Third Quarter 2023 Net Income of $182.8 million or $0.64 per Diluted Share
Third Quarter 2023 Adjusted Net Operating
Income (Non-GAAP) of $183.0
million or $0.64 per Diluted Share
MILWAUKEE, Oct. 31,
2023 /PRNewswire/ -- MGIC Investment Corporation
(NYSE: MTG) today reported operating and financial results for the
third quarter of 2023. Net income for the quarter was $182.8 million, or $0.64 per diluted share, compared with net income
of $249.6 million, or $0.81 per diluted share, for the third quarter of
2022.
Adjusted net operating income for the third quarter of 2023 was
$183.0 million, or $0.64 per diluted share, compared with
$264.2 million, or $0.86 per diluted share, for the third quarter of
2022. We present the non-GAAP financial measure "Adjusted net
operating income" to increase the comparability between periods of
our financial results. See "Use of Non-GAAP financial measures"
below.
Tim Mattke, CEO of MTG and
Mortgage Guaranty Insurance Corporation ("MGIC") said, "We
delivered another quarter of solid financial results. We continue
to benefit from favorable credit trends, prudent risk management
strategies, and the talent and dedication of our people. We remain
in an excellent position to provide our customers with quality
offerings and superior service and deliver long-term value for our
shareholders."
Third Quarter 2023 Summary
- New insurance written was $14.6
billion, compared with $12.4
billion in the second quarter of 2023 and $19.6 billion in the third quarter of 2022.
- Annual persistency, or the percentage of insurance remaining in
force from one year prior, was 86.3% at September 30, 2023, compared with 85.9% at
June 30, 2023, and 78.3% at
September 30, 2022.
- Insurance in force of $294.3
billion at September 30, 2023,
increased by 0.6% during the quarter and by 0.2% compared with
September 30, 2022.
- Primary delinquency inventory of 24,720 loans at September 30, 2023, increased from 23,823 loans
at June 30, 2023, and decreased from
25,878 loans at September 30, 2022.
- The percentage of primary loans insured that were delinquent at
September 30, 2023, was 2.14%,
compared with 2.05% at June 30, 2023,
and 2.17% at September 30, 2022.
- The loss ratio for the third quarter of 2023 was (0.0%),
compared with (7.3)% for the second quarter of 2023, and (41.7)%
for the third quarter of 2022.
- The underwriting expense ratio associated with our insurance
operations for the third quarter of 2023 was 22.2%, compared with
24.1% for the second quarter of 2023, and 24.6% for the third
quarter of 2022.
- The net premium yield was 32.9 basis points in the third
quarter of 2023, compared with 33.2 basis points for the second
quarter of 2023, and 34.7 basis points for the third quarter of
2022.
- The in force portfolio yield was 38.6 in the third quarter of
2023 and the second quarter of 2023, compared with 39.0 for the
third quarter of 2022.
- Book value per common share outstanding as of September 30, 2023, increased to $17.37, or 10%, from $15.82 as of December 31,
2022, and 15% from $15.16 as
of September 30, 2022. Book value per
share includes $(1.55) in net
unrealized gains (losses) on securities compared with $(1.39) as of December 31,
2022, and $(1.50) as of
September 30, 2022.
- We paid a dividend of $0.115 per
common share to shareholders during the third quarter of 2023, an
increase of 15% from the last quarterly dividend paid.
- We repurchased 3.9 million shares of common stock at an average
cost of $16.99 per share.
- We exercised our option to redeem the outstanding principal of
$21.1 million on our 9% Convertible
Junior Debentures. Prior to the redemption date, substantially all
holders elected to convert into shares of our common stock. We
elected to pay cash in lieu of issuing shares. This will reduce our
potentially dilutive shares by 1.6 million.
Fourth Quarter 2023 Activities
- Through October 27, 2023 we
repurchased an additional 2.2 million shares of our common stock at
an average cost of $16.87 per
share.
- We declared a dividend of $0.115
per common share to shareholders payable on November 28, 2023 to shareholders of record at
the close of business on November 9,
2023.
- MGIC paid a $300 million dividend
to our holding company.
- In October, 2023, Home Re 2019-1 Ltd., Home Re 2021-1 Ltd., and
Home Re 2021-2 Ltd conducted tender offers for certain tranches of
the mortgage insurance-linked notes that supported the reinsurance
agreement with MGIC. In aggregate, $384.9
million of outstanding notes were purchased. The reinsurance
coverage corresponding to the tendered notes was terminated. MGIC
will incur approximately $8 million
of additional ceded premium in the fourth quarter associated with
the cost of the tender premiums and associated expense.
- In October, we executed a $330
million excess of loss reinsurance agreement (executed
through an insurance linked notes transaction) that covers the vast
majority of policies issued June 1,
2022 through August 31,
2023.
- We have elected to terminate our 2020 quota share reinsurance
transaction effective December 31,
2023 and expect to incur termination fees of approximately
$5 million.
- We agreed to terms on a 30% quota share transaction with a
group of unaffiliated reinsurers covering most of our new insurance
written in 2024.
- We appointed Michael Thompson to
our Board of Directors.
Revenues
Total revenues for the third quarter of 2023 were $296.5 million, compared with $292.8 million in the third quarter last year.
The increase primarily reflects an increase in net investment
income, partially offset by a decrease in net premiums earned.
Premiums earned in the third quarter of 2023 were $241.3 million compared with $252.1 million for the same period last year. Net
premiums written for the quarter were $234.5
million, compared with $242.3
million for the same period last year. The decrease in net
premiums written and earned in the current period compared with the
same period in the prior year was primarily due to an increase in
ceded premiums that was the result of a decrease in the profit
commission earned on our quota share reinsurance transactions.
Losses and expenses
Losses incurred
Net losses incurred in the third quarter of 2023 were
$(0.1) million, compared with
$(105.1) million in the same period
last year. In the third quarter of 2023, new delinquency notices
added approximately $48.1 million to
losses incurred, while our re-estimation of loss reserves resulted
in favorable development of approximately $48.2 million. In the third quarter of 2022, new
delinquency notices added $35.9
million to losses incurred, while our re-estimation of
reserves on previous delinquency notices resulted in $140.9 million of favorable loss development. The
favorable development for both periods primarily resulted from a
decrease in the expected claim rate on previously received
delinquencies.
Underwriting and other expenses
Net underwriting and other expenses were $52.9 million in the third quarter of 2023
compared with $61.7 million in the
same period last year. The decrease in net underwriting and other
expenses was primarily due to a decrease in expenses related to
professional and consulting services and pension expenses. Pension
expenses were significantly higher in the third quarter of 2022 due
to settlement costs.
Loss on debt extinguishment
The third quarter 2022 loss on debt extinguishment of
$11.6 million primarily reflects the
repurchase of our 2023 Senior Notes and the repurchase of
$14.0 million in aggregate principal
amount of our 9% Convertible Junior Debentures in excess of their
carrying value.
Capital
- Total consolidated shareholders' equity was $4.9 billion as of September 30, 2023, compared with $4.6 billion as of December 31, 2022, and $4.5 billion as of September 30, 2022. The increase from
December 31, 2022 primarily reflects
net income, offset by stock repurchases and dividends paid to
shareholders.
- MGIC's PMIERs Available Assets totaled $6.0 billion, or $2.4
billion above its Minimum Required Assets as of September 30, 2023, compared with PMIERs
Available Assets of $5.7 billion, or
$2.3 billion above its Minimum
Required Assets as of December 31,
2022 and PMIERs Available assets of $5.9 billion, or $2.6
billion above its Minimum Required Assets as of September 30, 2022.
Other Balance Sheet and Liquidity
Metrics
- Total consolidated assets were $6.3
billion as of September 30,
2023, compared with $6.2
billion as of December 31,
2022 and September 30,
2022.
- The fair value of our consolidated investment portfolio, cash
and cash equivalents was $5.9 billion
as of September 30, 2023, compared
with $5.8 billion as of December 31, 2022, and $5.7 billion as of September 30, 2022.
- The fair value of investments, cash and cash equivalents at the
holding company was $723 million as
of September 30, 2023, compared with
$647 million as of December 31, 2022, and $352 million as of September 30, 2022.
- Consolidated debt was $643
million as of September 30,
2023, compared with $663
million as of December 31,
2022 and September 30,
2022.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call
November 1, 2023, at 10 a.m. ET to allow securities analysts and
shareholders the opportunity to hear management discuss the
company's quarterly results. Individuals interested in joining by
telephone should register for the call at
https://register.vevent.com/register/BI8e70f6e5420d49c19decaee6a098293e
to receive the dial-in number and unique PIN to access the call. It
is recommended that you join the call at least 10 minutes before
the conference call begins. The call is also being webcast and can
be accessed at the company's website at http://mtg.mgic.com/ under
"Newsroom." A replay of the webcast will be available on the
company's website through December 4,
2023.
About MGIC
Mortgage Guaranty Insurance Corporation (MGIC) (www.mgic.com),
the principal subsidiary of MGIC Investment Corporation, serves
lenders throughout the United
States, helping families achieve homeownership sooner by
making affordable low-down-payment mortgages a reality through the
use of private mortgage insurance. At September 30, 2023, MGIC had $294.3 billion of primary insurance in force
covering 1.2 million mortgages.
This press release, which includes certain additional
statistical and other information, including non-GAAP financial
information and a supplement that contains various portfolio
statistics, are all available on the Company's website
at https://mtg.mgic.com/ under "Newsroom."
From time to time MGIC Investment Corporation releases important
information via postings on its corporate website, and via postings
on MGIC's website for information related to underwriting and
pricing, and intends to continue to do so in the future. Such
postings include corrections of previous disclosures and may be
made without any other disclosure. Investors and other interested
parties are encouraged to enroll to receive automatic email alerts
and Really Simple Syndication (RSS) feeds regarding new postings.
Enrollment information for MGIC Investment Corporation alerts can
be found at https://mtg.mgic.com/shareholder-services/email-alerts.
For information about our underwriting and rates,
see https://www.mgic.com/underwriting.
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission ("SEC"). These risk factors may also cause actual
results to differ materially from the results contemplated by
forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than
historical fact, including matters that inherently refer to future
events. Among others, statements that include words such as
"believe," "anticipate," "will" or "expect," or words of similar
import, are forward looking statements. We are not undertaking any
obligation to update any forward looking statements or other
statements we may make even though these statements may be affected
by events or circumstances occurring after the forward looking
statements or other statements were made. No investor should rely
on the fact that such statements are current at any time other than
the time at which this press release was delivered for
dissemination to the public.
While we communicate with security analysts from time to time,
it is against our policy to disclose to them any material
non-public information or other confidential information.
Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the
content of the statement or report, and such reports are not our
responsibility.
Use of Non-GAAP financial measures
We believe that use of the Non-GAAP measures of adjusted pre-tax
operating income (loss), adjusted net operating income (loss) and
adjusted net operating income (loss) per diluted share facilitate
the evaluation of the company's core financial performance thereby
providing relevant information to investors. These measures are not
recognized in accordance with accounting principles generally
accepted in the United States of
America (GAAP) and should not be viewed as alternatives to
GAAP measures of performance.
Adjusted pre-tax operating income (loss) is defined
as GAAP income (loss) before tax, excluding the effects of net
realized investment gains (losses), gain and losses on debt
extinguishment and infrequent or unusual non-operating items where
applicable.
Adjusted net operating income (loss) is defined as
GAAP net income (loss) excluding the after-tax effects of net
realized investment gains (losses), gain and losses on debt
extinguishment and infrequent or unusual non-operating items where
applicable. The amounts of adjustments to components of pre-tax
operating income (loss) are tax effected using a federal statutory
tax rate of 21%.
