MGIC Investment Corporation Reports Second Quarter 2014 Results
New insurance written in the second quarter was
At
Total revenues for the second quarter were
Losses incurred in the second quarter were
Conference Call and Webcast Details
About MGIC
MGIC (www.mgic.com), the principal subsidiary of
This press release, which includes certain additional statistical and other information, including non-GAAP financial information and a supplement that contains various portfolio statistics are both available on the Company's website at http://mtg.mgic.com/ under Investor Information, Press Releases or Presentations/Webcasts.
From time to time
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
As used below, "we," "our" and "us" refer to
Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the
In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Quarterly Report on Form 10-Q for the quarter ended
We may not continue to meet the GSEs' mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain significantly more capital in order to maintain our eligibility.
Since 2008, substantially all of our insurance written has been for loans sold to
On
The PMIERs will become effective 180 days after their publication in final form (the "publication date"). Mortgage insurers would have up to two years after the publication date to meet the GSE Financial Requirements (the "transition period"). During the transition period, a mortgage insurer that fails to meet the GSE Financial Requirements would be subject to a transition plan having milestones for actions to achieve compliance. The transition plan would be submitted for the approval of each GSE within 90 days after the effective date, and if approved, the GSEs would monitor the insurer's progress. During the transition period for an insurer with an approved transition plan, an insurer would be in remediation (a status similar to the one under which MGIC has been operating with the GSEs for over five years) and eligible to provide mortgage insurance on loans owned or guaranteed by the GSEs.
Although we believe we have sufficient claims paying resources to meet our claim obligations on our insurance in force on a timely basis, we estimate that if the draft PMIERs are implemented as released, as of
As of
- Changes in the actual PMIERs adopted from the draft PMIERs may increase the amount of the MGIC's Minimum Required Assets or reduce its Available Assets, with the result that the shortfall in Available Assets could increase;
- We may not obtain regulatory approval to transfer assets from MGIC's regulated insurance affiliates to the extent we are assuming because regulators project higher losses than we project or require a level of capital be maintained in these companies higher than we are assuming;
- We may not be able to access the non-dilutive debt markets due to market conditions, concern about our creditworthiness, or other factors, in a manner sufficient to provide the funds we are assuming;
- We may not be able to achieve modifications in our existing reinsurance arrangements necessary to minimize the reduction in the credit for reinsurance under the draft PMIERs; and
- We may not be able to obtain additional reinsurance necessary to further reduce the Minimum Required Assets due to market capacity, pricing or other reasons.
You should read the rest of these risk factors for information about matters that also could negatively affect MGIC's compliance with the GSE Financial Requirements. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby reducing our Available Assets and increasing our shortfall in Available Assets, or they could increase the Minimum Required Assets, also increasing our shortfall in Available Assets.
There also can be no assurance that the GSEs would not make the GSE Financial Requirements more onerous in the future; in this regard, the draft PMIERs provide that the tables of factors that determine Minimum Required Assets may be updated to reflect changes in risk characteristics and the macroeconomic environment. If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volume of our new business writings.
If we increase the amount of Available Assets we hold in order to continue to insure GSE loans, the amount of capital we hold may increase. If we increase the amount of capital we hold with respect to insured loans, our returns may decrease unless we increase premiums by a commensurate amount. An increase in premium rates may not be feasible for a number of reasons, including competition from other private mortgage insurers, the FHA or other credit enhancement products.
State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including
In 2013, we entered into a quota share reinsurance transaction with a group of unaffiliated reinsurers that reduced our risk-to-capital ratio. At
At
If MGIC fails to meet the State Capital Requirements of
We have in place a longstanding plan to write new business in MIC, a direct subsidiary of MGIC, in the event MGIC cannot meet the State Capital Requirements of a jurisdiction or obtain a waiver of them. Writing business in MIC would be subject to any repatriation to MGIC of MIC's capital in order to comply with the PMIERs, as discussed in our risk factor titled "We may not continue to meet the GSEs' mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain significantly more capital in order to maintain our eligibility." MIC is licensed to write business in all jurisdictions. During 2012, MIC began writing new business in the jurisdictions where MGIC did not have a waiver of the State Capital Requirements. Because MGIC again meets the State Capital Requirements, MGIC is writing new business in all jurisdictions and MIC suspended writing new business in 2013. As of
We cannot assure you that the OCI or GSEs will approve MIC to write new business in all jurisdictions in which MGIC may become unable to do so. If we are unable to write business in all jurisdictions utilizing a combination of MGIC and MIC, 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 Financial Requirements 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 or increase our losses."
The amount of insurance we write could be adversely affected if the definition of Qualified Residential Mortgage results in a reduced number of low down payment loans available to be insured or if lenders and investors select alternatives to private mortgage insurance.
The financial reform legislation that was passed in
Given the credit characteristics presented to us, we estimate that approximately 87% of our new risk written in 2013 and 84% of our new risk written in the first half of 2014 was for loans that would have met the CFPB's general QM definition. We estimate that approximately 99% of our new risk written in 2013 and in the first half of 2014 was for loans that would have met the CFPB's QM definition, when giving effect to the temporary category. In making these estimates, we have not considered the limitation on points and fees because the information is not available to us. We do not believe such limitation would materially affect the percentage of our new risk written meeting the QM definitions.
The Dodd-Frank Act requires a securitizer to retain at least 5% of the risk associated with mortgage loans that are securitized, and in some cases the retained risk may be allocated between the securitizer and the lender that originated the loan. This risk retention requirement does not apply to mortgage loans that are Qualified Residential Mortgages ("QRMs") or that are insured by the FHA or another federal agency. In 2011, federal regulators released a proposed risk retention rule that included a definition of QRM. In response to public comments regarding the proposed rule, federal regulators issued a revised proposed rule in
The amount of new insurance that we write may be materially adversely affected depending on, among other things, (a) the final definition of QRM and its LTV requirements and (b) whether lenders choose mortgage insurance for non-QRM loans. In addition, changes in the final regulations regarding treatment of GSE-guaranteed mortgage loans, or changes in the conservatorship or capital support provided to the GSEs by the
Alternatives to private mortgage insurance include:
- lenders using government mortgage insurance programs, including those of the FHA and the
Veterans Administration , - lenders and other investors holding mortgages in portfolio and self-insuring,
- investors (including the GSEs) using risk mitigation techniques other than private mortgage insurance, such as obtaining insurance from non-mortgage insurers and engaging in credit-linked note transactions executed in the capital markets; using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage; or accepting credit risk without credit enhancement, and
- lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ratio and a second mortgage with a 10%, 15% or 20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans, respectively) rather than a first mortgage with a 90%, 95% or 100% loan-to-value ratio that has private mortgage insurance.
