FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number1-10816
FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 1-10816mtg-20201231_g1.jpg
MGIC INVESTMENT CORPORATIONInvestment Corporation
(Exact name of registrant as specified in its charter)

WISCONSINWisconsin39-1486475
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
250 E. Kilbourn Avenue53202
MGIC PLAZA, 250 EAST KILBOURN AVENUE,Milwaukee,Wisconsin(Zip Code)
MILWAUKEE, WISCONSIN53202
(Address of principal executive offices)
(414)347-6480
(Zip Code)Registrant’s telephone number, including area code)
(414) 347-6480
(Registrant’s telephone number, including area code)


Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $1 per shareMTGNew York Stock Exchange
Title of Each Class:Common Stock, Par Value $1 Per Share
Common Share Purchase Rights
Name of Each Exchange on Which
Registered:New York Stock Exchange


Securities Registered Pursuant to Section 12(g) of the Act: None
Title of Class:None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
☒Yes ☐No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
☐ Yes ☒ No




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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒YesYes ☒ No ☐ No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒


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

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


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ Yes ☒NoNO ☒


State the aggregate market value of the voting and non-voting common stockequity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the Registrant aslast business day of June 30, 2017:the registrant's most recently completed second fiscal quarter. : Approximately $4.1$2.8 billion*


MGIC Investment Corporation 2020 Form 10-K | 1

* Solely for purposes of computing such value and without thereby admitting that such persons are affiliates of the Registrant, shares held by directors and executive officers of the Registrant are deemed to be held by affiliates of the Registrant. Shares held are those shares beneficially owned for purposes of Rule 13d-3 under the Securities Exchange Act of 1934 but excluding shares subject to stock options.


Indicate the number of shares outstanding of each of the Registrant’sissuer’s classes of common stock, as of the latest practicable date: As of February 16, 2018: 370,862,19019, 2021, there were 338,779,666 shares of common stock of the registrant, par value $1.00 per share, outstanding.


The following documents have been incorporated by reference in this Form 10-K, as indicated:
DocumentPart and Item Number of Form 10-K Into Which Incorporated*
Proxy Statement for the 20182021 Annual Meeting of Shareholders, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, the information provided in Items 10 through 14 of Part III will be included in an amended Form 10-K filed within such 120 day period.Items 10 through 14 of Part III


* In each case, to the extent provided in the Items listed.





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Table of Contents | Glossary of terms and acronyms

TABLE OF CONTENTSTable of Contents
Page No.
PART I Page No.
PART I 
Item 1. 
8
Item 1A.
3226
Item 1B.
4740
Item 2.
4740
Item 3.
4740
Item 4.
4840
PART II
Item 5.
5042
Item 6.
5143
Item 7.
5345
Item 7A.
9983
Item 8.
10085
Item 9.
155130
Item 9A.
155130
Item 9B.
155130
PART III
Item 10.
156131
Item 11.
156131
Item 12.
156131
Item 13.
157131
Item 14.
157132
PART IV
Item 15.
158133
Item 16.
161136
SIGNATURES137
162
EX-10.2.18
EX-10.2.19
EX-10.6
EX-12
EX-21
EX-23
EX-31.1
EX-31.2
EX-32




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Glossary of terms and acronyms
MGIC Investment Corporation
2017 Form 10-K
Table of Contents




MGIC Investment Corporation 2020 Form 10-K | 3


GLOSSARY OF TERMS AND ACRONYMSGlossary of terms and acronyms

/ A
ARMs
Adjustable rate mortgages


ABS
Asset-backed securities


ASC
Accounting Standards Codification


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


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


BPMI
Borrower-paid mortgage insurance


/ C
CARES Act
The Coronavirus Aid, Relief, and Economic, Security Act enacted on March 27, 2020

CECL
Current expected credit losses covered under ASC 326


CFPB
Consumer Financial Protection Bureau


CLO
Collateralized loan obligations


CMBS
Commercial mortgage-backed securities


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

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

/ D
DAC
Deferred insurance policy acquisition costs


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


Direct
Direct
When referring to insurance or risk written or in force, "direct" means beforeBefore giving effect to reinsurance


/ EDelinquent Loan
ETFs
Exchange traded funds

Expense ratio
The ratio, expressedA loan that is past due on a mortgage payment. A delinquent loan is typically reported to us by servicers when the loan has missed two or more payments. A loan will continue to be reported as delinquent until it becomes current or a claim payment has been made. A delinquent loan is also referred to as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance operations) to NPWdefault


/E
EPS
Earnings per share

/ F
Fannie Mae
Federal National Mortgage Association


FCRA
Fair Credit Reporting Act

FEMA
Federal Emergency Management Agency


FHA
Federal Housing Administration


FHFA
Federal Housing Finance Agency


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


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


FOMC
Federal Open Market Committee

Freddie Mac
Federal Home Loan Mortgage Corporation




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2017 Form 10-K
Glossary of Terms and Acronyms (continued)


/ G
GAAP
Generally Accepted Accounting Principles in the United States


GSEs
Collectively, Fannie Mae and Freddie Mac


/ H
HAMP
Home Affordable Modification Program



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Table of Contents | Glossary of terms and acronyms

HARP
Home Affordable Refinance Program


Home Re Transactions
Excess-of-loss reinsurance transactions with unaffiliated special purpose insurers domiciled in Bermuda

HOPA
Homeowners Protection Act


HUD
Housing and Urban Development

/ I
IADAIBNR Reserves
Individual Assistance Disaster AreaLoss reserves established on loans we estimate are delinquent, but for which the delinquency has not been reported to us

IBNR
Losses incurred but not reported


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


/ JILN
JCTInsurance-linked notes
Joint Committee on Taxation


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

Legacy book
Mortgage insurance policies written prior to 2009


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


Long-term debt:
5.375% Notes
5.375% Senior Notes due on November 2, 2015, with interest payable semi-annually on May 1 and November 1 of each year

5% Notes
5% Convertible Senior Notes due on May 1, 2017, with interest payable semi-annually on May 1 and November 1 of each year

2% Notes
2% Convertible Senior Notes due on April 1, 2020, with interest payable semi-annually on April 1 and October 1 of each year

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


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

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


FHLB Advance or the Advance
1.91% Fixed rate advance from the FHLB due on February 10, 2023, with interest payable monthly


Loss ratio
The ratio, expressed as a percentage, of the sum of incurred losses and loss adjustment expenses to NPE


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


LPMI
Lender-paid mortgage insurance


/ M
MBA
Mortgage Bankers Association



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2017 Form 10-K
Glossary of Terms and Acronyms (continued)


MBS
Mortgage-backed securities


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


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


MICMAC
MGIC IndemnityAssurance Corporation, a subsidiary of MGIC


Minimum Required Assets
The greater of $400 million or the total of the minimum amount of Available Assets that must be held under the PMIERs, which is based upon a percentageon an insurer's book of RIF weighted by certainand is calculated from tables of factors with several risk attributesdimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor of $400 million


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


/ N
N/A
Not applicable for the period presented


NAIC
The National Association of Insurance Commissioners


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


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


NPE
The amount of premiums earned, net of premiums assumed and ceded under reinsurance agreements


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


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Table of Contents | Glossary of terms and acronyms


NPW
The amount of premiums written, net of premiums assumed and ceded under reinsurance agreements


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


OTTI
Other than temporary impairment

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


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


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


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


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

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

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

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


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

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

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

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

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

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

QM
A mortgage loan that satisfies the "qualified mortgage" loan characteristics pursuant to the Consumer Financial Protection Bureau's ability-to-repay under the TILA. Originating a QM loan may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower's ability to repay

/ R
REMIC
Real Estate Mortgage Investment Conduit

RESPA
Real Estate Settlement Procedures Act


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




MGIC Investment Corporation 2017 Form 10-K | 6
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2017 Form 10-K
Glossary of Terms and Acronyms (continued)


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


RMBS
Residential mortgage-backed securities


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


/ T
Tax Act
The U.S. tax reform enacted on December 22, 2017 and commonly referred to as the "Tax Cuts and Jobs Act"


TILA
Truth in Lending Act


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


Underwriting profit
NPE minus incurred losses and underwriting and operating expenses


USDA
U.S. Department of Agriculture


/ V
VA
U.S. Department of Veterans Affairs

VIE
Variable interest entity




MGIC Investment Corporation 20172020 Form 10-K | 7

Business
MGIC Investment Corporation
2017 Form 10-K
Table of Contents


PART I

Item 1. Business
Business.
See the "Glossary of terms and acronyms" for definitions and descriptions of terms used throughout this annual report.


A.    General

We are a holding company and through wholly-owned subsidiaries we provide private mortgage insurance, other mortgage credit risk management solutions, and ancillary services. In 2017,2020, our net premiums writtentotal revenues were $1.0$1.2 billion and our primary NIW was $49.1$112.1 billion. As of December 31, 2017,2020, our direct primary IIF was $194.9$246.6 billion and our direct primary RIF was $50.3$61.8 billion. For further information about our results of operations, see our consolidated financial statements in Item 8 and our MD&A.&A in Item 7. As of December 31, 2017,2020, our principal mortgage insurance subsidiary, MGIC, was licensed in all 50 states of the United States, the District of Columbia, Puerto Rico and Guam. During 2017,2020, we wrote new insurance in each of those jurisdictions.


Business Strategies2021 BUSINESS STRATEGIES
Our 2021 business strategies are to 1) prudently grow IIF,maximize the value we create through our mortgage credit enhancement activities; 2) pursue new business opportunitiesdifferentiate ourselves through our customer experience; 3) establish a competitive advantage through our digital and analytical capabilities; 4) excel at acquiring, managing and distributing mortgage credit risk and the related capital; 5) maintain financial strength through economic cycles; and 6) foster an environment that meetembraces diversity and best positions our return objectives, 3) preserve and expand our role and that of the PMI industry in housing finance policy, 4) manage and deploy capitalpeople to optimize the creation of shareholder value and 5) expand and develop the talents of our co-workers.succeed.


2020 ACCOMPLISHMENTS
Following are several of our 20172020 accomplishments that furthered our 2020 business strategies.


•Increased primary NIW from $47.9$63.4 billion in 20162019 to $49.1$112.1 billion in 20172020 and increased primary IIF by more than 7%10.9% year-over-year. The NIW is consistent with the Company's risk and return goals.
Held leadership roles in key trade associations.
•Continued to enhance the reputation of the Company and the industry relative to potential reform ofchanging housing finance policy.policy and a broader role for PMI.
Decreased•Expanded our long-term debtreinsurance program by securing quota share reinsurance coverage on NIW through 2021, and by executing a $413 million insurance linked note transaction, providing excess-of-loss reinsurance coverage on the majority of our NIW from January 1, 2020 through July 31, 2020. These transactions allow us to shareholders' equity ratio from 46.7% asbetter manage our risk profile and they provide an alternative source of December 31, 2016,capital.
•Continued to 26.5% aspay dividends to holders of December 31, 2017.our common stock, despite the COVID-19 pandemic.
Increased•Paid $390 million of dividends of cash and investments from MGIC to our holding company.company, before temporarily suspending dividends from MGIC as a result of the COVID-19 pandemic.
•Returned approximately $120 million to shareholders by repurchasing 9.6 million shares of our stock, before we
temporarily suspended our stock repurchase program as a result of the COVID-19 pandemic.
•Issued $650 million aggregate principal amount of 5.25% Notes due in 2028, using a portion of the proceeds to repurchase $183 million of our 5.75% Notes due in 2023 and $48 million of our 9% Debentures due in 2063. These capital actions increased our liquidity and improved our debt maturity profile.
•Continued to meettransform our business processes and to enhance our data and analytics capabilities.
•Delivered diversity and inclusion workshops to all officers and co-hosted several diversity and inclusion events with our Employee Resource Group.
•Continued to enhance career developments, talent analytics and financial health capabilities for employees.

COVID-19 RESPONSE
The accomplishments described above were all achieved despite managing through the financial requirementseffects of the COVID-19 pandemic. In addition, the Company's specific response to the COVID-19 pandemic included the following:

•Transitioned 90%+ of our workforce to a remote work environment, in a year with record-breaking NIW. Positioned employees to continue to succeed and provide continuing high service levels. Focused on ensuring employee safety, business continuity and legal compliance. Maintained and enhanced morale through extensive authentic communications, collaboration and an environment of support and trust.
•Actively participated in discussions with the GSEs and the FHFA surrounding COVID-19, on matters including PMIERs withamendments that provided PMIERs capital relief for loans in forbearance.
•Effectively reacted to servicing and default issues related to COVID-19 including establishing data collection, monitoring and tracking of forbearance information that is instrumental in providing insight in a comfortable cushion.quickly evolving environment.
Maintained our traditionally low expense base.
Received upgraded ratings for MGIC from Moody's and Standards and Poor's.
Negotiated a reinsurance agreement covering 2018 NIW.
Overview of the Private Mortgage Insurance Industry and its Operating EnvironmentOVERVIEW OF THE PRIVATE MORTGAGE INSURANCE INDUSTRY AND ITS OPERATING ENVIRONMENT
We established the modern PMI industry in 1957 to provide a private market alternative to federal government insurance programs. PMI covers losses from homeowner defaults on residential mortgage loans, reducing, and in some instances eliminating, the loss to the insured institution.


Fannie Mae and Freddie Mac have been the major purchasers of the mortgage loans underlying new insurance written by private mortgage insurers. The GSEs purchase residential mortgagesmortgage loans as part of their governmental mandate to provide liquidity in the secondary mortgage market. The GSEs cannot buy low down payment mortgage loans without certain forms of credit enhancement. Private mortgage insurance has generally been purchased by lenders in primary mortgage market transactions to satisfy this credit enhancement the primary form of which is PMI.requirement. Therefore, PMI facilitates the sale of low down payment mortgages in the secondary mortgage market to the GSEs and plays an important role in the housing finance system by assisting consumers, especially first-time and lower net-


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MGIC Investment Corporation
2017 Form 10-K
Business (continued)


worthlow to medium wealth homebuyers, to finance homes with low down payment mortgages. PMI also

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Table of Contents | Glossary of terms and acronyms

reduces the regulatory capital that depository institutions are required to hold against certain low down payment mortgages that they hold as assets.


Because the GSEs have been the major purchasers of the mortgages underlying new insurance written by private mortgage insurers, the PMI industry in the U.S. is defined in large part by the requirements and practices of the GSEs. These requirements and practices, as well as those of the federal regulators that oversee the GSEs and lenders, impact the operating results and financial performance of private mortgage insurers. In 2008, the federal government took control of the GSEs through a conservatorship process. The FHFA is the conservator of the GSEs and has the authority to control and direct their operations.

In 2019, the past, membersU.S. Treasury Department released the “Treasury Housing Reform Plan.” The Plan recommends reforms for the housing finance system, the goals of Congress have introduced several bills intended to changewhich include ending the business practicesconservatorships of the GSEs and increasing competition and participation by the FHA, however, no legislation has been enacted.private sector in the mortgage market. The current Presidential administration has indicated that the conservatorshipimpact of the GSEs should end; however, it is unclear whether and when that would occur and how that would impact us. As a result of the matters referred to above, it is uncertain what role the GSEs, FHA and private capital, includingPlan on private mortgage insurance will playis unclear. The Plan does not refer to mortgage insurance explicitly; however, it refers to a requirement for credit enhancement on high LTV loans, which is a requirement of the current GSE charters. The Plan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the domestic residential housing finance system incapital markets). For more information about the future or the impact of any such changes on our business. In addition, the timing of the impact of any resulting changes on our business is uncertain. Most meaningful changes would require Congressional action to implementPlan and it is difficult to estimate when Congressional action would be final and how long any associated phase-in period may last. SeeCRT programs, see our risk factor titled “Changes"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”losses" and "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance" in Item 1A.1A.


As a result of the matters referred to above, it is uncertain what role the GSEs and private capital, including private mortgage insurance, will play in the domestic residential housing finance system in the future. The timing and impact on our business of any resulting changes is uncertain. Some changes would require Congressional action to implement and it is difficult to estimate when any action would be final and how long any associated phase-in period may last.

The GSEs have private mortgage insurer eligibility requirements, or PMIERs, for private mortgage insurers that insure loans delivered to or purchased by the GSEs. The financial requirements of the PMIERs require a mortgage insurer’s Available Assets to equal or exceed its Minimum Required Assets. While on an overall basis,MGIC is in compliance with the amount of Available Assets MGIC must hold in order to continuePMIERs and eligible to insure GSE loans is greaterpurchased by the GSEs. In calculating Minimum Required Assets, we receive significant credit for risk ceded under the PMIERs than the amount state regulation currently requires,our reinsurance transactions. See "Reinsurance" in this Item 1 for information about our reinsurance transactions mitigate the negative effect of the PMIERs on our returns. Seeand "Regulation – Direct Regulation" belowin this Item 1 for information about our compliance with the financial requirements of the PMIERs and about proposed changes to the PMIERs that are being recommended to the FHFA by the GSEs.PMIERs.


The private mortgage insurance industry is greatly impacted by macroeconomic conditions that affect home loan originations and credit performance of home loans, including unemployment
rates, home prices, restrictions on mortgage credit due to underwriting standards, interest rates, household formations and homeownership rates. TheDuring the years leading up to the financial crisis andof the downturn in the housing market that began in 2007 had a significant negative impact on the industry and our company. During the last several years preceding the financial crisis,2000s, the mortgage lending industry increasingly made home loans to individuals with higher risk credit profiles, at higher LTV ratios,profiles. In certain sections of this Annual Report, we discuss our insurance written in 2005-2008 separately from our insurance written in earlier and based on less documentation and verification of information regarding the borrower.later years. Beginning in 2007, job creation slowed and the housing markets began slowing in certain areas, with declines in certain other areas. In 2008 and 2009, employment in the U.S. decreased substantially and nearly all geographic areas in the U.S. experienced home price declines. Together, these conditions resulted in significant adverse developments for us and our industry and we reported a net loss in each of 2007 through 2013.industry. The operating environment for private mortgage insurers has materially improved in recent yearsafter the financial crisis, as the economy has recovered.

The COVID-19 pandemic, which was declared a national emergency in the United States in March 2020, had a material impact on our 2020 financial results. The increased level of unemployment and economic uncertainty associated with the COVID-19 pandemic resulted in an increase in the number of mortgage delinquencies for which we recorded increased loss reserves. For 2017, we reported net incomea discussion of $355.8 million.the various ways the COVID-19 pandemic may continue to impact us, see our Risk Factor titled "The COVID-19 pandemic may continue to materially impact our financial results and may also impact our business, liquidity and financial condition" in Item 1A.


During 2017, $2702020, $609 billion of mortgages were insured with primary coverage by private mortgage insurers, compared to $270$384 billion in 20162019 and $220$292 billion in 2015. These figures include $1.0 billion, $2.8 billion and $4.2 billion of bulk business and refinance transactions that were originated under HARP in 2017, 2016 and 2015, respectively. We do not include HARP transactions in our NIW total because we consider them a modification of the coverage on existing IIF.2018. The 2017 volume of mortgages insured by private mortgage insurers was flat compared to 2016, as the increase in insurance on purchase mortgage originations offset the decrease in refinance transactions. Although the 20172020 volume was significantly greater than the recent low in 2010 of $70 billion it remains belowand greater than the volumes of 2001 through 2007 when, on average, approximately $311 billion of mortgages were insured with primary coverage by private mortgage insurers. The high 2020 volume resulted, in part, from the historically low interest rates driving sustained borrower demand, especially for refinances.


For most of our business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies that sponsor government-backed mortgage insurance


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MGIC Investment Corporation
2017 Form 10-K
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programs, principally the FHA, VA and USDA. The publication Inside Mortgage Finance estimates that in 2017,the first three quarters of 2020, the FHA accounted for 35.6%24.4% of low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance, up slightly from 35.5%compared to 28.2% in 2016.2019 and 30.5% in 2018. In the prior ten years, the FHA’s market share has been as low as 17.1% in 200724.4% (in the first three quarters of 2020) and as high as 68.7% in 2009.64.5% (in 2010). Factors that influence the FHA’s market share include relative rates and fees, underwriting guidelines and loan limits of the FHA, VA, USDA, private mortgage insurers and the GSEs; 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 Fannie Mae or Freddie Macthe GSEs for securitization; and differences in policy terms, such as the ability of a borrower to cancel insurance coverage under certain circumstances. We cannot predict how the factors listed above or the FHA’s share of NIW will change in the future.



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Inside Mortgage Finance estimates that in 2017,the first three quarters of 2020, the VA accounted for 24.1%30.6% of all low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance, down from 26.6%compared to 25.2% in 2016, which had been its highest level2019 and 22.9% in the prior ten years.2018. In the prior ten years, the VA's market share has been as low as 5.4% in 2007.15.7% (in 2010) and as high a 30.6% (in the first three quarters of 2020). We believe that the VA’s market share has generally been increasingelevated in recent years because of an increase in the number of borrowers that are eligible for the VA’s program, which offers 100% LTV loans and charges a one-time funding fee that can be included in the loan amount, and because eligible borrowers have opted to use the VA program when refinancing their mortgages.


The private mortgage insurance industry also competes with alternatives to mortgage insurance, such as investors using risk mitigation and credit risk transfer techniques other than PMI, including capital market transactions structured to transfer risk of default on residentialentered into by the GSEs and banks; lenders and other investors holding mortgages investors willing to hold credit risk on their own balance sheets without credit enhancement,in portfolio and self-insuring; and “piggyback loans,” which combine a first lien loan with a second lien loan. In 2018, the GSE 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. While we view these programs as competing with traditional private mortgage insurance, we participate in them through an affiliate of MGIC.


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; and using other risk mitigation techniques in conjunction with reduced levels of private mortgage insurance coverage.

In addition to the FHA, VA, other governmental agencies and the alternatives to mortgage insurance discussed above, we also compete with other mortgage insurers. The level of competition, including price competition, within the private mortgage insurance industry has intensified over the past several years and is not expected to diminish.years. See "Our Products and Services – Sales and Marketing and Competition – Competition" below for more information about the impact on our business of competition in the private mortgage insurance industry.


In addition to being subject to the requirements and practices of the GSEs, private mortgage insurers are subject to comprehensive, detailed regulation by state insurance departments. 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 the RIF (or a similar measure) in order for the mortgage insurer to continue to write new business. The NAIC plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. AIn December 2019, a working group of state regulators has been considering since 2016released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements.


Due to the changing environment described above, as well as other factors discussed below, at this time the greatest uncertaintyuncertainties we face isare with the effects of COVID-19 and whether private mortgage insurance will remain a significant credit enhancement alternative for low down payment single family mortgages. An increase in the use of alternatives to private mortgage insurance, such as credit-linked note transactions executed in the capital markets, or aA possible restructuring or change in the charters of the GSEs, could significantly affect our business. For additional information about this uncertainty,these uncertainties, see our risk factors titled “The amount of insurance we write could be adversely affected if lenders"The COVID-19 pandemic may continue to materially impact our financial results and investors select alternatives to private mortgage insurance”may also impact our business, liquidity and financial condition," and “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” in Item 1A.


General Information About Our CompanyGENERAL INFORMATION ABOUT OUR COMPANY
We are a Wisconsin corporation organized in 1984. Our principal office is located at MGIC Plaza, 250 East Kilbourn Avenue, Milwaukee, Wisconsin 53202 (telephone number (414) 347-6480). As used in this annual report, “we,” “our” and “us” refer to MGIC Investment Corporation’s consolidated operations or to MGIC


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Investment Corporation, as a separate entity, as the context requires, and “MGIC” refers to Mortgage Guaranty Insurance Corporation.


Our revenues and losses may be materially affected by the risk factors that are included in Item 1A of this annual report. These risk factors are an integral part of this annual report. 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. Among others, statements that include words such as we “believe,” “anticipate” 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 reader of this annual report should rely on these statements being current at any time other than the time at which this annual report was filed with the Securities and Exchange Commission.


B. Our Products and Services

Mortgage InsuranceMORTGAGE INSURANCE
In general, there are two principal types of private mortgage insurance: “primary” and “pool.”


Primary Insurance. Primary insurance provides mortgage default protection on individual loans and covers a percentage of the unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure or sale approved by us, of the underlying property (collectively, the “claim amount”). In addition to the loan principal, the claim amount is affected by the mortgage note rate and the time necessary to complete the foreclosure or sale process. For the past several years, the average time it took to receive a claim associated with a delinquency increased significantly from our historical experience of approximately twelve months, 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. In recent quarters, the average time for servicers to process foreclosures has decreased, which has reduced the average time to receive a claim associated with new delinquent notices that do not cure. The insurer generally pays the coverage percentage of the claim amount specified in the primary policy but has the option to pay 100% of the claim amount and acquire title to the property. Primary insurance is generally written on first mortgage loans secured by owner occupied "single-family" homes, which are one-to-four family homes and condominiums. Primary insurance can be written on

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first liens secured by non-owner occupied single-family homes, which are referred to in the home mortgage lending industry as investor loans, and on vacation or second homes. Primary coverage can be used on any type of residential mortgage loan instrument approved by the mortgage insurer.


References in this document to amounts of insurance written or in force, risk written or in force and other historical data related to our insurance refer only to direct (before giving effect to reinsurance) primary insurance, unless otherwise indicated. Primary insurance may be written on a flow basis, in which loans are insured in individual, loan-by-loan transactions, or may be written on a bulk basis, in which each loan in a portfolio of loans is individually insured in a single, bulk transaction. Our new primary insurance written was $49.1$112.1 billion in 2017,2020, compared to $47.9$63.4 billion in 20162019 and $43.0$50.5 billion in 2015.2018. The 20172020 increase compared to 20162019 reflects an increase in both the refinance and purchase mortgage originations we insured offsetting a decrease in the refinance transactions we insured.


The following table shows,charts show, on a direct basis, our primary IIF and primary RIF as of December 31 for the MGIC Book as of the datesyears indicated.
Primary insurance and risk in force
(In billions)20202019201820172016
Primary IIF$246.6 $222.3 $209.7 $194.9 $182.0 
Primary RIF61.8 57.2 54.1 50.3 47.2 
            
Primary insurance in force and risk in force  December 31,
(in billions) 2017 2016 2015 2014 2013
Direct Primary IIF $194.9
 $182.0
 $174.5
 $164.9
 $158.7
 Direct Primary RIF $50.3
 $47.2
 $45.5
 $42.9
 $41.1



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For loans sold to Fannie Mae or Freddie Mac,a GSE, the coverage percentage must comply with the requirements established by the particular GSE to which the loan is delivered. 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 2017, nearly all2020, a substantial majority of our volume was on loans with GSE standard or higher coverage.


For loans that are not sold to the GSEs, the lender determines the coverage percentage from those that we offer. Higher coverage percentages generally result in increased severity, which is the amount paid on a claim. We charge higher premium rates for higher coverage percentages. However, there can be no assurance that the higher premium rates adequately reflect the risks associated with higher coverage percentages. In accordance with GAAP for the mortgage insurance industry, reserves for losses are only established for policies covering delinquent loans. Because, historically, relatively few defaultsdelinquencies occur in the early years of a book of business, the higher premium revenue from higher coverage has historically been recognized before any significant higher losses resulting from that higher coverage may be incurred. For more information, see “– Exposure“Exposure to Catastrophic Loss; Defaults; Claims; Loss Mitigation – Claims.”


In general, mortgage insurance coverage cannot be terminated by the insurer. However, subject to certain restrictions on our rescission rights as are specified in our masterinsurance policy, and our Gold Cert Endorsement, we may terminate or rescind coverage for, among other reasons, non-payment of premium, certain material misrepresentations madeand fraud in connection with the application for the insurance policy or if the loan was never eligible for coverage under our policy. For more information including with regard to our Gold Cert Endorsement, see “– Exposure to Catastrophic Loss; Defaults; Claims; Loss Mitigation — Loss Mitigation.” Mortgage insurance coverage is renewable at the option of the insured lender, at the renewal rate fixed when the loan was initially insured. Lenders may cancel insurance written on a flow
basis at any time at their option or because of mortgage repayment, which may be accelerated because of the refinancing of mortgages.

In the case of a loan purchased by Freddie Mac or Fannie Mae,a GSE, a borrower meetingmay request termination of insurance based on the home’s current value if certain conditions may requireLTV ratio and seasoning requirements are met and the mortgage servicerborrowers have an acceptable payment history. For loans seasoned between two and five years, the LTV ratio must be 75% or less, and for loans seasoned more than five years the LTV ratio must be 80% or less. If the borrower has made substantial improvements to cancel insurance upon the borrower’s request whenproperty, the principal balance ofGSEs allow for cancellation once the loan isLTV ratio reaches 80% or less of the home’s current value.with no minimum seasoning requirement.


Mortgage insurance for loans secured by one-family, primary residences can be canceled under HOPA. In general, HOPA requires a servicer to cancel the mortgage insurance if a borrower requests cancellation when the principal balance of the loan is first scheduled to reach 80% of the original value, or reaches that percentage through payments, if 1) the borrower is current on the loan and has a “good payment history” (as defined by the HOPA), 2) the borrower provides evidence as and if required by the mortgage owner, the borrower provides evidence that the value of the property has not declined below the original value, and 3) if required by the mortgage owner, the borrower certifies that the borrower’s equity in the property is not subject to a subordinate lien. Additionally, the HOPA requires mortgage insurance to terminate automatically when the principal balance of the loan is first scheduled to reach 78% of the original value and the borrower is current on loan payments or thereafter becomes current. Annually, servicers must inform borrowers of their right to cancel or terminate mortgage insurance. The provisions of the HOPA described above apply only to borrower paid mortgage insurance, which is described below.


Coverage tends to continue for borrowers experiencing economic difficulties or living in areas experiencing home price depreciation. The persistency of coverage for those borrowers, coupled with cancellation of coverage for other borrowers, can increase the percentage of an insurer’s portfolio covering loans with more credit risk. This development can also occur during periods of heavy mortgage refinancing because borrowers experiencing property value appreciation are less likely to require mortgage insurance at the time of refinancing, while borrowers not experiencing property value appreciation are more likely to continue to require mortgage insurance at the time of refinancing or not qualify for refinancing at all (including if they have experienced economic difficulties) and thus remain subject to the mortgage insurance coverage.


The percentage of NIW on loans representing refinances was 11%36% for 2017,2020, compared to 20% for 2016 and 19% for 2015.2019 and 7% for 2018. When a borrower refinances a mortgage loan insured by us by paying it off in full with the proceeds of a new mortgage that is also insured by us, the insurance on that existing mortgage is cancelled, and insurance on the new mortgage is considered to be NIW. Therefore, continuation of our coverage from a refinanced loan to a new loan results in both a cancellation of insurance and NIW. When a lender and borrower modify a loan rather than replace it with a new one or enter into a new loan pursuant to a loan modification


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program, our insurance continues without being cancelled, assuming that we consent to the modification or new loan. As a result, such modifications or new loans including those modified under HARP, are not included in our NIW.



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In addition to varying with the coverage percentage, our premium rates for insurance varyhave varied depending upon the perceived risk of a claim on the insured loan and thus takehave taken into account, among other things, the LTV ratio, the borrower’s credit score whetherand DTI ratio, the loan is a fixed payment loan or a non-fixed payment loan (a non-fixed payment loan is referred to innumber of borrowers, the home mortgage lending industry as an ARM),property location, the mortgage term and whether the property is the borrower’s primary residence. We generally utilize a national, ratherIn 2019 we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than a regional or local, premium rate policy. However, depending upon regional economic conditions, we have made, and may make, changes to our underwriting requirements to implement more restrictive standardswere considered in certain markets and for loan characteristics that we categorize as higher risk.2018. Premium rates cannot be changed after the issuance of coverage.


The borrower’s mortgage loan instrument may require the borrower to pay the mortgage insurance premium. Our industry refers to the related mortgage insurance as “borrower-paid.”“borrower-paid” or BPMI. If the borrower is not required to pay the premium and mortgage insurance is required in connection with the origination of the loan, then the premium is paid by the lender, who may recover the premium through an increase in the note rate on the mortgage or higher origination fees. Our industry refers to the related mortgage insurance as “lender-paid.”“lender-paid” or LPMI. Most of our primary IIF is borrower-paid mortgage insurance.

BPMI.
There are several payment plans available to the borrower, or lender, as the case may be. Under the single premium plan, the borrower or lender pays us in advance a single payment covering a specified term exceeding twelve months. Under the monthly premium plan, the borrower or lender pays us a monthly premium payment to provide only one month of coverage. Under the annual premium plan, an annual premium is paid to us in advance, with annual renewal premiums paid in advance thereafter.


During 2017, 20162020, 2019 and 2015,2018, the single premium plan represented approximately 19%9%, 19%16% and 20%17%, respectively, of our NIW. The monthly premium plan represented approximately 81%91%, 81%84% and 79%83%, respectively. The annual premium plan represented less than 1% of NIW in each of those years. Depending onupon 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.


Pool and Other Insurance. Pool insurance is generally used as an additional “credit enhancement” for certain secondary market mortgage transactions. Pool insurance generally covers the amount of the loss on a defaulted mortgage loan that exceeds the claim payment under the primary coverage, if primary insurance is required on that mortgage loan, as well as the total loss on a defaulted mortgage loan which did not require primary insurance. Pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible.

We have MGIC has written no new pool riskinsurance since 2009,2008; however, for a variety of reasons, including responding to capital market alternatives to private mortgage insurancePMI and customer demands, weMGIC may write pool risk in the future. As of December 31, 2017,2020, less than 1% of our RIF was associated with pool insurance. As noted in "Other Products
In connection with the GSEs' credit risk transfer programs, we provide insurance and Services – Other" below, an insurance subsidiaryreinsurance covering portions of MGIC has provided an immaterial amountthe credit risk related to certain reference pools of credit insurance whose structure is equivalent to pool insurance. That credit insurance is not included in discussions of pool insurance contained in this annual report.mortgages acquired by the GSEs.


MORTGAGE INSURANCE PORTFOLIO
Geographic Dispersion
Dispersion.The following tables reflect the percentage of primary RIF in the top 10 jurisdictions and top 10 core-based statistical areas for the MGIC Book at December 31, 2017.2020. We refer to the insurance that has been written by MGIC (including MICMGIC Indemnity Corporation, a subsidiary of MGIC, for portions of 2012 and 2013) as the "MGIC Book."



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Top 10 jurisdictions – RIF
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2017 Form 10-K
Business (continued)California8.5%
Florida7.1%
Texas6.8%
Pennsylvania5.1%
Ohio4.1%
Illinois4.1%
Virginia3.7%
North Carolina3.5%
Georgia3.4%
New York3.3%
Total49.6%


Dispersion of Primary Risk in Force

Top 10 jurisdictionsCalifornia8.4%
Florida6.9%
Texas6.2%
Pennsylvania5.3%
Ohio4.6%
Illinois4.3%
Michigan3.4%
Georgia3.3%
Virginia3.3%
New York3.1%
Total48.8%

Top 10 core-based statistical areasChicago-Naperville-Arlington Heights2.8% – RIF
Atlanta-Sandy Springs-Roswell2.4%
Washington-Arlington-Alexandria2.42.8%
Chicago-Naperville-Arlington HeightsMinneapolis-St. Paul-Bloomington2.72.1%
Atlanta-Sandy Springs-RoswellHouston-Woodlands-Sugar Land2.62.0%
Houston-Woodlands-Sugar LandPhiladelphia2.11.9%
Minneapolis-St. Paul-Bloomington1.9%
Los Angeles-Long Beach-Glendale1.8%
PhiladelphiaPhoenix-Mesa-Scottsdale1.71.7%
Phoenix-Mesa-ScottsdaleRiverside-San Bernardino-Ontario1.61.4%
Dallas-Plano-IrvingPortland-Vancouver-Hillsboro1.41.4%
Riverside-San BernardinoTotal1.419.9%
Total20.0%

The percentages shown above for various core-based statistical areas can be affected by changes, from time to time, in the federal government’s definition of a core-based statistical area.








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Insurance In Force by
Policy Year
Year.The following table sets forth for the MGIC Book the dispersion ofand certain statistics associated with our primary IIF and RIF as of December 31, 2017,2020, by year(s) of policy origination since we began operations in 1985.

        
Primary insurance in force and risk in force by policy year Insurance in Force Risk in ForcePrimary insurance in force and risk in force by policy year
Policy Year
Total
(In millions)
 
Percent of
Total
 
Total
(In millions)
 
Percent of
Total
2004 and prior$4,629
 2.4% $1,294
 2.6%
20054,227
 2.2% 1,206
 2.4%
20067,697
 3.9% 2,117
 4.2%
200716,903
 8.7% 4,360
 8.7%
20087,787
 4.0% 1,985
 3.9%
20091,239
 0.6% 291
 0.6%
20101,005
 0.5% 283
 0.6%
20111,922
 1.0% 538
 1.0%
20126,253
 3.2% 1,759
 3.5%
201310,031
 5.1% 2,780
 5.5%
201416,379
 8.4% 4,318
 8.6%
201529,206
 15.0% 7,547
 15.0%
201642,026
 21.6% 10,471
 20.8%
201745,637
 23.4% 11,370
 22.6%
Total$194,941
 100.0% $50,319
 100.0%
(in thousands)(in thousands)Insurance in ForceRisk In ForceWeighted Avg. Interest RateDelinquency RateCede Rate %% of Original Remaining
Policy YearPolicy YearTotal% of TotalTotal% of Total
2004 and prior2004 and prior$2,283,398 0.9 %$634,891 1.0 %7.2 %14.3 %0.6 %N.M.
2005-20082005-200819,022,549 7.7 %5,042,937 8.2 %6.9 %13.5 %4.3 %7.8 %
2009-20152009-201520,815,798 8.4 %5,688,918 9.2 %4.2 %5.6 %14.4 %11.7 %
2016201617,110,528 6.9 %4,529,234 7.3 %3.9 %5.2 %14.2 %35.6 %
2017201720,195,359 8.2 %5,163,483 8.4 %4.2 %6.6 %26.1 %41.0 %
2018201820,905,193 8.5 %5,292,993 8.6 %4.7 %7.2 %24.8 %41.8 %
2019201942,563,315 17.3 %10,703,952 17.3 %4.1 %4.5 %27.0 %65.4 %
20202020103,676,055 42.1 %24,755,325 40.1 %3.2 %0.8 %27.4 %95.3 %
TotalTotal$246,572,197 100.0 %$61,811,734 100.0 %





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Product Characteristics
Characteristics.The following table reflects, at the dates indicated and by the categories indicated, the total dollar amount of primary RIF for the MGIC Book and the percentage of that primary RIF, as determined on the basis of information available on the date of mortgage origination.
Characteristics of primary risk in force
December 31, 2020December 31, 2019
Primary RIF (In millions):
$61,812 $57,213 
Loan-to-value ratios:
95.01% and above14.7 %15.3 %
90.01 - 95.00%50.1 %52.2 %
85.01 - 90.00%28.3 %27.1 %
80.01 - 85.00%6.4 %4.8 %
80% and below0.5 %0.6 %
Total100.0 %100.0 %
Debt-to-income ratios:
45.01% and above14.2 %14.2 %
38.01% - 45.00%33.4 %33.3 %
38% and below52.4 %52.5 %
Total100.0 %100.0 %
Loan Type:
Fixed(1)
99.2 %99.0 %
ARMs(2)
0.8 %1.0 %
Total100.0 %100.0 %
Original Insured Loan Amount:(3)
Conforming loan limit and below97.4 %97.4 %
Non-conforming2.6 %2.6 %
Total100.0 %100.0 %
Mortgage Term:
15-years and under1.8 %1.4 %
Over 15 years98.2 %98.6 %
Total100.0 %100.0 %
Property Type:
Single-family detached87.6 %87.7 %
Condominium/Townhouse/Other attached11.7 %11.5 %
Other(4)
0.7 %0.8 %
Total100.0 %100.0 %
Occupancy Status:
Owner occupied97.6 %97.6 %
Second home2.1 %2.0 %
Investor property0.3 %0.4 %
Total100.0 %100.0 %
Documentation:
Reduced:(5)
Stated1.0 %1.2 %
No0.2 %0.2 %
Full documentation98.8 %98.6 %
Total100.0 %100.0 %

     
Characteristics of primary risk in force December 31, 2017 December 31, 2016
Primary RIF (In millions):
$50,319
 $47,195
 Loan-to-value ratios:   
 95.01% and above13.8% 14.5%
 90.01-95%52.0% 50.4%
 85.01-90%28.3% 29.1%
 80.01-85%4.9% 4.7%
 80% and below1.0% 1.3%
 Total100.0% 100.0%
 Loan Type:   
 
Fixed(1)
98.2% 97.6%
 
ARMs(2)
1.8% 2.4%
 Total100.0% 100.0%
 
Original Insured Loan Amount:(3)
   
 Conforming loan limit and below97.6% 97.6%
 Non-conforming2.4% 2.4%
 Total100.0% 100.0%
 Mortgage Term:   
 15-years and under2.1% 2.5%
 Over 15 years97.9% 97.5%
 Total100.0% 100.0%
 Property Type:   
 Single-family detached87.6% 87.6%
 Condominium/Townhouse/Other attached11.7% 11.7%
 
Other(4)
0.7% 0.7%
 Total100.0% 100.0%
 Occupancy Status:   
 Owner occupied97.3% 97.1%
 Second home2.0% 2.1%
 Investor property0.7% 0.8%
 Total100.0% 100.0%
 Documentation:   
 
Reduced:(5)
   
 Stated2.0% 2.5%
 No0.4% 0.6%
 Full documentation97.6% 96.9%
 Total100.0% 100.0%
 
FICO Score:(6)
   
 740 and greater51.6% 49.3%
 700 - 73924.7% 24.3%
 660 - 69914.2% 15.1%
 659 and less9.5% 11.3%
 Total100.0% 100.0%



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Characteristics of primary risk in force
December 31, 2020December 31, 2019
FICO Score:(6)
760 and greater40.3 %39.0 %
740 - 75917.0 %16.5 %
720 - 73913.8 %14.0 %
700 - 71911.2 %11.2 %
680 - 6998.3 %8.3 %
660 - 6793.7 %4.3 %
640 - 6592.5 %2.9 %
639 and less3.2 %3.8 %
Total100.0 %100.0 %
(1)Includes fixed rate mortgages with temporary buydowns (where in effect, the applicable interest rate is typically reduced by one or two percentage points during the first two years of the loan and then increased thereafter to the original interest rate), ARMs in which the initial interest rate is fixed for at least five years, and balloon payment mortgages (a loan with a maturity, typically five to seven years, that is shorter than the loan’s amortization period).
(2)Includes ARMs where payments adjust fully with interest rate adjustments. Also includes pay option ARMs and other ARMs with negative amortization features, which collectively at each of December 31, 2020 and 2019, represented 0.2% and 0.3%, respectively, of primary RIF. As indicated in note (1), does not include ARMs in which the initial interest rate is fixed for at least five years. For both December 31, 2020 and 2019, ARMs with LTV ratios in excess of 90% represented 0.2%, of primary RIF.
(3)Loans within the conforming loan limit have an original principal balance that does not exceed the maximum original principal balance of loans that the GSEs will purchase. The conforming loan limit for one unit properties was $453,100 for 2018, $484,350 for 2019, and $510,400 for 2020, and is $548,250 for 2021. The limit for high cost communities has been higher and is $822,375 for 2021. Non-conforming loans are loans with an original principal balance above the conforming loan limit.
(4)Includes cooperatives and manufactured homes deemed to be real estate.

(1)
Includes fixed rate mortgages with temporary buydowns (where in effect, the applicable interest rate is typically reduced by one or two percentage points during the first two years of the loan), ARMs in which the initial interest rate is fixed for at least five years, and balloon payment mortgages (a loan with a maturity, typically five to seven years, that is shorter than the loan’s amortization period).

(2)
Includes ARMs where payments adjust fully with interest rate adjustments. Also includes pay option ARMs and other ARMs with negative amortization features, which collectively at December 31, 2017 and 2016, represented 0.5% and 0.6%, respectively, of primary RIF. As indicated in note (1), does not include ARMs in which the initial interest rate is fixed for at least five years. As of December 31, 2017 and 2016, ARMs with LTV ratios in excess of 90% represented 0.4% and 0.5%, respectively, of primary RIF.

(3)
Loans within the conforming loan limit have an original principal balance that does not exceed the maximum original principal balance of loans that the GSEs will purchase. The conforming loan limit for one unit properties was $417,000 from 2007 through 2016, $424,100 for 2017, and $453,100 for 2018. The limit for high cost communities has been higher and is $679,650 for 2018. Non-conforming loans are loans with an original principal balance above the conforming loan limit.

(4)
Includes cooperatives and manufactured homes deemed to be real estate.

(5)
Reduced documentation loans were originated prior to 2009 under programs in which there was a reduced level of verification or disclosure compared to traditional mortgage loan underwriting, including programs in which the borrower’s income and/or assets were disclosed in the loan application but there was no verification of those disclosures ("stated" documentation) and programs in which there was no disclosure of income or assets in the loan application ("no" documentation). In accordance with industry practice, loans approved by GSE and other automated underwriting (AU) systems under “doc waiver” programs that did not require verification of borrower income are classified by us as “full documentation.” Based in part on information provided by the GSEs, we estimate full documentation loans of this type were approximately 4% of 2007 NIW. Information for other periods is not available. We understand these AU systems granted such doc waivers for loans they judged to have higher credit quality. We also understand that the GSEs terminated their “doc waiver” programs in the second half of 2008.

(6)
Represents the FICO score at loan origination. The weighted average “decision FICO score” at loan origination for NIW in 2017 and 2016 was 745 and 746, respectively. The FICO 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. A FICO score is a score based on a borrower’s credit history generated by a model developed by Fair Isaac Corporation.
(5)Reduced documentation loans were originated prior to 2009 under programs in which there was a reduced level of verification or disclosure compared to traditional mortgage loan underwriting, including programs in which the borrower’s income and/or assets were disclosed in the loan application but there was no verification of those disclosures ("stated" documentation) and programs in which there was no disclosure of income or assets in the loan application ("no" documentation). In accordance with industry practice, loans approved by GSE and other automated underwriting (AU) systems under “doc waiver” programs that did not require verification of borrower income are classified by us as “full documentation.” We understand that the GSEs terminated their “doc waiver” programs in the second half of 2008.
(6)Represents the FICO score at loan origination. The weighted average “decision FICO score” at loan origination for NIW in 2020 was 752 compared to 749 in 2019. The FICO 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. A FICO score is a score based on a borrower’s credit history generated by a model developed by Fair Isaac Corporation.


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Table of Contents | Glossary of terms and Servicesacronyms

OTHER PRODUCTS AND SERVICES
Contract Underwriting. A non-insurance subsidiary of ours performs contract underwriting services for lenders, underwriting loans to conform to prescribed guidelines. The guidelines might be the lender's own guidelines or the guidelines of Fannie Mae, Freddie Mac or a non-GSE investor. These services are provided for loans that require private mortgage insurance as well as for loans that do not require private mortgage insurance.


Under our contract underwriting agreements, we may be required to provide certain remedies to our customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such future obligations. The related contract underwriting remedy expense for each of the years ended December 31, 2017, 2016 and 2015, was immaterial to our consolidated financial statements. Claims for remedies may be made a number of years after the underwriting work was performed.

Other. We provide various fee-based services for the mortgage finance industry, such as analysis of loan originations and portfolios, and mortgage lead generation. An

We provide insurance subsidiary of MGIC provides credit insurance forand reinsurance related to certain mortgages under Fannie Mae and Freddie MacGSE credit risk transfer programs entered into in 2016.programs. The structure of these programs is equivalent to pool insurance and the amount of our risk associated with them is immaterial.



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Reinsurance Agreements
At December 31, 2017, approximately 78% of our IIF was subject to reinsurance agreements, compared to 76% at December 31, 2016. In 2017, approximately 84% of our NIW was subject to reinsurance agreements, compared to 89% in 2016.

External Reinsurance. We have in place a QSR transaction that became effective July 1, 2015, with a group of unaffiliated reinsurers that covers most of our insurance written from 2013 through 2016, and a portion of our insurance written prior to 2013. The transaction covers incurred losses, with renewal premium through December 31, 2024. The structure of the transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the transaction, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below 60%. We have in place a similar transaction covering most of our insurance written in 2017. We expect that in the first quarter of 2018, we will enter into a similar agreement covering most of our NIW in 2018, on terms no less favorable than our existing transactions. Although reinsuring against possible loan losses does not discharge us from liability to a policyholder, it reduces the amount of capital we are required to retain against potential future losses for PMIERs, rating agency and insurance regulatory purposes. The GSEs' approval of the reinsurancethese transactions is subject to several conditions and the transactions will be reviewed under the PMIERs at least annually by the GSEs. We may not receive full credit under the PMIERs for the risk ceded under our quota share reinsurance transactions. Early termination of the 2015 agreement can be elected by us effective December 31, 2018 for a fee, or under specified scenarios for no fee upon prior written notice. Early termination of the 2017 agreement can be elected by us effective December 31, 2021 for a fee, or under specified scenarios for no fee upon prior written notice. Further, at our sole discretion we may elect to terminate the 2015 and/or 2017 agreements if we will receive less than 90% of the full PMIERs credit amount for the risk ceded under the agreement in any required calculation period. The 2018 transaction is expected to have similar termination provisions.currently $287 million.


Captive Reinsurance. In a captive reinsurance arrangement, the reinsurer is affiliated with the lender for whom MGIC provides mortgage insurance. Various state and federal regulators have conducted investigations regarding captive mortgage reinsurance arrangements in which we participated, in part, in order to consider compliance with RESPA. In 2013, we entered into a settlement agreement with the CFPB that resolved a federal investigation of MGIC’s participation in captive reinsurance arrangements without the CFPB or a court making any findings of wrongdoing. In accordance with this settlement, all of our active captive arrangements have been placed into run-off.CUSTOMERS

For further information about our reinsurance agreements, see Note 9 – “Reinsurance,” to our consolidated financial statements in Item 8.

Customers
Originators of residential mortgage loans such as savings institutions, commercial banks, mortgage brokers, credit unions, mortgage bankers and other lenders have historically determined the placement of mortgage insurance written on a flow basis and as a result are our customers. To obtain primary insurance from us written on a flow basis, a mortgage lender must first apply for and receive a mortgage guaranty master policy from us. Our top 10 customers none of whom represented more than 10% of our consolidated revenues, generated 22.9%41% of our NIW on a flow basis in 2017, compared to 24.1% in 20162020, and 23.4% in 2015.  Our largest customer accounted for approximately 4% and 5% of our flow NIW24% in each of 20172019 and 2016, respectively.2018. Our relationships with our customers could be adversely affected by a variety of factors, including if our premium rates are higher than can be obtained fromthose of our competitors, tightening of and adherence to our underwriting requirements which may result inare more restrictive than those of our declining to insure some of the loans originated bycompetitors, or our customers andare dissatisfied with our claims-paying practices (including insurance policy rescissions and curtailments that affect the customer.claim curtailments). Information about some of the other factors that can affect a mortgage insurer’s relationship with its customers can be found 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” in Item 1A.



SALES AND MARKETING AND COMPETITION

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Sales and Marketing and Competition
Sales and Marketing. Our employees sell our insurance products throughout all regions of the United States and in Puerto Rico and Guam.


Competition. Our competition includes other mortgage insurers, governmental agencies and products designed to eliminate the need to purchase private mortgage insurance. For flow business, we and other private mortgage insurers compete directly with federal and state governmental and quasi-governmental agencies, principally the FHA and the VA. The FHA, VA and USDA sponsor government-backed mortgage insurance programs, and it is estimated that during 2017, 2016 and 2015,the first nine months of 2020, they accounted for a combined approximately 62.4%, 64.6% and 66.0%, respectively,56.8% of the total low down payment residential mortgages which were subject to FHA, VA, USDA or primary private mortgage insurance.insurance, compared to 55.3% and 55.9% in 2019 and 2018, respectively. For more information about the market share of the FHA and the VA, see “Overview of the Private Mortgage Insurance Industry and its Operating Environment” above.


In addition to competition from the FHA, VA and USDA, we and other private mortgage insurers face competition from state-supported mortgage insurance funds in several states. From time
to time, other state legislatures and agencies consider expanding the authority of their state governments to insure residential mortgages.


The PMI industry is highly competitive. We believe that we currently compete with other private mortgage insurers based on pricing,premium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, the strength of our management teamteams and field organization,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.


The U.S. PMI industry currently consists of six active mortgage insurers and their affiliates. The names of these mortgage insurers can be found 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” in Item 1A. Until 2010, the PMI industry had not had new entrants in many years. Since 2010, two public companies have been formed and begun writing business and a worldwide insurer and reinsurer with mortgage insurance operations in Europe completed the purchase of two competitors.affiliates, including MGIC. Our market share (as measured by NIW) was 18.3%18.7% in 2017,the first nine months of 2020, compared to 17.8%16.5% in 20162019 and 19.9%17.4% in 2015,2018, in each case excluding HARP refinances. (source: Inside Mortgage Finance).
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 new insurance written could be negatively affected. Substantially allThe substantial majority of our insurance written since 2008 has been for loans delivered to or purchased by the GSEs. The GSEs'current PMIERs of each of the GSEs do not require an insurer to maintain minimum financial strength ratings. However, depending onupon the evolution of housing finance reform, the level of issuances of non-GSE MBS may increase in the future. Financial strength ratings may be considered by issuers of non-GSE MBS in determining whether to purchase private mortgage insurance for loans supporting such securities. In assigning financial strength ratings, in addition to considering the adequacy of the mortgage insurer’s capital to withstand very high claim scenarios under assumptions determined by the rating agency, we believe rating agencies review a mortgage insurer’s historical and projected operating performance, franchise risk, business outlook, competitive position, management, corporate strategy, enterprise risk management and other factors. The rating agency issuing the financial strength rating can withdraw or change its rating at any time. At the time that this annual report was finalized, the financial strength of MGIC was rated Baa2A- (with a stable outlook) by A.M. Best, Baa1 (with a stable outlook) by Moody’s Investors Service and BBB+ (with a stablenegative outlook) by Standard & Poor’s Rating Services.


C. Risk Management
Enterprise Risk Management. ENTERPRISE RISK MANAGEMENT
The Company has an enterprise risk management (“ERM”) framework that it believes is commensurate with the size, nature and complexity of the Company’s business activities (all of which relate to insuring or reinsuring mortgage insurance)credit risk) and strategies. Among the key objectives of the ERM framework are to have a clear and well documented shared understanding, by senior management and the Board, of the Company’s risk management philosophy and overall appetite for risk, and that there are appropriate monitoring, management and reporting mechanisms to support the framework.



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Risk Governance. The Company maintains a Senior Management Oversight Committee (“SMOC”) that, at the management level,

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serves as its primary risk management governance organization. The SMOC seeks to maintain an enterprise-wide view of risk. The SMOC oversees the Company’s ERM framework; oversees the risks associated with strategic and business issues critical to the Company, monitoring the Company’s risk profile across the set of identified key risks (see “Risk Identification and Assessment” below); and supportsprovides reporting to the Risk Management Committee of the Company’s Board of Directors (“RMC”). The SMOC, of which the CEO is a member, is chaired by the Company’s Executive Vice President and Chief Risk Officer, who is the principal management liaison to the RMC.


The Board implements its risk oversight function as a whole and through delegation to its Committees which meet regularly and report back to the full Board. The Risk Management and Controls. The Company’s management of risk uses the “three lines of defense” model. The front-line business units, whose activities create inherent risk exposures, represent the “first line of defense.” Front-line business units are responsible for ensuring risks are taken and managed within the guidelines established by the Company’s Risk Management (“RM”) group.

RM, alongCommittee coordinates with the Company’s separate compliance program, compriseBoard and other Board Committees regarding the “second line of defense” and are management and oversight functions that are primarily responsible for many aspects of the management of risk.  RM is generally responsible for the ERM framework, for policies and metrics that dimension the risk tolerances of the Company’s business activities and for measurement and assessment of all key risks and reporting of those risksassignment to the SMOCBoard and the RMC.

Internal Audit forms the “third lineCommittees of defense” and serves in an independent assurance capacity.  It reports to senior management and the Audit Committee of the Board regarding the effectiveness of the first and second lines of defense. Internal Audit is responsibleoversight responsibilities for establishing a comprehensive audit plan that covers all functions and identified material risks of the Company, communication of any material deficiencies to the SMOC and the Audit Committee, and determining whether corrective actions fully remediate any noted deficiencies.

Risk Identification and Assessment. The Company completes an annual key risk identification and assessment process that is focused on identifying and assessing those risks with the potentialconsidered to have the greatest impact on the Company’sCompany's ability to accomplish its strategic goals. TheseEach Committee's charter describes its principal responsibilities, including its oversight responsibility for applicable key risks include both risksrisks.

Environmental, Social and Governance ("ESG") Risk Governance. The Company maintains an ESG Executive Council that, are, at least in part, internalthe management level, supports the Company's on-going commitment to environmental, health and safety, corporate social responsibility, corporate governance, sustainability, and other public policy matters relevant to the Company (e.g., mortgage credit risk)Company. In performing this general responsibility, the Council has discretion to: assist in setting the Company’s general strategy with respect to ESG matters; identify current and therefore, at least in part, within management’s direct control,emerging ESG issues that may affect the Company’s business, strategy, operations, performance, or public image; make recommendations regarding policies, practices, procedures, or disclosures to address ESG matters; implement systems to monitor ESG matters when necessary; oversee the Company’s internal and external reporting and disclosures surrounding ESG matters; and advise on stockholder or stakeholder concerns regarding ESG matters. The ESG Executive Council will make regular reports to the SMOC and to the relevant Committee(s) of the Board of Directors of the Company.

The Board has delegated oversight for the following ESG matters to the following committees, who regularly report their actions to the Board:
•Risk Management Committee: 1) Mortgage Credit Risk, including risks associated with changing climatic conditions. 2) Emerging risks.
•Management Development, Nominating and Governance Committee: 1) Human capital management policies such as executive compensation; succession planning; recruitment, retention and development of management resources; and health and safety of employees. 2) Corporate governance.
•Securities Investment Committee: Our investment portfolio; such oversight may include consideration of ESG factors.
•Audit Committee: Cybersecurity and disclosure controls and procedures relating to financial reports made to the SEC, as well as ESG reports.

Risk Management and Controls. The Company has established enterprise-wide policies, procedures and processes to allow it to identify, assess, monitor and manage the Company’s various risks. Management of these risks that are externalis an interdepartmental
endeavor, with oversight by the Chief Risk Officer and the SMOC. The Company’s Internal Audit function, which reports to the Audit Committee of the Board of Directors, provides independent ongoing assessments of the Company’s management of certain enterprise risks and reports its findings to the Audit Committee.

Risk Identification and Assessment. On a regular basis, the Company (e.g.,monitors key risks with a focus on identifying risks or changes to risks with the greatest impact on the Company's ability to accomplish its strategic goals. In addition to the ongoing monitoring, the Company also identifies key risks in a bottom up process facilitated through workshops and discussions during an annual compliance and risk forum with co-workers across all business risk) and outside of management’s direct control.functions. The results of the identification process are reported to and assessment are reviewed and approved annually by both the SMOC and the RMC.

Risk Appetite.  The Company has established risk appetite statements for each of its key risks, as well as quantitative or qualitative metrics used as thresholds for dimensioning the risk appetite for each key risk. The resulting risk appetite statements and associated metrics are reviewed and approved annually by the SMOC and presented to the RMC.RMC and the full Board.


Risk Reporting and Communication. RMThe Company's Risk Management department produces various analyses, reports and key risk indicators (“KRIs”) that are reported to the SMOC, the RMC and the Board quarterly.  For our largest risk exposure, mortgage credit risk, these KRIs include risk factors for the Company’s NIW, IIF, quality control and claim activity. activity, and the quarterly reports include performance relative to metrics and thresholds. Each of the other Board Committees also receive regular reporting concerning the risks they oversee.


Although the Company has in place the ERM framework discussed above, it may not be effective in identifying, or adequate in controlling or mitigating, the risks we face. For more information, see our Risk Factor titled "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" in Item 1A.


Mortgage Credit RiskMORTGAGE CREDIT RISK
We believe that mortgage credit risk is materially affected by:


•the condition of the economy, including the direction of change in home prices and employment, in the area in which the property is located;


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•the borrower’s credit profile, including the borrower’s credit history, DTI ratio and cash reserves, and the willingness of a borrower with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home;

•the loan product, which encompasses the LTV ratio, the type of loan instrument, including whether the instrument provides for fixed or variable payments and the amortization schedule, the type of property and the purpose of the loan;

•origination practices of lenders and the percentage of coverage on insured loans; and

•the size of insured loans.


We believe that, excluding other factors, claim incidence increases:


•during periods of economic contraction and home price depreciation, including when these conditions may not be

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nationwide, compared to periods of economic expansion and home price appreciation;

•for loans to borrowers with lower FICO scores compared to loans to borrowers with higher FICO scores;

•for loans to borrowers with higher DTI ratios compared to loans to borrowers with lower DTI ratios;

•for loans with less than full underwriting documentation compared to loans with full underwriting documentation;

•for loans with higher LTV ratios compared to loans with lower LTV ratios;

•for ARMs when the reset interest rate significantly exceeds the interest rate at the time of loan origination;

•for loans that permit the deferral of principal amortization compared to loans that require principal amortization with each monthly payment;

•for loans in which the original loan amount exceeds the conforming loan limit compared to loans below that limit; and

•for cash out refinance loans compared to rate and term refinance loans.


Other types of loan characteristics relating to the individual loan or borrower may also affect the risk potential for a loan. The presence of a number of higher-risk characteristics in a loan materially increases the likelihood of a claim on such a loan unless there are other characteristics to mitigate the risk.


We charge higher premium rates to reflect the increased risk of claim incidence that we perceive is associated with a loan, although notloan. Not all higher risk characteristics are reflected in theour premium rate.rates; however, in 2019 we introduced MiQ, our risk-based pricing system that establishes our premium rates based on more risk attributes than were considered in 2018. There can be no assurance that our premium rates adequately reflect the increased risk, particularly in a period of economic recession, high unemployment, slowing home price appreciation or home price declines. For additional information, see our risk factors in Item 1A, including the one titled “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.”


Underwriting Insurance Applications. Applications for mortgage insurance are submitted to us through both our delegated and non-delegated options. Under the delegated option, applications
are submitted to us electronically and we rely upon the lender’s representations and warranties that the data submitted is true, accurate and consistent with the documents in the lender's loan origination file, when making our insurance decision. If the loan data submitted meets the underwriting requirements, a commitment to insure the loan is immediately issued. If the requirements are not met, the loan is reviewed by one of our underwriters. Non-delegated applications are submitted with documents from the lender’s loan origination file. During loan set-up,


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data is entered from those application documents and electronically evaluated againstWe apply our underwriting requirements. An internally generated feedback report guides the mortgage insurance review as a full review of the mortgage documents is performed by one of our underwriters.guidelines, eligibility criteria and rating plans to determine coverage eligibility and premium rate. If the loan meets the underwriting requirements,is eligible for coverage, we will issue a commitment to insure the loan is issued.loan.


Beginning in 2013, we aligned most of our underwriting requirements with Fannie Mae and Freddie Mac for loans that receive and are processed in accordance with certain approval recommendations from a GSE automated underwriting system. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html. Our underwriters are authorized to approve loans that do not meet all of our underwriting requirements provided appropriate offsetting factors can be identified. The number of loans for which underwriting exceptions were made, which in total are expected to have a somewhat higher claim incidence than loans that meet our guidelines, accounted for fewer than 2% of the loans we insured in each of 2016 and 2017.


Exposure to Catastrophic Losses; Defaults; Claims; Loss Mitigation
Exposure to Catastrophic Losses. The PMI industry experienced catastrophic losses in the mid-to-late 1980s, similar to the losses we experienced in 2007-2013. For background information about such losses in 2007-2013, as well as information about the effects of the COVID-19 pandemic, refer to “General – Overview of Private Mortgage Insurance Industry and its Operating Environment” above. To the extent our premium yield materially declines without either a corresponding decrease in our risk written or achieving other benefits, we become less likely to be able to withstand the occurrence of a catastrophic loss scenario.