Adjusted net operating income (loss) per diluted
share is calculated in a manner consistent with the
accounting standard regarding earnings per share by dividing (i)
adjusted net operating income (loss) after making adjustments for
interest expense on convertible debt, whenever the impact is
dilutive, by (ii) diluted weighted average common shares
outstanding, which reflects share dilution from unvested restricted
stock units and from convertible debt when dilutive under the
"if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted
net operating income (loss) exclude certain items that have
occurred in the past and are expected to occur in the future, the
excluded items represent items that are: (1) not viewed as part of
the operating performance of our primary activities; or (2)
impacted by both discretionary and other economic or regulatory
factors and are not necessarily indicative of operating trends, or
both. These adjustments, along with the reasons for their
treatment, are described below. Trends in the profitability of our
fundamental operating activities can be more clearly identified
without the fluctuations of these adjustments. Other companies may
calculate these measures differently. Therefore, their measures may
not be comparable to those used by us.
(1)
|
Net realized
investment gains (losses). The recognition of net realized
investment gains or losses can vary significantly across periods as
the timing of individual securities sales is highly discretionary
and is influenced by such factors as market opportunities, our tax
and capital profile, and overall market cycles.
|
(2)
|
Gains and losses on
debt extinguishment. Gains and losses on debt
extinguishment result from discretionary activities that are
undertaken to enhance our capital position, improve our debt
profile, and/or reduce potential dilution from our outstanding
convertible debt.
|
(3)
|
Infrequent or
unusual non-operating items. Items that are non-recurring in
nature and are not part of our primary operating
activities.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands,
except per share data)
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
|
$ 234,491
|
|
$ 242,307
|
|
$ 695,907
|
|
$ 729,293
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums
earned
|
|
$ 241,277
|
|
$ 252,111
|
|
$ 726,103
|
|
$ 763,048
|
Net investment
income
|
|
55,375
|
|
42,549
|
|
156,938
|
|
121,116
|
Net gains (losses) on
investments and other financial instruments
|
|
(695)
|
|
(3,258)
|
|
(13,380)
|
|
(8,776)
|
Other
revenue
|
|
548
|
|
1,397
|
|
1,484
|
|
5,143
|
Total
revenues
|
|
296,505
|
|
292,799
|
|
871,145
|
|
880,531
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
Losses incurred,
net
|
|
(77)
|
|
(105,054)
|
|
(11,322)
|
|
(223,426)
|
Underwriting and other
expenses, net
|
|
52,932
|
|
61,654
|
|
182,080
|
|
175,557
|
Loss on debt
extinguishment
|
|
—
|
|
11,632
|
|
—
|
|
40,130
|
Interest
expense
|
|
9,254
|
|
10,300
|
|
28,005
|
|
38,673
|
Total losses and
expenses
|
|
62,109
|
|
(21,468)
|
|
198,763
|
|
30,934
|
Income before
tax
|
|
234,396
|
|
314,267
|
|
672,382
|
|
849,597
|
Provision for income
taxes
|
|
51,552
|
|
64,642
|
|
143,937
|
|
175,691
|
Net income
|
|
$ 182,844
|
|
$ 249,625
|
|
$ 528,445
|
|
$ 673,906
|
Net income per diluted
share
|
|
$
0.64
|
|
$
0.81
|
|
$
1.83
|
|
$
2.15
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(In thousands,
except per share data)
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Net income
|
|
$
182,844
|
|
$
249,625
|
|
$
528,445
|
|
$
673,906
|
Interest expense, net
of tax:
|
|
|
|
|
|
|
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
276
|
|
620
|
|
1,025
|
|
2,851
|
Diluted net income
available to common shareholders
|
|
$
183,120
|
|
$
250,245
|
|
$
529,470
|
|
$
676,757
|
|
|
|
|
|
|
|
|
|
Weighted average shares
- basic
|
|
281,757
|
|
302,622
|
|
286,184
|
|
309,097
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
Unvested restricted
stock units
|
|
2,624
|
|
1,902
|
|
2,239
|
|
1,848
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
1,219
|
|
2,670
|
|
1,501
|
|
4,084
|
Weighted average shares
- diluted
|
|
285,600
|
|
307,194
|
|
289,924
|
|
315,029
|
Net income per diluted
share
|
|
$
0.64
|
|
$
0.81
|
|
$
1.83
|
|
$
2.15
|
NON-GAAP
RECONCILIATIONS
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
2023
|
|
2022
|
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Income before tax / Net
income
|
|
$
234,396
|
|
$
51,552
|
|
$ 182,844
|
|
$
314,267
|
|
$
64,642
|
|
$ 249,625
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt
extinguishment
|
|
—
|
|
—
|
|
—
|
|
11,632
|
|
2,443
|
|
9,189
|
|
Net realized
investment losses
|
|
237
|
|
50
|
|
187
|
|
6,854
|
|
1,439
|
|
5,415
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
234,633
|
|
$
51,602
|
|
$ 183,031
|
|
$
332,753
|
|
$
68,524
|
|
$ 264,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average shares
- diluted
|
|
|
|
|
|
285,600
|
|
|
|
|
|
307,194
|
|
Net income per diluted
share
|
|
|
|
|
|
$
0.64
|
|
|
|
|
|
$
0.81
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
0.03
|
|
Net realized
investment losses
|
|
|
|
|
|
—
|
|
|
|
|
|
0.02
|
|
Adjusted net operating
income per diluted share
|
|
|
|
|
|
$
0.64
|
|
|
|
|
|
$
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Nine Months
Ended September 30,
|
|
|
|
2023
|
|
2022
|
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax Effect
|
|
Net
(after-tax)
|
|
Income before tax / Net
income
|
|
$
672,382
|
|
$
143,937
|
|
$ 528,445
|
|
$
849,597
|
|
$
175,691
|
|
$ 673,906
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt
extinguishment
|
|
—
|
|
—
|
|
—
|
|
40,130
|
|
8,427
|
|
31,703
|
|
Net realized
investment losses
|
|
10,619
|
|
2,230
|
|
8,389
|
|
7,435
|
|
1,561
|
|
5,874
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
683,001
|
|
$
146,167
|
|
$ 536,834
|
|
$
897,162
|
|
$
185,679
|
|
$ 711,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average shares
- diluted
|
|
|
|
|
|
289,924
|
|
|
|
|
|
315,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted
share
|
|
|
|
|
|
$
1.83
|
|
|
|
|
|
$
2.15
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
0.10
|
|
Net realized
investment losses
|
|
|
|
|
|
0.03
|
|
|
|
|
|
0.02
|
|
Adjusted net operating
income per diluted share
|
|
|
|
|
|
$
1.86
|
|
|
|
|
|
$
2.26
|
(1)
|
(1) Does not
foot due to rounding
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
December 31,
|
|
September
30,
|
(In thousands,
except per share data)
|
|
2023
|
|
2022
|
|
2022
|
ASSETS
|
|
|
|
|
|
|
Investments
(1)
|
|
$
5,596,336
|
|
$
5,424,688
|
|
$
5,415,717
|
Cash and cash
equivalents
|
|
266,543
|
|
327,384
|
|
241,982
|
Restricted cash and
cash equivalents
|
|
8,582
|
|
5,529
|
|
7,776
|
Reinsurance
recoverable on loss reserves (2)
|
|
40,934
|
|
28,240
|
|
46,384
|
Home office and
equipment, net
|
|
39,379
|
|
41,419
|
|
44,206
|
Deferred insurance
policy acquisition costs
|
|
15,905
|
|
19,062
|
|
19,975
|
Deferred income taxes,
net
|
|
132,030
|
|
124,769
|
|
122,228
|
Other
assets
|
|
231,970
|
|
242,702
|
|
255,848
|
Total
assets
|
|
$
6,331,679
|
|
$
6,213,793
|
|
$
6,154,116
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
$
525,528
|
|
$
557,988
|
|
$
603,370
|
Unearned
premiums
|
|
165,093
|
|
195,289
|
|
207,935
|
Senior
notes
|
|
642,828
|
|
641,724
|
|
641,357
|
Convertible junior
debentures
|
|
—
|
|
21,086
|
|
21,296
|
Other
liabilities
|
|
143,525
|
|
154,966
|
|
140,097
|
Total
liabilities
|
|
1,476,974
|
|
1,571,053
|
|
1,614,055
|
Shareholders'
equity
|
|
4,854,705
|
|
4,642,740
|
|
4,540,061
|
Total liabilities and
shareholders' equity
|
|
$
6,331,679
|
|
$
6,213,793
|
|
$
6,154,116
|
Book value per share
(3)
|
|
$
17.37
|
|
$
15.82
|
|
$
15.16
|
|
|
|
|
|
|
|
(1)
Investments include net unrealized gains (losses) on
securities
|
|
$
(548,470)
|
|
$
(518,871)
|
|
$
(569,478)
|
(2) Loss
reserves, net of reinsurance recoverable on loss
reserves
|
|
$
484,594
|
|
$
529,748
|
|
$
556,986
|
(3) Shares
outstanding
|
|
279,475
|
|
293,433
|
|
299,478
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL INFORMATION
- NEW INSURANCE WRITTEN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
|
2022
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
Q4
|
|
Q3
|
|
|
2023
|
|
2022
|
New primary insurance
written (NIW) (billions)
|
$ 14.6
|
|
$ 12.4
|
|
$
8.2
|
|
|
$ 12.9
|
|
$ 19.6
|
|
|
$ 35.2
|
|
$ 63.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly (including
split premium plans) and annual premium plans
|
14.0
|
|
12.0
|
|
7.9
|
|
|
12.4
|
|
19.0
|
|
|
33.9
|
|
60.7
|
Single premium
plans
|
0.6
|
|
0.4
|
|
0.3
|
|
|
0.5
|
|
0.6
|
|
|
1.3
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO <
680
|
4 %
|
|
4 %
|
|
5 %
|
|
|
5 %
|
|
6 %
|
|
|
4 %
|
|
5 %
|
>95%
LTVs
|
12 %
|
|
11 %
|
|
13 %
|
|
|
11 %
|
|
11 %
|
|
|
12 %
|
|
13 %
|
>45% DTI
|
28 %
|
|
22 %
|
|
23 %
|
|
|
23 %
|
|
24 %
|
|
|
25 %
|
|
21 %
|
Singles
|
4 %
|
|
3 %
|
|
4 %
|
|
|
3 %
|
|
3 %
|
|
|
4 %
|
|
4 %
|
Refinances
|
1 %
|
|
2 %
|
|
2 %
|
|
|
1 %
|
|
1 %
|
|
|
2 %
|
|
3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$
3.8
|
|
$3.2
|
|
$2.1
|
|
|
$ 3.3
|
|
$ 5.2
|
|
|
$9.1
|
|
$16.9
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL INFORMATION
- INSURANCE IN FORCE and RISK IN FORCE
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
|
2022
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
Q4
|
|
Q3
|
Primary Insurance In
Force (IIF) (billions)
|
$
294.3
|
|
$
292.5
|
|
$
292.4
|
|
|
$
295.3
|
|
$
293.6
|
Total # of
loans
|
1,151,431
|
|
1,155,439
|
|
1,164,196
|
|
|
1,180,419
|
|
1,184,365
|
Flow # of
loans
|
1,126,223
|
|
1,129,664
|
|
1,137,954
|
|
|
1,153,667
|
|
1,157,032
|
|
|
|
|
|
|
|
|
|
|
|
Premium
Yield
|
|
|
|
|
|
|
|
|
|
|
In force portfolio
yield (1)
|
38.6
|
|
38.6
|
|
38.7
|
|
|
38.9
|
|
39.0
|
Premium refunds
(2)
|
0.2
|
|
(0.1)
|
|
(0.1)
|
|
|
—
|
|
0.3
|
Accelerated earnings
on single premium
|
0.4
|
|
0.4
|
|
0.3
|
|
|
0.5
|
|
0.5
|
Total direct premium
yield
|
39.2
|
|
38.9
|
|
38.9
|
|
|
39.4
|
|
39.8
|
Ceded premiums earned,
net of profit commission and assumed premiums
(3)
|
(6.3)
|
|
(5.7)
|
|
(6.0)
|
|
|
(6.3)
|
|
(5.1)
|
Net premium
yield
|
32.9
|
|
33.2
|
|
32.9
|
|
|
33.1
|
|
34.7
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size of
IIF (thousands)
|
$
255.6
|
|
$
253.1
|
|
$
251.2
|
|
|
$
250.2
|
|
$
247.9
|
Flow only
|
$
258.2
|
|
$
255.8
|
|
$
253.8
|
|
|
$
252.8
|
|
$
250.5
|
|
|
|
|
|
|
|
|
|
|
|
Annual Persistency
(4)
|
86.3 %
|
|
85.9 %
|
|
84.5 %
|
|
|
82.2 %
|
|
78.3 %
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions)
|
$
77.1
|
|
$
76.4
|
|
$
76.0
|
|
|
$
76.5
|
|
$
75.7
|
By FICO (%)
(5)
|
|
|
|
|
|
|
|
|
|
|
FICO 760 &
>
|
43 %
|
|
43 %
|
|
42 %
|
|
|
42 %
|
|
42 %
|
FICO
740-759
|
18 %
|
|
18 %
|
|
18 %
|
|
|
18 %
|
|
18 %
|
FICO
720-739
|
14 %
|
|
14 %
|
|
14 %
|
|
|
14 %
|
|
15 %
|
FICO
700-719
|
11 %
|
|
11 %
|
|
11 %
|
|
|
11 %
|
|
11 %
|
FICO
680-699
|
7 %
|
|
7 %
|
|
8 %
|
|
|
8 %
|
|
8 %
|
FICO
660-679
|
3 %
|
|
3 %
|
|
3 %
|
|
|
3 %
|
|
3 %
|
FICO
640-659
|
2 %
|
|
2 %
|
|
2 %
|
|
|
2 %
|
|
2 %
|
FICO 639 &
<
|
2 %
|
|
2 %
|
|
2 %
|
|
|
2 %
|
|
1 %
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage Ratio
(RIF/IIF)
|
26.2 %
|
|
26.1 %
|
|
26.0 %
|
|
|
25.9 %
|
|
25.8 %
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss
limits
|
$
187
|
|
$
189
|
|
$
189
|
|
|
$
196
|
|
$
197
|
Without aggregate loss
limits
|
$
72
|
|
$
75
|
|
$
78
|
|
|
$
80
|
|
$
84
|
|
|
(1)
|
Total direct premiums
earned, excluding premium refunds and accelerated premiums from
single premium policy cancellations divided by average primary
insurance in force.