The FHA substantially increased its market share beginning in 2008, and beginning in 2011, that market share began to gradually decline. We believe that the FHA's market share increased, in part, because private mortgage insurers tightened their underwriting guidelines (which led to increased utilization of the FHA's programs) and because of increases in the amount of loan level price adjustments that the GSEs assess on loans (which result in higher costs to borrowers). In addition, federal legislation and programs provided the FHA with greater flexibility in establishing new products and increased the FHA's competitive position against private mortgage insurers. We believe that the FHA's current premium pricing, when compared to our current credit-tiered premium pricing (and considering the effects of GSE pricing changes), has allowed us to be more competitive with the FHA than in the recent past for loans with high FICO credit scores. We cannot predict, however, the FHA's share of new insurance written in the future due to, among other factors, different loan eligibility terms between the FHA and the GSEs; future changes to GSE guaranty fees and/or loan level price adjustments; changes to the FHA's annual premiums; and the total profitability that may be realized by mortgage lenders from securitizing loans through
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
Since 2008, substantially all of our insurance written has been for loans sold to
- the level of private mortgage insurance coverage, subject to the limitations of the GSEs' charters (which may be changed by federal legislation), when private mortgage insurance is used as the required credit enhancement on low down payment mortgages,
- the amount of loan level price adjustments and guaranty fees (which result in higher costs to borrowers) that the GSEs assess on loans that require mortgage insurance,
- whether the GSEs influence the mortgage lender's selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection,
- the underwriting standards that determine what loans are eligible for purchase by the GSEs, which can affect the quality of the risk insured by the mortgage insurer and the availability of mortgage loans,
- the terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law,
- the programs established by the GSEs intended to avoid or mitigate loss on insured mortgages and the circumstances in which mortgage servicers must implement such programs,
- the terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase,
- the extent to which the GSEs intervene in mortgage insurers' rescission practices or rescission settlement practices with lenders. For additional information, see our risk factor titled "We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future," and
- the maximum loan limits of the GSEs in comparison to those of the FHA and other investors.
The FHFA is the conservator of the GSEs and has the authority to control and direct their operations. The increased role that the federal government has assumed in the residential mortgage market through the GSE conservatorship may increase the likelihood that the business practices of the GSEs change in ways that have a material adverse effect on us. In addition, these factors may increase the likelihood that the charters of the GSEs are changed by new federal legislation. The Dodd-Frank Act required the
The GSEs have different loan purchase programs that allow different levels of mortgage insurance coverage. Under the "charter coverage" program, on certain loans lenders may choose a mortgage insurance coverage percentage that is less than the GSEs' "standard coverage" and only the minimum required by the GSEs' charters, with the GSEs paying a lower price for such loans. In 2013 and in the first half of 2014, nearly all of our volume was on loans with GSE standard or higher coverage. We charge higher premium rates for higher coverage percentages. To the extent lenders selling loans to the GSEs in the future choose lower coverage for loans that we insure, our revenues would be reduced and we could experience other adverse effects.
The benefit of our net operating loss carryforwards may become substantially limited.
As of
While we have adopted a shareholder rights agreement to minimize the likelihood of transactions in our stock resulting in an ownership change, future issuances of equity-linked securities or transactions in our stock and equity-linked securities that may not be within our control may cause us to experience an ownership change. If we experience an ownership change, we may not be able to fully utilize our net operating losses, resulting in additional income taxes and a reduction in our shareholders' equity.
We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future.
Before paying a claim, we review the loan and servicing files to determine the appropriateness of the claim amount. All of our insurance policies provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy, including the requirement to mitigate our loss by performing reasonable loss mitigation efforts or, for example, diligently pursuing a foreclosure or bankruptcy relief in a timely manner. We call such reduction of claims submitted to us "curtailments." In 2013 and the first half of 2014, curtailments reduced our average claim paid by approximately 5.8% and 6.2%, respectively. In addition, the claims submitted to us sometimes include costs and expenses not covered by our insurance policies, such as hazard insurance premiums for periods after the claim date and losses resulting from property damage that has not been repaired. These other adjustments reduced claim amounts by less than the amount of curtailments. After we pay a claim, servicers and insureds sometimes object to our curtailments and other adjustments. We review these objections if they are sent to us within 90 days after the claim was paid.
When reviewing the loan file associated with a claim, we may determine that we have the right to rescind coverage on the loan. Prior to 2008, rescissions of coverage on loans were not a material portion of our claims resolved during a year. However, beginning in 2008, our rescissions of coverage on loans have materially mitigated our paid losses. In 2009 through 2011, rescissions mitigated our paid losses in the aggregate by approximately
We estimate rescissions mitigated our incurred losses by approximately
If the insured disputes our right to rescind coverage, we generally engage in discussions in an attempt to settle the dispute. As part of those discussions, we may voluntarily suspend rescissions we believe may be part of a settlement. In 2011,
If we are unable to reach a settlement, the outcome of a dispute ultimately would be determined by legal proceedings. Under our policies, legal proceedings disputing our right to rescind coverage may be brought up to three years after the lender has obtained title to the property (typically through a foreclosure) or the property was sold in a sale that we approved, whichever is applicable, although in a few jurisdictions there is a longer time to bring such an action.
Until a liability associated with a settlement agreement or litigation becomes probable and can be reasonably estimated, we consider our claim payment or rescission resolved for financial reporting purposes even though discussions and legal proceedings have been initiated and are ongoing. Under ASC 450-20, an estimated loss from such discussions and proceedings is accrued for only if we determine that the loss is probable and can be reasonably estimated.
Since
In
The Agreement with BANA covers loans purchased by the GSEs. That Agreement was implemented beginning in
The Agreement with CHL covers loans that were purchased by non-GSE investors, including securitization trusts (the "other investors"). That Agreement will be implemented only as and to the extent that it is consented to by or on behalf of the other investors, and any such implementation is expected to occur later in 2014. While there can be no assurance that the Agreement with CHL will be implemented, we have determined that its implementation is probable.
We recorded the estimated impact of the Agreements and another probable settlement in our financial statements for the quarter ending
The flow policies at issue with Countrywide are in the same form as the flow policies that we used with all of our customers during the period covered by the Agreements, and the bulk policies at issue vary from one another, but are generally similar to those used in the majority of our
We are involved in discussions and legal and consensual proceedings with customers with respect to our claims paying practices. These include a previously disclosed curtailment dispute with Countrywide that is in a mediation process. Although it is reasonably possible that when these discussions or proceedings are completed we will not prevail in all cases, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with these discussions and proceedings to be approximately
The estimates of our maximum exposure referred to above do not include interest or consequential or exemplary damages.
Consumers continue to bring lawsuits against home mortgage lenders and settlement service providers. Mortgage insurers, including MGIC, have been involved in litigation alleging violations of the anti-referral fee provisions of the Real Estate Settlement Procedures Act, which is commonly known as RESPA, and the notice provisions of the Fair Credit Reporting Act, which is commonly known as FCRA. MGIC's settlement of class action litigation against it under RESPA became final in
In 2013, the
We received requests from the
Various regulators, including the CFPB, state insurance commissioners and state attorneys general may bring actions seeking various forms of relief in connection with violations of RESPA. The insurance law provisions of many states prohibit paying for the referral of insurance business and provide various mechanisms to enforce this prohibition. While we believe our practices are in conformity with applicable laws and regulations, it is not possible to predict the eventual scope, duration or outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.
We are subject to comprehensive, detailed regulation by state insurance departments. These regulations are principally designed for the protection of our insured policyholders, rather than for the benefit of investors. 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. Given the recent significant losses incurred by many insurers in the mortgage and financial guaranty industries, our insurance subsidiaries have been subject to heightened scrutiny by insurance regulators. State insurance regulatory authorities could take actions, including changes in capital requirements or termination of waivers of capital requirements, that could have a material adverse effect on us. As noted above, in early 2013, the CFPB issued rules to implement laws requiring mortgage lenders to make ability-to-repay determinations prior to extending credit. We are uncertain whether the CFPB will issue any other rules or regulations that affect our business. Such rules and regulations could have a material adverse effect on us.