DefaultsDelinquencies. The claim cycle on PMI generally begins with the insurer’s receipt of notification of a delinquency on an insured loan from the loan servicer. We considerFor reporting purposes, a loan is generally considered to be delinquent when it is two or more payments past due. Most servicers report delinquent loans to us within this two month period. The incidence of delinquency is affected by a variety of factors, including the level of borrower income growth, unemployment, health issues, family status, the level of interest rates, rates of home price appreciation or depreciation and general borrower creditworthiness. Delinquencies that are not cured result in a claim to us. See “– Claims.” Delinquencies may be cured by the borrower bringing current the delinquent loan payments or by a sale of the property and the satisfaction of all amounts due under the mortgage. In addition, when a policy is rescinded or a claim is denied we remove the loan from our delinquency inventory.


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The following table shows the number of insured primary and pool loans in the MGIC Book, the related number of delinquent loans and the percentage of delinquent loans, or delinquency rate, as of December 31, 2013-2017.2016-2020.
Delinquency statistics for the MGIC book
December 31,
20202019201820172016
Primary Insurance:
Insured loans in force1,126,0791,079,5781,058,2921,023,951998,294
Delinquent loans57,71030,02832,89846,55650,282
Delinquency rate – all loans5.1%2.8%3.1%4.6%5.0%
Defaulted loans in our claims received inventory1595388099541,385
Pool Insurance:
Insured loans in force18,28820,31823,67531,36439,071
Delinquent loans6806538591,3091,883
Delinquency rate3.7%3.2%3.6%4.2%4.8%
           
Delinquency statistics for the MGIC book December 31,
 2017 2016 2015 2014 2013
Primary Insurance:         
 Insured loans in force1,023,951 998,294 992,188 968,748 960,163
 Delinquent loans46,556 50,282 62,633 79,901 103,328
 Delinquency rate – all loans4.6% 5.0% 6.3% 8.3% 10.8%
 Defaulted loans in our claims received inventory954 1,385 2,769 4,746 6,948
           
 Pool Insurance:         
 Insured loans in force31,364 39,071 52,189 62,869 87,584
 Delinquent loans1,309 1,883 2,739 3,797 6,563
 Delinquency rate4.2% 4.8% 5.3% 6.0% 7.5%


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Different geographical areas may experience different delinquency rates due to varying localized economic conditions from year to year.year and the amount of time it takes for foreclosures to be completed for uncured delinquencies. The following table shows the percentage of primary loans we insured that were delinquent as of December 31, 2017, 20162020, 2019 and 20152018 for the 15 jurisdictions for which we paid the most claims during 2017.2020.
Jurisdiction delinquency rates
December 31,
202020192018
Florida*7.5 %3.4 %3.9 %
New York*6.9 5.3 6.1 
Illinois*5.9 3.2 3.3 
New Jersey*7.0 3.9 4.6 
Maryland6.0 3.6 4.1 
Puerto Rico*11.2 8.2 10.3 
Pennsylvania*4.0 2.8 3.2 
California6.1 2.1 2.2 
Ohio*4.0 2.3 2.6 
Virginia4.2 1.9 2.1 
Massachusetts4.7 2.9 3.2 
Michigan4.0 2.0 2.3 
Texas6.1 3.3 3.6 
Connecticut5.9 3.6 3.5 
Wisconsin3.0 1.9 2.0 
All other jurisdictions4.6 2.5 2.8 
       
Jurisdiction delinquency rates December 31,
 2017 2016 2015
 New Jersey7.3% 11.3% 15.6%
 Florida9.5
 6.6
 10.1
 New York8.0
 10.5
 12.7
 Illinois4.1
 5.5
 7.1
 Maryland5.4
 7.4
 9.4
 Pennsylvania4.2
 5.3
 6.5
 Puerto Rico24.2
 10.7
 12.0
 California2.6
 3.1
 4.1
 Ohio3.2
 4.2
 5.2
 Massachusetts4.1
 6.1
 7.4
 Connecticut4.4
 5.6
 7.1
 Virginia2.8
 3.8
 4.9
 Georgia4.5
 5.5
 6.5
 Indiana4.2
 5.4
 6.5
 Washington1.9
 2.9
 4.0
 All other jurisdictions3.6
 4.2
 5.1

We believeNote: Asterisk denotes jurisdictions in the increase in delinquency rates from 2016 to 2017 in Florida and Puerto Rico reflect the impact of the 2017 hurricanes experienced in those areas. Based on our analysis and past experience, we do not expect the 2017 hurricane activity to result intable above that predominantly use a material increase in our incurred losses or paid claims. However, see our risk factor titled "Recent hurricanes may impact our incurred losses,judicial foreclosure process, which generally increases the amount and timing of paid claims, our inventory of notices of default and our Minimum Required Assets under PMIERs" in Item 1Atime for factors that could cause our actual resultsa foreclosure to differ from our expectation.be completed.

The primary delinquency inventory in those same jurisdictions as of December 31, 2017, 20162020, 2019 and 20152018 appears in a table found in “Management’s Discussion and Analysis – Consolidated Results of Operations – Losses and expenses – Loss Reserves,” in Item 7.


Claims. Claims result from delinquencies that are not cured or a short sale that we approve. Whether a claim results from an uncured delinquency depends, in large part, on the borrower’s
equity in the home at the time of delinquency, the borrower’s or the lender’s ability to sell the home for an amount sufficient to satisfy all amounts due under the mortgage and the willingness and ability of the borrower and lender to enter into a loan modification that provides for a cure of the delinquency. Various factors affect the frequency and amount of claims, including local home prices and employment levels, and interest rates. If a delinquency goes to claim, any premium collected from the time of delinquency to the time of claim payment is returned to the servicer along with the claim payment.


Under the terms of our master policy, the lender is required to file a claim for primary insurance with us within 60 days after it has acquired title to the underlying property (typically through foreclosure). For the past several years, the average time it took to receive a claim associated with a delinquency increased significantly from our historical experience of approximately twelve months,months. This was, in part, due to new loss mitigation protocols established by servicers and to changes in some state foreclosure laws that may include,have included, for example, a requirement for additional review and/or mediation processes. In recent quarters,Prior to the second quarter of 2020, we had begun to experience a decline in the average time forit takes servicers to process foreclosures, has decreased, which hashad reduced the average time to receive a claim associated with new delinquent noticesdelinquencies that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the size of the claim, or “severity.” It is difficult to estimate how long it may take for current and future delinquencies that do not cure to develop into paid claims. In light of the uncertainty caused by the COVID-19 pandemic, the average number of missed payments at the time a claim is received is expected to increase in 2021.



The majority of loans we insured from 2005 through 2008 (which represent 30% of the loans in the delinquency inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years of accumulated interest that an insured may include in a claim. Under our current master policy terms, an insured can include accumulated interest only for the first three years the loan is delinquent.
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Within 60 days after a claim has been filed and all documents required to be submitted to us have been delivered, we generally have the option ofto either (1) payingpay the coverage percentage

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specified for thatthe insured loan, with the insured retaining title to the underlying property and receiving all proceeds from the eventual sale of the property (we have elected this option for the vast majority of claim payments in the recent past), or (2) payingpay 100% of the claim amount in exchange for the lender’s conveyance to us of good and marketable title to the property. After we receive title to a property, we sell it for our own account. If we fail to pay a claim timely, we would beare subject to additional interest expense.


Claim activity is not evenly spread throughout the coverage period of a book of primary business. Relatively few claims are typically received during the first two years following issuance of coverage on a loan. This isThe highest level of claim activity has typically followed by a period of rising claims which, based on industry experience, has historically reached its highest leveloccurred in the third and fourth years after the year of loan origination. Thereafter, the number of claims typically received has historicallytypically declined at a gradual rate, although the rate of decline can be affected by conditions in the economy, including slowing home price appreciation or home price depreciation. Moreover, when a loan is refinanced, because the new loan replaces, and is a continuation of, an earlier loan, the pattern of claims frequency for that new loan may be different from the historicaltypical pattern for other loans. Persistency, the condition of the economy, including unemployment, and other factors can affect the pattern of claim activity. For example, a weak economy can lead to claims from older books of business increasing, continuing at stable levels or experiencing a lower rate of decline. As of December 31, 2017, 58%2020, 66% of our primary RIF was written subsequent to December 31, 2014, 67%2017, 74% of our primary RIF was written subsequent to December 31, 2013,2016, and 73%82% of our primary RIF was written subsequent to December 31, 2012.2015. See “Our Products and Services – Mortgage Insurance – Primary Insurance In Force and Risk In Force by Policy Year” above.


Another important factor affecting MGIC Book losses is the amount of the average claim size, which is generally referred to as claim severity. The main determinants of claim severity are the amount of the mortgage loan, the coverage percentage on the loan, loss mitigation efforts, the length of time a loan remains delinquent before a claim is received and local market conditions. For information about our primary average claim paid, see “Management’s Discussion and Analysis – Consolidated Results of Operations – Net Losses and LAE Paid,” in Item 7.


Net losses paid and primary losses paid for the top 15 jurisdictions and all other jurisdictions for 2017, 20162020 and 20152019 appear in tables found in “Management’s Discussion and Analysis – Consolidated Results of

Operations – Losses and expenses – Net Losses and LAE Paid,” in Item 7.


Loss Mitigation.
Before paying a claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. ourOur insurance policies generally 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 each of 20172020 and 2016,2019, curtailments reduced our average claim paid by approximately 5.6%3.6% and 5.5%5.0%, respectively.


When reviewing the loan file associated with a claim, we may determine that we have the right to rescind coverage on the loan. In our SEC reports, we refer to insurance rescissions and denials of claims as “rescissions” and variations of this term. The
circumstances in which we are entitled to rescind coverage narrowed under more restrictive policy terms beginning in 2012. As a result of revised PMIERs requirements, we have narrowedrevised our master policy effective for new insurance written beginning March 1, 2020. Our ability to rescind insurance coverage has become further limited for insurance we have written in recent years. During the second quarter of 2012, we began writing a portion of our new insurancewrite under the Gold Cert Endorsement, which limited our ability to rescind coverage compared to ournew master policy, potentially resulting in effect at that time. Our rescission rights under our master policy introduced in 2014 are comparable to thosehigher losses than would be the case under our previous master policy, as modified by the Gold Cert Endorsement, but may be further narrowed if the GSEs permit modifications to them.policies. In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions, down from the peak of approximately 28% in the first half of 2009.rescissions. We do not expect future rescissions will be a significant portion of the claims we resolve over the next few years.


Our loss reserving methodology incorporates our estimates of future rescissions, curtailments, and reversals of rescissions and curtailments. When we rescind coverage, we return all premiums previously paid to us under


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the policy and are relieved of our obligation to pay a claim under the policy. A variance between ultimate actual rescission, curtailment or 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 a claim, 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 wouldmay be determined by legal proceedings. Under ASC 450-20, until a liability 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. WhereWhen we have determineddetermine that a loss is probable and can be reasonably estimated, we have recordedrecord our best estimate of our probable loss. If we

We are not able to implement settlements we consider probable, we intend to defend MGIC vigorously against any related legal proceedings.

In addition to matters for which we have recorded a probable loss, we arecurrently involved in other discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that when these matters are resolved 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 matters where a loss is reasonably possible to be approximately $285 million, although we believe (but can give no assurance that) we will ultimately resolve these matters for significantly less than this amount.$40 million. This estimate of our maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.


Although loan modification programs continued to mitigate our losses in 2017, their impact has decreased significantly from the impact we experienced in 2008-2012.


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Another loss mitigation technique available to us is obtaining a deficiency judgment against the borrower
Table of Contents | Glossary of terms and attempting to recover some or all of the paid claim from the borrower. Various factors, including state laws that limit or eliminate our ability to pursue deficiency judgments and borrowers’ financial conditions, have limitedacronyms


our recoveries in recent years to less than one-half of 1% of our paid claims.

Loss Reserves and Premium Deficiency Reserve
. A significant period of time typically elapses between the time when a borrower becomes delinquent on a mortgage payment, which is the event triggering a potential future claim payment by us, the reporting of the delinquency to us, the acquisition of the property by the lender (typically through foreclosure) or the sale of the property with our approval, and the eventual payment of the claim related to the uncured delinquency or a rescission. To recognize the estimated liability for losses related to outstanding reported delinquencies, or delinquency inventory, we establish loss reserves.  Loss reserves are established by estimating the number of loans in our delinquency inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. Our loss reserve estimates are established based upon historical experience, including rescission and curtailment activity. In accordance with GAAP for the mortgage insurance industry, we generally do not establish losscase reserves for future claims on insured loans that are not currently delinquent.


We also establish reserves to provide for the estimated costs of settling claims, general expenses of administering the claims settlement process, legal fees and other fees (“loss adjustment expenses”), and for losses and loss adjustment expenses from delinquencies that have occurred, but which have not yet been reported to us.us (IBNR).


Our reserving process bases our estimates of future events on our past experience. However, estimationFor further information about our loss reserving methodology, refer to “Management’s Discussion and Analysis – Critical Accounting Policies,” in Item 7. Estimation of loss reserves is inherently judgmental and conditions that have affected the development of the loss reserves in the past may not necessarily affect development patterns in the future, in either a similar manner or to a similar degree. For further information, see our risk factors in Item 1A, including the ones titled “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,” and “Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.”




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Our losses incurred from our RIF have declined in recent years in part due to the improving economy and the run-off of the insurance policies we wrote before the financial crisis. These factors resulted in fewer delinquent loans, as well as an improved cure rate on delinquent loans. Our losses incurred were $53.7$364.8 million in 2017,2020, compared to $240.2$118.6 million and $36.6 million in 20162019 and $343.5 million2018, respectively. Our losses incurred in 2015.2020 were above the levels of the other years shown as a result of losses stemming from the COVID-19 pandemic. For information about the decrease in losses incurred from 20162018 to 2017,2020, including the amounts of losses incurred that are associated with delinquency notices received in the reporting year compared to losses incurred associated with delinquency notices received in prior years, see “Management’s DiscussionNote 8 – "Loss Reserves" to our consolidated financial statements in Item 8.
D. Reinsurance Agreements
We have in place quota share reinsurance ("QSR") and Analysis – Consolidated Resultsexcess of Operations – Losses and expenses – Losses incurred, net,”loss reinsurance ("XOL") transactions providing various amounts of coverage on 88% of our risk in Item 7.

After our reserves are initially established, we perform premium deficiency tests using best estimate assumptionsforce as of December 31, 2020. These transactions allow us to better manage our risk profile and because they reduce the testing date.amount of capital we are required to hold to comply with insurance regulatory requirements and the requirements of the GSEs' PMIERs, they provide an alternative source of capital.

Quota Share Transactions.At December 31, 2020 and 2019, approximately 76% and 79%, respectively, of our IIF was subject to quota share reinsurance ("QSR") transactions. In 2020 and 2019, approximately 74% and 82%, respectively, of our NIW was subject to QSR transactions.
Our QSR transactions are with unaffiliated reinsurers and cover a percentage of most of our insurance written from 2013 through 2022, and a smaller percentage of our insurance written prior to 2013 and from 2023 through 2025. The weighted average coverage percentage of our QSR transactions was 23%, based on risk in force as of December 31, 2020.

The structure of the QSR transactions is a quota share of various percentages of the policies covered, with a ceding commission and a profit commission. Generally, under the transactions, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transactions remains below various percentages, depending upon the transaction.

Excess of Loss Transactions. Our XOL transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). Considering the transaction we entered into in February 2021, our XOL transactions provide XOL reinsurance coverage for a portion of the risk associated with certain mortgage insurance policies having insurance coverage in force dates from July 1, 2016 through March 31, 2019 and January 1, 2020 through December 31, 2020, all dates inclusive.

For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses, and the special purpose insurer will then provide second layer coverage up to the outstanding reinsurance coverage amount. We establishretain losses in excess of the outstanding reinsurance coverage amount. The aggregate XOL reinsurance coverage decreases over a premium deficiency reserve, if necessary, whenperiod of either 10 of 12.5 years, depending on the present valuetransaction, subject to certain conditions, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid. The special purpose insurers financed the coverages with the proceeds of expectedthe ILNs in an aggregate amount equal to the initial reinsurance coverage amounts. The ILNs are non-recourse to any of our assets. The proceeds of the ILNs, which were deposited into reinsurance trusts for our benefit, will be the source of reinsurance claim payments to us and principal repayments on the ILNs.
Although reinsuring against possible loan losses does not discharge us from liability to a policyholder, it reduces the amount of capital we are required to retain against potential future losses for PMIERs, rating agency and expenses exceeds the present value of expected future premiums and already established reserves. Products are grouped,insurance regulatory purposes. The calculated credit for premium deficiency testing purposes,XOL reinsurance transactions under PMIERs is generally based on similaritiesthe PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. The total credit for risk ceded under our reinsurance transactions is subject to a modest reduction and is subject to periodic review by the GSEs.

For further information about our reinsurance agreements, including the Company's early termination rights, see Note 9 – “Reinsurance,” to our consolidated financial statements in the way products are acquired, servicedItem 8, and measured for profitability. In the fourth quarterour risk factor titled "Reinsurance may not always be available or affordable" in Item 1A.

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Table of 2007, we recorded a premium deficiency reserve relating to Wall Street bulk transactions remaining in our IIF. That premium deficiency reserve was eliminated in the second quarterContents | Glossary of 2015.terms and acronyms



C.E. Investment Portfolio
Policy and StrategyPOLICY AND STRATEGY
At December 31, 2017,2020, the fair value of our investment portfolio was approximately $5.0$6.7 billion. In addition, at December 31, 2017,2020, our total assets included approximately $99.9$288 million of cash and cash equivalents. At December 31, 2017,2020, approximately $847 million of our portfolio plusinvestments and cash and cash equivalents approximately $216 million was held by our parent company, and the remainder was held by our subsidiaries, primarily MGIC.


As of December 31, 2017,2020, approximately 78%96% of our investment portfolio (excluding cash and cash equivalents) was managed by Wellington Management Company, LLP,two external investment managers, although we maintain overall control of investment policy and strategy. We maintain direct management of the remainder of our investment portfolio. Unless otherwise indicated, the remainder of the discussion regarding our investment portfolio refers to our investment portfolio only and not to cash and cash equivalents.


The investment policy of our operating companies (primarily MGIC) emphasizes preservation of PMIERs assets, limiting portfolio volatility and maximizing total return with an emphasis on yield (subject to the other objectives). Our currentholding company investment policy emphasizes preservation of capital. Therefore,providing liquidity with minimal realized losses through holding high credit quality, low volatility assets. Consequently, our investment portfolio consists almost entirely of high-quality, investment grade, fixed income securities. Our investment portfolio strategy encompassesconsiders tax efficiency. The mix of tax-exempt municipal securities in our investment portfolio will be dependent upon their value, relative to taxable equivalent securities, determined in part by federal statutory tax rates. The goal is to maintain or grow net investment income through a combination of investment income and tax advantages. Also, ourOur investment policies and strategies are subject to change depending upon regulatory, economic and market conditions and our existing or anticipated financial condition and operating requirements.


Our investment policies in effect at December 31, 20172020 limit investments in the securities of a single issuer, other than the U.S. government, and generally limit the purchase of fixed income securities to those that are rated investment grade by at least one rating agency. They also limit the amount of investment in foreign governments and foreign domiciled securities and in any individual foreign country. In addition, the guidelines require the portfolio to carry a weighted average credit quality of at least an "A" rating.


The aggregate market value of the holdings of a single obligor, or type of investment, as applicable, is limited to:
U.S. government securitiesNo limit
Pre-refunded municipals escrowed in Treasury securitiesNo limit
U.S. government agencies (in total)(1)
15% of portfolio market value
Securities rated “AA” or “AAA”3% of portfolio market value
Securities rated “BBB” or “A”2% of portfolio market value
Foreign governments & foreign domiciled securities (in total)10% of portfolio market value
Individual AAA rated foreign countries3% of portfolio market value
Individual below AAA rated foreign countries1% of portfolio market value
(1)
As used with respect to our investment portfolio, U.S. government agencies include GSEs (which, in the sector table below are included as part of U.S. Treasuries) and Federal Home Loan Banks.



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U.S. government and GNMA securities		No limit
Pre-refunded municipals escrowed in Treasury securitiesNo limit
MGIC Investment CorporationIndividual U.S. government agencies(1)
2017 Form 10-K
10% of portfolio market value
Business (continued)
Individual securities rated “AAA” or “AA” (2)
3% of portfolio market value
Individual securities rated “BBB” or “A” (2)
2% of portfolio market value
Foreign governments & foreign domiciled securities (in total) (3)
25% of portfolio market value


(1)As used with respect to our investment portfolio, U.S. government agencies include all GSEs and Federal Home Loan Banks.
(2)For the holding company, individual securities with a rating of "AA" or "AAA" may represent a maximum 10% of the portfolio market value and individual securities with a rating of "BBB" or "A" may represent a maximum 5%.
(3)For the holding company, there is no maximum aggregate limit for foreign government or foreign domiciled securities.

For information about the credit ratings of securities in our investment portfolio, see “Management’s Discussion and Analysis – "Balance Sheet Analysis – Assets – Investments Analysis”Review" in Item 7.


Investment Operations
At December 31, 2017,2020, the sectors ofrepresented in our investment portfolio were as shown in the table below:
Investment portfolio - sectors
Percentage of
Portfolio’s
Fair Value
1.  Corporate41.6%
Percentage of Portfolio’s Fair Value
1.  Corporate43%
2.  Tax-Exempt Municipals28.617%
3.  Taxable Municipals12.916%
4.  Asset-Backed4.  Asset Backed8.613%
5.  U.S. government and agency debt5.  GNMA Pass-through Certificates3.65%
6. GNMA and other agency mortgage-backed securities6.  U.S Treasuries3.06%
7.  Escrowed/Prerefunded Municipals1.6
8.  Equities and Other0.1
100.0%100%


We had no derivative financial instruments in our investment portfolio. Securities with stated maturities due within up to one year, after one year and up to five years, after five years and up to ten years, and after ten years, represented 12%6%, 35%31%, 21% and 32%23%, respectively, of the total fair value of our investment in fixed income debtinvestment securities. ABS, RMBS, CMBSAsset-backed and CLOs representing 12% of the total fair value of our investment portfoliomortgage-backed securities are not included in these maturity categories as the expected maturities may differ tobe different from the stated maturities based ondepending upon the periodic payments during the life of the security. Asset-backed securities represent 13% of the investment portfolio (CLOs represent 5%, CMBS represent 5% and other asset-backed securities represent 3%). GNMA and other agency mortgage-backed securities represent 6% of the investment portfolio. Our pre-tax yield was 2.7%2.6%, 2.6%3.1%, and 2.5%3.1% for 2017, 2016,2020, 2019, and 2015,2018, respectively, and our after-tax yield was 2.0%2.1%, 1.9%2.5%, and 1.8%2.6% for 2017, 2016,2020, 2019, and 2015,2018, respectively.



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Our ten largest holdings at December 31, 20172020 appear in the table below:
Investment portfolio - top ten largest holdings
Fair Value
(In thousands)
1. New York St Dorm Auth Rev$59,31286,876 
2. Citibank NA/Citigroup2.  Goldman Sachs Group61,898 54,698
3. Bank of America Corp3.  GS Mortgage Securities Trust60,008 51,881
4.  Comm Mortgage Trust46,730
5. JP Morgan Chase41,18351,020 
5. Morgan Stanley46,770 
6. Chicago Airport RevenueRev40,87144,214 
7.  New York City NY Transitional40,157
8.  American Honda Finance38,934
9.  Morgan Stanley36,717
10. Pennsylvania St Turnpike Comm36,00143,734 
8. Wells Fargo & Company39,018 
9. Met Life Global Funding37,748 
10. New York NY City Transitional37,384 
$446,484508,670 


Note: This table excludes securities issued by the U.S. government or U.S. government agencies, the GSEs and the Federal Home Loan Banks.agencies.


For further information concerning investment operations, see Note 5 – “Investments,” to our consolidated financial statements in Item 8.




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D.F. Regulation
Direct Regulation
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.


In general, regulation of our subsidiaries’ businessbusinesses relates to:
•minimum capital levels and adequacy ratios;
•requirements regarding contingency reserves;
•premium rates and discrimination in pricing;
•licenses to transact business;businesses;
•policy forms;
premium rates;
•insurable loans;
•annual and other reports on financial condition;
•the basis upon which assets and liabilities must be stated;
requirements regarding contingency reserves equal to 50% of premiums earned;
minimum capital levels and adequacy ratios;
•reinsurance requirements;
•limitations on the types of investment instruments which may be held in an investment portfolio;
the size of risks and limits on coverage of individual risks which may be insured;•privacy;
•deposits of securities;
•transactions among affiliates;
•restrictions on transactions that have the effect of inducing lenders to place business with the insurer;
•cybersecurity;
•limits on dividends payable;payable (for a description of limits on dividends payable to us from MGIC, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8);
•suitability of officers and directors; and
•claims handling.


Wisconsin, our domiciliary state, has adopted the Risk Management and Own Risk and Solvency Assessment Act, which was effective January 1, 2015 and requires, among other things, that we:
no less than annually,we conduct an Own Risk and Solvency Assessment ("ORSA"), at least annually, to assess the material risks associated with our business and our current and estimated projected future solvency position;
and maintain a risk management framework to assess, monitor, manage and report on material risks;risks. Wisconsin has also adopted the annual enterprise risk reporting and "Corporate Governance Disclosure" requirements of the NAIC Model Act.
provide a confidential high-level ORSA Summary Report annually to the OCI.


The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (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, currently the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1. Wisconsin does not regulate capital by using a risk-to-capital measure but instead requires a minimum policyholder position. The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.


At December 31, 2017,2020, MGIC’s risk-to-capital ratio was 9.59.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $2.1$3.2 billion above the required MPP of $1.2$1.7 billion.


The NAIC previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. AIn December 2019, a working group of state regulators has been considering since 2016released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements. See our risk factors “We may not continue to meet the GSEs’ mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain significantly more capital in order to maintain our


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eligibility” and “State Capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A, for information about regulations governing our capital adequacy and our expectations regarding our future capital position. See "Management's Discussion and Analysis – Liquidity and Capital Resources – Capital Adequacy" in Item 7 for information about our current capital position.


Most states also regulate transactions betweenWe are required to establish statutory accounting contingency loss reserves in an amount equal to 50% of net earned premiums. These amounts cannot be withdrawn for a period of 10 years, except as permitted by insurance companiesregulations. With regulatory approval, a mortgage guaranty insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year.

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Table of Contents | Glossary of terms and have restrictions on transactions that have the effect of inducing lenders to place business with the insurer. acronyms

For a description of limits on dividends payable to us from MGIC,further information, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8.


Mortgage insurance premium rates are also subject to state regulation to protect policyholders against the adverse effects of excessive, inadequate or unfairly discriminatory rates and to encourage competition in the insurance marketplace. Any increase in premium rates must be justified, generally on the basis of the insurer’s loss experience, expenses and future trend analysis. The general mortgage default experience may also be considered. Premium rates are subject to review and challenge by state regulators.

We are required to establish statutory accounting contingency loss reserves in an amount equal to 50% of net earned premiums. These amounts cannot be withdrawn for a period of 10 years, except as permitted by insurance regulations. With regulatory approval a mortgage guaranty insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. For further information, see Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8.


Mortgage insurers are generally single-line companies, restricted to writing residential mortgage insurance business only. Although we, as an insurance holding company, are prohibited from engaging in certain transactions with MGIC or our other insurance subsidiaries without submission to and, in some instances, prior approval by applicable insurance departments, we are not subject to insurance company regulation on our non-insurance businesses.


Wisconsin’s insurance regulations generally provide that no person may acquire control of us unless the transaction in which control is acquired has been approved by the OCI. The regulations provide for a rebuttable presumption of control when a person owns or has the right to vote more than 10% of the voting securities. In addition, the insurance regulations of other states in which MGIC is licensed require notification to the state’s insurance department a specified time before a person acquires control of us. If regulators in these states disapprove the change of control, our licenses to conduct business in the disapproving states could be terminated. For further information about regulatory proceedings applicable to us and our industry, see “We are involved in legal proceedings and aresubject to the risk of additional legal proceedingscomprehensive regulation and other requirements, which we may fail to satisfy” in the future” in Item 1A.


The CFPB was established by the Dodd-Frank Act to regulate the offering and provision of consumer financial products or services under federal law. The CFPB’s 2014 rules implementing laws that require mortgage lenders to make ability-to-pay determinations prior to extending credit affectedaffect the characteristics of loans being originated and the volume of loans available to be insured. 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.


As the most significant purchasers and sellers of conventional mortgage loans and beneficiaries of private mortgage insurance, Freddie Mac and Fannie Mae impose financial and other requirements on private mortgage insurers in order for them to be eligible to insure loans sold to the GSEs (these requirements are referred to as the "PMIERs", as discussed above). These requirements are subject to change from time to time. Based on our interpretation of the financial requirements of the PMIERs, as of December 31, 2017,2020, MGIC’s Available Assets totaled $4.8$5.3 billion, or $0.8$1.8 billion in excess of its Minimum Required Assets. MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans purchased by the GSEs. 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. For information about matters that could negatively affect our compliance with the PMIERs, see our risk factor titled “We may not continue to meet the GSEs’ mortgage


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insurer eligibility requirements and our returns may decrease as we are required to maintain significantly more capital in order to maintain our eligibility” in Item 1A.

On December 18, 2017, we received a summary of proposed changes to the PMIERs that are being recommended to the FHFA by the GSEs. Once the PMIERs are finalized, we expect a six-month implementation period before the revised PMIERs are effective. We expect that effectiveness will not be earlier than the fourth quarter of 2018.


If the GSE-recommended changes are adopted with an effective date in the fourth quarter of 2018, we expect that at the effective date, MGIC would continue to have an excess of Available Assets over Minimum Required Assets, although this excess would be materially lower than it was at December 31, 2017 under the existing PMIERs, and that MGIC would continue to be able to pay quarterly dividends to our holding company at the $50 million quarterly rate at which they were paid in the fourth quarter of 2017. As a result, we expect cash at our holding company at December 31, 2018 would increase over what its December 31, 2017 level.

The FHFA ishas 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 mortgage markethousing finance system through the GSE conservatorship 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. In addition, these factors may increase the likelihoodus and that the charters of the GSEs are changed by new federal legislation. InFor more information about the past, members of Congress introduced several bills intended to scale back the GSEs; however, no legislation has been enacted. The new Presidential administration has indicated that the conservatorshipbusiness practices of the GSEs should end; however, it is unclear whether and when that would occur and how that would impact us. As a result of the matters referred to above, it is uncertain what role the GSEs, FHA and private capital, including private mortgage insurance, will play in the domestic residential housing finance system in the future or the impact of any such changes on our business. In addition, the timing of the impact of any resulting changes on our business, is uncertain. Most meaningful 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. For additional information about the potential impact that any such changes in the GSE’s roles may have on us, see theour risk factor titled “Changes"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”losses" in Item 1A.


In December 2013, the U.S. Treasury Department’s Federal Insurance Office released a report that calls for federal standards and oversight for mortgage insurers to be developed and implemented. It is uncertain if and when the standards and oversight will become effective and what form they will take.

Indirect Regulation
We are also indirectly, but significantly, impacted by regulations affecting purchasers of mortgage loans, such as Freddie Mac and Fannie Mae, and regulations affecting governmental insurers, such as the FHA and the VA, and lenders. See our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A for a discussion of how potential changes in the GSEs’ business practices could affect us. Private mortgage insurers, including MGIC, are highly dependent upon federal housing legislation and other laws and regulations to the extent they affect the demand for private mortgage insurance and the housing market generally. From time to time, those laws and regulations have been amended toin ways that affect competition from government agencies. Proposals are discussed from time to time by Congress and certain federal agencies to reform or modify the FHA and the Government National Mortgage Association, which securitizes mortgages insured by the FHA.


Mortgage insurance generally may be considered to be a “settlement service” for purposes of RESPA under applicable regulations. Subject to certain exceptions, in general, RESPA prohibits any person from giving or receiving any “thing of value” pursuant to an agreement or understanding to refer settlement services.


HOPA provides for the automatic termination, or cancellation upon a borrower’s request, of private mortgage insurance upon satisfaction of certain conditions. For more information, see "Our Products and Services" in Item 1.B.

FCRA imposes restrictions on the permissible use of credit report information. FCRA has been interpreted by some Federal Trade Commission staff and federal courts to require mortgage insurance companies to provide “adverse action” notices to consumers in the event an application for mortgage insurance is declined or offered at less than the best available rate for the loan program applied for on the basis of a review of the consumer’s credit.

The Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation have uniform guidelines on real estate lending by insured lending institutions under their supervision. The guidelines specify that a residential mortgage loan originated with a loan-to-value ratio of 90% or greater should have appropriate credit enhancement in the form of mortgage insurance or readily marketable collateral, although no depth of coverage percentage is specified in the guidelines.


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MGIC Investment Corporation
2017 Form 10-K
Business (continued)




Lenders are subject to various laws, including the Home Mortgage Disclosure Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, TILA, FCRA, the Gramm-Leach-Bliley

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MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

Act, and the Fair Housing Act, and Fannie Mae and Freddie Mac are subject to various laws, including laws relating to government sponsored enterprises, which may impose obligations or create incentives for increased lending to low and moderate income persons, or in targeted areas.


There can be no assurance that other federal laws and regulations affecting these institutions and entities will not change, or that new legislation or regulations will not be adopted which will adversely affect the private mortgage insurance industry. In this regard, see the risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A.


E. EmployeesG. Human Capital
At December 31, 2017, we had 819 full- and part-time employees, approximately 35% of whom were assigned to our field offices.
Demographics (as of December 31, 2020)
Number of Co-Workers739 *
Average Tenure14 years
Percent Female61%
Percent Persons of Color15%
Turnover Rate9%
Average Age49
*The number of employees given aboveco-workers does not include “on-call” employees.co-workers. The number of “on-call” employeesco-workers can vary substantially, primarily as a result of changes in demand for contract underwriting services. In recent years, the number of “on-call” employeesco-workers has ranged from fewer than 5040 to more than 220.110.


Diversity & Inclusion
F.MGIC strives to create an employee experience that attracts, develops and retains the right talent by emphasizing engagement, diversity, inclusion and collaboration. An important element in fostering this experience is the strength of our business resource group, referred to as IDEAL, which stands for Inclusion and Diversity Encourage Authentic Leadership. Approximately 46 percent of our home office co-workers are actively involved. The BRG hosted numerous events in 2020, including speaker engagements and networking opportunities. While 2020 presented challenges to stay connected, the company increased channels of communication and connection to address social matters within the country. Specifically, messaging from the CEO and facilitated training through video channels focused on addressing bias in the workplace.

Total Rewards
The main objective of MGIC’s total rewards program is to provide a competitive package of benefits and compensation elements that recognize the unique needs of our workforce and their families. All full-time MGIC co-workers are eligible to participate in our health program which includes a comprehensive medical, dental and vision plan. Features of our medical plan include attention to the well-being of our co-workers and their families through our Health Rewards program which encourages annual wellness check-ups. In addition to our attention to the health of our co-workers, we also care about their financial well-being. Through our retirement programs, MGIC currently provides a defined benefit pension plan and a 401(k) defined contribution plan. In addition to a company match in the 401(k) defined contribution plan, MGIC may provide an annual profit-sharing contribution.

Health and Safety
MGIC takes pride in the care and safety of our co-workers. This is evidenced by our response to the COVID-19 pandemic, including:
•Transitioned more than 90% of our workforce to remote work in March 2020;
•Limited access to the home office;
•Relaxed attendance policies to allow co-workers to care for themselves and/or family members;
•Encouraged flexibility during the traditional workday for co-workers with school-age children or other family commitments;
•Increased cleaning protocols within the work site;
•Established screening standards; and
•Implemented protocols to endeavor to identify, track and notify confirmed or possible Covid-19 exposure.
In addition, communication channels have increased with our co-workers to stay connected and assess their needs. Surveys have been used to gather feedback and determine future readiness to return to the home office work site.

Co-Worker Sentiment
To ensure we provide a rich experience for our co-workers, MGIC measures the sentiment of the workforce through an annual engagement survey. In 2020, 89% of co-workers completed the survey. Information gathered from the survey was used to determine areas of strength and opportunity. Insights were shared with our Board of Directors as well as leadership within MGIC in order to create action plans in response to the survey feedback. One action item in particular included the introduction of Listening Sessions facilitated by our CEO. These sessions focused on key areas of strength and opportunity identified by the survey and established the backdrop for gathering additional feedback in an open and inviting forum for various co-workers across MGIC. As these sessions continue to occur, insights are leading to further actions based on the voice of our co-workers.


H. Website Access
We make available, free of charge, through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934Commission ("SEC") as soon as reasonably practicable after we electronically file these materials with the Securities and Exchange Commission.SEC. The address of our website is http://mtg.mgic.com, and such reports and amendments are accessible throughat the “Reports & Filings” link at such address.on our website (http://mtg.mgic.com). The inclusion of our website address in this report is an inactive textual reference only and is not intended to include or incorporate by reference the information on our website into this report.



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MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms
Risk Factors
MGIC Investment Corporation
2017 Form 10-K
Table of Contents


PART I

Item 1A.
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.


Our actual results could be affected by the risk factors below. These risk factors are an integral part of this annual report. 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 reader of this annual report should rely on these statements being current at any time other than the time at which this annual report was filed with the Securities and Exchange Commission.
Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and / or increase our losses.
Our private mortgage insurance competitors include:
Arch Mortgage Insurance Company,
Essent Guaranty, Inc.,
Genworth Mortgage Insurance Corporation,
National Mortgage Insurance Corporation, and
Radian Guaranty Inc.Risk Factors Relating to the COVID-19 Pandemic
The private mortgage insurance industry is highly competitiveCOVID-19 pandemic may continue to materially impact our financial results and is expected to remain so. We believe that we currently compete with other private mortgage insurers basedmay also materially impact our business, liquidity and financial condition.
The COVID-19 pandemic had a material impact on pricing, underwriting requirements,our 2020 financial strength (including basedresults. While uncertain, the future impact of the COVID-19 pandemic on credit the Company’s business, financial results, liquidity and/or financial strength ratings), customer relationships, name recognition, reputation,condition may also be material. The magnitude of the strengthimpact will be influenced by various factors, including the length and severity of our management team and field organization, the ancillary products and services providedpandemic in the United States, the length of time that measures intended to lendersreduce the transmission of COVID-19 remain in place, the level of unemployment, and the effective useimpact of technologygovernment initiatives and innovation in the delivery and servicing of our mortgage insurance products.
Much of the competition in the industry has centered on pricing practices which, in the last few years included: (i) reductions in standard filed rates on borrower-paid policies, (ii) useactions taken by certain competitors of a spectrum of filed rates to allow for formulaic, risk-based pricing (commonly referred to as “black-box” pricing); and (iii) use of customized rates (discounted from published rates). The willingness of mortgage insurers to offer reduced pricing (through filed or customized rates) has been met with an increased demand from various lenders for reduced rate products. There can be no assurance that pricing competition will not intensify further, which could result in a decrease in our new insurance written and/or returns.
In 2016 and 2017, approximately 5% and 4%, respectively, of our new insurance written was for loans for which one lender was the original insured. Our relationships with our customers could be adversely affected by a variety of factors, including if our premium rates are higher than those of our competitors, our underwriting requirements result in our declining to insure some of the loans originated by our customers, or our insurance policy rescissions and claim curtailments affect the customer.
Certain of our competitors have access to capital at a lower cost of capital than we do (including, as a result of off-shore reinsurance vehicles, which are also tax-advantaged). As a result, they may be better positioned to


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Table of Contents
MGIC Investment Corporation
2017 Form 10-K
Risk factors (continued)


compete outside of traditional mortgage insurance, including if Fannie Mae and Freddie Mac (the "GSEs") pursue alternative forms(including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

The COVID-19 pandemic may continue to impact our business in various ways, including the following, each of credit enhancement. In addition, becausewhich is described in more detail in the remainder of their tax advantages, certain competitorsthese risk factors:
•Our incurred losses will increase if the number of insured mortgages in our delinquency inventory increases. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been reported to us (this is often referred to as “IBNR”).
•We may be ablerequired to achieve higher after-tax rates of return on their NIW compared to us, which could allow them to leverage reduced pricing to gain market share.
Substantially all of our insurance written since 2008 has been for loans purchased bymaintain more capital under the GSEs. The current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
•If the number of delinquencies increases, the number of claims that we must pay over time generally increases. In addition, our current estimates of the number of delinquencies for which we will receive claims, and the amount, or severity, of each claim, may increase.
•If the number of purchase and/or refinance mortgage originations decreases, the number of mortgages available for us to insure in the near term may decrease.
•Our access to the reinsurance markets may be limited and the terms under which we are able to secure reinsurance may be less attractive than the terms of our previous transactions.
•Our access to the capital markets may be limited and the terms under which we may access the capital markets may be less attractive than the terms of our previous transactions.
•Our operations may be impacted if our management or other employees are unable to perform their duties as a result of COVID-19-related illnesses.
Risk Factors Relating to the Mortgage Insurance Industry and its Regulation
Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower’s ability or willingness to make mortgage payments, such as unemployment, health issues, family status, and whether the home of a borrower who defaults on a mortgage insurercan be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to maintainpay their mortgages and can also adversely affect home prices, which in turn can influence the willingness of borrowers with sufficient resources to make mortgage payments when the mortgage balance exceeds the value of the home. Home prices may decline even absent a minimum amountdeterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers’ perceptions of assetsthe potential for future appreciation, restrictions on and the cost of mortgage credit due to support its insured risk,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.
The unemployment rate rose from 3.5% as discussedof December 31, 2019, to 14.7% as of April 30, 2020. It was 6.7% as of December 31, 2020. High levels of unemployment may result in an increasing number of loans in our risk factor titled “delinquency inventory and an increasing number of insurance claims; however, the increases are difficult to predict given the uncertainty in the current market environment, including uncertainty about the length and severity of the COVID-19 pandemic; the length of time that measures intended to reduce the transmission of COVID-19 remain in place; effects of forbearance programs enacted by the GSEs, various states and

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municipalities; and effects of past and future government stimulus programs. Current programs include, among others:
•Payment forbearance on federally-backed mortgages (including those delivered to or purchased by the GSEs) to borrowers experiencing a hardship during the COVID-19 pandemic.
•Additional cash payments to individuals provided for in the Consolidated Appropriations Act signed into law in December 2020.
•For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions until at least March 31, 2021, on mortgages purchased or securitized by the GSEs.
•Enhanced unemployment payments for pay periods between December 26, 2020 and March 14, 2021.
•An extension of the maximum duration for unemployment benefits, generally through March 14, 2021.
•Employee retention tax credits for certain small businesses.
•"Paycheck Protection Program" to provide small businesses with funds to pay certain payroll and other costs.
Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 360 days; an initial forbearance period of up to 180 days and, if requested by the borrower following contact by the servicer, an extension of up to 180 days. The servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired. In certain circumstances, the servicer will be unable to contact the borrower and the forbearance plan will expire after the first 180-day plan. A delinquent loan for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan. For loans in a COVID-19 forbearance plan as of February 28, 2021, the plan may be extended for an additional three months, subject to certain limits.
Of our insurance in force written through the first half of 2020, approximately 10.9% was not delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the Consumer Financial Protection Bureau ("CFPB") requires substantial loss mitigation efforts be made prior to servicers initiating foreclosures, therefore, servicers of non-GSE loans may have an incentive to offer forbearance or deferment.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Of the loans in our delinquency inventory at December 31, 2020, 35,878 were reported to us as in forbearance. Approximately 2,500 loans that had been reported to us as in forbearance as of September 30, 2020, were no longer reported to us as in forbearance as of
December 31, 2020, but remained delinquent. Based on the date each loan in our delinquency inventory was reported to us as being in forbearance, we estimate that during the first two quarters of 2021, 69% of those will reach their twelve-month anniversary of having been in forbearance and, unless their forbearance plans are extended, their forbearance plans may end. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices.
We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease asif 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 do notinclude 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 insurerinsurer) to maintain minimum financial strength ratings; however,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 financial strength ratings can affect usinterpretation of the PMIERs, as of December 31, 2020, MGIC’s Available Assets totaled $5.3 billion, or $1.8 billion in excess of its Minimum Required Assets. MGIC is in compliance with the following ways:
A downgrade in our financial strength ratings could result in increased scrutiny of our financial conditionPMIERs and eligible to insure loans purchased by the GSEs and/orGSEs. Our "Minimum Required Assets" reflect a credit for risk ceded under our customers, potentially resulting in a decrease in the amount of our new insurance written.
Our ability to participate in the non-GSE mortgage market (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 mortgage insurance subsidiaries. We could be competitively disadvantaged with some market participants because the financial strength ratings of our insurance subsidiariesreinsurance transactions, which are lower than those of some competitors. MGIC's financial strength rating from Moody’s is Baa2 (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 utilizing forms of credit enhancement other than traditional mortgage insurance, as 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 excess of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point 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. The total credit for risk ceded under our reinsurance transactions is subject to a modest reduction and is subject to periodic review by the GSEs. 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. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for

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delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan. As noted above, if a servicer of a loan is unable to contact the borrower prior to the expiration of the first 180-day forbearance plan term, or if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan generally will expire. In such case, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable, our Minimum Required Assets will increase and our excess of Available Assets over Minimum Required Assets will decrease. As of December 31, 2020, application of the 70% reduction decreased our Minimum Required Assets from approximately $4.2 billion to approximately $3.5 billion. We do not expect our Minimum Required Assets for the loans in forbearance at December 31, 2020 to increase by the full amount of insurancethe reduction upon expiration of the forbearance plans because we write could be adversely affected if lenders and investors select alternativesexpect some loans whose forbearance plans expire to private mortgage insurance."
have their delinquencies cured through modification or otherwise.
If weDespite reducing the Minimum Required Assets for certain delinquent loans by 70%, an increasing number of loan delinquencies caused by the COVID-19 pandemic may cause our Minimum Required Assets to exceed our Available Assets. As of December 31, 2020, there were 57,710 loans in our delinquency inventory, of which 62% were reported to us as being subject to a forbearance plan. We believe substantially all of the reported forbearance plans are COVID-19-related. We are unable to compete effectively inpredict the current or any future marketsultimate number of loans that will become delinquent as a result of the financial strength ratings assignedCOVID-19 pandemic.
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 insurance subsidiaries, our future new insurance written ("NIW"); the substantial majority of which is for loans delivered to or purchased by the GSEs. In addition to the increase in Minimum Required Assets associated with delinquent loans, factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:
•The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend the PMIERs at any time.
•There may be future implications for PMIERs as a result of changes to the regulatory capital requirements for the GSEs.
In November 2020, the Federal Housing Finance Agency (the “FHFA”) adopted a rule containing a risk-based capital framework for the GSEs that will increase their capital requirements, effective on the later of (i) the date of termination of the FHFA’s conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the Federal Register; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. The increase in capital requirements may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers.
•Our future operating results may be negatively impacted by the matters discussed in the rest of these risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
Should capital be needed by MGIC in the future, capital contributions from our holding company may not be available due to competing demands on holding company resources, including for repayment of debt.
Because we establish loss reserves only upon a loan delinquency rather than based on estimates of our ultimate losses on risk in force, losses may have a disproportionate adverse effect on our earnings in certain periods.
In accordance with accounting principles generally accepted in 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 (this is often referred to as “IBNR”). Losses that may occur from loans that are not delinquent are not reflected in our financial statements, except in the case where a premium deficiency exists. 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 on loans that are not currently delinquent may have a material impact on future results as such losses emerge. As of December 31, 2020, we had established case reserves and reported losses incurred for 57,710 loans in our delinquency inventory and our IBNR reserve totaled $27 million. Though not reflected in our December 31, 2020 financial results, as of January 31, 2021, our delinquency inventory had decreased to 56,315 loans. The number of loans in our delinquency inventory may increase from that level as a result of the COVID-19 pandemic, including as a result of high unemployment associated with initiatives intended to reduce the transmission of COVID-19. As a result, our losses incurred may increase in future periods. The impact of the COVID-19 pandemic on the number of delinquencies and our losses incurred will be influenced by various factors, including those discussed in our risk factor titled "The COVID-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition."
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

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will result in a claim payment (the "claim rate"), and further estimating the amount of the claim payment (the "claim severity"). Our estimates incorporate anticipated cures, loss mitigation activity, rescissions and curtailments. The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. Our actual claim payments may be substantially different than our loss reserve estimates. Our estimates could be negatively affected.affected by several factors, including a change in regional or national economic conditions, the impact of past and future government initiatives and actions taken by the GSEs to mitigate the economic harm caused by the COVID-19 pandemic (including foreclosure moratoriums and mortgage forbearance and modification programs) and efforts to reduce the transmission of COVID-19, and a change in the length of time loans are delinquent before claims are received. All else being equal, the longer a loan is delinquent before a claim is received, the greater the severity. In light of the uncertainty caused by the COVID-19 pandemic, including the impact of foreclosure moratoriums and forbearance programs, the average time it takes to receive a claim may increase. The change in economic conditions may include changes in unemployment, including prolonged unemployment as a result of the COVID-19 pandemic, which may affect the ability of borrowers to make mortgage payments, and changes in home prices, which may affect the willingness of borrowers to make mortgage payments when the value of the home is below the mortgage balance. The economic effects of the COVID-19 pandemic may be disproportionately concentrated in certain geographic regions. Information about the geographic dispersion of our insurance in force can be found in our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q filed with the SEC. Changes to our claim rate and claim severity estimates could have a material impact on our future results, even in a stable economic environment. Losses incurred generally have followed a seasonal trend in which the second half of the year has weaker credit performance than the first half, with higher new default notice activity and a lower cure rate; however, the effects of the COVID-19 pandemic affected this pattern in 2020.
The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private mortgage insurance.
Alternatives to private mortgage insurance include:
lenders using FHA, VA and other government mortgage insurance programs,
•investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance,
•lenders and other investors holding mortgages in portfolio and self-insuring,
•lenders using Federal Housing Administration ("FHA"), U.S. Department of Veterans Affairs ("VA") and other government mortgage insurance programs, and
•lenders originating mortgages using piggyback structures to avoid private mortgage insurance, such as a first mortgage with an 80% loan-to-value ("LTV") ratio and a second mortgage with a 10%, 15% or 20% loan-to-valueLTV 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-valueLTV ratio that has private mortgage insurance.
The GSEs’ charters generally require credit enhancement for a low down payment mortgage loan (a loan in an amount that exceeds 80% of a home’s value) in order for such loan to be eligible for
purchase by the GSEs. Private mortgage insurance generally has been purchased by lenders in primary mortgage market transactions to satisfy this credit enhancement requirement. In 2018, the GSEs initiated secondary mortgage market programs with loan level mortgage default coverage provided by various (re)insurers that are not mortgage insurers governed by PMIERs, and that are not selected by the lenders. These programs, which currently account for a small percentage of the low down payment market, compete with traditional private mortgage insurance and, due to differences in policy terms, they may offer premium rates that are below prevalent single premium lender-paid mortgage insurance ("LPMI") rates. We participate in these programs from time to time. See our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” for a discussion of various business practices of the GSEs that may be changed, including through expansion or modification of these programs.
The GSEs (and other investors) have also used alternativeother forms of credit enhancement other thanthat did not involve traditional private mortgage insurance, such as obtaining insurance from non-mortgage insurers, 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;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. Although alternative forms of credit enhancement used by the GSEs in the past several years have not displaced primary mortgage


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insurance, we understand one GSE is marketing a “no MI” pilot program to lenders that would have loan level default coverage provided by various insurers that are not mortgage insurers and that are not selected by the lenders.
The FHA's share of the low down payment residential mortgages that were subject to FHA, VA, USDA or primary private mortgage insurance was 35.6%24.4% in 2017, 35.5%the first three quarters of 2020, 28.2% in 2016,2019 and 39.3%30.5% in 2015.2018. In the past ten years, the FHA’s share has been as low as 17.1% in 200724.4% (in the first three quarters of 2020) and as high as 68.7% in 2009.64.5% (in 2010). 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; 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 Fannie Mae or Freddie Macthe GSEs for securitization; and differences in policy terms, such as the ability of a borrower to cancel insurance coverage under certain circumstances. WeThe current Presidential Administration appears more likely than the last Administration to reduce the FHA’s mortgage insurance premium rates. Such a rate reduction would negatively impact our NIW; however, given the many factors that influence the FHA's market share, it is difficult to predict the impact. In addition, we cannot predict how the factors that affect the FHA’s share of new insurance written 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 24.1%30.6% in 2017, 26.6%the first three quarters of 2020, 25.2% in 2016,2019 and 23.9%22.9% in 2015.2018. In the past ten years, the VA’s share has been as low as 5.4% in 200715.7% (in 2010) and as high as 26.6% in 2016.30.6% (in the first three quarters of 2020). We believe that the VA’s market share has generally been increasingelevated in recent years because of an increase in the number of borrowers that are eligible for the VA’s program, which offers 100% LTV ratio loans and charges a one-time funding fee that can be included in the loan amount, and

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because eligible borrowers have opted to use the VA program when refinancing their mortgages.
Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.
The GSEs’ charters generally require credit enhancementsubstantial majority of our NIW is for a low down payment mortgage loan (a loan amount that exceeds 80% of a home’s value) in order for such loan to be eligible for purchase by the GSEs. Lenders generally have used private mortgage insurance to satisfy this credit enhancement requirement and low down payment mortgagesloans purchased by the GSEs generally are insured with private mortgage insurance. As a result,GSEs; therefore, the business practices of the GSEs greatly impact our business and they include:

private mortgage insurer eligibility requirements of the GSEs (for information about•The GSEs' PMIERs, the financial requirements includedof which are discussed in the PMIERs, see our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease asif we are required to maintain more capital in order to maintain our eligibility”),
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."
•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 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•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,
whetherinsurance. The GSEs announced an adjustment for certain loans, effective December 1, 2020, and the recently adopted GSE capital framework may lead the GSEs to increase their guaranty fees.
•Whether the GSEs select or influence the mortgage lender’s selection of the mortgage insurer providing coverage and, if so, any transactions that are related to that selection,coverage.
the•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,loans.
the•The terms on which mortgage insurance coverage can be canceled before reaching the cancellation thresholds established by law,law.
the•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,programs.
the•The terms that the GSEs require to be included in mortgage insurance policies for loans that they purchase,


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the terms including limitations on which the GSEs offer lenders relief on their representations and warranties made at the time of sale of a loan to the GSEs, which creates pressure on mortgage insurers to limit their rescission rights to conform to such relief, and theof mortgage insurers.
•The extent to which the GSEs intervene in mortgage insurers’ claims paying practices, rescission practices or rescission settlement practices with lenders,andlenders.
the
•The maximum loan limits of the GSEs compared to those of the FHA and other investors.
The Federal Housing Finance Agency (“FHFA”)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 conservatorship 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.
In 2019, the past, members of Congress have introduced several billsU.S. Treasury Department ("Treasury") released the “Treasury Housing Reform Plan” (the "Plan"). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to changeachieve the business practicesgoals of ending the conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage ("QM") rule of the CFPB, transferring risk to the private sector, and eliminating the "GSE Patch" (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the FHA;risks they pose to the financial stability of the United States; and providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market. The GSE capital framework adopted in November 2020 establishes a post-conservatorship regulatory capital framework intended to ensure that the GSEs operate in a safe and sound manner. In January 2021, the GSEs' Preferred Stock Purchase Agreements ("PSPAs") were amended to allow the GSEs to continue to retain earnings until they satisfy the requirements of the 2020 GSE capital framework. In addition, a proposed rule issued by the FHFA in December 2020 would require minimum funding requirements and new liquidity standards. The impact of the Plan on private mortgage insurance is unclear. The Plan does not refer to mortgage insurance explicitly; however, no legislation has been enacted.it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Administration hasPlan also indicates that the FHFA should continue to support efforts to expand credit risk transfer ("CRT") programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, 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."
In December 2020, the CFPB adopted a rule that will eliminate the GSE Patch effective upon the earlier of the GSEs' exit from conservatorship or July 1, 2021. The GSE Patch had expanded the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages did not meet the debt-to-income ("DTI") ratio limit of 43% that was included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. Approximately 20% of our NIW in 2020 was on loans with DTI ratios greater than 43%. However, not all future loans with DTI ratios greater than 43% will be affected by the expiration of the GSE Patch. The new QM definition that

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becomes effective March 1, 2021, continues to require lenders to consider a borrower's DTI ratio; however, it replaces the DTI ratio cap with a pricing threshold that excludes from the definition of QM a loan whose annual percentage rate ("APR") exceeds the average prime offer rate for comparable loans by 2.25 percentage points or more. We believe less than 2% of our 2020 NIW was on loans whose APR exceeded the maximum to qualify as a QM.
Treasury's Plan indicated that the conservatorshipFHFA and the Department of Housing and Urban Development ("HUD") should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio loans and high DTI ratio loans. In connection with the 2021 amendment to the PSPAs, the GSEs must limit the acquisition of certain loans with multiple higher risk characteristics related to LTV, DTI and credit score, to levels indicated to be their current levels at the time of the GSEs should end; however, it is unclear whether and when that would occur and how that would impact us. amendment.
As a result of the matters referred to above and the change in the Presidential Administration occurring in January 2021, 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 or thefuture. The timing and impact of any such changes on our business. In addition, the timing of the impactbusiness of any resulting changes on our business is uncertain. Most meaningfulMany 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.
Reinsurance may not always be available or affordable.
We have in place quota share reinsurance ("QSR") and excess of loss reinsurance ("XOL") transactions providing various amounts of coverage on 88% of our risk in force as of December 31, 2020. Our QSR transactions with unaffiliated reinsurers cover most of our insurance written from 2013 through 2022, and smaller portions of our insurance written prior to 2013 and from 2023 through 2025. The weighted average coverage percentage of our QSR transactions was 23%, based on risk in force as of December 31, 2020. Considering the transaction we entered into in February 2021, our XOL transactions provide excess-of-loss reinsurance coverage for a portion of the risk associated with certain mortgage insurance policies having insurance coverage in force dates from July 1, 2016 through March 31, 2019 and January 1, 2020 through December 31, 2020, all dates inclusive. The XOL transactions were entered into with special purpose insurers that issued notes linked to the reinsurance coverage ("Insurance Linked Notes" or "ILNs"). The reinsurance transactions reduce the tail-risk associated with stress scenarios. As a result, they reduce the capital that we are required to hold to support the risk and they allow us to earn higher returns on our business than we would without them. However, reinsurance may not always be available to us or available on similar terms, the quota share 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. If we are unable to obtain reinsurance for NIW, our returns may decrease absent an increase in premium rates. An increase in our premium rates may lead to a decrease in our NIW.
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 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 ECOA, 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 may result in increased state and/or federal scrutiny of premium rates. The increased use of algorithms, artificial intelligence and data and analytics in the mortgage insurance industry may also lead to additional regulatory scrutiny related to 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 adversely affected if personal information on consumers that we maintain is improperly disclosed; our information technology systems are damaged or their operations are interrupted; or our automated processes do not operate as expected.” 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, 2020. 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 reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.
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; restrictions on mortgage credit due to more stringent underwriting standards, liquidity issues or risk-retention and/or capital requirements affecting lenders; the level

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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. The COVID-19 pandemic, including the related restrictions on business in many parts of the U.S., its effect on unemployment and consumer confidence, and changing underwriting standards may affect the number of purchase mortgage originations. 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.”
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”). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.
At December 31, 2020, MGIC’s risk-to-capital ratio was 9.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $3.2 billion above the required MPP of $1.7 billion. At December 31, 2020, the risk-to-capital ratio of our combined insurance operations was 9.1 to 1. Our risk-to-capital ratio and MPP reflect full credit for the risk ceded under our quota share reinsurance and excess of loss transactions with unaffiliated reinsurers. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded under such transactions. 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 previously announced plans to revise the State Capital Requirements that are provided for in its Mortgage Guaranty Insurance Model Act. In December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the
treatment of ceded risk and minimum capital floors. Currently we believe that the PMIERs contain more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.
While MGIC currently meets, and expects to continue to meet, 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. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force on a timely basis, 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, including the effects of the COVID-19 pandemic.
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, including as a result of the COVID-19 pandemic, may result in liquidity issues and operational burdens 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 for especially non-bank servicers (who service approximately 42.1% of the loans underlying our insurance in force as of December 31, 2020) 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 end of December 2020, 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 allow us to cancel coverage on loans that are not delinquent if the premiums are not paid within a grace period. However, in response to the COVID-19 pandemic, many states have enacted moratoriums on the cancellation of insurance due to non-payment. The specific provisions of the moratoriums vary from state-to-state. In addition, the GSEs amended the PMIERs to

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require that mortgage insurers notify the GSEs before coverage is cancelled in specific circumstances and to give the GSEs the opportunity to pay the premium on behalf of the servicer to keep coverage in force.
The increased operational burdens associated with the current numbers of delinquent loans and the potential increase in delinquent loans caused by the COVID-19 pandemic, as well as the possible transfer of servicing resulting from liquidity issues, may 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 receive monthly 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.
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 a monthly premium policy are received 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. Future premiums on our monthly premium policies in force represent a material portion of our claims paying resources and a low persistency rate will reduce those future premiums. In contrast, a higher than expected persistency rate will decrease the profitability from single premium policies because they will remain in force longer than was estimated when the policies were written.
Our persistency rate was 60.5% at December 31, 2020, 75.8% at December 31, 2019 and 81.7% at December 31, 2018. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003. 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. Our persistency rate is also affected by the mortgage insurance cancellation policies of mortgage investors along with the current value of the homes underlying the mortgages in the insurance in force.
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 and rising sea levels 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. In addition, the inability of a borrower to obtain hazard insurance, or the increased cost of hazard insurance, could lead to an increase in defaults or a decrease in home prices in the affected areas. If we were to attempt to limit our new insurance written in disaster-prone 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 the PMIERs.
The PMIERs require us to maintain significantly more "Minimum Required Assets" for delinquent loans than for performing loans; however, the increase in Minimum Required Assets is not as great for certain delinquent loans in areas that the Federal Emergency Management Agency has declared major disaster areas and for certain loans whose borrowers have been affected by COVID-19. An increase in delinquency notices resulting from a pandemic, such as the COVID-19 pandemic, or other natural disaster may result in an increase in "Minimum Required Assets" and a decrease in the level of our excess "Available Assets" which is 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."
Risk Factors Relating to Our Business Generally
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 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,

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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 effect of the COVID-19 pandemic on 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 asif we are required to maintain more capital in order to maintain our eligibility."
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 must complybelieve we currently compete with the PMIERs to be eligible to insure loans purchased by the GSEs. The PMIERs include financial requirements, as well as business, quality control and certain transaction approval requirements. The financial requirements of the PMIERs require aother private mortgage insurer’s “Available Assets” (generally only the most liquid assets of an insurer) to equal or exceed its “Minimum Required Assets” (which areinsurers based on an insurer’s bookpremium rates, underwriting requirements, financial strength (including based on credit or financial strength ratings), customer relationships, name recognition, reputation, strength of businessmanagement teams and are calculated from tablesfield organizations, the ancillary products and services provided to lenders and the effective use of factors with several risk dimensionstechnology and are subject to a floor amount). Based on our interpretation ofinnovation in the PMIERs, as of December 31, 2017, MGIC’s Available Assets totaled $4.8 billion, or $0.8 billion in excess of its Minimum Required Assets. MGIC is in compliance with the PMIERsdelivery and eligible to insure loans purchased by the GSEs.
If MGIC ceases to be eligible to insure loans purchased by one or both of the GSEs, it would significantly reduce the volumeservicing of our new business writings. Factors that may negatively impact MGIC’s ability to continue to comply with the financial requirements of the PMIERs include the following:mortgage insurance products.
On December 18, 2017, we received a summary of proposed changes to the PMIERs that are being recommended to the FHFA by the GSEs. Once the PMIERs are finalized, we expect a six-month implementation period before the revised PMIERs are effective. We expect that effectiveness will not be earlier than the fourth quarter of 2018.  

If the GSE-recommended changes are adopted with an effective date in the fourth quarter of 2018, we expect that at the effective date, MGIC would continue to have an excess of Available Assets over Minimum Required Assets, although this excess would be materially lower than it was at December 31, 2017 under the existing PMIERs, and that MGIC would continue to be able to pay quarterly dividends to our holding company at the $50 million quarterly rate at which they were paid in the fourth quarter of 2017. As a result, we expect cash at our holding company at December 31, 2018 would increase over its December 31, 2017 level.

We have non-disclosure obligations to each of the GSEs and cannot provide further comment on the specific provisions of the GSE-recommended changes other than as described above. Until the GSEs and/or FHFA provide public disclosure of proposed or final changes to the existing PMIERs, we do not plan to update or correct any of the disclosure above or provide any additional disclosure regarding any modifications that may occur in the GSE-recommended changes to PMIERs.


