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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
June 30, 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/bd1b21e3cecd138689fd7eedb0a6b49c-mtg-20220630_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 July 29, 2022, there were 303,439,959 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 - Q2 2022 | 2


MGIC INVESTMENT CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED June 30, 2022
Table of contents
Page
Consolidated Balance Sheets - June 30, 2022 (Unaudited) and December 31, 2021
Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended June 30, 2022 and 2021
Consolidated Statements of Comprehensive Income (Unaudited) - Three and Six Months Ended June 30, 2022 and 2021
Consolidated Statements of Shareholders’ Equity (Unaudited) - Three and Six Months Ended June 30, 2022 and 2021
Consolidated Statements of Cash Flows (Unaudited) - Three and Six Months Ended June 30, 2022 and 2021
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
MGIC Investment Corporation - Q2 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 - Q2 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
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 - Q2 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 - Q2 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 - Q2 2022 | 7


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)NoteJune 30,
2022
December 31, 2021
(Unaudited)
ASSETS
Investment portfolio: 7 / 8
Fixed income, available-for-sale, at fair value (amortized cost 2022 - $6,087,857; 2021 - $6,397,658)$5,712,820 $6,587,581 
Equity securities, at fair value (cost 2022 - $15,986; 2021 - $15,838)14,481 16,068 
Other invested assets, at cost850 3,100 
Total investment portfolio5,728,151 6,606,749 
Cash and cash equivalents410,188 284,690 
Restricted cash and cash equivalents9,073 20,268 
Accrued investment income51,635 51,902 
Reinsurance recoverable on loss reserves453,958 66,905 
Reinsurance recoverable on paid losses4310 36,275 
Premiums receivable57,547 56,540 
Home office and equipment, net45,072 45,614 
Deferred insurance policy acquisition costs21,003 21,671 
Deferred income taxes, net75,617  
Other assets147,053 134,394 
Total assets$6,599,607 $7,325,008 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Loss reserves$727,178 $883,522 
Unearned premiums217,739 241,690 
Federal Home Loan Bank advance 155,000 
Senior notes882,572 881,508 
Convertible junior subordinated debentures35,339 110,204 
Other liabilities163,760 191,702 
Total liabilities2,026,588 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 - 305,436; 2021 - 320,336)371,353 371,353 
Paid-in capital1,791,380 1,794,906 
Treasury stock at cost (shares 2022 - 65,917; 2021 - 51,017)(887,959)(675,265)
Accumulated other comprehensive income (loss), net of tax (325,738)119,697 
Retained earnings3,623,983 3,250,691 
Total shareholders’ equity4,573,019 4,861,382 
Total liabilities and shareholders’ equity$6,599,607 $7,325,008 
See accompanying notes to consolidated financial statements.
MGIC Investment Corporation - Q2 2022 | 8




MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)Note2022202120222021
Revenues:
Premiums written:
Direct$276,536 $283,523 $551,329 $566,528 
Assumed2,055 2,202 4,086 4,333 
Ceded(34,270)(43,988)(68,429)(87,625)
Net premiums written244,321 241,737 486,986 483,236 
Decrease in unearned premiums, net11,376 9,802 23,951 23,348 
Net premiums earned255,697 251,539 510,937 506,584 
Investment income, net of expenses40,305 41,129 78,567 79,022 
Net gains (losses) on investments and other financial instruments
7/8
(4,746)2,911 (5,518)5,161 
Other revenue 1,860 2,273 3,746 5,042 
Total revenues293,116 297,852 587,732 595,809 
Losses and expenses:
Losses incurred, net(99,058)29,164 (118,372)68,800 
Amortization of deferred policy acquisition costs2,982 3,025 5,722 5,721 
Other underwriting and operating expenses, net53,449 53,798 108,181 101,821 
Loss on debt extinguishment6,391  28,498  
Interest expense13,461 17,997 28,373 35,982 
Total losses and expenses(22,775)103,984 52,402 212,324 
Income before tax315,891 193,868 535,330 383,485 
Provision for income tax66,623 40,817 111,049 80,413 
Net income$249,268 $153,051 $424,281 $303,072 
Earnings per share:
Basic$0.81 $0.45 $1.36 $0.89 
Diluted$0.80 $0.44 $1.34 $0.87 
Weighted average common shares outstanding - basic308,840 339,326 312,388 339,116 
Weighted average common shares outstanding - diluted313,545 356,536 319,012 356,461 