|
(2)
|
Premium refunds and our
estimate of refundable premium on our delinquency inventory divided
by average primary insurance in force.
|
(3)
|
Ceded premiums earned,
net of profit commissions and assumed premiums. Assumed premiums
include our participation in GSE Credit Risk Transfer programs, of
which the impact on the net premium yield was 0.5 bps at
September 30, 2023 and 0.3 bps in 2022.
|
(4)
|
As of September 30,
2023, we refined our methodology for calculating our Annual
Persistency by excluding the amortization of the principal
balance. All prior periods have been revised.
|
(5)
|
The FICO credit score
at the time of origination for a loan with multiple borrowers is
the lowest of the borrowers' "decision FICO scores." A borrower's
"decision FICO score" is determined as follows: if there are three
FICO scores available, the middle FICO score is used; if two FICO
scores are available, the lower of the two is used; if only one
FICO score is available, it is used.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL INFORMATION
- DELINQUENCY STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
2022
|
|
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Primary IIF -
Delinquent Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Delinquent
Inventory
|
|
23,823
|
|
24,757
|
|
26,387
|
|
25,878
|
|
26,855
|
|
New Notices
|
|
12,240
|
|
10,580
|
|
11,297
|
|
11,899
|
|
10,990
|
|
Cures
|
|
(10,975)
|
|
(11,156)
|
|
(12,607)
|
|
(10,891)
|
|
(11,494)
|
|
Paid claims
|
|
(359)
|
|
(348)
|
|
(311)
|
|
(327)
|
|
(337)
|
|
Rescissions and
denials
|
|
(9)
|
|
(10)
|
|
(9)
|
|
(8)
|
|
(11)
|
|
Other items removed
from inventory (1)
|
|
—
|
|
—
|
|
—
|
|
(164)
|
|
(125)
|
|
Ending Delinquent
Inventory
|
|
24,720
|
|
23,823
|
|
24,757
|
|
26,387
|
|
25,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF Delinquency
Rate
|
|
2.14 %
|
|
2.05 %
|
|
2.12 %
|
|
2.22 %
|
|
2.17 %
|
|
Primary claim received
inventory included in ending delinquent inventory
|
|
284
|
|
291
|
|
296
|
|
267
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans - Flow only
|
|
21,125
|
|
20,226
|
|
20,989
|
|
22,470
|
|
22,010
|
|
Primary IIF Delinquency
Rate - Flow only
|
|
1.87 %
|
|
1.78 %
|
|
1.83 %
|
|
1.94 %
|
|
1.89 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Cures
|
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent
and cured intraquarter
|
|
3,393
|
|
2,781
|
|
3,553
|
|
2,941
|
|
3,035
|
|
Number of payments
delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
|
4,343
|
|
4,635
|
|
5,181
|
|
4,158
|
|
3,964
|
|
4-11
payments
|
|
2,241
|
|
2,581
|
|
2,664
|
|
2,342
|
|
2,486
|
|
12 payments or
more
|
|
998
|
|
1,159
|
|
1,209
|
|
1,450
|
|
2,009
|
|
Total Cures in
Quarter
|
|
10,975
|
|
11,156
|
|
12,607
|
|
10,891
|
|
11,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Paids
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
|
—
|
|
—
|
|
1
|
|
—
|
|
—
|
|
4-11
payments
|
|
18
|
|
16
|
|
9
|
|
11
|
|
8
|
|
12 payments or
more
|
|
341
|
|
332
|
|
301
|
|
316
|
|
329
|
|
Total Paids in
Quarter
|
|
359
|
|
348
|
|
311
|
|
327
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Delinquent Inventory
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive months
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
|
8,732
|
35 %
|
7,663
|
32 %
|
7,573
|
31 %
|
8,820
|
33 %
|
7,825
|
30 %
|
4-11 months
|
|
8,220
|
33 %
|
8,070
|
34 %
|
8,563
|
34 %
|
8,217
|
31 %
|
7,619
|
30 %
|
12 months or
more
|
|
7,768
|
32 %
|
8,090
|
34 %
|
8,621
|
35 %
|
9,350
|
36 %
|
10,434
|
40 %
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
|
11,867
|
48 %
|
10,694
|
45 %
|
10,453
|
42 %
|
11,484
|
44 %
|
10,137
|
40 %
|
4-11
payments
|
|
7,570
|
31 %
|
7,437
|
31 %
|
8,016
|
33 %
|
8,026
|
30 %
|
7,831
|
30 %
|
12 payments or
more
|
|
5,283
|
21 %
|
5,692
|
24 %
|
6,288
|
25 %
|
6,877
|
26 %
|
7,910
|
30 %
|
|
|
(1)
|
Items removed from
inventory are associated with commutations of coverage on
non-performing policies.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
ADDITIONAL INFORMATION
- RESERVES and CLAIMS PAID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
|
2022
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
Q4
|
|
Q3
|
|
|
2023
|
|
2022
|
Reserves
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Direct Loss
Reserves
|
$
522
|
|
$
527
|
|
$
555
|
|
|
$
554
|
|
$
599
|
|
|
|
|
|
Pool Direct loss
reserves
|
3
|
|
3
|
|
3
|
|
|
4
|
|
4
|
|
|
|
|
|
Other Gross
Reserves
|
1
|
|
1
|
|
1
|
|
|
—
|
|
—
|
|
|
|
|
|
Total Gross Loss
Reserves
|
$
526
|
|
$
531
|
|
$
559
|
|
|
$
558
|
|
$
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Direct
Reserve Per Delinquency
|
$
21,119
|
|
$
22,123
|
|
$
22,423
|
|
|
$
20,994
|
|
$
23,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (1)
|
$
11
|
|
$
12
|
|
$
10
|
|
|
$
14
|
|
$
11
|
|
|
$
33
|
|
$
36
|
Total primary
(excluding settlements)
|
10
|
|
10
|
|
9
|
|
|
9
|
|
8
|
|
|
29
|
|
26
|
Rescission and NPL
settlements
|
—
|
|
—
|
|
—
|
|
|
3
|
|
1
|
|
|
—
|
|
5
|
Reinsurance
|
(1)
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
(1)
|
|
(1)
|
Other
|
2
|
|
2
|
|
1
|
|
|
2
|
|
2
|
|
|
5
|
|
6
|
Reinsurance
Terminations (1)
|
—
|
|
—
|
|
—
|
|
|
(18)
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Average Claim
Payment (thousands) (2)
|
$
28.5
|
|
$
29.8
|
|
$
28.2
|
|
|
$
28.5
|
|
$
23.5
|
|
|
$
28.9
|
|
$
26.1
|
Flow only
(2)
|
$
26.4
|
|
$
26.6
|
|
$
23.3
|
|
|
$
24.2
|
|
$
21.7
|
|
|
$
25.6
|
|
$
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net paid claims, as
presented, does not include amounts received in conjunction with
terminations or commutations of reinsurance agreements.
|
(2)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of policies.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
ADDITIONAL INFORMATION
- REINSURANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
2022
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
2023
|
|
2022
|
Quota Share
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% NIW subject to
reinsurance
|
87.2 %
|
|
87.5 %
|
|
86.4 %
|
|
85.9 %
|
|
88.0 %
|
|
87.1 %
|
|
87.8 %
|
Ceded premiums written
and earned (millions)
|
$ 32.7
|
|
$ 27.4
|
|
$ 29.9
|
|
$ 29.7
|
(1)
|
$ 19.3
|
|
$ 90.0
|
|
$ 56.7
|
Ceded losses incurred
(millions)
|
$
6.8
|
|
$ 1.9
|
|
$
4.7
|
|
$
—
|
|
$ (7.4)
|
|
$ 13.4
|
|
$
(19.8)
|
Ceding commissions
(millions) (included in underwriting and other expenses)
|
$ 12.7
|
|
$ 12.4
|
|
$ 12.3
|
|
$ 13.7
|
|
$ 13.3
|
|
$ 37.4
|
|
$ 38.3
|
Profit commission
(millions) (included in ceded premiums)
|
$ 30.7
|
|
$ 34.8
|
|
$ 31.7
|
|
$ 41.1
|
|
$ 47.2
|
|
$ 97.2
|
|
$
135.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess-of-Loss
Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premiums earned
(millions)
|
$ 17.4
|
|
$ 17.5
|
|
$ 16.9
|
|
$ 19.0
|
|
$ 19.8
|
|
$ 51.8
|
|
$ 50.9
|
|
|
(1)
|
Includes $2 million
termination fee incurred to terminate our 2019 QSR Transaction in
Q4 2022.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
ADDITIONAL INFORMATION:
BULK STATISTICS AND MI RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023
|
|
2022
|
|
Year-to-date
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
2023
|
|
2022
|
Bulk Primary Insurance
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance in force
(billions)
|
$3.4
|
|
$3.5
|
|
$3.6
|
|
$3.7
|
|
$3.8
|
|
|
|
|
Risk in force
(billions)
|
$1.0
|
|
$1.0
|
|
$1.0
|
|
$1.0
|
|
$1.1
|
|
|
|
|
Average loan size
(thousands)
|
$136.1
|
|
$136.7
|
|
$137.1
|
|
$137.5
|
|
$138.0
|
|
|
|
|
Number of delinquent
loans
|
3,595
|
|
3,597
|
|
3,768
|
|
3,917
|
|
3,868
|
|
|
|
|
Delinquency
rate
|
14.26 %
|
|
13.96 %
|
|
14.36 %
|
|
14.64 %
|
|
14.15 %
|
|
|
|
|
Primary paid claims
(excluding settlements) (millions)
|
$2
|
|
$2
|
|
$3
|
|
$3
|
|
$2
|
|
$7
|
|
$9
|
Average claim payment
(thousands)
|
$41.8
|
|
$48.1
|
|
$52.1
|
|
$50.4
|
|
$29.9
|
|
$47.5
|
|
$39.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
9.6:1
|
(1)
|
9.9:1
|
|
9.7:1
|
|
10.2:1
|
|
9.4:1
|
|
|
|
|
Combined Insurance
Companies - Risk to Capital
|
9.5:1
|
(1)
|
9.8:1
|
|
9.7:1
|
|
10.1:1
|
|
9.4:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss ratio
(insurance operations only)
|
(0.0 %)
|
|
(7.3) %
|
|
2.7 %
|
|
(12.8) %
|
|
(41.7) %
|
|
(1.6) %
|
|
(29.3) %
|
GAAP underwriting
expense ratio (insurance operations only)
|
22.2 %
|
|
24.1 %
|
|
31.1 %
|
|
31.3 %
|
|
24.6 %
|
|
25.8 %
|
|
23.3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Preliminary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Factors
As used below, "we," "our" and "us" refer to MGIC Investment
Corporation's consolidated operations or to MGIC Investment
Corporation, as the context requires; and "MGIC" refers to Mortgage
Guaranty Insurance Corporation.