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Risk factors (continued)



Our future operating resultsrelationships with our customers, which 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.
While on an overall basis,affect the amount of Available Assets MGIC must holdour 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, much of the competition in orderthe industry has centered on pricing practices which have included: (a) decreased use of standard rate cards; and (b) increased use of (i) "risk-based pricing systems" that use a spectrum of filed rates to continueallow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and (ii) customized rate plans, both of which typically have rates lower than the standard rate card. While our increased use of reinsurance over the past several years has helped to insure GSE loans increased under the PMIERs over what state regulation currently requires, our reinsurance transactions mitigate the negative effect of the PMIERsdeclining premium rates on our returns. In this regard, see the first bullet point above. In addition, reinsurancereturns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the risks associated with the availability of reinsurance.
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 41% and 24% of our NIW, in each of 2020 and 2019, respectively.
We monitor various competitive and economic factors while seeking to balance both profitability and market share considerations in developing our pricing strategies. Premium rates on NIW will change our premium yield (net premiums earned
divided by the average insurance in force) over time as older insurance policies run off and new insurance policies with different premium rates are written.
Certain of our competitors have access to capital at a lower cost than we do (including, through off-shore reinsurance vehicles, which are tax-advantaged). 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."
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 available on similar terms, and it subjects usany future markets as a result of the financial strength ratings assigned to counterparty credit risk.our insurance subsidiaries, our future new insurance written could be negatively affected.
The benefit•A downgrade in our financial strength ratings could result in increased scrutiny of our net operating loss carryforwards may become substantially limited.financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our NIW. In 2020, Standard and Poor's revised its outlook, to "negative," for MGIC and other U.S. mortgage insurers due to the risks associated with the COVID-19 pandemic, and A.M. Best revised its outlook for the U.S. Private Mortgage Insurers market segment to "negative," but has since reaffirmed MGIC's rating with no change.
As of December 31, 2017, we had approximately $742.1 million of net operating losses for tax purposes that we can use in certain circumstances to offset future taxable income and thus reduce our federal income tax liability. Any unutilized carryforwards are scheduled to expire at the end of tax years 2032 through 2033. •Our ability to utilize these net operating lossesparticipate 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 offset future taxable incomemaintain 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 stable outlook), from Moody’s is Baa1 (with a stable outlook) and from Standard & Poor’s is BBB+ (with a negative 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 significantly limited if we experience an “ownership change”important when using forms of credit enhancement other than traditional mortgage insurance, as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is a cumulative changediscussed in our ownership by “5-percent shareholders” (as defined in the Code) that exceeds 50 percentage points over a rolling three-year period. A corporation that experiences an ownership change will generally be subject to an annual limitation on the corporation’s subsequent use of net operating loss carryovers that arose from pre-ownership change periods and use of losses that are subsequently recognized with respect to assets that had a built-in-loss on the date of the ownership change. risk factor titled "The amount of insurance we write could be adversely affected if lenders and investors select alternatives to private 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 annual limitation generally equals the fair value of the corporation immediately before the ownership change multiplied by the long-term tax-exempt interest rate (subject to certain adjustments). To the extent that the limitation in a post-ownership-change year is not fully utilized, the amount of the limitation for the succeeding year will be increased.future.
While we have adopted our Amended and Restated 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.

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We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future.
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. In our SEC reports, we referloan (both referred to insurance rescissions and denials of claims collectively as “rescissions” and variations of that term.). In addition, our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy. We call suchpolicy (such reduction of claims “curtailments.”referred to as a “curtailment”). In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In each of 20162020 and 2017,2019, curtailments reduced our average claim paid by approximately 5.5%3.6% and 5.6%5.0%, respectively.
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 wouldmay be determined by legal proceedings.


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Under ASC 450-20, until a liabilityloss 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. WhereWhen we have determineddetermine that a loss is probable and can be reasonably estimated, we have recordedrecord our best estimate of our probable loss. IfIn those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. We are not able to implement settlements we consider probable, we intend to defend MGIC vigorously against any related legal proceedings.
In addition to matters for which we have recorded a probable loss, we arecurrently involved in other discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that, when these matters are resolved, we will not prevail inon all cases,matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $285 million, although we believe (but can give no assurance that) we will ultimately resolve these matters for significantly less than this amount.$40 million. This estimate of our maximum exposure is based on currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.
Mortgage insurers, including MGIC, have been involved in litigation and regulatory actions related to alleged 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. While these proceedings in the aggregate have not resulted in material liability for MGIC, there can be no assurance that the outcome of future proceedings, if any, under these laws would not have a material adverse affect on us. In addition, various regulators, including the CFPB, state insurance commissioners and state attorneys general may bring other actions seeking various forms of relief in connection with alleged 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.
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.
We are subject to comprehensive regulation and other requirements, which we may fail to satisfy.
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. State insurance regulatory authorities could take actions, including changes in capital requirements, that could have a material adverse effect on us. 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.” 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, commonly known as ECOA, FCRA, and other laws. For more details about the various ways in which our subsidiaries are regulated, see “Regulation” in Item 1 of this Annual Report. In addition to regulation by state insurance regulators, the CFPB may issue additional rules or regulations, which may materially affect our business.
In December 2013, the U.S. Treasury Department’s Federal Insurance Office released a report that calls for federal standards and oversight for mortgage insurers to be developed and implemented. It is uncertain if and when the standards and oversight will become effective and what form they will take.
Resolution of our dispute with the Internal Revenue Service could adversely affect us.
The Internal Revenue Service (“IRS”) completed examinations of our federal income tax returns for the years 2000 through 2007 and issued proposed assessments for taxes, interest and penalties related to our treatment


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of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits (“REMICs”). The IRS indicated that it did not believe that, for various reasons, we had established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We appealed these assessments within the IRS and in August 2010, we reached a tentative settlement agreement with the IRS which was not finalized.
In 2014, we received Notices of Deficiency (commonly referred to as “90 day letters”) covering the 2000-2007 tax years. The Notices of Deficiency reflect taxes and penalties related to the REMIC matters of $197.5 million and at December 31, 2017, there would also be interest related to these matters of approximately $205.0 million. In 2007, we made a payment of $65.2 million to the United States Department of the Treasury which will reduce any amounts we would ultimately owe. The Notices of Deficiency also reflect additional amounts due of $261.4 million, which are primarily associated with the disallowance of the carryback of the 2009 net operating loss to the 2004-2007 tax years. We believe the IRS included the carryback adjustments as a precaution to keep open the statute of limitations on collection of the tax that was refunded when this loss was carried back, and not because the IRS actually intends to disallow the carryback permanently. Depending on the outcome of this matter, additional state income taxes and state interest may become due when a final resolution is reached. As of December 31, 2017, those state taxes and interest would approximate $85.8 million. In addition, there could also be state tax penalties. Our total amount of unrecognized tax benefits as of December 31, 2017 is $142.8 million, which represents the tax benefits generated by the REMIC portfolio included in our tax returns that we have not taken benefit for in our financial statements, including any related interest.
We filed a petition with the U.S. Tax Court contesting most of the IRS’ proposed adjustments reflected in the Notices of Deficiency and the IRS filed an answer to our petition which continued to assert their claim. The case has twice been scheduled for trial and in each instance, the parties jointly filed, and the U.S. Tax Court approved (most recently in February 2016), motions for continuance to postpone the trial date. Also in February 2016, the U.S. Tax Court approved a joint motion to consolidate for trial, briefing, and opinion, our case with similar cases of Radian Group, Inc., as successor to Enhance Financial Services Group, Inc., et al. The parties have reached agreement on all issues in the case and in the fourth quarter of 2017, the IRS submitted documentation reflecting the terms of the agreement to the Joint Committee on Taxation (“JCT”) for its review, which must be performed before a settlement can be completed. There is no assurance that a settlement will be completed. Based on information that we currently have regarding the status of our ongoing dispute, we recorded a provision for additional taxes and interest of $29.0 million in 2017.
Should a settlement not be completed, ongoing litigation to resolve our dispute with the IRS could be lengthy and costly in terms of legal fees and related expenses. We would need to make further adjustments, which could be material, to our tax provision and liabilities if our view of the probability of success in this matter changes, and the ultimate resolution of this matter could have a material negative impact on our effective tax rate, results of operations, cash flows, available assets and statutory capital. In this regard, see our risk factors titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain 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.”
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, 2020, 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 to project returns, price products calculate(including through our risk-based pricing system), determine the techniques used to underwrite insurance, estimate reserves, generate projections used to estimate future pre-tax income and to evaluate loss recognition testing, evaluate risk, determine internal capital requirements, perform stress testing, and for other uses. These models rely on estimates and projections that are inherently uncertain and may not operate as intended.intended, especially in unprecedented circumstances such as those surrounding the COVID-19 pandemic, or with respect to emerging risks, such as changing climatic conditions. In addition, from time to time we seek to improve certain models, and the conversion process may result in material changes to assumptions, including those about returns and financial results. The models we employ are complex, which


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increases our risk of error in their design, implementation or use. Also, the associated input data, assumptions and calculations may not be correct, and the controls we have in place to mitigate that risk may not be effective in all cases. The risks related to our models may increase when we change assumptions and/or methodologies, or when we add or change modeling platforms. We have enhanced, and we intend to continue to enhance, our modeling capabilities. Moreover, we may use information we receive through enhancements to refine or otherwise change existing assumptions and/or methodologies.
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, commonly referred to as GAAP, we establish reserves for insurance losses and loss adjustment expenses only when notices of default on insured mortgage loans are received and for loans we estimate are in default but for which notices of default have not yet been reported to us by the servicers (this is often referred to as “IBNR”). Because our reserving method does not take account of losses that could occur from loans that are not delinquent, such losses are not reflected in our financial statements, except in the case where a premium deficiency exists. As a result, future losses on loans that are not currently delinquent may have a material impact on future results as such losses emerge.
Recent hurricanes 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.
The number of borrowers missing their mortgage payments in the areas affected by recent hurricanes in Texas, Florida and Puerto Rico has increased. Despite the associated increase in our inventory of notices of default, based on our analysis and past experience, we do not expect the recent hurricane activity to result in a material increase in our incurred losses or paid claims. However, the following factors could cause our actual results to differ from our expectation in the forward looking statement in the preceding sentence:
Third party reports that indicate the extent of flooding in the hurricane-affected areas may be understated.
Home values in hurricane-affected areas may decrease at the time claims are filed from their current levels thereby adversely affecting our ability to mitigate loss.
Hurricane-affected areas may experience deteriorating economic conditions resulting in more borrowers defaulting on their loans in the future (or failing to cure existing defaults) than we currently expect.
If an insured contests our claim denial or curtailment, there can be no assurance we will prevail. We describe how claims under our policy are affected by damage to the borrower’s home in our Current Report on Form 8-K filed with the SEC on September 14, 2017.
Due to the suspension of certain foreclosures by the GSEs, our receipt of claims associated with foreclosed mortgages in the hurricane-affected areas may be delayed.
The PMIERs require us to maintain significantly more "Minimum Required Assets" for delinquent loans than for performing loans. An increase in default notices may result in an increase in "Minimum Required Assets" and a decrease in the level of our excess "Available Assets" which is discussed in our risk factor titled "We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility."
Because loss reserve estimates are subject to uncertainties, paid claims may be substantially different than our loss reserves.
When we establish reserves, we estimate the ultimate loss on delinquent loans using estimated claim rates and claim amounts. 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


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rescissions and curtailments. The establishment of loss reserves is subject to inherent uncertainty and requires judgment by management. The actual amount of the claim payments may be substantially different than our loss reserve estimates. Our estimates could be affected by several factors, including a change in regional or national economic conditions, and a change in the length of time loans are delinquent before claims are received. The change in conditions may include changes in unemployment, affecting borrowers’ income and thus their ability to make mortgage payments, and changes in home prices, which 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 have a material impact on our future results, even in a stable economic environment. 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 default 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 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.
IfIn response to the volumeCOVID-19 pandemic, the Company activated its business continuity program by transitioning to a virtual workforce model with certain essential activities supported by limited staff in controlled office environments. This transition was made to responsibly provide for the safety of low down payment home mortgage originations declines, the amountemployees and to continue to serve customers across our businesses. We have established a temporary succession plan for each of insurance that we write could decline.
The factors that may affect the volume of low down payment mortgage originations include:
restrictions on mortgage creditour key executives, should an executive be unable to perform his or her duties due to more stringent underwriting standards, liquidity issues or risk-retention and/or capital requirements affecting lenders,
the level of home mortgage interest rates,
the health of the domestic economy as well as conditions in regional and local economies and the level of consumer confidence,
housing affordability,
new and existing housing availability,
the rate of household formation, whicha COVID-19 related illness; however, it is influenced, in part, by population and immigration trends,uncertain
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.
A decline in the volume of low down payment home mortgage originations could decrease demand for mortgage insurance and decrease our new insurance written. 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.”



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State capital requirementswhat impact COVID-19-related illnesses may prevent us from continuing to write new insurancehave 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”). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve and a portion of the reserves for unearned premiums.
At December 31, 2017, MGIC’s risk-to-capital ratio was 9.5 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $2.1 billion above the required MPP of $1.2 billion. In calculating our risk-to-capital ratio and MPP, we are allowed full credit for the risk ceded under our reinsurance transactions with a group of unaffiliated reinsurers. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transactions, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should read the rest of these risk factors for information about matters that could negatively affect such compliance.
At December 31, 2017, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 10.5 to 1. Reinsurance transactions with our affiliate permit MGIC to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements. A higher risk-to-capital ratio on a combined basis may indicate that, in order for MGIC to continue to utilize reinsurance arrangements with its reinsurance affiliate, additional capital contributions to the affiliate could be needed.
The NAIC plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. In May 2016, a working group of state regulators released an exposure draft of a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk, minimum capital floors, and action level triggers. Currently we believe that the PMIERs contain the more restrictive capital requirements in most circumstances.
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 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 all jurisdictions, 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. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its insurance in force on a timely basis, you should read the rest of these risk factors for information about matters that could negatively affect MGIC’s claims paying resources.


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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, with a corresponding decrease in our returns.
Losses result from events that reduce a borrower’s ability or willingness to continue to make mortgage payments, such as unemployment, health issues, family status, 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 home prices, 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. Home prices 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, higher interest rates generally, changes to the deductibility of mortgage interest or mortgage insurance premiums for income tax purposes, decreases in the rate of household formations, or other factors. Recently enacted tax legislation could have some negative impact on home prices especially on higher priced homes, but we cannot predict the magnitude of the impact, if any, on the values of the homes we insure. Changes in home prices and unemployment levels are inherently difficult to forecast given the uncertainty in the current market environment, including uncertainty about the effect of actions the federal government has taken and may take with respect to tax policies, mortgage finance programs and policies, and housing finance reform.future.
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 loan-to-valueLTV 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 paidborrower-paid mortgage insurance. Therefore, if our direct risk-in-force increases through increases in new insurance written,NIW, or if our mix of business changes to include loans with higher loan-to-valueLTV ratios or lower FICO scores, for example, or if we insure a higher percentage of loans under lender-paid mortgage insurance policies, all other things equal, we will be required to hold more Available Assets in order to maintain GSE eligibility.
The minimum capital required by the risk-based capital framework contained in the exposure draft released by the NAIC in May 2016December 2019 would be, in part, a function of certain loan and economic factors, including property location, loan-to-valueLTV ratio and credit score; general underwriting quality in the market at the time of loan origination; the age of the loan; and the premium rate we charge. Depending on the provisions of the capital requirements when they are released in final form and become effective, our mix of business may affect the minimum capital we are required to hold under the new framework.
Beginning in 2014, we have increased theThe percentage of our businessNIW from lender-paid single premium policies.all single-premium policies was 9% in 2020 and 16% in 2019, and has ranged from approximately 9% in 2020 to 19% in 2017. 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.
WeAs discussed in our risk factor titled "Reinsurance may not always be available or affordable," we have in place quota share reinsurance transactions with a group of unaffiliated reinsurers that cover most of our insurance written from 2013 through 2017, and a portion of our insurance written prior to 2013.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 net cost of reinsurance, with respect to a covered loan, is 6% (but can be lower if losses are materially higher than we expect). This cost is derived by dividing the reduction in our pre-tax net income from such loan with reinsurance by our direct (that is, without reinsurance) premiums from such loan. Although the


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Risk factors (continued)


net cost of the reinsurance is generally constant at 6%, the effect of the reinsuranceQSR transactions on the various components of pre-tax income will vary from period to period, depending on the level of ceded losses. We expect thatalso have in place various excess-of-loss ("XOL") reinsurance transactions, under which we cede premiums. Under the XOL reinsurance transactions, for the respective reinsurance coverage periods, we retain the first quarterlayer of 2018, we will enter into an agreement covering most of our new insurance written in 2018, on terms no less favorable than our existing transactions. The GSEs have approvedaggregate losses, and a special purpose entity provides second layer coverage up to the terms of our proposed 2018 QSR Transaction, however, the transactions will be reviewed under the PMIERs at least annually. We may not receive full credit under the PMIERs for the risk ceded under our quota shareoutstanding reinsurance transactions.coverage amount.
In addition to the effect of reinsurance on our premiums, we expect a modest decline in our premium yield resulting from the premium rates themselves: the books of business we wrote before 2009, which have a higher average premium rate than subsequent books of business, are expected to continue to decline as abecause an increasing percentage of the insurance in force; and the average premium rate on these books of business is also expected to decline as the premium rates reset to lower levels at the time the loans reach the ten-year anniversary of their initial coverage date. However, for loans that have utilized HARP, the initial ten-year period was reset to begin as of the date of the HARP transaction. As of December 31, 2017, approximately 1% of our total primary insurance in force was written in 2008, has notis from recent book years whose premium rates had been refinanced under HARP and is subject to a reset after ten years.trending lower.
The circumstances in which we are entitled to rescind coverage have narrowed for insurance we have written in recent years. During the second quarter of 2012, we began writing a portion of our new insurance under an endorsement to our then existing master policy (the “Gold Cert Endorsement”), which limited ourOur ability to rescind insurance coverage compared to that master policy. To comply with requirements of the GSEs, we introducedbecame more limited for new insurance written beginning in mid-2012, and it became further limited for new insurance written under our currentrevised master policy that became effective March 1, 2020. These limitations
may result in 2014. Our rescission rights under our current master policy are comparable to thosehigher losses than would be the case under our previous master policy, as modified by the Gold Cert Endorsement, but may be further narrowed if the GSEs permit modificationspolicies. In addition, our rescission rights temporarily have become more limited due to them. Our current master policy is filed as Exhibit 99.19 to our quarterly report on Form 10-Q for the quarter ended September 30, 2014 (filedaccommodations we have made in connection with the SEC on November 7, 2014). All ofCOVID-19 pandemic. We have waived our primary new insurance on loansrescission rights in certain circumstances where the failure to make payments was associated with mortgage insurance application dates on or after October 1, 2014, was written under our current master policy. As of December 31, 2017, approximately 74% of our flow, primary insurance in force was written under our Gold Cert Endorsement or our current master policy.a COVID-19 pandemic-related forbearance.
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.insure. We also may change our underwriting guidelines, in part through aligning some of them with Fannie Mae and Freddie Mac for loans that receive and are processed in accordanceby agreeing with certain approval recommendations from a GSE automated underwriting system. As a result of changes to our underwriting guidelines and requirements (including those related to debt to income ("DTI") ratios, credit scores, and the manner in which income levels and property values are determined) and other factors, our business written beginning in the second half of 2013 is expected to have a somewhat higher claim incidence than business written in 2009 through the first half of 2013, but materially below that on business written in 2005-2008. However, we believe this business presents an acceptable level of risk. The number of loans we insured with DTIs greater than 45% increased in the second half of 2017 after the requirements of a GSE automated underwriting system were made more liberal; however, effective for loans we insure beginning in March 2018, we increased the credit score required in connection with such loans. Our underwriting requirements are available on our website at http://www.mgic.com/underwriting/index.html. We monitor the competitive landscape and will make adjustments to our pricing and underwriting guidelines as warranted. We also make exceptions to our underwriting requirements on a loan-by-loan basis and for certain customer programs. Together, the number of loans for which exceptions were made, which in totalOur underwriting requirements are expected to have a somewhat higher claim incidence than loans that meetavailable on our guidelines, accounted for fewer than 2% of the loans we insured in each of 2016 and 2017.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. These characteristics include loans with higher loan-to-value ratios, lower FICO scores, limited underwriting, including limited borrower documentation, or higher DTI ratios, as well as loans having combinations of higher risk factors. As of December 31, 2017, approximately 13.8% of2020, mortgages with these characteristics in our primary risk in force covered loansincluded mortgages with LTV ratios greater than 95% (14.7%), 3.0% covered loans whosemortgages with borrowers hadhaving FICO scores below 620, 2.8% covered loans680 (9.2%), including those with borrowers having FICO scores of 620-679 (7.8%), mortgages with limited underwriting, including limited borrower documentation (1.3%), and 13.2% covered loans whosemortgages with borrowers hadhaving DTI ratios greater than 45% (or where no ratio is available) (13.5%), each attribute as determined at the time of loan origination. An individual loan may haveLoans with more than one of these attributes. A material number of these loans were originated in 2005 - 2007 or the first half of 2008. For information about


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MGIC Investment Corporation
2017 Form 10-K
Risk factors (continued)


our classification of loans by FICO score and documentation, see footnotes (5) and (6) to the Characteristics of Primary Risk in Force table under “Business - Our Products and Services” in Item 1 of this Annual Report.
As of December 31, 2017, approximately 1%attributes accounted for 2.7% of our primary risk in force consistedas of adjustable rate mortgagesDecember 31, 2020, and less than one percent of our NIW in which2020 and 1.0% of our NIW in 2019.
From time to time, we change the initial interest rateprocesses we use to underwrite loans. For example, we may be adjusted duringrely on information provided to us by a lender that was obtained from certain of the five years afterGSEs’ automated appraisal and income verification tools. Those tools may produce results that differ from the mortgage closing (“ARMs”). We classify as fixed rate loans adjustable rate mortgages in whichresults that would have determined using different methods. For example, the initial interest rate is fixed duringappraisal tools may indicate property values that differ from the five years after the mortgage closing. If interest rates should rise between the time of origination of such loans and when their interest rates may be reset, claims on ARMs and adjustable rate mortgages whose interest rates may only be adjusted after five yearsvalues that would be substantially higher than for fixed rate loans.have been determined by onsite appraisals. In addition, we continue to further automate our underwriting processes. It is possible that our automated processes result in our insuring loans that we would not otherwise have insured “interest-only”under our prior processes.
Approximately 70.2% of our 2020 NIW (by risk written) was originated under delegated underwriting programs pursuant to which the loan originators had authority on our behalf to underwrite the loans whichfor 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 alsonot 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

MGIC Investment Corporation 2020 Form 10-K | 36

premium rates to those offered by our competitors. We may not be ARMs,aware of industry rate changes until we observe that our mix of new insurance written has changed and loans with negative amortization features, suchour mix may fluctuate more as pay option ARMs. We believe claim rates on these loans will be substantially higher than on loans without scheduled payment increases that are made to borrowers of comparable credit quality.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 DTIs.DTI ratios. Lenders could pressure mortgage insurers to insure such loans.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 even under our current underwriting requirements. We do, however, believe that
Our holding company debt obligations materially exceed our insurance written beginningholding company cash and investments.
At December 31, 2020, we had approximately $847 million in cash and investments at our holding company and our holding company’s debt obligations were $1.1 billion in aggregate principal amount, consisting of $242 million of 5.75% Senior Notes due in 2023 ("5.75% Notes"), $650 million of 5.25% Senior Notes due 2028 (the 5.25% Notes), and $209 million of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures"). Annual debt service on the second half5.75% Notes, 5.25% Notes and 9% Debentures outstanding as of 2008 will generate underwriting profits.December 31, 2020, is approximately $67 million.
The premiums we charge may not be adequate to compensate us for our liabilities for losses5.75% Senior Notes, 5.25% Senior Notes 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 of the insured risks over the long-term. Our premiums9% Debentures 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. 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 a policy was written, we cannot adjust premiums to compensate for this and our returns may be lower than we assumed.
The losses we have incurred on our 2005-2008 books of business have exceeded our premiums from those books. Our current expectation is that the incurred losses from those books, although declining, will continue to generate a material portionobligations of our total incurred losses for a number of years. The ultimate amount of these losses will depend in part on general economic conditions, including unemployment, and the direction of home prices.
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 and an increase in the number of specialty servicers servicing delinquent loans. The resulting change in the composition of servicers could lead to disruptions in the servicing of mortgage loans covered by our insurance policies. Further changes in the servicing industry resulting in the transfer of servicing could cause a disruption in the servicing of delinquent loans which could reduce servicers’ ability to undertake mitigation efforts that could help limit our losses. Future housing market conditions could lead to additional increases in delinquencies and transfers of servicing.


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Table of Contents
MGIC Investment Corporation
2017 Form 10-K
Risk factors (continued)


Changesand not of its subsidiaries. The payment of dividends from our insurance subsidiaries which, other than investment income and raising capital in interest rates, house prices the public markets, is the principal source of our holding company cash inflow, is restricted by insurance regulation. In addition, through June 30, 2021, dividends paid by MGIC to our holding company require GSE approval. MGIC is the principal source of dividends, and in the first quarter of 2020 and in the full year 2019, it paid a total of $390 million and $280 million, respectively, in dividends of cash and investments to our holding company. We ask the OCI not to object before MGIC pays dividends and, due to the uncertainty surrounding the COVID-19 pandemic, MGIC did not pay a dividend of cash and/or mortgage insurance cancellation requirements may changeinvestment securities to the holding company after the first quarter of 2020; however, in the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in $133 million of the 9% Debentures, with a fair value of $167 million. Future dividend payments from MGIC to the holding company will be determined on a quarterly basis in consultation with the board of directors, and after considering any updated estimates about 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 lifeseverity of the policy. In contrast, premiums from a monthly premium policy are received and earned each month over the lifeeconomic impacts of the policy. COVID-19 pandemic on our business.
In each year, mostthe third quarter of 2020, we issued the 5.25% Senior Notes and used a portion of the proceeds to repurchase $183 million 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 percentage5.75% Senior Notes and $48 million of our insurance remaining9% Debentures. We may, from time to time, repurchase our debt obligations on the open market (including through 10b5-1 plans) or through privately negotiated transactions.
In the first quarter of 2020 and in force from one year prior), is a significant determinant2019, we repurchased approximately 9.6 million and 8.7 million shares of our revenues. Future premiums on our monthly premium policies in force represent a material portioncommon stock, respectively, using approximately $120 million and $114 million of our claims payingholding company resources, and a low persistency rate will reduce those future premiums. In contrast, a higher than expected persistency rate will decrease the profitability from single premium policies because they will remain in force longer than was estimated when the policies were written.
The monthly premium policies for the substantial majority of loans we insured provides that, for the first ten years of the policy, the premium is determined by the product of the premium rate and the initial loan balance; thereafter, a lower premium rate is applied to the initial loan balance. The initial ten-year period is reset when the loan is refinanced under HARP. The premiums on many of the policies in our 2007 book of business that were not refinanced under HARP reset in 2017.respectively. As of December 31, 2017, approximately 1%2020, we had $291 million of authorization remaining to repurchase our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time. Due to the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases, but may resume them in the future. If any additional capital contributions to our subsidiaries were required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed on February 11, 2016, MGIC borrowed $155 million from the Federal Home Loan Bank of Chicago. This is an obligation of MGIC and not of our total primary insurance in force was written in 2008, has not been refinanced under HARP, and is subject to a rate reset after ten years.
Our persistency rate was 80.1% at December 31, 2017, 76.9% at December 31, 2016 and 79.7% at December 31, 2015. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003.
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. Our persistency rate is also affected by the mortgage insurance cancellation policies of mortgage investors along with the current value of the homes underlying the mortgages in the insurance in force.holding company.
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’ private mortgage insurer eligibility requirements and our returns may decrease asif 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 non-dilutiveadditional 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.
At December 31, 2017,2020, we had outstanding $390$209 million principal amount of 9% Convertible Junior Subordinated Debentures due in 2063 ("9% Debentures") (of which approximately $133 million was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet).Debentures. The principal amount of the 9% Debentures is currently convertible, at the holder’s option, at an initiala conversion rate, which is subject to adjustment, of 74.074175.5932 common shares per $1,000 principal amount of debentures. This represents an initiala conversion price of approximately $13.50$13.23 per share. The payment of dividends by our holding company results in an adjustment to the conversion rate and price, with such adjustment generally deferred until the end of the year.
We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.55$17.20 for at least 20 of the 30 trading days preceding notice of the redemption.
We have the right, and may elect, to defer interest payable under the debentures9% Debentures in the future. If a holder elects to convert its debentures,9% Debentures, the interest that has been deferred on the debentures9% Debentures being converted is also convertible into shares of our common stock. The conversion rate for such deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert the


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MGIC Investment Corporation
2017 Form 10-K
Risk factors (continued)


associated debentures. We may elect to pay cash for some or all of the

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shares issuable upon a conversion of the debentures. For more information about the 9% Debentures, including additional requirements resulting from the deferral of interest, see Note 7 – “Debt” to our consolidated financial statements in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.
For a discussion of the dilutive effects of our convertible securities on our earnings per share, see Note 4 – “Earnings Per Share” to our consolidated financial statements in thisour Annual Report. We currently have no plans to repurchase common stock but regularly consider appropriate uses for resources of our holding company. In addition, we have in the past, and may in the future, purchase our debt securities.
Our holding company debt obligations materially exceed our holding company cash and investments.
At December 31, 2017, we had approximately $216 million in cash and investments at our holding company and our holding company’s debt obligations were $815 million in aggregate principal amount, consisting of $425 million of 5.75% Senior Notes due in 2023 ("5.75% Notes") and $390 million of 9% Debentures (of which approximately $133 million was purchased, and is held, by MGIC, and is eliminated on the consolidated balance sheet). Annual debt service on the 5.75% Notes and 9% Debentures outstanding as of December 31, 2017, is approximately $60 million (of which approximately $12 million will be paid to MGIC and will be eliminated on the consolidated statement of operations).
The 5.75% Senior Notes and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. The payment of dividends from our insurance subsidiaries which, other than investment income and raising capital in the public markets, is the principal source of our holding company cash inflow, is restricted by insurance regulation. MGIC is the principal source of dividend-paying capacity. In 2017, MGIC paid a total of $140 million in dividends to our holding company. We expect MGIC to continue to pay quarterly dividends. We ask the OCI not to object before MGIC pays dividends. If any additional capital contributions to our subsidiaries were required, such contributions would decrease our holding company cash and investments. As described in our Current Report on Form 8-K filed on February 11, 2016, MGIC borrowed $155 million from10-K for the Federal Home Loan Bankyear ended December 31, 2020. As noted above, in the first quarter of Chicago. This is an obligation of MGIC2020 and notin 2019, we repurchased shares of our holding company.common stock and may do so again in the future. In addition, in the third quarter of 2020, we repurchased a portion of our debt obligations, and may do so again in the future.
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 markets; 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).
We could be adversely affected if personal information on consumers that we maintain is improperly disclosed, and our information technology systems may become outdated and we mayare damaged or their operations are interrupted, or our automated processes do not be able to make timely modifications to support our products and services.operate as expected.
As part of our business, we maintain large amounts of personal information onof consumers. Federal and state laws designed to promote the protection of such information require businesses that collect or maintain consumer information to adopt information security programs, and to notify individuals, and in some jurisdictions, regulatory authorities, of security breaches involving personally identifiable information. Those laws may require free credit monitoring services to be provided to individuals affected by security breaches. 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, result in a loss of business and expose us to material claims for damages.
We rely on the efficient and uninterrupted operation of complex information technology systems. All information technology systems are potentially vulnerable to damage or interruption from a variety of sources, including through the actions of third parties.by third-party cyber-attacks. Due to our reliance on our information technology systems, including ours and those of our customers and third-party service providers, their damage or interruption could severely disrupt our operations, which could have a material adverse effect on our business, business prospects and results of operations.
In addition,response to the COVID-19 pandemic, the Company activated its business continuity program by transitioning to a virtual workforce model with certain essential activities supported by limited staff in controlled office environments. While we continue to maintain our full operations, the virtual workforce model may be more vulnerable to security breaches, damage or disruption.
We are in the process of upgrading certain of our information systems, and transforming and automating certain of our business processes, that have been in place for a number of years.years and we continue to deploy and enhance our risk-based pricing system. The implementation of these 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 to which we are becoming increasingly reliant do not perform as expected, or if the systems and/or transformed and automated business processes do not operate as expected, it could have an adverse impact on our business, business prospects and results of operations.

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. The value of our investment portfolio may also be adversely affected by ratings downgrades, increased bankruptcies and credit spreads widening in distressed industries, such as energy, lodging and leisure, autos, transportation and retail. In addition, the collectability and valuation of our municipal bond portfolio may be adversely affected if state and local municipalities incur increased costs to respond to COVID-19 and receive fewer tax revenues due to adverse economic conditions. 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 and/or financial market disruption, including 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



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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.
The Company may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it would no longer compel banks to submit rate quotations required to calculate LIBOR. However, in December 2020, ICE Benchmark Administration, the administrator of LIBOR, began consulting on its intention to cease publishing after 2021, with respect to USD LIBOR, only the one-week and two-month tenors and, on June 30, 2023, all other USD LIBOR tenors. Efforts are underway to identify and transition to a set of alternative reference rates. The set of alternative rates includes the Secured Overnight Financing Rate (“SOFR”), which the Federal Reserve Bank of New York began publishing in 2018. Because SOFR is calculated based on different criteria than LIBOR, SOFR and LIBOR may diverge.
While it is not currently possible to determine precisely whether, or to what extent, the replacement of LIBOR would affect us, the implementation of alternative benchmark rates to LIBOR may have an adverse effect on our business, results of operations or financial condition. We have three primary types of transactions that involve financial instruments referencing LIBOR. First, as of December 31, 2020, approximately 5% of the fair value of our investment portfolio consisted of securities referencing LIBOR, none of which reference one-week and two-month tenors. Second, as of December 31, 2020, approximately $1 billion of our risk in force was on adjustable rate mortgages whose interest is referenced to one-month USD LIBOR. A change in reference rate associated with these loans may affect their principal balance, which may affect our risk-in-force and the amount of Minimum Required Assets we are required to maintain under PMIERs. A change in reference rate may also affect the amount of principal and/or accrued interest we are required to pay in the event of a claim payment. Third, we enter into reinsurance agreements under which our premiums are determined, in part, by the difference between interest payable on the reinsurers’ notes which reference one-month USD LIBOR and earnings from a pool of securities receiving interest that may reference LIBOR (in 2020, our total premiums on such transactions were approximately $20.8 million).

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Item 1B. Unresolved Staff Comments Properties, Legal Proceedings, Mine Safety Disclosures
MGIC Investment Corporation
2017 Form 10-K
Table of Contents



Item 1B.
Unresolved Staff Comments.
None.


Item 2.
Properties
At December 31, 2017,2020, we leasedhad one office space lease in various cities throughout the United States under leases expiring between 2018 andwhich expires in 2021 and which requiredrequires monthly rental payments that in the aggregate are immaterial.


We own our headquarters facility and an additional office/warehouse facility, both located in Milwaukee, Wisconsin, which contain an aggregate of approximately 310,000 square feet of space.


Item 3. Legal Proceedings
Legal Proceedings.
The Internal Revenue Service (“IRS”) completed examinationsCertain legal proceedings arising in the ordinary course of our federal income tax returns for the years 2000 through 2007business may be filed or pending against us from time to time. For information about such legal proceedings, see Note 17 – "Litigation and issued proposed assessments for taxes, interest and penalties relatedContingencies" to our treatment of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits ("REMICs"). The IRS indicated that it did not believe that, for various reasons, we had established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We appealed these assessments within the IRS and in August 2010, we reached a tentative settlement agreement with the IRS which was not finalized.
In 2014, we received Notices of Deficiency (commonly referred to as “90 day letters”) covering the 2000-2007 tax years. The Notices of Deficiency reflect taxes and penalties related to the REMIC matters of $197.5 million and at December 31, 2017, there would also be interest related to these matters of approximately $205.0 million. In 2007, we made a payment of $65.2 million to the United States Department of the Treasury which will reduce any amounts we would ultimately owe. The Notices of Deficiency also reflect additional amounts due of $261.4 million, which are primarily associated with the disallowance of the carryback of the 2009 net operating loss to the 2004-2007 tax years. We believe the IRS included the carryback adjustments as a precaution to keep open the statute of limitations on collection of the tax that was refunded when this loss was carried back, and not because the IRS actually intends to disallow the carryback permanently. Depending on the outcome of this matter, additional state income taxes and state interest may become due when a final resolution is reached. As of December 31, 2017, those state taxes and interest would approximate $85.8 million. In addition, there could also be state tax penalties. Our total amount of unrecognized tax benefits as of December 31, 2017 is $142.8 million, which represents the tax benefits generated by the REMIC portfolio included in our tax returns that we have not taken benefit for in ourconsolidated financial statements including any related interest.in Item 8.
We filed a petition with the U.S. Tax Court contesting most of the IRS’ proposed adjustments reflected in the Notices of Deficiency and the IRS filed an answer to our petition which continued to assert their claim. The case has twice been scheduled for trial and in each instance, the parties jointly filed, and the U.S. Tax Court approved (most recently in February 2016), motions for continuance to postpone the trial date. Also in February 2016, the U.S. Tax Court approved a joint motion to consolidate for trial, briefing, and opinion, our case with similar cases of Radian Group, Inc., as successor to Enhance Financial Services Group, Inc., et al. The parties have reached agreement on all issues in the case and in the fourth quarter of 2017, the IRS submitted documentation reflecting the terms of the agreement to the JCT for its review, which must be performed before a settlement can be completed. There is no assurance that a settlement will be completed. Based on information that we currently have regarding the status of our ongoing dispute, we recorded a provision for additional taxes and interest of $29.0 million in 2017.

Item 4. Mine Safety Disclosures
Not Applicable.


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Unresolved Staff Comments, Properties, Legal Proceedings, Mine Safety Disclosures
MGIC Investment Corporation
2017 Form 10-K
Table of Contents



Should a settlement not be completed, ongoing litigation to resolve our dispute with the IRS could be lengthy and costly in terms of legal fees and related expenses. We would need to make further adjustments, which could be material, to our tax provision and liabilities if our view of the probability of success in this matter changes, and the ultimate resolution of this matter could have a material negative impact on our effective tax rate, results of operations, cash flows, available assets and statutory capital. In this regard, see our risk factors titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain 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” in Item 1A.

In addition to the above litigation (including arbitration), we face other litigation, regulatory risks and disputes. For additional information about such other litigation and regulatory risks, you should review our risk factors titled “We are involved in legal proceedings and are subject to the risk of additional legal proceedings in the future” in Item 1A.

Item 4.
Mine Safety Disclosures.
Not Applicable.


MGIC Investment Corporation 2017 Form 10-K | 48
Information About Our Executive Officers of the Registrant
MGIC Investment Corporation
2017 Form 10-K
Table of Contents


Executive Officers of the Registrant
Certain information with respect to our executive officers as of February 23, 201820, 2021 is set forth below:
Executive officers of the registrant
Name and AgeTitle
Patrick Sinks, 61Timothy J. Mattke, 45Chief Executive Officer and Director of MGIC Investment Corporation and MGIC
Salvatore A. Miosi, 54President and Chief ExecutiveOperating Officer of MGIC Investment Corporation and MGIC; Director of MGIC Investment Corporation and MGIC
Nathan H. Colson, 37Timothy J. Mattke, 42Executive Vice President and Chief Financial Officer of MGIC Investment Corporation and MGIC
James J. Hughes, 5558Executive Vice President – Sales and Business Development of MGIC
Paula C. Maggio, 52Jeffrey H. Lane, 68Executive Vice President, General Counsel and Secretary of MGIC Investment Corporation and MGIC
Steven M. Thompson, 58Stephen C. Mackey, 57Executive Vice President and Chief Risk Officer of MGIC Investment Corporation and MGIC
Robert J. Candelmo, 57Salvatore A. Miosi, 51Executive Vice President – Business Strategy and Operations of MGIC
Gregory A. Chi, 58Senior Vice President – Information Services and Chief Information Officer of MGIC



Mr. SinksMattke has served as our Chief Executive Officer since March 2015 and has been our and MGIC’s President since January 2006.  He was Executive Vice President – Field Operations of MGIC from January 2004 to January 2006 and was Senior Vice President – Field Operations of MGIC from July 2002 to January 2004. From March 1985 to July 2002,2019. Before then, he held various positions within MGIC’s finance and accounting organization, the last of which was Senior Vice President, Controller and Chief Accounting Officer. Mr. Sinks has been a director of MGIC Investment Corporation and MGIC since July 2014.

Mr. Mattke hashad been the Company’s Chief Financial Officer since March 2014. He served as the Company’sfrom 2014 to 2019, and its Controller from 2009 through Marchto 2014. He joined the Company in 2006. Prior to his becoming Controller, he was Assistant Controller of MGIC beginning in August 2007 and prior to that was a manager in MGIC’s accounting department.  Before joining MGIC, Mr. Mattke was an audit manager and an auditor with PricewaterhouseCoopers LLP, the Company’s independent registered accounting firm.


Mr. Miosi has served as our President and Chief Operating Officer since 2019. Before then, he had been Executive Vice President – Business Strategy and Operations since 2017. He served as Senior Vice President – Business Strategy and Operations of MGIC from 2015 to 2017, and Vice President – Marketing from 2004 to 2015. Mr. Miosi joined the company in 1988 and has also held a variety of leadership positions in the operations, technology and marketing divisions.

Mr. Colson has served as our Executive Vice President and Chief Financial Officer since 2019. Before then, he had been MGIC's Vice President – Finance during 2019 and its Assistant Treasurer from 2016 to 2019. He joined MGIC in 2014 and prior to becoming Assistant Treasurer, he held positions in its Risk Management Department. Before joining MGIC, Mr. Colson was with PricewaterhouseCoopers LLP, the Company’s independent registered accounting firm.



Mr. Hughes has served as Executive Vice President – Sales and Business Development of MGIC since January 2017. He served as Senior Vice President – Sales and Business Development of MGIC from 2015 to January 2017, and Vice President, Managing Director in the sales area from 2001 to 2015. He joined MGIC in 1987 and prior to becoming Vice President, Managing Director, he had been an Account Manager and a Sales Manager.


Mr. LaneMs. Maggio joined the Company in 2018 and has served as our and MGIC’s Executive Vice President, General Counsel and Secretary since January 2008 and prior thereto as our Seniorthen. Prior to joining the Company, Ms. Maggio had been Executive Vice President, General Counsel and Secretary of Retail Properties of America, Inc. from August 19962016 to January 2008. For more than five years prior2018, Executive Vice President, General Counsel and Secretary of Strategic Hotels & Resorts, Inc. (SHR) from 2012 to his2015, and in various other leadership roles with SHR since joining us, Mr. Lane was a partner of Foley & Lardner, a lawthat firm headquartered in Milwaukee, Wisconsin. In January 2017, Mr. Lane informed us that he plans2000. Prior to retire after his successor takes office and there is an appropriate transition period.joining SHR, Ms. Maggio had been in private legal practice from 1994-2000.


Mr. Mackey joined MGIC in June 2015 andThompson has served as MGIC's Executive Vice President and Chief Risk Officer since September 2015.2019. Before joining MGIC, Mr. Mackey was with JP Morgan Chase & Company from March 2011 until June 2015, where he held a number of senior leadership positions, including Managing Director, Firmwide Market Risk, Senior Vice President and Risk Management Executive in Mortgage Banking and Senior Vice President and Controller in Mortgage Banking. He has a diverse professional background prior to JP Morgan that includes 13 years with Fannie Mae wherethen, he had been aInterim Chief Risk Officer during 2019, and Vice President.President Credit Policy and Pricing from 2016 to 2019. He joined MGIC in 1998 and prior to being named Vice President Credit Policy and Pricing, he held several management positions in its Risk Management Department, including Vice President – Risk Management from 2000 to 2016.


Mr. MiosiCandelmo has served as Executive Vice President – Business Strategy and Operations since January 2017. He served asMGIC's Senior Vice President – Business Strategy and Operations of MGIC from 2015 to January 2017, and Vice President - Marketing from 2004 to 2015. Mr. Miosi joined the company in 1988 and has also held a variety of leadership positions in the operations, technology and marketing divisions.

Mr. Chi joined MGIC in February 2012 and has served as MGIC’s Senior Vice President – Information Services and Chief Information Officer since March 2012.2019. He joined MGIC in 2014 as its Vice President – Chief Technology Officer. Prior to joining MGIC, Mr. ChiCandelmo had been Senior Vice President of Enterprise DeliveryInformation Services with SunTrust Bank since 2008. Prior to joining SunTrust, Mr. ChiCandelmo had been Vice President, Information Technology Development Application with MetLife, Inc. since 2005.  Prior to that, Mr. Chi held various senior management positions inother leadership roles within the financial services industry.information technology discipline.




MGIC Investment Corporation 20172020 Form 10-K | 4941
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)Our Common Stock is listed on the New York Stock Exchange under the symbol “MTG.”

As of February 19, 2021, the number of shareholders of record was 282 In addition, we estimate there are approximately 40,600 beneficial owners of shares held by brokers and fiduciaries.

Information regarding equity compensation plans is contained in Item 12.

(b)Not applicable.

(c)Issuer Purchases of Equity Securities
The following table provides information about purchases of MGIC Investment Corporation common stock by us during the three months ended December 31, 2020.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesShare repurchases
MGIC Investment Corporation
2017 Form 10-K
TablePeriod Beginning
Period EndingTotal number of Contentsshares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the program (1)
October 1, 2020October 31, 2020— $— — $


PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

290,818,024 
(a)November 1, 2020
Our Common Stock is listed on the New York Stock Exchange under the symbol “MTG.” The following table sets forth for 2017 and 2016 by calendar quarter the high and low sales prices of our Common Stock on the New York Stock Exchange.
          
Common stock sales prices 2017 2016
QuarterHigh Low High Low
 First$11.35
 $9.68
 $8.72
 $5.63
 Second11.40
 9.84
 7.85
 5.36
 Third12.65
 10.64
 8.23
 5.45
 Fourth15.64
 12.26
 10.58
 7.84

No cash dividends have been paid since July 2008. The payment of any future dividends is subject to the discretion of our Board and will depend on many factors, including our operating results, financial condition and capital position.  See Note 7 – “Debt,” to our consolidated financial statements in Item 8 for dividend restrictions during interest deferral periods related to our 9% Debentures. We are a holding company and the payment of dividends from our insurance subsidiaries is restricted by insurance regulations. For a discussion of these restrictions, see “Management’s Discussion and Analysis — Liquidity and Capital Resources” in Item 7 of this annual report and Note 14 – “Statutory Information,” to our consolidated financial statements in Item 8.

As of February 7, 2018, the number of shareholders of record was 201. In addition, we estimate there are approximately 40,900 beneficial owners of shares held by brokers and fiduciaries.

Information regarding equity compensation plans is contained in Item 12.

November 30, 2020— $— — $290,818,024 
(b)December 1, 2020Not applicable.

December 31, 2020— $— — $290,818,024 
(c)Not applicable.





MGIC Investment Corporation 2017 Form 10-K | 50
— $— — $290,818,024 
Selected Financial and Other Data
MGIC Investment Corporation
2017 Form 10-K
Table of Contents




 Item 6.          
 Selected Financial Data          
            
             
   As of and for the Years Ended December 31,
 (In thousands, except per share data) 2017 2016 2015 2014 2013
Summary of operationsRevenues:          
Net premiums written $997,955
 $975,091
 $1,020,277
 $881,962
 $923,481
 Net premiums earned 934,747
 925,226
 896,222
 844,371
 943,051
 Investment income, net 120,871
 110,666
 103,741
 87,647
 80,739
 Realized investment gains, net including net impairment losses 249
 8,932
 28,361
 1,357
 5,731
 Other revenue 10,187
 17,659
 12,964
 9,259
 9,914
 Total revenues 1,066,054
 1,062,483
 1,041,288
 942,634
 1,039,435
            
 Losses and expenses:    
  
  
  
 Losses incurred, net 53,709
 240,157
 343,547
 496,077
 838,716
 Change in premium deficiency reserve —
 —
 (23,751) (24,710) (25,320)
 Underwriting and other expenses 170,749
 160,409
 164,366
 146,059
 192,518
 Interest expense 57,035
 56,672
 68,932
 69,648
 79,663
 Loss on debt extinguishment 65
 90,531
 507
 837
 —
 Total losses and expenses 281,558
 547,769
 553,601
 687,911
 1,085,577
 Income (loss) before tax 784,496
 514,714
 487,687
 254,723
 (46,142)
 
Provision for (benefit from) income taxes (1)
 428,735
 172,197
 (684,313) 2,774
 3,696
 Net income (loss) $355,761
 $342,517
 $1,172,000
 $251,949
 $(49,838)
            
 
Weighted average common shares outstanding (2)
 394,766
 431,992
 468,039
 413,547
 311,754
            
 Diluted income (loss) per share $0.95
 $0.86
 $2.60
 $0.64
 $(0.16)
 Dividends per share $—
 $—
 $—
 $—
 $—
            
Balance sheet dataTotal investments $4,990,561
 $4,692,350
 $4,663,206
 $4,612,669
 $4,866,819
Cash and cash equivalents 99,851
 155,410
 181,120
 197,882
 332,692
 Total assets 5,619,499
 5,734,529
 5,868,343
 5,251,414
 5,582,579
 Loss reserves 985,635
 1,438,813
 1,893,402
 2,396,807
 3,061,401
 Premium deficiency reserve —
 —
 —
 23,751
 48,461
 Short- and long-term debt 573,560
 572,406
 —
 61,883
 82,662
 Convertible senior notes —
 349,461
 822,301
 830,015
 826,300
 Convertible junior subordinated debentures 256,872
 256,872
 389,522
 389,522
 389,522
 Shareholders' equity 3,154,526
 2,548,842
 2,236,140
 1,036,903
 744,538
 Book value per share 8.51
 7.48
 6.58
 3.06
 2.20
(1)
In 2017, we remeasured our net deferred tax assets at the lower enacted corporate income tax rate under the Tax Act. Also, in 2017, we recorded an additional income tax provision for our expected IRS settlement. In the third quarter of 2015 we reversed the valuation allowance against our deferred tax assets. See Note 12 – "Income Taxes" to our consolidated financial statements in Item 8 for a discussion of these tax related matters and their impact on our consolidated financial statements.
(2)
Includes dilutive shares in years with net income. See Note 4 – "Earnings Per Share" to our consolidated financial statements in Item 8 for a discussion of our Earnings Per Share.

(1) On January 28, 2020, our Board of Directors authorized a share repurchase program under which we may repurchase up to an additional $291 million of our common stock through the end of 2021. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases but may resume in the future.



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Table of Contents
MGIC Investment Corporation
2017 Form 10-K
Selected Financial and Other Data (continued)


            
   Years Ended December 31,
   2017 2016 2015 2014 2013
Other data
New primary insurance written ($ millions)
 $49,123
 $47,875
 $43,031
 $33,439
 $29,796
 
New primary risk written ($ millions)
 $12,217
 $11,831
 $10,824
 $8,530
 $7,541
            
 
IIF (at year-end) ($ millions)
      
  
  
 Direct primary IIF $194,941
 $182,040
 $174,514
 $164,919
 $158,723
 
RIF (at year-end) ($ millions)
          
 Direct primary RIF $50,319
 $47,195
 $45,462
 $42,946
 $41,060
 Direct pool RIF      
  
  
 With aggregate loss limits 236
 244
 271
 303
 376
 Without aggregate loss limits 235
 303
 388
 505
 636
            
 Primary loans in default ratios      
  
  
 Policies in force 1,023,951
 998,294
 992,188
 968,748
 960,163
 Loans in default 46,556
 50,282
 62,633
 79,901
 103,328
 Percentage of loans in default 4.55% 5.04% 6.31% 8.25% 10.76%
            
 Insurance operating ratios (GAAP)          
 Loss ratio 5.7% 26.0% 38.3% 58.8% 88.9%
 Expense ratio 16.0% 15.3% 14.9% 14.7% 18.6%
            
 Risk-to-capital ratio (statutory)        
  
 Mortgage Guaranty Insurance Corporation 9.5:1
 10.7:1
 12.1:1
 14.6:1
 15.8:1
 Combined insurance companies 10.5:1
 12.0:1
 13.6:1
 16.4:1
 18.4:1



MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

Item 6. Selected Financial Data
Summary of operations
As of and for the Years Ended December 31,
(In thousands, except per share data)20202019201820172016
Revenues:
Net premiums written$928,742 $1,001,308 $992,262 $997,955 $975,091 
Net premiums earned1,021,943 1,030,988 975,162 934,747 925,226 
Investment income, net154,396 167,045 141,331 120,871 110,666 
Realized investment (losses) gains, net including net impairment losses13,752 5,306 (1,353)231 8,921 
Other revenue9,055 10,638 8,708 10,205 17,670 
Total revenues1,199,146 1,213,977 1,123,848 1,066,054 1,062,483 
Losses and expenses:   
Losses incurred, net364,774 118,575 36,562 53,709 240,157 
Underwriting and other expenses188,778 194,769 190,143 170,749 160,409 
Interest expense59,595 52,656 52,993 57,035 56,672 
Loss on debt extinguishment26,736 — — 65 90,531 
Total losses and expenses639,883 366,000 279,698 281,558 547,769 
Income before tax559,263 847,977 844,150 784,496 514,714 
Provision for income taxes (1)
113,170 174,214 174,053 428,735 172,197 
Net income$446,093 $673,763 $670,097 $355,761 $342,517 
Weighted average common shares outstanding359,293 373,924 386,078 394,766 431,992 
Diluted income per share$1.29 $1.85 $1.78 $0.95 $0.86 
Balance sheet data
Total investments$6,682,911 $5,758,320 $5,159,019 $4,990,561 $4,692,350 
Cash and cash equivalents287,953 161,847 151,892 99,851 155,410 
Total assets7,354,526 6,229,571 5,677,802 5,619,499 5,734,529 
Loss reserves880,537 555,334 674,019 985,635 1,438,813 
Short- and long-term debt1,034,379 575,867 574,713 573,560 572,406 
Convertible senior notes— — — — 349,461 
Convertible junior subordinated debentures208,814 256,872 256,872 256,872 256,872 
Shareholders' equity$4,698,986 4,309,234 3,581,891 3,154,526 2,548,842 
Book value per share$13.88 12.41 10.08 8.51 7.48 
(1)In 2017, we remeasured our net deferred tax assets at the lower enacted corporate income tax rate under the Tax Act.

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MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

Other data
 Years Ended December 31,
 20202019201820172016
New primary insurance written ($ millions)
$112,113 $63,421 $50,526 $49,123 $47,875 
New primary risk written ($ millions)
$26,759 $15,811 $12,657 $12,217 $11,831 
IIF (at year-end) ($ millions)
Direct primary IIF$246,572 $222,295 $209,707 $194,941 $182,040 
RIF (at year-end) ($ millions)
Direct primary RIF$61,812 $57,213 $54,063 $50,319 $47,195 
Direct pool RIF
With aggregate loss limits210 213 228 236 244 
Without aggregate loss limits130 163 191 235 303 
Primary loans in default ratios
Policies in force1,126,079 1,079,578 1,058,292 1,023,951 998,294 
Loans in default57,710 30,028 32,898 46,556 50,282 
Percentage of loans in default5.11 %2.78 %3.11 %4.55 %5.04 %
Insurance operating ratios (GAAP)
Loss ratio35.7 %11.5 %3.7 %5.7 %26.0 %
Underwriting Expense ratio19.2 %18.4 %18.2 %16.0 %15.3 %
Risk-to-capital ratio (statutory)
Mortgage Guaranty Insurance Corporation9.2:19.7:19.0:19.5:110.7:1
Combined insurance companies9.1:19.6:19.8:110.5:112.0:1


MGIC Investment Corporation 2020 Form 10-K | 44

MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations


Introduction
INTRODUCTION
As used below, “we” and “our” refer to MGIC Investment Corporation’s consolidated operations or to MGIC Investment Corporation, as a separate entity, as the context requires. References to "we" and "our" in the context of debt obligations refer to MGIC Investment Corporation. See the "Glossary of terms and acronyms" for definitions and descriptions of terms used throughout this annual report. The Risk Factors contained in Item 1A discuss trends and uncertainties affecting us and are an integral part of the MD&A.


The following is a discussion and analysis of the financial conditions and results of operations for the year ended December 31, 2020 and 2019, including comparisons between 2020 and 2019. Comparisons between 2019 and 2018 have been omitted from this Form 10-K, but can be found in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.

Forward Looking and Other Statements
As discussed under “Forward Looking Statements and Risk Factors” in Item 1A of Part 1 of this Report, actual results may differ materially from the results contemplated by forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document was filed with the Securities and Exchange Commission.






MGIC Investment Corporation 2017 Form 10-K | 53
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents



OverviewOVERVIEW
This Overview of the MD&A highlights selected information and may not contain all of the information that is important to readers of this Annual Report. Hence, this Overview is qualified by the information that appears elsewhere in this Annual Report, including the other portions of the MD&A.


Through our subsidiary, MGIC, we are a leading provider of PMI in the United States, as measured by $194.9$246.6 billion of primary IIF on a consolidated basis at December 31, 2017.2020.
Summary of financial results of MGIC Investment Corporation
Year Ended December 31,
(in millions, except per share data)20202019Change
Selected statement of operations data
Net premiums earned$1,021.9 $1,031.0 (1)%
Investment income, net of expenses154.4 167.0 (8)%
Losses incurred, net364.8 118.6 208 %
Other operating and underwriting expenses, net176.4 182.8 (3)%
Income before tax559.3 848.0 (34)%
Provision for income taxes113.2 174.2 (35)%
Net income446.1 673.8 (34)%
Diluted income per share$1.29 $1.85 (30)%
Non-GAAP Financial Measures (1)
Adjusted pre-tax operating income$572.8 $842.9 (32)%
Adjusted net operating income456.8 669.7 (32)%
Adjusted net operating income per diluted share$1.32 $1.84 (28)%
(1)See "Explanation and Reconciliation of our use of Non-GAAP Financial Measures."

MGIC Investment Corporation 2020 Form 10-K | 45
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
         
Summary financial results of MGIC Investment Corporation  Year Ended December 31,  
(in millions, except per share data) 2017 2016 Change
Selected statement of operations data      
Total revenues $1,066.1
 $1,062.5
 — %
 Losses incurred, net 53.7
 240.2
 (78)%
 Loss on debt extinguishment 0.1
 90.5
 N/M
 Income before tax 784.5
 514.7
 52 %
 Provision for income taxes 428.7
 172.2
 149 %
 Net income 355.8
 342.5
 4 %
 Diluted income per share $0.95
 $0.86
 10 %
        
 
Non-GAAP Financial Measures (1)
      
 Adjusted pre-tax operating income $784.3
 $596.3
 32 %
 Adjusted net operating income 517.7
 396.3
 31 %
 Adjusted net operating income per diluted share $1.36
 $0.99
 37 %
(1)
See "Explanation and Reconciliation of our use of Non-GAAP Financial Measures."


Summary of 2017 financial resultsSUMMARY OF 2020 FINANCIAL RESULTS
Net income of $355.8$446.1 million for 2017 increased2020 decreased by $13.2$227.7 million when compared to the prior year, driven by lower losses incurred, net and the absence of significant losses on debt extinguishment in the current year, partially offset by an increase in the provision for income taxes discussed below. Diluteddiluted income per share of $0.95 increased$1.29 decreased by 10%30% when compared to the prior year. These decreases primarily reflect an increase in losses incurred, a loss on debt extinguishment, a decrease in net premiums earned, and a decrease in investment income, net of expenses. Diluted income per share decreased due to a decline in net income, partially offset by a decrease in the number of diluted weighted average shares outstanding.


Adjusted net operating income of $517.7for 2020 was $456.8 million for 2017 (2016: $396.3(2019: $669.7 million) and adjusted net operating income per diluted share of $1.36 (2016: $0.99) each increased from the prior year primarilywas $1.32 (2019: $1.84). Adjusted net operating income for 2020 included an adjustment for a loss on debt extinguishment and for both 2020 and 2019, included an adjustment for net realized investment gains.

NPE decreased slightly due to lower premium rates on our IIF and a decrease in profit commission from our QSR transactions that was a result of higher ceded losses incurred, net.partially offset by higher average IIF and an increase in accelerated premiums from single premium policy cancellations.


Net investment income decreased due to lower investment yields, partially offset by an increase in the investment portfolio balance.

Losses incurred, net were $53.7$364.8 million, down 78% as the estimated claim rate on new delinquent notices declined and we experienced higher favorable reserve development on prior year delinquencies when compared to $118.6 million the prior year. New delinquentThe increase reflects an increase in new delinquency notices due to the COVID-19 pandemic and the current macroeconomic environment. The increase in 2017 increased slightlylosses incurred was also due to adverse development of $19.6 million in 2020 compared to favorable development of $71.0 million in 2019, which was net of the prior year duenon-recurring recognition of a probable loss of $23.5 million for litigation of our claims paying practices. In 2020, the COVID-19 pandemic began to hurricane activity inaffect the third quarterU.S. economy and we received new delinquency notices of 2017, however the estimated claim rate on new notices was approximately 10%, down from approximately 12.5% in106,099 compared to 54,239 for the prior year. Our estimated claim rate on new notices primarily reflects improved cure activity due toThis was partially offset by an increase in cures received in latter half of 2020 as the current economic environment, but also reflectseconomy improved.

We recorded a materially lower estimated claim rate on our estimate of new notices caused by hurricanes. When excluding our estimate of new notices caused by hurricanes, our new notice claim rate was approximately 10.5%.

The$26.7 million loss on debt extinguishment recorded during 2016 reflectsassociated with the repurchasesrepurchase of a portion of our outstanding 2%5.75% Notes and 5% Notes at amounts above our carrying values. The loss on debt extinguishment also reflects MGIC's purchase of a portion of our 9% Debentures for which a loss was recognized asDebentures.

BUSINESS ENVIRONMENT
Economic conditions
Despite the difference between the fair value and carrying valueeconomic effects of the liability component onCOVID-19 pandemic, there were favorable trends in the purchase date. See Note 7 - "Debt" to our consolidated financial statements for further discussion of the accounting for these transactions.

The increasehousing market in our provision for income taxes in 2017 as compared to the prior year was due to a remeasurement of our deferred tax assets to reflect the lower corporate income tax rate under the Tax Act, the increase in income before tax,2020. Low interest rates, increasing household formations and an additional tax provision recorded for the expected settlement of our IRS


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MGIC Investment Corporation
2017 Form 10-K
Overview (continued)


litigation. See Note 12 - "Income taxes" to our consolidated financial statements for further discussion on the Tax Act and expected IRS settlement.

During 2017, MGIC paid $140 million in dividends to our holding company.

Business environment
Current U.S. economic conditionsappreciating home values continue to support favorable housing fundamentals, such as low unemployment, household formations,fundamentals.

Mortgage interest rates have been lower on average in 2020 compared to 2019. The lower mortgage rates contributed to a material increase in home purchase and appreciating home values. Givenrefinance activity in 2020. The homeownership rate increased slightly in 2020. The continued favorable housing trends and the supply and demand dynamicsincrease in refinance transactions resulted in a significant increase in our NIW, from $112.1 billion in 2020 when compared to $63.4 billion in 2019.

The impacts of the current market,COVID-19 pandemic, including unemployment resulting from initiatives intended to reduce the
transmission of COVID-19, have resulted in an increase in the number of loans in our delinquency inventory. Payment forbearance programs are currently in place to assist borrowers experiencing a hardship during the COVID-19 pandemic. Forbearance allows for mortgages to be suspended for up to 360 days. For loans in a COVID-19 forbearance plan as of February 28, 2021, the plan may be extended for an additional three months, subject to certain limits. As of December 31, 2020, 62% of the loans in our delinquency inventory are subject to a forbearance plan.

The COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and continued severity of the COVID-19 pandemic and its effect on the U.S. economy and housing market.

