year.

The 5.75% Senior Notes (“5.75% Notes”), 5.25% Senior Notes (5.25% Notes) and 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligations of our holding company, MGIC Investment Corporation.

In the first quarter of 2022, we repurchased $57.0 million in aggregate principal amount of our 9% Debentures at a purchase price of $77.7 million plus accrued interest. The repurchase of 9% Debentures resulted in a $20.8 million loss on debt extinguishment on our consolidated statement of operations and a reduction of approximately 4.4 million shares in our potentially dilutive shares.

The Federal Home Loan Bank Advance (the “FHLB Advance”) was an obligation of MGIC. In the first quarter of 2022, we repaid the outstanding principal balance of the FHLB Advance at a prepayment price of $156.3 million, incurring a prepayment fee of $1.3 million.

See Note 7 “Debt” in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information pertaining to our debt obligations.. As of March 31, 2022 we are in compliance with all of our debt covenants.

Interest payments
Interest payments for the three months ended March 31, 2022 and 2021 were $26.7 million and $25.1 million, respectively.


MGIC Investment Corporation - Q1 2022 | 14

Note 4. Reinsurance
The reinsurance agreements to which we are a party, are discussed below. The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.
Reinsurance
Table
4.1
 Three Months Ended March 31,
(In thousands)20222021
Premiums earned:
Direct$287,273 $296,271 
Assumed 2,126 2,411 
Ceded (1)
(34,159)(43,637)
Net premiums earned$255,240 $255,045 
Losses incurred:
Direct$(21,092)$48,071 
Assumed(207)(25)
Ceded1,985 (8,410)
Losses incurred, net$(19,314)$39,636 
(1)Ceded premiums earned net of profit commission.

Quota share reinsurance
We have entered into quota share reinsurance ("QSR") transactions with panels of third-party reinsurers to cede a fixed quota share percentage of premiums earned and received and losses incurred on insurance covered by the transactions. We receive the benefit of a ceding commission equal to 20% of premiums ceded before profit commission. We also receive the benefit of a profit commission through a reduction of premiums we cede. The profit commission varies inversely with the level of losses on a “dollar for dollar” basis and can be eliminated at annual loss ratios higher than we have experienced on our QSR Transactions.

Each of our QSR Transactions typically have annual loss ratio caps of 300% and lifetime loss ratios of 200%.

Table 4.2 below provides additional detail regarding our QSR Transactions.

Quota Share Reinsurance
Table4.2
Quota Share ContractCovered Policy YearsQuota Share %
Annual Loss Ratio to Exhaust Profit Commission (1)
Contractual Termination Date
2015 QSRPrior to 201715.0 %68.0 %December 31, 2031
2019 QSR201930.0 %62.0 %December 31, 2030
2020 QSR 202012.5 %62.0 %December 31, 2031
2020 QSR and 2021 QSR202017.5 %62.0 %December 31, 2032
2020 QSR and 2021 QSR202117.5 %61.9 %December 31, 2032
2021 QSR and 2022 QSR202112.5 %57.5 %December 31, 2032
2021 QSR and 2022 QSR202215.0 %57.5 %December 31, 2033
2022 QSR and 2023 QSR202215.0 %62.0 %December 31, 2033
2022 QSR and 2023 QSR202315.0 %62.0 %December 31, 2034
Credit Union QSR (2)
2020-202565.0 %50.0 %December 31, 2039
(1) We will receive a profit commission provided the annual loss ratio on policies covered under the transaction remains below this ratio.
(2) Eligible credit union business written before April 1, 2020 was covered by our 2019 and prior QSR Transactions.

We can elect to terminate the QSR Transactions under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction ) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period.
Table 4.3 provides additional detail regarding optional termination dates and optional reductions to our quota share percentage which can, in each case, be elected by us for a fee. Under the optional reduction to the quota share percentage, we may reduce our quota share percentage from the original percentage shown in table 4.2 to the percentage shown in table 4.3.