Risk Factors Relating to Global Events
Wars and/or other global events may adversely affect the
U.S. economy and our business.
Wars and/or other global events may result in increased
inflation rates, strained supply chains, and increased volatility
in the domestic and global financial markets. Wars and/or other
global events have in the past and may continue to impact our
business in various ways, including the following which are
described in more detail in the remainder of these risk
factors:
- The terms under which we are able to obtain excess-of-loss
("XOL") reinsurance through the insurance-linked notes ("ILN")
market and the traditional reinsurance market may be negatively
impacted and terms under which we are able to access those markets
in the future may be limited or less attractive.
- The risk of a cybersecurity incident that affects our company
may increase.
- Wars may negatively impact the domestic economy, which may
increase unemployment and inflation, or decrease home prices, in
each case leading to an increase in loan delinquencies.
- The volatility in the financial markets may impact the
performance of our investment portfolio and our investment
portfolio may include investments in companies or securities that
are negatively impacted by wars and/or other global events.
Risk Factors Relating to the Mortgage Insurance Industry and
its Regulation
Downturns in the domestic economy or declines in home
prices may result in more homeowners defaulting and our losses
increasing, with a corresponding decrease in our
returns.
Losses result from events that reduce a borrower's ability or
willingness to make mortgage payments, such as unemployment, health
issues, changes in family status, and decreases in home prices that
result in the borrower's mortgage balance exceeding the net value
of the home. A deterioration in economic conditions, including an
increase in unemployment, generally increases the likelihood that
borrowers will not have sufficient income to pay their mortgages
and can also adversely affect home prices.
High levels of unemployment may result in an increasing number
of loan delinquencies and an increasing number of insurance claims;
however, unemployment is difficult to predict given the uncertainty
in the current market environment, including as a result of global
events such as wars, instability in the financial services
industry, and the possibility of an economic recession. Since the
beginning of 2021, inflation has increased dramatically. The impact
that higher inflation rates will have on loan delinquencies is
unknown.
The seasonally-adjusted Purchase-Only U.S. Home Price Index of
the Federal Housing Finance Agency (the "FHFA"), which is based on
single-family properties whose mortgages have been purchased or
securitized by Fannie Mae or Freddie Mac, indicates that home
prices increased 0.6% nationwide in August, 2023 compared to July,
2023. Although the 12 month change in home prices recently reached
historically high rates, the rate of growth is moderating: it
increased by 5.0% in the first 8 months of 2023, after increasing
6.9%, 17.9%, and 11.8% in 2022, 2021 and 2020, respectively. The
national average price-to-income ratio exceeds its historical
average, in part as a result of recent home price appreciation
outpacing increases in income. Affordability issues can put
downward pressure on home prices. A decline in home prices may
occur even absent a deterioration in economic conditions due to
declines in demand for homes, which in turn may result from changes
in buyers' perceptions of the potential for future appreciation,
restrictions on and the cost of mortgage credit due to more
stringent underwriting standards, higher interest rates, changes to
the tax deductibility of mortgage interest, decreases in the rate
of household formations, or other factors.
Changes in the business practices of Fannie Mae and
Freddie Mac ("the GSEs"), federal legislation that changes their
charters or a restructuring of the GSEs could reduce our revenues
or increase our losses.
The substantial majority of our new insurance written ("NIW") is
for loans purchased by the GSEs; therefore, the business practices
of the GSEs greatly impact our business. In 2022 the GSEs each
published Equitable Housing Finance Plans ("Plans"). Updated Plans
were subsequently published by each GSE in April 2023. The
Plans seek to advance equity in housing finance over a three-year
period and include potential changes to the GSEs' business
practices and policies. Specifically relating to mortgage
insurance, (1) Fannie Mae's Plan includes the creation of special
purpose credit program(s) ("SPCPs") targeted to historically
underserved borrowers with a goal of lowering costs for such
borrowers through lower than standard mortgage insurance
requirements; and (2) Freddie Mac's Plan includes plans to work
with mortgage insurers to look for ways to lower mortgage costs,
the creation of SPCPs targeted to historically underserved
borrowers, and the planned purchase of loans originated through
lender-created SPCPs. To the extent the business practices
and policies of the GSEs regarding mortgage insurance coverage,
costs and cancellation change, including more broadly than through
SPCPs, such changes may negatively impact the mortgage insurance
industry.
Other business practices of the GSEs that affect the mortgage
insurance industry include:
- The GSEs' private mortgage insurer eligibility requirements
("PMIERs"), the financial requirements of which are discussed in
our risk factor titled "We may not continue to meet the GSEs'
private mortgage insurer eligibility requirements and our returns
may decrease if we are required to maintain more capital in order
to maintain our eligibility."
- The capital and collateral requirements for participants in the
GSEs' alternative forms of credit enhancement discussed in our risk
factor titled "The amount of insurance we write could be
adversely affected if lenders and investors select alternatives to
private mortgage insurance or are unable to obtain capital relief
for mortgage insurance."
- The level of private mortgage insurance coverage, subject to
the limitations of the GSEs' charters, when private mortgage
insurance is used as the required credit enhancement on low down
payment mortgages (the GSEs generally require a level of mortgage
insurance coverage that is higher than the level of coverage
required by their charters; any change in the required level of
coverage will impact our new risk written).
- The amount of loan level price adjustments and guaranty fees
(which result in higher costs to borrowers) that the GSEs assess on
loans that require private mortgage insurance. The requirements of
the new GSE capital framework may lead the GSEs to increase their
guaranty fees. In addition, the FHFA has indicated that it is
reviewing the GSEs' pricing in connection with preparing them to
exit conservatorship and to ensure that pricing subsidies benefit
only affordable housing activities.
- Whether the GSEs select or influence the mortgage lender's
selection of the mortgage insurer providing coverage.
- The underwriting standards that determine which loans are
eligible for purchase by the GSEs, which can affect the quality of
the risk insured by the mortgage insurer and the availability of
mortgage loans.
- The terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by law and
the business practices associated with such cancellations. For more
information, see the above discussion of the GSEs' Equitable
Housing Plans and our risk factor titled "Changes in interest
rates, house prices or mortgage insurance cancellation requirements
may change the length of time that our policies remain in
force."
- The programs established by the GSEs intended to avoid or
mitigate loss on insured mortgages and the circumstances in which
mortgage servicers must implement such programs.
- The terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase, including
limitations on the rescission rights of mortgage insurers.
- The extent to which the GSEs intervene in mortgage insurers'
claims paying practices, rescission practices or rescission
settlement practices with lenders.
- The maximum loan limits of the GSEs compared to those of the
Federal Housing Administration ("FHA") and other investors.
- The benchmarks established by the FHFA for loans to be
purchased by the GSEs, which can affect the loans available to be
insured. In December 2021, the FHFA
established the benchmark levels for 2022-2024 purchases of
low-income home mortgages, very low-income home mortgages and
low-income refinance mortgages, each of which exceeded the 2021
benchmarks. The FHFA also established two new sub-goals: one
targeting minority communities and the other targeting low-income
neighborhoods.
The FHFA has been the conservator of the GSEs since 2008 and has
the authority to control and direct their operations. The increased
role that the federal government has assumed in the residential
housing finance system through the GSE conservatorships may
increase the likelihood that the business practices of the GSEs
change, including through administrative action, in ways that have
a material adverse effect on us and that the charters of the GSEs
are changed by new federal legislation.
It is uncertain what role the GSEs, FHA and private capital,
including private mortgage insurance, will play in the residential
housing finance system in the future. The timing and impact on our
business of any resulting changes are uncertain. Many of the
proposed changes would require Congressional action to implement
and it is difficult to estimate when Congressional action would be
final and how long any associated phase-in period may last.
We may not continue to meet the GSEs' private mortgage
insurer eligibility requirements and our returns may decrease if we
are required to maintain more capital in order to maintain our
eligibility.
We must comply with a GSE's PMIERs to be eligible to insure
loans delivered to or purchased by that GSE. The PMIERs include
financial requirements, as well as business, quality control and
certain transaction approval requirements. The financial
requirements of the PMIERs require a mortgage insurer's "Available
Assets" (generally only the most liquid assets of an insurer) to
equal or exceed its "Minimum Required Assets" (which are generally
based on an insurer's book of risk in force and calculated from
tables of factors with several risk dimensions, reduced for credit
given for risk ceded under reinsurance agreements).
Based on our interpretation of the PMIERs, as of September 30, 2023, MGIC's Available Assets
totaled $6.0 billion, or $2.4 billion in excess of its Minimum Required
Assets. MGIC is in compliance with the PMIERs and eligible to
insure loans purchased by the GSEs. Our "Minimum Required Assets"
reflect a credit for risk ceded under our quota share reinsurance
("QSR") and XOL reinsurance transactions, which are discussed in
our risk factor titled "The mix of business we write affects our
Minimum Required Assets under the PMIERs, our premium yields and
the likelihood of losses occurring." The calculated credit for
XOL reinsurance transactions under PMIERs is generally based on the
PMIERs requirement of the covered loans and the attachment and
detachment points of the coverage, all of which fluctuate over
time. PMIERs credit is generally not given for the reinsured risk
above the PMIERs requirement. The GSEs have discretion to further
limit reinsurance credit under the PMIERs. Refer to "Consolidated
Results of Operations – Reinsurance Transactions" in Part I, Item 2
of our Quarterly Report on Form 10-Q for information about the
calculated PMIERs credit for our XOL transactions. There is a risk
we will not receive our current level of credit in future periods
for ceded risk. In addition, we may not receive the same level of
credit under future reinsurance transactions that we receive under
existing transactions. If MGIC is not allowed certain levels of
credit under the PMIERs, under certain circumstances, MGIC may
terminate the reinsurance transactions without penalty.
The PMIERs generally require us to hold significantly more
Minimum Required Assets for delinquent loans than for performing
loans and the Minimum Required Assets required to be held increases
as the number of payments missed on a delinquent loan increases. If
the number of loan delinquencies increases for reasons discussed in
these risk factors, or otherwise, it may cause our Minimum Required
Assets to exceed our Available Assets. We are unable to predict the
ultimate number of loans that will become delinquent.
If our Available Assets fall below our Minimum Required Assets,
we would not be in compliance with the PMIERs. The PMIERs provide a
list of remediation actions for a mortgage insurer's
non-compliance, with additional actions possible in the GSEs'
discretion. At the extreme, the GSEs may suspend or terminate our
eligibility to insure loans purchased by them. Such suspension or
termination would significantly reduce the volume of our NIW, the
substantial majority of which is for loans delivered to or
purchased by the GSEs. In addition to the increase in Minimum
Required Assets associated with delinquent loans, factors that may
negatively impact MGIC's ability to continue to comply with the
financial requirements of the PMIERs include the following:
- The GSEs may make the PMIERs more onerous in the future. The
PMIERs provide that the GSEs may amend any provision of the PMIERs
or impose additional requirements with an effective date specified
by the GSEs.