The level of unemployment, interest rates, and home prices are expected to further appreciatemay change in 2018. Home price appreciation can havethe future. For the possible effects of such changes, see our risk factors titled "If the volume of low down payment home mortgage originations declines, the amount of insurance that we write could decline,” “Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a dampening effect on home purchase activity as it reduces affordability for some borrowers, conversely it may increase the demand forcorresponding decrease in our returns,” “Changes in interest rates, house prices or mortgage insurance and/or amountcancellation requirements may change the length of mortgage insurance duetime that our policies remain in force," and "The COVID-19 pandemic may continue to decreased ability of borrowers to fund a similar down payment percentage absent the appreciation. This recent periodmaterially impact our financial results and may also materially impact our business, liquidity, and financial condition."


Mortgage lending
The past several years of favorable housing fundamentals coupled with,and in our view, high lending standards, has provided a favorable credit backdrop for the business we have written in recent years. In that regard, we have experienced arisk characteristics of our recently insured loans contributed to declining delinquent inventory, and lower losses incurred and claims paid. Our most recent book years continue to experience a low level of losses.

The 10 year (and other) U.S. Treasury benchmark interest rates have increasedpaid in recent quarters and mortgage interest rates2019. While favorable trends continued in response have been, on average, higher during 2017 comparedthe housing market in 2020, we experienced an increase in our losses incurred due to the historically low ratesimpacts of 2016.the COVID-19 pandemic.

After easing somewhat in 2018, lending standards became tighter again in 2019. The gradualpercentage of our NIW with DTI ratios over 45% declined in 2020 and 2019. Change in both years was primarily driven by adjustments to GSE underwriting guidelines for loans with DTI ratios over 45% and our pricing for loans with such DTI ratios. The increase in mortgagethe percentage of our NIW from refinance transactions in 2020 and 2019 was due to the low interest rates benefitedrate environment and also resulted in a consistently lower percentage of our business in 2017 as persistency increased, while not materially impacting affordabilityNIW with LTV ratios over 95% for first-time homebuyers. Further increases in mortgage rates may impact affordability, which could slow housing activity. Historically however, purchase origination volume has been impacted more by the level and directionboth years.

Refer to "Mortgage Insurance Portfolio" for additional discussion of consumer confidence than by changes in interest rates.our NIW mix during 2020.


Competition
PMI.The private mortgage insurance industry remains intenselyis highly competitive and is expected to remain so. We believe that 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

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Table of Contents | Glossary of terms and acronyms
of technology and innovation in some instances, companiesthe delivery and servicing of our mortgage insurance products.

Pricing practices
In recent years much of the changes in premium pricing practices has centered on the decrease in the use of our standard rate card as published on our website, www.mgic.com/rates, the increased use of "risk-based pricing systems" that utilize a spectrum of filed rates that allow for formulaic, risk-based pricing based on multiple attributes that may be quickly adjusted within certain parameters, and customized rate plans both of which typically have rates lower than the standard rate card. We expect our direct premium yield to continue to decline as older policies with higher premium rates run off, and new insurance policies with lower premium rates are written.

For information about competition in the private mortgage insurance industry, 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" in Item 1A.

GSE Risk Share Transactions
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. Due to protectdifferences in policy terms, these programs may offer premium rates that are below prevalent single premium LPMI rates. While we view these programs as competing with traditional private mortgage insurance, we participate in these programs from time to time.
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 grow market share.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.

Government programs. PMI also competes against government mortgage insurance programs such as the FHA, VA, and USDA, primarily for lower FICO score business. The combined market share of primary mortgage insurance written by government programs continuedcontinues to exceed that written by PMI in 2017, however2019 and 2020. The strong refinance markets in 2019 and 2020, and PMI recaptured share from those programs duepremium rate reductions, have contributed to writing a higher percentage of purchase originations when compared to government programs. Generally, PMI industry share is 3-4 times higher for purchase originations than refinance originations. Amongst private mortgage insurers, our market share increased slightly fromat its highest levels since the prior year to 18.3% (source: Inside Mortgage Finance).financial crisis.


Refer to "Mortgage Insurance PortfolioPortfolio" for additional discussion of the 20172020 business environment and the impact it had on operating measures including NIW, IIF and RIF.


Since December 31, 2015 we have operatedPMIERs
We operate under the requirements of the PMIERs of the GSEs in order to insure loans delivered to or purchased by them. The PMIERs include financial requirements thatas well as business, quality control and certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an approved mortgage insurerinsurer) to have Available Assets that meetequal or exceed its Minimum"Minimum Required Assets.Assets" (which are based on an insurer's book of risk in force,
calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions, and subject to a floor amount). Based on our application of the more restrictive PMIERs, MGIC's Available Assets under PMIERs totaled $4.8$5.3 billion, an excess of $0.8$1.8 billion over its Minimum Required Assets at December 31, 2017.2020.


A summary of GSE-recommended PMIERs revisions were issued to us late in the fourth quarter of 2017. Refer to "Capital - GSEs" below for a discussion of the impact such revisions are expected to have on our excess Available Assets at their effective date, which is expected to be no earlier than the fourth quarter of 2018.

Business outlook for 2018BUSINESS OUTLOOK FOR 2021
Our outlook for 20182021 should be viewed against the backdrop of the business environment discussed above.


NIW.NIW
Our NIW is affected by total mortgage originations, the percentage of total mortgage originations utilizingusing private mortgage insurance (the "PMI penetration rate"), and our market share within the PMI industry. As of late January 2018,2021, the total mortgage origination forecasts from the GSEs and MBA indicate average mortgage originations of $3.3 trillion in 2021, compared to an average estimated $4 trillion in 2020. Purchase originations are forecastedexpected to decline in 2018 from 2017 levels due to declines in refinancing originations more than offsetting a slight increase in purchase originations.2021, compared to 2020, while refinance transactions are expected to decrease in 2021. Our NIW from refinance originations is expected to be lower in 2021 compared to a strong 2020. In 2020, the majority of the refinances were from recent books that experienced only a modest level of price appreciation. Therefore, many of the refinanced loans in 2020 required mortgage insurance. We expect the PMI penetration rate on refinance transactions to increase because historicallydecline in 2021.

The widespread use of risk based pricing systems by the PMI 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 capturedchanged. In addition, business under customized rate plans is awarded by certain customers for only limited periods of time. As a share of purchase originations, which are forecast to be a higher percentage of total originations, that is estimated to be 3-4 times greater


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Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview (continued)


result, our NIW may fluctuate more than that of refinancing originations. Similar to 2017, an increaseit had in the PMI penetration rate should serve to mitigate the declinepast.

IIF
Our IIF increased 10.9% in total mortgage originations. Although our expectation is for our 2018 NIW to increase slightly from 2017, this will be highly dependent on the actual size of the mortgage origination market, the mix of originations, and competition.

Impact of tax reform. In the fourth quarter of 2017, the Tax Act was enacted that, among other things, reduced federal income tax rates on corporations and eliminated the corporate Alternative Minimum Tax ("AMT"). The reduction in the corporate income tax rate will reduce our effective tax rate in 20182020, and we expect itour IIF to be approximately 21%, compared to approximately 34% when excluding the impact of remeasuring our net deferred tax assets due to the Tax Act and the additional provision recorded for our expected IRS settlementgrow in 2017. In recent years, we have utilized NOLs to reduce our taxes payable, however we were subject to paying taxes under the AMT. The elimination of the corporate AMT eliminates any cash taxes that would have been paid in 2018. We do not expect the changes to individual income taxes included in the Tax Act to materially impact our business.

IIF and RIF.2021. Our book of IIF is the mainan important driver of our future revenues, and earnings and its growth is driven by our ability to generate NIW and retain existing policies in force, as measured by our persistency. Interest rates influence both our NIW and persistency. In a rising rate environment, total mortgage originations may decline; however, we would also expect policy cancellation rates to decline, and in turn increase persistency, although the impact generally lags the change in interest rates. HigherThe Federal Reserve has indicated that they expect interest rates could reduce affordability for borrowers, which could slow housing activity, andto remain low.

Results of particular importance to our industry, slow first-time home buyer purchase activity, resultingoperations
Premiums. Despite an increase in less NIW. Historically however, purchase origination volume has been impacted more by the level and direction of consumer confidence than by changes in interest rates. WeIIF, we expect our IIF will continue to grow in 2018 due to the level of NIW we expect to write in 2018 and our expected persistency.

Results of operations. We expect our2021 earned premiums growth rate(on a direct basis) to be lower than they were in 20182020. Overall, our premium rates have been trending down in recent years, including in 2020, as the books of business written at lower rates represent an increasing percentage of our total IIF.

Our 2021 direct premiums written are expected to be comparable to that experienced in 2017. The headwinds that have limited2020, while our net premiums earned premium growth in recent years, even with a larger book of IIF, are expected to persist to a certain extentdecrease in 2018.2021. Our premium yield is expected to declinenet premiums written and earned will be impacted by the downward trend in 2018 from 2017, primarily due to changing premium rates as more fully discussed along with other factorsnoted above and by the amount of premiums we cede under our quota share and excess

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of loss reinsurance transactions. Net premiums earned are also impacted by the amount of accelerated premiums from single premium policy cancellations. Our unearned premium decreased to $287.1 million at December 31, 2020 from $380.3 million at December 31, 2019. The amount of profit commission we receive, which reduces the amount of premiums we cede, is variable year-to-year and is dependent on the amount of losses ceded. In 2020, our profit commission was impacted by the increase in ceded losses incurred. The amount of premiums we cede in 2021 will be affected by any changes in our reinsurance coverage.

Factors that affect the amount of premiums we earn from our IIF are further discussed in our "Consolidated Results of Operations - Premium yield." However, we

Investment income. Net investment income is a material contributor to our results of operations. We expect increasing IIF to counteract the effect on earned premium of a lower premium yield.

In addition to more earned premiums, our revenues are expected to include highernet investment income in 20182021 to be comparable to 2020. We expect our invested assets will remain relatively flat. The amount of investment income will be impacted by the change in the yield we can earn on investments.

Losses. Losses incurred, net in 2020 were $364.8 million, an increase of $246.2 million over the prior year losses incurred of $118.6 million. The increase was primarily due to an increase in the delinquency inventory due to the increasing sizeimpacts of our investment portfolio, combined with higher average investment yields.the COVID-19 pandemic, including unemployment resulting from initiatives intended to reduce the transmission of COVID-19. We expect 20182021 losses incurred with respect to delinquent notices received in the current year (2018) to be lower than the comparable amount for 20172020 as we expect to receive fewer new delinquentdelinquency notices in 2018. We cannot2021. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the amount, if any,ultimate effect of 2018COVID-19 related delinquencies on our loss incidence. The foreclosure moratoriums and forbearance plans in place have decreased our losses incurred with respectand LAE paid in 2020. As foreclosure moratoriums and forbearance plans end, we expect to delinquent noticessee an increase in claims received and claims paid, but the magnitude and timing of the increases are uncertain.

Underwriting and operating expenses, net. We expect underwriting and operating expenses, net to increase in prior years. The Tax Act will reduce2021 as we invest in our technology infrastructure to execute our strategies.

Income taxes. We expect our 2021 effective tax rate to be approximately 21%, which will reduce.



CAPITAL
MGIC dividend payments to our holding company
In the provision for income tax we record against any income before tax. Excludingfirst quarter of 2020 and in the impactfull year of remeasuring2019, MGIC paid a cash and/or investment security dividend of $390 million and $280 million, respectively, to our net deferred tax assets dueholding company. In the third quarter of 2020 MGIC distributed to the Tax Act andholding company, as a dividend, its ownership in $133 million of the additional provision recorded for our expected IRS settlement, our effective tax rate in 2017 would have been approximately 34%.

PMIERs.In December 2017, we received a summary of proposed changesholding company’s 9% Debentures. Future dividend payments from MGIC to the PMIERs that are being recommendedholding company will continue to be determined on a quarterly basis in consultation with the board, and after considering any updated estimates about the length and severity of the economic impacts of the COVID-19 pandemic on our business. We ask the Wisconsin OCI not to object before MGIC pays dividends to the FHFAholding company, and under the PMIERs guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.

Share repurchase programs
In the first quarter of 2020 and in the full year of 2019, we repurchased approximately 9.6 million and 8.7 million shares of our common stock, respectively, using approximately $120 million and $114 million, respectively, of holding company resources. As of December 31, 2020, we had $291 million of authorization remaining to repurchase our common stock through the end of 2021 under a share repurchase program approved by our Board of Directors in January 2020. Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase programs may be suspended for periods or discontinued at any time. Due to the uncertainty caused by the GSEs. We expect the revised PMIERs to be finalized in 2018 and effective no earlier than the fourth quarter of 2018. See "Capital - GSEs" below for our discussion of the proposed changesCOVID-19 pandemic, we have received.temporarily suspended stock repurchases, but may resume them in the future.


CapitalThe following table shows details of our share repurchase programs.
Repurchase ProgramExpiration DateRepurchased (in millions)Authorization Remaining
(in millions)
2018 AuthorizationDecember 31, 2019$200 $— 
2019 AuthorizationDecember 31, 2020$200 $— 
2020 AuthorizationDecember 31, 2021$9 $291 
As of December 31, 2020, we had approximately 339 million shares of common stock outstanding.


Dividends to shareholders
In 2020, MGIC paid quarterly dividends of $0.06 per common share to its shareholders totaling $83 million. On January 26, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on February 17, 2021, payable on March 3, 2021.

For information about how the payment of dividends by our holding company will result in an adjustment to the conversion rate and price of our convertible securities, see our risk factor titled “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” in Item 1A.

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GSEs
We must comply with thea GSE's PMIERs to be eligible to insure loans delivered to or purchased by the GSEs. In addition to theirthat GSE. The PMIERs include financial requirements, the PMIERs includeas 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 are calculated from tables of factors with several risk dimensions, reduced for credit given for risk ceded under reinsurance transactions).

The PMIERs generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.

Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 360 days; an initial forbearance period of up to 180 days and, if requested by the borrower following contact by the servicers, an extension of up to 180 days. The servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired.
If a servicer of a loan is unable to contact the borrower prior to the expiration of the first 180-day forbearance plan term, or if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan will generally expire. In such case, if the loan remains delinquent, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable, our Minimum Required Assets will increase and our excess of Available Assets over Minimum Required Assets will decrease.

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 NIW. FactorsNIW, 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:


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Management's Discussion and Analysis
è

The GSEs may make the PMIERs more onerous in the future. The PMIERs provide that the factors that determine Minimum Required Assets will be updated periodically, or as needed if there is a significant change in macroeconomic conditions or loan performance. We do not anticipate that the regular periodic updates will occur more frequently than once every two years. The PMIERs state that the GSEs will provide notice 180 days prior to the effective date of updates to the factors; however, the GSEs may amend any portion of the PMIERs at any time.
MGIC Investment Corporationè
2017 Form 10-K
There may be future implications for PMIERs as a result of changes to regulatory capital requirements for the GSEs. In November 2020, the FHFA adopted a rule containing a risk-based capital framework for the GSEs that will increase their capital requirements, effective on the later of (i) the date of termination of the FHFA’s conservatorship of the applicable GSE; (ii) sixty days after publication of the adopted rule in the Federal Register; or (iii) any later compliance date provided in a consent order or other transition order applicable to a GSE. The increase in capital requirements may ultimately result in an increase in the Minimum Required Assets required to be held by mortgage insurers
Overview (continued)èOur future operating results may be negatively impacted by the matters discussed in our risk factors. Such matters could decrease our revenues, increase our losses or require the use of assets, thereby creating a shortfall in Available Assets.
èShould 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.



On December 18, 2017,Our reinsurance transactions enable us to earn higher returns on our business than we received a summary of proposed changes towould without them because they reduce the PMIERs that are being recommended to the FHFA by the GSEs. Once the PMIERs are finalized, we expect a six-month implementation period before the revised PMIERs are effective. We expect that effectiveness will not be earlier than the fourth quarter of 2018.

If the GSE-recommended changes are adopted with an effective date in the fourth quarter of 2018, we expect that at the effective date, MGIC would continue to have an excess of Available Assets over Minimum Required Assets although thiswe must hold under PMIERs. However, reinsurance may not always be available to us; or available on similar terms, and our quota share reinsurance subjects us to counterparty credit risk. The calculated credit for excess would be materially lower than it was at December 31, 2017of loss reinsurance transactions under PMIERs is generally based on the PMIERs requirement of the covered loans and the attachment and detachment point of the coverage. PMIERs credit is generally not given for the reinsured risk above the PMIERs requirement. The total credit under the PMIERS for risk ceded under our reinsurance transactions is subject to a modest reduction. Our existing PMIERs, and that MGIC would continuereinsurance transactions are subject to be able to pay quarterly dividends to our holding company at the $50 million quarterly rate at which they were paid in the fourth quarter of 2017. As a result, we expect cash at our holding company at December 31, 2018 would increase over what it was at December 31, 2017.

We have non-disclosure obligations to each ofperiodic review by the GSEs and cannot provide further comment onthere is a risk we will not receive our current level of credit in future periods for the specific provisions of the GSE-recommended changes other than as described above. Until the GSEs and/or FHFA provide public disclosure of proposed or final changes to the existing PMIERs,risk ceded under them. In addition, we do not plan to update or correct any of the disclosure above or provide any additional disclosure regarding any modifications that may occur in the GSE-recommended changes to PMIERs.
Our future operating results may be negatively impacted by the matters discussed in our 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 repaymentreceive the same level of debt.credit under future transactions that we receive under existing transactions.
While on an overall basis, the amount of Available Assets MGIC must hold in order to continue to insure GSE loans increased under the PMIERs over what state regulation currently requires, our reinsurance transactions mitigate the negative effect of the PMIERs on our returns.

State Regulations
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to its RIF (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

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instead requires ana MPP. The "policyholder position" of a mortgage insurer is its net worth or surplus, contingency reserve, and a portion of the reserve for unearned premiums.
At December 31, 2017,2020, MGIC’s risk-to-capital ratio was 9.59.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements, and its policyholder position was $2.1$3.2 billion above the required MPP of $1.2$1.7 billion. In calculating ourOur risk-to-capital ratio and MPP we are allowedreflect full credit for the risk ceded under our reinsurance transaction with a group of unaffiliated reinsurers.transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers.under such transactions. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the PMIERs, MGIC may terminate the reinsurance transaction,transactions, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should readrefer to our risk factorsfactor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item 1A for more information about matters that could negatively affect such compliance.
At December 31, 2017,2020, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 10.59.1 to 1. Reinsurance transactions with our affiliate permit MGIC to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurers that are provided for in its Mortgage Guaranty Insurance Model Act. AIn December 2019, a working group of state regulators has been considering since 2016released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage


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Overview (continued)


insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the framework, including the treatment of ceded risk and minimum capital floors, and action level triggers.floors. Currently we believe that the PMIERs contain the more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.


GSE reformREFORM
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 conservatorship 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.

In 2019, the past, members of Congress have introduced several billsU.S. Treasury Department (“Treasury”) released the “Treasury Housing Reform Plan” (the “Plan”). The Plan recommends administrative and legislative reforms for the housing finance system, with such reforms intended to changeachieve the business practicesgoals of ending conservatorships of the GSEs; increasing competition and participation by the private sector in the mortgage market including by authorizing the FHFA to approve additional guarantors of conventional mortgages in the secondary market, simplifying the qualified mortgage (“QM”) rule of the Consumer Financial Protection Bureau (“CFPB”), transferring risk to the private sector, and eliminating the GSE Patch (discussed below); establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the FHA;risks they pose to the financial stability of the United States; and
providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market.

The GSE capital framework adopted in November 2020 establishes a post-conservatorship regulatory capital framework intended to ensure that the GSEs operate in a safe and sound manner. In January 2021, the GSEs' Preferred Stock Purchase Agreements ("PSPAs") were amended to allow the GSEs to continue to retain earnings until they satisfy the requirements of the 2020 GSE capital framework. In addition, a proposed rule issued by the FHFA in December 2020 would require minimum funding requirements and new liquidity standards.

The impact of the Plan on private mortgage insurance is unclear. The plan does not refer to mortgage insurance explicitly; however, no legislation has been enacted.it refers to a requirement for credit enhancement on high LTV ratio loans, which is a requirement of the current GSE charters. The Administration hasPlan also indicates that the FHFA should continue to support efforts to expand credit risk transfer (“CRT”) programs and should encourage the GSEs to continue to engage in a diverse mix of economically sensible CRT programs, including by increasing reliance on institution-level capital (presumably, as distinguished from capital obtained in the capital markets). For more information about CRT programs, 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."

In December 2020, the CFPB adopted a rule that will eliminate the GSE Patch effective upon the earlier of the GSEs’ exit from conservatorship or July 1, 2021. The GSE Patch expanded the definition of QM under the Truth in Lending Act (Regulation Z) ("TILA") to include mortgages eligible to be purchased by the GSEs, even if the mortgages do not meet the debt-to-income ("DTI") ratio limit of 43% that is included in the standard QM definition. Originating a QM may provide a lender with legal protection from lawsuits that claim the lender failed to verify a borrower’s ability to repay. Not all future loans with DTI ratios greater than 43% will be affected by the expiration of the GSE Patch. The new QM definition that becomes effective March 1, 2021, continues to require lenders to consider a borrower's DTI ratio; however, it replaces the DTI ratio cap with a pricing threshold that would exclude from the definition of QM a loan whose annual percentage rate (“APR”) exceeds the average prime offer rate for comparable loans by 2.25 percentage points or more.

The Treasury’s Plan indicated that the conservatorshipFHFA and HUD should develop and implement a specific understanding as to the appropriate roles and overlap between the GSEs and FHA, including with respect to the GSEs’ acquisitions of high LTV ratio and high DTI ratio loans. In connection with the 2021 amendment to the PSPAs, the GSEs must limit the acquisition of certain loans with multiple higher risk characteristics related to LTV, DTI and credit score, to levels indicated to be their current levels at the time of the GSEs should end; however, it is unclear whether and when that would occur and how that would impact us. As a result of the matters referred to above, it is uncertain what role the GSEs, FHA and private capital, including PMI, will play in the residential housing finance system in the future or the impact of any such changes on our business. In addition, the timing of the impact of any resulting changes on our business is uncertain. Most meaningful 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.amendment.


For additional information about the business practices of the GSEs, see our risk factor titled “Changes in the business practices of the GSEs, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses” in Item 1A.


Loan modifications

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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
COVID-19 PANDEMIC
The COVID-19 pandemic had a material impact on our 2020 financial results. The increased level of unemployment and economic uncertainty resulting from the COVID-19 pandemic, initiatives to reduce the transmission of COVID-19(including "shelter-in-place" restrictions), as well as COVID-19‑related illnesses and deaths, had a material impact on our financial results, as we reserved for losses associated with the increased delinquency notices received. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19remain in place, the level of unemployment, and the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance and modification programs) to mitigate the economic harm caused by the COVID-19 pandemic and efforts to reduce its transmission.
Current mitigation programs include, among others:
•Payment forbearance on federally-backed mortgages (including those delivered to or purchased by the GSEs) to borrowers experiencing a hardship during the COVID-19 pandemic.
•Additional cash payments to individuals provided for in the Consolidated Appropriations Act signed into law in December 2020.
•For those mortgages that are not subject to forbearance, a suspension of foreclosures and evictions until at least March 31, 2021, on mortgages purchased or securitized by the GSEs.
•Enhanced unemployment payments for pay periods between December 26, 2020 and March 14, 2021.
•An extension of the maximum duration for unemployment benefits, generally through March 14, 2021.
•Employee retention tax credits for certain small businesses.
•"Paycheck Protection Program" to provide small businesses with funds to pay certain payroll and other similarcosts.
As noted above, the servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term and must continue outreach attempts until appropriate contact is made or the forbearance plan term has expired. In certain circumstances, the servicer may be unable to contact the borrower and the forbearance plan will expire after the first 180-day plan. A delinquent mortgage for which the borrower was unable to be contacted and that is not in a forbearance plan may be more likely to result in a claim than a delinquent loan in a forbearance plan. The substantial majority of our NIW was delivered to or purchased by the GSEs. While servicers of some non-GSE loans may not be required to offer forbearance to borrowers, we allow servicers to apply GSE loss mitigation programs to non-GSE loans. In addition, the CFPB requires substantial loss mitigation efforts be made prior to servicers initiating foreclosure, therefore, servicers of non-GSE loans may have an incentive to offer forbearance or deferment.
Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. As of December 31, 2020
62% of our delinquency inventory was reported to us as in forbearance plans. Whether a loan's delinquency will cure, including through modification, when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with loans whose delinquencies do not cure will depend on economic conditions at that time, including home prices.
The GSEs have introduced specific loss mitigation options for borrowers impacted by COVID-19 when their forbearance plans end, including the COVID-19 Payment Deferral solution for borrowers who are unable to immediately or gradually repay their missed loan payments. Under the COVID-19 Payment Deferral solution, the borrower's monthly loan payment would be returned to its pre-COVID amount and the missed payments would be added to the end of the mortgage term without accruing any additional interest or late fees. The deferred payments would be due when the loan is paid off, refinanced or the home is sold.

The foreclosure moratoriums and forbearance plans in place under the GSE initiatives have delayed, and may continue to delay, the receipt and payment of claims.

LOAN MODIFICATIONS AND OTHER SIMILAR PROGRAMS
The federal government, including through the U.S. Department of the Treasury and the GSEs, and several lenders have modification and refinance programs to make outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs included HAMP, which expired at the end of 2016, and HARP, which is scheduled to expireexpired at the end of 2018. The GSEs have introduced other loan modifications programs to replace HAMP.HAMP and HARP.

From 2008 through 2012, we were notified of modifications that cured delinquencies that, had they become paid claims, would have resulted in a material increase in our incurred losses. More recently, the number of modifications has decreased significantly. Nearly all of the reported loan modifications were for loans insured in 2009 and prior.


We cannot determine the total benefit we may derive from loan modification programs, particularly given the uncertainty around the re-default rates for defaulted loans that have been modified. Our loss reserves do not account for potential re-defaults of current loans.


Table t.01 showsAs shown in the percentage of our primary RIF that has been modified as of December 31, 2017.
 Tablet.01    
ModificationsPolicy Year 
HARP (1)
Modifications
 HAMP & Other Modifications
 2003 and Prior 11.0% 40.5%
 2004 19.2% 43.3%
 2005 25.0% 41.0%
 2006 28.7% 39.6%
 2007 40.4% 31.1%
 2008 55.6% 18.6%
 2009 36.8% 5.4%
 2010 - 2017 —% 0.2%
      
 Total 8.1% 7.4%
(1)
Includes proprietary programs that are substantially the same as HARP.


MGIC Investment Corporation 2017 Form 10-K | 58
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview (continued)


Approximately 15.5%table below, approximately 8% of our total primary RIF has been modified as of December 31, 2017.2020. Based on loan count at December 31, 2017,2020, the loans associated with 96.8%94% of all HARP modifications and 75.6%77% of HAMP and other modifications were current.

Modifications
Policy Year
HARP (1)
Modifications
HAMP & Other Modifications
2004 and Prior10.9%55.4%
2005 to 200836.0%42.7%
2009 and Later0.1%0.5%
Total3.2%4.6%
Factors affecting(1)Includes proprietary programs that are substantially the same as HARP.

FACTORS AFFECTING OUR RESULTS
As noted above, the COVID-19 pandemic may adversely affect our future business, results of operations, and financial condition. The extent of the adverse effects will depend on the duration and continued severity of the COVID-19 pandemic and its effects on the U.S. economy and housing market. We have addressed some of the potential impacts throughout this document.

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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


Our results of operations are affected by:


Premiums written and earned
Premiums written and earned in a year are influenced by:
•NIW, which increases IIF. Many factors affect NIW, including the volume of low down payment home mortgage originations and competition to provide credit enhancement on those mortgages from the FHA, the VA, other mortgage insurers, and other alternatives to mortgage insurance, including GSE programs that may reduce or eliminate the demand for mortgage insurance and other alternatives to mortgage insurance. NIW does not include loans previously insured by us that are modified, such as loans modified under HARP.


•Cancellations, which reduce IIF. Cancellations due to refinancingsrefinancing are affected by the level of current mortgage interest rates compared to the mortgage coupon rates throughout the in force book, current home values compared to values when the loans in the in force book were insured and the terms on which mortgage credit is available. Home price appreciation can give homeowners the right to cancel mortgage insurance on their loans if sufficient home equity is achieved. Cancellations also result from policy rescissions, which require us to return any premiums received on the rescinded policies, and claim payments, which require us to return any premium received on the related policies from the date of default on the insured loans. Cancellations of single premium policies, which are generally non-refundable, result in immediate recognition of any remaining unearned premium.


•Premium rates, which are affected by product type, competitive pressures, the risk characteristics of the insured loans, and the percentage of coverage on the insured loans.loans, and PMIERs capital requirements. The substantial majority of our monthly and annual mortgage insurance premiums are under premium plans for which, for the first ten years of the policy, the amount of premium is determined by multiplying the initial premium rate by the original loan balance; thereafter, the premium rate resets to a lower rate used for the remaining life of the policy. However, for loans that have utilized HARP, the initial ten-year period resets as of the date of the HARP transaction. The remainder of our monthly and annual premiums are under premium plans for which premiums are determined by a fixed percentage of the loan’s amortizing balance over the life of the policy.


•
Premiums ceded, net of a profit commission, under reinsurance agreements. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.

•Premiums ceded, net of profit commission under our QSR Transactions, and premiums ceded under our Home Re Transactions. The profit commission varies inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than we experienced in 2020. As a result, lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and a lower profit commission (or for certain levels of accident year loss ratios, its elimination). See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance transactions.

Premiums earned are generated by the insurance that is in force during all or a portion of the period. A change in the average IIF in
the current period compared to an earlier period is a factor that will increase (when the average in force is higher) or reduce (when it is lower) premiums written and earned in the current period, although this effect may be enhanced (or mitigated) by differences in the average premium rate between the two periods, as well as by premiums that are returned or expected to be returned in connection with claim payments and rescissions, and premiums ceded under reinsurance agreements.transactions. Also, NIW and cancellations during a period will generally have a greater effect on premiums written and earned in subsequent periods than in the period in which these events occur.


Investment income
Our investment portfolio is composed principally of investment grade fixed income securities. The principal factors that influence investment income are the size of the portfolio and its yield. As measured by amortized cost (which excludes changes in fair value, such as from changes in interest rates), the size of the investment portfolio is mainly a function of cash generated from (or used in) operations, such as NPW, investment income,     net claim payments and expenses, and cash provided by (or used for) non-operating activities, such as debt or stock issuances or repurchases.repurchases, and dividends.



MGIC Investment Corporation 2017 Form 10-K | 59
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview (continued)



Losses incurred
Losses incurred are the current expense that reflects claim payments, cost of settling claims, and estimated payments that will ultimately be made as a result of delinquencies on insured loans. As explained under “Critical Accounting Policies” below, except in the case of a premium deficiency reserve, we recognize an estimate of this expense only for delinquent loans. The level of new delinquencies has historically followed a seasonal pattern, with new delinquencies in the first part of the year lower than new delinquencies in the latter part of the year, though this pattern can be affected by the state of the economy and local housing markets. Pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern. Losses incurred are generally affected by:


•The state of the economy, including unemployment and housing values, each of which affects the likelihood that loans will become delinquent and whether loans that are delinquent cure their delinquency.


•The product mix of the in force book, with loans having higher risk characteristics generally resulting in higher delinquencies and claims.


•The size of loans insured, with higher average loan amounts tending to increase losses incurred.


•The percentage of coverage on insured loans, with deeper average coverage tending to increase incurred losses.


•The rate at which we rescind policies or curtail claims. Our estimated loss reserves incorporate our estimates of future rescissions of policies and curtailments of claims, and reversals of rescissions and curtailments. We collectively refer to such rescissions and denials as “rescissions” and variations of this term. We call reductions to claims "curtailments."


•The distribution of claims over the life of a book. Historically, the first few years after loans are originated are a period of

MGIC Investment Corporation 2020 Form 10-K | 52
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
relatively low claims, with claims increasing substantially for several years subsequent and then declining, although persistency, the condition of the economy, including unemployment and housing prices, and other factors can affect this pattern. For example, a weak economy or housing value declines can lead to claims from older books increasing, continuing at stable levels or experiencing a lower rate of decline. See further information under “Mortgage insurance earnings and cash flow cycle” below.


•
•Losses ceded under reinsurance agreements. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.

Underwriting and other expenses
Most of our operating expenses are fixed, with some variability due to contract underwriting volume. Contract underwriting generates fee income included in “Other revenue.” Underwriting and other expenses are net of any ceding commission associated with our reinsurance agreements. See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of our reinsurance agreements.

Underwriting and other expenses

Underwriting and other expenses includes items such as employee compensation, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions associated with our QSR Transactions. Employee compensation expenses are variable due to share-based compensation, changes in benefits, and changes in headcount (which can fluctuate due to volume). See Note 9 – “Reinsurance” to our consolidated financial statements for a discussion of ceding commission on our QSR Transactions.

Interest expense
Interest expense reflects the interest associated with our consolidated outstanding debt obligations discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” below.


Other
Certain activities that we do not consider being part of our fundamental operating activities may also impact our results of operations and are described below.


Net realized investment gains (losses)
•Fixed income securities.Realized investment gains and losses are a function ofreflect the difference between the amount received on the sale of a fixed income security and the fixed income security’s cost basis, as well as any credit allowances (2020) and any "other than temporary" impairments ("OTTI")(2019) recognized in earnings. The amount received on the sale of fixed income securities is affected by the coupon rate of the security compared to the yield of comparable securities at the time of sale.



•Equity securities. Realized investment gains and losses are accounted for as a function of the periodic change in fair value.
MGIC Investment Corporation 2017 Form 10-K | 60
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview (continued)




Loss on debt extinguishment
At times, we may undertakeGains 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. Extinguishing our outstanding debt obligations early through these discretionary activities may result in losses primarily driven by the payment of consideration in excess of our carrying value.value , and the write off of unamortized debt issuance costs on the extinguished portion of the debt.


Refer to “Explanation and reconciliation of our use of Non-GAAP financial measures” below to understand how these items impact our evaluation of our core financial performance.


Mortgage insurance earnings and cash flow cycleMORTGAGE INSURANCE EARNINGS AND CASH FLOW CYCLE
In general, the majority of any underwriting profit that a book generates occurs in the early years of the book, with the largest portion of any underwriting profit realized in the first year following the year the book was written. Subsequent years of a book may result in either underwriting profit or underwriting losses. This pattern of results typically occurs because relatively few of the claimsincurred losses on delinquencies that a book will ultimately experience typically occur in the first few years of the book, when premium revenue is highest, while subsequent years are affected by declining premium revenues, as the number of insured loans decreases (primarily due to loan prepayments) and increasing losses. The typical pattern is also a function of premium rates generally resetting to lower levels after ten years. Changes in economic conditions, including those related to pandemics, including COVID-19, and other natural disasters may result in delinquencies not following the typical pattern.



MGIC Investment Corporation 20172020 Form 10-K | 6153
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
EXPLANATION AND RECONCILIATION OF OUR USE OF NON-GAAP FINANCIAL MEASURES
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms

Table of Contents




NON-GAAP FINANCIAL MEASURES
Explanation and reconciliation of our use of non-GAAP financial measures

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 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 (loss) on debt extinguishment, net impairment losses recognized in income (loss) 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 (loss) on debt extinguishment, net impairment losses recognized in income (loss), and infrequent or unusual non-operating items, where applicable and the effects of changes in our deferred tax valuation allowance.applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using aour now federal statutory income tax rate of 35%21%.
    
Adjusted net operating income (loss) per diluted shareis calculated in a manner consistent with the accounting standard regarding earnings per share, by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.


Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

(1)
Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)
Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)
Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)
Infrequent or unusual non-operating items. Our income tax expense for 2017 reflects the remeasurement of our net deferred tax assets to reflect the lower corporate income tax rate under the Tax Act. Our income tax expense also includes amounts related to our IRS dispute and is related to past transactions which are non-recurring in nature and are not part of our primary operating activities.



(1)Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles.
(2)Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt.
(3)Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions.
(4)Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities. Past adjustments in this category include our 2018 income tax expense related to our IRS dispute.

MGIC Investment Corporation 20172020 Form 10-K | 6254
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Non-GAAP (continued)


Non-GAAP reconciliations
 
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income:
 
  Years Ended December 31,
  2017 2016 2015
(in thousands) Pre-tax Tax provision (benefit) Net (after-tax) Pre-tax Tax provision (benefit) Net (after-tax) Pre-tax Tax provision (benefit) Net (after-tax)
Income before tax / Net income $784,496
 $428,735
 $355,761
 514,714
 172,197
 342,517
 487,687
 (684,313) 1,172,000
Adjustments:                  
Additional income tax provision related to the rate decrease included in the Tax Act —
 (132,999) 132,999
 —
 —
 —
 —
 —
 —
Additional income tax provision related to IRS litigation —
 (29,039) 29,039
 —
 (731) 731
 —
 (580) 580
Net realized investment gains (249) (87) (162) (8,932) (3,126) (5,806) (28,361) (9,926) (18,435)
Loss on debt extinguishment 65
 23
 42
 90,531
 31,686
 58,845
 507
 177
 330
Effect of change in deferred tax asset valuation allowance —
 —
 —
 —
 —
 —
 —
 847,810
 (847,810)
Adjusted pre-tax operating income / Adjusted net operating income $784,312
 $266,633
 $517,679
 $596,313
 $200,026
 $396,287
 $459,833
 $153,168
 $306,665
                   
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share:
                   
Weighted average diluted shares outstanding     394,766
     431,992
     468,039
Net income per diluted share     $0.95
     $0.86
     $2.60
Additional income tax provision related to the rate decrease included in the Tax Act     0.34
     —
     —
Additional income tax provision related to IRS litigation     0.07
     —
     —
Net realized investment gains     —
     (0.01)     (0.04)
Loss on debt extinguishment     —
     0.14
     —
Effect of change in deferred tax asset valuation allowance     —
     —
     (1.81)
Adjusted net operating income per diluted share     $1.36
     $0.99
     $0.75



MGIC Investment Corporation 2017and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
Non-GAAP reconciliations
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income:
Years Ended December 31,
20202019
(in thousands)Pre-taxTax Effect
Net
(after-tax)
Pre-taxTax EffectNet
(after-tax)
Income before tax / Net income$559,263 $113,170 $446,093 847,977 174,214 673,763 
Adjustments:
Net realized investment (gains) losses(13,245)(2,781)(10,464)(5,108)(1,073)(4,035)
Loss on debt extinguishment26,736 5,615 21,121 — — — 
Adjusted pre-tax operating income / Adjusted net operating income$572,754 $116,004 $456,750 $842,869 $173,141 $669,728 
Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share:
Weighted average diluted shares outstanding359,293 373,924 
Net income per diluted share$1.29 $1.85 
Net realized investment (gains) losses(0.03)(0.01)
Loss on debt extinguishment0.06 — 
Adjusted net operating income per diluted share (1)
$1.32 $1.84 



MGIC Investment Corporation 2020 Form 10-K | 6355
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
MORTGAGE INSURANCE PORTFOLIO

Management's Discussion and Analysis
MGIC Investment CorporationMORTGAGE ORIGINATIONS
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents


Mortgage Insurance Portfolio

Mortgage originations
The primary mortgage insurance market is affected by total mortgage originations and PMI's market share. Total originations are estimated to have declinedincreased in 2017 (table t.02),2020 compared with 2019, due to lower refinancinghigher refinance originations, (chart c.01).as well as higher purchase originations. Refinance originations fellincreased as a result of higherlower mortgage interest rates on average, butaverage; while continued solid housing fundamentals, such as household formations low unemployment, and low interestattractive mortgage rates supported home purchase activity. Mortgage origination estimates indicate that the decline in refinance volume offset an increase in purchase volumeoriginations, despite the increase in 2017 compared to the prior year. Mortgageunemployment. Total mortgage originations in 20182021 are forecast to decrease from 2017be down compared to 2020 estimated levels, because ofprimarily due to an additional declineexpected decrease in refinancing volume astransactions partially offset by an expected increase in purchase originations. The COVID-19 pandemic, including the related restrictions on business in many parts of the U.S., and its effect on unemployment and consumer confidence, may affect the number of purchase mortgage interest rates are anticipated to trend higher. However, purchase originations are expected to increase again which generally has a greater impact on the PMI industry as historically the industry's share is 3-4 times higher for purchase originations than refinancing originations. Competition from government mortgage insurance programs, discussed below, will also continue to impact the market share of PMI. In consideration of these factors, our 2018 NIW is expected to be slightly higher than that of 2017.

Chartc.01
mtg-20201231_g2.jpg
E - Estimated, F- Forecast
Source: GSEs and MBA estimates/forecasts as of January 2018. Amounts2021. Amounts represent the average of all sources.


PMI's market share is impacted by competition from government mortgage insurance programs and the GSEs' CRT transactions. In consideration of the expected decrease in mortgage originations and these factors, our 2021 NIW is expected to decrease from 2020.
Tablet.02 
Estimated total of PMI, FHA, USDA, and VA primary mortgage insurance(in billions) 2017 2016 2015Estimated total of PMI, FHA, USDA, and VA primary mortgage insurance
Primary mortgage insurance $719 $762 $646
(in billions)(in billions)Nine Months Ended September 30, 2020Twelve Months Ended December 31, 2019
Primary mortgage insurancePrimary mortgage insurance$978$859

Source: Inside Mortgage Finance - February 15, 2018November 13, 2020 or SEC filings. Includes HARP NIW.


Mortgage insurance industry (see tables t.03 and t.04)MORTGAGE INSURANCE INDUSTRY
We compete against five other private mortgage insurers, as well as government mortgage insurance programs, such asincluding those
offered by the FHA, VA, and USDA. We believe that we currently compete with other private mortgage insurers based on pricing, underwriting requirements, financial strength, customer relationships, name recognition, reputation, the strengthRefer to "Overview - Business Environment - Competition" for a discussion of our management team and field organization, 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. Much of the competition in the industry centers on pricing practices which, in the last few years included: (i) reductions in standard filed rates on BPMI policies, (ii) use by certain competitors of a spectrum of filed rates to allow for formulaic, risk-based pricing (commonly referred to as "black-box" pricing); and (iii) use of customized rates (discounted from published rates). These pricing practices were driven by both the implementation of the financial requirements of the PMIERs, as well as industry competition to maintain or grow market share. The result of pricing changes in 2016, in which we participated, generally decreased filed premium rates on higher-FICO score loans and increased rates oncompetitive position.


MGIC Investment Corporation 2017 Form 10-K | 64
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Mortgage Insurance Portfolio (continued)


lower-FICO score loans. We also continue to use authority set forth in our rate filings to provide customized premium rates to qualified lenders. We believe our current rates allow us to compete effectively across many FICO scores; however, there is no assurance that pricing competition will not intensify further, which could result in a decrease in our NIW and/or returns.


The FHA offers fixed premium rates across all FICO scores and often has lower monthly premium rates across lower FICO business, which are effectively cross-subsidized by higher-FICO score premium rates. As a result, we have seen, and expectPMI industry's market share through September 30, 2020 decreased compared to continue to see some lenders utilize FHA insurancethe market share for the lower-FICO score business for which we compete. However, not all lower-FICO score business is migrating to the FHA because PMI may be cancelable when FHA insurance is not, lenders valuefull year of 2019.
Estimated primary MI market share
(% of total primary MI volume)Nine Months Ended September 30, 2020Twelve Months Ended December 31, 2019
PMI43.2%44.7%
FHA24.4%28.2%
VA30.6%25.2%
USDA1.8%1.9%
Source: Inside Mortgage Finance - November 13, 2020. Includes HARP NIW.

We expect that our customer service, PMI continues to be an efficient and cost-effective alternative to the FHA for many borrowers, and some lenders perceive greater legal risks under FHA versus GSE programs. Any reduction in premium rates by the FHA that create a larger payment differential than at present could result in more business utilizing FHA mortgage insurance.

Even though the PMI industry's pricing changes raised premiums on lower-FICO score loans in 2016,market share within the PMI industry captured a greater share of the total low down payment (PMI and government programs) insured volumeincreased in 2017 and 2016,2020 when compared to 2019. For additional discussion of the respective prior year (see table t.03). In additioncompetitive landscape of the industry refer to a higher mix of purchase originations, the increases in PMI share were due in part to new 97% LTV loan offerings from lenders that sell loans to the GSEs, which provided an alternative to similar FHA loan programs for qualified borrowers, and some lenders are shifting business away from the FHA due to perceived legal risks."Overview - Business Environment - Competition."

Estimated MGIC market share
(% of total primary private MI volume)Nine Months Ended September 30, 2020Twelve Months Ended December 31, 2019
MGIC18.7%16.5%
Our market share increased in 2017 when compared to 2016. The decline in our market share in 2016 from 2015 levels was due to the overall competitive environment, and we believe the decline was principally attributable to our maintaining greater pricing discipline than certain competitors in LPMI single premium policies. We plan to continue to focus on writing new insurance that meets our risk-adjusted return thresholds across the spectrum of loans we insure and providing market-leading customer service.
 Tablet.03   
Estimated primary MI market share(% of total primary MI volume)201720162015
PMI37.6%35.4%34.0%
FHA35.6%35.5%39.3%
 VA24.1%26.6%23.9%
 USDA2.7%2.5%2.8%
Source: Inside Mortgage Finance - February 15, 2018. Includes HARP NIW.

 Tablet.04   
Estimated MGIC market share(% of total primary private MI volume)201720162015
MGIC18.3%17.8%19.9%
Source: Inside Mortgage Finance - February 15, 2018November 13, 2020 or SEC filings. Excludes HARP NIW.

NEW INSURANCE WRITTEN
NIW for 2020 continued to have what we believe are favorable risk characteristics. The following tables provide information about characteristics of our NIW.
Primary NIW by FICO score
Years Ended December 31,
(% of primary NIW)20202019
760 and greater47.1 %44.9 %
740 - 75918.2 %18.7 %
720 - 73913.3 %13.9 %
700 - 71910.3 %10.8 %
680 - 6997.3 %7.0 %
660 - 6792.1 %2.7 %
640 - 6591.1 %1.4 %
639 and less0.6 %0.6 %
Total100 %100 %


MGIC Investment Corporation 2020 Form 10-K | 56
New insurance written
MGIC Investment Corporation and Subsidiaries
From our perspective, the 2017 NIW has favorable underlying risk characteristics as weManagement's Discussion and lenders, in our view, maintained high underwriting standards, despite anAnalysis
Table of Contents | Glossary of terms and acronyms
Primary NIW by loan-to-value
Years Ended December 31,
(% of primary NIW)20202019
95.01% and above8.6 %12.9 %
90.01% to 95.00%39.1 %43.5 %
85.01% to 90.00%32.1 %29.5 %
80.01% to 85%20.2 %14.1 %
Total100 %100 %

An increase in the percentage of business with LTVs 95%refinances, discussed below, and above (see table t.06) and the GSEs underwriting requirements for DTIs became more liberal in the second half of 2017. We maintained a high percentage of monthly premium business, which is almost exclusively BPMI (see table t.07). Refinancing activity declined in 2017 compared to 2016 when it was particularly strong due to historically low mortgage interest rates that persisted for much of that year. The percentage of NIW from LTVs 95.01% and above increased due to 97% LTV programs offered by lenders, whilehome price appreciation have decreased the percentage of our NIW with LTV ratios greater than 95% in 2020 compared to 2019.
Primary NIW by debt-to-income ratio
Years Ended December 31,
(% of primary NIW)20202019
45.01% and above11.3 %13.5 %
38.01% to 45.00%30.8 %32.9 %
38.00% and below57.9 %53.6 %
Total100 %100 %

In 2020, the percentage of our NIW on loans with DTI ratios over 45% was 11.3%, down from LTVs 90.00% down to 80.01% declined13.5% in 2019. We believe the decline in 2020 was primarily due to a lower amount of refinancing originations by borrowers whose home values increased but still were required to have PMI.pricing changes associated with such loans.



Primary NIW by policy payment type
Years Ended December 31,
(% of primary NIW)20202019
Monthly premiums91.0 %84.4 %
Single premiums8.9 %15.5 %
Annual Premiums0.1 %0.1 %
MGIC Investment Corporation 2017 Form 10-K | 65
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Mortgage Insurance Portfolio (continued)
Primary NIW by type of mortgage
Years Ended December 31,
(% of primary NIW)20202019
Purchases64.3 %80.9 %
Refinances35.7 %19.1 %



 Tablet.05      
Primary NIW by FICO score  Years Ended December 31,
(% of primary NIW) 2017 2016 2015
 740 and greater 58.6% 59.1% 57.7%
 700 - 739 26.0% 25.5% 25.2%
 660 - 699 12.1% 12.3% 13.6%
 659 and less 3.3% 3.1% 3.5%
 Total 100% 100% 100%
 Tablet.06      
Loan-to-Value  Years Ended December 31,
 (% of primary NIW) 2017 2016 2015
 95.01% and above 10.7% 5.8% 4.4%
 90.01% to 95.00% 46.5% 47.8% 50.1%
 85.01% to 90.00% 29.5% 31.7% 33.1%
 80.01% to 85% 13.3% 14.7% 12.4%
 Tablet.07      
Policy payment type  Years Ended December 31,
(% of primary NIW) 2017 2016 2015
 Monthly premiums 80.8% 80.6% 79.3%
 Single premiums 19.0% 19.1% 20.4%
 Annual Premiums 0.2% 0.3% 0.3%
 Tablet.08      
Type of mortgage  Years Ended December 31,
 (% of primary NIW) 2017 2016 2015
 Purchases 88.6% 80.4% 81.3%
 Refinances 11.4% 19.6% 18.7%

IIF andAND RIF (see table t.09)
Our book of IIF grew 10.9% in 2017 due to2020, and 6.0% in 2019, as NIW growth and a 10% decline in cancellations, each when compared to the prior year.more than offset policy cancellations. Cancellation activity is primarily due to refinancing activity, but is also impacted by rescissions, cancellations due to claim payment, and policies cancelled when borrowers achieve the required amount of home equity. Refinancing activity has historically been affected by the level of mortgage interest rates and the level of home price appreciation. Cancellations generally move inversely to the change in the direction of interest rates, although they generally lag a change in direction.


Persistency
Persistency.Our persistency at December 31, 20172020 was 80.1%60.5% compared to 76.9%75.8% at December 31, 2016.2019. Since 2000, our year-end persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at December 31, 2003. With the current and expected level of mortgage interest rates we expect a low level of refinance activity and that our persistency in 2018 will be comparable to that of 2017.
Insurance in force and risk in force
Years Ended December 31,
($ in billions)20202019
NIW$112.1 $63.4 
Cancellations(87.8)(50.8)
Increase in primary IIF$24.3 $12.6 
Direct primary IIF as of December 31,$246.6 $222.3 
Direct primary RIF as of December 31,$61.8 $57.2 
 Tablet.09      
Insurance in force and risk in force  Years Ended December 31,
($ in billions) 2017 2016 2015
 NIW $49.1
 $47.9
 $43.0
 Cancellations (36.2) (40.4) (33.4)
 Increase in primary IIF $12.9
 $7.5
 $9.6
        
 Direct primary IIF as of December 31, $194.9
 $182.0
 $174.5
        
 Direct primary RIF as of December 31, $50.3
 $47.2
 $45.5



MGIC Investment Corporation 2017 Form 10-K | 66
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Mortgage Insurance Portfolio (continued)


Credit profile of our primaryCREDIT PROFILE OF OUR PRIMARY RIF(see table t.10)
The proportion of our total primary RIF written after 2008 has been steadily increasing in proportion to our total primary RIF. Our 2009 and later books possess significantly improved risk characteristics when compared to our 2005-2008 origination years. The loans we insured beginning in 2009, on average, have substantially higher FICO scores and lower LTVs than those insured in 2005-2008.books. The credit profile of our pre-2009 RIF has benefited from modification and refinance programs such as HARP.making outstanding loans more affordable to borrowers with the goal of reducing the number of foreclosures. These programs included HAMP and HARP, allowswhich expired at the end of 2016 and 2018, respectively, but have been replaced by other GSE modification programs. HARP allowed borrowers who arewere not delinquent, but who may not otherwise behave been able to refinance their loans under the current GSE underwriting standards due to, for example, the current LTV exceeding 100%, to refinance and lower their note rate. As of December 31, 2020, HARP modifications accounted for approximately 3.2% of our total primary RIF, compared to 4.6% at December 31, 2019. Loans associated with 96.8%94.1% of all our HARP modifications were current as of December 31, 2017. The aggregate of our 2009-2017 books and our HARP modifications accounted for approximately 86% of our total primary RIF at December 31, 2017.

Table t.10 presents2020. For additional information on the composition of our primary RIF see "Business - Our Products and Services"

The composition of our primary RIF by policy year as of December 31, 2017, 2016,2020 and 2015.2019 is shown below:

Primary risk in force
($ in millions)December 31, 2020December 31, 2019
2004 and prior635760
2005 - 20085,0436,352
2009 and later56,13450,101
Total61,81257,213

 Tablet.10         
Primary risk in force  December 31, 2017 December 31, 2016 December 31, 2015
($ in billions) RIF% of RIF RIF% of RIF RIF% of RIF
 2009+ $39,248
78% $33,368
71% $28,339
62%
 2005 - 2008 (HARP) 3,773
7% 4,489
9% 5,237
12%
 Other years (HARP) 308
1% 396
1% 509
1%
 Subtotal 43,330
86% 38,253
81% 34,085
75%
 Other years (Non-HARP) 1,095
2% 1,475
3% 1,933
4%
 2005- 2008 (Non-HARP) 5,894
12% 7,467
16% 9,444
21%
 Subtotal 6,989
14% 8,942
19% 11,377
25%
 Total Primary RIF $50,319
100% $47,195
100% $45,462
100%


MGIC Investment Corporation 2020 Form 10-K | 57
Pool
MGIC Investment Corporation and other insuranceSubsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
POOL AND OTHER INSURANCE
MGIC has written no new pool insurance since 2008, however, for a variety of reasons, including responding to capital market alternatives to private mortgage insurance and customer demands, MGIC may write pool risk in the future. Our direct pool RIF was $471$340 million ($236210 million on pool policies with aggregate loss limits and $235$130 million on pool policies without aggregate loss limits) at December 31, 20172020 compared to $547$376 million ($244213 million on pool policies with aggregate loss limits and $303$163 million on pool policies without aggregate loss limits) at December 31, 2016.2019. If claim payments associated with a specific pool reach the aggregate loss limit, the remaining IIF within the pool would be cancelled and any remaining defaults under the pool would be removed from our default inventory.


In connection with the second halfGSEs' CRT programs, an insurance subsidiary of 2016 we participated in GSEMGIC provides insurance and reinsurance covering portions of the credit risk transfer transactions through an affiliaterelated to certain reference pools of MGIC. Each GSE launched a new credit risk transfer offering that involved credit insurance policies with a pool structure that primarily covered loansmortgages acquired by the GSEs. Our RIF, as reported to be deliveredus, related to the GSE in the future. The policies provide additional coverage beyond primary mortgage insurance on 30-year fixed-rate mortgages with 80.01-95% LTVs. These transactions were immaterial to our financial statements in 2017these programs was approximately $287 million and 2016$182 million as of December 31, 2020 and given the risk insured, are expected to remain immaterial to our financial statements in future periods. We did not enter into any GSE credit risk transfer transactions during 2017 and any future participation will need to be evaluated based upon the terms offered and expected returns.December 31, 2019, respectively.



MGIC Investment Corporation 20172020 Form 10-K | 6758
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
CONSOLIDATED RESULTS OF OPERATIONS

Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents



Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of our Consolidated Results of Operations for the three-yeartwo-year period ended December 31, 2017.2020. For a discussion of the Critical Accounting Policies used by us that affect the Consolidated Results of Operations, see "Critical Accounting Policies" below.


Revenues
Revenues
Year Ended December 31,
(In millions)20202019
Net premiums written$928.7 $1,001.3 
Net premiums earned$1,021.9 $1,031.0 
Investment income, net of expenses154.4 167.0 
Net realized investment (losses) gains13.8 5.3 
Other revenue9.1 10.6 
Total revenues$1,199.1 $1,214.0 
        
Revenues  Year Ended December 31,
 (in millions) 2017 2016 2015
 Net premiums written $998.0
 $975.1
 $1,020.3
        
 Net premiums earned $934.7
 $925.2
 $896.2
 Investment income, net of expenses 120.9
 110.7
 103.7
 Net realized investment gains 0.2
 8.9
 28.4
 Other revenue 10.2
 17.7
 13.0
 Total revenues $1,066.0
 $1,062.5
 $1,041.3


NET PREMIUMS WRITTEN AND EARNED
Net premiums writtenNPW and earned
2017NPE decreased 7% and 1%, respectively, compared to 2016. NPW increased 2% from the prior year, primarily due to a declinelower premium rates on our IIF and an increase in premium refunds and lowerour reduction for ceded premiums due to a higher profit commission. Premium refunds declined and ourthe decrease in profit commission increased due to lowerfrom our QSR transactions. The decrease in profit commission was a result of higher ceded losses incurred. This was partially offset by higher average insurance. NPE increased slightly from the prior year due to a decline in premium refunds and lower ceded premiums, which offset lower premiums from our IIF during the year as our premium yield (discussed below) decreased.

2016 compared to 2015.NPW decreased 4% from the prior year primarily because ceded premiums were lower in 2015 due to the commutation of our 2013 QSR Transaction in the third quarter of 2015, which was a non-recurring transaction. As part of the commutation, unearned ceded premiums were remitted back to us from the reinsurers, and we returned the related ceding commissions, which had the effect of increasing our profit commission. Partially offsetting the higher 2016 ceded premiums wasalso impacted by an increase in new business premiums in 2016 and a reduction in premium refunds due to lower claim activity.

NPE increased 3% in 2016 compared to 2015 reflecting higher earnedaccelerated premiums from single premium policies and lower premium refunds. The increase in earned premiums on single premium policies was driven by refinance activity as single premium policies are generally non-refundable. The decrease in premium refunds was due to lower claim activity. The increase in net premiums earned was offset in part by the effects of our 2013 QSR Transaction commutation in 2015, which resulted in a non-recurring increase in our profit commission.policy cancellations.

See "Overview – Factors Affecting Our Results" above for additional factors that also influence the amount of net premiums written and earned in a year.



MGIC Investment Corporation 2017 Form 10-K | 68
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)



Premium yield
Premium yield is NPE divided by average IIF during the year and is influenced by a number of key drivers, which have a varying impact from period to period. Table t.11 reconciles the change inThe following table provides information related to our premium yield for 2020, and 2019.
Premium Yield
Year Ended December 31,
(in basis points)20202019
In force portfolio yield(1)46.7 51.4 
Premium refunds(0.5)(0.5)
Accelerated earnings on single premium policies5.0 2.6 
Total direct premium yield51.2 53.5 
Ceded premiums earned, net of profit commission and assumed premiums(2)(7.6)(5.8)
Net premium yield43.6 47.7 

(1) Total direct premiums earned, excluding premium refunds and accelerated premiums from single premium policy cancellations divided by average primary insurance in force.
(2) Assumed premiums include those from our participation in GSE CRT programs, of which the years ended 2017impact on the net premium yield was 0.5 bps in 2020 and 2016 from0.2 bps in 2019

Changes in our premium yields when compared to the respective prior years.
 Tablet.11    
Premium yield(in basis points) 2017 2016
 Premium yield - prior year 51.9
 52.8
 Reconciliation:    
 Change in premium rates (3.8) (3.0)
 Change in premium refunds and accruals 1.3
 2.6
 Single premium policy persistency (0.6) 1.0
 Reinsurance 0.8
 (1.5)
 Premium yield - end of year 49.6
 51.9

Change in premium rates
Changing premium rates decreased our premium yield in 2017 and 2016 primarily due toyear periods reflect the following factors.following:
The books we wrote in 2009 and after have a lower average premium rate than prior books due to several factors, including, lower risk characteristics.
The monthly premium program used for the substantial majority of loans we insured provides for a set premium rate for the first ten years of the policy and a lower premium rate thereafter. The initial ten-year period is reset when the loan is refinanced under HARP. As of December 31, 2017, approximately 1% of our total primary IIF was written in 2008, has not been refinanced under HARP, and is subject to a rate reset beginning in 2018.

2017 compared to 2016. The reduction in our 2017 premium yield compared to 2016 was primarily due to the increase in the percentage of our IIF that was written in 2009 and after to 79% as of December 31, 2017 from 72% as of December 31, 2016. In addition, as of December 31, 2016 approximately 4% of our total IIF was written in 2007 and was subject to premium rate resets in 2017, which resulted in a reduction in our premium yield. Our 2017 premium yield also reflects the full-year impact of IIF written in 2006 that was subject to premium rate resets during 2016.

2016 compared to 2015. The reduction in our 2016 premium yield compared to 2015 was primarily due to the increase in the percentage of our IIF that was written in 2009 and after to 72% as of December 31, 2016 from 63% as of December 31, 2015. In addition, as of December 31, 2015, approximately 2% of our total IIF was written in 2006 and was subject to premium rate resets in 2016, which resulted in a reduction in our premium yield. Our 2016 premium yield also reflects the full-year impact of IIF written in 2005 that was subject to premium rate resets during 2015.

Change in premium refunds and premium refund accruals (excluding most single premium policies)
Premium refunds upon claim payment or rescission decrease our premium yield. Generally, the level of premiums we refund and our premium refund accrual are highly variable from period to period.
–When a policy is cancelled for a reason other than rescission or claim payment, all premium that is non-refundable is immediately earned and any refundable premium from the cancellation date is returned to the servicer or borrower. Non-refundable premium, primarily associated with our single premium policies, is discussed below.
–When a policy is rescinded, all previously collected premium is returned to the servicer. When a policy is cancelled due to claim payment, we return any premium received since the date of default.

2017 compared to 2016. Our losses incurred, net declined in 2017 from 2016 levels resulting in lower amounts of premium refunds, and our lower estimated claim rate is a factor in estimating premiums to be refunded in future periods. Refer to Note 8 - "Loss Reserves" in our consolidated financial statements for the


MGIC Investment Corporation 2017 Form 10-K | 69
Management's Discussion and AnalysisIn force Portfolio Yield
MGIC Investment Corporationè
2017 Form 10-K
A larger percentage of our IIF is from book years with lower premium rates due to a decline in premium rates in recent years resulting from pricing competition, insuring mortgages with lower risk characteristics, lower required capital, certain policies undergoing premium rate resets on their ten-year anniversaries, and the availability of reinsurance.
Consolidated ResultsPremium Refunds
è

Premium refunds adversely impact our premium yield and are primarily driven by claim activity and our estimate of Operations (continued)refundable premiums on our delinquent inventory.
Accelerated earnings on single premium policies
è

Greater amounts of accelerated earned premium from cancellation of single premium policies prior to their estimated policy life, primarily due to increased refinancing activity.
Ceded premiums earned, net of profit commission and assumed premiums
è

Ceded premiums earned, net of profit commission adversely impact our premium yield. Ceded premium earned, net of profit commission, were primarily associated with QSR Transactions and Home Re Transactions. Assumed premiums consists primarily of premiums from GSE CRT programs. See "Reinsurance Agreements" below for further discussion on our reinsurance transactions.



amount we had accrued forAs discussed in our estimate of premiums to be refunded on expected claim payments as of December 31, 2017Risk Factor titled "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 2016, respectively.

2016 compared to 2015. Our net losses and LAE paid and ending delinquent inventory bothpremium rates have declined in 2016 from 2015 levels resulting in less premium being refunded and reducing the amount we estimated to be refunded in future periods.

Single premium policy persistency
Generally, the premium on a single premium policy is not refundable and is earned over the estimated policy life. Therefore, if persistency is less than was assumed when the policy was written, the effective premiumpast several years. We expect that our inforce portfolio yield will increase.

2017 comparedcontinue to 2016. The effect of cancellations of singledecline as older insurance policies with higher premium rates run off or have their premium rates reset, and new insurance policies prior to the completion of their estimated policy life onwith lower premium rates are written. While our earned premiums was approximately $9 million less in 2017 than 2016. Cancellation activity in 2016 was elevated as historically low mortgage interest rates led to high refinancing activity.

2016 compared to 2015. The effect of cancellations of single premium policies prior to the completion of their estimated policy life on our earned premiums was approximately $19 million more in 2016 than 2015. Cancellation activity in 2016 was elevated as historically low mortgage interest rates led to high refinancing activity.