In
We understand several law firms have, among other things, issued press releases to the effect that they are investigating us, including whether the fiduciaries of our 401(k) plan breached their fiduciary duties regarding the plan's investment in or holding of our common stock or whether we breached other legal or fiduciary obligations to our shareholders. We intend to defend vigorously any proceedings that may result from these investigations. With limited exceptions, our bylaws provide that our officers and 401(k) plan fiduciaries are entitled to indemnification from us for claims against them.
A non-insurance subsidiary of our holding company is a shareholder of the corporation that operates the Mortgage Electronic Registration System ("MERS"). Our subsidiary, as a shareholder of MERS, has been named as a defendant (along with MERS and its other shareholders) in eight lawsuits asserting various causes of action arising from allegedly improper recording and foreclosure activities by MERS. Seven of these lawsuits have been dismissed without any further opportunity to appeal. The remaining lawsuit had also been dismissed by the
In addition to the matters described above, we are involved in other 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 legal proceedings will not have a material adverse effect on our financial position or results of operations.
Resolution of our dispute with the
The
Our total amount of unrecognized tax benefits as of
We appealed these assessments within the
Because we establish loss reserves only upon a loan default rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.
In accordance with accounting principles generally accepted in
Because loss reserve estimates are subject to uncertainties and are based on assumptions that are currently very volatile, paid claims may be substantially different than our loss reserves.
We establish reserves using estimated claim rates and claim amounts in estimating the ultimate loss on delinquent loans. The estimated claim rates and claim amounts represent our best estimates of what we will actually pay on the loans in default as of the reserve date and incorporate anticipated mitigation from rescissions. We rescind coverage on loans and deny claims in cases where we believe our policy allows us to do so. Therefore, when establishing our loss reserves, we do not include additional loss reserves that would reflect a possible adverse development from ongoing dispute resolution proceedings regarding rescissions and denials unless we have determined that a loss is probable and can be reasonably estimated. For more information regarding our legal proceedings, see our risk factor titled "We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future."
The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. Current conditions in the housing and mortgage industries make the assumptions that we use to establish loss reserves more volatile than they would otherwise be. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be adversely affected by several factors, including a deterioration of regional or national economic conditions, including unemployment, leading to a reduction in borrowers' income and thus their ability to make mortgage payments and a drop in housing values that could result in, among other things, greater losses on loans that have pool insurance, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. Changes to our estimates could result in material impact to our results of operations, even in a stable economic environment For example, better or worse loss development than we had assumed at the end of the prior period could have a material impact on our results. In addition, historically, losses incurred have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new notice activity and a lower cure rate.
We rely on our management team and our business could be harmed if we are unable to retain qualified personnel.
Our industry is undergoing a fundamental shift following the mortgage crisis: long-standing competitors have gone out of business and two newly capitalized start-ups that are not encumbered with a portfolio of pre-crisis mortgages have been formed. Former executives from other mortgage insurers have joined these two new competitors. In addition, in
Our reinsurance transactions with unaffiliated reinsurers allow each reinsurer, under certain circumstances, to terminate such reinsurer's portion of the transactions on a run-off basis if during any six month period two or more of our top five executives leave and such reinsurer objects to the replacements of such executives. We view such a termination as unlikely. No objection was made by the reinsurers within the timeframe allowed under the reinsurance agreement for our Chief Financial Officer replacement in the first quarter of 2014. Therefore, that replacement may no longer be considered for purposes of the termination provision.
Loan modification and other similar programs may not continue to provide benefits to us and our losses on loans that re-default can be higher than what we would have paid had the loan not been modified.
Beginning in the fourth quarter of 2008, the federal government, including through the
One loan modification program is the Home Affordable Modification Program ("HAMP") which began in 2009. We believe that it could take several months from the time a borrower has made all of the payments during HAMP's three month "trial modification" period for the loan to be reported to us as a cured delinquency. We rely on information provided to us by the GSEs and servicers. We do not receive all of the information from such sources that is required to determine with certainty the number of loans that are participating in, have successfully completed, or are eligible to participate in, HAMP. We are aware of approximately 6,270 loans in our primary delinquent inventory at
In 2009, the GSEs began offering the Home Affordable Refinance Program ("HARP"). HARP, which has been extended through
The effect on us of loan modifications depends on how many modified loans subsequently re-default, which in turn can be affected by changes in housing values. Re-defaults can result in losses for us that could be greater than we would have paid had the loan not been modified. At this point, we cannot predict with a high degree of confidence what the ultimate re-default rate will be. Eligibility under certain loan modification programs can also adversely affect us by creating an incentive for borrowers who are able to make their mortgage payments to become delinquent in an attempt to obtain the benefits of a modification. New notices of delinquency increase our incurred losses. If legislation is enacted to permit a portion of a borrower's mortgage loan balance to be reduced in bankruptcy and if the borrower re-defaults after such reduction, then the amount we would be responsible to cover would be calculated after adding back the reduction. Unless a lender has obtained our prior approval, if a borrower's mortgage loan balance is reduced outside the bankruptcy context, including in association with a loan modification, and if the borrower re-defaults after such reduction, then under the terms of our policy the amount we would be responsible to cover would be calculated net of the reduction.
If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline, which would reduce our revenues.
The factors that affect the volume of low down payment mortgage originations include:
- restrictions on mortgage credit due to more stringent underwriting standards, liquidity issues and risk-retention requirements associated with non-QRM loans affecting lenders,
- the level of home mortgage interest rates and the deductibility of mortgage interest for income tax purposes,
- the health of the domestic economy as well as conditions in regional and local economies,
- housing affordability,
- population trends, including the rate of household formation,
- the rate of home price appreciation, which in times of heavy refinancing can affect whether refinanced loans have loan-to-value ratios that require private mortgage insurance, and
- government housing policy encouraging loans to first-time homebuyers.
As noted above, the CFPB rules implementing laws requiring mortgage lenders to make ability-to-pay determinations prior to extending credit became effective in
A decline in the volume of low down payment home mortgage originations could decrease demand for mortgage insurance, decrease our new insurance written and reduce our revenues. 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 the definition of Qualified Residential Mortgage results in a reduced number of low down payment loans available to be insured or if lenders and investors select alternatives to private mortgage insurance."
Competition or changes in our relationships with our customers could reduce our revenues or increase our losses.
As noted above, the FHA substantially increased its market share beginning in 2008 and beginning in 2011, that market share began to gradually decline. It is difficult to predict the FHA's future market share due to, among other factors, different loan eligibility terms between the FHA and the GSEs, potential changes in guaranty fees and/or loan level price adjustments charged by the GSEs, changes to the FHA's annual premiums, and the total profitability that may be realized by mortgage lenders from securitizing loans through
In recent years, the level of competition within the private mortgage insurance industry has been intense as many large mortgage lenders reduced the number of private mortgage insurers with whom they do business. At the same time, consolidation among mortgage lenders has increased the share of the mortgage lending market held by large lenders. During 2013 and the first half of 2014, approximately 7% and 4%, respectively, of our new insurance written was for loans for which one lender was the original insured and our revenue from such loans was significantly less than 10% of our revenues during each of those periods. Our private mortgage insurance competitors include:
Genworth Mortgage Insurance Corporation ,United Guaranty Residential Insurance Company ,Radian Guaranty Inc. ,Arch Mortgage Insurance Company ,Essent Guaranty, Inc. , andNational Mortgage Insurance Corporation .