MGIC Investment Corporation - Q1 2022 | 15


Quota Share Reinsurance
Table4.3
Quota Share Contract
Optional Termination Date (1)
Optional Quota Share % Reduction Date (2)
Optional Reduced Quota Share %
2015 QSRJune 30, 2021NANA
2019 QSRJuly 1, 2022July 1, 202225% or 20%
2020 QSR December 31, 2022July 1, 202210.5% or 8%
2020 QSR and 2021 QSR, 2020 Policy yearDecember 31, 2022July 1, 202214.5% or 12%
2020 QSR and 2021 QSR, 2021 Policy yearDecember 31, 2023July 1, 202214.5% or 12%
2021 QSR and 2022 QSR. 2021 Policy YearDecember 31, 2023July 1, 202210.5% or 8%
2021 QSR and 2022 QSR, 2022 Policy YearDecember 31, 2024July 1, 202312.5% or 10%
2022 QSR and 2023 QSR, 2022 Policy YearDecember 31, 2024July 1, 202312.5% or 10%
2022 QSR and 2023 QSR, 2023 Policy YearDecember 31, 2025July 1, 202412.5% or 10%
(1) We can elect early termination of the QSR Transaction beginning on this date, and bi-annually thereafter.
(2) We can elect to reduce the quota share percentage beginning on this date, and bi-annually thereafter.


See Note 9 “Reinsurance” in our Annual Report on Form 10-K for the year ended December 31, 2021 for information about the termination of our 2017 and 2018 QSR Transactions, which resulted in a reinsurance recoverable on paid losses of $36 million for loss and loss adjustment expenses (“LAE”) reserves incurred at the time of termination.

Table 4.4 below provides a summary of our QSR Transactions, for the three months ended March 31, 2022 and 2021.
Quota Share Reinsurance
Table4.4
 Three Months Ended March 31,
(In thousands)20222021
Ceded premiums written and earned, net of profit commission$22,378 $33,390 
Ceded losses incurred(1,985)8,405 
Ceding commissions (1)
12,272 13,067 
Profit commission38,980 31,944 
(1) Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Ceded losses incurred for the three months ended March 31, 2022 reflect favorable loss reserve development primarily related to delinquencies received in the second and third quarters of 2020 (“Peak COVID-19” delinquencies). See Note 11 - “Loss Reserves” for discussion of our loss reserves.
Under the terms of our QSR Transactions, ceded premiums, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums due after deducting the related ceding commission and profit commission is reported within Other liabilities on the consolidated balance sheets.

The reinsurance recoverable on loss reserves related to our QSR Transactions was $64.7 million as of March 31, 2022 and $66.9 million as of December 31, 2021. The reinsurance recoverable balance is secured by funds on deposit from the reinsurers, the minimum amount of which is based on the greater of 1) a reinsurer's funding requirements under PMIERs or 2) ceded reserves and unpaid losses. Each of the reinsurers under our quota share reinsurance agreements described above has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor's Rating Services, A.M. Best, Moody's, or a combination of the three..

Excess of loss reinsurance
We have aggregate excess of loss reinsurance transactions (“Home Re Transactions”) with unaffiliated special purpose insurers (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses paid, and a Home Re Entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses paid in excess of the outstanding reinsurance coverage amount. Subject to certain conditions, the reinsurance coverage decreases over a period of either 10 or 12.5 years, depending on the transaction, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid.

The Home Re Entities financed the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. Each ILN is non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.

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When a “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments. As of March 31, 2022 a "Trigger Event" has occurred on our Home Re 2018-1 and Home Re 2019-1 ILN transactions because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded a percentage of the total reinsured principal balance of loans specified under each transaction. A “Trigger Event” has also occurred on the Home Re 2021-2 ILN transaction because the credit enhancement of the most senior tranche is less than the target credit enhancement.

Table 4.5 provides a summary of our Home Re Transactions as of March 31, 2022 and December 31, 2021.

Excess of Loss Reinsurance
Table 4.5
($ in thousands)Home Re 2021-2, Ltd.Home Re 2021-1, Ltd.Home Re 2020-1, Ltd.Home Re 2019-1, Ltd.Home Re 2018-1, Ltd.
Issue DateAugust 3, 2021February 2, 2021October 29, 2020May 25, 2019October 30, 2018
Policy Inforce DatesJanuary 1, 2021 - May 28, 2021August 1, 2020 - December 31, 2020January 1, 2020 - July 31, 2020January 1, 2018 - March 31, 2019July 1, 2016 - December 31, 2017
Optional Call Date (1)
July 25, 2028January 25, 2028October 25, 2027May 25, 2026October 25, 2025
Legal Maturity12.5 years12.5 years10 years10 years10 years
Initial First Layer Retention190,159211,159275,283185,730168,691
Initial Excess of Loss Reinsurance Coverage398,429398,848412,917315,739318,636
March 31, 2022
   
Remaining First Layer Retention190,159211,142275,172183,807165,179
Remaining Excess of Loss Reinsurance Coverage398,429361,362196,552208,146218,343
December 31, 2021
Remaining First Layer Retention190,159211,142275,204183,917165,365
Remaining Excess of Loss Reinsurance Coverage398,429387,830234,312208,146218,343
(1) We have the right to terminate the Home Re Transactions under certain circumstances and on any payment date on or after the respective Optional Call Date.