Reinsurance
Theincreased use of reinsurance lowersover the past several years has helped to mitigate the negative effect of declining premium rates on our premium yield, however the magnitudereturns, refer to our risk factor titled "Reinsurance may not always be available or affordable" for a discussion of the impact varies from period to period due torisks associated with the following considerations.
–The amount of our IIF covered by reinsurance affects the amount of premiums and losses incurred that are subject to the 30% cede rate. We cede premiums earned and received, which are reduced by a profit commission that varies by the level of losses we cede.

availability of reinsurance.
2017 compared to 2016. The adverse impact
See "Overview – Factors Affecting Our Results" above for additional factors that also influence the amount of reinsurance to our premium yield in 2017 was 0.8 basis points less than in 2016, as our average IIF during the year increased by a higher percentage than the increase innet premiums ceded, before considering our profit commission. In addition, our profit commission increased in 2017 compared to 2016 due to a lower level of ceded losses incurred, thereby resultingwritten and earned in a lower amountyear.


MGIC Investment Corporation 2020 Form 10-K | 59
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of earned premiums ceded on a net basis.Contents | Glossary of terms and acronyms

REINSURANCE AGREEMENTS
2016 compared to 2015. The adverse impact ofQuota share reinsurance to our premium yield in 2016 was 1.5 basis points more than in 2015, which was in part due the commutation of our 2013 QSR Transaction in 2015 that resulted in a non-recurring increase in our profit commission and in turn reduced ceded premiums.

Our reinsurance affects premiums, underwriting expenses and losses incurred and should be analyzed by reviewing its total effect on our statements of operations, as discussed below under “Reinsurance agreements.”

Reinsurance agreements
Our quota share reinsurance affects various lines of our statements of operations and therefore we believe it should be analyzed by reviewing its effect on our pre-tax net income, as described below.

We cede a fixed percentage of premiums earned and received on insurance covered by the agreement.
We receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies directly and inversely with the level of losses on a "dollar for dollar" basis and is eliminated at levels of losses that we do not expect to occur. This means that lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and a lower profit commission (or for levels of losses we do not expect, its elimination).


MGIC Investment Corporation 2017 Form 10-K | 70
Management's DiscussionèWe cede a fixed percentage of premiums earned and Analysisreceived on insurance covered by the agreements.
MGIC Investment Corporation
2017 Form 10-K
è		We receive the benefit of a profit commission through a reduction in the premiums we cede. The profit commission varies inversely with the level of losses on a "dollar for dollar" basis and can be eliminated at loss levels higher than we are currently experiencing. As a result, lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of ceded losses result in more benefit from ceded losses and a lower profit commission (or for certain levels of losses of accident year loss ratios, its elimination).
Consolidated ResultsèWe receive the benefit of Operations (continued)a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
èWe cede a fixed percentage of losses incurred on insurance covered by the agreements.



We receive the benefit of a ceding commission through a reduction in underwriting expenses equal to 20% of premiums ceded (before the effect of the profit commission).
We cede a fixed percentage of losses incurred on insurance covered by the agreement.

Table t.12 belowThe following table provides information related to our quota share reinsurance agreements for 2017, 2016,2020 and 2015.2019.

Quota share reinsuranceQuota share reinsurance
As of and For the Years Ended December 31,
(Dollars in thousands)(Dollars in thousands)20202019
Statements of operations:Statements of operations:
Ceded premiums written and earned, net of profit commissionCeded premiums written and earned, net of profit commission$167,930 $111,550 
% of direct premiums written% of direct premiums written15 %11 %
% of direct premiums earned% of direct premiums earned14 %11 %
Profit commissionProfit commission$72,452 $139,179 
Ceding commissionsCeding commissions$48,077 $48,793 
Ceded losses incurredCeded losses incurred$78,012 $11,395 
Tablet.12       
Quota Share Reinsurance  As of and For the Years Ended December 31, 
(Dollars in thousands) 2017 2016 2015 
NIW subject to quota share reinsurance agreements 84% 89% 91% 
IIF subject to quota share reinsurance agreements 78% 76% 73% 
        
Statements of operations:       
Ceded premiums written, net of profit commission $120,974
 $125,460
 $41,233
(1) 
% of direct premiums written 11% 11% 4% 
Ceded premiums earned, net of profit commission $120,974
 $125,460
 $88,587
(1) 
% of direct premiums earned 11% 12% 9% 
Profit commission $125,629
 $112,685
 $112,847
(1) 
Ceding commissions $49,321
 $47,629
 $30,816
(1) 
Ceded losses incurred $22,336
 $30,201
 $17,484
(1) 
        
Mortgage insurance portfolio:       
Ceded RIF (in millions)
 $11,849
 $10,764
 $9,887
 
        

(1) 
As discussed in Note 9 - "Reinsurance" to our consolidated financial statements, the 2013 QSR Transaction was commuted on July 1, 2015 and replaced with our 2015 QSR Transaction, which increased the IIF and corresponding RIF covered by reinsurance. Premiums are ceded on an earned and received basis under the 2015 QSR Transaction.
Mortgage insurance portfolio:Mortgage insurance portfolio:
Ceded RIF (in millions)Ceded RIF (in millions)$14,006 $11,360 
2015 QSR2015 QSR$1,625 $2,657 
2017 QSR2017 QSR$1,330 $2,297 
2018 QSR2018 QSR$1,333 $2,389 
2019 QSR2019 QSR$2,779 $4,017 
2020 QSR2020 QSR$6,169 $— 
Credit Union QSRCredit Union QSR$770 $— 


Covered Risk
The amount of our NIW, new risk written, IIF, and RIF subject to our QSR Transactions variesas shown in the following table will vary from period to period in part due to loan level exclusion terms. For example, our 2017 QSR Transaction excludes NIW with amortization terms of 20 years or less, but allows higher limits of DTI and loan levels than our 2015 QSR Transaction. In addition, the QSR Transactions contain coverage thresholds that may be triggered depending on the mix of our risk written during the period.
Quota share reinsurance
As of and For the Years Ended December 31,
20202019
NIW subject to QSR Transactions74.4 %81.5 %
New Risk Written subject to QSR Transactions85.5 %89.5 %
IIF subject to QSR Transactions75.9 %78.5 %
RIF subject to QSR Transactions81.8 %81.4 %

The numberNIW subject to quota share reinsurance decreased in 2020 compared to 2019 due to an increase in NIW with LTVs less than or equal to 85% and amortization terms less than or equal to 20 years, which are excluded from the QSR Transactions.

We terminated a portion of loans we insured with DTIs greater than 45% increased inour 2015 QSR Transaction effective June 30, 2019, paid a termination fee of $6.8 million, and entered into an amended quota share reinsurance agreement that effectively reduces the second half of 2017 afterquota share cede rate from 30% to 15% on the requirementsremaining eligible insurance. The lower cede rate reduced our ceded RIF but does not impact our determination of the GSE underwriting guidelines were made more liberal. The risk written on those loansamount of IIF subject to quota share reinsurance agreements.

2021 and 2022 QSR Transaction. We have agreed to terms with DTIs greater than 45% exceeded the coverage limit undera group of unaffiliated reinsurers for reinsurance transactions with similar structures to our 2017existing QSR Transaction resulting in the percentage of NIW covered in 2017 to decline from the prior year.

The effects of our QSR Transactions described and presented above result in a net pre-tax cost of the reinsurance, with respect to a covered loan, of 6% (but can be lower if losses are materially higher than we expect). This cost is derived by dividing the reduction in our pre-tax net income from such loans with reinsurance by our direct (that is, without reinsurance) premiums from such loans. Although the net cost of the reinsurance is generally constant at 6%, the effect of the reinsurance on the various components of pre-tax income discussed abovetransactions that will vary from period to period, depending on the level of ceded losses. Although the use of reinsurance reduces our pre-tax net income, we receive credit under the PMIERs for risk ceded under our 2017 and 2015 QSR Transactions, which mitigates the negative effect of the PMIERs on our returns.

2018 QSR Transaction
We expect that in the first quarter of 2018, we will enter into an agreement coveringcover most of our NIW in 2018,2021 (with an additional 12.5% quota share) and 2022 (with a 15% quota share). This is in addition to the reinsurance agreements executed in 2020 that included a 17.5% quota share on terms no less favorable than our existing QSR transactions. Compared to our 2017eligible 2021 NIW and the Credit Union QSR Transaction that covers NIW on loans originated by credit unions with a 65% quota share.

Excess of loss reinsurance
Our excess-of-loss reinsurance agreements provide $839.4 million of loss coverage on an existing portfolio of in force policies having an in force dates from July 1, 2016 through March 31, 2019 and January 1, 2020 through July 31, 2020. As of December 31, 2020, the proposed 2018 QSR Transaction increasesaggregate exposed principal balances under the Home Re 2018-1, 2019-1, and 2020-1 transactions were approximately $3.5 billion, $3.3 billion, and $8.7 billion, respectively, which take into account the mortgage insurance coverage percentage, net retained risk after quota share reinsurance, and the reinsurance inclusion percentage of NIW with the following loan level characteristics subject to coverage: (1) LTV ratiosunpaid principal balance. Total ceded premiums for 2020 and 2019 were $20.8 million and $17.6 million, respectively.

In October 2020, MGIC entered into an excess-of-loss agreement (executed through an insurance linked notes transaction) on a portfolio of 95% and greater, and (2) DTIs greater than 45%; however, the 2018 QSR Transaction excludes all NIW with LTV ratiospolicies having in force dates from January 1, 2020 through July 31, 2020.

In February 2021, MGIC entered into $398.8 excess of 85% and below. See Note 9 - "Reinsurance" to our consolidated financial statement for additional discussionloss agreement (executed through an insurance linked notes transaction) on the termsa portfolio of our proposed transaction. The GSEs have approved the terms of our proposed 2018 QSR Transaction.policies having in force dates from August 1, 2020 through December 31, 2020.





MGIC Investment Corporation 20172020 Form 10-K | 7160
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


In addition toA "Trigger Event" has occurred on for each our outstanding ILN transactions. On the 2018 and 2019 ILN transactions a “Trigger Event” has occurred because the reinsured principal balance of loans that were reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has occurred on our 2020 ILN transaction because the credit enhancement of the most senior tranche is less than the target credit enhancement. While the “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage on NIW having DTIs 45% and greater, effective for March 2018, we increasedavailable to MGIC under the credit score required in connection with loans that have a DTI greater than 45%.transactions will not be reduced by such principal payments.


Table t.13 below provides information related to our captive reinsurance agreements for 2017, 2016, and 2015.INVESTMENT INCOME, NET
 Tablet.13       
Captive Reinsurance  As of and For the Years Ended December 31, 
(Dollars in thousands) 2017 2016 2015 
 IIF subject to captive reinsurance agreements 1% 2% 3% 
         
 Statements of operations:       
 Ceded premiums written $4,467
 $7,987
 $13,547
 
 % of direct premiums written 0.4% 0.7% 1.3% 
 Ceded premiums earned $4,476
 $8,090
 $13,650
 
 % of direct premiums earned 0.4% 0.8% 1.4% 
 Ceded losses incurred $(1,135) $3,994
 $10,187
 

Investment income
2017 compared to 2016.Net investment income increased 9%decreased 8% to $121$154 million in 20172020 compared to $111$167 million in 2016.2019. The increasedecrease in investment income was due to higher averagelower investment yields, as well as a higher averagepartially offset by an increase in the investment portfolio balance.


2016 compared to 2015.Net investment income increased 7% to $111 million in 2016 compared to $104 million in 2015. The increase in investment income was due to higher average investment yields.

See "Balance Sheet Analysis"Review" in this MD&A for further discussion regarding our investment portfolio.


Net realized investment gainsNET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) in 20172020 and 2019 were immaterial to our consolidated financial results. Net$14 million and $5 million, respectively. The increase in net realized investment gains were $9 million in 2016 and $28 million in 2015. The net realized gains in 2015 reflect security sales primarily from our fixed income portfolio to realize gains under favorable market conditions.

Chart c.02 below shows the net unrealized gains (losses) position of our investment portfolio as of December 31, 2017, 2016, and 2015.
Chartc.02

The net unrealized gains (losses) position of our investments as of December 31, 2017, 2016, 2015 was primarily caused by changes in interest rates between the time of purchase and the respective year end. See Note 5 - "Investments" for additional information on our investment portfolio.




MGIC Investment Corporation 2017 Form 10-K | 72
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)


Other revenue
2017 compared to 2016.Other revenue decreased to $10M in 2017 from $18M in 2016, due to lower contract underwriting revenues and a non-recurring gain in 2016 of approximately $4 million related to changes in foreign currency exchange rates upon our substantial liquidation of our Australian operations.

2016 compared to 2015.Other revenue increased to $18M in 2016 from $13 million in 2015 primarily due to the substantial liquidation of our Australian operations for which we recognized approximately $4 million of gains related to changes in foreign currency exchange rates in 2016. Other revenue also increased compared to the prior year due to an increase in contract underwriting fees attributablethe sale of fixed income and equity securities.

OTHER REVENUE
Other revenue decreased to higher mortgage origination volumes.$9 million in 2020 from $11 million in 2019.



Losses and expenses
Losses and expenses
Year Ended December 31,
(In millions)20202019
Losses incurred, net$364.8 $118.6 
Amortization of deferred policy acquisition costs12.4 12.0 
Other underwriting and operating expenses, net176.4 182.8 
Interest expense59.6 52.7 
Loss on debt extinguishment26.7 — 
Total losses and expenses$639.9 $366.0 
         
Losses and expenses  Year Ended December 31,
(in millions) 2017 2016 2015
 Losses incurred, net $53.7
 $240.2
 $343.5
 Change in premium deficiency reserve —
 —
 (23.8)
 Amortization of deferred policy acquisition costs 11.1
 9.6
 8.8
 Other underwriting and operating expenses, net 159.6
 150.8
 155.6
 Interest expense 57.0
 56.7
 68.9
 Loss on debt extinguishment 0.1
 90.5
 0.5
 Total losses and expenses $281.5
 $547.8
 $553.6


Losses incurred, netLOSSES INCURRED, NET
As discussed in “Critical Accounting Policies” below and consistent with industry practices, we establish case loss reserves for future claims only foron delinquent loans that are currently delinquent. The terms “delinquent” and “default” are used interchangeably by us. We consider a loan delinquent when it iswere reported to us as two or more payments past due. Lossdue and have not become current or resulted in a claim payment. Such loans are referred to as being in our delinquency inventory. Case loss reserves are established based on estimating the number of loans in our defaultdelinquent inventory that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.


IBNR reserves are established for delinquencies estimated to have occurred prior to the close of an accounting period, but not yet reported to us. IBNR reserves are established using estimated delinquencies, claim rates and claim severities.

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets. 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 borrower 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, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance. 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. Changes in economic circumstances, including those associated with the COVID-19 pandemic affected this pattern in 2020.

As discussed in our Risk Factor titled “The Covid-19 pandemic may continue to materially impact our financial results and may also materially impact our business, liquidity and financial condition" the impact of the COVID-19 pandemic on our future incurred losses is uncertain and may be material. As discussed in our risk factor titled “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” if we have not received a notice of delinquency with respect to a loan and if we have not estimated the loan to be delinquent as of December 31, 2020 and recorded an IBNR reserve, then we have not yet recorded an incurred loss with respect to that loan.

Our estimates are also affected by any agreements we enter into regarding our claims paying practices such as the settlement agreements discussed in Note 17 – “Litigation and Contingencies” to our consolidated financial statements. Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment.


2017 compared to 2016.Losses incurred, net decreased 78%increased to $54$365 million compared to $240$119 million in 2016.2019. The decreaseincrease was primarily due to both a decrease in losses and LAE incurred in respect to delinquencies reportedan increase in the current year and favorable development on prior year delinquencies. Losses incurred with respectdelinquency inventory due to delinquencies reportedthe impacts of the COVID-19 pandemic, including unemployment resulting from initiatives intended to reduce the transmission of COVID-19. There were 57,710 loans in the current year declined as we estimated a lower claim rate on new notices in the current year, which offset the slight increase in new notices received.our delinquency inventory at December 31, 2020 compared to 30,028 at December 31, 2019. The increase in newlosses incurred, net was also due to adverse loss reserve development on previously received delinquencies of $20 million in 2020 compared to favorable development of $71 million in 2019.




MGIC Investment Corporation 20172020 Form 10-K | 7361
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


notices was caused by hurricane activity in the third quarter of 2017. Favorable development on prior year delinquencies occurred in 2017 and 2016 due to a lower estimated claim rate on previously reported delinquencies, partially offset by increases in our expected severity assumption on previously reported delinquencies. During 2017, cure activity on loans that were delinquent twelve months or more was significantly higher than our previous estimates.

2016 compared to 2015. Losses incurred, net decreased 30% to $240 million compared to $344 million in 2015. The decrease was due both to a decrease in losses and LAE incurred in respect to delinquencies reported in the current year and favorable development on prior year delinquencies. Current year losses declined due to a 9% reduction in new notices received and a lower estimated claim rate on those notices. Favorable development on prior year delinquencies occurred in 2016 and 2015 due to a lower estimated claim rate on previously reported delinquencies, partially offset by increases in our expected severity assumption on previously reported delinquencies. In 2015, the amount of development was also favorably impacted by $21 million due to re-estimation of previously recorded reserves related to disputes on our claims paying practices and IBNR, partially offset by increases in our expected severity assumption on previously reported delinquencies.

See "Claim"New notice claim rate" and "Claims severity" below for additional factors and trends that impact these loss reserve assumptions.
Composition of losses incurred
Year Ended December 31,
(In millions)20202019
Current year / New notices$345 $190 
Prior year reserve development20 (71)
Losses incurred, net$365 $119 
 Tablet.14      
Composition of losses incurred  Year Ended December 31,
(in millions) 2017 2016 2015
 Current year / New notices $285
 $388
 $454
 Prior year reserve development (231) (148) (110)
 Losses incurred, net $54
 $240
 $344


Loss ratio(see chart c.03)
The loss ratio is the ratio, expressed as a percentage, of the sum of incurred losses and LAE, net to net premiums earned. The declineincrease in the loss ratio in 20172020 when compared to 2016, and2019 was primarily due to an increase in 2016 when compared to 2015 reflects the lower level of losses incurred net.discussed above.
Year Ended December 31,
20202019
Loss ratio35.7 %11.5 %
Chartc.03


New notice claim rate(see chart c.04)
YTD 2017: ~10.0%We received an increased number of new delinquency notices in 2020 compared to YTD 2016: ~12.5%2019, as a result of the COVID-19 pandemic and its related effects (including higher unemployment and the widespread introduction of loan forbearance plans as a mechanism for economic relief). The estimated claim rate on new noticesdecrease in each quarter of 2017 was lower than the comparable period of the prior year which reflects the current economic environment and our expectation of cure activity on the notices received. We also estimated a materially lowerweighted average new notice claim rate for those notices received in2020 to 7% from 8% at December 31, 2019 is primarily due to the fourth quarter of 2017 that we estimated to have been caused by hurricane activity that occurred in the third quarter of 2017. When excluding our estimatepercentage of new notices causedof delinquency reported to as being in a COVID-19 related forbearance plan. As of December 31, 2020, 62% of our delinquency inventory were in such plans.

Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. Forbearance information is based on the most recent information provided by hurricanes, our new notice claim rate was approximately 10.5%.the GSEs, as well as loan servicers, and we believe substantially all represent forbearances related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current.




MGIC Investment Corporation 20172020 Form 10-K | 7462
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

The table below presents our new notices, delinquency inventory, and the average missed payment of the delinquency inventory by policy year.
New notices and delinquency inventory during the period
December 31, 2020
Policy YearNew Notices in 2020Delinquency Inventory as of 12/31/20% of Delinquency Inventory in ForbearanceAvg. Number of Missed Payments of Delinquency Inventory
2004 and prior6,079 3,885 24.1 %16
2005-200826,838 17,084 38.0 %14
2009-201513,513 6,917 66.1 %8
20169,497 4,599 75.9 %7
201713,139 6,746 76.8 %7
201815,040 7,468 79.4 %7
201916,904 7,929 84.1 %6
20205,089 3,082 84.8 %5
Total106,099 57,710 62.2 %10
Claim rate on new notices (1)
7.0 %
December 31, 2019
Policy YearNew Notices in 2019Inventory as of 12/31/19Avg. Number of Missed Payments of Delinquency Inventory
2004 and prior7,742 4,686 16
2005-200826,510 16,275 14
2009-20157,776 3,647 7
20163,700 1,578 6
20174,486 1,989 5
20183,374 1,521 4
2019651 332 3
Total54,239 30,028 12
Claim rate on new notices (1)
8.0 %
(1) - Claim rate is the respective full year weighted average rate and is rounded to the nearest whole percent.

Claims severity
Factors that impact claim severity include:
Management's Discussion and Analysisèeconomic conditions at that time, including home prices compared to home prices at the time of placement of coverage
MGIC Investment Corporation
2017 Form 10-K
è		exposure on the loan, which is the unpaid principal balance of the loan times our insurance coverage percentage,
Consolidated Resultsèlength of Operations (continued)


YTD 2016: ~12.5% compared to YTD 2015: ~13.0%. The estimated claim rate on new notices in 2016 declined, which reflected the economic environment at the time and our expectation of cure activity on the notices received.

The increase in new notices in 2017 compared to 2016 was driven by hurricane activity in the third quarter of 2017.
time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer period between default and claim filing generally increasing severity), and
è
Chartc.04curtailments.
(1)
Claim rate is the respective full year weighted average rate and is rounded to nearest whole percent.


New notice activity continues to be primarily driven by loans insured in 2008 and prior, which continue to experience a cycle whereby many loans become delinquent, cure, and become delinquent again (see chart c.05). As a result of this cycle significant judgment is required in establishing the estimated claim rate.

Chartc.05

Claims severity (see table t.15)
Factors that impact claim severity include the exposure on the loan (the unpaid principal balance of the loan times our insurance coverage percentage), the amount of time between delinquency and claim filing (which impacts the amount of interest and expenses, with a longer period between default and claim filing generally increasing severity) and curtailments. As discussed in Note 8 - "Loss Reserves," the average time for servicers to process foreclosures, prior to 2020, has recently shortened. Therefore, we expectbeen decreasing. In light of the uncertainty caused by the COVID-19 pandemic, the average number of missed payments at the time a claim is received and expected to be approximately 18 to 24 for new notices received compared to an average of 35 missed payments for claims receivedwill increase in recent periods.2021. Our loss reserves estimates take into consideration trends over time, because the development of the delinquencies may vary from period to period without establishing a meaningful trend.



MGIC Investment Corporation 2017 Form 10-K | 75
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)



The majority of loans from 2005 through 2008 (which represent 62%30% of the loans in the delinquent inventory) are covered by master policy terms that, except under certain circumstances, do not limit the number of years that an insured can include interest when filing a claim. Under our current master policy terms, an insured can include accumulated interest when filing a claim only for the first three years the loan is delinquent. In each case, the insured must comply with theirits obligations under the terms of the applicable master policy.


MGIC Investment Corporation 2020 Form 10-K | 63
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
The quarterly trend in claims severity for each of the three years in the period ended December 31, 2020 is shown in the following table.
Claims severity trend
PeriodAverage exposure on claim paidAverage claim paid% Paid to exposureAverage number of missed payments at claim received date
Q4 2020$48,321 $40,412 83.6 %$32 
Q3 202047,780 40,600 85.0 %27 
Q2 202044,905 42,915 95.6 %32 
Q1 202046,247 47,222 102.1 %33 
Q4 201946,076 46,302 100.5 %34 
Q3 201942,821 44,388 103.7 %35 
Q2 201946,950 46,883 99.9 %34 
Q1 201942,277 43,930 103.9 %35 
Q4 201845,366 47,980 105.8 %35 
Q3 201843,290 47,230 109.1 %35 
Q2 201844,522 50,175 112.7 %38 
Q1 201845,597 51,069 112.0 %38 
Note: Table excludes material settlements. Settlements include amounts paid in settlement of disputes for claims paying practices and/or commutations of policies.

The foreclosure moratoriums and forbearance plans in place under GSE initiatives have and may continue to delay the receipt of claims. Claims that were resolved after the first quarter of 2020 experienced an increase in loss mitigation activities, primarily third party acquisitions (sometimes referred to as “short sales”), resulting in a decrease in the average claim paid and the average claim paid as a percentage of exposure. As foreclosure moratoriums and forbearance plans end, we expect to see an increase in claims received and claims paid at exposure levels above those experienced prior to the second quarter of 2020. The magnitude and timing of the increases are uncertain.

In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of December 31, 2020, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $16 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $34 million.

 Table t.15      
Claims severity trendPeriod Average exposure on claim paid Average claim paid % Paid to exposure Average number of missed payments at claim received date
 Q4 2017 $44,437
 $49,177
 110.7% 36
 Q3 2017 43,313
 46,389
 107.1% 35
 Q2 2017 44,747
 49,105
 109.7% 35
 Q1 2017 44,238
 49,110
 111.0% 35
          
 Q4 2016 43,200
 48,297
 111.8% 35
 Q3 2016 43,747
 48,050
 109.8% 34
 Q2 2016 43,709
 47,953
 109.7% 35
 Q1 2016 44,094
 49,281
 111.8% 34
          
 Q4 2015 44,342
 49,134
 110.8% 35
 Q3 2015 44,159
 48,156
 109.1% 33
 Q2 2015 44,683
 48,587
 108.7% 34
 Q1 2015 44,403
 47,366
 106.7% 33
          
 Note: Table excludes material settlements. Settlements include amounts paid in settlement disputes for claims paying practices and NPL commutations.

See Note 8 – “Loss Reserves” to our consolidated financial statements and “Critical Accounting Policies” below for a discussion of our losses incurred and claims paying practices (including curtailments).



MGIC Investment Corporation 2020 Form 10-K | 64
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
The length of time a loan is in the delinquency inventory can differ from the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not result in the loan becoming fully current. The number of payments that a borrower is delinquent is shown in the following table.
Primary delinquent inventory - number of payments delinquent
December 31,
2020202020202019
Non-Forbearance
Forbearance (2)
TotalTotal
3 payments or less7,603 6,580 14,183 14,895 
4 - 11 payments7,824 28,153 35,977 8,519 
12 payments or more (1)
6,405 1,145 7,550 6,614 
Total21,832 35,878 57,710 30,028 
3 payments or less35 %18 %25 %50 %
4 - 11 payments36 %79 %62 %28 %
12 payments or more29 %3 %13 %22 %
Total100 %100 %100 %100 %
(1)Approximately 31% and 36% of the loans in the primary delinquency inventory with 12 payments or more delinquent have at least 36 payments delinquent as of December 31, 2020, and 2019 , respectively.
(2) We believe substantially all represent forbearances related to COVID-19.

COVID-19 Delinquency Activity
New delinquency notices increased in 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of the COVID-19. The number of new delinquency notices received in the second quarter of 2020 was 57,584, but decreased 74% by the fourth quarter to 15,193 new delinquency notices. In the third and fourth quarter of 2020, we experienced an increase in cures, likely associated with our COVID-19 new delinquency notices.

Forbearance programs enacted by the GSEs provide for payment forbearance on mortgages to borrowers experiencing a hardship during the COVID-19 pandemic. These forbearance plans generally allow for mortgage payments to be suspended for up to 360 days: an initial forbearance period up to 180 days and, if requested by the borrower, an extension of up to 180 days. For loans in a COVID-19 forbearance plan as of February 28, 2021, the plan may be extended for an additional three months, subject to certain limits. As of December 31, 2020, 62% of our delinquency inventory was reported as subject to a forbearance plan. We believe substantially all represent forbearances related to COVID-19. Forbearance information is based on the most recent information provided by the GSEs, as well as loan servicer. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current. We expect our delinquency inventory will remain at elevated levels during 2021 due to the impacts of the COVID-19 pandemic and initiatives intended to reduce the transmission of COVID-19. Given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related delinquencies on our loss incidence.


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MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
NET LOSSES AND LAE PAID
Net losses and LAE paid
This section provides information decreased 50% in 2020 compared to 2019 primarily due to lower claim activity on our claimprimary business due to foreclosure moratoriums and payment trendsforbearance plans in place. During 2019, losses paid included settlement payments under commutations of coverage on policies and/or related to disputes concerning our claims paying practices.

While foreclosure moratoriums and exposure on our outstanding RIF forpayment forbearance plans remain in place, net losses and LAE paid are expected to continue to be lower. As the three years ending December 31, 2017. Table t.16various moratorium and forbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the increases are uncertain.

The table below presents our net losses and LAE paid for the years ended December 31, 2017, 20162020 and 2015.2019.
Net losses and LAE paid
(in millions)20202019
Total primary (excluding settlements)$98 $193 
Claims paying practices and NPL settlements (1)
— 30 
Pool2 4 
Direct losses paid100 227 
Reinsurance(4)(8)
Net losses paid96 219 
LAE18 21 
Net losses and LAE paid before terminations114 240 
Reinsurance terminations— (14)
Net losses and LAE paid$114 $226 
 Tablet.16      
Net losses and LAE paid(in millions) 2017 2016 2015
Total primary (excluding settlements) $446
 $599
 $767
 
Claims paying practice settlements and NPL commutations (1)
 54
 53
 10
 
Pool (2)
 10
 56
 68
 Other —
 (1) 5
 Direct losses paid 510
 707
 850
 Reinsurance (23) (23) (23)
 Net losses paid 487
 684
 827
 LAE 18
 20
 22
 Net losses and LAE paid before terminations 505
 704
 849
 Reinsurance terminations —
 (3) (15)
 Net losses and LAE paid $505
 $701
 $834
(1)
See Note 8 - "Loss Reserves"(1)See Note 8 - "Loss Reserves" for additional information on our settlements of disputes for claims paying practices and commutations of NPLs.
(2)
2016 and 2015 each include $42 million paid under the terms of our settlement with Freddie Mac as discussed in Note 8 - "Loss Reserves" to our consolidated financial statements.

Net losses and LAE paid decreased 28% in 2017 compared to 2016 due to lower claim activity on our primary business and the completion of our settlement payments to Freddie Mac in 2016 related to our pool business.


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Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)


Net losses and LAE paid decreased 16% in 2016 compared to 2015 due to lower claim activity on our primary business. During each of 2017 and 2016, losses paid included payments for settlements of disputes for claims paying practices andand/or commutations of coverage on pools of NPLs as we continue to resolve legacy delinquencies. We believe losses and LAE paid will be lower in 2018 compared to 2017.policies



Primary losses paid for the top 15 jurisdictions (based on 20172020 losses paid, excluding settlement amounts)paid) and all other jurisdictions for 2020 and 2019 appears in the years ended December 31, 2017, 2016 and 2015 appear in table t.17 below.
 Tablet.17      
Paid losses by jurisdiction(in millions) 2017 2016 2015
New Jersey $61
 $60
 $44
 Florida 49
 85
 154
 New York 37
 35
 31
 Illinois 28
 43
 60
 Maryland 23
 29
 45
 Pennsylvania 22
 26
 33
 Puerto Rico 18
 17
 14
 California 17
 27
 38
 Ohio 16
 21
 26
 Massachusetts 13
 14
 15
 Connecticut 11
 14
 18
 Virginia 10
 15
 16
 Georgia 10
 13
 19
 Indiana 9
 10
 12
 Washington 8
 15
 24
 All other jurisdictions 114
 175
 218
 Total primary (excluding settlements) $446
 $599
 $767
  
 Note: Jurisdictions in italics in the table above are those that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

Primary paid losses by jurisdiction
(In millions)20202019
Florida *$13 $28 
New York *11 25 
Illinois *9 13 
New Jersey *8 20 
Maryland7 9 
Puerto Rico *5 12 
Pennsylvania *4 8 
California3 5 
Ohio *3 7 
Virginia2 4 
Massachusetts2 3 
Michigan2 4 
Texas2 4 
Connecticut *2 6 
Wisconsin2 3 
All other jurisdictions22 42 
Total primary (excluding settlements)$98 $193 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

The primary average claim paid for the top 5 jurisdictions (based on 20172020 losses paid, excluding settlement amounts)paid) for the years ended December 31, 2017, 20162020 and 20152019 appears in table t.18 below.
Primary average claim paid
20202019
Florida *$59,610 $65,576 
New York *111,112 102,819 
Illinois *43,339 42,833 
New Jersey *96,116 81,811 
Maryland63,665 60,905 
All other jurisdictions32,798 33,983 
All jurisdictions43,901 45,324 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
The primary average claim paid can vary materially from period to period based upon a variety of factors, including the local market conditions, average loan amount, average coverage percentage, the amount of time between delinquency and claim filing, and our loss mitigation efforts on loans for which claims are paid.
 Tablet.18     
Primary average claim paid 2017 2016 2015
New Jersey$87,333
 $81,955
 $74,160
 Florida62,751
 60,737
 58,709
 New York81,043
 70,869
 68,341
 Illinois46,089
 50,047
 49,673
 Maryland73,569
 72,396
 77,404
 All other jurisdictions39,146
 40,828
 41,065
 All jurisdictions48,476
 48,416
 47,931
  
 Note: Jurisdictions in italics in the table above are those that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.




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Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)



The primary average exposureRIF on delinquent loans as of December 31, 2020 and 2019 and for the top 5 jurisdictions (based on 20172020 losses paid, excluding settlement amounts) forpaid) appears in the years endedfollowing table.
Primary average exposure - delinquent loans
20202019
Florida$56,956 $52,566 
New York73,509 72,188 
Illinois41,451 38,740 
New Jersey67,709 64,444 
Maryland68,347 64,208 
All other jurisdictions52,071 41,145 
All jurisdictions53,804 45,028 

The primary average RIF on all loans was $54,891, $52,995 at December 31, 2017, 20162020 and 2015 appears in table t.19 below.December 31, 2019, respectively.


 Tablet.19     
Primary average exposure 2017 2016 2015
New Jersey$64,279
 $63,351
 $62,496
 Florida50,608
 49,908
 49,095
 New York53,052
 52,006
 50,964
 Illinois41,510
 40,696
 40,368
 Maryland65,788
 63,812
 62,912
 All other jurisdictions48,539
 46,481
 44,887
 All jurisdictions49,142
 47,276
 45,820

Loss reservesLOSS RESERVES
Our primary default rate at December 31, 20172020 was 4.55% (2016: 5.04%, 2015: 6.31%).5.11% (2019: 2.78% ). Our primary delinquentdelinquency inventory was 46,556held 57,710 loans at December 31, 2017, representing a decrease of 7% from 2016 and 26% from 2015.2020, compared to 30,028 at December 31, 2019. The reductionincrease in our primary delinquentdelinquency inventory from the prior year is primarily due to the resultadverse economic impact of the total numberCOVID-19 pandemic. As of delinquent loans: (1) that have cured; (2) for which claim payments have been made; or (3) that have resultedDecember 31, 2020, 62% of our delinquency inventory were reported to us as subject to forbearance plans. We believe substantially all represent forbearance plans related to COVID-19. Prior to 2020, we experienced a decline in rescission, claim denial, or removal from inventory due to settlements of claims paying disputes or commutations of coverage of pools of NPLs, collectively, exceeding the total number of new delinquencies on insured loans. In recent periods, we have experienced improved cure rates and the number of delinquencies in inventory with twelve or more missed payments has been declining.payments. Generally, thea defaulted loan with fewer missed payments a delinquent loan has the lower the likelihood it willis less likely to result in a claim. Our commutationsHowever, given the uncertainty surrounding the long-term economic impact of coverageCOVID-19, it is difficult to predict the ultimate effect of COVID-19 related delinquencies and forbearances on pools of NPLs have each been completed with amounts paid approximating theour loss reserves previously establishedincidence. Whether a loan’s delinquency will cure when its forbearance plan ends will depend on the delinquent loans. We expect our delinquent inventory to decline in 2018 from 2017 levels.economic circumstances of the borrower at that time.



The primary and pool loss reserves as of December 31, 2017, 20162020, and 20152019 appear in the table t.20 below.
Gross loss reserves
December 31,
20202019
Primary:
Case reserves (In millions)
$789 $490 
IBNR and LAE82 56 
Total primary direct loss reserves871 546 
Ending delinquency inventory57,710 30,028 
Percentage of loans delinquent (default rate)5.11 %2.78 %
Average direct reserve per default$15,100 $18,171 
Primary claims received inventory included in ending delinquency inventory159 538 
Pool (1):
Direct loss reserves (In millions):
With aggregate loss limits6 7 
Without aggregate loss limits2 2 
Total pool direct loss reserves8 9 
Ending delinquency inventory:
With aggregate loss limits442 430 
Without aggregate loss limits238 223 
Total pool ending delinquency inventory680 653 
Pool claims received inventory included in ending delinquency inventory10 11 
Other gross loss reserves (2) (In millions)
2 — 
 Tablet.20         
Gross reserves  December 31,
   2017 2016 2015
 Primary:         
 
Direct loss reserves (in millions)
 $913
  $1,334
  $1,681
 
 IBNR and LAE 58
  79
  126
 
 Total primary loss reserves 971
  1,413
  1,807
 
 Ending delinquent inventory  46,556
  50,282
  62,633
 Percentage of loans delinquent (default rate)  4.55%  5.04%  6.31%
 Average direct reserve per default  $20,851
  $28,104
  $28,859
 Primary claims received inventory included in ending delinquent inventory  954
  1,385
  2,769
 
Pool (1):
         
 
Direct loss reserves (in millions):
         
 With aggregate loss limits 10
  18
  34
 
 Without aggregate loss limits 4
  7
  9
 
 
Reserves related to Freddie Mac settlement (2)
—
  —
  42
 
 Total pool direct loss reserves 14
  25
 
85
 
 Ending delinquent inventory:         
 With aggregate loss limits  952
  1,382
  2,126
 Without aggregate loss limits  357
  501
  613
 Total pool ending delinquent inventory 

1,309
 

1,883
 

2,739
 Pool claims received inventory included in ending delinquent inventory  42
  72
  60
 
Other gross reserves (in millions)
 1
  1
  1
 
(1)Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per default for our pool business.

(2)Other gross loss reserves includes direct and assumed reserves that are not included within our primary or pool loss reserves.



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MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


(1)
Since a number of our pool policies include aggregate loss limits and/or deductibles, we do not disclose an average direct reserve per default for our pool business.
(2)
See our Form 8-K filed with the Securities and Exchange Commission on November 30, 2012 for a discussion of our settlement with Freddie Mac regarding a pool policy. As of December 31, 2016, we had completed our obligation under this settlement agreement.
The average direct reserve per default (table t.20) as of December 31, 20172020 declined when compared to the prior years primarily due to delinquencies we estimated to be caused by hurricane activity that remained in our ending delinquent inventory ataverage as of December 31, 2017, which have a materially lower new notice claim rate than other new notices received. When excluding the estimated hurricane delinquencies, the average direct reserve per default was $24,000, which is still lower than recent years,2019 because the claim rate on new notices (excluding hurricane new notices)delinquency inventory as of December 31, 2020 included loans with fewer missed payments and estimated claim rate on previously reported delinquencies that remain in our delinquent inventory declined in 2017.

loans with lower anticipated paid to exposure rates.
The primary default inventory for the top 15 jurisdictions (based on 20172020 losses paid, excluding settlement amounts)paid) at December 31, 2017, 20162020, and 20152019 appears in table t.21the below.
Primary delinquent inventory by jurisdiction
Non-Forbearance
Forbearance (1)
TotalTotal
 2020202020202019
Florida *1,786 4,150 5,936 2,504 
New York *1,328 1,088 2,416 1,634 
Illinois *1,298 2,162 3,460 1,749 
New Jersey *786 1,174 1,960 992 
Maryland562 994 1,556 796 
Puerto Rico *828 630 1,458 1,122 
Pennsylvania *1,299 1,294 2,593 1,755 
California916 2,668 3,584 1,213 
Ohio *1,313 1,228 2,541 1,498 
Virginia442 935 1,377 580 
Massachusetts397 451 848 544 
Michigan691 1,151 1,842 921 
Texas1,332 3,285 4,617 2,251 
Connecticut *344 565 909 506 
Wisconsin520 536 1,056 694 
All other jurisdictions7,990 13,567 21,557 11,269 
Total21,832 35,878 57,710 30,028 
Note: Asterisk denotes jurisdictions in the table above that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.
(1) We believe substantially all represent forbearances related to COVID-19.


 Tablet.21     
Primary delinquent inventory by jurisdiction 2017 2016 2015
New Jersey1,749
 2,586
 3,498
Florida6,501
 4,150
 5,903
 New York2,387
 3,171
 3,901
 Illinois2,136
 2,649
 3,301
 Maryland1,026
 1,312
 1,609
 Pennsylvania2,403
 2,984
 3,574
 Puerto Rico3,761
 1,844
 2,221
 California1,402
 1,590
 2,019
 Ohio2,025
 2,614
 3,209
 Massachusetts759
 1,108
 1,390
 Connecticut574
 690
 832
 Virginia731
 885
 1,109
 Georgia1,550
 1,853
 2,225
 Indiana1,178
 1,532
 1,895
 Washington495
 754
 1,049
 All other jurisdictions17,879
 20,560
 24,898
 Total46,556
 50,282
 62,633
  
 Note: Jurisdictions in italics in the table above are those that predominately use a judicial foreclosure process, which generally increases the amount of time it takes for a foreclosure to be completed.

Florida, Puerto Rico, and Texas (included in all other jurisdictions) each experienced an increase in their delinquent inventory as of December 31, 2017 compared to December 31, 2016. The increases were driven by hurricane activity in the third quarter of 2017, which resulted in significant new notice activity in the fourth quarter of 2017, of which a substantial majority of those notices remained in our delinquent inventory as of December 31, 2017.





MGIC Investment Corporation 20172020 Form 10-K | 7968
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)
MGIC Investment Corporation and Subsidiaries

Management's Discussion and Analysis

Table of Contents | Glossary of terms and acronyms
The primary default inventory by policy year at December 31, 2017, 20162020, and 20152019 appears in the table t.22 below.
Primary delinquent inventory by policy year
Non-Forbearance
Forbearance (1)
TotalTotal
2020202020202019
2004 and prior2,948 937 3,885 4,686 
2004 and prior %:14 %3 %6 %16 %
20051,791 671 2,462 2,799 
20062,972 1,293 4,265 4,582 
20074,681 3,330 8,011 7,096 
20081,149 1,197 2,346 1,798 
2005 - 2008 %49 %18 %30 %54 %
200975 84 159 148 
201061 38 99 115 
201185 66 151 143 
2012128 229 357 231 
2013346 583 929 521 
2014700 1,389 2,089 1,101 
2015953 2,180 3,133 1,388 
2009 - 2015 %11 %13 %12 %12 %
20161,109 3,490 4,599 1,578 
20171,566 5,180 6,746 1,989 
20181,541 5,927 7,468 1,521 
20191,259 6,670 7,929 332 
2020468 2,614 3,082 — 
2016 and later %:27 %67 %52 %18 %
Total21,832 35,878 57,710 30,028 
(1) We believe substantially all represent forbearances related to COVID-19.

 Tablet.22     
Primary delinquent inventory by policy year 2017 2016 2015
2004 and prior8,739
 11,116
 14,599
20054,916
 5,826
 7,890
 20067,719
 9,267
 11,853
 200712,807
 15,816
 20,000
 20083,455
 4,140
 5,418
 2009315
 421
 515
 2010199
 222
 274
 2011266
 246
 246
 2012549
 364
 388
 2013957
 686
 615
 20141,757
 1,142
 672
 20151,992
 814
 163
 20161,930
 222
 —
 2017955
 —
 —
 Total46,556
 50,282
 62,633

Chartc.06

The delinquent inventory for most policy years includes new notices from hurricane impacted areasWe expect that have not cured. Asdelinquencies will remain at elevated levels in 2021 as a result delinquencies,of the COVID-19 pandemic, including as a result of the increase in unemployment associated with initiatives intended to reduce the transmission of COVID-19. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan's delinquency will cure when its forbearance plan ends will depend on the economic circumstances of the borrower at that time. Forbearance information is based on the most recent policy years, were greater than they otherwise would have been.information provided by the GSEs, as well as loan servicers, and we believe substantially all forbearance plans reported are related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current.


The losses we have incurred on our 2005 through 2008 books have exceeded our premiums from those books. Although uncertainty remains with respect to the ultimate losses we willmay experience on thesethose books, of business, as we continue to write new insurance, on high-quality loans, those books arehave become a decliningsmaller percentage of our total mortgage insurance portfolio. Our 2005 through 2008 books of business represented approximately 19%8% and 25%11% of our total primary RIF at December 31, 20172020 and 2016,2019, respectively. Approximately 39%37% and 38%39% of the remaining primary RIF on our 2005 through 2008 books of business benefited from HARP as of both December 31, 2017,2020 and December 31, 2016,2019, respectively.


On our primary business, the highest claim frequency years have typically been the third and fourth year after the year of loan origination. However, the pattern of claimsclaim frequency can be affected by many factors, including persistency and deteriorating economic conditions. Low persistency can accelerate the period in the life of a book during which the highest claim frequency occurs. Deteriorating economic conditions can result in increasing claims following a period of declining claims. As of December 31, 2017, 58% of our primary RIF


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Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)


was written subsequent to December 31, 2014, 67%2020, 66% of our primary RIF was written subsequent to December 31, 2013, and 73%2017, 74% of our primary RIF was written subsequent to December 31, 2012.2016, and 82% of our primary RIF was written subsequent to December 31, 2015.
 
Underwriting

MGIC Investment Corporation 2020 Form 10-K | 69
MGIC Investment Corporation and other expenses, netSubsidiaries
2017 compared to 2016.Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
UNDERWRITING AND OTHER EXPENSES, NET
Underwriting and other expenses includes items such as employee compensation costs, fees for professional and consulting services, depreciation and maintenance expense, and premium taxes, and are reported net of ceding commissions.

Underwriting and other expenses for 2017 increased when compared to 2016 primarily due to higher compensation, professional services, and depreciation expenses.

2016 compared to 2015.Underwriting and other expenses for 20162020 decreased when compared to 2015,2019 primarily due to an increasea decreases in ceding commissions from reinsurers,employee compensation costs, including equity-based compensation, and travel. This was partially offset by increases in compensation costsprofessional services and professional services.equipment and software expense.


Underwriting expense ratio
The underwriting expense ratio is the ratio, expressed as a percentage, of the underwriting and operating expenses, net and amortization of DAC of our combined insurance operations (which excludes underwriting and operating expenses of our non-insurance operations) to NPW, and is presented in chart c.07the table below for the past threetwo years.

Year Ended December 31,
20202019
Underwriting expense ratio19.2 %18.4 %
Chartc.07


The increase in the underwriting expense ratio increased in 2017 when2020 compared with 2019 due to lower NPW partially offset by a decrease in underwriting expenses.

INTEREST EXPENSE
2020 compared to 20162019. Interest expense for 2020 was $60 million compared to $53 million for 2019. The increase is due to an increasethe issuance of the 5.25% Notes in expenses,August 2020, partially offset in part by an increasethe repurchase of a portion of the 5.75% Notes and the 9% Debentures.
INCOME TAX EXPENSE AND EFFECTIVE TAX RATE
Income tax provision and effective tax rate
(In millions, except rate)20202019
Income before tax$559 $848 
Provision for income taxes113 174 
Effective tax rate20.2 %20.5 %

The decrease in our NPW. The increase in the underwritingprovision for income tax expense ratio in 2016 whenfor 2020 compared to 20152019 was primarily due to a decrease in NPW.

Interest expense
2017 compared to 2016. Interest expense for 2017 was relatively flat with 2016 as a full-year of interest on our 5.75% Notes issued in August 2016 offset lower interest due to the maturity of our 5% Notes and extinguishment of our 2% Notes.

2016 compared to 2015.Interest expense for 2016 decreased from 2015 primarily due to MGIC's purchase of a portion of our 9% Debentures and the maturity of our 5.375% Notes. We also repurchased portions of our 5% and 2% Notes at various times during 2016, but we incurred new debt obligations to execute the repurchases thereby offsetting any reductions in interest expense from the repurchases.

Loss on debt extinguishment
Loss on debt extinguishment in 2016 reflects the repurchases of a portion of our outstanding 2% and 5% Notes at amounts above our carrying values. The loss on debt extinguishment from MGIC's purchase of a portion of our 9% Debentures represents the difference between the fair value and carrying value of the liability component on the purchase date.





MGIC Investment Corporation 2017 Form 10-K | 81
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Consolidated Results of Operations (continued)


Income tax expense (benefit) andincome before tax. Our effective tax rate
 Tablet.23      
Income tax provision (benefit) and effective tax rate(in millions, except rate) 2017 2016 2015
Income before tax $784,496
 $514,714
 $487,687
Provision for (benefit from) income taxes 428,735
 172,197
 (684,313)
 Effective tax provision (benefit) rate 54.7% 33.5% (140.3)%

2017 compared to 2016. Income tax expense for 2017 increased compared to 2016. The increase2020 and 2019 was due to a remeasurement of net deferred tax assets atbelow the lower corporatefederal statutory income tax rate under the Tax Act, the increase in income before tax, and an additional tax provision recorded for the expected settlement of our IRS litigation. See Note 12 - "Income taxes" to our consolidated financial statements for further discussion on the Tax Act and expected IRS settlement. The difference between our statutory tax rate of 35% and our effective tax provision rate of 54.7% in 2017 was primarily due to the remeasurement of deferred tax assets at the lower corporate tax rate and the additional tax provision recorded for the expected settlement of our IRS litigation. The difference between our statutory tax rate of 35% and our effective tax provision rate of 33.5% in 2016 was21% primarily due to the benefits of tax preferencedtax-preferenced securities.


2016 compared to 2015.Income tax expense for 2016 increased compared to 2015. This change is primarily due to the reversal of our deferred tax valuation allowance in 2015 and because we were required to establish a full tax provision for 2016. The difference between our statutory tax rate of 35% and our effective tax provision rate of 33.5% in 2016 was primarily due to the benefits of tax preferenced securities. The difference between our statutory tax rate of 35% and our effective tax (benefit) rate on our pre-tax income of (140.3%) in 2015 was primarily due to the impact of the changes in our valuation allowance against our deferred tax assets.

See Note 12 – “Income Taxes” to our consolidated financial statements for a discussion of our tax position.



MGIC Investment Corporation 20172020 Form 10-K | 8270
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
BALANCE SHEET REVIEW

Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents
Shareholders' equity

Shareholders' equity
As of December 31,
(In millions)20202019$ Change
Shareholders' equity
Common stock$371 $371 $— 
Paid-in capital1,862 1,870 (8)
Treasury stock(393)(283)(110)
Accumulated Other Comprehensive Income (Loss), net of tax217 73 144 
Retained earnings2,642 2,278 364 
Total$4,699 $4,309 $390 


Balance Sheet AnalysisThe increase in shareholders' equity in 2020 compared with the prior year was due to net income and an increase in the fair value of our investment portfolio, offset in part by quarterly dividends paid to shareholders and the repurchase of shares of our common stock in the first quarter of 2020.


AssetsTotal assets and total liabilities
As of December 31, 2017,2020, total assets were $5,619 million compared$7.4 billion and total liabilities were $2.7 billion. Compared to $5,735 millionyear-end 2019, total assets increased by $1.1 billion and total liabilities increased by $0.7 billion.

The following sections focus on the assets and liabilities experiencing major developments in the prior year. 2020.

INVESTMENT PORTFOLIO
The investment portfolio increased 16%, to $4,991 million$6.7 billion as of December 31, 2017 (2016: $4,692 million). Deferred income tax assets decreased to $234.4 million2020 (2019: $5.8 billion), as of December 31, 2017 (2016: $607.7 million) as our net income utilized a portion of our net operating loss carryforwardscash from operations and our net deferred tax assetsproceeds from debt issuances were remeasured at the lower corporate tax rate under the Tax Act.used in part for additional investment.

Chartc.08
STRUCTURE OF BALANCE SHEET
% OF TOTAL ASSETS
(in thousands) December 31, 2017 December 31, 2016
Assets $5,619,499
 $5,734,529

Investments Analysis
The return we generate on our investment portfolio is an important component of our consolidated financial results. Our investment portfolio primarily consists of a diverse mix of highly rated fixed income securities (see table t.26) and targets an intermediate 4 to 6 year duration thatsecurities. The investment portfolio is designed to achieve the following main portfolio objectives:
•
Operating Companies (1)
protect principal;•meet projected liabilities; andHolding Company
•èmaximize statutory capital;Preserve PMIERs assets•maximizeèProvide liquidity with minimized realized loss
èMaximize total return with emphasis on yield, subject to theour other objectives.objectivesèMaintain highly liquid, low volatility assets
•èminimize realized losses;Limit portfolio volatilityèMaintain high credit quality
èDuration 3.5 to 5.5 yearsèDuration maximum of 2.5 years
(1)Primarily MGIC


To achieve our portfolio objectives, our asset allocation considers the risk and return parameters of the various asset classes in which we invest. This asset allocation is informed by, and based on, the following factors:
•economic and market outlooks;•liquidity;
•diversification effects;•capital considerations; and
•security duration;•income tax rates.



MGIC Investment Corporation 2017 Form 10-K | 83
Management's Discussionèeconomic and Analysismarket outlooks;
MGIC Investment Corporation
2017 Form 10-K
è		diversification effects;
Balance Sheet Analysis (continued)èsecurity duration;
èliquidity;
ècapital considerations; and
èincome tax rates.



Table t.25 shows theThe average duration and embedded investment yield of our investment portfolio as of December 31, 2017, 2016,2020 and 2015.2019 is shown in the following table.
Portfolio duration and embedded investment yield
December 31,
20202019
Duration (in years)4.33.9
Pre-tax yield (1)
2.6%3.1%
After-tax yield (1)
2.1%2.5%
 Tablet.25      
Portfolio duration and embedded investment yield  December 31,
  2017 2016 2015
Duration (in years) 4.3 4.6 4.7
 
Pre-tax yield (1) (% of average investment portfolio assets)
 2.7% 2.6% 2.5%
 
After-tax yield (1) (% of average investment portfolio assets)
 2.0% 1.9% 1.8%
(1)Embedded investment yield is calculated on a yield-to-worst basis.
(1)
Embedded investment yield is calculated on a yield-to-worst basis.


The credit risk of specific securitiesa security is evaluated through analysis of the security's underlying fundamentals, including the issuer's sector, scale, profitability, debt coverage, and ratings. The investment policy guidelines limit the amount of our credit exposure to any one issue, issuer and type of instrument. Table t.26The following table shows the security ratings of our fixed income investments as of December 31, 20172020 and 2016.2019.
Fixed income security ratings
% of fixed income securities at fair value
Security Ratings (1)
PeriodAAAAAABBB
December 31, 202023%22%35%20%
December 31, 201921%20%34%24%
(1)Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is shown; otherwise the lowest rating is shown.


MGIC Investment Corporation 2020 Form 10-K | 71
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
 Tablet.26        
Fixed income security ratings% of fixed income securities at fair value 
Security Ratings (1)
Period AAA AA A BBB
 December 31, 2017 21% 26% 36% 17%
 December 31, 2016 25% 28% 32% 15%
(1)
Ratings are provided by one or more of: Moody's, Standard & Poor's and Fitch Ratings. If three ratings are available, the middle rating is utilized; otherwise the lowest rating is utilized.

The increaseOur investment portfolio was invested in “A” rated securities reflects marketplace ratings of corporate bondscomparable security types for the years ended December 31, 2020 and our increased concentration in that sector.

December 31, 2019. See Note 5 – “Investments” to our consolidated financial statements for additional disclosure on our investment portfolio.


Investments outlook
The U.S. economy continued to grow in 2017 and is expected to continue to grow in 2018. Against this positive macroeconomic backdrop, which includes very low unemployment, inflation pressures are seen rising. The FOMC, increased its benchmark interest rate 75 basis points during 2017 and its view is the benchmark will increase another 75 basis points in 2018. Our investment portfolio of fixed income securities is subject to interest rate risk and its fair value is likely to declineincrease in a risingdecreasing interest rate environment. We seek to manage our exposure to interest rate risk and volatility by maintaining a diverse mix of high quality securities with an intermediate duration profile. While higher interest rates may adversely impact the fair values of our fixed income securities, they present an opportunity to reinvest investment income and proceeds from security maturities into higher yielding securities. The Tax Act

Investing activity will continue to decrease our portfolio yield as long as market yields remain below the current portfolio yield. Any decline in market-based portfolio yield is expected to have implications for allocations of our fixed income securities. All other things equal, theresult in lower corporate income tax rate reduces the benefit of owning tax-exempt fixed income securities, therefore, our overall allocation to these securities may change over time.

Deferred income taxes
Our deferred income taxes primarily relate to net operating loss carryforwards from operating losses experienced in prior years that we expect will offset taxableinvestment income in future periods. During 2017, net deferred tax assets were remeasured to reflect the lower corporate income tax rate under the Tax Act. The remeasurement of our net deferred tax assets was a discrete period item that increased our tax provision by $133 million for the year ended December 31, 2017 and decreased our deferred tax asset by a like amount. See Note 12- "Income Taxes" to our consolidated financial statements for further discussion on the Tax Act.

As of December 31, 2017, our deferred tax asset is recorded at $234.4 million.




MGIC Investment Corporation 2017 Form 10-K | 84
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Balance Sheet Analysis (continued)


Other tax matters
We continue to have unresolved tax matters primarily related to reviews2020, approximately 5% of the fair value of our 2000-2007 federal income tax returnsinvestment portfolio consisted of securities referencing LIBOR, none of which reference one-week and two-month tenors. As discussed in our risk factor titled "The Company may be adversely impacted by the IRS. We have reached agreementtransition from LIBOR as a reference rate," the ICE Benchmark Administration, the administrator of LIBOR, began consulting on its intention to cease publishing after 2021, with respect to USD LIBOR, only the IRSone-week and two-month tenors and, on June 30, 2023, all issues for those yearsother USD LIBOR tenors.

CASH AND CASH EQUIVALENTS
Cash and in the fourth quarter of 2017, the IRS submitted documentation reflecting the terms of the agreementcash equivalents increased 78%, to the JCT for its review, which must be performed before a settlement can be completed. There is no assurance that a settlement will be completed. Our consolidated financial statements reflect our estimates of the tax contingencies discussed more fully in Note 12 - "Income Taxes" to our consolidated financial statements. Based on information we currently have regarding the status of the dispute, we recorded a provision for additional taxes and interest of $29.0 million in 2017.

Liabilities and Shareholders' Equity
Total liabilities decreased 23% to $2,465$288 million, as of December 31, 20172020 (2019: $162 million), as net cash generated from $3,186operating and financing activities was only partly offset by net cash used in investing activities.

LOSS RESERVES
Our loss reserves include estimates of losses and settlement expenses on (1) loans in our delinquency inventory (known as case reserves) (2) IBNR delinquencies, and (3) LAE. Our gross reserves are reduced by reinsurance recoverable on our estimated losses and settlement expenses to calculate a net reserve balance. Loss reserves increased by 59% to $881 million as of December 31, 2016. Loss reserves, which represent2020, from $555 million of December 31, 2019. Reinsurance recoverables on our estimated liability for losses and settlement expenses under our mortgage guaranty insurance policies, net of related reinsurance balances recoverable, decreased 32% to $937were $95 million and $22 million as of December 31, 2017 from $1,388 million as of2020 and December 31, 2016. This decrease2019, respectively. The overall increase in our net loss reserves during 2020 was driven by the payment of losses during 2017 and favorable development on delinquencies received in prior years, offset in part by losses incurred on new delinquency notices received in 2017. Unearned premiums increased 19% to $393 million as of December 31, 2017 (2016: $330 million), primarily due to an increase in new delinquency notices as well as IBNR reserves, each due to the amountimpacts of NIW from single premium policies. Long-termthe COVID-19 pandemic.

LONG-TERM DEBT
Our long-term debt at carrying value, declined 30%increased to $830$1,243.2 million as of December 31, 2017 versus $1,1792020 from $832.8 million as of December 31, 20162019. In August, 2020, we issued $650.0 million aggregate principal amount of 5.25% Notes due in 2028 with a three year call feature. We used a portion of the proceeds to the maturityrepurchase $182.7 million in aggregate principal of our 5%5.75% Notes due in 2023 and conversion and partial redemption$48.1 million in aggregate principal of our 2% Notes. See Note 7 - "Debt" for further discussion9% Debentures due 2063. The balance of these transactions. Other liabilities increased 7%the proceeds remains at the holding company.

UNEARNED PREMIUM
Our unearned premium decreased to $256$287.1 million as of December 31, 2017 (2016: $2382020 from $380.3 million as of December 31, 2019 primarily due to an increase in single premium policy cancellations.

OTHER LIABILITIES
Other liabilities increased 61% to $245 million as of December 31, 2020 (2019: $152 million), primarily due to increases in our deferred income taxestax liability, reinsurance premium payable primarily due to our expected IRS settlement,(net of ceding commission and profit commission), investment securities payable, and interest payable. This was partially offset by decreases in accrued salaries and benefits payable.

Off-balance sheet arrangements
Home Re 2018-1 Ltd., Home Re 2019-1 Ltd., and Home Re 2020-1 Ltd. are special purpose variable interest entities that are not consolidated in our pension plan benefit obligation, offset in part by declines in our premium refund accrual and other liabilities.

Total equity increased 24%consolidated financial statements because we do not have the unilateral power to $3,155 million as of December 31, 2017 from $2,549 million as of December 31, 2016. This increase from the prior year was driven by net income generated during 2017 and the conversion of our 2% Notesdirect those activities that are significant to shares of our common stock.
Chartc.09
STRUCTURE OF BALANCE SHEET
% OF TOTAL LIABILITIES AND EQUITY
(in thousands) December 31, 2017 December 31, 2016
Liabilities and equity $5,619,499
 $5,734,529




MGIC Investment Corporation 2017 Form 10-K | 85
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Balance Sheet Analysis (continued)


Benefit plans
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. Retirement benefits are based on compensation and years of service. We maintain plan assets to fund our defined benefit pension plan obligations. The supplemental executive retirement plan benefits are accrued for and are paid from MGIC assets following employee retirements. As of December 31, 2017, we have accrued a $6.4 million liability related to our defined benefit pension plan as the projected obligation was in excess of plan assets, while at December 31, 2016, it had plan assets in excess of the projected obligation. Our projected benefit obligations under these plans are subject to numerous actuarial assumptions that may change in the future and as a result could substantially increase or decrease our obligations. Plan assets held to pay our defined benefit pension plan obligations are primarily invested in a portfolio of debt securities to preserve capital and to provide monthly cash flows aligned with the liability component of our obligations, with a lesser percentage invested in a mix of equity securities. If the performance of our invested plan assets differs from our expectations, the funded status of the benefit pension plan may decline, even with no significant change in the obligations.their economic performance. See Note 119 - "Benefit Plans""Reinsurance," to our consolidated financial statements for a complete discussion of these plans and their effect on the consolidated financial statements.additional information.



MGIC Investment Corporation 20172020 Form 10-K | 8672
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
LIQUIDITY AND CAPITAL RESOURCES

CONSOLIDATED CASH FLOW ANALYSIS
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents


Liquidity and Capital Resources

Consolidated Cash Flow Analysis
We have three primary types of cash flows: (1) operating cash flows, which consist mainly of cash generated by our insurance operations and income earned on our investment portfolio, less amounts paid for claims, interest expense and operating expenses, (2) investing cash flows related to the purchase, sale and maturity of investments and purchases of property and equipment and (3) financing cash flows generally from activities that impact our capital structure, such as changes in debt and shares outstanding.outstanding and dividend payouts. The following table summarizes these three cash flows on a consolidated basis for the last threetwo years.
Summary of consolidated cash flows
 Years ended December 31,
(In thousands)20202019
Total cash provided by (used in):
Operating activities$732,309 $609,532 
Investing activities(772,506)(422,108)
Financing activities167,821 (173,406)
Increase (decrease) in cash and cash equivalents and restricted cash and cash equivalents$127,624 $14,018 
 Tablet.28      
Summary of consolidated cash flows  Years ended December 31,
(in thousands) 2017 2016 2015
Net cash and cash equivalents provided by (used in):      
 Operating activities $406,657
 $224,760
 $161,395
 Investing activities (303,641) (93,392) (96,958)
 Financing activities (158,575) (157,078) (81,199)
 Decrease in cash and cash equivalents $(55,559) $(25,710) $(16,762)


Operating activities
The following list highlights the major sources and uses of cash flow from operating activities:
Sources
+Premiums received
+Loss payments from reinsurers
+Investment income
SourcesUses
+-Premiums receivedClaim payments
+-Loss payments from reinsurers
+Investment income
Uses
-Claim payments
-Premium ceded to reinsurers
-Interest expense
-Operating expenses
Our largest source of cash is from premiums received from our insurance policies, which we receive on a monthly installment basis for most policies. Premiums are received at the beginning of the coverage period for single premium and annual premium policies. Our largest cash outflow is generally for claims that arise when a delinquency results in an insured loss. BecauseDue to the foreclosure moratorium and payment of claims occurs afterforbearance plans in place, we have experienced a decrease in losses and LAE paid. As the receiptvarious moratorium and forbearance plans end, we expect net losses and LAE paid to increase, however, the magnitude and timing of the premium, often years later, weincreases are uncertain. We invest our claims paying resources from premiums and other sources in various investment securities that earn interest. We also use cash to pay for our ongoing expenses such as salaries, debt interest, professional services and rent. We also utilizeoccupancy costs.
In connection with the reinsurance we use to manage the risk we take onassociated with our insurance policies. Wepolicies, we cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when lossesclaims subject to our reinsurance coverage are paid.