Until 2010 the mortgage insurance industry had not had new entrants in many years. Since 2010, two new public companies were formed and began writing business and a worldwide insurer and reinsurer with mortgage insurance operations in
Our relationships with our customers could be adversely affected by a variety of factors, including tightening of and adherence to our underwriting requirements, which have resulted in our declining to insure some of the loans originated by our customers and insurance rescissions that affect the customer. We have ongoing discussions with lenders who are significant customers regarding their objections to our rescissions.
In the past several years, we believe many lenders considered financial strength and compliance with the State Capital Requirements as important factors when selecting a mortgage insurer. Lenders may consider compliance with the GSE Financial Requirements important when selecting a mortgage insurer in the future. As noted above, we expect MGIC to be in compliance with the GSE Financial Requirements by the end of the transition period and we expect MGIC's risk-to-capital ratio to continue to comply with the current State Capital Requirements. However, we cannot assure you that we will comply with such requirements or that we will comply with any revised State Capital Requirements proposed by the NAIC. For more information, see our risk factors titled "We may not continue to meet the GSEs' mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain significantly more capital in order to maintain our eligibility" and "State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis."
We believe that financial strength ratings may be a significant consideration for participants seeking to secure credit enhancement in the non-GSE mortgage market, which includes most non-QM loans. While this market has been limited since the financial crisis, it may grow in the future. The financial strength ratings of our insurance subsidiaries are lower than those of some competitors and below investment grade levels, therefore, we may be competitively disadvantaged with some market participants. For each of MGIC and MIC, the financial strength rating from
If the GSEs no longer operate in their current capacities, for example, due to legislative or regulatory action, we may be forced to compete in a new marketplace in which financial strength ratings play a greater role. 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 mortgage insurance subsidiaries, our future new insurance written could be negatively affected.
Downturns in the domestic economy or declines in the value of borrowers' homes from their value at the time their loans closed may result in more homeowners defaulting and our losses increasing.
Losses result from events that reduce a borrower's ability to continue to make mortgage payments, such as unemployment, and whether the home of a borrower who defaults on his mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. In general, favorable economic conditions reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. 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 housing values, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments to do so when the mortgage balance exceeds the value of the home. Housing values may decline 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, liquidity issues and risk-retention requirements associated with non-QRM loans affecting lenders, higher interest rates generally or changes to the deductibility of mortgage interest for income tax purposes, or other factors. The residential mortgage market in
The mix of business we write affects the likelihood of losses occurring, our Minimum Required Assets for purposes of the draft GSE Financial Requirements, and our premium yields.
Even when housing values are stable or rising, mortgages with certain characteristics have higher probabilities of claims. These characteristics include loans with loan-to-value ratios over 95% (or in certain markets that have experienced declining housing values, over 90%), FICO credit scores below 620, limited underwriting, including limited borrower documentation, or higher total debt-to-income ratios, as well as loans having combinations of higher risk factors. As of
The Minimum Required Assets for purposes of the draft GSE Financial Requirements are, in part, a function of the direct risk-in-force and the risk profile of the loans we insure, considering loan-to-value ratio, credit score, vintage, HARP status and delinquency status. Therefore, if our mix of business changes to include loans with higher loan-to-value ratios or lower credit scores, for example, we will be required to hold more Available Assets in order to maintain GSE eligibility.
Historically, the level of competition within the private mortgage insurance industry has been intense and is not expected to diminish given the presence of new entrants. Effective in
From time to time, in response to market conditions, we change the types of loans that we insure and the requirements under which we insure them. In 2013, we liberalized our underwriting guidelines somewhat, in part through aligning most of our underwriting requirements with
As noted above in our risk factor titled "State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis," in 2013, we entered into a quota share reinsurance transaction with a group of unaffiliated reinsurers. Although that transaction reduces our premium yields, the transaction will have a lesser impact on our overall results, as losses ceded under this transaction reduce our losses incurred and the ceding commission we receive reduces our underwriting expenses. As of
During the second quarter of 2012, we began writing a portion of our new insurance under an endorsement to our master policy (the "Gold Cert Endorsement"). Our Gold Cert Endorsement limits our ability to rescind coverage under certain circumstances. As of
We revised our master policy to, among other things, comply with various requirements the GSEs have communicated to the industry. These requirements contain limitations on rescission rights that, while generally similar, differ in some respects from the limitations in our Gold Cert Endorsement. The GSEs require the new master policy be used for all loans sold to them with an application date on or after
As of
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 even under our current underwriting requirements. We do, however, believe that given the various changes in our underwriting requirements that were effective beginning in the first quarter of 2008, our insurance written beginning in the second quarter of 2008 will generate underwriting profits.
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.
We set premiums at the time a policy is issued based on our expectations regarding likely performance over the long-term. Our premiums are subject to approval by state regulatory agencies, which can delay or limit our ability to increase our premiums. Generally, we cannot cancel mortgage insurance coverage or adjust renewal premiums during the life of a mortgage insurance 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. The premiums we charge, and the associated investment income, 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 anticipate, could adversely affect our results of operations or financial condition.
In
We continue to experience material losses, especially on the 2006 and 2007 books. The ultimate amount of these losses will depend in part on general economic conditions, including unemployment, and the direction of home prices, which in turn will be influenced by general economic conditions and other factors. Because we cannot predict future home prices or general economic conditions with confidence, there is significant uncertainty surrounding what our ultimate losses will be on our 2006 and 2007 books. Our current expectation, however, is that these books will continue to generate material incurred and paid losses, although declining, for a number of years. There can be no assurance that an additional premium deficiency reserve on Wall Street Bulk or on other portions of our insurance portfolio will not be required.
It is uncertain what effect the extended timeframes in the foreclosure process will have on us.
Over the past several years, the average time it takes to receive a claim associated with a defaulted loan has increased. This is, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation processes. Unless a loan is cured during a foreclosure delay, at the completion of the foreclosure, additional interest and expenses may be due to the lender from the borrower. In some circumstances, our paid claim amount may include some additional interest and expenses.
We are susceptible to disruptions in the servicing of mortgage loans that we insure.
We depend on reliable, consistent third-party servicing of the loans that we insure. Over the last several years, the mortgage loan servicing industry has experienced consolidation. The resulting reduction in the number of servicers could lead to disruptions in the servicing of mortgage loans covered by our insurance policies. In addition, recent housing market trends have led to significant increases in the number of delinquent mortgage loans requiring servicing. These increases have strained the resources of servicers, reducing their ability to undertake mitigation efforts that could help limit our losses, and have resulted in an increasing amount of delinquent loan servicing being transferred to specialty servicers. The transfer of servicing can cause a disruption in the servicing of delinquent loans. Future housing market conditions could lead to additional increases in delinquencies. Managing a substantially higher volume of non-performing loans could lead to increased disruptions in the servicing of mortgages.
If interest rates decline, house prices appreciate or mortgage insurance cancellation requirements change, the length of time that our policies remain in force could decline and result in declines in our revenue.