- The PMIERs provide that the factors that determine Minimum
Required Assets will be updated periodically, or as needed if there
is a significant change in macroeconomic conditions or loan
performance. The PMIERs state that the GSEs will provide notice 180
days prior to the effective date of updates to the factors that
determine Minimum Required Assets; however, the GSEs may amend the
PMIERs at any time, including by imposing restrictions specific to
our company.
- The PMIERs may be changed in response to the final regulatory
capital framework for the GSEs that was published in February 2022.
- Our future operating results may be negatively impacted by the
matters discussed in the rest of these risk factors. Such matters
could decrease our revenues, increase our losses or require the use
of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital
contributions from our holding company may not be available due to
competing demands on holding company resources, including for
repayment of debt.
Because loss reserve estimates are subject to
uncertainties, paid claims may be substantially different than our
loss reserves.
When we establish case reserves, we estimate our ultimate loss
on delinquent loans by estimating the number of such loans that
will result in a claim payment (the "claim rate"), and further
estimating the amount of the claim payment (the "claim severity").
Changes to our claim rate and claim severity estimates could have a
material impact on our future results, even in a stable economic
environment. Our estimates incorporate anticipated cures, loss
mitigation activity, rescissions and curtailments. The
establishment of loss reserves is subject to inherent uncertainty
and requires significant judgment by management. Our actual claim
payments may differ substantially from our loss reserve estimates.
Our estimates could be affected by several factors, including a
change in regional or national economic conditions as discussed in
these risk factors and a change in the length of time loans are
delinquent before claims are received. Generally, the longer a loan
is delinquent before a claim is received, the greater the severity.
Foreclosure moratoriums and forbearance programs increase the
average time it takes to receive claims. Economic conditions may
differ from region to region. Information about the geographic
dispersion of our risk in force and delinquency inventory can be
found in our Annual Reports on Form 10-K and our Quarterly Reports
on Form 10-Q. Prior to the COVID-19 pandemic, losses incurred
generally followed a seasonal trend in which the second half of the
year has weaker credit performance than the first half, with higher
new default notice activity and a lower cure rate.
We are subject to comprehensive regulation and other
requirements, which we may fail to satisfy.
We are subject to comprehensive regulation, including by state
insurance departments. Many regulations are designed for the
protection of our insured policyholders and consumers, rather than
for the benefit of investors. Mortgage insurers, including MGIC,
have in the past been involved in litigation and regulatory actions
related to alleged violations of the anti-referral fee
provisions of the Real Estate Settlement Procedures Act ("RESPA"),
and the notice provisions of the Fair Credit Reporting Act
("FCRA"). While these proceedings in the aggregate did not result
in material liability for MGIC, there can be no assurance that the
outcome of future proceedings, if any, under these laws or others
would not have a material adverse effect on us. To the extent that
we are construed to make independent credit decisions in connection
with our contract underwriting activities, we also could be subject
to increased regulatory requirements under the Equal Credit
Opportunity Act ("ECOA"), FCRA, and other laws. Under relevant
laws, examination may also be made of whether a mortgage insurer's
underwriting decisions have a disparate impact on persons belonging
to a protected class in violation of the law.
Although their scope varies, state insurance laws generally
grant broad supervisory powers to agencies or officials to examine
insurance companies and enforce rules or exercise discretion
affecting almost every significant aspect of the insurance
business, including payment for the referral of insurance business,
premium rates and discrimination in pricing, and minimum capital
requirements. The increased use, by the private mortgage insurance
industry, of risk-based pricing systems that establish premium
rates based on more attributes than previously considered, and of
algorithms, artificial intelligence and data and analytics, has
led to additional regulatory scrutiny of premium rates and of
other matters such as discrimination in pricing and underwriting,
data privacy and access to insurance. For more information about
state capital requirements, see our risk factor titled "State
capital requirements may prevent us from continuing to write new
insurance on an uninterrupted basis." For information about
regulation of data privacy, see our risk factor titled "We could
be materially adversely affected by a cybersecurity breach or
failure of information security controls." For more details
about the various ways in which our subsidiaries are regulated, see
"Business - Regulation" in Item 1 of our Annual Report on Form 10-K
for the year ended December 31,
2022.
While we have established policies and procedures to comply with
applicable laws and regulations, many such laws and regulations are
complex and it is not possible to predict the eventual scope,
duration or outcome of any reviews or investigations nor is it
possible to predict their effect on us or the mortgage insurance
industry.
Pandemics, hurricanes and other natural disasters may
impact our incurred losses, the amount and timing of paid claims,
our inventory of notices of default and our Minimum Required Assets
under PMIERs.
Pandemics and other natural disasters, such as hurricanes,
tornadoes, earthquakes, wildfires and floods, or other events
related to changing climatic conditions, could trigger an economic
downturn in the affected areas, or in areas with similar risks,
which could result in a decline in our business and an increased
claim rate on policies in those areas. Natural disasters, rising
sea levels and/or fresh water shortages could lead to a decrease in
home prices in the affected areas, or in areas with similar risks,
which could result in an increase in claim severity on policies in
those areas. Due to the increased frequency and severity of natural
disasters, some homeowners' insurers are withdrawing from certain
states or areas that they deem to be high risk. Even though
we do not generally insure losses related to property damage, the
inability of a borrower to obtain hazard and/or flood insurance, or
the increased cost of such insurance, could lead to a decrease in
home prices in the affected areas and an increase in delinquencies
and our incurred losses. If we were to attempt to limit our new
insurance written in affected areas, lenders may be unwilling to
procure insurance from us anywhere.
Pandemics and other natural disasters could also lead to
increased reinsurance rates or reduced availability of reinsurance.
This may cause us to retain more risk than we otherwise would
retain and could negatively affect our compliance with the
financial requirements of State Capital Requirements and the
PMIERs.
The PMIERs require us to maintain significantly more "Minimum
Required Assets" for delinquent loans than for performing
loans. See our risk factor titled "We may not continue to
meet the GSEs' private mortgage insurer eligibility requirements
and our returns may decrease if we are required to maintain more
capital in order to maintain our eligibility."
FHFA is working to incorporate climate risk considerations into
its policy development and processes. The FHFA has also
instructed the GSEs to designate climate change as a priority
concern and actively consider its effects in their decision making.
In 2022, FHFA established internal working groups and a steering
committee in order to monitor the GSEs' management of climate risk.
It is possible that efforts to manage these risks by the
FHFA, GSEs (including through GSE guideline or mortgage insurance
policy changes) or others could materially impact the volume and
characteristics of our NIW (including its policy terms), home
prices in certain areas and defaults by borrowers in certain
areas.
Reinsurance may not always be available or its cost may
increase.
We have in place QSR and XOL reinsurance transactions providing
various amounts of coverage on 86% of our risk in force as of
September 30, 2023. Refer to Part 1,
Note 4 – "Reinsurance" and Part 1, Item 2 "Consolidated Results of
Operations – Reinsurance Transactions" of our Quarterly Report on
Form 10-Q, for more information about coverage under our
reinsurance transactions. The reinsurance transactions reduce the
tail-risk associated with stress scenarios. As a result, they
reduce the risk-based capital that we are required to hold to
support the risk and they allow us to earn higher returns on
risk-based capital for our business than we would without them.
However, reinsurance may not always be available to us or available
on similar terms, the reinsurance transactions subject us to
counterparty credit risk, and the GSEs may change the credit they
allow under the PMIERs for risk ceded under our reinsurance
transactions. Our access to reinsurance may be disrupted and the
terms under which we are able to obtain reinsurance may be less
attractive than in the past due to volatility stemming from
circumstances such as higher interest rates, increased inflation,
global events such as wars, and other factors.
Most of our XOL transactions were entered into in capital market
transactions with special purpose insurers that issued notes linked
to the reinsurance coverage ("Insurance Linked Notes" or "ILNs").
Since 2020, there have been protracted periods of time during which
execution of transactions for XOL reinsurance through the ILN
market has been more challenging, with increased pricing,
down-sized transactions, and generally fewer transactions executed
by mortgage insurers. Additionally, in January 2023, the Securities Exchange Commission
proposed a rule pursuant to Section 27B of the Securities Act of 1933, as amended,
that if adopted as proposed may impact our ability to enter into
future ILN transactions. If we are unable to obtain reinsurance for
our insurance written, the capital required to support our
insurance written will not be reduced as discussed above and our
returns may decrease absent an increase in our premium rates. An
increase in our premium rates may lead to a decrease in our
NIW.
Because we establish loss reserves only upon a loan
delinquency rather than based on estimates of our ultimate losses
on risk in force, losses may have a disproportionate adverse effect
on our earnings in certain periods.
In accordance with accounting principles generally accepted in
the United States, we establish
case reserves for insurance losses and loss adjustment expenses
only when delinquency notices are received for insured loans that
are two or more payments past due and for loans we estimate are
delinquent but for which delinquency notices have not yet been
received (which we include in "IBNR"). Losses that may occur from
loans that are not delinquent are not reflected in our financial
statements, except when a "premium deficiency" is recorded. A
premium deficiency would be recorded if the present value of
expected future losses and expenses exceeds the present value of
expected future premiums and already established loss reserves on
the applicable loans. As a result, future losses incurred on loans
that are not currently delinquent may have a material impact on
future results as delinquencies emerge. As of September 30, 2023, we had established case
reserves and reported losses incurred for 24,720 loans in our
delinquency inventory and our IBNR reserve totaled
$22 million. The number of loans in our delinquency inventory
may increase from that level as a result of economic conditions
relating to current global events or other factors and our losses
incurred may increase.
State capital requirements may prevent us from continuing
to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a
mortgage insurer to maintain a minimum amount of statutory capital
relative to its risk in force (or a similar measure) in order for
the mortgage insurer to continue to write new business. We refer to
these requirements as the "State Capital Requirements." While they
vary among jurisdictions, the most common State Capital
Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
A risk-to-capital ratio will increase if (i) the percentage
decrease in capital exceeds the percentage decrease in insured
risk, or (ii) the percentage increase in capital is less than the
percentage increase in insured risk. Wisconsin does not regulate capital by using a
risk-to-capital measure but instead requires a minimum policyholder
position ("MPP"). MGIC's "policyholder position" includes its net
worth, or surplus, and its contingency reserve.
At September 30, 2023, MGIC's
risk-to-capital ratio was 9.6 to 1, below the maximum allowed by
the jurisdictions with State Capital Requirements, and its
policyholder position was $3.8 billion above the required MPP
of $2.1 billion. Our risk-to-capital
ratio and MPP reflect credit for the risk ceded under our quota
share reinsurance and excess of loss transactions in the
traditional reinsurance and ILN markets with unaffiliated
reinsurers. If MGIC is not allowed an agreed level of credit
under the State Capital Requirements, MGIC may terminate the
reinsurance transactions, without penalty.
The NAIC established a Mortgage Guaranty Insurance Working Group
to determine and make recommendations to the NAIC's Financial
Condition Committee as to what, if any, changes to make to the
solvency and other regulations relating to mortgage guaranty
insurers. A draft of a revised Mortgage Guaranty Insurance Model
Act was adopted by the Financial Condition Committee in
July 2023 and by the Executive
Committee and Plenary NAIC in August
2023. The revised Model Act includes requirements relating
to, among other things: (i) capital and minimum capital
requirements, and contingency reserves; (ii) restrictions on
mortgage insurers' investments in notes secured by mortgages; (iii)
prudent underwriting standards and formal underwriting guidelines;
(iv) the establishment of formal, internal "Mortgage Guaranty
Quality Control Programs" with respect to in-force business; and
(v) reinsurance and prohibitions on captive reinsurance
arrangements. It is uncertain when the revised Model
Act will be adopted in any jurisdiction. The provisions of
the Model Act, if adopted in their final form, are not expected to
have a material adverse effect on our business. It is unknown
whether any changes will be made by state legislatures prior to
adoption, and the effect changes, if any, will have on the mortgage
guaranty insurance market generally, or on our business.