Net cash provided by operating activities in 20172020 increased compared to 20162019 primarily due to a lower level of losses paid, net, and an increasea decrease in taxes paid, partially offset by a decrease in net premiums written, offset in part by increases in payments for interest and other expenses.premium written.

Net cash provided by operating activities in 2016 increased compared to 2015 primarily due to a lower level of losses paid. The increase was offset in part by the commutation of our 2013 QSR Transaction in 2015, which resulted in a return to us of unearned ceded premiums written and settlement of our profit commission accrued during the term of the agreement.




MGIC Investment Corporation 2017 Form 10-K | 87
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Liquidity and Capital Resources (continued)



Investing activities
The following list highlights the major sources and uses of cash flow from investing activities:
Sources
+Proceeds from sales of investments
+Proceeds from maturity of fixed income securities
SourcesUses
+-Proceeds from fixed income securities sold, called or maturedPurchases of investments
+-Decreases in restricted cash
Uses
-Purchases of fixed income securities
-Purchases of property and equipment


We maintain an investment portfolio that is primarily invested in a diverse mix of fixed income securities. As of December 31, 2017,2020, our portfolio had a fair value of $5.0$6.7 billion, an increase of $298.2 million,$0.9 billion, or 6.4%16.1% from December 31, 2016.2019. Net cash flows used in investing activities in 2020 and 2019 primarily reflect purchases of fixed income securities in an amount that exceeded our proceeds from sales and maturities of such securities during the year as cash from operations and financing activities was available for additional investment. In addition to investment portfolio activities, our investing activities included additions to property and equipment. Beginning in 2016, we began an initiative to update our corporate headquarters building and continued our investment in our technology infrastructure to enhance our ability to conduct business and execute our strategies.


Net cash flows used in investing activities in 2017 and 2016 primarily reflect purchasing fixed income securities in an amount that exceeded our proceeds from sales and maturities of fixed income securities during the year as cash from operations was available for additional investment.

Net cash flows used in investing activities in 2015 primarily reflect purchasing investment securities in an amount that exceeded our proceeds from sales and maturities of fixed income securities during the year. This outflow was offset in part by a reduction of cash restricted in its use.


Financing activities
The following list highlights the major sources and uses of cash flow from financing activities:
Sources
+Proceeds from debt and/or common stock issuances
Uses
-Repayment/repurchase of debt
-Repurchase of common stock
-Payment of debt issuance costsdividends to shareholders
-Repayment/repurchase of debt
-Payment of withholding taxes related to share-based compensation net share settlement


Net cash flows used in financing activities for 2017 includedin 2020 primarily reflect the repayment at maturityissuance of our 5%5.25% Notes, redemptionpartially offset by the repurchase of a portion of our 2%5.75% Notes expenses paidand 9% Debentures, repurchases of our common stock, payment of dividends to establish our revolving credit facilityshareholders and the payment of withholding taxes related to share-based compensation net share settlement.

Cash flows used in financing activities for 2016 included the repurchase of a portion of the outstanding principal on our 5% Notes and 2% Notes, the purchase by MGIC of a portion of the outstanding principal on our 9% Debentures, and payment of withholding taxes related to share-based compensation net share settlement. MGIC's ownership of our 9% Debentures is eliminated in consolidation. These transactions were offset in part by cash inflows from the issuance of long-term debt, including an FHLB borrowing and our 5.75% Notes, net of related issuance fees.

Net cash flows used in financing activities for 2015 include the repayment of our 5.375% Notes, repurchases of a portion of our 5% Notes, and payment of withholding taxes related to share-based compensation net share settlement, offset in part by tax benefits related to share-based compensation.

* * *



MGIC Investment Corporation 2017 Form 10-K | 88
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Liquidity and Capital Resources (continued)


For a further discussion of matters affecting our cash flows, see "Balance Sheet AnalysisReview" above and "Debt at our Holding Company"Company and Holding Company Liquidity" below.


CapitalizationMGIC Investment Corporation 2020 Form 10-K | 73
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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms


CAPITALIZATION
Capital Risk
Capital risk is the risk of adverse impact on our ability to comply with capital requirements (regulatory and GSE) and to maintain the level, structure and composition of capital required for meeting financial performance objectives.


A strong capital position is essential to our business strategy and is important to maintain a competitive position in our industry. Our capital strategy focuses on long-term stability, which enables us to build and invest in our business, even in a stressed environment.


Our capital management objectives are to:
èinfluence and ensure compliance with capital requirements,
èmaintain access to capital and reinsurance markets,
èmanage our capital to support our business strategies and the competing priorities of relevant stakeholders
èassess appropriate uses for capital that cannot be deployed in support of our business strategies, including the size and form of capital return to shareholders, and
èsupport business opportunities by enabling capital flexibility and efficiently using company resources.
cultivate relationships with intermediaries and end-providers to ensure access to capital and reinsurance markets,
size the level of capital to balance competitive needs, handle contingencies and create shareholder value,
position our mix of debt, equity and/or reinsurance to support our business strategy while considering the competing needs of credit ratings, regulators and shareholders, and
enable capital flexibility to support business opportunities.


These objectives are achieved through ongoing monitoring and management of our capital position, mortgage insurance portfolio stress modeling, and a capital governance framework. Capital management is intended to be flexible in order to react to a range of potential events. The focus we place on any individual objective may change over time due to factors that include, but are not limited to, economic conditions, changes at the GSEs, competition, and alternative transactions to transfer mortgage risk.



MGIC Investment Corporation 2020 Form 10-K | 74
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

Capital Structure
Table t.29The following table summarizes our capital structure as of December 31, 2017, 2016,2020, and 2015.2019.
(In thousands, except ratio)20202019
Common stock, paid-in capital, retained earnings, less treasury stock$4,482,165 $4,236,526 
Accumulated other comprehensive loss, net of tax216,821 72,708 
Total shareholders' equity4,698,986 4,309,234 
Long-term debt, par value1,256,110 836,872 
Total capital resources$5,955,096 $5,146,106 
Ratio of long-term debt to shareholders' equity26.7 %19.4 %
 Tablet.29      
 (in thousands, except ratio) 2017 2016 2015
 Common stock, paid-in capital, retained earnings, less treasury stock $3,198,309
 $2,623,942
 $2,297,020
 Accumulated other comprehensive loss, net of tax (43,783) (75,100) (60,880)
 Total shareholders' equity 3,154,526
 2,548,842
 2,236,140
 Long-term debt, par value 836,872
 1,189,472
 1,223,025
 Total capital resources $3,991,398
 $3,738,314
 $3,459,165
        
 Ratio of long-term debt to shareholders' equity 26.5% 46.7% 54.7%


TotalThe increase in total shareholders' equity increased in 20172020 from the prior year2019 was primarily due to net income during 2017 and conversion of substantially all2020, offset by our repurchases of our then-remaining 2% Notes into shares of common stock.stock and an increase in gross unrealized gains. See Note 13 - "Shareholders' Equity" for further information on the 2% Notes conversion. The increase in shareholders' equity in 2016 from 2015 was due to net income in 2016, which was offset in part by the costinformation.

MGIC Investment Corporation 2020 Form 10-K | 75
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of repurchasing the sharesContents | Glossary of common stock issued in connection with the repurchase of a portion of our 2% Notes.terms and acronyms


Debt at our holding company and holding company liquidity
DEBT AT OUR HOLDING COMPANY AND HOLDING COMPANY LIQUIDITY
Debt obligations - holding company
Chart c.10 shows the outstandingIn August, 2020, we issued $650.0 million aggregate principal amount of 5.25% Notes due in 2028. We used a portion of the debt obligationsproceeds to repurchase $182.7 million in aggregate principal of our holding company as5.75% Senior notes due in 2023 and $48.1 million in aggregate principal of December 31, 2017 and 2016.
our 9% Debentures due 2063.

The 5.75% Notes, 5.25% Notes, and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. MGIC's ownership of $132.7 million of our holding


MGIC Investment Corporation 2017 Form 10-K | 89
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Liquidity and Capital Resources (continued)


company's 9% Debentures is eliminated in consolidation, but they remain outstanding obligations owed by our holding company to MGIC.
Chartc.10
The outstanding principal on our holding company's debt declined $353 million, or 30.2%, during 2017 as a result of the conversion and partial redemption of our 2% Notes and the maturity of our 5% Notes. See Note 7 - "Debt" for further information on our outstandingWe have no debt obligations and transactions impacting our consolidated financial statements in 2017 and 2016.

Chart c.11 showsdue within the remaining time to maturity of our holding company debt obligations.
Chartc.11

The conversion and partial redemption of our 2% Notes and maturity of our 5% Notes in 2017 eliminated the debt obligations with a maturity less than five years. The remaining outstanding holding company debt obligations have more than five years to maturity asnext twelve months. As of December 31, 2017.2020, our 5.25% Notes had $650 million of outstanding principal due in 2028, our 5.75% Notes had $242.3 million of outstanding principal due in August 2023, and our 9% Debentures had $208.8 million of outstanding principal due in April 2063. The 9% Debentures are a convertible debt issuance. Subject to certain limitations and restrictions, holders of the 9% Debenturesmay convert their notes into shares of our common stock at their option prior to certain dates prescribed under the terms of their issuance, in which case our corresponding obligation will be eliminated prior to the scheduled maturity.



In the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures of $132.7 million. In 2019, the $132.7 million was an outstanding obligation of our holding company to MGIC.


MGIC Investment Corporation 2017 Form 10-K | 90
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Liquidity and Capital Resources (continued)
See Note 7 - "Debt" for further information on our outstanding debt obligations and transactions impacting our consolidated financial statements in 2020 and 2019.



Liquidity analysis - holding company
As of December 31, 2017,2020, and December 31, 2019, we had approximately $216$847 million and $325 million, respectively, in cash and investments at our holding company. These resources are maintained primarily to service our debt interest expense, pay debt maturities, repurchase outstanding debt obligations as opportunities arise,shares, pay dividends to shareholders, and to settle intercompany obligations. We may also use available holding company cash to repurchase shares of our common stock. While these assets are held, we generate investment income that serves to offset a portion of our interest expense. Investment income and the payment of dividends from our insurance subsidiaries are the principal sources of holding company cash inflow. MGIC is the principal source of dividends, and their payment is restricted by insurance regulation. Under the PMIERs guidance, any dividend paid by MGIC to our holding company, through June 30, 2021 requires approval by the GSEs. See Note 14 - "Statutory Information"“Statutory Information” to our consolidated financial statementsstatement for additional information about MGIC'sMGIC’s dividend restrictions. The payment of dividends from MGIC is also influenced by our view of the appropriate level of excess PMIERs Available Assets to maintain in excess of Minimum Required Assets. Other sources of holding company cash inflow include any unused capacity on our unsecured revolving credit facility and raisingmaintain. Raising capital in the public markets.markets is another potential source of holding company liquidity. The ability to raise capital in the public markets is subject to prevailing market conditions, investor demand for the securities to be issued, and our deemed creditworthiness.


Over the next twelve months the principal demand on holding company resources will be interest payments on our 5.75% Notes, 5.25% Notes, and 9% Debentures approximating $60$67 million. We expect MGIC will continue to pay dividends of at least $50 million per quarter in 2018. Our unsecured revolving credit facility provides $175 million of borrowing capacity, of which no amount is currently drawn. We believe our holding company has sufficient sources
of liquidity to meet its payment obligations for the foreseeable future.


During the first quarter of 2020 and for the full year of 2019, we used approximately $120 million and $114 million respectively, of available holding company cash to repurchase shares of our common stock. The repurchase programs may be suspended or discontinued at any time, and in light of the uncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases, but may resume them in the future. See “Overview - Capital” of this MD&A for a discussion of our share repurchase programs.

We may use additional holding company cash to repurchase additional shares or to repurchase our outstanding debt obligations. Such repurchases may be material, may be made for cash (funded by debt) and/or exchanges for other securities, and may be made in open market purchases (including through 10b5-1 plans), privately negotiated acquisitions or other transactions. See "Overview-Capital" of this MD&A for a discussion for a discussion of our share repurchase programs.

In 2017,2020 we used $82 million to pay cash dividends to shareholders. On January 26, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per common share to shareholders of record on February 17, 2021, payable on March 3, 2021.

Our holding company cash and investments decreased by $67increased $522 million in 2020, to $216$847 million as of December 31, 2017. Cash outflows included $1502020.

Significant cash and investments inflows during the year:
•$640 million of net proceeds from the issuance of our 5.25% Notes,
•$390 million of dividends received from MGIC, and
•$13 million of investment income.

Significant cash outflows during the year:
•$120 million of share repurchase transactions,
•$82 million in cash dividends paid to repayshareholders,
•$198 million in repurchases of our 5%5.75% Notes, at maturity
•$62 million in repurchases of our 9% Debentures, and $67
•$59 million of interest payments on our 5.75% Notes and 9% Debentures, of which approximately $12 million was paid to MGIC for the portion of our 9% DebenturesDebenture previously owned by MGIC. Cash inflows primarily included $140 million of dividends received from MGIC.


The net unrealized lossesgains on our holding company investment portfolio were approximately $1.8$4.7 million at December 31, 20172020 and the portfolio had a modified duration of approximately 1.8 years.


Scheduled debt maturities beyond the next twelve months include $425$242.3 million of our 5.75% Notes in 2023, $650 of our 5.25% Notes in 2028, and $389.5$208.8 million of our 9% Debentures in 2063, of which MGIC owns $132.7 million.2063. The principal amount of the 9% Debentures is currently convertible, at the holder’s option, at an initial conversion rate, which is subject to adjustment, of 74.074175.5932 common shares per $1,000 principal amount of debentures. This represents an initial conversion price of approximately $13.50$13.23 per share. We may redeem the 9% Debentures in whole or in part from time to time,

MGIC Investment Corporation 2020 Form 10-K | 76
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.55$17.20 for at least 20 of the 30 trading days preceding notice of the redemption.
See Note 7 – “Debt” to our consolidated financial statements for additional information about the conversion terms of our 9% Debentures and the terms of our indebtedness, including our option to defer interest. The description in Note 7 - “Debt" to our consolidated financial statements is qualified in its entirety by the terms of the notes and debentures. The terms of our 9% Debentures are contained in the Indenture dated as of March 28, 2008, between us and U.S. Bank National Association filed as an exhibit to our Form 10-Q filed with the SEC on May 12, 2008. The terms of our 5.75% Notes are contained in a Supplemental Indenture, dated as of August 5, 2016, between us and U.S. Bank National Association, as trustee, which is included as an exhibit to our 8-K filed with the SEC on August 5, 2016, and in the Indenture dated as of October 15, 2000 between us and the trustee. The terms of our 5.25% Notes are contained in a Supplemental Indenture, dated as of August 12, 2020, between us and U.S. Bank National Association, as trustee, which is included as an exhibit to our 8-K filed with the SEC on August 12, 2020, and in the Indenture dated as of October 15, 2000 between us and the trustee.


Although not anticipated in the near term, we may also contribute funds to our insurance operations to comply with the PMIERs or the State Capital Requirements. See “Overview – Capital” above for a discussion of these requirements. See the discussion of our non-insurance contract underwriting services in Note 17 – “Litigation and Contingencies” to our consolidated financial statements for other possible uses of holding company resources.


We may from time to time acquire our debt obligations through cash purchases and/or exchanges for other securities. We may also from time to time acquire our common stock through cash purchases, including with


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2017 Form 10-K
Liquidity and Capital Resources (continued)


funds provided by debt. We may make such acquisitions in open market purchases, privately negotiated acquisitions or other transactions. The amounts involved may be material.

Debt at subsidiariesDEBT AT SUBSIDIARIES
MGIC is a member of the FHLB. Membership in the FHLB provides MGIC access to an additional source of liquidity via a secured lending facility. MGIC has outstanding a $155.0 million in the form of a fixed rate advance from the FHLB outstanding.FHLB. Interest on the Advanceadvance is payable monthly at ana fixed annual rate fixed for the term of the Advance, of 1.91%. The principal of the Advanceadvance matures on February 10, 2023. MGIC2023 but may prepay the Advancebe prepaid at any time. Such prepayment would be below par if interest rates have risen after the Advanceadvance was originated, or above par if interest rates have declined. The Advanceadvance is secured by eligible collateral in the form of pledged securities from the investment portfolio, whose market value must be maintained at a minimum of 102% of the principal balance of the Advance.advance.


Capital Adequacy
PMIERs
We operate under the PMIERseach of the GSEs that became effective December 31, 2015. The PMIERS were most recently revised in December 2016, but the revision had no impact on our calculation of Available Assets or Minimum Required Assets, or on our operations.GSE's PMIERs. Refer to "Overview - Capital - GSEs" of this MD&A for further discussion of PMIERs.


As of December 31, 2017,2020, MGIC’s Available Assets under PMIERs totaled approximately $4.8$5.3 billion, an excess of approximately $0.8$1.8 billion over its Minimum Required Assets; and MGIC is in compliance with the requirements of the PMIERs and eligible to insure loans delivered to or purchased by the GSEs. Maintaining a sufficient level of excess Available Assets will allow MGIC to remain in compliance with the PMIERs financial requirements, including, we believe, torequirements.

The table below presents the extent they are revised. Our QSR Transactions provided an aggregate of approximately $0.8 billion of PMIERsPMIERS capital credit as of December 31, 2017. for our reinsurance transactions.

PMIERs - Reinsurance Credit
 December 31,
(In millions)20202019
QSR Transactions$1,002 $779 
Home Re Transactions482 513 
Total capital credit for Reinsurance Transactions$1,484 $1,292 

Our 20182021 QSR transaction terms are expectedgenerally comparable to be no less favorable than our 2017 and 2015existing QSR transactions and will also provide PMIERs capital credit. The excess of loss agreement entered into in February 2021 will also provide additional PMIERs credit. Refer to Note 9 - "Reinsurance" to our consolidated financial statements for additional information on our QSRreinsurance transactions.
We anticipate our delinquency inventory to remain elevated in 2021due to the impacts of the COVID-19 pandemic. The PMIERS generally require us to hold significantly more Minimum Required Assets for delinquent loans than for performing loans and the Minimum Required Assets required to be held increases as the number of payments missed on a delinquent loan increases. For delinquent loans whose initial missed payment occurred on or after March 1, 2020 and prior to April 1, 2021 (the "COVID-19 Crisis Period"), the Minimum Required Assets are generally reduced by 70% for at least three months. The 70% reduction will continue, or be newly applied, for delinquent loans that are subject to a forbearance plan that is granted in response to a financial hardship related to COVID-19, the terms of which are materially consistent with terms of forbearance plans offered by Freddie Mac or Fannie Mae. Under the PMIERs, a forbearance plan on a loan with an initial missed payment occurring during the COVID-19 Crisis Period is assumed to have been granted in response to a financial hardship related to COVID-19. Loans considered to be subject to a forbearance plan include those that are in a repayment plan or loan modification trial period following the forbearance plan.

Forbearance for federally-insured mortgages allows for mortgage payments to be suspended for up to 360 days; an initial forbearance period of up to 180 days and, if requested by the borrower following contact by the servicer, an extension of up to 180 days. The servicer of the loan must begin attempts to contact the borrower no later than 30 days prior to the expiration of any forbearance plan term has expired. If a servicer of a loan is unable to contact the borrower prior to the expiration of the first 180-day forbearance plan term, or, if the forbearance plan reaches its twelve-month anniversary and is not further extended, the forbearance plan will expire. In such case, the 70% reduction in Minimum Required Assets for that loan will no longer be applicable and our Minimum Required Assets will increase.

Based on the date each loan in our delinquency inventory was reported to us as being in forbearance, we estimate that during the first two quarters of 2021, 69% of those will reach their twelve-month anniversary of having been in forbearance and, as a result, their forbearance plans may end.

We expect the GSEs and servicers will provide us with information about the forbearance status for nearly all of the loans in our delinquency inventory, and we believe substantially

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Table of Contents | Glossary of terms and acronyms
all reported forbearances are related to COVID-19. While the forbearance information provided by the GSEs refers to delinquent loans in forbearance as of the prior month-end, the information provided by loan servicers may be more current. As a result, in some cases, there may be a delay in our ability to take advantage of the 70% reduction.

We plan to continuously comply with the PMIERs through our operational activities or through the contribution of funds from our holding company, subject to demands on the holding company's resources, as outlined above.


Risk-to-capitalRISK-TO-CAPITAL
We compute our risk-to-capital ratio on a separate company statutory basis, as well as on a combined insurance operations basis. The risk-to-capital ratio is our net RIF divided by our policyholders’ position. Our net RIF includes both primary and pool RIF and excludes risk on policies that are currently in default and for which case loss reserves have been established and thosethe risk covered by reinsurance. The risk amount includes pools of loans with contractual aggregate loss limits and without these limits. Policyholders’ position consists primarily of statutory policyholders’ surplus (which increases as a result of statutory net income and decreases as a result of statutory net loss and dividends paid), plus the statutory contingency reserve and a portion of the reserves for unearned premiums. The statutory contingency reserve is reported as a liability on the statutory balance sheet. A mortgage insurance company is required to make annual additions to a contingency reserve of approximately 50% of net earned premiums. These contributions must generally be maintained for a period of ten years.  However, with regulatory approval a mortgage insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net earned premiums in a calendar year.




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Liquidity and Capital Resources (continued)


Table t.30The table below presents MGIC’s separate company risk-to-capital calculation. 
Risk-to-capital - MGIC separate company
 December 31,
(In millions, except ratio)20202019
RIF - net (1)
$44,511 $44,338 
Statutory policyholders' surplus$1,336 $1,619 
Statutory contingency reserve3,521 2,963 
Statutory policyholders' position$4,857 $4,582 
Risk-to-capital9.2:19.7:1
(1)RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($2.9 billion at December 31, 2020 and $1.5 billion at December 31, 2019) and for which case loss reserves have been established.

 Tablet.30    
Risk-to-capital - MGIC separate company   December 31,
(in millions, except ratio) 2017 2016
RIF - net (1)
 $31,144
 $28,668
 Statutory policyholders' surplus $1,620
 $1,505
 Statutory contingency reserve 1,654
 1,181
 Statutory policyholders' position $3,274
 $2,686
 Risk-to-capital 9.5:1
 10.7:1
(1)
RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently in default and for which loss reserves have been established.

Table t.31
The table below presents our combined insurance companies’ risk-to-capital calculation (which includes a reinsurance affiliate). Reinsurance transactions with our affiliate permit MGIC to write insurance with a higher coverage percentage than it could
Risk-to-capital - Combined insurance companies
 December 31,
(In millions, except ratio)20202019
RIF - net (1)
$44,868 $44,550 
Statutory policyholders' surplus$1,340 $1,619 
Statutory contingency reserve3,586 3,021 
Statutory policyholders' position$4,926 $4,640 
Risk-to-capital9.1:19.6:1
(1)RIF – net, as shown in the table above, is net of reinsurance and exposure on its own under certain state-specific requirements.policies currently delinquent ($2.9 billion at December 31, 2020 and $1.5 billion at December 31, 2019) and for which case loss reserves have been established.
 Tablet.31    
Risk-to-capital - Combined insurance companies  December 31,
(in millions, except ratio) 2017 2016
RIF - net (1)
 $36,818
 $34,465
 Statutory policyholders' surplus $1,622
 $1,507
 Statutory contingency reserve 1,897
 1,360
 Statutory policyholders' position $3,519
 $2,867
 Risk-to-capital 10.5:1
 12.0:1
(1)
RIF – net, as shown in the table above, is net of reinsurance and exposure on policies currently delinquent ($2.3 billion at December 31, 2017 and $2.6 billion at December 31, 2016) and for which loss reserves have been established.


The reductions2020 decrease in MGIC's risk-to-capital and our combined insurance companies risk-to-capital in 2017 werecompanies' risk to capital was due to an increase in statutory policyholders' position, partially offset by an increase in RIF, net of reinsurance. The increase in statutory policyholders' position was primarily due to an increase in statutory contingency reserves, partially offset by andividends paid to our holding company of $390 million. The increase in net RIF in both calculations. Ourour RIF, net of reinsurance, increased in 2017,was due to an increase in our IIF.IIF, offset by an increase in our reduction to risk on policies that are currently in default for which loss reserves have been established. Our risk-to-capital ratio will decrease if the percentage increase in capital exceeds the percentage increase in insured risk. 


For additional information regarding regulatory capital see Note 14 – “Statutory Information” to our consolidated financial statements as well as our risk factor titled “State capital requirements may prevent us from continuing to write new insurance on an uninterrupted basis” in Item IA. 


Financial Strength Ratings
MGIC financial strength ratingsRating AgencyRatingOutlook
Moody's Investor ServicesBaa2Stable
Rating AgencyRatingOutlook
Moody's Investors ServiceBaa1Stable
Standard and Poor's Rating ServicesBBB+Negative
A.M. BestA-Stable


MAC financial strength ratings
Rating AgencyRatingOutlook
A.M. BestA-Stable

Earlier this year, Standard and Poor's revised its outlook for the U.S. Mortgage Insurers market segment to "negative,” due to the risks associated with the COVID-19 pandemic and A.M. Best revised its outlook for the U.S. Mortgage Insurers market segment to "negative," but did not change MGIC's or MAC’s outlook at that time. For further information about the importance of MGIC’s ratings, see our risk factor titled “We may not continue to meet the GSEs’ private mortgage insurer eligibility requirements and our returns may decrease as we are required to maintain more capital in order to maintain our eligibility” and “Competition or changes in our relationships with our customers could reduce our revenues, reduce our premium yields and/and / or increase our losses” in Item 1A.1A.






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MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents

Table of Contents | Glossary of terms and acronyms


Contractual Obligations

AsThe following table summarizes, as of December 31, 2017,2020, the approximate future payments under our contractual obligations of the type described in the table below are as follows:and estimated claim payments on established loss reserves.
Contractual obligations
Payments due by period
Less thanMore than
(In millions)Total1 year1-3 years3-5 years5 years
Long-term debt obligations2,376.1 70.1 534.3 105.8 1,665.9 
Operating lease obligations1.9 0.8 1.0 0.1 — 
Purchase obligations25.2 19.2 5.0 1.0 — 
Other long-term liabilities880.5 137.5 485.3 257.7 — 
Total3,283.7 227.6 1,025.6 364.6 1,665.9 
 Tablet.32          
Contractual obligations  Payments due by period
    Less than     More than
 (in millions) Total 1 year 1-3 years 3-5 years 5 years
 Long-term debt obligations $2,052.3
 $51.3
 $102.0
 $101.1
 $1,797.9
 Operating lease obligations 2.3
 0.8
 1.4
 0.1
 —
 Tax obligations 55.0
 55.0
 —
 —
 —
 Purchase obligations 16.5
 15.3
 1.2
 —
 —
 Pension, SERP and other post-retirement benefit plans 326.1
 29.8
 65.9
 67.0
 163.4
 Other long-term liabilities 985.6
 369.6
 447.5
 168.5
 —
 Total $3,437.8
 521.8
 $618.0
 $336.7
 $1,961.3
Our long-term debt obligations as of December 31, 20172020 include their related interest and are discussed in Note 7 – “Debt” to our consolidated financial statements and under “Liquidity and Capital Resources” above. Our operating lease obligations include operating leases on certain office space, data processing equipment and autos, as discussed in Note 16 – “Leases” to our consolidated financial statements. Tax obligations consist primarily of amounts related to our current dispute with the IRS, as discussed in Note 12 – “Income Taxes” to our consolidated financial statements. Purchase obligations consist primarily of agreements to purchase items related to our ongoing infrastructure projects and information technology investments in the normal course of business. See Note 11 - “Benefit Plans” to our consolidated financial statements for discussion of expected benefit payments under our benefit plans.


Our other long-term liabilities represent thecase and LAE loss reserves established to recognize the liability for losses and LAE related to existing defaultsdelinquencies on insured mortgage loans. The timing of the future claim payments associated with the established case loss reserves was determined primarily based on two key assumptions: the length of time it takes for a notice of delinquency to develop into a received claim and the length of time it takes for a received claim to be ultimately paid. The future claim payment periods are estimated based on historical experience, and could emerge differently than this estimate, in part, due to uncertainty regarding howthe impact of certain factors, such as impacts from the COVID-19 pandemic, loss mitigation protocols established by servicers and changes in some state foreclosure laws that may include, for example, a requirement for additional review and/or mediation process.
See Note 8 – “Loss Reserves” to our consolidated financial statements and “Critical Accounting Policies” below for additional information on our loss reserves. In accordance with GAAP for the mortgage insurance industry, we establish case loss reserves only for delinquent loans. Because our reserving method does not take account of the impact of future losses that could occur from loans that are not delinquent, our obligation for ultimate losses that we expect to occur under our policies in force at any period end is not reflected in our consolidated financial statements or in the table above.





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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
Benefit Plans
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. Retirement benefits are based on compensation and years of service. We maintain plan assets to fund our defined benefit pension plan obligations. We did not have a minimum funding requirement for the defined benefit pension plan for 2020 or 2019 and do not anticipate having a minimum funding requirement in 2021. We have significant discretion in making contributions above those necessary to satisfy the minimum funding requirements. In 2020 and 2019, we voluntarily made contributions totaling $5.9 million, and $7.1 million, respectively. We plan to make a voluntary contribution of approximately $6.2 million to the defined benefit pension plan in 2021. In determining future contributions, we will consider the performance of the plan's investment portfolio, the effects of interest rates on the projected benefit obligation of the plan and our other capital requirements. As of December 31, 2020, we had accrued a liability of $10.4 million related to our defined benefit pension plan as the projected obligation was in excess of plan assets. The supplemental executive retirement plan benefits are accrued for and are paid from MGIC assets following employee retirements. We plan to pay benefits of approximately $0.3 million under the supplemental executive retirement plan in 2021.

Our projected benefit obligations under these plans are subject to numerous actuarial assumptions that may change in the future and as a result could substantially increase or decrease our obligations. Plan assets held to pay our defined benefit pension plan obligations are primarily invested in a portfolio of debt securities to preserve capital and to provide monthly cash flows aligned with the liability component of our obligations, with a lesser percentage invested in a mix of equity securities. If the performance of our invested plan assets differs from our expectations, the funded status of the defined benefit pension plan may decline, even with no significant change in the obligations. See Note 11 - "Benefit Plans" to our consolidated financial statements for a complete discussion of these plans and their effect on the consolidated financial statements.
Management's Discussion and Analysis

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2017 Form 10-K
Overview
Non-GAAP
Mortgage Insurance Portfolio
Consolidated Results of Operations
Balance Sheet Analysis
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
Glossary of terms and acronyms
Table of Contents

MGIC Investment Corporation and Subsidiaries

Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms

CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies

The accounting policies described below require significant judgments and estimates in the preparation of our consolidated financial statements.


LOSS RESERVES
Loss reserves include case reserves, IBNR reserves, and LAE reserves.

Case Reserves
Case reserves are established for reportedestimated insurance losses and LAE based on when notices of delinquency on insured mortgage loans are received. Such loans are referred to as being in out delinquency inventory. For reporting purposes, we consider a loan delinquent when it is two or more payments past due.due and has not become current or resulted in a claim payment. Even though the accounting standard, ASC 944, regarding accounting and reporting by insurance entities specifically excluded mortgage insurance from its guidance relating to loss reserves, we establish loss reserves using the general principles contained in the insurance standard. However, consistent with industry standards for mortgage insurers, we do not establish loss reserves for future claims on insured loans which are not currently delinquent.


We establish reserves using estimated claim rates and claim severities in estimating the ultimate loss.


The estimated claim rates and claim severities represent whatare used to determine the amount we estimate will actually be paid on the delinquent loans as of the reserve date. If a policy is rescinded we do not expect that it will result in a claim payment and thus the rescission generally reduces the historical claim rate used in establishing reserves. In addition, if a loan cures its delinquency, including through a successful loan modifications that result in a cure being reported to us,modification, the cure reduces the historical claim rate used in establishing reserves. Our methodology to estimate claim rates and claim amounts is based on our review of recent trends in the delinquent inventory. To establish reserves, we utilize a reserving model that continually incorporates historical data into the estimated claim rate. The model also incorporates an estimate for the amount of the claim we will pay, or severity. The severity is estimated using the historical percentage of our claimclaims paid compared to our loan exposure,exposures, as well as the RIF of the loans currently in default. We do not utilize an explicit rescission rate in our reserving methodology, but rather our reserving methodology incorporates the effects rescission activity has had on our historical claim rate and claim severities. We review recent trends in the claim rate, severity, levels of defaults by geography and average loan exposure. As a result, the process to determine reserves does not include quantitative ranges of outcomes that are reasonably likely to occur.


The claim rates and claim severities are affected by external events, including actual economic conditions such as changes in unemployment rate,rates, interest raterates or housing values;values, pandemics and natural disasters. Our estimation process does not include a correlation between claim rates and claim amountsseverities to projected economic conditions such as changes in unemployment rate,rates, interest raterates or housing values. Our experience is that analysis of that nature would not produce reliable results as the change in one economic condition cannot be isolated to determine its solespecific effect on our ultimate paid losses because iteach economic condition is also influenced by other economic conditions at the same time.
conditions. Additionally, the changes and interactioninteractions of these economic conditions are not likely homogeneous throughout the regions in which we conduct business. Each economic environmentcondition influences our ultimate paid losses differently, even if apparently similar in nature. Furthermore, changes in economic conditions may not necessarily be reflected in our loss development in the quarter or year in which the changes occur. Actual claim results oftengenerally lag changes in economic conditions by at least nine to twelve months.


Our estimates are also affected by any agreements we enter into regarding our claims paying practices, such as the settlement agreements discussed in Note 17 – “Litigation and Contingencies” to our consolidated financial statements.


In considering the potential sensitivity of the factors underlying ourOur estimate of loss reserves is sensitive to changes in claim rate and claim severity; it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of December 31, 2020, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the reserve amount by approximately +/- $18$16 million. A 1one percentage point increase/decrease in the average claim rate reserve factor would change the reserve amount by approximately +/- $26 million as of December 31, 2017.$34 million. Historically, it has not been uncommon for us to


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2017 Form 10-K
Critical Accounting Policies (continued)

experience variability in the development of the loss reserves through the end of the following year at this level or higher, as shown by the historical development of our loss reserves in the table below:
Historical development of loss reserves
(In thousands)
Losses incurred related to prior years (1)
Reserve at end of prior year
202019,604 555,334 
2019(71,006)674,019 
2018(167,366)985,635 
2017(231,204)1,438,813 
2016(147,658)1,893,402 
 Tablet.33    
Historical development of loss reserves(In thousands) 
Losses incurred related to prior years (1)
 Reserve at end of prior year
2017 $(231,204) $1,438,813
 2016 (147,658) 1,893,402
 2015 (110,302) 2,396,807
 2014 (100,359) 3,061,401
 2013 (59,687) 4,056,843
(1)
A negative number for a prior year indicates a redundancy of loss reserves.

(1)A negative number for a prior year indicates a redundancy of loss reserves. A positive number for a prior year indicates a deficiency of loss reserves.

See Note 8 – “Loss Reserves” to our consolidated financial statements for a discussion of recent loss development.


IBNR Reserves
ReservesIBNR reserves are also established for delinquencies estimated IBNR, which results from delinquencies occurringto have occurred prior to the close of an accounting period, but which have not beenyet reported to us. Consistent with reserves for reported defaults,delinquencies, IBNR reserves are established using estimated claim rates and claim severities for the estimated number of delinquencies not reported. As of December 31, 20172020 and 2016,2019, we had IBNR reserves of approximately $35$28 million and $54$23 million, respectively.


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

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Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
regional or national economic conditions, including unemployment, leading to a reduction in borrower 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, and may affect borrower willingness to continue to make mortgage payments when the value of the home is below the mortgage balance.
 
LAE Reserves
ReservesLAE reserves are also established for the estimated costs of settling claims, including legal and other expenses and general expenses of administering the claims settlement process.


Revenue recognitionREVENUE RECOGNITION
When a policy term ends, the primary mortgage insurance written by us is renewable at the insured’s option through continued payment of the premium in accordance with the schedule established at the inception of the policy life. We are generally obligated to renew the policies and have no ability to reunderwritere-underwrite or reprice these policies after issuance. Premiums written underon monthly premium policies havingare earned as coverage is provided. Premiums written on single premium policies and annual premium paymentspolicies are initially deferred as unearned premium reserve and earned over the estimated policy life. Premiums written on policies covering more than one year are amortized over the policy life in relationship tobased on historical experience, which includes the anticipated incurred loss pattern based on historical experience.pattern. Premiums written on annual premium policies are earned on a monthly pro rata basis. Premiums written on monthly policies are earned as the monthly coverage is provided.  When a policy is cancelled, all premium that is non-refundable is immediately earned. Any refundable premium is returned to the servicer or borrower. Policies may be cancelled by the insured, or due to rescissions or claim payment.payments. When a policy is rescinded, all previously collected premium is returned to the servicer, and when a claim is paid, all premium collected since the date of default is returned. The liability associated with our estimate of premium to be returned is accrued for separately and this liability is included in “Other liabilities” on our consolidated balance sheets. Changes in these liabilities and the actual return of premium affect premiums written and earned.
 
Fee income of our non-insurance subsidiaries is earned and recognized as the services are provided and the customer is obligated to pay.






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Management's Discussion and Analysis
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2017 Form 10-K
Critical Accounting Policies (continued)

Deferred insurance policy acquisition costsDEFERRED INSURANCE POLICY ACQUISITION COSTS
Costs directly associated with the successful acquisition of mortgage insurance business, consisting of employee compensation and other policy issuance and underwriting expenses, are initially deferred and reported as deferred insurance policy acquisition costs ("DAC"). The deferred costs are net of any ceding commissions received associated with our reinsurance agreements.transactions. For each underwriting year of business, these costs are amortized to income in proportion to estimated gross profits over the estimated life of the policies. We utilize anticipated investment income in our calculation. This includes accruing interest on the unamortized balance of DAC. The estimates for each underwriting year are reviewed quarterly and updated when necessary to reflect actual experience and any changes to key variables such as persistency or loss development.


Because our insurance premiums are earned over time, changes in persistency result in DAC being amortized against revenue over a longer or shorter period of time. However, even a 10%
change in persistency would not have a material effect on the amortization of DAC in the subsequent year.


Fair value measurementsFAIR VALUE MEASUREMENTS
Investment Portfolio
Fixed income securities.Our entire investment portfolio isfixed income securities are classified as available-for-sale and isare reported at fair value or, for certain equity securities carried at cost, amounts that approximate fair value. The related unrealized investment gains or losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income (loss) in shareholders' equity. Realized investment gains and losses on investmentsfixed income securities are recognizedreported in income based upon specific identification of securities sold.sold, as well as any credit allowance (2020), and any "other than temporary" impairments (2019) recognized in earnings.


Equity securities. Our equity securities reported at fair value are classified as available-for-sale. Equity securities carried at cost, for which the amount approximates fair value, are reported as Other Invested Assets. Realized investment gains and losses on equity securities are reported in income based upon specific identification of securities sold, as well as any change in fair value of equity securities.

Other invested assets.Other invested assets are carried at cost. These assets represent our investment in FHLB stock, which due to restrictions, is required to be redeemed or sold only to the security issuer at par value.
In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities:
èLevel 1Quoted prices for identical instruments in active markets that we can access. Financial assets using Level 1 inputs primarily include U.S. Treasury securities, money market funds, treasury bills, and certain equity securities.
èLevel 2Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, most municipal bonds, and commercial paper.

The independent pricing sources used for our Level 2 investments vary by type of investment. See Note 6 - "Fair Value Measurements" for further information.
èLevel 3Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or, from par values due to restrictions on certain securities that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.


MGIC Investment Corporation 2020 Form 10-K | 82
MGIC Investment Corporation and Subsidiaries
Management's Discussion and Analysis
Table of Contents | Glossary of terms and acronyms
To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources includingutilized; in approximate order of priority, they are: benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation.


Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities:

Level 1 - Quoted prices for identical instruments in active markets that we can access. Financial assets utilizing Level 1 inputs primarily include U.S. Treasury securities and certain equity securities.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the financial instrument. The observable inputs are used in valuation models to calculate the fair value of the financial instruments. Financial assets utilizing Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, and certain municipal bonds.



MGIC Investment Corporation 2017 Form 10-K | 97
Management's Discussion and Analysis
MGIC Investment Corporation
2017 Form 10-K
Critical Accounting Policies (continued)

The independent pricing sources used for our Level 2 investments vary by type of investment See Note 3 - "Significant Accounting Policies" for further information on the independent pricing sources used.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, or for certain equity securities, from their par value due to restrictions that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.


Unrealized losses and other-than-temporary impairment ("OTTI")allowance for credit losses
EachEffective January 1, 2020, each quarter we perform reviews of our investments in order to determine whetherassess declines in fair value below amortized cost were considered other-than-temporary.of available-for-sale securities. Any impairment losses on available-for-sale securities are recorded as an allowance for credit losses, subject to reversal, with realized investment gains and losses. In evaluating whether a decline in fair value is other-than-temporary,credit allowance should be established, we consider several factors including, but not limited to:

▪èour intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis;
▪èthe present value of the discounted cash flows we expect to collect compared to the amortized cost basis of the security;
▪extent and duration of the decline;
▪èfailure of the issuer to make scheduled interest or principal payments;
▪èchange in rating below investment grade; and
è
▪adverse conditions specifically related to the security, an industry, or a geographic area.


Based on our evaluation, we will record an OTTI adjustment on a security if we intend to sell the impaired security, if it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis, or if the present value of the discounted cash flows we expect to collect is less than the amortized costs basis of the security. If

When a security is considered to be impaired, the losses are separated into the portion of the loss that represents the credit loss and the portion that is due to other factors. An allowance for credit losses is recorded, subject to reversal, for the credit loss portion in the statement of operations, while the loss due to other factors is recognized in accumulated other comprehensive loss, net of taxes. A credit loss is determined to exist if the
present value of the discounted cash flows, using the security’s original yield, expected to be collected from the security is less than the cost basis of the security.

For 2019, our evaluation of whether a decline in fair values is other-than-temporary also included reviewing the extent and duration of the decline. Based on our evaluation, if the fair value of a security is below its amortized cost at the time of our intent to sell, the security is classified as other-than-temporarily
impaired and the full amount of the impairment is
recognized as a loss in the statement of operations.
Otherwise, when a security is considered to be other-than-temporarily impaired, the losses are separated into the portion of the loss that represents the credit loss;loss and the portion that is due to other factors. The credit loss portion is recognized as a loss in the statement of operations, while the loss due to other factors is recognized in accumulated other comprehensive income (loss),loss, net of taxes. A credit loss is determined to exist if the present value of the discounted cash flows, using the security’s original yield, expected to be collected from the security is less than the cost basis of the security. If the security is determined to be other-than-temporary-impaired the security is classified as other-than-temporarily impaired and the full amount of the impairment is recognized as a loss in the statement of operations.


Fair Value Option
For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, we did not elect the fair value option for any financial instruments acquired, or issued, such as our outstanding debt obligations, for which the primary basis of accounting is not fair value.





MGIC Investment Corporation 20172020 Form 10-K | 9883

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
MGIC Investment Corporation
2017 Form 10-K
Glossary of terms and acronyms
Table of Contents


Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Our investment portfolio is essentially a fixed income portfolio and is exposed to market risk. Important drivers of the market risk are credit spread risk and interest rate risk.


Credit spread risk is the risk that we will incur a loss due to adverse changes in credit spreads. Credit spread is the additional yield on fixed income securities above the risk-free rate (typically referenced as the yield on U.S. Treasury securities) that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks.


We manage credit risk via our investment policy guidelines which primarily require us to place our investments in investment grade securities and limit the amount of our credit exposure to any one issue, issuer and type of instrument. Guideline and investment portfolio detail is available in "Business – Section C, Investment Portfolio" in Item 1.


Interest rate risk is the risk that we will incur a loss due to adverse changes in interest rates relative to the characteristics of our interest bearing assets.


One of the measures used to quantify interest rate this exposure is modified duration. Modified duration measures the price sensitivity of the assets to the changes in spreads. At December 31, 2017,2020, the modified duration of our fixed income investment portfolio was 4.3 years, which means that an instantaneous parallel shift in the yield curve of 100 basis points would result in a change of 4.3% in the fair value of our fixed income portfolio. For an upward shift in the yield curve, the fair value of our portfolio would decrease and for a downward shift in the yield curve, the fair value would increase. A discussion of portfolio strategy appears in "Management's"Management's Discussion and Analysis – Balance Sheet Analysis– Investments"Review– Investment Portfolio" in Item 7.



MGIC Investment Corporation 20172020 Form 10-K | 9984


Item 8.
Financial Statements and Supplementary Data.Data
The following consolidated financial statements are filed pursuant to this Item 8:
Index to consolidated financial statementsPage No.
Page No.
Consolidated balance sheets at December 31, 20172020 and 20162019
10186
Consolidated statements of operations for each of the three years in the period ended December 31, 2017
2020
10287
Consolidated statements of comprehensive income for each of the three years in the period ended December 31, 2017
2020
10388
Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 2017
2020
10489
Consolidated statementstatements of cash flows for each of the three years in the period ended December 31, 2017
2020
10590
10791
Note 1. Nature of Business
10791
Note 2. Basis of Presentation
10791
Note 3. Significant Accounting Policies
10892
Note 4. Earnings Per Share
11697
Note 5. Investments
11798
Note 6. Fair Value Measurements
120101
Note 7. Debt
122105
Note 8. Loss Reserves
126107
Note 9. Reinsurance
130110
Note 10. Other Comprehensive (Loss) Income
133115
Note 11. Benefit Plans
135117
Note 12. Income Taxes
142122
Note 13. Shareholders' Equity
145123
Note 14. Statutory Information
146123
Note 15. Share-based Compensation
148125
Note 16. Leases
150126
Note 17. Litigation and Contingencies
150126
Note 18. Unaudited Quarterly Financial Data
152127
153128




MGIC Investment Corporation 20172020 Form 10-K | 10085

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands)Note20202019
Assets
Investment portfolio:
5 / 6
Fixed income, available-for-sale, at fair value (amortized cost, 2020 - $6,317,164; 2019 - $5,562,550)$6,661,596 $5,737,892 
Equity securities, at fair value (cost, 2020 - $17,522; 2019 - $17,188)18,215 17,328 
Other invested assets, at cost3,100 3,100 
Total investment portfolio6,682,911 5,758,320 
Cash and cash equivalents287,953 161,847 
Restricted cash and cash equivalents8,727 7,209 
Accrued investment income49,997 49,705 
Reinsurance recoverable on loss reserves
9
95,042 21,641 
Reinsurance recoverable on paid losses
9
669 1,521 
Premiums receivable56,044 55,587 
Home office and equipment, net47,144 50,121 
Deferred insurance policy acquisition costs21,561 18,531 
Other assets104,478 105,089 
Total assets$7,354,526 $6,229,571 
Liabilities and shareholders' equity
Liabilities:
Loss reserves
8
$880,537 $555,334 
Unearned premiums287,099 380,302 
Federal Home Loan Bank Advance
7
155,000 155,000 
Senior notes
7
879,379 420,867 
Convertible junior subordinated debentures
7
208,814 256,872 
Other liabilities244,711 151,962 
Total liabilities2,655,540 1,920,337 
Contingencies
17
00
Shareholders' equity:
13
Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2020 - 371,353; 2019 - 371,353; outstanding 2020 - 338,573; 2019 - 347,308)371,353 371,353 
Paid-in capital1,862,042 1,869,719 
Treasury stock (shares at cost 2020 - 32,779; 2019 - 24,045)(393,326)(283,196)
Accumulated other comprehensive income, net of tax
10
216,821 72,708 
Retained earnings2,642,096 2,278,650 
Total shareholders' equity4,698,986 4,309,234 
Total liabilities and shareholders' equity$7,354,526 $6,229,571 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation 2020 Form 10-K | 86

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(In thousands, except per share data)Note202020192018
Revenues:
Premiums written:
Direct$1,106,632 $1,124,196 $1,103,332 
Assumed10,837 6,446 271 
Ceded
9
(188,727)(129,334)(111,341)
Net premiums written928,742 1,001,308 992,262 
Decrease (increase) in unearned premiums93,201 29,680 (17,100)
Net premiums earned
9
1,021,943 1,030,988 975,162 
Investment income, net of expenses
5
154,396 167,045 141,331 
Net realized investment gains (losses)
5
13,752 5,306 (1,353)
Other revenue9,055 10,638 8,708 
Total revenues1,199,146 1,213,977 1,123,848 
Losses and expenses:   
Losses incurred, net
8 / 9
364,774 118,575 36,562 
Amortization of deferred policy acquisition costs12,380 12,001 11,932 
Other underwriting and operating expenses, net176,398 182,768 178,211 
Loss on debt extinguishment726,736 0 0 
Interest expense
7
59,595 52,656 52,993 
Total losses and expenses639,883 366,000 279,698 
Income before tax559,263 847,977 844,150 
Provision for income taxes
12
113,170 174,214 174,053 
Net income$446,093 $673,763 $670,097 
Earnings per share:
4
   
Basic$1.31 $1.91 $1.83 
Diluted$1.29 $1.85 $1.78 
Weighted average common shares outstanding - basic
4
339,953 352,827 365,406 
Weighted average common shares outstanding - diluted
4
359,293 373,924 386,078 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation 2020 Form 10-K | 87

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
(In thousands)Note202020192018
Net income$446,093 $673,763 $670,097 
Other comprehensive income (loss), net of tax:
10
Change in unrealized investment gains and losses5133,616 173,910 (64,646)
Benefit plans adjustment
11
10,497 23,012 (15,767)
Other comprehensive income (loss), net of tax144,113 196,922 (80,413)
Comprehensive income$590,206 $870,685 $589,684 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation 2020 Form 10-K | 88

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 Years Ended December 31,
(In thousands)Note202020192018
Common stock
Balance, beginning of year$371,353 $371,353 $370,567 
Net common stock issued under share-based compensation plans0 0 786 
Balance, end of year371,353 371,353 371,353 
Paid-in capital  
Balance, beginning of year1,869,719 1,862,536 1,850,582 
Reacquisition of convertible junior subordinated debentures-equity component7(2,673)0 0 
Net common stock issued under share-based compensation plans0 0 (8,917)
Reissuance of treasury stock, net under share-based compensation plans(18,807)(11,715)0 
Equity compensation13,803 18,898 20,871 
Balance, end of year1,862,042 1,869,719 1,862,536 
Treasury stock  
Balance, beginning of year(283,196)(175,059)0 
Purchases of common stock
13
(119,997)(114,126)(175,059)
Reissuance of treasury stock, net under share-based compensation plans9,867 5,989 0 
Balance, end of year(393,326)(283,196)(175,059)
Accumulated other comprehensive income (loss)  
Balance, beginning of year72,708 (124,214)(43,783)
Cumulative effect of financial instruments accounting standard update
3
— — (18)
Other comprehensive income (loss)
10
144,113 196,922 (80,413)
Balance, end of year216,821 72,708 (124,214)
Retained earnings  
Balance, beginning of year2,278,650 1,647,275 977,160 
Cumulative effect of financial instruments accounting standard update
3
— — 18 
Net income446,093 673,763 670,097 
Cash dividends(82,647)(42,388)0 
Balance, end of year2,642,096 2,278,650 1,647,275 
Total shareholders' equity$4,698,986 $4,309,234 $3,581,891 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation 2020 Form 10-K | 89

MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands)202020192018
Cash flows from operating activities:
Net income$446,093 $673,763 $670,097 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and other amortization57,812 48,784 58,215 
Deferred tax expense27,475 11,096 186,572 
Loss on debt extinguishment26,736 0 0 
Net realized investment (gains) losses(13,752)(5,306)1,353 
Change in certain assets and liabilities:   
Accrued investment income(292)(1,704)(1,941)
Reinsurance recoverable on loss reserves(73,401)11,687 15,146 
Reinsurance recoverable on paid losses852 1,427 924 
Premiums receivable(457)(497)(1,045)
Deferred insurance policy acquisition costs(3,030)(643)953 
Profit commission receivable4,586 4,945 (5,479)
Loss reserves325,203 (118,685)(311,616)
Unearned premiums(93,203)(29,683)17,051 
Return premium accrual(500)(11,500)(22,900)
Current income taxes6,271 1,057 (77,551)
Other, net21,916 24,791 14,738 
Net cash provided by operating activities732,309 609,532 544,517 
Cash flows from investing activities:
Purchases of investments(2,636,972)(1,394,126)(1,459,473)
Proceeds from sales of investments836,851 229,796 370,449 
Proceeds from maturity of fixed income securities1,030,926 748,165 785,175 
Net decrease in payables for securities0 (307)307 
Additions to property and equipment(3,311)(5,636)(14,238)
Net cash used in investing activities(772,506)(422,108)(317,780)
Cash flows from financing activities:
Proceeds from issuance of senior notes640,250 0 0 
Purchase of senior notes(179,735)0 0 
Payment of original issue discount - senior notes(2,969)0 0 
Purchase of convertible junior subordinated debentures(36,392)0 0 
Payment of original issue discount- convertible junior subordinated debentures(15,049)0 0 
Cash portion of loss on debt extinguishment(25,266)0 0 
Repurchase of common stock(119,997)(125,766)(163,419)
Dividends paid(82,061)(41,914)0 
Payment of debt issuance costs(2,020)0 0 
Payment of withholding taxes related to share-based compensation net share settlement(8,940)(5,726)(8,131)
Net cash provided by (used in) financing activities167,821 (173,406)(171,550)
Net increase in cash and cash equivalents and restricted cash and cash equivalents127,624 14,018 55,187 
Cash and cash equivalents and restricted cash and cash equivalents at beginning of year169,056 155,038 99,851 
Cash and cash equivalents and restricted cash and cash equivalents at end of year$296,680 $169,056 $155,038 
See accompanying notes to consolidated financial statements.

MGIC Investment Corporation 2020 Form 10-K | 90
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents


  MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED BALANCE SHEETS
         
      December 31,
  (In thousands) Note 2017 2016
  Assets      
  Investment portfolio: 
5 / 6
    
  Securities, available-for-sale, at fair value:      
  Fixed income (amortized cost, 2017 - $4,946,278; 2016 - $4,717,211)   $4,983,315
 $4,685,222
  Equity securities   7,246
 7,128
  Total investment portfolio   4,990,561
 4,692,350
         
  Cash and cash equivalents   99,851
 155,410
  Accrued investment income   46,060
 44,073
  Reinsurance recoverable on loss reserves 
9
 48,474
 50,493
  Reinsurance recoverable on paid losses 
9
 3,872
 4,964
  Premiums receivable   54,045
 52,392
  Home office and equipment, net   44,936
 36,088
  Deferred insurance policy acquisition costs   18,841
 17,759
  Deferred income taxes, net 
12
 234,381
 607,655
  Other assets   78,478
 73,345
  Total assets   $5,619,499
 $5,734,529
         
  Liabilities and shareholders' equity      
  Liabilities:      
  Loss reserves 
8
 $985,635
 $1,438,813
  Unearned premiums   392,934
 329,737
  FHLB Advance 
7
 155,000
 155,000
  Senior notes 
7
 418,560
 417,406
  Convertible senior notes 
7
 —
 349,461
  Convertible junior subordinated debentures 
7
 256,872
 256,872
  Other liabilities   255,972
 238,398
  Total liabilities   2,464,973
 3,185,687
  Contingencies 
17
 

 

  Shareholders' equity: 
13
    
  Common stock (one dollar par value, shares authorized 1,000,000; shares issued 2017 - 370,567; 2016 - 359,400; outstanding 2017 - 370,567; 2016 - 340,663)   370,567
 359,400
  Paid-in capital   1,850,582
 1,782,337
  Treasury stock (shares at cost 2016 - 18,737)   —
 (150,359)
  Accumulated other comprehensive loss, net of tax 
10
 (43,783) (75,100)
  Retained earnings   977,160
 632,564
  Total shareholders' equity   3,154,526
 2,548,842
  Total liabilities and shareholders' equity   $5,619,499
 $5,734,529
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 2017 Form 10-K | 101
NOTE 1
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents



  MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF OPERATIONS
           
      Years Ended December 31,
  (In thousands, except per share data) Note 2017 2016 2015
  Revenues:        
  Premiums written:        
  Direct   $1,121,776
 $1,107,923
 $1,074,490
  Assumed   1,905
 1,053
 1,178
  Ceded 
9
 (125,726) (133,885) (55,391)
  Net premiums written   997,955
 975,091
 1,020,277
  Increase in unearned premiums   (63,208) (49,865) (124,055)
  Net premiums earned 
9
 934,747
 925,226
 896,222
           
  Investment income, net of expenses 
5
 120,871
 110,666
 103,741
  Net realized investment gains   249
 8,932
 28,361
  Other revenue   10,187
 17,659
 12,964
  Total revenues   1,066,054
 1,062,483
 1,041,288
           
  Losses and expenses:    
  
  
  Losses incurred, net 
8 / 9
 53,709
 240,157
 343,547
  Change in premium deficiency reserve 
3
 —
 —
 (23,751)
  Amortization of deferred policy acquisition costs   11,111
 9,646
 8,789
  Other underwriting and operating expenses, net   159,638
 150,763
 155,577
  Interest expense 
7
 57,035
 56,672
 68,932
  Loss on debt extinguishment 
7
 65
 90,531
 507
  Total losses and expenses   281,558
 547,769
 553,601
  Income before tax   784,496
 514,714
 487,687
  Provision for (benefit from) income taxes 
12
 428,735
 172,197
 (684,313)
  Net income   $355,761
 $342,517
 $1,172,000
           
  Earnings per share: 
4
  
  
  
  Basic   $0.98
 $1.00
 $3.45
  Diluted   $0.95
 $0.86
 $2.60
           
  Weighted average common shares outstanding - basic 
4
 362,380
 342,890
 339,552
  Weighted average common shares outstanding - diluted 
4
 394,766
 431,992
 468,039
           
  Dividends per share   $—
 $—
 $—
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 2017 Form 10-K | 102
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents


  MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
           
      Years Ended December 31,
  (In thousands) Note 2017 2016 2015
  Net income   $355,761
 $342,517
 $1,172,000
  Other comprehensive income (loss), net of tax: 
10
      
  Change in unrealized investment gains and losses 
5
 47,547
 (3,649) 40,403
  Benefit plans adjustment 
11
 (5,839) (9,620) (15,714)
  Foreign currency translation adjustment   31
 (951) (4,228)
  Other comprehensive income (loss), net of tax   41,739
 (14,220) 20,461
  Comprehensive income   $397,500
 $328,297
 $1,192,461
See accompanying notes to consolidated financial statements.


MGIC Investment Corporation 2017 Form 10-K | 103
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents

 MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
          
     Years Ended December 31,
 (In thousands) Note 2017 2016 2015
 Common stock        
 Balance, beginning of year   $359,400
 $340,097
 $340,047
 Issuance of common stock 
13
 10,386
 18,313
 —
 Net common stock issued under share-based compensation plans   781
 990
 50
 Balance, end of year   370,567
 359,400
 340,097
          
 Paid-in capital    
  
  
 Balance, beginning of year   1,782,337
 1,670,238
 1,663,592
 Cumulative effect of share-based compensation accounting standard update 
3
 49
 —
 —
 Issuance of common stock 
13
 60,903
 113,146
 —
 Net common stock issued under share-based compensation plans   (7,602) (6,020) (478)
 Reissuance of treasury stock, net under share-based compensation plans   —
 (130) (6,894)
 Tax benefit from share-based compensation   —
 67
 2,116
 Equity compensation   14,895
 11,373
 11,902
 Reacquisition of convertible junior subordinated debentures-equity component 
7
 —
 (6,337) —
 Balance, end of year   1,850,582
 1,782,337
 1,670,238
          
 Treasury stock    
  
  
 Balance, beginning of year   (150,359) (3,362) (32,937)
 Purchases of common stock 
13
 —
 (147,127) —
 Reissuance of treasury stock, net   150,359
 —
 —
 Reissuance of treasury stock, net under share-based compensation plans   —
 130
 29,575
 Balance, end of year   —
 (150,359) (3,362)
          
 Accumulated other comprehensive loss    
  
  
 Balance, beginning of year   (75,100) (60,880) (81,341)
 Other comprehensive income (loss) 
10
 41,739
 (14,220) 20,461
 Cumulative effect to reclassify certain tax effects from accumulated other comprehensive loss 
3
 (10,422) —
 —
 Balance, end of year   (43,783) (75,100) (60,880)
          
 Retained earnings (deficit)    
  
  
 Balance, beginning of year   632,564
 290,047
 (852,458)
 Cumulative effect of share-based compensation accounting standard update 
3
 153
 —
 —
 Net income   355,761
 342,517
 1,172,000
 Reissuance of treasury stock, net   (21,740) —
 —
 Reissuance of treasury stock, net under share-based compensation plans   —
 —
 (29,495)
 Cumulative effect to reclassify certain tax effects from accumulated other comprehensive loss 
3
 10,422
 —
 —
 Balance, end of year   977,160
 632,564
 290,047
          
 Total shareholders' equity   $3,154,526
 $2,548,842
 $2,236,140

See accompanying notes to consolidated financial statements.


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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents

 MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
        
   Years Ended December 31,
 (In thousands) 2017 2016 2015
 Cash flows from operating activities:      
 Net income $355,761
 $342,517
 $1,172,000
 Adjustments to reconcile net income to net cash provided by operating activities:      
 Depreciation and other amortization 64,430
 61,342
 52,559
 Deferred tax expense (benefit) 355,044
 162,356
 (692,810)
 Net realized investment gains (249) (8,932) (28,361)
 Loss on debt extinguishment 65
 90,531
 507
 Change in certain assets and liabilities:  
  
  
 Accrued investment income (1,987) (3,849) (9,706)
 Prepaid reinsurance premium 11
 101
 47,457
 Reinsurance recoverable on loss reserves 2,019
 (6,006) 13,354
 Reinsurance recoverable on paid losses 1,092
 (1,645) 3,105
 Premiums receivable (1,653) (3,923) 8,973
 Deferred insurance policy acquisition costs (1,082) (2,518) (3,001)
 Profit commission receivable (2,844) (747) 64,525
 Loss reserves (453,178) (454,589) (503,405)
 Premium deficiency reserve —
 —
 (23,751)
 Unearned premiums 63,197
 49,764
 76,559
 Return premium accrual (25,400) (18,800) (9,600)
 Income taxes payable - current 49,178
 1,123
 2,518
 Other, net 2,253
 18,035
 (9,528)
 Net cash provided by operating activities 406,657
 224,760
 161,395
 Cash flows from investing activities:      
 Purchases of investments:      
 Fixed income (1,293,616) (1,360,386) (2,462,844)
 Equity securities (79) (3,197) (2,623)
 Proceeds from sales of fixed income 246,908
 728,042
 1,796,153
 Proceeds from maturity of fixed income 759,212
 547,444
 559,774
 Proceeds from sale of equity securities —
 5,257
 —
 Net increase in restricted cash —
 —
 17,212
 Additions to property and equipment (16,066) (10,552) (4,630)
 Net cash used in investing activities (303,641) (93,392) (96,958)
 Cash flows from financing activities:      
 Proceeds from revolving credit facility 150,000
 —
 —
 Repayment of revolving credit facility (150,000) —
 —
 Proceeds from issuance of long-term debt —
 573,094
 —
 Repayment of long-term debt —
 —
 (61,953)
 Purchase or repayment of convertible senior notes (145,620) (363,778) (11,152)
 Payment of original issue discount - convertible senior notes (4,504) (11,250) (345)
 Purchase of convertible junior subordinated debentures —
 (100,860) —
 Payment of original issue discount-convertible junior subordinated debentures —
 (41,540) —
 Cash portion of loss on debt extinguishment —
 (59,460) (507)
 Repurchase of common stock —
 (147,127) —
 Payment of debt issuance costs (1,630) (1,127) —
 Payment of withholding taxes related to share-based compensation net share settlement (6,821) (5,030) (7,242)
 Net cash used in financing activities (158,575) (157,078) (81,199)
 Net decrease in cash and cash equivalents (55,559) (25,710) (16,762)
 Cash and cash equivalents at beginning of year 155,410
 181,120
 197,882
 Cash and cash equivalents at end of year $99,851
 $155,410
 $181,120

See accompanying notes to consolidated financial statements.