In April 2022, MGIC entered into a $473.6 million excess-of-loss reinsurance agreement (executed through an insurance linked note transaction) that covers policies with inforce dates from May 29, 2021 through December 31, 2021.


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The reinsurance premiums ceded to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the remaining reinsurance coverage levels, and the investment income collected on the collateral assets held in a reinsurance trust account and used to collateralize the Home Re Entity’s reinsurance obligation to MGIC. The amount of monthly reinsurance coverage premium ceded will fluctuate due to changes in the reference rate and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. The Home Re 2021-2 Transaction references SOFR, while the remaining Home Re Transactions reference one-month LIBOR. As a result, we concluded that each Home Re transaction contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at March 31, 2022, were not material to our consolidated balance sheet, and the change in fair value during the three months ended March 31, 2022 was not material to our consolidated statements of operations. Total ceded premiums under the Home Re transaction were $11.8 million for the three months ended March 31, 2022, and $10.3 million for the three months ended March 31, 2021.

At the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of each Home Re Entity that could be significant to the Home Re Entity, consolidation of the Home Re Entities is not required.

We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statements of operations, as a result of our involvement with the VIEs under our Home Re Transactions. As of March 31, 2022, and December 31, 2021, we did not have material exposure to the VIEs as we have no investment in the VIEs and had no reinsurance claim payments due from the VIEs under our reinsurance transactions. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance transactions. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance transactions. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The trust agreements are governed by, and construed in accordance with, the laws of the State of New York. If the trustee of the reinsurance trusts failed to distribute claim payments to us as provided in the reinsurance trusts, we would incur a loss related to our losses ceded under the reinsurance transactions and deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are
unable to quantify our maximum exposure to loss related to our involvement with the VIEs. MGIC has certain termination rights under the reinsurance transactions should its claims not be paid. We consider our exposure to loss from our reinsurance transactions with the VIEs to be remote.

Table 4.6 presents the total assets of the Home Re Entities as of March 31, 2022 and December 31, 2021.
Home Re total assets
Table4.6
(In thousands)
Home Re EntityTotal VIE Assets
March 31, 2022
Home Re 2018-1 Ltd.$218,343 
Home Re 2019-1 Ltd.208,146 
Home Re 2020-1 Ltd.209,686 
Home Re 2021-1 Ltd.370,621 
Home Re 2021-2 Ltd.398,429 
December 31, 2021
Home Re 2018-1 Ltd.$218,343 
Home Re 2019-1 Ltd.208,146 
Home Re 2020-1 Ltd.251,387 
Home Re 2021-1 Ltd.398,848 
Home Re 2021-2 Ltd.398,429 

The reinsurance trust agreements provide that the trust assets may generally only be invested in certain money market funds that (i) invest at least 99.5% of their total assets in cash or direct U.S. federal government obligations, such as U.S. Treasury bills, as well as other short-term securities backed by the full faith and credit of the U.S. federal government or issued by an agency of the U.S. federal government, (ii) have a principal stability fund rating of “AAAm” by S&P or a money market fund rating of “Aaamf” by Moody’s as of the Closing Date and thereafter maintain any rating with either S&P or Moody’s, and (iii) are permitted investments under the applicable credit for reinsurance laws and applicable PMIERs credit for reinsurance requirements.

The total calculated PMIERs credit for risk ceded under our Home Re Transactions is generally based on the PMIERs requirement of the covered policies and the attachment and detachment points of the coverage, all of which fluctuate over time. (see Note 1 - “Nature of Business and Basis of Presentation”).


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Note 5. Litigation and Contingencies
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan (both referred to as “rescissions”). In addition, our insurance policies generally provide that we can reduce a claim if the servicer did not comply with its obligations under our insurance policy (such reduction referred to as a “curtailment”). In recent years, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In the first quarter of 2022 and in 2021, curtailments reduced our average claim paid by approximately 5.3% and 4.4%, respectively. The COVID-19 related foreclosure moratoriums and forbearance plans decreased our claims paid activity beginning in the second quarter of 2020. It is difficult to predict the level of curtailments once foreclosure activity returns to a more typical level. Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. A variance between ultimate actual rescission, curtailment and reversal rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses.