See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)Note2022202120222021
Net income$249,268 $153,051 $424,281 $303,072 
Other comprehensive income (loss), net of tax:
Change in unrealized investment gains and losses(175,380)45,054 (446,318)(49,075)
Benefit plan adjustments490 663 883 1,536 
Other comprehensive income (loss), net of tax(174,890)45,717 (445,435)(47,539)
Comprehensive income (loss)$74,378 $198,768 $(21,154)$255,533 

See accompanying notes to consolidated financial statements.

MGIC Investment Corporation - Q2 2022 | 10




MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)Note2022202120222021
Common stock
Balance, beginning and end of period$371,353 $371,353 $371,353 $371,353 
Paid-in capital
Balance, beginning of period, as previously reported1,783,611 1,782,041 1,794,906 1,862,042 
Cumulative effect of debt with conversion options accounting standards update —  (68,289)
Balance, beginning of the period, as adjusted1,783,611 1,782,041 1,794,906 1,793,753 
Reissuance of treasury stock, net under share-based compensation plans (348)(17,867)(15,745)
Equity compensation7,769 4,567 14,341 8,252 
Balance, end of period1,791,380 1,786,260 1,791,380 1,786,260 
Treasury stock
Balance, beginning of period(793,696)(384,550)(675,265)(393,326)
Reissuance of treasury stock, net under share-based compensation plans  9,179 8,776 
Repurchase of common stock(94,263) (221,873) 
Balance, end of period(887,959)(384,550)(887,959)(384,550)
Accumulated other comprehensive income (loss)
Balance, beginning of period(150,848)123,565 119,697 216,821 
Other comprehensive income (loss), net of tax(174,890)45,717 (445,435)(47,539)
Balance, end of period(325,738)169,282 (325,738)169,282 
Retained earnings
Balance, beginning of period, as previously reported3,399,935 2,839,884 3,250,691 2,642,096 
Cumulative effect of debt with conversion options accounting standards update —  68,289 
Balance, beginning of the period, as adjusted3,399,935 2,839,884 3,250,691 2,710,385 
Net income249,268 153,051 424,281 303,072 
Cash dividends(25,220)(20,573)(50,989)(41,095)
Balance, end of period3,623,983 2,972,362 3,623,983 2,972,362 
Total shareholders’ equity$4,573,019 $4,914,707 $4,573,019 $4,914,707 

See accompanying notes to consolidated financial statements.



MGIC Investment Corporation - Q2 2022 | 11



MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
(In thousands)20222021
Cash flows from operating activities:
Net income$424,281 $303,072 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization29,523 32,472 
Deferred tax expense3,378 6,863 
Loss on debt extinguishment28,498  
Net (gains) losses on investments and other financial instruments5,518 (5,161)
Change in certain assets and liabilities:
Accrued investment income267 (2,217)
Reinsurance recoverable on loss reserves12,947 (16,111)
Reinsurance recoverable on paid losses35,965 (37)
Premium receivable(1,007)(593)
Deferred insurance policy acquisition costs668 (1,069)
Profit commission receivable(3,054)(4,464)
Loss reserves(156,344)55,699 
Unearned premiums(23,951)(23,348)
Return premium accrual(4,500)2,500 
Current income taxes22,831 (1,357)
Other, net(13,341)3,173 
Net cash provided by (used in) operating activities361,679 349,422 
Cash flows from investing activities:
Purchases of investments(375,754)(1,097,418)
Proceeds from sales of investments266,374 142,754 
Proceeds from maturity of fixed income securities401,112 548,727 
Additions to property and equipment(2,146)(1,405)
Net cash provided by (used in) investing activities289,586 (407,342)
Cash flows from financing activities:
Purchase of convertible junior subordinated debentures(74,865) 
Repayment of FHLB Advance(155,000) 
Cash portion of loss on debt extinguishment(28,498) 
Repurchase of common stock(219,073) 
Dividends paid(50,838)(41,186)
Payment of withholding taxes related to share-based compensation net share settlement(8,688)(6,621)
Net cash provided by (used in) financing activities(536,962)(47,807)
Net increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents114,303 (105,727)
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$419,261 $190,953 
See accompanying notes to consolidated financial statements.