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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes
Table of Contents



MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015

Note 1. Nature of Business
MGIC Investment Corporation is a holding company which, through Mortgage Guaranty Insurance Corporation ("MGIC"), is principally engaged in the mortgage insurance business.  We provide mortgage insurance to lenders throughout the United States and to government sponsored entities to protect against loss from defaults on low down payment residential mortgage loans. Our principal product is primary mortgage insurance. Primary mortgage insurance provides mortgage default protection on individual loans and covers a percentage of the unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure or sale approved by us. us, of the underlying property. MGIC Assurance Corporation ("MAC") and MGIC Indemnity Corporation ("MIC"), insurance subsidiaries of MGIC, provide insurance for certain mortgages under Fannie Mae and Freddie Mac (the "GSEs") credit risk transfer programs.

Through certain non-insurance subsidiaries, we also provide various services for the mortgage finance industry, such as contract underwriting, analysis of loan originations and portfolios, and mortgage lead generation. An insurance subsidiary of MGIC provides credit insurance for certain mortgages under Fannie Mae and Freddie Mac (the "GSEs") credit risk transfer programs in transactions entered into in 2016.


At December 31, 2017,2020, our direct domestic primary insurance in force ("IIF") was $194.9$246.6 billion, which represents the principal balance in our records of all mortgage loans that we insure, and our direct domestic primary risk in force ("RIF") was $50.3$61.8 billion, which represents the IIF multiplied by the insurance coverage percentage.


Substantially allThe substantial majority of our insurance written since 2008NIW has been for loans purchased by the GSEs. We operate under the Private Mortgage Insurer Eligibility RequirementsThe current private mortgage insurer eligibility requirements ("PMIERs") of the GSEs that became effective December 31, 2015include financial requirements, as well as business, quality control and which have been amended from time to time.certain transactional approval requirements. The financial requirements of the PMIERs require a mortgage insurer’s "Available Assets" (generally only the most liquid assets of an insurer) to equal or exceed its "Minimum Required Assets" (which are based on an insurer's book of risk in force, calculated from tables of factors with several risk dimensions and subject to a floor amount)dimensions). Based on our interpretationapplication of the PMIERs, as of December 31, 2017,2020, MGIC’s Available Assets are in excess of its Minimum Required Assets; and MGIC is in compliance with the financial requirements of the PMIERs and eligible to insure loans purchased by the GSEs.


Note 2. Basis of Presentation

Basis of presentation
NOTE 2Basis of Presentation
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), as codified in the Accounting Standards Codification ("ASC"). Our consolidated financial statements include the accounts of MGIC Investment Corporation and its majority-owned subsidiaries. Intercompany transactions and balances have been eliminated. In accordance with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We have considered subsequent events through the date of this filing.


ReclassificationsRECLASSIFICATIONS
Certain reclassifications to 20162019 and 20152018 amounts have been made in the accompanying consolidated financial statements to conform to the 20172020 presentation. See

RECENT DEVELOPMENTS
The COVID-19 pandemic had a material impact on our 2020 financial results. Among other things, the COVID-19 pandemic led to an increase in delinquencies, which increased our capital requirements under PMIERs on those delinquent loans and increased our losses incurred. While uncertain, the future impact of the COVID-19 pandemic on the Company’s business, financial results, liquidity and/or financial condition may also be material. The magnitude of the impact will be influenced by various factors, including the length and severity of the pandemic in the United States, the length of time that measures intended to reduce the transmission of COVID-19 remain in place, the level of unemployment, and the impact of government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs) to mitigate the economic harm caused by COVID-19.

SUBSEQUENT EVENTS
We have considered subsequent events through the date of this filing. In February 2021, MGIC executed an insurance linked note transaction. In addition, we have agreed to terms on a quota share reinsurance transaction which provides coverage on eligible NIW in 2021 and 2022 (see Note 39 - "Significant Accounting Policies" for a discussion of our adoption of accounting guidance in 2017 that resulted in other reclassifications."Reinsurance").





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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Consolidated Financial Statements and NotesNOTE 3
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Significant Accounting Policies


Note 3. Significant Accounting Policies
Cash and Cash EquivalentsCASH AND CASH EQUIVALENTS
We consider money market funds and investments with original maturities of three months or less to be cash equivalents.


FairRESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consists of cash and money market funds held in trusts for the benefit of contractual counterparties under reinsurance agreements.

FAIR VALUE MEASUREMENTS
We carry certain financial instruments at fair value measurementsand disclose the fair value of all financial instruments. Our financial instruments carried at fair value are predominantly measured on a recurring basis. Financial instruments measured on a nonrecurring basis are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

The authoritative accounting guidance includesfair value of an asset or liability is defined as the price that would be received upon a framework for measuring fair value.sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value is disclosedbased on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models or other valuation techniques that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters including yield curves, interest rates, volatilities, equity or debt prices, and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.

Valuation process
We use independent pricing sources to determine the fair value of a substantial majority of our financial instruments, which primarily consist of assets in our investment portfolio, but also includes cash and cash equivalents and restricted cash and cash equivalents. A variety of inputs are used; in approximate order of priority, they are: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications.

Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves.

On a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

Valuation hierarchy
A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy that prioritizesis based on the transparency of inputs to the valuation techniques used to measure fair value and includes Levels 1, 2, and 3.of a financial instrument as of the measurement date. To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources, as described in "Valuation process," have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation.

Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources.

In accordance with fair value accounting guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities:

Level 1 - Quoted prices for identical instruments in active markets that we can access. Financial assets utilizing Level 1 inputs primarily include U.S. Treasury securities and certain equity securities.

Level 2 - Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets utilizing Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, and most municipal bonds.


The independent pricing sources utilize these approaches to determine the fair value of the instruments in Level 2 of the fair value hierarchy based on type of instrument:

Corporate Debt & U.S. Government and Agency Bondsthree levels are evaluated by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the evaluation process.

Obligations of U.S. States & Political Subdivisions are evaluated by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation.



MGIC Investment Corporation 2017 Form 10-K | 108
defined as follows:
ConsolidatedèLevel 1Quoted prices for identical instruments in active markets that we can access. Financial Statementsassets using Level 1 inputs primarily include U.S. Treasury securities, money market funds, treasury bills, and Notescertain equity securities.
MGIC Investment Corporation
2017 Form 10-K
è		Level 2Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, most municipal bonds, and commercial paper.

The independent pricing sources used for our Level 2 investments vary by type of investment. See Note 6 - "Fair Value Measurements" for further information.
Notes (continued)èLevel 3Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or, from par values due to restrictions on certain securities that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.


Residential Mortgage-Backed Securities ("RMBS")

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Notes to Consolidated Financial Statements
Table of Contents

INVESTMENTS
Fixed income securities.Our fixed income securities are evaluated by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities.

Commercial Mortgage-Backed Securities ("CMBS") are evaluated using valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation utilizes regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable.

Asset-Backed Securities ("ABS") are evaluated using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices.

Collateralized loan obligations ("CLO")Collateralized Loan Obligations are evaluated by manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or, for certain equity securities, from their par value due to restrictions that require them to be redeemed or sold only to the security issuer at par value. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.

Investments
Our entire investment portfolio is classified as available-for-sale and isare reported at fair value or, for certain equity securities carried at cost, amounts that approximate fair value. The related unrealized investment gains or losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive income (loss) in shareholders' equity. Realized investment gains and losses on fixed income securities are reported in income based upon specific identification of securities sold.  (See Note 5 – “Investments.”sold as well as any credit allowance (2020), and any "other than temporary" impairments ("OTTI") (2019).


EachEquity securities. Equity securities are reported at fair value, except for certain securities that are carried at cost. Equity securities carried at cost are reported as Other invested assets. Realized investment gains and losses on equity securities are reported in income based upon specific identification of securities sold, as well as any change in fair value of equity securities.

Other invested assets.Other invested assets are carried at cost. These assets represent our investment in Federal Home Loan Bank of Chicago ("FHLB") stock, which due to restrictions, is required to be redeemed or sold only to the security issuer at par value.

Unrealized losses and allowance for credit losses
Effective January 1, 2020, each quarter we perform reviews of our investments in order to determine whetherassess if declines in fair value below amortized cost were considered other-than-temporary.of available-for-sale securities are impaired. In evaluating whether athe decline in fair value, is other-than-temporary, we consider several factors including, but not limited to:

▪èour intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis;
▪èthe present value of the discounted cash flows we expect to collect compared to the amortized cost basis of the security;
▪extent and duration of the decline;
▪èfailure of the issuer to make scheduled interest or principal payments;
▪èchange in rating below investment grade; and
è
▪adverse conditions specifically related to the security, an industry, or a geographic area.


Based on our evaluation, we will record an other-than-temporary impairment ("OTTI") adjustmenta realized loss on a security if we intend to sell the impaired security, if it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis, or if the present value of the discounted cash flows we expect to collect is less than the amortized cost basis of the security. If

When a security is considered to be impaired, the losses are separated into the portion of the loss that represents the credit loss and the portion that is due to other factors. An allowance for credit losses is recorded, subject to reversal, for the credit loss portion in the statement of operations, while the loss due to other factors is recognized in accumulated other comprehensive loss, net of taxes. A credit loss is determined to exist if the present value of the discounted cash flows, using the security’s original yield, expected to be collected from the security is less than the cost basis of the security.

For 2019, our evaluation of whether a decline in fair values is other-than-temporary also includes reviewing the extent and
duration of the decline. Based on our evaluation, if the fair value of a security is below its


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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

amortized cost at the time of our intent to sell, the security is classified as other-than-temporarily
impaired and the full amount of the impairment is
recognized as a loss in the statement of operations.
Otherwise, when a security is considered to be other-than-temporarily impaired, the losses are separated into the portion of the loss that represents the credit loss and the portion that is due to other factors. The credit loss portion is recognized as a loss in the statement of operations, while the loss due to other factors is recognized in accumulated other comprehensive loss, net of taxes. A credit loss is determined to exist if the present value of the discounted cash flows, using the security’s original yield, expected to be collected from the security is less than the cost basis of the security. If the security is determined to be other-than-temporary-impaired the security is classified as other-than-temporarily impaired and the full amount of the impairment is recognized as a loss in the statement of operations.


Home office and equipmentHOME OFFICE AND EQUIPMENT
Home office and equipment is carried at cost net of depreciation. For financial reporting purposes, depreciation is determined on a straight-line basis for the home office and equipment over estimated lives ranging from 3 to 45 years. For income tax purposes, we use accelerated depreciation methods.


Home office and equipment is shown net of accumulated depreciation of $33.9$51.2 million, $30.6$43.0 million and $26.1$38.1 million as of December 31, 2017, 20162020, 2019 and 2015,2018, respectively. Depreciation expense for the years ended December 31, 2017, 20162020, 2019 and 20152018 was $5.4$6.3 million, $4.6$6.5 million and $3.2$6.0 million, respectively.


Deferred Insurance Policy Acquisition CostsDEFERRED INSURANCE POLICY ACQUISITION COSTS
Costs directly associated with the successful acquisition of mortgage insurance business, consisting of employee compensation and other policy issuance and underwriting expenses, are initially deferred and reported as deferred insurance policy acquisition costs ("DAC"). The deferred costs are net of any ceding commissions received associated with our reinsurance agreements.  For each underwriting year of business, these costs are amortized to income in proportion to estimated gross profits over the estimated life of the policies.  We utilize anticipated investment income in our calculation. This includes accruing interest on the unamortized balance of DAC. The estimates for each underwriting year are reviewed quarterly and updated when necessary to reflect actual experience and any changes to key variables such as persistency or loss development. 


Loss ReservesLOSS RESERVES
Reserves are established for insurance lossesCase reserves and loss adjustment expenses ("LAE") reserves are established when we receive notices of defaultdelinquency on insured mortgage loans. Weloans are received. Such loans are referred to as being in our delinquency inventory. For reporting purposes, we consider a loan in defaultdelinquent when it is two2 or more payments past due.due and has not become current or resulted in a claim payment. Even though the accounting standard, ASC 944, regarding accounting and reporting by insurance entities specifically excludes mortgage insurance from its guidance relating to loss reserves, we establish loss reserves using the general principles contained in the insurance standard. However, consistent with industry standards for mortgage insurers, we do not establish losscase reserves for future claims on insured loans which are not currently in default. Lossdelinquent.

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Notes to Consolidated Financial Statements
Table of Contents


Case reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. Our losscase reserve estimates are established based upon historical experience, including rescissions of policies, curtailments of claims, and loan modification activity. Adjustments to reserve estimates are reflected in the financial statements in the years in which the adjustments are made. The liability for reinsurance assumed is based on information provided by the ceding companies.


ReservesIncurred but not reported ("IBNR") reserves are also established for delinquencies estimated losses from defaults occurringto have occurred prior to the close of an accounting period, on notices of defaultbut not yet reported to us. These incurred but notConsistent with reserves for reported ("IBNR")delinquencies, IBNR reserves are also established using estimated claim rates and claim severities.


ReservesLAE reserves are also established for the estimated costs of settling claims, including legal and other expenses, and general expenses of administering the claims settlement process. Reserves

Loss reserves are also ceded to reinsurers under our reinsurance agreements. (See Note 8 – “Loss Reserves” and Note 9 – “Reinsurance.”)


Premium Deficiency ReservePREMIUM DEFICIENCY RESERVE
After our loss reserves are initially established, we perform premium deficiency tests using our best estimate assumptions as of the testing date. Premium deficiency reserves are established, if necessary, when the present value of expected future losses and expenses exceeds the present value of expected future premium


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Consolidated Financial Statements and Notes
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2017 Form 10-K
Notes (continued)

and already established reserves.  Products are grouped for premium deficiency testing purposes based on similarities in the way the products are acquired, serviced and measured for profitability.


The calculation of premium deficiency reserves requires the use of significant judgments and estimates to determine the present value of future premium and present value of expected losses and expenses on our business.  Similar to our loss reserve estimates, our estimates for premium deficiency reserves could be adversely affected by several factors discussed in Note 8 - Loss Reserves. To the extent premium patterns and actual loss experience differ from the assumptions used in calculating the premium deficiency reserves, the differences between the actual results and our estimate will affect future period earnings and could be material.

We established a premium deficiency reserve in 2007 on our Wall Street Bulk business, which we also ceased writing in that year. The premium deficiency reserve was eliminated in 2015 and our consolidated statement of operations for the year ended December 31, 2015 was affected by a decrease in our premium deficiency reserves of $24 million.

Revenue RecognitionREVENUE RECOGNITION
We write policies which are guaranteed renewable contracts at the insured's option on a monthly, single, or annual premium basis. We have no ability to reunderwritere-underwrite or reprice these contracts. Premiums written on monthly premium policies are earned as coverage is provided. Premiums written on single premium policies and annual premium policies are initially deferred as unearned premium reserve and earned over the estimated policy life. Premiums written on single premium policies covering more than one year are amortized over the estimated policy life in relationship tobased on historical experience, which includes the anticipated incurred loss pattern based on historical experience.pattern. Premiums written on annual premium policies are earned on a monthly pro rata basis. When a policy is cancelled for a reason other than rescission or claim payment, all premium that is non-refundable is immediately earned. Any refundable premium is returned to the servicer or borrower. When a policy is cancelled due to rescission, all previously collected premium is returned to the servicer and when a policy is cancelled because a claim is paid, premium collected since the date of defaultdelinquency is returned. The liability associated with our estimate of premium to be returned is accrued for separately and included in "Other liabilities" on our consolidated balance sheets. When a premium deficiency exists the premium refund liability is included in “Premium deficiency reserves” on our consolidated balance sheets. Changes in these liabilities affect premiums writtenthis liability, and earned and change in premium deficiency reserve, respectively. Thethe actual return of premiumpremiums for all periods, affects premiums written and earned.


Effective, January 1, 2020, we assess whether a credit loss exists for our premium receivable. In determining if a credit loss allowance is required for premium receivable, consideration is given to the life of the premium receivable asset, areas of potential credit loss, and forward-looking predictive indicators. Any estimated credit loss would be immediately recognized.

Fee income of our non-insurance subsidiaries is earned and recognized as the services are provided and the customer is obligated to pay. Fee income consists primarily of contract underwriting and related fee-based services provided to lenders and is included in “Other revenue” on the consolidated statements of operations.


Income TaxesINCOME TAXES
Deferred income taxes are provided under the liability method, which recognizes the future tax effects of temporary differences between amounts reported in the consolidated financial statements and the tax bases of these items.  The expectedestimated tax effects are computed at the enacted regular federal statutory income tax rate. Using this method, we have recorded a net deferredChanges in tax asset primarily duelaws, rates, regulations, and policies or the final determination of tax audits or examinations, could materially affect our estimates and can be significant to netour operating losses incurred in prior years. During 2017, netresults. We evaluate the realizability of the deferred tax assets were remeasured atbased on the lower corporateweight of all available positive and negative evidence. Deferred tax rate enacted under the U.S. tax reform legislation signed into law in the fourth quarter of 2017 (the "Tax Act"). See Note 12- "Income Taxes" for discussion of the impact of the Tax Act on our consolidated financial statements.

On a quarterly basis, we review the need to maintain a deferred tax asset valuation allowance as an offset to the net deferred tax asset, before valuation allowance. We analyze several factors, among whichassets are the severity and frequency of operating losses, our capacity for the carryback or carryforward of any losses, the existence and current level of taxable operating income, operating results on a three year cumulative basis, the expected occurrence of future income or loss, the expiration dates of the carryforwards, the cyclical nature of our operating results, and available tax planning strategies. Based on our analysis, we reduced our benefit from income tax through the recognition ofby a valuation allowance from the first quarter of 2009 through the second quarter of 2015. In the third quarter of 2015, as discussed in Note 12 – “Income Taxes,” we concluded


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Notes (continued)

thatif it wasis more likely than not that ourall or some portion of the deferred tax assets wouldwill not be fully realizablerealized.

The recognition of a tax position is determined using a two-step approach. The first step applies a more-likely-than-not threshold for recognition and derecognition. The second step measures the tax position as the greatest amount of benefit that is cumulatively greater than 50% likely to be realized. When evaluating a tax position for recognition and measurement, we reversedpresume that the valuation allowance.

tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. We provide for uncertain tax positions and the relatedrecognize interest accrued and penalties based onrelated to unrecognized tax benefits in our assessment of whether aprovision for income taxes.

Federal tax law permits mortgage guaranty insurance companies to deduct from taxable income, subject to certain limitations, the amounts added to contingency loss reserves that are recorded for regulatory purposes. The amounts we deduct must generally be included in taxable income in the tenth subsequent year. The deduction is allowed only to the extent that we purchase and hold U.S. government non-interest-bearing tax and loss bonds in an amount equal to the tax benefit is more likely than notattributable to be sustained under any examination by taxing authorities.the deduction. We account for these purchases as a payment of current federal income tax. (See "Note 12 - Income Taxes.")


Benefit PlansBENEFIT PLANS
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. Retirement benefits are based on compensation and years of service.  Effective January 1, 2019, all participants, regardless of hire or rehire date, earn benefits using a cash balance formula. Participants hired or rehired prior to January 1, 2014, earned benefits under a traditional formula through December 31, 2018. which calculated a pension credit for each year of eligible service. Under the cash balance formula, participants’ accounts are credited each year with an employer contribution and interest. The employer contribution is a percentage of eligible earnings based on the participant’s age on January 1, 2019. We recognize these retirement benefit costs

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over the period during which employees render the service that qualifies them for benefits. Our policy is to fund pension cost as required under the Employee Retirement Income Security Act of 1974.


We offer both medical and dental benefits for retired domestic employees, their eligible spouses and dependents until the retiree reaches the age of 65. Under the plan retirees pay a premium for these benefits. We accrue the estimated costs of retiree medical and dental benefits over the period during which employees render the service that qualifies them for benefits. (See Note 11 – “Benefit Plans.”)


ReinsuranceREINSURANCE
Loss reserves and unearned premiums are reported before taking credit for amounts ceded under reinsurance agreements. Ceded loss reserves are reflected as "Reinsurance recoverable on loss reserves."  Ceded unearned premiums are included in “Other assets.” Amounts due from reinsurers on paid claims are reflected as “Reinsurance recoverable on paid losses.” Ceded premiums payable are included in “Other liabilities.” Any profitProfit commissions are included with “Premiums written – Ceded” and any ceding commissions are included with “Other underwriting and operating expenses, net.” We remain liable for all insurance ceded.  (See Note 9 – “Reinsurance.”)


Share-Based CompensationQuarterly, we assess the credit risk associated with our reinsurance recoverable. Effective January 1, 2020 if an estimated credit loss is expected to occur over the remaining life of reinsurance recoverable, it is immediately recorded to income. In assessing whether a credit allowance should be established, we consider several factors including, but not limited to the credit ratings of individual reinsurers, investor reports for our Home Re Transactions, collateral held in trust accounts in which MGIC is the sole beneficiary, and aging of outstanding reinsurance recoverable balances.

Assumed reinsurance is based on information received from the ceding company.

SHARE-BASED COMPENSATION
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period.  Awards under our plans generally vest over periods ranging from one to three years.  (See Note 15 – “Share-based Compensation Plans.”)


Earnings per ShareEARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of shares of common stock outstanding. The computation of basic EPS includes as "participating securities" an immaterial number of unvested share-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, under the "two-class" method. Our participating securities are composed of vested restricted stock and restricted stock units ("RSUs") with non-forfeitable rights to dividends (of which none have been declared since the issuance of these participating securities).dividends. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. We calculate diluted EPS using the treasury stock method and if-converted method. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if our unvested restricted stock units result in the issuance of common stock. Under the if-converted method, diluted EPS reflects the potential dilution that could
occur if our convertible debt instruments9% Debentures result in the issuance of common stock. The determination of potentially issuable shares does not consider the satisfaction of the conversion requirements and the shares are included in the determination of diluted EPS as of the beginning of the period, if dilutive. In addition to our 9% Debentures, of which a portion remain outstanding, we previously had several senior note debt issuances that could have resulted in contingently issuable shares and we considered each potential issuance of shares separately to reflect the maximum potential dilution for the period the debt issuances were outstanding. For purposes of calculating basic and diluted EPS, vested restricted stock and RSUs are considered outstanding.


Related party transactionsRELATED PARTY TRANSACTIONS
In 2020, MGIC Reinsurance Corporation of Wisconsin, a subsidiary of MGIC, merged with MGIC. There were no0 related party transactions during 2017, 20162019 or 2015.2018.



RECENT ACCOUNTING AND REPORTING DEVELOPMENTS
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Notes (continued)

Recent accounting and reporting developments
Accounting standards effective in 2017,2020, or early adopted, and relevant to our financial statements
Table 3.1 shows
Measurement of Credit Losses on Financial Instruments: ASU 2016-13
Effective January 1, 2020, we adopted ASC 326, Financial Instruments - Credit Losses (“CECL”). This new standard replaced the relevant amendmentsincurred loss impairment methodology with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to accounting standardsinform credit loss estimates. Under CECL, allowances are established by incorporating the forecast of future economic conditions into our loss estimate unless such forecast is not reasonable and supportable, in which case we revert to historical loss experience. Application of the CECL model impacts our reinsurance recoverables and premium receivable. ASC 326 also replaced the OTTI model with an impairment allowance model, subject to reversal, for available-for-sale investments, which are measured at fair value. Our mortgage insurance policies are outside the scope of ASC 326. The new guidance is not prescriptive about certain aspects of estimating expected credit losses, including the specific methodology to use, and therefore requires significant judgment in application. Applying ASC 326, we have determined that have been implementedan allowance for credit losses related to our premium receivables and reinsurance recoverables was not necessary as of December 31, 2020. At December 31, 2020, we established an allowance for credit losses for available-for-sale securities of $49 thousand. We continue to apply the previous guidance to 2019 and prior periods.
Changes to the Disclosure Requirements for Fair Value Measurement: ASU 2018-13
Effective January 1, 2020, we adopted FASB guidance that changes the disclosure requirements for fair value measurements. The updated guidance removed the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The updated guidance requires disclosure of changes in unrealized gains and losses for the fiscal year beginning January 1, 2017; none hadperiod included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The adoption of the updated guidance did not have a material impacteffect on our consolidated financial statements orstatement disclosures.

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Table3.1
Standard / InterpretationEffective date
Amended Standards
ASC 220Income Statement - Reporting Comprehensive Income
•
ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
January 1, 2019
ASC 718Compensation - Stock Compensation
•ASU 2016-09 - Improvements to Employee Share-Based Compensation AccountingJanuary 1, 2017

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive IncomeChanges to the Disclosure Requirements for Defined Benefit Plans: ASU 2018-14
In FebruaryAugust 2018, the Financial Accounting Standards Board ("FASB")FASB issued amendments to modify the disclosure requirements for defined benefit plans. The updated guidance removed the requirements to identify amounts that allows an electionare expected to reclassify stranded tax effects resulting from the Tax Act's newly enacted federal corporate income tax ratebe reclassified out of 21% from accumulated other comprehensive income to retained earningsand recognized as components of net periodic benefit cost in an amount that reflects the effectcoming year and the effects of thea one-percentage-point change in tax rateassumed health care cost trend rates on service and interest cost and on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Act related to items remaining in accumulated comprehensive income (loss). Other than the effect of the change in tax rate, we have no other income tax effects related to the application of the Tax Act that are reclassified from accumulated other comprehensive income (loss) to retained earnings. Absent the updated guidance, we generally would remove stranded tax effects lodged in accumulated other comprehensive income (loss) at the time the circumstances under which these tax effects originally arose no longer exist.postretirement benefit obligation. The updated guidance is effectiveadded disclosures for annual periods beginning after December 15, 2018, including interim periods within those annual periods.the weighted-average interest crediting rates for cash balance plans and other plans with interest crediting rates and explanations for significant gains and losses related to changes in the benefit obligation for the period. Early adoption is permitted and we adoptedpermitted. An entity should apply the amendments on a retrospective basis to all periods presented. The adoption of this guidance electingdid not have a material impact to reclass stranded tax effects from the Tax Act to retained earnings for the fourth quarter ending December 31, 2017.

◦
Adoption impact: We recorded a cumulative effect adjustment that reclassified $10.4 million from accumulated other comprehensive loss to retained earnings to reflect the difference between the amount initially credited to other comprehensive income (loss) and the amount that would have been credited at the newly enacted federal corporate tax rate. The effect of this reclassification increases our retained earnings and increases our accumulated other comprehensive loss, with no change to our total shareholders' equity as of December 31, 2017.

Improvements to Employee Share-Based Compensation Accounting
In March 2016, the FASB issued updated guidance that simplifies several aspects of the accounting for employee share-based compensation including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within theour consolidated financial statement of cash flows. Specifically, the updated guidance requires the following:disclosures.

Tax effects related to share-based compensation are made through the statement of operations at the time of settlement instead of recognizing them in paid-in capital.
◦
Adoption impact: We recognized discrete tax benefits of $1.6 million in the provision for income taxes on our statement of operations for the year ended December 31, 2017 related to excess tax benefits upon vesting of share-based awards during the period.

Recognition of a tax benefit is no longer required to be delayed until it reduces current taxes payable.
◦Adoption impact: We recognized an immaterial cumulative effect adjustment in opening retained earnings as of January 1, 2017 related to the recognition of a deferred tax asset related to suspended tax benefits from vesting transactions occurring in prior years and from the elimination of our forfeiture estimate on share-based awards, which was previously applied only to awards with service conditions.


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Notes (continued)


Tax related cash flows resulting from share-based compensation are to be reported as operating activities on the statement of cash flows, instead of as an inflow from financing activities and an outflow from operating activities.
◦Adoption impact: We reclassified excess tax benefits related to share-based compensation for 2016 and 2015 to operating activities from financing activities.

Shares withheld by an employer for tax-withholding purposes upon vesting of equity compensation represents a cash outflow required to be classified as a financing activity on the statements of cash flows.
◦Adoption impact: We reclassified employee taxes paid for withheld shares for 2016 and 2015 to financing activities from operating activities.

The update also allows, for tax withholding purposes, entities to withhold an amount of shares up to the employee’s maximum individual tax rate (as opposed to the minimum statutory tax rate) in the relevant jurisdiction without resulting in liability classification of the award. A change in tax withholding is to be applied on a modified retrospective approach.

Prospective Accounting Standards
Table 3.22.1 shows the relevant new amendments to accounting standards, which are not yet effective or adopted.
Table3.2
Standard / InterpretationEffective date
Amended StandardsTable2.1
ASC 718Compensation - Stock Compensation
Amended StandardsEffective date
•
ASC 321, 323, 815Investments
•ASU 2017-092020-01 - Scope of Modification AccountingInvestments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)January 1, 20182021
ASC 740ASC 715Income TaxesCompensation - Retirement Benefits
••ASU 2019-12 - Simplifying the Accounting for Income TaxesASU 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostJanuary 1, 20182021
ASC 310-20ASC 310Receivables
•ASU 2020-08 - Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other CostsJanuary 1, 2021
ASC 470, 815Debt•
•ASU 2017-082020-06 - Premium Amortization on Purchased Callable Debt Securitieswith conversion and other options (Topic 470), derivatives and hedging - contracts in entity’s own equity (Topic 815)January 1, 2019
ASC 326Financial Instruments - Credit Losses
•ASU 2016-13 - Measurement of Credit Losses on Financial InstrumentsJanuary 1, 2020
ASC 825Financial Instruments - Overall
•ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial LiabilitiesJanuary 1, 20182022


Stock Compensation - ScopeClarification of Modification Accounting for Equity Securities: ASU 2020-01
In May 2017,January 2020, the FASB issued updated guidance related to a changewhich clarifies certain interactions of accounting for equity securities under Topic 321, under the equity method of accounting in Topic 323, and accounting for certain forward contracts and purchased options in Topic 815. The amendment clarifies the termsconsideration of observable transactions before applying or conditions (modification)discounting the equity method of a share-based award.accounting. The updated guidance provides that an entity should accountis effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. We have evaluated the effectsimpacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a modification unlessmaterial impact.

Simplifying the fair valueAccounting for Income Taxes: ASU 2019-12
In December 2019, the FASB issued guidance which simplifies Accounting for Income Taxes (Topic 740). The ASU intends to reduce complexity through clarification and vesting conditionsamendments of the modified award and the classification of the award (equity or liability instrument) are the same as the original award immediately before the modification. The updated guidance addresses the current diversity in practice on applying modification accounting, as some entities evaluate whether changes to awards are substantive, which is not prescribed within the current accountingexisting guidance. The updated guidance is effective for annual periods beginning after December 15, 2017,2020, including interim periods within those annual periods. We have evaluated the impacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a material impact.

Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs: ASU 2020-08
In October 2020, the FASB issued amendments to the codification that clarifies the accounting guidance for Accounting Standards Update No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. FASB standard 2017-08 shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities within the scope of paragraph 310-20-25-33 to the earliest call date and clarified the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. This guidance clarifies the issuer of a callable debt security should utilize the next call date versus the earliest call date in amortizing premium. The updated guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. We have evaluated the impacts the adoption of this guidance will have on our consolidated financial statements, and determined it will not have a material impact.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity: ASU 2020-06
In August 2020, the FASB issued guidance that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. It also includes amendments to EPS guidance. The updated guidance reduces the number of accounting models for convertible debt instruments and convertible preferred stock. This ASU eliminates the cash conversion and the beneficial conversion models, which will make more instruments eligible for the fair value option. As a result of these changes, more convertible instruments will be reported as a single unit on the balance sheet. The updated guidance also includes updates to the EPS calculation. The ASU requires companies to use the if-converted method, assume share settlement when settlement can be in cash or in shares, use an average market price for the period if the number of shares is based on an entity’s share price, and use the weighted average shares from each quarter to calculate the year to date weighted average shares. The ASU also includes improvements to the disclosures for convertible instruments and EPS. The updated guidance is effective for annual periods beginning after December 15, 2021. Early adoption is permitted for fiscal years beginning after December 15, 2020. The ASU requires adoption to be applied retrospectively or using a modified retrospective basis. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact on our consolidated financial statements or disclosures.

Improving the Presentation of Net Periodic Pension Coststatement disclosures and Net Periodic Postretirement Benefit Costwhether we would early adopt.
In March 2017, the FASB issued updated guidance that improves the reporting of net benefit cost in the financial statements. The updated guidance requires that an employer report the service cost component in the same financial statement caption as other compensation costs arising from services rendered by



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Consolidated Financial Statements and NotesNOTE 4
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Earnings Per Share

employees during the period. The other components of net benefit cost are required to be presented in the statement of operations separately from the service cost component and outside a subtotal of income from operations, if one is presented. Current guidance does not prescribe where the amount of net benefit cost should be presented in an employer’s statement of operations and does not require entities to disclose by line item the amount of net benefit cost that is included in the statement of operations. The updated guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact on our consolidated financial statements or disclosures.

Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued updated guidance to amend the amortization period for premiums on certain purchased callable debt securities, shortening the amortization period to the earliest call date. Under current GAAP, there is diversity in practice in the amortization period for premiums of callable debt securities and in how the potential for exercise of a call is factored into current impairment assessments. This updated guidance aligns with how callable debt securities, in the United States, are generally quoted, priced, and traded, which incorporates consideration of calls (also referred to as “yield-to-worst” pricing). The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact on our consolidated financial statements or disclosures. We currently account for premium amortization on our purchased callable debt securities on a yield-to-worst basis, which generally aligns with the earliest call date.

Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued updated guidance that requires immediate recognition of estimated credit losses expected to occur over the remaining life of many financial instruments. Entities will be required to utilize a current expected credit losses (“CECL”) methodology that incorporates their forecasts of future economic conditions into their loss estimate unless such forecasts are not reasonable and supportable, in which case the entity will revert to historical loss experience. Any allowance for CECL reduces the amortized cost basis of the financial instrument to the amount an entity expects to collect. Credit losses relating to available-for-sale fixed maturity securities are to be recorded through an allowance for credit losses, rather than a write-down of the asset, with the amount of the allowance limited to the amount by which fair value is less than amortized cost. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The updated guidance is not prescriptive about certain aspects of estimating expected credit losses, including the specific methodology to use, and therefore will require significant judgment in application. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. We are currently evaluating the impacts the adoption of this guidance will have on our consolidated financial statements, but do not expect it to have a material impact on our consolidated financial statements or disclosures.

Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued updated guidance to address the recognition, measurement, presentation, and disclosure of certain financial instruments. The updated guidance requires equity investments, except those accounted for under the equity method of accounting, that have a readily determinable fair value to be measured at fair value with changes in fair value recognized in net income. Equity investments that do not have readily determinable fair values may be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. A qualitative assessment for impairment is required for equity investments without readily determinable fair values. The updated guidance also eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost on the balance sheet. Further, the updated guidance clarifies that entities should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The updated guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those


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Notes (continued)

annual periods and will require recognition of a cumulative effect adjustment at adoption. We do not currently expect the adoption of this guidance to impact our consolidated financial statements or disclosures.

Note 4. Earnings Per Share
Table 4.1 reconciles basic and diluted EPS amounts:
Earnings per share
Table4.1
Years Ended December 31,
(In thousands, except per share data)202020192018
Basic earnings per share:
Net income$446,093 $673,763 $670,097 
Weighted average common shares outstanding - basic339,953 352,827 365,406 
Basic earnings per share$1.31 $1.91 $1.83 
Diluted earnings per share:
Net income$446,093 $673,763 $670,097 
Interest expense, net of tax (1):
9% Debentures17,004 18,264 18,264 
Diluted income available to common shareholders$463,097 $692,027 $688,361 
Weighted-average shares - basic339,953 352,827 365,406 
Effect of dilutive securities:
Unvested restricted stock units1,589 2,069 1,644 
9% Debentures17,751 19,028 19,028 
Weighted average common shares outstanding - diluted359,293 373,924 386,078 
Diluted income per share$1.29 $1.85 $1.78 
 Table4.1      
Earnings per share  Years Ended December 31,
(In thousands, except per share data) 2017 2016 2015
 Basic earnings per share:      
 Net income $355,761
 $342,517
 $1,172,000
 Weighted average common shares outstanding - basic 362,380
 342,890
 339,552
 Basic earnings per share $0.98
 $1.00
 $3.45
 Diluted earnings per share:      
 Net income $355,761
 $342,517
 $1,172,000
 
Interest expense, net of tax (1):
      
 2% Notes 907
 6,111
 7,928
 5% Notes 1,709
 6,362
 12,228
 9% Debentures 15,027
 15,893
 22,786
 Diluted income available to common shareholders $373,404
 $370,883
 $1,214,942
 Weighted-average shares - Basic 362,380
 342,890
 339,552
 Effect of dilutive securities:      
 Unvested restricted stock units 1,493
 1,470
 2,113
 2% Notes 8,317
 54,450
 71,917
 5% Notes 3,548
 13,107
 25,603
 9% Debentures 19,028
 20,075
 28,854
 Weighted average common shares outstanding - diluted 394,766
 431,992
 468,039
 Diluted income per share $0.95
 $0.86
 $2.60
(1)
(1) Interest expense for the years ended December 31, 2017, 2016 and 2015 has been tax effected at a rate of 35%.

The computation of diluted EPS for the years ended December 31, 2017, 2016,2020, 2019 and 2015 includes weighted average unvested restricted stock units outstanding2018 has been tax effected at a rate of 1.5 million, 1.5 million, and 2.1 million, respectively.21%.


For the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, all of our then outstanding Convertible Senior Notes and Convertible Junior Subordinated9% Debentures are reflected in diluted earnings per share using the “if-converted” method. Under this method, if dilutive, the common stock related to the outstanding Convertible Senior Notes and/or Convertible Junior9% Debentures is assumed issued as of the beginning of the reporting period and the related interest expense, net of tax, is added back to earnings in calculating diluted EPS.





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Consolidated Financial Statements and NotesNOTE 5
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Investments

FIXED INCOME SECURITIES
Note 5. InvestmentsOur fixed income securities consisted of the following as of December 31, 2020 and 2019:
Details of fixed income investment securities by category as of December 31, 2020
Table5.1a
(In thousands)Amortized CostAllowance for Expected Credit LossGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$264,531 $0 $1,164 $(2)$265,693 
Obligations of U.S. states and political subdivisions2,083,568 0 166,557 (256)2,249,869 
Corporate debt securities2,690,860 0 155,156 (1,728)2,844,288 
ABS203,807 (49)2,946 (18)206,686 
RMBS425,532 0 6,472 (838)431,166 
CMBS312,572 0 16,055 (1,125)327,502 
CLOs310,616 0 566 (692)310,490 
Debt securities issued by foreign sovereign governments4,485 0 224 0 4,709 
Other Investments (1)
21,193 0 0 0 21,193 
Total fixed income securities$6,317,164 $(49)$349,140 $(4,659)$6,661,596 
Details of fixed income investment securities by category as of December 31, 2019
Table5.1b
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies$195,176 $1,237 $(210)$196,203 
Obligations of U.S. states and political subdivisions1,555,394 99,328 (857)1,653,865 
Corporate debt securities2,711,910 76,220 (3,008)2,785,122 
ABS227,376 2,466 (178)229,664 
RMBS271,384 429 (3,227)268,586 
CMBS274,234 5,531 (779)278,986 
CLOs327,076 33 (1,643)325,466 
Total fixed income securities$5,562,550 $185,244 $(9,902)$5,737,892 
(1)Consists of short-term commercial paper with original maturities greater than ninety days.
The amortized cost,increase in gross unrealized gains and the decrease in gross unrealized losses and fair value of the investment portfolio as ofin our fixed income securities from December 31, 2017 and 2016 are shown below:
 Table5.1a        
Details of investments by category - current year  December 31, 2017
(In thousands) Amortized Cost Gross Unrealized Gains 
Gross Unrealized Losses (1)
 Fair Value
 U.S. Treasury securities and obligations of U.S. government corporations and agencies $179,850
 $274
 $(1,278) $178,846
 Obligations of U.S. states and political subdivisions 2,105,063
 56,210
 (8,749) 2,152,524
 Corporate debt securities 2,065,475
 10,532
 (9,169) 2,066,838
 ABS 4,925
 —
 (2) 4,923
 RMBS 189,153
 60
 (7,364) 181,849
 CMBS 301,014
 1,204
 (4,906) 297,312
 CLOs 100,798
 304
 (79) 101,023
 Total debt securities 4,946,278
 68,584
 (31,547) 4,983,315
 Equity securities 7,223
 39
 (16) 7,246
 Total investment portfolio $4,953,501
 $68,623
 $(31,563) $4,990,561

 Table5.1b        
Details of investments by category - prior year  December 31, 2016
(In thousands) Amortized Cost Gross Unrealized Gains 
Gross Unrealized Losses (1)
 Fair Value
 U.S. Treasury securities and obligations of U.S. government corporations and agencies $73,847
 $407
 $(724) $73,530
 Obligations of U.S. states and political subdivisions 2,147,458
 20,983
 (25,425) 2,143,016
 Corporate debt securities 1,756,461
 6,059
 (18,610) 1,743,910
 ABS 59,519
 74
 (28) 59,565
 RMBS 231,733
 102
 (7,626) 224,209
 CMBS 327,042
 769
 (7,994) 319,817
 CLOs 121,151
 226
 (202) 121,175
 Total debt securities 4,717,211
 28,620
 (60,609) 4,685,222
 Equity securities 7,144
 8
 (24) 7,128
 Total investment portfolio $4,724,355
 $28,628
 $(60,633) $4,692,350
(1)
There were no OTTI losses recorded in other comprehensive (loss) income as of December 31, 2017 and 2016.
As discussed in Note 7 - "Debt" we are required2019 to pledge collateral of at least 102% of the outstanding principal balance of the FHLB Advance. As of December 31, 2017,2020 were primarily caused by declines in interest rates during that collateral is included in our total investment portfolio amount shown above with a total fair value of $166.9 million.

period.
We had $13.6$14.1 million and $13.9 million of investments at fair value on deposit with various states as of December 31, 20172020 and 2016,2019, respectively, due to regulatory requirements of those statestates' insurance departments. In connection with our insurance and reinsurance activities, we are required to maintain assets in trusts for the benefit of contractual counterparties. The fair value of the investments on deposit in these trusts was $165.9 million and $88.9 million at December 31, 2020 and 2019, respectively.





MGIC Investment Corporation 20172020 Form 10-K | 11798
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Table 5.2 compares the amortized cost and fair values of debtfixed income securities, by contractual maturity, as of December 31, 2017.
 Table5.2    
Debt securities maturity schedule  December 31, 2017
(In thousands) Amortized Cost Fair Value
 Due in one year or less $541,755
 $541,695
 Due after one year through five years 1,547,712
 1,544,943
 Due after five years through ten years 925,751
 929,883
 Due after ten years 1,335,170
 1,381,687
   4,350,388
 4,398,208
      
 ABS 4,925
 4,923
 RMBS 189,153
 181,849
 CMBS 301,014
 297,312
 CLOs 100,798
 101,023
 Total as of December 31, 2017 $4,946,278
 $4,983,315

The analysis in table 5.2 is based upon contractual maturity.2020. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. Because most mortgage and asset-backed securities provide for periodic payments throughout their lives, they are listed separately in the table.

Fixed income securities maturity schedule
Table5.2
December 31, 2020
(In thousands)Amortized CostFair Value
Due in one year or less$390,510 $393,286 
Due after one year through five years1,945,158 2,033,183 
Due after five years through ten years1,280,760 1,402,640 
Due after ten years1,448,209 1,556,643 
5,064,637 5,385,752 
ABS203,807 206,686 
RMBS425,532 431,166 
CMBS312,572 327,502 
CLOs310,616 310,490 
Total as of December 31, 2020$6,317,164 $6,661,596 

Proceeds from the sale of fixed income securities classified as available-for-sale were $803.4 million, $228.1 million, and $365.6 million during the years ended December 31, 2020, 2019, and 2018, respectively. Gross gains of $21.3 million, $7.1 million, and $0.7 million and gross losses of $8.8 million, $3.5 million, and $3.8 million were realized on those sales during the years ended December 31, 2020, 2019, and 2018, respectively.

We recorded $0.3 million of realized losses for the year ended December 31, 2020 related to our intent to sell certain securities. We also recorded a credit allowance of $49 thousand for the year ended December 31, 2020.

For the years ended December 31, 2019, and 2018, we recorded $0.1 million and $1.8 million of OTTI losses in earnings, respectively.

EQUITY SECURITIES
The cost and fair value of investments in equity securities as of December 31, 2020 and December 31, 2019 are shown in tables 5.3a and 5.3b below.
Details of equity investment securities as of December 31, 2020
Table5.3a
(In thousands)CostGross gainsGross lossesFair Value
Equity securities17,522 695 (2)18,215 
Details of equity investment securities as of December 31, 2019
Table5.3b
(In thousands)CostGross gainsGross lossesFair Value
Equity securities17,188 154 (14)17,328 

Proceeds from the sale of equity securities were $25.7 million and $1.7 million during the years ended December 31, 2020 and 2019, respectively. Gross gains of $1.8 million and $1.6 million were realized on those sales during the year ended December 31, 2020 and 2019, respectively. Gross losses of $0.4 million and 0 were realized on those sales during the year ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020 and December 31, 2019, we recognized $0.6 million and $0.2 million of net gains on equity securities still held as of December 31, 2020 and December 31, 2019, respectively, which are reported in Net realized investment (losses) gains on our consolidated statements of operations.

MGIC Investment Corporation 2020 Form 10-K | 99
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

OTHER INVESTED ASSETS
Other invested assets consists of an investment in Federal Home Loan Bank ("FHLB") stock that is carried at cost, which due to its nature approximates fair value. Ownership of FHLB stock provides access to a secured lending facility, and our current FHLB Advance amount is secured by eligible collateral whose fair value is maintained at a minimum of 102% of the outstanding principal balance of the FHLB Advance. As of December 31, 2020, that collateral consisted of fixed income securities included in our total investment portfolio, and cash and cash equivalents, with a total fair value of $163.9 million.

UNREALIZED INVESTMENT LOSSES
Tables 5.3a5.4a and 5.3b show5.4b below summarize, for all available-for-sale investments in an unrealized loss position as of December 31, 2020 and 2019, the componentsaggregate fair value and gross unrealized losses by the length of ourtime those securities have been continuously in an unrealized loss position. Gross unrealized losses on our investment portfolio in the amount of $32available-for-sale investments amounted to $5 million and $61$10 million as of December 31, 20172020 and 2016,2019, respectively. The fair value amounts reported in tables 5.4a and 5.4b below are estimated using the process described in Note 6 - "Fair Value Measurements" to these consolidated financial statements.
Unrealized loss aging for securities by type and length of time as of December 31, 2020
Table5.4a
Less Than 12 Months12 Months or GreaterTotal
(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies$2,690 $(2)$0 $0 $2,690 $(2)
Obligations of U.S. states and political subdivisions31,416 (256)0 0 31,416 (256)
Corporate debt securities44,968 (1,728)0 0 44,968 (1,728)
ABS14,929 (18)0 0 14,929 (18)
RMBS98,409 (773)3,566 (65)101,975 (838)
CMBS13,212 (789)2,799 (336)16,011 (1,125)
CLOs95,287 (261)73,904 (431)169,191 (692)
Total$300,911 $(3,827)$80,269 $(832)$381,180 $(4,659)
Unrealized loss aging for securities by type and length of time as of December 31, 2019Unrealized loss aging for securities by type and length of time as of December 31, 2019
TableTable5.4b
Less Than 12 Months12 Months or GreaterTotal
(In thousands)(In thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agenciesU.S. Treasury securities and obligations of U.S. government corporations and agencies$57,301 $(200)$5,806 $(10)$63,107 $(210)
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions74,859 (847)6,957 (10)81,816 (857)
Corporate debt securitiesCorporate debt securities221,357 (2,847)43,505 (161)264,862 (3,008)
ABSABS21,542 (118)3,851 (60)25,393 (178)
RMBSRMBS105,443 (461)110,452 (2,766)215,895 (3,227)
CMBSCMBS62,388 (728)11,852 (51)74,240 (779)
CLOsCLOs81,444 (225)196,988 (1,418)278,432 (1,643)
Table5.3a            
Investments unrealized losses - current yearDecember 31, 2017 Less Than 12 Months 12 Months or Greater Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
U.S. Treasury securities and obligations of U.S. government corporations and agencies $144,042
 $(796) $31,196
 $(482) $175,238
 $(1,278)
Obligations of U.S. states and political subdivisions 505,311
 (3,624) 211,684
 (5,125) 716,995
 (8,749)
Corporate debt securities 932,350
 (4,288) 200,716
 (4,881) 1,133,066
 (9,169)
ABS 4,923
 (2) —
 —
 4,923
 (2)
RMBS 14,979
 (280) 166,329
 (7,084) 181,308
 (7,364)
CMBS 51,096
 (358) 138,769
 (4,548) 189,865
 (4,906)
CLOs 14,243
 (7) 3,568
 (72) 17,811
 (79)
Equity securities 226
 (2) 431
 (14) 657
 (16)
Total investment portfolio $1,667,170
 $(9,357) $752,693
 $(22,206) $2,419,863
 $(31,563)
TotalTotal$624,334 $(5,426)$379,411 $(4,476)$1,003,745 $(9,902)

Based on current facts and circumstances, we believe the unrealized losses as of December 31, 2020 presented in table 5.4a above are not indicative of the ultimate collectability of the current amortized cost of the securities. We believe the gross unrealized losses are primarily attributable to widening credit spreads over risk free rates, as a result of economic and market uncertainties arising from the COVID-19 pandemic, which includes demand shocks in multiple sectors that originated in 2020. We also rely upon estimates of several credit and non-credit factors in our review and evaluation of individual investments to determine whether a credit impairment exists. At December 31, 2020 we recorded an allowance for expected credit losses of $49 thousand.

MGIC Investment Corporation 2017 Form 10-K | 118
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

 Table5.3b            
Investments unrealized losses - prior yearDecember 31, 2016 Less Than 12 Months 12 Months or Greater Total
(In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
 U.S. Treasury securities and obligations of U.S. government corporations and agencies $48,642
 $(724) $—
 $—
 $48,642
 $(724)
 Obligations of U.S. states and political subdivisions 1,136,676
 (24,918) 13,681
 (507) 1,150,357
 (25,425)
 Corporate debt securities 915,777
 (16,771) 35,769
 (1,839) 951,546
 (18,610)
 ABS 3,366
 (28) 656
 —
 4,022
 (28)
 RMBS 46,493
 (857) 171,326
 (6,769) 217,819
 (7,626)
 CMBS 205,545
 (7,529) 38,587
 (465) 244,132
 (7,994)
 CLOs 13,278
 (73) 34,760
 (129) 48,038
 (202)
 Equity securities 568
 (15) 137
 (9) 705
 (24)
 Total investment portfolio $2,370,345
 $(50,915) $294,916
 $(9,718) $2,665,261
 $(60,633)
For those securities in an unrealized loss position, the length of time the securities were in such a position, is measured by their month-end fair values. The unrealized losses in all categories of our investments as of December 31, 2017 and 20162019 were primarily caused by changes in interest rates between the time of purchase and the respective year end. There were 586109 and 607217 securities in an unrealized loss position as of December 31, 20172020 and 2016,2019, respectively. As of December 31, 2017,2020, the fair value as a percent of amortized cost of the securities in an unrealized loss position was 99% and approximately 27% of the securities in an unrealized loss position were backed by the U.S. Government.



MGIC Investment Corporation 2020 Form 10-K | 100
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

We report accrued investment income separately from fixed income, available-for-sale securities, and we have determined an allowance for credit losses for accrued investment income is not required. Accrued investment income is written off through net realized investment gains (losses) if, and at the time, the issuer of the security defaults or is expected to default on payments

The source of net investment income is shown in Table 5.4table 5.5 below.
Net investment income
Table5.5
(In thousands)202020192018
Fixed income securities$157,065 $165,523 $140,539 
Equity securities620 406 228 
Cash equivalents1,648 4,444 3,423 
Other275 974 816 
Investment income159,608 171,347 145,006 
Investment expenses(5,212)(4,302)(3,675)
Net investment income$154,396 $167,045 $141,331 

 Table5.4      
Investment income by source(In thousands) 2017 2016 2015
Fixed income $122,105
 $112,513
 $105,882
 Equity securities 206
 182
 208
 Cash equivalents 1,447
 754
 191
 Other 620
 433
 455
 Investment income 124,378
 113,882
 106,736
 Investment expenses (3,507) (3,216) (2,995)
 Net investment income $120,871
 $110,666
 $103,741

For the years ended December 31, 2017, 2016, and 2015, there were no OTTI losses in earnings.

The net realized investment gains (table 5.5) and the change in unrealized gains (losses) of investments (table 5.6) areis shown in table 5.6 below.
Change in unrealized gains (losses)
Table5.6
(In thousands)202020192018
Fixed income securities$169,135 $220,139 $(81,834)
Equity securities— — — 
Change in unrealized gains/losses$169,135 $220,139 $(81,834)



 Table5.5      
Net realized investment gains(In thousands) 2017 2016 2015
Fixed income $228
 $5,310
 $28,335
 Equity securities 21
 3,622
 26
 Other —
 —
 —
 Total net realized investment gains $249
 $8,932
 $28,361



MGIC Investment Corporation 20172020 Form 10-K | 119101
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and NotesNOTE 6
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Fair Value Measurements

 Table5.6      
Change in unrealized gains (losses)(In thousands) 2017 2016 2015
Fixed income $69,026
 $(5,403) $(33,687)
Equity securities 39
 (36) (32)
 Other (13) 14
 1
 Total increase (decrease) in unrealized gains/losses $69,052
 $(5,425) $(33,718)

Gross realized gains and losses on investments are shown in Table 5.7 below.
 Table5.7      
Gross realized investment gains(In thousands) 2017 2016 2015
Gross realized gains $1,599
 $11,909
 $30,039
 Gross realized losses (1,350) (2,977) (1,678)
 Net realized gains on securities $249
 $8,932
 $28,361

Note 6. Fair Value Measurements
RecurringThe following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.

Level 1 measurements
•Fixed income securities: Consist of primarily U.S. Treasury securities with valuations derived from quoted prices for identical instruments in active markets that we can access.
•Equity securities: Consist of actively traded, exchange-listed equity securities with valuations derived from quoted prices for identical assets in active markets that we can access.
•Cash Equivalents: Consists of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. The remaining instruments in this category are valued using market data for comparable instruments and are classified as Level 2.

Level 2 measurements
•Fixed income securities:
Corporate Debt & U.S. Government and Agency Bonds are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process.
Obligations of U.S. States & Political Subdivisionsare valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation.
Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities.
Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable.
Asset-Backed Securities ("ABS") are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices.
Collateralized loan obligations ("CLO") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity.

Other Investments. These securities primarily consist of commercial paper which are valued using market data for comparable instruments of similar maturity and average yield.

Level 3 measurements
•Real estate acquired is valued at the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends.


MGIC Investment Corporation 2020 Form 10-K | 102
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

RECURRING FAIR VALUE MEASUREMENTS
Assets measuredcarried at fair value included those listed, by hierarchy level, in the following tables as of December 31, 20172020 and 2016:2019:
Assets carried at fair value by hierarchy level as of December 31, 2020
Table6.1a
(In thousands)Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies$265,693 $149,339 $116,354 $0 
Obligations of U.S. states and political subdivisions2,249,869 0 2,249,869 0 
Corporate debt securities2,844,288 0 2,844,288 0 
ABS206,686 0 206,686 0 
RMBS431,166 0 431,166 0 
CMBS327,502 0 327,502 0 
CLOs310,490 0 310,490 0 
Debt foreign government4,709 0 4,709 0 
Other Investments (1)
21,193 0 21,193 0 
Total fixed income securities6,661,596 149,339 6,512,257 0 
Equity securities18,215 18,215 0 0 
Cash Equivalents288,941 275,668 13,273 0 
Real estate acquired (2)
1,092 0 0 1,092 
Total$6,969,844 $443,222 $6,525,530 $1,092 
Table6.1a        
Fair value hierarchy - current yearDecember 31, 2017  
(In thousands) Fair Value 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies $178,846
 $81,598
 $97,248
 $—
Obligations of U.S. states and political subdivisions 2,152,524
 —
 2,152,253
 271
Corporate debt securities 2,066,838
 —
 2,066,838
 —
ABS 4,923
 —
 4,923
 —
RMBS 181,849
 —
 181,849
 —
CMBS 297,312
 —
 297,312
 —
CLOs 101,023
 —
 101,023
 —
Total debt securities 4,983,315
 81,598
 4,901,446
 271
Equity securities (1)
 7,246
 2,978
 —
 4,268
Total investments $4,990,561
 $84,576
 $4,901,446
 $4,539
Real estate acquired (2)
 $12,713
 $—
 $—
 $12,713
Assets carried at fair value by hierarchy level as of December 31, 2019Assets carried at fair value by hierarchy level as of December 31, 2019
TableTable6.1b
(In thousands)(In thousands)Fair Value
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Unobservable
Inputs
(Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agenciesU.S. Treasury securities and obligations of U.S. government corporations and agencies$196,203 $34,240 $161,963 $0 
Obligations of U.S. states and political subdivisionsObligations of U.S. states and political subdivisions1,653,865 0 1,653,865 0 
Corporate debt securitiesCorporate debt securities2,785,122 0 2,785,122 0 
ABSABS229,664 0 229,664 0 
RMBSRMBS268,586 0 268,586 0 
CMBSCMBS278,986 0 278,986 0 
CLOsCLOs325,466 0 325,466 0 
Total fixed income securitiesTotal fixed income securities5,737,892 34,240 5,703,652 0 
Equity securitiesEquity securities17,328 17,328 0 0 
Cash EquivalentsCash Equivalents164,693 164,693 0 0 
Real estate acquired (2)
Real estate acquired (2)
7,252 0 0 7,252 
TotalTotal$5,927,165 $216,261 $5,703,652 $7,252 

(1)Consists of commercial paper included in "Investment Portfolio: Fixed income" with original maturities greater than ninety days.

(2)Real estate acquired through claim settlement, which is held for sale, is reported in "Other assets" on the consolidated balance sheets.
MGIC Investment Corporation 2017 Form 10-K | 120

Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)
Certain financial instruments, including insurance contracts, are excluded from fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values.


 Table6.1b        
Fair value hierarchy - prior yearDecember 31, 2016  
(In thousands) Fair Value 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable
Inputs
(Level 3)
 U.S. Treasury securities and obligations of U.S. government corporations and agencies $73,530
 $30,690
 $42,840
 $—
 Obligations of U.S. states and political subdivisions 2,143,016
 —
 2,142,325
 691
 Corporate debt securities 1,743,910
 —
 1,743,910
 —
 ABS 59,565
 —
 59,565
 —
 RMBS 224,209
 —
 224,209
 —
 CMBS 319,817
 —
 319,817
 —
 CLOs 121,175
 —
 121,175
 —
 Total debt securities 4,685,222
 30,690
 4,653,841
 691
 
Equity securities (1)
 7,128
 2,860
 —
 4,268
 Total investments $4,692,350
 $33,550
 $4,653,841
 $4,959
 
Real estate acquired (2)
 $11,748
 $—
 $—
 $11,748
(1)
Equity securities in Level 3 are carried at cost, which approximates fair value.
(2)
Real estate acquired through claim settlement, which is held for sale, is reported in other assets on the consolidated balance sheets.

Reconciliations of LevelRECONCILIATIONS OF LEVEL 3 assetsASSETS
For assets and liabilities measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the years ended December 31, 2017, 2016,2020 and 20152019 is shown in the following tables.tables 6.2a and 6.2b below. There were no transfers into or out of Level 3 in those years and there we no losses included in earnings for thosethe years ended December 31, 2020 and 2019 attributable to the change in unrealized losses on assets still held at the end of each applicable year.

 Table6.2a        
Development of assets and liabilities classified within level 3 - current year(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2016 $691
 $4,268
 $4,959
 $11,748
Total realized/unrealized gains (losses):        
Included in earnings and reported as losses incurred, net —
 —
 —
 (1,315)
 Purchases —
 —
 —
 34,749
 Sales (420) —
 (420) (32,469)
 Balance at December 31, 2017 $271
 $4,268
 $4,539
 $12,713

 Table6.2b        
Development of assets and liabilities classified within level 3 - prior year(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2015 $1,228
 $2,855
 $4,083
 $12,149
Total realized/unrealized gains (losses):  
  
  
  
 Included in earnings and reported as net realized investment gains —
 3,579
 3,579
 —
 Included in earnings and reported as losses incurred, net —
 —
 —
 (1,142)
 Purchases —
 4,258
 4,258
 36,859
 Sales (537) (6,424) (6,961) (36,118)
 Balance at December 31, 2016 $691
 $4,268
 $4,959
 $11,748


MGIC Investment Corporation 20172020 Form 10-K | 121103
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)
Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31, 2020
Table6.2a
(In thousands)Debt SecuritiesReal Estate Acquired
Balance at December 31, 2019$0 $7,252 
Total realized/unrealized gains (losses):
Included in earnings and reported as losses incurred, net0 660 
Acquisitions0 8,609 
Sales0 (15,429)
Balance at December 31, 2020$0 $1,092 

Fair value roll-forward for financial instruments classified as Level 3 for the year ended December 31, 2019
Table6.2b
(In thousands)Debt SecuritiesReal Estate Acquired
Balance at December 31, 2018$13 $14,535 
Total realized/unrealized gains (losses):  
Included in earnings and reported as losses incurred, net0 (476)
Acquisitions0 24,204 
Sales(13)(31,011)
Balance at December 31, 2019$0 $7,252 
 Table6.2c        
Development of assets and liabilities classified within level 3 - two years prior(In thousands) Debt Securities Equity Securities Total Investments Real Estate Acquired
Balance at December 31, 2014 $1,846
 $321
 $2,167
 $12,658
Total realized/unrealized gains (losses):        
Included in earnings and reported as losses incurred, net —
 —
 —
 (2,322)
 Purchases 7
 2,534
 2,541
 34,624
 Sales (625) —
 (625) (32,811)
 Balance at December 31, 2015 $1,228
 $2,855
 $4,083
 $12,149
Level 3 securities within total investments consisted primarily of equity securities that can only be redeemed or sold at their par value and only to the security issuer.

Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure for financial instruments not measured at fair value. Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included in Note 5 – “Investments.”


FINANCIAL LIABILITIES NOT CARRIED AT FAIR VALUE
Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.

Financial liabilities not measured atinclude our outstanding debt obligations. The fair value
Financial liabilities are incurred in the normal coursevalues of our business. 5.75% Notes 5.25% Notes, and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements, and in all cases they are categorized as Level 2. See Note 7 - "Debt" for a description of the financial liabilities in table 6.3.

Table 6.3 compares the carrying value and fair value of our financial liabilities disclosed, but not carried, at fair value as of December 31, 20172020 and 2016.2019.
Financial liabilities not carried at fair value
Table6.3
December 31, 2020December 31, 2019
(In thousands)Carrying ValueFair ValueCarrying ValueFair Value
Financial assets
Other invested assets$3,100 $3,100 $3,100 $3,100 
Financial liabilities
FHLB Advance$155,000 $160,865 $155,000 $156,422 
5.75% Notes240,597 261,752 420,867 471,827 
5.25% Notes638,782 696,449 0 0 
9% Debentures208,814 273,569 256,872 346,289 
Total financial liabilities$1,243,193 $1,392,635 $832,739 $974,538 
 Table6.3        
Fair value measurements - liabilities  December 31, 2017 December 31, 2016
(In thousands) Carrying Value Fair Value Carrying Value Fair Value
FHLB Advance $155,000
 $152,124
 $155,000
 $151,905
 5% Notes —
 —
 144,789
 147,679
 2% Notes —
 —
 204,672
 308,605
 5.75% Notes 418,560
 465,473
 417,406
 445,987
 9% Debentures 256,872
 353,507
 256,872
 323,040
 Total financial liabilities $830,432
 $971,104
 $1,178,739
 $1,377,216


The fair values of our 5% Notes, 2% Notes, 5.75% Notes, and 9% Debentures were based on observable market prices and the fair value of the FHLB Advance was estimated using discounted cash flows on current incremental borrowing rates for similar borrowing arrangements, and in all cases they are categorized as Level 2. See Note 7 - "Debt" for a description of the financial liabilities in table 6.3.