In each year, most of our premiums are from insurance that has been written in prior years. As a result, the length of time insurance remains in force, which is also generally referred to as persistency, is a significant determinant of our revenues. The factors affecting the length of time our insurance remains in force include:
- the level of current mortgage interest rates compared to the mortgage coupon rates on the insurance in force, which affects the vulnerability of the insurance in force to refinancings, and
- mortgage insurance cancellation policies of mortgage investors along with the current value of the homes underlying the mortgages in the insurance in force.
Our persistency rate was 82.4% at
Our persistency rate is 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. Due to refinancing, we have experienced lower persistency on our 2009 through 2011 books of business. This has been partially offset by higher persistency on our older books of business reflecting the more restrictive credit policies of lenders (which make it more difficult for homeowners to refinance loans), as well as declines in housing values. Future premiums on our insurance in force represent a material portion of our claims paying resources.
Your ownership in our company may be diluted by additional capital that we raise or if the holders of our outstanding convertible debt convert that debt into shares of our common stock.
As noted above under our risk factor titled "We may not continue to meet the GSEs' mortgage insurer eligibility requirements and our returns may decrease if we are required to maintain significantly more capital in order to maintain our eligibility," if the draft PMIERs are implemented as released, we would consider seeking non-dilutive debt capital to mitigate the shortfall in Available Assets. However, there can be no assurance that we would not have to raise additional equity capital. 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.
We have
Our debt obligations materially exceed our holding company cash and investments
At
The Senior Notes, Convertible Senior Notes and Convertible Junior Debentures are obligations of our holding company,
We could be adversely affected if personal information on consumers that we maintain is improperly disclosed.
As part of our business, we maintain large amounts of personal information on consumers. While we believe we have appropriate information security policies and systems to prevent unauthorized disclosure, there can be no assurance that unauthorized disclosure, either through the actions of third parties or employees, will not occur. Unauthorized disclosure could adversely affect our reputation and expose us to material claims for damages.
Our Australian operations may suffer significant losses.
We began international operations in
|
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||||
|
CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||
|
2014 |
2013 |
2014 |
2013 |
||||||
|
(Unaudited) |
|||||||||
|
(In thousands, except per share data) |
|||||||||
|
Net premiums written |
$ 213,385 |
$ 236,622 |
$ 431,405 |
$ 485,122 |
|||||
|
Net premiums earned |
$ 207,486 |
$ 237,777 |
$ 421,747 |
$ 484,836 |
|||||
|
Investment income |
21,180 |
20,883 |
41,336 |
39,211 |
|||||
|
Realized gains, net |
522 |
2,485 |
291 |
3,744 |
|||||
|
Total other-than-temporary impairment losses |
- |
- |
- |
- |
|||||
|
Portion of loss recognized in other comprehensive income (loss), before taxes |
|||||||||
|
- |
- |
- |
- |
||||||
|
Net impairment losses recognized in earnings |
- |
- |
- |
- |
|||||
|
Other revenue |
2,048 |
2,715 |
2,944 |
5,254 |
|||||
|
Total revenues |
231,236 |
263,860 |
466,318 |
533,045 |
|||||
|
Losses and expenses: |
|||||||||
|
Losses incurred |
141,141 |
196,274 |
263,749 |
462,482 |
|||||
|
Change in premium deficiency reserve |
(7,833) |
(11,283) |
(13,006) |
(12,933) |
|||||
|
Underwriting and other expenses, net |
33,914 |
47,562 |
73,314 |
97,574 |
|||||
|
Interest expense |
17,374 |
17,942 |
34,913 |
44,348 |
|||||
|
Total losses and expenses |
184,596 |
250,495 |
358,970 |
591,471 |
|||||
|
Income (loss) before tax |
46,640 |
13,365 |
107,348 |
(58,426) |
|||||
|
Provision for income taxes |
1,118 |
990 |
1,844 |
2,129 |
|||||
|
Net income (loss) |
$ 45,522 |
$ 12,375 |
$ 105,504 |
$ (60,555) |
|||||
|
Diluted weighted average common shares outstanding |
|||||||||
|
413,481 |
339,341 |
413,374 |
285,336 |
||||||
|
Diluted earnings (loss) per share |
$ 0.12 |
$ 0.04 |
$ 0.27 |
$ (0.21) |
|||||
|
NOTE: See "Certain Non-GAAP Financial Measures" for diluted earnings per share contribution from realized gains and losses. |
|||||||||
|
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES |
|||||||
|
CONSOLIDATED BALANCE SHEET AS OF |
|||||||
|
June 30, |
December 31, |
June 30, |
|||||
|
2014 |
2013 |
2013 |
|||||
|
(Unaudited) |
|||||||
|
(In thousands, except per share data) |
|||||||
|
ASSETS |
|||||||
|
Investments (1) |
$ 4,614,479 |
$ 4,866,819 |
$ 4,998,991 |
||||
|
Cash and cash equivalents |
359,803 |
350,132 |
631,797 |
||||
|
Prepaid reinsurance premiums |
40,261 |
36,243 |
4,306 |
||||
|
Reinsurance recoverable on loss reserves (2) |
57,763 |
64,085 |
83,898 |
||||
|
Home office and equipment, net |
28,336 |
26,185 |
26,566 |
||||
|
Deferred insurance policy acquisition costs |
10,676 |
9,721 |
12,378 |