While MGIC currently meets the State Capital Requirements of
Wisconsin and all other
jurisdictions, it could be prevented from writing new business in
the future in all jurisdictions if it fails to meet the State
Capital Requirements of Wisconsin,
or it could be prevented from writing new business in a particular
jurisdiction if it fails to meet the State Capital Requirements of
that jurisdiction, and in each case if MGIC does not obtain a
waiver of such requirements. It is possible that regulatory action
by one or more jurisdictions, including those that do not have
specific State Capital Requirements, may prevent MGIC from
continuing to write new insurance in such jurisdictions. If we are
unable to write business in a particular jurisdiction, lenders may
be unwilling to procure insurance from us anywhere. In addition, a
lender's assessment of the future ability of our insurance
operations to meet the State Capital Requirements or the PMIERs may
affect its willingness to procure insurance from us. In this
regard, see our risk factor titled "Competition or changes in
our relationships with our customers could reduce our revenues,
reduce our premium yields and/or increase our losses." A
possible future failure by MGIC to meet the State Capital
Requirements or the PMIERs will not necessarily mean that MGIC
lacks sufficient resources to pay claims on its insurance
liabilities. You should read the rest of these risk factors for
information about matters that could negatively affect MGIC's
compliance with State Capital Requirements and its claims paying
resources.
If the volume of low down payment home mortgage
originations declines, the amount of insurance that we write could
decline.
The factors that may affect the volume of low down payment
mortgage originations include the health of the U.S. economy;
conditions in regional and local economies and the level of
consumer confidence; the health and stability of the financial
services industry; restrictions on mortgage credit due to more
stringent underwriting standards, liquidity issues or
risk-retention and/or capital requirements affecting lenders; the
level of home mortgage interest rates; housing affordability; new
and existing housing availability; the rate of household formation,
which is influenced, in part, by population and immigration trends;
homeownership rates; the rate of home price appreciation, which in
times of heavy refinancing can affect whether refinanced loans have
LTV ratios that require private mortgage insurance; and government
housing policy encouraging loans to first-time homebuyers. A
decline in the volume of low down payment home mortgage
originations could decrease demand for mortgage insurance and limit
our NIW. For other factors that could decrease the demand for
mortgage insurance, see our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage insurance or are
unable to obtain capital relief for mortgage insurance."
The amount of insurance we write could be adversely
affected if lenders and investors select alternatives to private
mortgage insurance or are unable to obtain capital relief for
mortgage insurance.
Alternatives to private mortgage insurance include:
- investors using risk mitigation and credit risk transfer
techniques other than private mortgage insurance, or accepting
credit risk without credit enhancement,
- lenders and other investors holding mortgages in portfolio and
self-insuring,
- lenders using FHA, U.S. Department of Veterans Affairs ("VA")
and other government mortgage insurance programs, and
- lenders originating mortgages using piggyback structures to
avoid private mortgage insurance, such as a first mortgage with an
80% loan-to-value ("LTV") ratio and a second mortgage with a 10%,
15% or 20% LTV ratio rather than a first mortgage with a 90%, 95%
or 100% LTV ratio that has private mortgage insurance.
The GSEs' charters generally require credit enhancement for a
low down payment mortgage loan (a loan in an amount that exceeds
80% of a home's value) in order for such loan to be eligible for
purchase by the GSEs. Private mortgage insurance generally has been
purchased by lenders in primary mortgage market transactions to
satisfy this credit enhancement requirement. In 2018, the GSEs
initiated secondary mortgage market programs with loan level
mortgage default coverage provided by various (re)insurers that are
not mortgage insurers governed by PMIERs, and that are not selected
by the lenders. These programs, which currently account for a small
percentage of the low down payment market, compete with traditional
private mortgage insurance and, due to differences in policy terms,
they may offer premium rates that are below prevalent single
premium lender-paid mortgage insurance ("LPMI") rates. We
participate in these programs from time to time. See our risk
factor titled "Changes in the business practices of Fannie Mae
and Freddie Mac's ("the GSEs"), federal legislation that changes
their charters or a restructuring of the GSEs could reduce our
revenues or increase our losses" for a discussion of various
business practices of the GSEs that may be changed, including
through expansion or modification of these programs.
The GSEs (and other investors) have also used other forms of
credit enhancement that did not involve traditional private
mortgage insurance, such as engaging in credit-linked note
transactions executed in the capital markets, or using other forms
of debt issuances or securitizations that transfer credit risk
directly to other investors, including competitors and an affiliate
of MGIC; using other risk mitigation techniques in conjunction with
reduced levels of private mortgage insurance coverage; or accepting
credit risk without credit enhancement.
The FHA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 26.7% in 2022, 24.7% in 2021, and 23.4% in 2020.
Beginning in 2012, the FHA's share has been as low as 23.4% (in
2020) and as high as 42.1% (in 2012). Factors that influence the
FHA's market share include relative rates and fees, underwriting
guidelines and loan limits of the FHA, VA, private mortgage
insurers and the GSEs; changes to the GSEs' business practices;
lenders' perceptions of legal risks under FHA versus GSE programs;
flexibility for the FHA to establish new products as a result of
federal legislation and programs; returns expected to be obtained
by lenders for Ginnie Mae
securitization of FHA-insured loans compared to those obtained from
selling loans to the GSEs for securitization; and differences in
policy terms, such as the ability of a borrower to cancel insurance
coverage under certain circumstances. On February 22, 2023, the FHA announced a 30-basis
point decrease in its mortgage insurance premium rates. This rate
reduction will negatively impact our NIW; however, given the many
factors that influence the FHA's market share, we are unable to
predict the extent of the impact. In addition, we cannot predict
how the factors that affect the FHA's share of NIW will change in
the future.
The VA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was 24.5% in 2022, 30.2% in 2021, and 30.9% in 2020.
Beginning in 2012, the VA's share has been as low as 22.8% (in
2013) and as high as 30.9% (in 2020). We believe that the VA's
market share grows as the number of borrowers that are eligible for
the VA's program increases, and when eligible borrowers opt to use
the VA program when refinancing their mortgages. The VA program
offers 100% LTV ratio loans and charges a one-time funding fee that
can be included in the loan amount.
In July 2023, the Federal Reserve
Board, Federal Deposit Insurance Corporation, and the Office of the
Comptroller of the Currency proposed a revised regulatory capital
rule that would impose higher capital standards on large U.S.
banks. Under the proposed regulation, affected banks would no
longer receive risk-based capital relief for mortgage insurance on
loans held in their portfolios. If adopted as proposed, the
regulation is expected to have a negative effect on our NIW;
however, at this time it is difficult to predict the extent of the
impact.
Changes in interest rates, house prices or mortgage
insurance cancellation requirements may change the length of time
that our policies remain in force.
The premium from a single premium policy is collected upfront
and generally earned over the estimated life of the policy. In
contrast, premiums from monthly and annual premium policies are
received each month or year, as applicable, and earned each month
over the life of the policy. In each year, most of our premiums
earned are from insurance that has been written in prior years. As
a result, the length of time insurance remains in force, which is
generally measured by persistency (the percentage of our insurance
remaining in force from one year prior), is a significant
determinant of our revenues. A higher than expected persistency
rate may decrease the profitability from single premium policies
because they will remain in force longer and may increase the
incidence of claims that was estimated when the policies were
written. A low persistency rate on monthly and annual premium
policies will reduce future premiums but may also reduce the
incidence of claims, while a high persistency on those policies
will increase future premiums but may increase the incidence of
claims.
Our annual persistency rate was 86.3% at September 30, 2023, 82.2% at December 31, 2022, and 66.0% at December 31, 2021. Since 2018, our annual
persistency ranged from a high of 86.3% at September 30, 2023 to a low of 60.7% at
March 31, 2021. Our persistency rate
is primarily affected by the level of current mortgage interest
rates compared to the mortgage coupon rates on our insurance in
force, which affects the vulnerability of the insurance in force to
refinancing; and the current amount of equity that borrowers have
in the homes underlying our insurance in force. The amount of
equity affects persistency in the following ways:
- Borrowers with significant equity may be able to refinance
their loans without requiring mortgage insurance.
- The Homeowners Protection Act ("HOPA") requires servicers to
cancel mortgage insurance when a borrower's LTV ratio meets or is
scheduled to meet certain levels, generally based on the original
value of the home and subject to various conditions.
- The GSEs' mortgage insurance cancellation guidelines apply more
broadly than HOPA and also consider a home's current value. For
more information about the GSEs guidelines and business practices,
and how they may change, see our risk factor titled "Changes in
the business practices of Fannie Mae and Freddie Mac ("the
GSEs"), federal legislation that changes their charters or a
restructuring of the GSEs could reduce our revenues or increase our
losses."
We are susceptible to disruptions in the servicing of
mortgage loans that we insure and we rely on third-party reporting
for information regarding the mortgage loans we insure.
We depend on reliable, consistent third-party servicing of the
loans that we insure. An increase in delinquent loans may result in
liquidity issues for servicers. When a mortgage loan that is
collateral for a mortgage-backed security ("MBS") becomes
delinquent, the servicer is usually required to continue to pay
principal and interest to the MBS investors, generally for four
months, even though the servicer is not receiving payments from
borrowers. This may cause liquidity issues, especially for non-bank
servicers (who service approximately 46% of the loans underlying
our insurance in force as of September 30,
2023) because they do not have the same sources of liquidity
that bank servicers have.
While there has been no disruption in our premium receipts
through the third quarter of 2023, servicers who experience future
liquidity issues may be less likely to advance premiums to us on
policies covering delinquent loans or to remit premiums on policies
covering loans that are not delinquent. Our policies generally
allow us to cancel coverage on loans that are not delinquent if the
premiums are not paid within a grace period.
An increase in delinquent loans or a transfer of servicing
resulting from liquidity issues, may increase the operational
burden on servicers, cause a disruption in the servicing of
delinquent loans and reduce servicers' abilities to undertake
mitigation efforts that could help limit our losses.
The information presented in this report and on our website with
respect to the mortgage loans we insure is based on information
reported to us by third parties, including the servicers and
originators of the mortgage loans, and information presented may be
subject to lapses or inaccuracies in reporting from such third
parties. In many cases, we may not be aware that information
reported to us is incorrect until such time as a claim is made
against us under the relevant insurance policy. We do not
consistently receive monthly policy status information from
servicers for single premium policies, and may not be aware that
the mortgage loans insured by such policies have been repaid. We
periodically attempt to determine if coverage is still in force on
such policies by asking the last servicer of record or through the
periodic reconciliation of loan information with certain servicers.
It may be possible that our reports continue to reflect, as active,
policies on mortgage loans that have been repaid.
Risk Factors Relating to Our Business Generally
If our risk management programs are not effective in
identifying, or adequate in controlling or mitigating, the risks we
face, or if the models used in our businesses are inaccurate, it
could have a material adverse impact on our business, results of
operations and financial condition.
Our enterprise risk management program, described in "Business -
Our Products and Services - Risk Management" in Item 1 of our
Annual Report on Form 10-K for the year ended December 31, 2022, may not be effective in
identifying, or adequate in controlling or mitigating, the risks we
face in our business.
We employ proprietary and third-party models for a wide range of
purposes, including the following: projecting losses, premiums,
expenses, and returns; pricing products (through our risk-based
pricing system); determining the techniques used to underwrite
insurance; estimating reserves; evaluating risk; determining
internal capital requirements; and performing stress testing.
These models rely on estimates, projections, and assumptions that
are inherently uncertain and may not always operate as
intended. This can be especially true when extraordinary
events occur, such as wars, periods of extreme inflation,
pandemics, or environmental disasters related to changing climatic
conditions. In addition, our models are being continuously updated
over time. Changes in models or model assumptions could lead
to material changes in our future expectations, returns, or
financial results. The models we employ are complex, which
could increase our risk of error in their design, implementation,
or use. Also, the associated input data, assumptions, and
calculations may not always be correct or accurate and the controls
we have in place to mitigate these risks may not be effective in
all cases. The risks related to our models may increase when we
change assumptions, methodologies, or modeling platforms.
Moreover, we may use information we receive through enhancements to
refine or otherwise change existing assumptions and/or
methodologies.
Information technology system failures or interruptions
may materially impact our operations and/or adversely affect our
financial results.