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MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 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.


Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.

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 - Q2 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 June 30, 2022 and December 31, 2021 are presented in table 3.1 below.
Long-term debt obligations
Table
3.1
(In millions)June 30, 2022December 31, 2021
FHLB Advance - 1.91%, due February 2023$ $155.0 
5.75% Notes, due August 2023 (par value: $242.3 million)241.6 241.3 
5.25% Notes, due August 2028 (par value: $650 million)641.0 640.2 
9% Debentures, due April 2063 (1)
35.3 110.2 
Long-term debt, carrying value$917.9 $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 adjustments 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.

During the first half of 2022, we repurchased $74.9 million in aggregate principal amount of our 9% Debentures at a purchase price of $102.0 million plus accrued interest. The repurchase of 9% Debentures resulted in a $27.2 million loss on debt extinguishment on our consolidated statement of operations and a reduction of approximately 5.7 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.

In July, we redeemed the outstanding principal balance of the 5.75% Notes at a price of $248.4 million plus accrued interest. The redemption of the 5.75% Notes resulted in a $6.8 million loss on debt extinguishment, which will be recorded in the third quarter of 2022.

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 June 30, 2022 we are in compliance with all of our debt covenants.

Interest payments
Interest payments for the six months ended June 30, 2022 and 2021 were $29.2 million and $35.2 million, respectively.


MGIC Investment Corporation - Q2 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 June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Premiums earned:
Direct$287,846 $293,047 $575,119 $589,318 
Assumed 2,121 2,480 4,247 4,891 
Ceded (1)
(34,270)(43,988)(68,429)(87,625)
Net premiums earned$255,697 $251,539 $510,937 $506,584 
Losses incurred:
Direct$(109,334)$37,983 $(130,426)$86,054 
Assumed(154)79 (361)54 
Ceded10,430 (8,898)12,415 (17,308)
Losses incurred, net$(99,058)$29,164 $(118,372)$68,800 
(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 2015 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.


MGIC Investment Corporation - Q2 2022 | 15


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.

Quota Share Reinsurance
Table4.3
Quota Share Contract
Optional Termination Date (1)
Optional Quota Share % Reduction Date (2)
Optional Reduced Quota Share %
2015 QSRDecember 31, 2022NANA
2019 QSRDecember 31, 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 and six months ended June 30, 2022 and 2021.
Quota Share Reinsurance
Table4.4
 Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2022202120222021
Ceded premiums written and earned, net of profit commission$14,995 $33,983 $37,373 $67,373 
Ceded losses incurred(10,430)8,903 (12,415)17,308 
Ceding commissions (1)
12,762 12,991 25,034 26,058 
Profit commission48,814 30,978 87,794 62,922 
(1) Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

Ceded losses incurred for the three and six months ended June 30, 2022 primarily reflects favorable loss reserve development. See Note 11 - “Loss Reserves” for discussion of our loss reserves.
Under the terms of our QSR Transactions, ceded premiums earned, ceding commissions, profit commission, and ceded paid loss and LAE are settled net on a quarterly basis. The ceded premiums earned 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 $54.0 million as of June 30, 2022 and $66.9 million as of December 31, 2021. The reinsurance recoverable balance is secured by funds on deposit from 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.