||||
|
Other assets |
267,826 |
248,205 |
285,577 |
||||
|
$ 5,379,144 |
$ 5,601,390 |
$ 6,043,513 |
|||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
|
Liabilities: |
|||||||
|
Loss reserves (2) |
$ 2,675,594 |
$ 3,061,401 |
$ 3,599,308 |
||||
|
Premium deficiency reserve |
35,455 |
48,461 |
60,848 |
||||
|
Unearned premiums |
168,200 |
154,479 |
142,418 |
||||
|
Senior notes |
61,894 |
82,773 |
82,742 |
||||
|
Convertible senior notes |
845,000 |
845,000 |
845,000 |
||||
|
Convertible junior debentures |
389,522 |
389,522 |
389,522 |
||||
|
Other liabilities |
271,864 |
275,216 |
243,013 |
||||
|
Total liabilities |
4,447,529 |
4,856,852 |
5,362,851 |
||||
|
Shareholders' equity |
931,615 |
744,538 |
680,662 |
||||
|
$ 5,379,144 |
$ 5,601,390 |
$ 6,043,513 |
|||||
|
Book value per share (3) |
$ 2.75 |
$ 2.20 |
$ 2.02 |
||||
|
(1) |
Investments include net unrealized losses on securities |
(155) |
(84,634) |
(68,090) |
|||
|
(2) |
Loss reserves, net of reinsurance recoverable on loss reserves |
2,617,831 |
2,997,316 |
3,515,410 |
|||
|
(3) |
Shares outstanding |
338,560 |
337,758 |
337,758 |
|||
|
CERTAIN NON-GAAP FINANCIAL MEASURES |
|||||||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||
|
2014 |
2013 |
2014 |
2013 |
||||||
|
(Unaudited) |
|||||||||
|
(In thousands, except per share data) |
|||||||||
|
Diluted earnings per share contribution from realized gains: |
|||||||||
|
Realized gains and impairment losses |
$ 522 |
$ 2,485 |
$ 291 |
$ 3,744 |
|||||
|
Income taxes at 35% (1) |
- |
- |
- |
- |
|||||
|
After tax realized gains |
522 |
2,485 |
291 |
3,744 |
|||||
|
Weighted average shares |
413,481 |
339,341 |
413,374 |
285,336 |
|||||
|
Diluted EPS contribution from realized gains and impairment losses |
|||||||||
|
$ - |
$ 0.01 |
$ - |
$ 0.01 |
||||||
|
(1) |
Due to the establishment of a valuation allowance, income taxes provided are not currently affected by realized gains or losses. |
|||||||
|
Management believes the diluted earnings per share contribution from realized gains or losses provides useful information to investors because it shows the after-tax effect of these items, which can be discretionary. |
||||||||
|
Q1 2013 |
Q2 2013 |
Q3 2013 |
Q4 2013 |
Q1 2014 |
Q2 2014 |
|||||||
|
New primary insurance written (NIW) (billions) |
$ 6.5 |
$ 8.0 |
$ 8.6 |
$ 6.7 |
$ 5.2 |
$ 8.3 |
||||||
|
New primary risk written (billions) |
$ 1.6 |
$ 2.0 |
$ 2.2 |
$ 1.7 |
$ 1.3 |
$ 2.1 |
||||||
|
Product mix as a % of primary flow NIW |
||||||||||||
|
>95% LTVs |
4% |
5% |
5% |
6% |
2% |
2% |
||||||
|
ARMs |
1% |
1% |
1% |
1% |
1% |
1% |
||||||
|
Refinances |
46% |
30% |
18% |
13% |
15% |
10% |
||||||
|
Primary Insurance In Force (IIF) (billions) (1) |
$ 159.5 |
$ 158.6 |
$ 159.2 |
$ 158.7 |
$ 157.9 |
$ 159.3 |
||||||
|
Flow |
$ 144.7 |
$ 144.4 |
$ 145.5 |
$ 145.5 |
$ 145.0 |
$ 146.8 |
||||||
|
Bulk |
$ 14.8 |
$ 14.2 |
$ 13.7 |
$ 13.2 |
$ 12.9 |
$ 12.5 |
||||||
|
Prime (620 & >) |
$ 139.3 |
$ 139.3 |
$ 140.7 |
$ 141.0 |
$ 140.8 |
$ 142.9 |
||||||
|
A minus (575 - 619) |
$ 7.8 |
$ 7.5 |
$ 7.2 |
$ 6.9 |
$ 6.7 |
$ 6.4 |
||||||
|
Sub-Prime (< 575) |
$ 2.2 |
$ 2.1 |
$ 2.0 |
$ 1.9 |
$ 1.9 |
$ 1.8 |
||||||
|
Reduced Doc (All FICOs) |
$ 10.2 |
$ 9.7 |
$ 9.3 |
$ 8.9 |
$ 8.5 |
$ 8.2 |
||||||
|
Annual Persistency |
78.7% |
78.0% |
78.3% |
79.5% |
81.1% |
82.4% |
||||||
|
Primary Risk In Force (RIF) (billions) (1) |
$ 41.1 |
$ 40.9 |
$ 41.1 |
$ 41.1 |
$ 40.9 |
$ 41.4 |
||||||
|
Prime (620 & >) |
$ 35.5 |
$ 35.6 |
$ 36.0 |
$ 36.2 |
$ 36.3 |
$ 36.9 |
||||||
|
A minus (575 - 619) |
$ 2.2 |
$ 2.1 |
$ 2.0 |
$ 1.9 |
$ 1.8 |
$ 1.8 |
||||||
|
Sub-Prime (< 575) |
$ 0.6 |
$ 0.6 |
$ 0.6 |
$ 0.6 |
$ 0.5 |
$ 0.5 |
||||||
|
Reduced Doc (All FICOs) |
$ 2.8 |
$ 2.6 |
$ 2.5 |
$ 2.4 |
$ 2.3 |
$ 2.2 |
||||||
|
RIF by FICO |
||||||||||||
|
FICO 620 & > |
92.4% |
92.7% |
93.0% |
93.3% |
93.5% |
93.7% |
||||||
|
FICO 575 - 619 |
5.8% |
5.6% |
5.4% |
5.1% |
5.0% |
4.8% |
||||||
|
FICO < 575 |
1.8% |
1.7% |
1.6% |
1.6% |
1.5% |
1.5% |
||||||
|
Average Coverage Ratio (RIF/IIF) (1) |
||||||||||||
|
Total |
25.7% |
25.8% |
25.8% |
25.9% |
25.9% |
26.0% |
||||||
|
Prime (620 & >) |
25.5% |
25.5% |
25.6% |
25.7% |
25.7% |
25.8% |
||||||
|
A minus (575 - 619) |
27.5% |
27.5% |
27.5% |
27.5% |
27.5% |
27.6% |
||||||
|
Sub-Prime (< 575) |
28.9% |
29.0% |
29.0% |
29.0% |
29.0% |
29.0% |
||||||
|
Reduced Doc (All FICOs) |
26.9% |
26.8% |
26.9% |
26.9% |
26.9% |
26.9% |
||||||
|
Average Loan Size (thousands) (1) |
||||||||||||
|
Total IIF |
$ 161.59 |
$ 162.50 |
$ 164.21 |
$ 165.31 |
$ 166.33 |
$ 167.61 |
||||||
|
Flow |
$ 162.27 |
$ 163.39 |
$ 165.32 |
$ 166.59 |
$ 167.75 |
$ 169.17 |
||||||
|
Bulk |
$ 155.25 |
$ 153.93 |
$ 153.29 |
$ 152.48 |
$ 151.95 |
$ 151.24 |
||||||
|
Prime (620 & >) |
$ 163.34 |
$ 164.48 |
$ 166.40 |
$ 167.66 |
$ 168.79 |
$ 170.17 |
||||||
|
A minus (575 - 619) |
$ 128.39 |
$ 127.92 |
$ 127.78 |
$ 127.28 |
$ 127.14 |
$ 127.10 |
||||||
|
Sub-Prime (< 575) |
$ 119.54 |
$ 119.21 |
$ 118.98 |
$ 118.51 |
$ 118.41 |
$ 118.26 |
||||||
|
Reduced Doc (All FICOs) |
$ 185.21 |
$ 183.74 |
$ 183.50 |
$ 183.05 |
$ 182.75 |
$ 182.31 |
||||||
|
Primary IIF - # of loans (1) |
987,123 |
976,063 |
969,561 |
960,163 |
949,384 |
950,731 |
||||||
|
Prime (620 & >) |
852,527 |
846,867 |
845,369 |
841,004 |
834,375 |
839,745 |
||||||
|
A minus (575 - 619) |
61,098 |
58,825 |
56,544 |
54,245 |
52,252 |
50,377 |
||||||
|