We are heavily dependent on our information technology systems
to conduct our business. Although we have disaster recovery and
business continuity plans, our ability to efficiently operate our
business depends significantly on the reliability and capacity of
our systems and technology. The failure of our systems and
technology, or our disaster recovery and business continuity plans,
to operate effectively could affect our ability to provide our
products and services to customers, reduce efficiency, or cause
delays in operations. Significant capital investments might be
required to remediate any such problems. We are also dependent on
our ongoing relationships with key technology providers, including
provisioning of their products and technologies, and their ability
to support those products and technologies. The inability of these
providers to successfully provide and support those products could
have an adverse impact on our business and results of
operations.
We are in the process of upgrading certain information systems,
and transforming and automating certain business processes, and we
continue to enhance our risk-based pricing system and our system
for evaluating risk. Certain information systems have been in place
for a number of years and it has become increasingly difficult to
support their operation. The implementation of technological and
business process improvements, as well as their integration with
customer and third-party systems when applicable, is complex,
expensive and time consuming. If we fail to timely and successfully
implement and integrate the new technology systems, if the third
party providers upon which we are reliant do not perform as
expected, if our legacy systems fail to operate as required, or if
the upgraded systems and/or transformed and automated business
processes do not operate as expected, it could have a material
adverse impact on our business, business prospects and results of
operations.
We could be materially adversely affected by a
cybersecurity breach or failure of information security
controls.
As part of our business, we maintain large amounts of
confidential and proprietary information, including personal
information of consumers and employees, on our servers and those of
cloud computing services. Federal and state laws designed to
promote the protection of such information require businesses that
collect or maintain personal information to adopt information
security programs, and to notify individuals, and in some
jurisdictions, regulatory authorities, of security breaches
involving personally identifiable information. All
information technology systems are potentially vulnerable to damage
or interruption from a variety of sources, including by cyber
attacks, such as those involving ransomware. The Company discovers
vulnerabilities and regularly blocks a high volume of attempts to
gain unauthorized access to its systems. Globally, attacks are
expected to continue accelerating in both frequency and
sophistication with increasing use by actors of tools and
techniques that may hinder the Company's ability to identify,
investigate and recover from incidents. Such attacks may also
increase as a result of retaliation by threat actors against
actions taken by the U.S. and other countries in connection with
wars and other global events. The Company operates under a
hybrid workforce model and such model may be more vulnerable to
security breaches.
While we have information security policies and systems in place
to secure our information technology systems and to prevent
unauthorized access to or disclosure of sensitive information,
there can be no assurance with respect to our systems and those of
our third-party vendors that unauthorized access to the systems or
disclosure of the sensitive information, either through the actions
of third parties or employees, will not occur. Due to our reliance
on information technology systems, including ours and those of our
customers and third-party service providers, and to the sensitivity
of the information that we maintain, unauthorized access to the
systems or disclosure of the information could adversely affect our
reputation, severely disrupt our operations, result in a loss of
business and expose us to material claims for damages and may
require that we provide free credit monitoring services to
individuals affected by a security breach.
Should we experience an unauthorized disclosure of information
or a cyber attack, including those involving ransomware, some of
the costs we incur may not be recoverable through insurance, or
legal or other processes, and this may have a material adverse
effect on our results of operations.
The mix of business we write affects our Minimum Required
Assets under the PMIERs, our premium yields and the likelihood of
losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a
function of the direct risk-in-force and the risk profile of the
loans we insure, considering LTV ratio, credit score, vintage, Home
Affordable Refinance Program ("HARP") status and delinquency
status; and whether the loans were insured under lender-paid
mortgage insurance policies or other policies that are not subject
to automatic termination consistent with the Homeowners Protection
Act requirements for borrower-paid mortgage insurance. Therefore,
if our direct risk-in-force increases through increases in NIW, or
if our mix of business changes to include loans with higher LTV
ratios or lower FICO scores, for example, all other things equal,
we will be required to hold more Available Assets in order to
maintain GSE eligibility.
The percentage of our NIW from all single premium policies was
3.6% in the first three quarters of 2023. Beginning in 2012, the
annual percentage of our NIW from single policies has been as low
as 4.3% in 2022 and as high as 20.4% in 2015. Depending on
the actual life of a single premium policy and its premium rate
relative to that of a monthly premium policy, a single premium
policy may generate more or less premium than a monthly premium
policy over its life.
As discussed in our risk factor titled "Reinsurance may not
always be available or its cost may increase," we have in place
various QSR transactions. Although the transactions reduce our
premiums, they have a lesser impact on our overall results, as
losses ceded under the transactions reduce our losses incurred and
the ceding commissions we receive reduce our underwriting expenses.
The effect of the QSR transactions on the various components of
pre-tax income will vary from period to period, depending on the
level of ceded losses incurred. We also have in place various XOL
reinsurance transactions under which we cede premiums. Under the
XOL reinsurance transactions, for the respective reinsurance
coverage periods, we retain the first layer of aggregate losses and
the reinsurers provide second layer coverage up to the outstanding
reinsurance coverage amount.
In addition to the effect of reinsurance on our premiums, we
expect a decline in our premium yield (net premiums earned divided
by the average insurance in force) over time as a large percentage
of our current IIF is from book years with lower premium rates due
a decline in premium rates in recent years resulting from pricing
competition, insuring mortgages with lower risk characteristics,
lower required capital, and certain policies undergoing premium
rate resets on their ten-year anniversaries. Refinance transactions
on single premium policies benefit our premium yield due to the
impact of accelerated earned premium from cancellation prior to
their estimated life. Recent low levels of refinance transactions
have reduced that benefit.
Our ability to rescind insurance coverage became more limited
for new insurance written beginning in mid-2012, and it became
further limited for new insurance written under our revised master
policy that became effective March 1,
2020. These limitations may result in higher losses paid
than would be the case under our previous master policies.
From time to time, in response to market conditions, we change
the types of loans that we insure. We also may change our
underwriting guidelines, including by agreeing with certain
approval recommendations from a GSE automated underwriting system.
We also make exceptions to our underwriting requirements on a
loan-by-loan basis and for certain customer programs. Our
underwriting requirements are available on our website at
http://www.mgic.com/underwriting/index.html.
Even when home prices are stable or rising, mortgages with
certain characteristics have higher probabilities of claims. As of
September 30, 2023, mortgages with
these characteristics in our primary risk in force included
mortgages with LTV ratios greater than 95% (16%), mortgages
with borrowers having FICO scores below 680 (7%), including those
with borrowers having FICO scores of 620-679 (6%), mortgages with
limited underwriting, including limited borrower documentation
(1%), and mortgages with borrowers having DTI ratios greater than
45% (or where no ratio is available) (17%), each attribute as
determined at the time of loan origination. Loans with more than
one of these attributes accounted for 5% of our primary risk in
force as of September 30, 2023, and
4% of our primary risk in force as of December 31, 2022 and December 31, 2021. When home prices increase,
interest rates increase and/or the percentage of our NIW from
purchase transactions increases, our NIW on mortgages with higher
LTV ratios and higher DTI ratios may increase. Our NIW on mortgages
with LTV ratios greater than 95% was 12% in the first three
quarters of 2023, 13% in the first three quarters of 2022, and 12%
for the full year of 2022. Our NIW on mortgages with DTI ratios
greater than 45% was 25% in the first three quarters of 2023, 21%
for the first three quarters of 2022, and 21% for the full year of
2022.
From time to time, we change the processes we use to underwrite
loans. For example: we rely on information provided to us by
lenders that was obtained from certain of the GSEs' automated
appraisal and income verification tools, which may produce results
that differ from the results that would have been determined using
different methods; we accept GSE appraisal waivers for certain
refinance loans; and we accept GSE appraisal flexibilities that
allow property valuations in certain transactions to be based on
appraisals that do not involve an onsite or interior inspection of
the property. Our acceptance of automated GSE appraisal and income
verification tools, GSE appraisal waivers and GSE appraisal
flexibilities may affect our pricing and risk assessment. We also
continue to further automate our underwriting processes and it is
possible that our automated processes result in our insuring loans
that we would not otherwise have insured under our prior
processes.
Approximately 71% of our NIW during the first three quarters of
2023 and 72% of our 2022 NIW was originated under delegated
underwriting programs pursuant to which the loan originators had
authority on our behalf to underwrite the loans for our mortgage
insurance. For loans originated through a delegated underwriting
program, we depend on the originators' compliance with our
guidelines and rely on the originators' representations that the
loans being insured satisfy the underwriting guidelines,
eligibility criteria and other requirements. While we have
established systems and processes to monitor whether certain
aspects of our underwriting guidelines were being followed by the
originators, such systems may not ensure that the guidelines were
being strictly followed at the time the loans were originated.
The widespread use of risk-based pricing systems by the private
mortgage insurance industry (discussed in our risk factor titled
"Competition or changes in our relationships with our customers
could reduce our revenues, reduce our premium yields
and / or increase our losses") makes it more
difficult to compare our premium rates to those offered by our
competitors. We may not be aware of industry rate changes until we
observe that our mix of new insurance written has changed and our
mix may fluctuate more as a result.
If state or federal regulations or statutes are changed in ways
that ease mortgage lending standards and/or requirements, or if
lenders seek ways to replace business in times of lower mortgage
originations, it is possible that more mortgage loans could be
originated with higher risk characteristics than are currently
being originated, such as loans with lower FICO scores and higher
DTI ratios. The focus of the new FHFA leadership on increasing
homeownership opportunities for borrowers is likely to have this
effect. Lenders could pressure mortgage insurers to insure such
loans, which are expected to experience higher claim rates.
Although we attempt to incorporate these higher expected claim
rates into our underwriting and pricing models, there can be no
assurance that the premiums earned and the associated investment
income will be adequate to compensate for actual losses paid even
under our current underwriting requirements.
The premiums we charge may not be adequate to compensate
us for our liabilities for losses and as a result any inadequacy
could materially affect our financial condition and results of
operations.
When we set our premiums at policy issuance, we have
expectations regarding likely performance of the insured risks over
the long term. Generally, we cannot cancel mortgage insurance
coverage or adjust renewal premiums during the life of a policy. As
a result, higher than anticipated claims generally cannot be offset
by premium increases on policies in force or mitigated by our
non-renewal or cancellation of insurance coverage. Our premiums are
subject to approval by state regulatory agencies, which can delay
or limit our ability to increase premiums on future policies. In
addition, our customized rate plans may delay our ability to
increase premiums on future policies covered by such plans. The
premiums we charge, the investment income we earn and the amount of
reinsurance we carry may not be adequate to compensate us for the
risks and costs associated with the insurance coverage provided to
customers. An increase in the number or size of claims, compared to
what we anticipated when we set the premiums, could adversely
affect our results of operations or financial condition. Our
premium rates are also based in part on the amount of capital we
are required to hold against the insured risk. If the amount of
capital we are required to hold increases from the amount we were
required to hold when we set the premiums, our returns may be lower
than we assumed. For a discussion of the amount of capital we are
required to hold, see our risk factor titled "We may not
continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease if we are required to
maintain more capital in order to maintain our
eligibility."
Actual or perceived instability in the financial services
industry or non-performance by financial institutions or
transactional counterparties could materially impact our
business.
Limited liquidity, defaults, non-performance or other adverse
developments that affect financial institutions, transactional
counterparties or other companies in the financial services
industry with which we do business, or concerns or rumors about the
possibility of such events, have in the past and may in the future
lead to market-wide liquidity problems. Such conditions may
negatively impact our results and/or financial condition.
While we are unable to predict the full impact of these conditions,
they may lead to among other things: disruption to the mortgage
market, delayed access to deposits or other financial assets;
losses of deposits in excess of federally-insured levels; reduced
access to, or increased costs associated with, funding sources and
other credit arrangements adequate to finance our current or future
operations; increased regulatory pressure; the inability of our
counterparties and/or customers to meet their obligations to us;
economic downturn; and rising unemployment levels. Refer to our
risk factor titled "Downturns in the domestic economy or
declines in home prices may result in more homeowners defaulting
and our losses increasing, with a corresponding decrease in our
returns" for more information about the potential effects of a
deterioration of economic conditions on our business.