MGIC Investment Corporation - Q2 2022 | 16


Excess of loss reinsurance
We have entered into an excess of loss reinsurance transaction, in the traditional reinsurance market with a panel of third-party reinsurers (the “XOL Transaction”) to provide up to $175 million of reinsurance coverage on eligible NIW in 2022. The XOL Transaction has a contractual termination date after approximately ten years, with an optional termination date after seven years and quarterly thereafter. For the covered policies, we retain the first layer of the aggregate losses paid, and the reinsurers 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. The reinsurance coverage is subject to adjustment based on the risk characteristics of the covered loans. The reinsurance premiums ceded to the XOL Transaction are based off the remaining reinsurance coverage levels.

We also 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.

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 June 30, 2022 a "Trigger Event" has occurred on our Home Re 2019-1 ILN transaction 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 2022-1 ILN transactions because the credit enhancement of the most senior tranche is less than the target credit enhancement.

Tables 4.5a and 4.5b provide a summary of our Home Re Transactions as of June 30, 2022 and December 31, 2021.

Excess of Loss Reinsurance - Home Re Transactions
4.5a
($ in thousands)Issue DatePolicy In force DatesOptional Call Date (1)Legal MaturityInitial First Layer RetentionInitial Excess of Loss Reinsurance Coverage
Home Re 2022-1, Ltd.April 26, 2022May 29, 2021 - December 31, 2021April 25, 202812.5 years$325,589$473,575
Home Re 2021-2, Ltd.August 3, 2021January 1, 2021 - May 28, 2021July 25, 202812.5 years190,159398,429
Home Re 2021-1, Ltd.February 2, 2021August 1, 2020 - December 31, 2020January 25, 202812.5 years211,159398,848
Home Re 2020-1, Ltd.October 29, 2020January 1, 2020 - July 31, 2020October 25, 202710 years275,283412,917
Home Re 2019-1, Ltd.May 25, 2019January 1, 2018 - March 31, 2019May 25, 202610 years185,730315,739
Home Re 2018-1, Ltd.October 30, 2018July 1, 2016 - December 31, 2017October 25, 202510 years168,691318,636
(1) We have the right to terminate the Home Re Transactions under certain circumstances and on any payment date on or after the respective Optional Call Date.
4.5bRemaining First Layer RetentionRemaining Excess of Loss Reinsurance Coverage
($ in thousands)
June 30, 2022
December 31, 2021
June 30, 2022
December 31, 2021
Home Re 2022-1, Ltd.$325,589 $— $473,575 $— 
Home Re 2021-2, Ltd.190,159 190,159 384,694 398,429 
Home Re 2021-1, Ltd.211,142 211,142 337,270 387,830 
Home Re 2020-1, Ltd.275,169 275,204 162,705 234,312 
Home Re 2019-1, Ltd.183,789 183,917 208,146 208,146 
Home Re 2018-1, Ltd.165,075 165,365 184,664 218,343 




MGIC Investment Corporation - Q2 2022 | 17


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 on the Home Re Transactions 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 and Home Re 2022-1 Transactions reference 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 June 30, 2022, were not material to our consolidated balance sheet and the changes in fair value during the three and six months ended June 30, 2022 were not material to our consolidated statements of operations. (See Note 8 - “Fair Value Measurements”). Total ceded premiums under the Home Re Transactions were $18.2 million and $30.0 million for the three and six months ended June 30, 2022, and $10.0 million and $20.3 million for the three and six months ended June 30, 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 June 30, 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 June 30, 2022 and December 31, 2021.
Home Re total assets
Table4.6
(In thousands)
Home Re EntityTotal VIE Assets
June 30, 2022
Home Re 2022-1 Ltd.$473,575 
Home Re 2021-2 Ltd.391,130 
Home Re 2021-1 Ltd.