Sub-Prime (< 575) |
18,183 |
17,652 |
17,112 |
16,516 |
16,087 |
15,690 |
||||||
|
Reduced Doc (All FICOs) |
55,315 |
52,719 |
50,536 |
48,398 |
46,670 |
44,919 |
||||||
|
Primary IIF - Delinquent Roll Forward - # of Loans |
||||||||||||
|
Beginning Delinquent Inventory |
139,845 |
126,610 |
117,105 |
111,587 |
103,328 |
91,842 |
||||||
|
New Notices |
27,864 |
25,425 |
27,755 |
25,779 |
23,346 |
21,178 |
||||||
|
Cures |
(31,122) |
(25,450) |
(24,105) |
(23,713) |
(27,318) |
(21,182) |
||||||
|
Paids (including those charged to a deductible or captive) |
(9,445) |
(9,051) |
(8,659) |
(7,583) |
(7,064) |
(6,068) |
||||||
|
Rescissions and denials |
(532) |
(429) |
(509) |
(469) |
(450) |
(354) |
||||||
|
Items removed from inventory resulting from Countrywide Settlement on GSE loans (6) |
- |
- |
- |
(2,273) |
- |
- |
||||||
|
Ending Delinquent Inventory (5) |
126,610 |
117,105 |
111,587 |
103,328 |
91,842 |
85,416 |
||||||
|
Primary claim received inventory included in ending delinquent inventory (5) |
10,924 |
10,637 |
9,858 |
6,948 |
5,990 |
5,398 |
||||||
|
Composition of Cures (7) |
||||||||||||
|
Reported delinquent and cured intraquarter |
9,324 |
6,172 |
7,067 |
6,364 |
8,554 |
5,409 |
||||||
|
Number of payments delinquent prior to cure |
||||||||||||
|
3 payments or less |
12,811 |
11,015 |
9,504 |
9,975 |
11,543 |
9,375 |
||||||
|
4-11 payments |
5,430 |
5,697 |
4,866 |
4,688 |
4,920 |
4,496 |
||||||
|
12 payments or more |
3,557 |
2,566 |
2,668 |
2,686 |
2,301 |
1,902 |
||||||
|
Total Cures in Quarter |
31,122 |
25,450 |
24,105 |
23,713 |
27,318 |
21,182 |
||||||
|
Composition of Paids (7) |
||||||||||||
|
Number of payments delinquent at time of claim payment |
||||||||||||
|
3 payments or less |
38 |
34 |
57 |
42 |
33 |
19 |
||||||
|
4-11 payments |
1,576 |
1,268 |
1,205 |
1,067 |
965 |
750 |
||||||
|
12 payments or more |
7,831 |
7,749 |
7,397 |
6,474 |
6,066 |
5,299 |
||||||
|
Total Paids in Quarter |
9,445 |
9,051 |
8,659 |
7,583 |
7,064 |
6,068 |
||||||
|
Aging of Primary Delinquent Inventory (5) |
||||||||||||
|
Consecutive months in default |
||||||||||||
|
3 months or less |
17,973 |
14% |
18,760 |
16% |
20,144 |
18% |
18,941 |
18% |
14,313 |
16% |
15,297 |
18% |
|
4-11 months |
32,662 |
26% |
26,377 |
23% |
24,138 |
22% |
24,514 |
24% |
23,305 |
25% |
19,362 |
23% |
|
12 months or more |
75,975 |
60% |
71,968 |
61% |
67,305 |
60% |
59,873 |
58% |
54,224 |
59% |
50,757 |
59% |
|
Number of payments delinquent |
||||||||||||
|
3 payments or less |
28,376 |
23% |
27,498 |
24% |
28,777 |
26% |
28,095 |
27% |
23,035 |
25% |
22,867 |
27% |
|
4-11 payments |
32,253 |
25% |
27,299 |
23% |
25,089 |
22% |
24,605 |
24% |
22,766 |
25% |
19,666 |
23% |
|
12 payments or more |
65,981 |
52% |
62,308 |
53% |
57,721 |
52% |
50,628 |
49% |
46,041 |
50% |
42,883 |
50% |
|
Primary IIF - # of Delinquent Loans (1) |
126,610 |
117,105 |
111,587 |
103,328 |
91,842 |
85,416 |
||||||
|
Flow |
97,317 |
89,822 |
85,232 |
77,851 |
68,473 |
63,308 |
||||||
|
Bulk |
29,293 |
27,283 |
26,355 |
25,477 |
23,369 |
22,108 |
||||||
|
Prime (620 & >) |
81,783 |
75,310 |
71,376 |
65,724 |
57,965 |
53,651 |
||||||
|
A minus (575 - 619) |
18,946 |
17,682 |
17,311 |
16,496 |
14,518 |
13,699 |
||||||
|
Sub-Prime (< 575) |
6,993 |
6,676 |
6,519 |
6,391 |
5,814 |
5,555 |
||||||
|
Reduced Doc (All FICOs) |
18,888 |
17,437 |
16,381 |
14,717 |
13,545 |
12,511 |
||||||
|
Q1 2013 |
Q2 2013 |
Q3 2013 |
Q4 2013 |
Q1 2014 |
Q2 2014 |
|||||||
|
Primary IIF Delinquency Rates (1) |
12.83% |
12.00% |
11.51% |
10.76% |
9.67% |
8.98% |
||||||
|
Flow |
10.91% |
10.16% |
9.69% |
8.92% |
7.92% |
7.30% |
||||||
|
Bulk |
30.78% |
29.58% |
29.44% |
29.32% |
27.46% |
26.60% |
||||||
|
Prime (620 & >) |
9.59% |
8.89% |
8.44% |
7.82% |
6.95% |
6.39% |
||||||
|
A minus (575 - 619) |
31.01% |
30.06% |
30.62% |
30.41% |
27.78% |
27.19% |
||||||
|
Sub-Prime (< 575) |
38.46% |
37.82% |
38.10% |
38.70% |
36.14% |
35.40% |
||||||
|
Reduced Doc (All FICOs) |
34.15% |
33.08% |
32.41% |
30.41% |
29.02% |
27.85% |
||||||
|
Reserves |
||||||||||||
|
Primary |
||||||||||||
|
Direct Loss Reserves (millions) |
$ 3,558 |
$ 3,334 |
$ 3,109 |
$ 2,834 |
$ 2,629 |
$ 2,491 |
||||||
|
Average Direct Reserve Per Default |
$ 28,100 |
$ 28,473 |
$ 27,858 |
$ 27,425 |
$ 28,630 |
$ 29,160 |
||||||
|
Pool |
||||||||||||
|
Direct Loss Reserves (millions) |
$ 127 |
$ 113 |
$ 104 |
$ 99 |
$ 87 |
$ 77 |
||||||
|
Ending Delinquent Inventory |
7,890 |
7,006 |
6,821 |
6,563 |
5,646 |
5,271 |
||||||
|
Pool claim received inventory included in ending delinquent inventory |
325 |
253 |
185 |
173 |
144 |
173 |
||||||
|
Reserves related to Freddie Mac settlement (8) |
$ 157 |
$ 147 |
$ 136 |
$ 126 |
$ 115 |
$ 105 |
||||||
|
Other Gross Reserves (millions) (4) |
$ 6 |
$ 5 |
$ 4 |
$ 2 |
$ 4 |
$ 3 |
||||||
|
Net Paid Claims (millions) (1) (2) |
$ 469 |
$ 433 |
$ 414 |
$ 481 |
$ 343 |
$ 300 |
||||||
|
Flow |
$ 370 |
$ 332 |
$ 333 |
$ 302 |
$ 265 |
$ 225 |
||||||
|
Bulk |
$ 78 |
$ 78 |
$ 63 |
$ 55 |
$ 59 |
$ 52 |
||||||
|
Countrywide settlement on GSE loans (6) |
$ - |
$ - |
$ - |
$ 105 |
$ - |
$ - |
||||||
|
Pool - with aggregate loss limits |
$ 11 |
$ 12 |
$ 8 |
$ 7 |
$ 9 |
$ 9 |
||||||
|
Pool - without aggregate loss limits |
$ 6 |
$ 8 |
$ 6 |
$ 5 |
$ 5 |
$ 4 |
||||||
|
Pool - Freddie Mac settlement (8) |
$ 10 |
$ 10 |
$ 11 |
$ 10 |
$ 10 |
$ 11 |
||||||
|
Reinsurance |
$ (15) |