We routinely execute transactions with counterparties in the
financial services industry, including commercial banks, brokers
and dealers, investment banks, reinsurers, and our customers. Many
of these transactions expose us to credit risk and losses in the
event of a default by a counterparty or customer. Any such losses
could have a material adverse effect on our financial condition and
results of operations.
We rely on our management team and our business could be
harmed if we are unable to retain qualified personnel or
successfully develop and/or recruit their replacements.
Our success depends, in part, on the skills, working
relationships and continued services of our management team and
other key personnel. The unexpected departure of key personnel
could adversely affect the conduct of our business. In such event,
we would be required to obtain other personnel to manage and
operate our business. In addition, we will be required to replace
the knowledge and expertise of our aging workforce as our workers
retire. In either case, there can be no assurance that we would be
able to develop or recruit suitable replacements for the departing
individuals; that replacements could be hired, if necessary, on
terms that are favorable to us; or that we can successfully
transition such replacements in a timely manner. We currently have
not entered into any employment agreements with our officers or key
personnel. Volatility or lack of performance in our stock price may
affect our ability to retain our key personnel or attract
replacements should key personnel depart. Without a properly
skilled and experienced workforce, our costs, including
productivity costs and costs to replace employees may increase, and
this could negatively impact our earnings.
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses.
The private mortgage insurance industry is highly competitive
and is expected to remain so. We believe we currently compete with
other private mortgage insurers based on premium rates,
underwriting requirements, financial strength (including based on
credit or financial strength ratings), customer relationships, name
recognition, reputation, strength of management teams and field
organizations, the ancillary products and services provided to
lenders, and the effective use of technology and innovation in the
delivery and servicing of our mortgage insurance products.
Our relationships with our customers, which may affect the
amount of our NIW, could be adversely affected by a variety of
factors, including if our premium rates are higher than those of
our competitors, our underwriting requirements are more restrictive
than those of our competitors, or our customers are dissatisfied
with our claims-paying practices (including insurance policy
rescissions and claim curtailments).
In recent years, the industry has materially reduced its use of
standard rate cards, which were fairly consistent among
competitors, and correspondingly increased its use of (i) pricing
systems that use a spectrum of filed rates to allow for formulaic,
risk-based pricing based on multiple attributes that may be quickly
adjusted within certain parameters, and (ii) customized rate
plans. The widespread use of risk-based pricing systems by the
private mortgage insurance industry makes it more difficult to
compare our rates to those offered by our competitors. We may not
be aware of industry rate changes until we observe that our volume
of NIW has changed. In addition, business under customized rate
plans is awarded by certain customers for only limited periods of
time. As a result, our NIW may fluctuate more than it had in the
past. Regarding the concentration of our new business, our top ten
customers accounted for approximately 37% and 32% in the twelve
months ended September 30, 2023 and
September 30, 2022, respectively.
We monitor various competitive and economic factors while
seeking to balance both profitability and market share
considerations in developing our pricing strategies. Our premium
yield is expected to decline over time as older insurance policies
with premium rates that are generally higher run off and new
insurance policies with premium rates that are generally lower
remain on our books.
Certain of our competitors have access to capital at a lower
cost than we do (including, through off-shore intercompany
reinsurance vehicles, which have tax advantages that may increase
if U.S. corporate income taxes increase). As a result, they may be
able to achieve higher after-tax rates of return on their NIW
compared to us, which could allow them to leverage reduced premium
rates to gain market share, and they may be better positioned to
compete outside of traditional mortgage insurance, including by
participating in alternative forms of credit enhancement pursued by
the GSEs discussed in our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage insurance or are
unable to obtain capital relief for mortgage insurance."
Although the current PMIERs of the GSEs do not require an
insurer to maintain minimum financial strength ratings, our
financial strength ratings can affect us in the ways set forth
below. If we are unable to compete effectively in the current or
any future markets as a result of the financial strength ratings
assigned to our insurance subsidiaries, our future NIW could be
negatively affected.
- A downgrade in our financial strength ratings could result in
increased scrutiny of our financial condition by the GSEs and/or
our customers, potentially resulting in a decrease in the amount of
our NIW.
- Our ability to participate in the non-GSE residential
mortgage-backed securities market (the size of which has been
limited since 2008, but may grow in the future), could depend on
our ability to maintain and improve our investment grade ratings
for our insurance subsidiaries. We could be competitively
disadvantaged with some market participants because the financial
strength ratings of our insurance subsidiaries are lower than those
of some competitors. MGIC's financial strength rating from A.M.
Best is A- (with a positive outlook), from Moody's is A3 (with a
stable outlook) and from Standard & Poor's is BBB+ (with a
stable outlook).
- Financial strength ratings may also play a greater role if the
GSEs no longer operate in their current capacities, for example,
due to legislative or regulatory action. In addition, although the
PMIERs do not require minimum financial strength ratings, the GSEs
consider financial strength ratings to be important when using
forms of credit enhancement other than traditional mortgage
insurance, as discussed in our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage insurance or are
unable to obtain capital relief for mortgage insurance." The
final GSE capital framework provides more capital credit for
transactions with higher rated counterparties, as well as those who
are diversified. Although we are currently unaware of a direct
impact on MGIC, this could potentially become a competitive
disadvantage in the future.
Standard & Poor's has proposed, but not yet enacted, changes
to its rating methodologies for insurers, including mortgage
insurers. It is uncertain what impact the changes will have,
whether they will prompt similar moves at other rating agencies, or
the extent to which they will impact how external parties evaluate
the different rating levels.
We are subject to the risk of legal
proceedings.
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 herein 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 have been
resolved by rescissions. In the three quarters of 2023 and in 2022,
curtailments reduced our average claim paid by approximately 6.1%
and 6.3%, respectively. The COVID-19-related foreclosure
moratoriums and forbearance plans, along with increased home
prices, resulted in decreased 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.
From time to time, we are involved in 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.
The COVID-19 pandemic may materially impact our business
and future financial condition.
The COVID-19 pandemic materially impacted our 2020 financial
results. While the initial impact of COVID-19 on our business has
moderated, the extent to which COVID-19 may materially affect our
business and future financial condition is uncertain and cannot be
predicted. The magnitude of any future impact could be
influenced by various factors. The COVID-19 pandemic may affect our
business in other ways, as described in more detail in these risk
factors.
Forbearance for borrowers who were affected by COVID-19 allows
mortgage payments to be suspended for a period of time.
Historically, forbearance plans have reduced the incidence of our
losses on affected loans. Whether a loan delinquency will cure,
including through modification, when forbearance ends will depend
on the economic circumstances of the borrower at that time. The
severity of losses associated with delinquencies that do not cure
will depend on economic conditions at that time, including home
prices.
Our success depends, in part, on our ability to manage
risks in our investment portfolio.
Our investment portfolio is an important source of revenue and
is our primary source of claims paying resources. Although our
investment portfolio consists mostly of highly-rated fixed income
investments, our investment portfolio is affected by general
economic conditions and tax policy, which may adversely affect the
markets for credit and interest-rate-sensitive securities,
including the extent and timing of investor participation in these
markets, the level and volatility of interest rates and credit
spreads and, consequently, the value of our fixed income
securities. Prevailing market rates have increased for various
reasons, including inflationary pressures, which has reduced the
fair value of our investment portfolio holdings relative to their
amortized cost. The value of our investment portfolio may also be
adversely affected by ratings downgrades, increased bankruptcies,
and credit spreads widening. In addition, the collectability and
valuation of our municipal bond portfolio may be adversely affected
by budget deficits, and declining tax bases and revenues
experienced by state and local municipalities. Our investment
portfolio also includes commercial mortgage-backed securities,
collateralized loan obligations, and asset-backed securities, which
could be adversely affected by declines in real estate valuations,
increases in unemployment, geopolitical risks and/or financial
market disruption, including more restrictive lending conditions
and a heightened collection risk on the underlying loans. As a
result of these matters, we may not achieve our investment
objectives and a reduction in the market value of our investments
could have an adverse effect on our liquidity, financial condition
and results of operations.
For the significant portion of our investment portfolio that is
held by MGIC, to receive full capital credit under insurance
regulatory requirements and under the PMIERs, we generally are
limited to investing in investment grade fixed income securities
whose yields reflect their lower credit risk profile. Our
investment income depends upon the size of the portfolio and its
reinvestment at prevailing interest rates. A prolonged period of
low investment yields would have an adverse impact on our
investment income as would a decrease in the size of the
portfolio.
We structure our investment portfolio to satisfy our expected
liabilities, including claim payments in our mortgage insurance
business. If we underestimate our liabilities or improperly
structure our investments to meet these liabilities, we could have
unexpected losses resulting from the forced liquidation of fixed
income investments before their maturity, which could adversely
affect our results of operations.
Our holding company debt obligations are
material.
At September 30, 2023, we had
approximately $723 million in cash
and investments at our holding company and our holding company's
long-term debt obligations were $650
million in aggregate principal amount. Annual debt service
on the long-term debt obligations outstanding as of September 30, 2023, is approximately $34 million.
The long-term debt obligations are owed by our holding company,
MGIC Investment Corporation, and not its subsidiaries. The payment
of dividends from MGIC is the principal source of our holding
company cash inflow. Other sources of holding company cash inflow
include settlements under intercompany tax and expense sharing
agreements, investment income and raising capital in the public
markets. Although MGIC holds assets in excess of its minimum
statutory capital requirements and its PMIERs financial
requirements, the ability of MGIC to pay dividends is restricted by
insurance regulation. In general, dividends in excess of prescribed
limits are deemed "extraordinary" and may not be paid if
disapproved by the OCI. In 2023, MGIC can pay $92 million of
ordinary dividends without OCI approval, before taking into
consideration dividends paid in the preceding twelve months. A
dividend is extraordinary when the proposed dividend amount plus
dividends paid in the last twelve months from the dividend payment
date exceed the ordinary dividend level. In the twelve months ended
September 30, 2023, MGIC paid
$700 million in dividends to the
holding company. Future dividend payments from MGIC to the holding
company will be determined in consultation with the board of
directors, and after considering any updated estimates about our
business.
If any capital contributions to our subsidiaries are required,
such contributions would decrease our holding company cash and
investments.
Your ownership in our company may be diluted by additional
capital that we raise.
As noted above under our risk factor titled "We may not
continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease if we are required to
maintain more capital in order to maintain our eligibility,"
although we are currently in compliance with the requirements of
the PMIERs, there can be no assurance that we would not seek to
issue additional debt capital or to raise additional equity or
equity-linked capital to manage our capital position under the
PMIERs or for other purposes. Any future issuance of equity
securities may dilute your ownership interest in our company. In
addition, the market price of our common stock could decline as a
result of sales of a large number of shares or similar securities
in the market or the perception that such sales could occur.
The price of our common stock may fluctuate significantly,
which may make it difficult for holders to resell common stock when
they want or at a price they find attractive.
The market price for our common stock may fluctuate
significantly. In addition to the risk factors described herein,
the following factors may have an adverse impact on the market
price for our common stock: changes in general conditions in the
economy, the mortgage insurance industry or the financial stability
of markets and financial services industry; announcements by us or
our competitors of acquisitions or strategic initiatives; our
actual or anticipated quarterly and annual operating results;
changes in expectations of future financial performance (including
incurred losses on our insurance in force); changes in estimates of
securities analysts or rating agencies; actual or anticipated
changes in our share repurchase program or dividends; changes in
operating performance or market valuation of companies in the
mortgage insurance industry; the addition or departure of key
personnel; changes in tax law; and adverse press or news
announcements affecting us or the industry. In addition, ownership
by certain types of investors may affect the market price and
trading volume of our common stock. For example, ownership in our
common stock by investors such as index funds and exchange-traded
funds can affect the stock's price when those investors must
purchase or sell our common stock because the investors have
experienced significant cash inflows or outflows, the index to
which our common stock belongs has been rebalanced, or our common
stock is added to and/or removed from an index (due to changes in
our market capitalization, for example).
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SOURCE MGIC Investment Corporation