When the insured disputes our right to rescind coverage or curtail claims, we generally engage in discussions in an attempt to settle the dispute. If we are unable to reach a settlement, the outcome of a dispute ultimately may be determined by legal proceedings. Under ASC 450-20, until a loss associated with settlement discussions or legal proceedings becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes and do not accrue an estimated loss. When we determine that a loss is probable and can be reasonably estimated, we record our best estimate of our probable loss. In those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is possible that we will record an additional loss.

In addition, from time to time, we are involved in other disputes and legal proceedings in the ordinary course of business. In our opinion, based on the facts known at this time, the ultimate resolution of these ordinary course disputes and legal proceedings will not have a material adverse effect on our financial position or results of operations.



















































































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Note 6. Earnings per Share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. For purposes of calculating basic EPS, vested restricted stock and restricted stock units (“RSUs”) are considered outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. The determination of whether components are dilutive is calculated independently for each period. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if unvested RSUs result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could occur if our 9% Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive.

Table 6.1 reconciles the numerators and denominators used to calculate basic and diluted EPS.
Earnings per share
Table
6.1
 Three Months Ended March 31,
(In thousands, except per share data)20222021
Basic earnings per share:
Net income$175,013 $150,021 
Weighted average common shares outstanding - basic315,975 338,904 
Basic earnings per share$0.55 $0.44 
Diluted earnings per share:
Net income$175,013 $150,021 
Interest expense, net of tax (1):
9% Debentures1,512 3,712 
Diluted income available to common shareholders$176,525 $153,733 
Weighted average common shares outstanding - basic315,975 338,904 
Effect of dilutive securities:
Unvested RSUs2,029 1,694 
9% Debentures6,534 15,785 
Weighted average common shares outstanding - diluted324,538 356,383 
Diluted earnings per share$0.54 $0.43 
(1) Interest expense for the three months ended March 31, 2022 and 2021, respectively, has been tax effected at a rate of 21%.

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Note 7. Investments
Fixed income securities
Our fixed income securities classified as available-for-sale at March 31, 2022 and December 31, 2021 are shown in tables 7.1a and 7.1b below.
Details of fixed income securities by category as of March 31, 2022
Table7.1a
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$120,223 $70 $(4,712)$115,581 
Obligations of U.S. states and political subdivisions2,383,899 38,260 (90,246)2,331,913 
Corporate debt securities2,572,570 14,382 (84,660)2,502,292 
ABS117,517 91 (3,464)114,144 
RMBS259,849 56 (11,594)248,311 
CMBS298,490 267 (9,440)289,317 
CLOs331,914 5 (1,670)330,249 
Foreign government debt4,486 — (377)4,109 
Total fixed income securities$6,088,948 $53,131 $(206,163)$5,935,916 
Details of fixed income securities by category as of December 31, 2021
Table7.1b
(In thousands)Amortized CostGross Unrealized Gains
Gross Unrealized (Losses) (1)
Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$133,990 $285 $(868)$133,407 
Obligations of U.S. states and political subdivisions2,408,688 133,361 (7,396)2,534,653 
Corporate debt securities2,704,586 75,172 (13,776)2,765,982 
ABS150,888 830 (1,008)150,710 
RMBS309,991 2,397 (3,278)309,110 
CMBS315,330 5,736 (1,936)319,130 
CLOs360,436 609 (106)360,939 
Foreign government debt13,749 — (99)13,650 
Total fixed income securities$6,397,658 $218,390 $(28,467)$6,587,581 

We had $12.8 million and $13.4 million of investments at fair value on deposit with various states as of March 31, 2022 and December 31, 2021, respectively, due to regulatory requirements of those state insurance departments. In connection with our insurance and reinsurance activities within MAC and MIC, insurance subsidiaries of MGIC, we are required to maintain assets in trusts for the benefit of contractual counterparties, which had investments at fair value of $183.4 million and $189.8 million at March 31, 2022 and December 31, 2021, respectively.


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The amortized cost and fair values of fixed income securities at March 31, 2022, by contractual maturity, are shown in table 7.2 below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Because most ABS, RMBS, CMBS, and CLOs provide for periodic payments throughout their lives, they are listed in separate categories.
Fixed income securities maturity schedule
Table7.2
March 31, 2022
(In thousands)Amortized costFair Value
Due in one year or less$319,247 $320,108 
Due after one year through five years1,575,075 1,557,833 
Due after five years through ten years1,747,456 1,703,148 
Due after ten years1,439,400 1,372,806 
5,081,178 4,953,895 
ABS117,517 114,144 
RMBS259,849 248,311 
CMBS298,490 289,317