$ (18) |
$ (17) |
$ (11) |
$ (12) |
$ (8) |
||||||
|
Other (4) |
$ 9 |
$ 11 |
$ 10 |
$ 8 |
$ 7 |
$ 7 |
||||||
|
Reinsurance terminations (2) |
$ (3) |
$ - |
$ - |
$ - |
$ - |
$ - |
||||||
|
Prime (620 & >) (7) |
$ 329 |
$ 292 |
$ 288 |
$ 254 |
$ 228 |
$ 191 |
||||||
|
A minus (575 - 619) (7) |
$ 49 |
$ 47 |
$ 44 |
$ 39 |
$ 39 |
$ 33 |
||||||
|
Sub-Prime (< 575) (7) |
$ 14 |
$ 14 |
$ 13 |
$ 9 |
$ 11 |
$ 10 |
||||||
|
Reduced Doc (All FICOs) (7) |
$ 56 |
$ 57 |
$ 51 |
$ 55 |
$ 46 |
$ 43 |
||||||
|
Primary Average Claim Payment (thousands) (1) (7) |
$ 47.4 |
$ 45.3 |
$ 45.7 |
$ 47.1 |
$ 45.9 |
$ 45.5 |
||||||
|
Flow |
$ 45.0 |
$ 42.9 |
$ 43.9 |
$ 45.2 |
$ 43.9 |
$ 43.4 |
||||||
|
Bulk |
$ 64.1 |
$ 59.8 |
$ 58.3 |
$ 60.8 |
$ 58.1 |
$ 57.8 |
||||||
|
Prime (620 & >) |
$ 46.2 |
$ 43.7 |
$ 44.3 |
$ 45.2 |
$ 44.1 |
$ 43.8 |
||||||
|
A minus (575 - 619) |
$ 44.6 |
$ 43.5 |
$ 43.4 |
$ 42.9 |
$ 43.9 |
$ 44.0 |
||||||
|
Sub-Prime (< 575) |
$ 45.6 |
$ 46.3 |
$ 44.8 |
$ 44.1 |
$ 46.9 |
$ 42.3 |
||||||
|
Reduced Doc (All FICOs) |
$ 60.3 |
$ 58.1 |
$ 59.4 |
$ 64.3 |
$ 59.8 |
$ 58.5 |
||||||
|
Reinsurance |
||||||||||||
|
% insurance inforce subject to reinsurance |
9.6% |
13.8% |
18.2% |
55.4% |
55.9% |
57.6% |
||||||
|
% Quarterly NIW subject to reinsurance |
3.1% |
97.3% |
96.2% |
92.3% |
93.0% |
91.6% |
||||||
|
Ceded premium written (millions) |
$ 7.1 |
$ 11.8 |
$ 13.5 |
$ 42.0 |
$ 26.6 |
$ 28.3 |
||||||
|
Ceding commissions (millions) |
$ 0.5 |
$ 1.7 |
$ 2.4 |
$ 7.6 |
$ 9.1 |
$ 9.6 |
||||||
|
Captive trust fund assets (millions) (2) |
$ 314 |
$ 276 |
$ 259 |
$ 249 |
$ 240 |
$ 228 |
||||||
|
Direct Pool RIF (millions) |
||||||||||||
|
With aggregate loss limits |
$ 425 |
$ 410 |
$ 392 |
$ 376 |
$ 346 |
$ 338 |
||||||
|
Without aggregate loss limits |
$ 812 |
$ 745 |
$ 682 |
$ 636 |
$ 601 |
$ 570 |
||||||
|
Mortgage Guaranty Insurance Corporation - Risk to Capital |
20.4:1 |
20.2:1 |
20.0:1 |
15.8:1 |
15.3:1 |
15.2:1 |
(8) |
|||||
|
MGIC Indemnity Corporation - Risk to Capital |
1.8:1 |
2.1:1 |
2.0:1 |
1.3:1 |
1.2:1 |
1.2:1 |
(8) |
|||||
|
Combined Insurance Companies - Risk to Capital |
23.1:1 |
23.0:1 |
22.7:1 |
18.4:1 |
17.6:1 |
17.3:1 |
(8) |
|||||
|
GAAP loss ratio (insurance operations only) (3) |
107.8% |
82.5% |
77.7% |
86.6% |
57.2% |
68.0% |
||||||
|
GAAP underwriting expense ratio (insurance operations only) |
18.0% |
17.7% |
18.1% |
20.7% |
15.7% |
14.4% |
||||||
|
Note: The FICO credit score for a loan with multiple borrowers is the lowest of the borrowers' "decision FICO scores." A borrower's "decision FICO score" is determined as follows: if there are three FICO scores available, the middle FICO score is used; if two FICO scores are available, the lower of the two is used; if only one FICO score is available, it is used. |
||||||
|
Note: The results of our operations in Australia are included in the financial statements in this document but the additional information in this document does not include our Australian operations, unless otherwise noted, which are immaterial. |
||||||
|
Note: During the first quarter of 2013, 933 loans were cured as a result of the aggregate loss limits on certain policies being reached. These policies are not related to the disclosed Freddie Mac settlement. |
||||||
|
(1) In accordance with industry practice, loans approved by GSE and other automated underwriting (AU) systems under "doc waiver" programs that do not require verification of borrower income are classified by MGIC as "full doc." Based in part on information provided by the GSEs, MGIC estimates full doc loans of this type were approximately 4% of 2007 NIW. Information for other periods is not available. MGIC understands these AU systems grant such doc waivers for loans they judge to have higher credit quality. MGIC also understands that the GSEs terminated their "doc waiver" programs in the second half of 2008. Reduced documentation loans only appear in the reduced documentation category and do not appear in any of the other categories. |
||||||
|
(2) Net paid claims, as presented, does not include amounts received in conjunction with termination of reinsurance agreements. In a termination, the agreement is cancelled, with no future premium ceded and funds for any incurred but unpaid losses transferred to us. The transferred funds result in an increase in the investment portfolio (including cash and cash equivalents) and there is a corresponding decrease in reinsurance recoverable on loss reserves. This results in an increase in net loss reserves, which is offset by a decrease in net losses paid. |
||||||
|
(3) As calculated, does not reflect any effects due to premium deficiency. |
||||||
|
(4) Includes Australian operations |
||||||
|
(5) As of June 30, 2014, rescissions of coverage on approximately 1,558 loans had been voluntarily suspended, as we believed those loans could be covered by a settlement. |
||||||
|
(6) Refer to our risk factor titled "We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future" above for information about our settlement with Countrywide. |
||||||
|
(7) Excludes items and dollars associated with the Countrywide Settlement on GSE loans |
||||||
|
(8) Preliminary |
||||||
SOURCE
Investor Contact: Michael J. Zimmerman, Investor Relations, (414) 347-6596, mike_zimmerman@mgic.com; Media Contact: Katie Monfre, Corporate Communications, (414) 347-2650, katie_monfre@mgic.com