The 5.75%5.25% Notes, and 9% Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries.Corporation.






MGIC Investment Corporation 20172020 Form 10-K | 122104
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Consolidated Financial Statements and NotesNOTE 7
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Debt

DEBT OBLIGATIONS
Note 7. Debt
Debt obligations
Table 7.1 shows the parcarrying value of our long-term debt obligations and their aggregate carrying values as of December 31, 20172020 and 2016.2019.
Long-term debt obligations
Table7.1
December 31,
(In millions)20202019
FHLB Advance - 1.91%, due February 2023$155.0 $155.0 
5.75% Notes, due August 2023 (par value: $242.3 million)240.6 420.9 
5.25% Notes, due August 2028 (par value: $650 million)638.8 0 
9% Debentures, due April 2063208.8 256.9 
Long-term debt, carrying value$1,243.2 $832.8 
 Table7.1    
Long-term debt obligations  December 31,
(In millions) 2017 2016
 FHLB Advance $155.0
 $155.0
 5% Notes —
 145.0
 2% Notes —
 207.6
 5.75% Notes 425.0
 425.0
 9% Debentures 256.9
 256.9
 Long-term debt, par value 836.9
 1,189.5
 Debt issuance costs (6.5) (10.8)
 Long-term debt, carrying value $830.4
 $1,178.7


Table 7.2 shows the interest payments, on a consolidated basis, for our debtThe 5.75% Senior Notes (“5.75% Notes”), 5.25% Senior Notes ("5.25% Notes") and 9% Convertible Junior Subordinated Debentures (“9% Debentures”) are obligations outstanding during 2017 and 2016.
 Table7.2    
Interest payments on debt obligations  Years Ended December 31,
(In millions) 2017 2016
Revolving credit facility $0.9
 $—
 FHLB Advance 3.0
 2.4
 5% Notes 3.6
 10.6
 2% Notes 2.1
 9.1
 5.75% Notes 25.1
 —
 9% Debentures 23.1
 27.4
 Total interest payments $57.8
 $49.5

2% Notes
On March 21, 2017, we issued an irrevocable notice of redemption in respect of our outstanding 2% Convertible Senior Notes due April 1, 2020 ("2% Notes"), with a redemption date of April 21, 2017. In April, holders of approximately $202.5 million of the outstanding principal exercised their rights to convert their notes to shares of our common stock. The remaining $5.1 million of outstanding principal was redeemed for cash. The conversions of the 2% Notes at a rate of 143.8332 shares per $1,000 principal amount resulted in the issuance of approximately 29.1 million shares of our common stock in April 2017. The conversions and cash redemption eliminated our debt obligation. A loss on debt extinguishment of $0.07 million was recognized on notes redeemed for cash. No gain or loss was recognized from the conversions as the outstanding debt issuance costs associated with the conversions were included in the carrying value of the notes, which was credited to shareholders' equity at the time of conversion.

In the third quarter of 2016, we entered into privately negotiated agreements to repurchase $292.4 million in aggregate principal of our outstanding 2% Notes at a purchase price of $362.1 million, plus accrued interest. We funded the purchases with $230.7 million in cash, using proceeds from the issuance of our 5.75% Notes, and by issuing to certain sellers approximately 18.3 million shares of our common stock. The excess of the purchase price over carrying value is reflected as a loss on debt extinguishment of $74.3 million on our consolidated statement of operations for the year ended December 31, 2016. The shares issued as consideration for the notes repurchases were repurchased as of December 31, 2016 using cash from our 5.75% Notes issuance. The repurchases of the 2% Notes reduced potentially dilutive shares by approximately 42.1 million shares, without considering the shares issued as partial consideration in the purchases of the 2% Notes or the repurchase of shares to offset such shares issued.


holding company, MGIC Investment Corporation 2017 Form 10-K | 123
Corporation. The Federal Home Loan Bank Advance (“FHLB Advance”) is an obligation of MGIC.
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)



Interest on the 2% Notes was payable semi-annually in arrears on April 1 and October 1 of each year. Debt issuance costs were being amortized to interest expense over the contractual life of the notes.

Credit Facility
On March 21, 2017, we entered into a Credit Agreement with various lenders which provides for a $175 million unsecured revolving credit facility maturing on March 21, 2020. Revolving credit borrowings bear interest at a floating rate, which will be, at our option, either a eurocurrency rate or a base rate, in each case plus an applicable margin. The applicable margin is subject to adjustment based on our senior unsecured long-term debt rating, or if we do not have such a rating, our corporate or issuer rating. Amounts under the facility may be borrowed, repaid and reborrowed from time to time until the maturity of the revolving credit facility. Voluntary prepayments and commitment reductions are permitted at any time without fee subject to a minimum dollar requirement and, for outstanding eurocurrency loans, customary breakage costs.

We are required under the Credit Agreement to pay commitment fees on the average daily amount of the unused revolving commitments of the lenders, and an annual administrative fee to the administrative agent. The Credit Agreement contains affirmative, negative and financial covenants which are customary for financings of this type, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on dispositions, maximum debt-to-capital ratio, minimum consolidated stockholders' equity, minimum policyholder's position of MGIC, and compliance with the financial requirements of the PMIERs. The Credit Agreement includes customary events of default for facilities of this type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payments of all outstanding loans may be accelerated and/or the lenders' commitments may be terminated. Upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Credit Agreement shall automatically become immediately due and payable, and the lenders' commitments will automatically terminate. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, or the failure to pay interest, principal or fees, the interest rates on all outstanding obligations will be increased.

In March 2017, we borrowed $150 million under the revolving credit facility, to fund a portion of the redemption price of the 2% Notes if holders did not elect to convert their 2% Notes. In April, we repaid the amount borrowed under the revolving credit facility because most holders elected to convert their notes. Costs incurred to enter into the Credit Agreement have been deferred and recorded as Other assets and will be amortized over the term of the Credit Agreement.

5% Notes
On May 1, 2017, our 5% Notes due in 2017 ("5% Notes") matured and we repaid the outstanding $145 million in aggregate par value, plus accrued interest with cash at our holding company. Interest on the 5% Notes was payable semi-annually in arrears on May 1 and November 1 of each year.

In 2016, we repurchased $188.5 million in aggregate principal of our 5% Notes at a purchase price of $195.5 million, plus accrued interest using funds held at our holding company. The excess of the purchase price over carrying value was reflected as a loss on debt extinguishment of $7.9 million on our consolidated statement of operations. Our 2016 5% Notes repurchases reduced our potentially dilutive shares by approximately 14.0 million shares.

5.75% Notes2020 Transactions
In August 2016,2020, we issued $425$650 million aggregate principal amount of 5.75% Senior5.25% Notes, which are due in 2023 ("5.75% Notes")2028 and received net proceeds, after the deduction of underwriting fees, of $418.1$640.3 million. Interest on the 5.75% Notes is payable semi-annually on February 15 and August 15 of each year, commencing on February 15, 2017. We have the option to redeem these notes, in whole or in part, at any time or from time to time prior to maturity at a redemption price equal to the greater of (i)100% of the aggregate principal amount of the notes to be redeemed and (ii) the make-whole amount, which is the sum of the present values of the remaining scheduled payments of principal and interest discounted at the treasury rate defined in the notes plus 50 basis points, plus, in each case, accrued interest thereon to, but excluding, the redemption date. In


MGIC Investment Corporation 2017 Form 10-K | 124
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

addition to underwriting fees, we incurred approximately $1.2$2.0 million of other expenses associated with the issuance of these notes.


The 5.75% Notes have covenants customary for securities of this nature, including customary events of default, and further provide that the trustee or holders of at least 25%We repurchased $182.7 million in aggregate principal amount of our 5.75% notes at a purchase price of $197.8 million, plus accrued interest, using proceeds from the outstanding 5.75%5.25% Notes may declare them immediately due and payable upon the occurrence of certain events of default after the expirationissuance. The excess of the applicable grace period. In addition,purchase price over the carrying value, plus the write-off of unamortized issuance costs on the par value, is reflected as a loss on debt extinguishment of $16.5 million on our consolidated statement of operations.

We repurchased $48.1 million in aggregate principal amount of our 9% Debentures at a purchase price of $61.6 million, plus accrued interest, using proceeds from the case5.25% Notes issuance. The repurchase of an event9% Debentures resulted in a $10.2 million loss on debt extinguishment on our consolidated statement of default arising from certain eventsoperations; a reduction in our shareholders' equity of bankruptcy, insolvency or reorganization relating$2.7 million related to the Company or any of its significant subsidiaries, the 5.75% Notes will become due and payable immediately. This description is not intended to be complete in all respects and is qualified in its entirety by the termsreacquisition of the 5.75% Notes, including their covenantsequity component of the 9% Debentures; and events of default. We werea reduction in compliance with all covenants as of December 31, 2017.our potentially dilutive shares by approximately 3.6 million shares.


The net proceeds from the 5.75%5.25% Notes issuance were primarily used, in part, as (i) cash consideration to repurchase a portionpurchase $182.7 million of our 2%5.75% Notes, and (ii) cash consideration to repurchase the shares issued as partial consideration in the repurchasespurchase $48.1 million of our 2% Notes, as described above.9% Debentures. The remainingbalance of the proceeds are being held for general corporate purposes.remains at the holding company.


FHLB Advance
In February 2016, MGIC borrowed $155.0$155.0 million in the form of a fixed rate advance from the Federal Home Loan Bank of Chicago ("FHLB Advance"). Interest on the Advance is payable monthly at an annual rate, fixed for the term of the Advance, of 1.91%. The principal of the Advance matures on February 10, 2023.2023. MGIC may prepay the Advance at any time. Such prepayment would be below par if interest rates have risen after the Advance was originated, or above par if interest rates have declined. The Advance is secured by eligible collateral whose market value must be maintained at 102% of the principal balance of the Advance. MGIC provided eligible collateral from its investment portfolio.


9% Debentures
As5.25% Notes
Interest on the 5.25% Notes is payable semi-annually on February 15 and August 15. Prior to August 15, 2023, we may redeem the 5.25% Notes at an amount equal to the sum of (a) the greater of: (i) the sum of the principal amount and the make-whole amount; and (ii) 102.625% of principal; and (b) accrued and unpaid interest. The make-whole amount is the excess of: (1) the present value of the remaining principal, premium and interest payments that would be payable with respect to the note if such note were redeemed on August 15, 2023 (at 102.625% of principal), computed using a discount rate equal to the treasury rate specified in the notes, plus 50 basis points, over (2) the outstanding principal amount of such note.

On and after August 15, 2023, we may redeem the notes at 102.625% of principal; on or after August 15, 2024, we may redeem the notes at 101.313% of principal; and on or after August 15, 2025, we may redeem the notes at 100% of principal; in each case, plus accrued and unpaid
interest.

The 5.25% Notes have covenants customary for securities of this nature, including customary events of default and further provide that the trustee or holders of at least 25% in aggregate principal amount of the outstanding 5.25% Notes may declare them immediately due and payable upon the occurrence of certain events of default after the expiration of the applicable
grace period. In addition, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization relating to the Company or any of its significant subsidiaries, the 5.25% Notes will become due and payable immediately. This description is not intended to be complete in all respects and is qualified in its entirety by the terms of the 5.25% Notes, including their covenants and events of default. We were in compliance with all covenants as of December 31, 20172020.


MGIC Investment Corporation 2020 Form 10-K | 105
MGIC Investment Corporation and 2016 we had outstanding $256.9 millionSubsidiaries
Notes to Consolidated Financial Statements
Table of Contents

5.75% Notes
Interest on the 5.75% Notes is payable semi-annually on February 15 and August 15 of each year. We have the option to redeem these notes, in whole or in part, at any time or from time to time prior to maturity at a redemption price equal to the greater of (i) 100% of the aggregate principal amount of our 9% Debentures duethe notes to be redeemed and (ii) the make-whole amount, which is the sum of the present values of the remaining scheduled payments of principal and interest discounted at the treasury rate defined in 2063 ("9% Debentures"). In February 2016, MGIC purchased $132.7 millionthe notes plus 50 basis points and accrued interest.

The 5.75% Notes have covenants customary for securities of this nature, including customary events of default, and further provide that the trustee or holders of at least 25% in aggregate principal of our outstanding 9% Debentures at a purchase price of $150.7 million, plus accrued interest. The 9% Debentures include a conversion feature that allows us, at our option, to make a cash payment to converting holders in lieu of issuing shares of common stock upon conversionamount of the 9% Debentures. The accounting standardsoutstanding 5.75% Notes may declare them immediately due and payable upon the occurrence of certain events of default after the expiration of the applicable grace period. In addition, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization relating to extinguishmentthe Company or any of debt with a cash conversion feature requireits significant subsidiaries, the consideration paid5.75% Notes will become due and payable immediately. This description is not intended to be allocated betweencomplete in all respects and is qualified in its entirety by the extinguishmentterms of the liability component5.75% Notes, including their covenants and reacquisitionevents of the equity component. The purchasedefault. We were in compliance with all covenants as of the 9% Debentures resulted in an $8.3 million loss on debt extinguishment on the consolidated statement of operations for the year ended December 31, 2016, which represents the difference between the fair value and the carrying value of the liability component on the purchase date. In addition, our shareholders’ equity was separately reduced by $6.3 million related to the reacquisition of the equity component. For GAAP accounting purposes, the 2020.

9% Debentures owned by MGIC are considered retired and are eliminated in our consolidated financial statements and the underlying common stock equivalents, approximately 9.8 million shares, are not included in the computation of diluted shares.

The 9% Debentures are currently convertible, at the holder's option, at an initiala conversion rate, which is subject to adjustment, of 74.074175.5932 common shares per $1,000 principal amount of the 9% Debentures at any time prior to the maturity date. This represents an initiala conversion price of approximately $13.50$13.23 per share. If a holder elects to convert their 9% Debentures, deferred interest, if any, owed on the 9% Debentures being converted is also converted into shares of our common stock. The conversion rate for any deferred interest is based on the average price that our shares traded at during a 5-day period immediately prior to the election to convert. We have 19.0 million authorized

The 9% Debentures include a conversion feature that allows us, at our option, to make a cash payment to converting holders in lieu of issuing shares reserved forof common stock upon conversion under ourof the 9% debentures.

Debentures. We may redeem the 9% Debentures in whole or in part from time to time, at our option, at a redemption price equal to 100% of the principal amount of the 9% Debentures being redeemed, plus any accrued and unpaid interest, if the closing sale price of our common stock exceeds $17.55$17.20 for at least 20 of the 30 trading days preceding notice of the redemption.



MGIC Investment Corporation 2017 Form 10-K | 125
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)


Interest on the 9% Debentures is payable semi-annually in arrears on April 1 and October 1 of each year. As long as no event of default with respect to the debentures has occurred and is continuing, we may defer interest, under an optional deferral provision, for one1 or more consecutive interest periods up to 10 years without giving rise to an event of default. Deferred interest will accrue additional interest at the rate then applicable to the debentures. During an optional deferral period we may not pay or declare dividends on our common stock.


When interest on the 9% Debentures is deferred, we are required, not later than a specified time, to use reasonable commercial efforts to begin selling qualifying securities to persons who are not our affiliates. The specified time is one business day after we pay interest on the 9% Debentures that was not deferred, or if
earlier, the fifth anniversary of the scheduled interest payment date on which the deferral started. Qualifying securities are common stock, certain warrants and certain non-cumulative perpetual preferred stock. The requirement to use such efforts to sell such securities is called the Alternative Payment Mechanism.

The net proceeds of Alternative Payment Mechanism sales are to be applied to the payment of deferred interest, including the compound portion. We cannot pay deferred interest other than from the net proceeds of Alternative Payment Mechanism sales, except at the final maturity of the debentures or at the tenth anniversary of the start of the interest deferral. The Alternative Payment Mechanism does not require us to sell common stock or warrants before the fifth anniversary of the interest payment date on which that deferral started if the net proceeds (counting any net proceeds of those securities previously sold under the Alternative Payment Mechanism) would exceed the 2% cap. The 2% cap is 2% of the average closing price of our common stock times the number of our outstanding shares of common stock. The average price is determined over a specified period ending before the issuance of the common stock or warrants being sold, and the number of outstanding shares is determined as of the date of our most recent publicly released financial statements.


We are not required to issue under the Alternative Payment Mechanism a total of more than 10 million shares of common stock, including shares underlying qualifying warrants. In addition, we may not issue under the Alternative Payment Mechanism qualifying preferred stock if the total net proceeds of all issuances would exceed 25% of the aggregate principal amount of the debentures.


The Alternative Payment Mechanism does not apply during any period between scheduled interest payment dates if there is a “market disruption event” that occurs over a specified portion of such period. Market disruption events include any material adverse change in domestic or international economic or financial conditions.


The provisions of the 9% Debentures are complex. TheThis description above is not intended to be complete in all respects. Moreover, that descriptionrespects and is qualified in its entirety by the terms of the 9% Debentures, including their covenants and events of default. We were in compliance with all covenants at December 31, 2017.2020. The 9% Debentures rank junior to all of our existing and future senior indebtedness.


INTEREST PAYMENTS
Note 8. Loss ReservesInterest payments were $54.3 million during 2020, $50.8 million during 2019, and $51.3 million during 2018.


MGIC Investment Corporation 2020 Form 10-K | 106
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


NOTE 8Loss Reserves
As described in Note 3 – “Summary of Significant Accounting Policies – Loss Reserves,” we We establish case reserves and loss adjustment expenses ("LAE") reserves on delinquent loans that were reported to recognize the estimated liability for lossesus as 2 or more payments past due and LAE related to defaults on insured mortgage loans. Losshave not become current or resulted in a claim payment. Case reserves are established by estimating the number of loans in our inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity.


IBNR reserves are established for estimated losses from delinquencies we estimate have occurred prior to the close of an accounting period, but have not yet been reported to us. IBNR reserves are also established using estimated claim rates and claim severities

Estimation of losses is inherently judgmental. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between defaultdelinquency and claim filing; and curtailments and rescissions. 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 and the continued impact of the COVID-19 pandemic, leading to a reduction in borrowers’ income and thus their ability to make mortgage payments, the impact of past and future government initiatives and actions taken by the GSEs (including mortgage forbearance programs and foreclosure moratoriums), and a drop in housing values which may affect borrower willingness to continue to make mortgage payments when the value of the


MGIC Investment Corporation 2017 Form 10-K | 126
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

home is below the mortgage balance. Loss reserves in future periods will also be dependent on the number of loans reported to us as delinquent.

Changes to our estimates could result in a material impact to our consolidated results of operations and financial position, even in a stable economic environment. It is reasonably possible that given the uncertainty of the impacts of the COVID 19 pandemic, our reserve estimate may continue to be impacted.


In considering the potential sensitivity of the factors underlying our estimate of loss reserves, it is possible that even a relatively small change in our estimated claim rate or severity could have a material impact on loss reserves and, correspondingly, on our consolidated results of operations even in a stable economic environment. For example, as of December 31, 2020, assuming all other factors remain constant, a $1,000 increase/decrease in the average severity reserve factor would change the loss reserve amount by approximately +/- $16 million. A one percentage point increase/decrease in the average claim rate reserve factor would change the loss reserve amount by approximately +/- $34 million.



LOSSES INCURRED
The “Losses incurred” section of table 8.1 below shows losses incurred on delinquencies that occurred in the current year and in prior years. The amount of losses incurred relating to delinquencies that occurred in the current year represents the estimated amount to be ultimately paid on such delinquencies. The amount of losses incurred relating to delinquencies that occurred in prior years represents the difference between the actual claim rate and severity associated with those delinquencies resolved in the current year compared to the estimated claim rate and severity at the prior year-end, as well as a re-estimation of amounts to be ultimately paid on delinquencies continuing from the end of the prior year. This re-estimation of the claim rate and severity is the result of our review of current trends in the delinquentdelinquency inventory, such as percentages of defaultsdelinquencies that have resulted in a claim, the amount of the claims relative to the average loan exposure, changes in the relative level of delinquencies by geography and changes in average loan exposure.


Losses incurred on delinquencies that occurred in the current year increased in 2020 compared to 2019 due to an increase in the new delinquency notices reported and IBNR reserve estimates, due to the impact of the COVID-19 pandemic. Given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related delinquencies and forbearances on our loss incidence.

Losses incurred on delinquencies that occurred in the current year decreased in 20172019 compared to 2016 due to a decrease in the estimated claim rate on recently reported delinquencies, and in 2016 compared to 2015,2018 primarily due to a decrease in the number of new delinquencies, net of cures, as well as a decrease in the estimated claim rate on recently reported delinquencies.


See "Hurricane activity" below for additional information on new notice activity and items in our delinquent inventory from the hurricane impacted areas. Based on our analysis and past experience, new notices received in areas impacted by hurricanes generally cure at a higher rate than notices received in the normal course of business and we have estimated a materially lower claim rate on the estimated new notices caused by the hurricane activity; however, our estimated severity was similar to other new notices received.LOSSES PAID

The “Losses paid” section of table 8.1 below shows the amount of losses paid on delinquent notices receiveddelinquencies that occurred in the current year and losses paid on delinquent notices receiveddelinquencies that occurred in prior years. For several years, the average time it took to receive a claim associated with a delinquency had increased significantly from our historical experience of approximately twelve months. This was, 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. In recent quarters, before the second quarter of 2020, we have experiencedhad begun to experience a decline in the average time it takes servicers are utilizing to process foreclosures, which hashad reduced the average time to receive a claim associated with new delinquent noticesdelinquencies that do not cure. All else being equal, the longer the period between delinquency and claim filing, the greater the severity.


In light of the uncertainty caused by the COVID-19 pandemic, specifically the foreclosure moratoriums and forbearance plans, the average time it takes to receive a claim may increase.

Premium refunds
Our estimate of premiums to be refunded on expected claim payments is accrued for separately in "Other liabilities" on our consolidated balance sheets and approximated $61$30 million and $85 millioneach at December 31, 20172020 and 2016, respectively.2019.


During 2017 and 2016, our losses paid included amounts paid upon commutation of coverage on pools of non-performing loans ("NPLs"), and in 2016 our losses paid also included amounts paid in connection with settlements for disputes concerning our claims paying practices. Losses paid in 2015 included amounts paid in connection with settlements for disputes concerning our claims paying practices. The impacts of the commutations of coverage on NPLs and/or settlements in each of the past three years were as follows:
2017 - 1,337 notices removed from default inventory with an amount paid of $54 million,
2016 - 1,273 notices removed from default inventory with an amount paid of $53 million,

2015 - 1,121 notices removed from default inventory with an amount paid of $10 million.

In each of 2016 and 2015, we paid $42 million in connection with a 2012 settlement agreement with Freddie Mac regarding the aggregate loss limit under certain pool insurance policies. The final payment under that settlement agreement was made on December 1, 2016.



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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)


Table 8.1 provides a reconciliation of beginning and ending loss reserves for each of the past three years:
Development of loss reserves
Table8.1
(In thousands)202020192018
Reserve at beginning of year$555,334 $674,019 $985,635 
Less reinsurance recoverable21,641 33,328 48,474 
Net reserve at beginning of year533,693 640,691 937,161 
Losses incurred:
Losses and LAE incurred in respect of delinquent notices received in:
Current year345,170 189,581 203,928 
Prior years (1)
19,604 (71,006)(167,366)
Total losses incurred364,774 118,575 36,562 
Losses paid:
Losses and LAE paid in respect of delinquent notices received in:
Current year3,069 4,018 7,298 
Prior years109,923 235,551 327,743 
Reinsurance terminations(20)(13,996)(2,009)
Total losses paid112,972 225,573 333,032 
Net reserve at end of year785,495 533,693 640,691 
Plus reinsurance recoverables95,042 21,641 33,328 
Reserve at end of year$880,537 $555,334 $674,019 
(1)A positive number for prior year loss development indicates a deficiency of prior year reserves. A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves. See table 8.2 below for more information about prior year loss development.

 Table8.1      
Development of reserves for losses and loss adjustment expenses(In thousands) 2017 2016 2015
Reserve at beginning of year $1,438,813
 $1,893,402
 $2,396,807
Less reinsurance recoverable 50,493
 44,487
 57,841
Net reserve at beginning of year 1,388,320
 1,848,915
 2,338,966
        
 Losses incurred:      
 Losses and LAE incurred in respect of delinquent notices received in:      
 Current year 284,913
 387,815
 453,849
 
Prior years (1)
 (231,204) (147,658) (110,302)
 Total losses incurred 53,709
 240,157
 343,547
        
 Losses paid:      
 Losses and LAE paid in respect of delinquent notices received in:      
 Current year 11,267
 14,823
 25,980
 Prior years 493,300
 689,258
 823,058
 
Reinsurance terminations (2)
 301
 (3,329) (15,440)
 Total losses paid 504,868
 700,752
 833,598
 Net reserve at end of year 937,161
 1,388,320
 1,848,915
 Plus reinsurance recoverables 48,474
 50,493
 44,487
 Reserve at end of year $985,635
 $1,438,813
 $1,893,402
(1)
A negative number for prior year losses incurred indicates a redundancy of prior year loss reserves. See tableTable 8.2 below for more information about prior year loss development.
(2)
In a termination, the reinsurance agreement is cancelled, with no future premium ceded and amounts for any incurred but unpaid losses paid to us. Amounts paid to (received from) reinsurers result in an increase (decrease) in net losses paid. The change in net losses paid on our losses incurred is offset by a corresponding change in the reinsurance recoverable, resulting in no net impact on losses incurred. (See Note 9 – “Reinsurance”).

Table 8.2 below shows the development of reserves in 2017, 20162020, 2019 and 20152018 for previously received delinquencies.
Reserve development on previously received delinquencies
Table8.2
(In thousands)202020192018
(Decrease) in estimated claim rate on primary delinquencies$(2,536)$(111,848)$(212,738)
Increase (decrease)in estimated severity on primary delinquencies13,535 (434)28,528 
Change in estimates related to pool reserves, LAE reserves, reinsurance and other8,605 41,276 16,844 
Total prior year loss development (1)
$19,604 $(71,006)$(167,366)
(1)A positive number for prior year loss development indicates a deficiency of prior year loss reserves. A negative number for prior year loss development indicates a redundancy of prior year loss reserves.

 Table8.2      
Reserve development on previously received delinquencies(In millions) 2017 2016 2015
Decrease in estimated claim rate on primary delinquencies $(248) $(148) $(141)
Increase in estimated severity on primary delinquencies 9
 9
 43
Change in estimates related to pool reserves, LAE reserves, reinsurance and other 8
 (9) (12)
 
Total prior year loss development (1)
 $(231) $(148) $(110)
(1)
A negative number for prior year loss development indicates a redundancy of prior year loss reserves.

For the year ended December 31, 2020, we experienced adverse development on previously received delinquencies primarily related to severity and adjustments to LAE reserves. For the years ended December 31, 2017, 20162019 and 2015,2018, we experienced favorable development on previously received delinquencies. This development was, in part, due to the resolution of approximately 67%, 63%69% and 60%73% for the years ended December 31, 2017, 20162019 and 2015,2018, respectively, of the prior year delinquentdelinquency inventory, with improved cure rates. During 2017,2019 and 2018, cure activity on loans that were delinquent twelve months or more was significantly higher than our previous estimates. During 2015,2019, the claim ratefavorable development was also favorably impactedoffset by re-estimations of previously recorded reserves relating to disputes on our claims paying practices and adjustments to IBNR.LAE reserves and amounts paid in settlement of disputes for claim paying practices. See Note 17 – “Litigation and Contingencies.” The favorable development for the yearsyear ended 2017, 2016, and 20152018 was offset, in part, by an increase in the estimated severity on previously reported delinquencies remaining in the delinquentdelinquency inventory.


Delinquent Inventory

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Notes to Consolidated Financial Statements
Table of Contents


DELINQUENT INVENTORY
A rollforwardroll-forward of our primary delinquent inventory for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 appears in table 8.3 below. The information concerning new notices and cures is compiled from monthly reports received from loan servicers. The level of new notice and cure activity reported in a particular month


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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

can be influenced by, among other things, the date on which a servicer generates its report, the number of business days in a month and transfers of servicing between loan servicers.
Primary delinquency inventory roll-forward
Table8.3
202020192018
Beginning delinquent inventory30,028 32,898 46,556 
New Notices106,099 54,239 54,448 
Cures(76,107)(52,035)(60,511)
Paid claims(2,245)(4,267)(5,750)
Rescissions and denials(65)(168)(267)
Other items removed from inventory0 (639)(1,578)
Ending delinquent inventory57,710 30,028 32,898 

COVID-19 Activity
New delinquency notices increased in 2020 because of the impacts of the COVID-19 pandemic, including the high level of unemployment and economic uncertainty resulting from measures to reduce the transmission of COVID-19. In the last half of 2020, we experienced an increase in cures associated with our COVID-19 new delinquency notices. Government initiatives and actions taken by the GSEs provide for payment forbearance on mortgages to borrowers experiencing hardship during the COVID-19 pandemic. These forbearance plans generally allow for mortgage payments to be suspended for up to 360 days: an initial forbearance period of up to 180 days and, if requested by the borrower, an extension of up to 180 days. For loans in a COVID-19 forbearance plan as of February 28, 2021, the plan may be extended for an additional three months, subject to certain limits.

 Table8.3      
Delinquent inventory rollforward  2017 2016 2015
Delinquent inventory at beginning of year 50,282
 62,633
 79,901
New Notices 68,268
 67,434
 74,315
 Cures (61,094) (65,516) (73,610)
 Paids (including those charged to a deductible or captive) (9,206) (12,367) (16,004)
 Rescissions and denials (357) (629) (848)
 Other items removed from inventory (1,337) (1,273) (1,121)
 Delinquent inventory at end of year 46,556
 50,282
 62,633

Other items removed from inventory
2017During 2019 and 2018 our losses paid included amounts paid upon commutation of coverage on policies. The impacts of the commutations of coverage on policies and/or settlements were as follows:
•2019 - 639 notices removed from delinquent inventory with an amount paid of $30 million,
•2018 - 1,578 notices removed from delinquent inventory with an amount paid of $50 million.

In 2019, our losses paid included $23.5 million paid in connection with settlements of disputes concerning our claims paying practices.

Aging of delinquent inventory
Hurricane activity
New default notice activity increased in 2017 compared to the prior year (particularly in the fourth quarter) because of hurricane activity that primarily impacted Puerto Rico, Texas, and Florida in the third quarter of 2017. In response to the hurricanes, the Federal Emergency Management Agency has declared Individual Assistance Disaster Areas ("IADA") which we are utilizing to identify new notices of delinquency for reserving and loss mitigation purposes. We received 9,294 new notices of delinquency on loans in the IADAs in the fourth quarter of 2017, which compares to 1,968 new notices in the same areas in the fourth quarter of 2016. Loans in our ending delinquent inventory within the IADAs were 12,446 and 7,162 as of December 31, 2017 and 2016, respectively.

The new notice activity from hurricane impacted areas in the fourth quarter of 2017 has increased the percentage of our delinquent inventory that has been delinquent for three months or less (table 8.4) and correspondingly our percentage of delinquent inventory with three payments or less (table 8.5) delinquent has also increased.

2016 and 2015 delinquent inventory
The decrease in the primary delinquent inventory experienced during 2016 and 2015 from the respective prior year was generally across all markets and all book years prior to 2013. In 2016 and 2015, the percentage of loans in the inventory that had been delinquent for 12 or more consecutive months had decreased compared to the respective prior year.

Historically as a delinquency ages it becomes more likely to result in a claim. The percentage of loans that have been delinquent for 12 or more consecutive months and the number of loans in our primary claims received inventory have been affected by our suspended rescissions and the resolution of certain of those rescissions discussed below and in Note 17 - "Litigation and Contingencies".


The number of consecutive months that a borrower has been delinquent is shown in the table 8.4 below.
Primary delinquency inventory - consecutive months delinquent
Table8.4
December 31,
202020192018
3 months or less11,542 9,447 9,829 
4 - 11 months34,620 9,664 9,655 
12 months or more (1)
11,548 10,917 13,414 
Total57,710 30,028 32,898 
3 months or less20 %32 %30 %
4 - 11 months60 %32 %29 %
12 months or more20 %36 %41 %
Total100 %100 %100 %
Primary claims received inventory included in ending delinquent inventory159 538 809 
 Table8.4            
Delinquent inventory - consecutive months delinquent  December 31,
  2017 2016 2015
3 months or less 17,119
 37% 12,194
 24% 13,053
 21%
4 - 11 months 12,050
 26% 13,450
 27% 15,763
 25%
 
12 months or more (1)
 17,387
 37% 24,638
 49% 33,817
 54%
 Total primary delinquent inventory 46,556
 100% 50,282
 100% 62,633
 100%
              
 Primary claims received inventory included in ending delinquent inventory 954
 2% 1,385
 3% 2,769
 4%
(1)
Approximately 45%, 47% and 50%(1)Approximately 31%, 36%, and 38% of the primary delinquent inventory delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2017, 2016 and 2015, respectively.


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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

The length of time a loan is in the delinquent inventory can differ fromthat has been delinquent for 12 consecutive months or more has been delinquent for at least 36 consecutive months as of December 31, 2020, 2019 and 2018, respectively.

The increase in delinquency inventory that is 4-11 consecutive months delinquent is primarily due to the number of payments that the borrower has not made or is considered delinquent. These differences typically result from a borrower making monthly payments that do not resultnew delinquency notices received in the loan becoming fully current. The numbersecond quarter of payments that a borrower is delinquent is shown2020 resulting from the impacts of the COVID-19 pandemic. This was partially offset by an increase in table 8.5 below.cures in the third and fourth quarter of 2020.

 Table8.5            
Delinquent inventory - number of payments delinquent  December 31,
  2017 2016 2015
3 payments or less 21,678
 46% 18,419
 36% 20,360
 33%
4 - 11 payments 12,446
 27% 12,892
 26% 15,092
 24%
 12 payments or more 12,432
 27% 18,971
 38% 27,181
 43%
 Total primary delinquent inventory 46,556
 100% 50,282
 100% 62,633
 100%

POOL INSURANCE DEFAULT INVENTORY
Pool insurance default inventory decreased to 1,309was 680 at December 31, 2017 from 1,8832020, 653 at December 31, 20162019, and 2,739859 at December 31, 2015.2018.


Claims paying practicesCLAIMS PAYING PRACTICES
Our loss reserving methodology incorporates our estimates of future rescissions. A variance between ultimate actual rescission rates and our estimates, as a result of the outcome of litigation, settlements or other factors, could materially affect our losses. Our estimate of premiums to be refunded on expected future rescissions is accrued for separately and is included in "Other liabilities" on our consolidated balance sheets.

For information about discussions and legal proceedings with customers with respect to our claims paying practices, including settlements that we believe are probable, as defined in ASC 450-20, see Note 17 – “Litigation and Contingencies.”


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Note 9. Notes to Consolidated Financial Statements
Table of Contents


NOTE 9Reinsurance
Our consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related earned premiums) we have underwritten to other insurance companies who agree to share these risks. The purpose of ceded reinsurance is to protect us, at a cost, against a fixed percentage of losses arising from our mortgage guaranty policies covered by the agreement and to manage our capital requirements under PMIERs. Reinsurance is currently placed on a quota-sharequota share and excess of loss basis, but we also have immaterial captive reinsurance agreements that remain in effect. The reinsurance agreements we have entered into are discussed below.effect through December 31, 2020.


Table 9.1 below shows the effect of all reinsurance agreements on premiums earned and losses incurred as reflected in the consolidated statements of operations.
Reinsurance
Table9.1
Years ended December 31,
(In thousands)202020192018
Premiums earned:
Direct$1,199,824 $1,155,240 $1,084,748 
Assumed10,848 5,085 1,805 
Ceded(188,729)(129,337)(111,391)
Net premiums earned1,021,943 1,030,988 975,162 
Losses incurred:
Direct442,194 130,100 43,060 
Assumed555 (125)331 
Ceded(77,975)(11,400)(6,829)
Net losses incurred$364,774 $118,575 $36,562 

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

Each of our QSR agreements typically have annual loss ratio caps of 300% and lifetime loss ratios of 200%.
 Table9.1      
Reinsurance  Years ended December 31,
 (In thousands) 2017 2016 2015
 Premiums earned:      
 Direct $1,059,973
 $1,058,545
 $997,892
 Assumed 509
 662
 1,178
 Ceded (125,735) (133,981) (102,848)
 Net premiums earned $934,747
 $925,226
 $896,222
        
 Losses incurred:      
 Direct $74,727
 $273,207
 $369,680
 Assumed 183
 1,138
 1,552
 Ceded (21,201) (34,188) (27,685)
 Net losses incurred $53,709
 $240,157
 $343,547




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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents


Table 9.2 below provides additional detail regarding our QSR agreements.

Reinsurance
Table9.2
Quota Share ContractPolicy YearQuota Share %
Annual Loss Ratio to Exhaust Profit Commission (1)
Contractual Termination Date
2015 QSRPrior to 201715.0 %68.0 %December 31, 2031
2017 QSR201730.0 %60.0 %December 31, 2028
2018 QSR201830.0 %62.0 %December 31, 2029
2019 QSR201930.0 %62.0 %December 31, 2030
2020 QSR - 1 Year202012.5 %62.0 %December 31, 2031
2020 QSR - 2 Year2020 - 202117.5 %62.0 %December 31, 2032
Credit Union QSR (2)
2020-202565.0 %50.0 %December 31, 2039
(1)We will receive a profit commission provided the annual loss ratio on loans covered under the transaction remains below this ratio.
(2)Eligible credit union business written before 2020 was covered by our 2019 and prior QSR Transactions.

We have agreed to terms with a group of unaffiliated reinsurers for a reinsurance transaction with an effective date of January 1, 2021 with a similar structure to our existing QSR transactions that will cover most of our NIW in 2021 (with an additional 12.5% quota share) and 2022 (with a 15% quota share). Generally, we will receive an annual profit commission provided the annual loss ratio on the loans covered under the transaction remain below 57.5%.

We can elect to terminate the quota share reinsurance agreements under specified scenarios without penalty upon prior written notice, including if we will receive less than 90% (80% for the Credit Union QSR Transaction ) of the full credit amount under the PMIERs, full financial statement credit or full credit under applicable regulatory capital requirements for the risk ceded in any required calculation period. Early termination of the QSR agreements can also be elected by us for a fee, or under specified scenarios for no fee upon prior written notice.

Table 9.3 provides additional detail regarding optional termination dates and optional reductions to our quota share percentage. The optional reduction to the quota share percentage would give us an option to reduce our quota share percentage from the original percentage as shown in table 9.2.

Consolidated Financial Statements and NotesReinsurance
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Quota share reinsurance
Each of the reinsurers under our 2017 and 2015 quota share reinsurance agreements ("2017 QSR Transaction" and "2015 QSR Transaction", respectively) and proposed 2018 quota share reinsurance agreement ("2018 QSR Transaction") has an insurer financial strength rating of A- or better by Standard and Poor's Rating Services, A.M. Best, or both.

2017 QSR Transaction. Effective January 1, 2017, this transaction provides coverage on new business written from the effective date through December 29, 2017 that meets certain eligibility requirements. The agreement cedes losses incurred and premiums on or after the effective date through December 31, 2028 at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021 for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

2015 QSR Transaction. Effective July 1, 2015, this transaction provides coverage on policies that were in the 2013 quota share reinsurance agreement ("2013 QSR Transaction"); additional qualifying in force policies as of the agreement effective date which either had no history of defaults, or where a single default had been cured for twelve or more months at the agreement effective date; and all qualifying new insurance written through December 31, 2016. Compared to the 2013 QSR Transaction, the 2015 QSR Transaction increased the amount of our IIF covered by reinsurance and the amount of premiums and losses that will be ceded. The agreement cedes losses incurred and premiums on or after the effective date through December 31, 2024, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2018 for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The structure of the 2017 and 2015 QSR Transactions are both 30% quota share agreements for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under each transaction, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below 60%, with higher levels of losses ceded reducing our profit commission.

2013 QSR Transaction.Effective July 1, 2015, we commuted and settled our 2013 QSR Transaction. The settlement included unearned premiums, loss reserves, and profit commission. The commutation resulted in an increase in net premiums written and earned of $69.4 million and $11.6 million, respectively, and a decrease in ceding commissions of $11.6 million in the third quarter of 2015. Receipt of our profit commission of $142.5 million, in addition to other premium and loss amounts, was also completed as part of the settlement.

2018 QSR Transaction. We have agreed to terms on a 2018 QSR Transaction with a group of unaffiliated reinsurers to manage our exposure to losses resulting from the covered mortgage guaranty insurance policies and to provide reinsurance capital credit under the PMIERs. The GSEs have approved the terms of our proposed 2018 QSR Transaction. The 2018 QSR Transaction is expected to be executed during the first quarter of 2018 with an effective date of January 1, 2018, and will provide coverage on new business written January 1, 2018 through December 31, 2018 that meets certain eligibility requirements. Under the agreed upon terms, the 2018 QSR Transaction will cede losses incurred and premiums on or after the effective date through December 31, 2029, at which time the agreement expires. Early termination of the agreement can be elected by us effective December 31, 2021, and annually thereafter, for a fee, or under specified scenarios for no fee upon prior written notice, including if we will receive less than 90% of the full credit amount under the PMIERs for the risk ceded in any required calculation period.

The agreed upon structure of the 2018 QSR Transaction is a 30% quota share for all policies covered, with a 20% ceding commission as well as a profit commission. Generally, under the 2018 QSR Transaction, we will receive a profit commission provided that the loss ratio on the loans covered under the agreement remains below 54%.



MGIC Investment Corporation 2017 Form 10-K | 131
Table9.3
Consolidated Financial Statements and Notes
Quota Share Contract
MGIC Investment CorporationOptional Termination Date (1)
2017 Form 10-KOptional Quota Share % Reduction Date (2)
Quota Share % Reduction
Notes (continued)2015 QSRJune 30, 2021NANA
2017 QSRDecember 31, 2021NANA
2018 QSRDecember 31, 2021NANA
2019 QSRDecember 31, 2021July 1, 202025% or 20%
2020 QSR - 1 YearDecember 31, 2022July 1, 202110.5% or 8%
2020 QSR - 2 YearDecember 31, 2023July 1, 202114.5% or 12%


(1)We can elect early termination of the QSR agreement beginning on this date, and bi-annually thereafter for the 2015 QSR, 2019 QSR, and 2020 QSR. Early termination of the 2018 QSR can be elected annually after this date.
(2)We can elect to reduce the quota share percentage beginning on this date, and bi-annually thereafter.


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Notes to Consolidated Financial Statements
Table 9.2of Contents


Table 9.4 provides a summary of our quota share reinsurance agreements excluding captive agreements, for 2017, 20162020, 2019, and 2015.2018.

Table9.2      
Quota share reinsurance  Years ended December 31,Quota share reinsurance
(In thousands) 2017 2016 
2015 (3)
TableTable9.4
Ceded premiums written, net of profit commission (1)
 $120,974
 $125,460
 $41,233
Years ended December 31,
Ceded premiums earned, net of profit commission (1)
 120,974
 125,460
 88,587
Ceded losses incurred 22,336
 30,201
 17,484
Ceding commissions (2)
 49,321
 47,629
 30,816
Profit commission 125,629
 112,685
 112,847
(In thousands)(In thousands)202020192018
Ceded premiums written and earned, net of profit commissionCeded premiums written and earned, net of profit commission$167,930 $111,550 $108,337 
Ceded losses incurredCeded losses incurred78,012 11,395 6,543 
Ceding commissions (1)
Ceding commissions (1)
48,077 48,793 51,201 
Profit commissionProfit commission72,452 139,179 147,667 
(1)
Since July 1, 2015, premiums are ceded on an earned and received basis as defined in our QSR Transactions currently in effect.
(2)
Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.
(3)
The year ended December 31, 2015 includes the non-recurring impact of commuting our 2013 QSR Transaction (see "2013 QSR Transaction" above for additional information). The commutation had no impact on ceded losses incurred.
(1)Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.


Ceded premiums written and earned, net of profit commission, increased in 2020 due to the decrease in profit commission. The decrease in profit commission was a result of higher ceded losses incurred, primarily due to an increase in the delinquency inventory due to the impacts of the COVID-19 pandemic.
We terminated a portion of our 2015 QSR Transaction effective June 30, 2019 and entered into an amended quota share reinsurance agreement with certain participants from the existing reinsurance panel that effectively reduces the quota share cede rate from 30% to 15% on the remaining eligible insurance. During the second quarter of 2019, we incurred a termination fee of $6.8 million, which was paid to participants of the reinsurance panel that are not participating in the amended 2015 QSR Transaction.
Under the terms of our QSR Transactions currently in effect, reinsurance premiums, ceding commission and profit commission are settled net on a quarterly basis. The reinsurance premium due after deducting the related ceding commission and profit commission is reported within "Other liabilities" on the consolidated balance sheets.
The reinsurance recoverable on loss reserves was $39.3$95.0 million as of December 31, 20172020 and $31.8$21.6 million as of December 31, 2016. The2019.The reinsurance recoverable balance is secured by funds on deposit from the reinsurers, the amount of which areis based on the funding requirements of PMIERsPMIERs. Each of the reinsurers under our quota share reinsurance agreements described above has an insurer financial strength rating of A- or better (or a comparable rating) by Standard and Poor's Rating Services, A.M. Best, Moody's, or a combination of the three. An allowance for credit losses was not required for 2020.



MGIC Investment Corporation 2020 Form 10-K | 112
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

EXCESS OF LOSS REINSURANCE
We have aggregate excess of loss reinsurance agreements (“Home Re Transactions”) with unaffiliated special purpose insurers domiciled in Bermuda (“Home Re Entities”). For the reinsurance coverage periods, we retain the first layer of the respective aggregate losses, and a Home Re special purpose entity will then provide second layer coverage up to the outstanding reinsurance coverage amount. We retain losses in excess of the outstanding reinsurance coverage amount. The aggregate excess of loss reinsurance coverage decreases over a ten-year period, subject to certain conditions, as the underlying covered mortgages amortize or are repaid, or mortgage insurance losses are paid.

A "Trigger Event" has occurred on each our outstanding ILN transactions. On the 2018 and 2019 ILN transactions a “Trigger Event” has occurred because the reinsured principal balance of loans that addresswere reported 60 or more days delinquent exceeded 4% of the total reinsured principal balance of loans under each transaction. A “Trigger Event” has occurred on our 2020 ILN transaction because the credit enhancement of the most senior tranche is less than the target credit enhancement. While the “Trigger Event” is in effect, payment of principal on the related notes will be suspended and the reinsurance coverage available to MGIC under the transactions will not be reduced by such principal payments.

MGIC has rights to terminate the Home Re Transactions under certain circumstances. The Home Re entities financed the coverages by issuing mortgage insurance-linked notes (“ILNs”) to unaffiliated investors in an aggregate amount equal to the initial reinsurance coverage amounts. The ILNs each have ten-year legal maturities and are non-recourse to any assets of MGIC or affiliates. The proceeds of the ILNs, which were deposited into reinsurance trusts for the benefit of MGIC, will be the source of reinsurance claim payments to MGIC and principal repayments on the ILNs.

Table 9.5 provides a summary of our excess of loss reinsurance agreements as of December 31, 2020, December 31, 2019 and December 31, 2018.

Excess of Loss Reinsurance
Table 9.5
(In thousands)Home Re 2020-1, Ltd.Home Re 2019-1, Ltd.Home Re 2018-1, Ltd.
Issue DateOctober, 2020May 1, 2019October 1, 2018
Policy Inforce DatesJanuary 1, 2020 - July 31, 2020January 1, 2018 - March 31, 2019July 1, 2016 - December 31, 2017
Termination Option Date (1)
October 25, 2030May 25, 2026October 25, 2025
Initial First Layer Retention275,283185,730168,691
Initial Excess of Loss Reinsurance Coverage412,917315,739318,636
2020   
Remaining First Layer Retention275,283184,514166,005
Remaining Excess of Loss Reinsurance Coverage412,917208,146218,343
2019   
Remaining First Layer Retention0185,636167,779
Remaining Excess of Loss Reinsurance Coverage0271,021260,957
2018   
Remaining First Layer Retention00168,691
Remaining Excess of Loss Reinsurance Coverage00318,636
(1)We have the right to terminate the excess-of-loss reinsurance agreements under certain circumstances and on any payment date on or after the respective termination option date.


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Notes to Consolidated Financial Statements
Table of Contents



In February 2021, MGIC entered into a $398.8 million excess-of-loss reinsurance agreement (executed through an insurance linked note transaction) that covers policies with inforce dates from August 1, 2020 through December 31, 2020.

The reinsurance premiums ceded risk.to each Home Re Entity are composed of coverage, initial expense and supplemental premiums. The coverage premiums are generally calculated as the difference between the amount of interest payable by the Home Re Entity on the unpaid portion of the ILNs it issued to raise funds to collateralize its reinsurance obligations to us, and the investment income collected on the collateral assets. The amount of monthly reinsurance coverage premium ceded will fluctuate due to changes in one-month LIBOR, (or the fallback reference rate, as applicable) and changes in money market rates that affect investment income collected on the assets in the reinsurance trust. As a result, we concluded that each reinsurance agreement contains an embedded derivative that is accounted for separately as a freestanding derivative. The fair values of the derivatives at December 31, 2020 and December 31, 2019, were not material to our consolidated balance sheet, and the change in fair values during the year ended December 31, 2020 and December 31, 2019 were not material to our consolidated statements of operations. Total ceded premiums were $20.8 million, $17.6 million, and $2.8 million for the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.


Captive reinsuranceAt the time the Home Re Transactions were entered into, we concluded that each Home Re Entity is a variable interest entity (“VIE”). A VIE is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make sufficient decisions relating to the entity’s operations through voting rights or do not substantively participate in gains and losses of the entity. Given that MGIC (1) does not have the unilateral power to direct the activities that most significantly affect each Home Re Entity’s economic performance and (2) does not have the obligation to absorb losses or the right to receive benefits of each Home Re Entity, consolidation of neither Home Re Entity is required.
In the past, MGIC also obtained captive reinsurance. In
We are required to disclose our maximum exposure to loss, which we consider to be an amount that we could be required to record in our statements of operations, as a captive reinsurance arrangement, the reinsurer is affiliatedresult of our involvement with the lender for whom MGIC provides mortgage insurance.VIEs under our Home Re Transactions. As part of our settlement with the Consumer Financial Protection Bureau ("CFPB") in 2013December 31, 2020, December 31, 2019 and with the Minnesota Department of Commerce in 2015, MGIC has agreed toDecember 31, 2018, we did not enter into any new captive reinsurance agreement or reinsure any new loans under any existing captive reinsurance agreement for a period of ten years subsequenthave material exposure to the respective settlements. InVIEs as we have no investment in the VIEs and had no reinsurance claim payments due from either VIE under our reinsurance agreements. We are unable to determine the timing or extent of claims from losses that are ceded under the reinsurance agreements. The VIE assets are deposited in reinsurance trusts for the benefit of MGIC that will be the source of reinsurance claim payments to MGIC. The purpose of the reinsurance trusts is to provide security to MGIC for the obligations of the VIEs under the reinsurance agreements. The trustee of the reinsurance trusts, a recognized provider of corporate trust services, has established segregated accounts within the reinsurance trusts for the benefit of MGIC, pursuant to the trust agreements. The trust agreements are governed by, and construed in accordance with, the CFPB settlement, alllaws of our active captive arrangements were placed into run-off. In addition, the GSEs will not approve any futureState of New York. If the trustee of the reinsurance or risk sharing transaction withtrusts failed
to distribute claim payments to us as provided in the reinsurance trusts, we would incur a mortgage enterprise or an affiliate of a mortgage enterprise.

The reinsurance recoverable on loss reserves related to captiveour losses ceded under the reinsurance agreements was $9 million atand deemed unrecoverable. We are also unable to determine the impact such possible failure by the trustee to perform pursuant to the reinsurance trust agreements may have on our consolidated financial statements. As a result, we are unable to quantify our maximum exposure to loss related to our involvement with the VIEs. MGIC has certain termination rights under the reinsurance agreements should its claims not be paid. We consider our exposure to loss from our reinsurance agreements with the VIEs to be remote.

Table 9.6 presents the total assets of Home Re Entities as of December 31, 2017 which was supported by $80 million of trust assets, while at2020 , December 31, 2016 the reinsurance recoverable on loss reserves related to captive agreements was $19 million which was supported by $91 million of trust assets. Each captive reinsurer is required to maintain a separate trust account to support its combined reinsured risk on all annual books. MGIC is the sole beneficiary of the trusts.



MGIC Investment Corporation 2017 Form 10-K | 132
2019 and December 31, 2018.
Consolidated Financial Statements and NotesHome Re Entities total assets
MGIC Investment Corporation
2017 Form 10-K
Table		9.6
Notes (continued)
(In thousands)
Home Re EntityTotal VIE Assets
December 31, 2020
Home Re 2018-01 Ltd.$218,343
Home Re 2019-01 Ltd.$208,146
Home Re 2020-01 Ltd.$412,917
December 31, 2019
Home Re 2018-01 Ltd.$269,451 
Home Re 2019-01 Ltd.$283,150 
December 31, 2018
Home Re 2018-01 Ltd.$318,636 


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

The assets of the Home Re Entities provide capital credit under the PMIERs financial requirements (see Note 10. Other Comprehensive Income (Loss)1 - "Nature of Business"). A decline in the assets available to pay claims would reduce the capital credit available to MGIC.

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Notes to Consolidated Financial Statements
Table of Contents

NOTE 10Other Comprehensive Income (Loss)
The pretax components of our other comprehensive income (loss) and related income tax (expense) benefit for the years ended December 31, 2017, 20162020, 2019 and 20152018 are included in table 10.1 below: below.
Components of other comprehensive income (loss)
Table10.1
(In thousands)202020192018
Net unrealized investment gains (losses) on securities without an allowance for credit losses$169,135 $220,139 $(81,834)
Income tax (expense) benefit(35,519)(46,229)17,188 
Net of taxes133,616 173,910 (64,646)
Net changes in benefit plan assets and obligations13,288 29,129 (19,958)
Income tax (expense) benefit(2,791)(6,117)4,191 
Net of taxes10,497 23,012 (15,767)
Total other comprehensive income (loss)182,423 249,268 (101,792)
Total income tax expense, net(38,310)(52,346)21,379 
Total other comprehensive income, net of tax$144,113 $196,922 $(80,413)

 Table10.1      
Components of other comprehensive income (loss)(In thousands) 2017 2016 2015
Net unrealized investment gains (losses) arising during the year $69,052
 $(5,425) $(33,718)
Income tax (expense) benefit (21,505) 1,776
 11,738
 
Valuation allowance (1)
 —
 —
 62,383
 Net of taxes 47,547
 (3,649) 40,403
        
 Net changes in benefit plan assets and obligations (8,983) (14,799) (12,818)
 Income tax benefit 3,144
 5,179
 4,487
 
Valuation allowance (1)
 —
 —
 (7,383)
 Net of taxes (5,839) (9,620) (15,714)
        
 Net changes in unrealized foreign currency translation adjustment 45
 (1,463) (5,699)
 Income tax (expense) benefit (14) 512
 2,000
 
Valuation allowance (1)
 —
 —
 (529)
 Net of taxes 31
 (951) (4,228)
        
 Total other comprehensive income (loss) 60,114
 (21,687) (52,235)
 Total income tax (expense) benefit, net of valuation allowance (18,375) 7,467
 72,696
 Total other comprehensive income (loss), net of tax $41,739
 $(14,220) $20,461
(1)
See Note 12 – “Income Taxes” for a discussion of the valuation allowance recorded against deferred tax assets in 2015.

The pretax and related income tax benefit (expense) components of the amounts reclassified from our accumulated other comprehensive loss ("AOCL"income (loss) ( "AOCI", "AOCL") to our consolidated statements of operations for the years endedDecember 31, 2017, 20162020, 2019 and 20152018 are included in table 10.2 below: below.
Reclassifications from Accumulated Other Comprehensive Income (Loss)
Table10.2
(In thousands)202020192018
Reclassification adjustment for net realized gains (losses) included in net income (1)
$13,862 $3,637 $(7,037)
Income tax (expense) benefit(2,912)(763)1,477 
Net of taxes10,950 2,874 (5,560)
Reclassification adjustment related to benefit plan assets and obligations (2)
(15,968)(8,097)(2,232)
Income tax benefit3,353 1,701 469 
Net of taxes(12,615)(6,396)(1,763)
Total reclassifications(2,106)(4,460)(9,269)
Total income tax benefit, net441 938 1,946 
Total reclassifications, net of tax$(1,665)$(3,522)$(7,323)
(1)(Decreases) increases Net realized investment gains on the consolidated statements of operations.
(2)Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.




 Table10.2      
Reclassifications from AOCL(In thousands) 2017 2016 2015
Reclassification adjustment for net realized (losses) gains included in net income (1)
 $(2,580) $6,207
 $11,693
 Income tax benefit (expense) 903
 (2,050) (4,076)
 
Valuation allowance (2)
 —
 —
 3,635
 Net of taxes (1,677) 4,157
 11,252
        
 
Reclassification adjustment related to benefit plan assets and obligations (3)
906
 1,480
 2,184
 Income tax (expense) (317) (518) (764)
 
Valuation allowance (2)
 —
 —
 574
 Net of taxes 589
 962
 1,994
        
 
Reclassification adjustment related to foreign currency (4)
 —
 1,467
 —
 Income tax (expense) —
 (513) —
 Net of taxes —
 954
 —
        
 Total reclassifications (1,674) 9,154
 13,877
 Total income tax benefit (expense), net of valuation allowance 586
 (3,081) (631)
 Total reclassifications, net of tax $(1,088) $6,073
 $13,246


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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

A roll-forward of AOCI (AOCL) for the years ended December 31, 2020, 2019, and 2018, including amounts reclassified from AOCI (AOCL), is included in table 10.3 below.
Roll-forward of Accumulated Other Comprehensive Income (Loss)
Table10.3
(In thousands)Net unrealized gains and losses on available-for-sale securitiesNet benefit plan assets and obligations recognized in shareholders' equityTotal AOCL
Balance, December 31, 2017, net of tax$29,275 $(73,058)$(43,783)
Cumulative effect of adopting the accounting standard update for financial instruments(18)0 (18)
Other comprehensive income (loss) before reclassifications(70,206)(17,530)(87,736)
Less: Amounts reclassified from AOCL(5,560)(1,763)(7,323)
Balance, December 31, 2018, net of tax(35,389)(88,825)(124,214)
Other comprehensive income (loss) before reclassifications176,784 16,616 193,400 
Less: Amounts reclassified from AOCL2,874 (6,396)(3,522)
Balance, December 31, 2019, net of tax138,521 (65,813)72,708 
Other comprehensive income (loss) before reclassifications144,566 (2,118)142,448 
Less: Amounts reclassified from AOCL10,950 (12,615)(1,665)
Balance, December 31, 2020, net of tax$272,137 $(55,316)216,821 


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Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and NotesNOTE 11
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Benefit Plans

(1)
(Decreases) increases Net realized investment gains on the consolidated statements of operations.
(2)
See Note 12 – “Income Taxes” for a discussion of the valuation allowance recorded against deferred tax assets in 2015.
(3)
Decreases (increases) Other underwriting and operating expenses, net on the consolidated statements of operations.
(4)
Increases (decreases) Other revenue on the consolidated statements of operations.

A rollforward of AOCL for the years ended December 31, 2017, 2016, and 2015, including amounts reclassified from AOCL, is included in table 10.3 below.
 Table10.3        
Rollforward of AOCL(In thousands) Net unrealized gains and losses on available-for-sale securities Net benefit plan assets and obligations recognized in shareholders' equity Net unrealized foreign currency translation Total AOCL
 Balance, December 31, 2014, net of tax $(57,551) $(28,938) $5,148
 $(81,341)
 Other comprehensive income (loss) before reclassifications 51,655
 (13,720) (4,228) 33,707
 Less: Amounts reclassified from AOCL 11,252
 1,994
 —
 13,246
 Balance, December 31, 2015, net of tax (17,148) (44,652) 920
 (60,880)
 Other comprehensive income (loss) before reclassifications 508
 (8,658) 3
 (8,147)
 Less: Amounts reclassified from AOCL 4,157
 962
 954
 6,073
 Balance, December 31, 2016, net of tax (20,797) (54,272) (31) (75,100)
 Other comprehensive income (loss) before reclassifications 45,870
 (5,250) 31
 40,651
 Less: Amounts reclassified from AOCL (1,677) 589
 —
 (1,088)
 Less: Amounts reclassified for lower enacted corporate tax rate (2,525) 12,947
 —
 10,422
 Balance, December 31, 2017, net of tax $29,275
 $(73,058) $—
 (43,783)



MGIC Investment Corporation 2017 Form 10-K | 134
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Note 11. Benefit Plans
We have a non-contributory defined benefit pension plan covering substantially all domestic employees, as well as a supplemental executive retirement plan. We also offer both medical and dental benefits for retired domestic employees, their eligible spouses and dependents under a postretirement benefit plan. The following tables 11.1,, 11.2,, and 11.3 provide the components of aggregate annual net periodic benefit cost for each of the years ended December 31, 2017, 2016,2020, 2019, and 20152018 and changes in the benefit obligation and the funded status of the pension, supplemental executive retirement and other postretirement benefit plans as recognized in the consolidated balance sheets as of December 31, 20172020 and 2016.2019.
Components of net periodic benefit cost
Table11.1
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/201812/31/202012/31/201912/31/2018
1. Company Service Cost$7,342 $8,345 $10,530 $1,263 $1,345 $1,160 
2. Interest Cost13,036 15,705 15,095 832 1,130 834 
3. Expected Return on Assets(22,139)(19,466)(22,250)(7,407)(5,785)(6,359)
4. Other Adjustments0 0 0 0 0 0 
Subtotal(1,761)4,584 3,375 (5,312)(3,310)(4,365)
5. Amortization of:      
a. Net Transition Obligation/(Asset)0 0 0 0 0 0 
b. Net Prior Service Cost/(Credit)(247)(281)(351)51 (34)(4,104)
c. Net Losses/(Gains)6,578 8,412 6,937 (783)0 (250)
Total Amortization6,331 8,131 6,586 (732)(34)(4,354)
6. Net Periodic Benefit Cost4,570 12,715 9,961 (6,044)(3,344)(8,719)
7. Cost of settlements10,369 1,933 0 0 0 0 
8. Total Expense for Year$14,939 $14,648 $9,961 $(6,044)$(3,344)$(8,719)
 Table11.1            
Components of net periodic benefit cost  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(in thousands) 12/31/2017 12/31/2016 12/31/2015 12/31/2017 12/31/2016 12/31/2015
 1. Company Service Cost $9,556
 $9,130
 $10,256
 $813
 $751
 $833
 2. Interest Cost 15,475
 15,906
 15,847
 706
 704
 697
 3. Expected Return on Assets (20,099) (19,508) (21,109) (5,248) (4,886) (4,991)
 4. Other Adjustments —
 —
 —
 —
 —
 —
 Subtotal 4,932
 5,528
 4,994
 (3,729) (3,431) (3,461)
 5. Amortization of:  
  
  
  
  
  
 a. Net Transition Obligation/(Asset) —
 —
 —
 —
 —
 —
 b. Net Prior Service Cost/(Credit) (426) (687) (845) (6,649) (6,649) (6,649)
 c. Net Losses/(Gains) 6,169
 5,856
 5,485
 —
 —
 (175)
 Total Amortization 5,743
 5,169
 4,640
 (6,649) (6,649) (6,824)
 6. Net Periodic Benefit Cost 10,675
 10,697
 9,634
 (10,378) (10,080) (10,285)
 7. Cost of settlements —
 1,277
 3,172
 —
 —
 —
 8. Total Expense for Year $10,675
 $11,974
 $12,806
 $(10,378) $(10,080) $(10,285)
Development of funded status
Table11.2
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/202012/31/2019
Actuarial Value of Benefit Obligations
1. Measurement Date12/31/202012/31/201912/31/202012/31/2019
2. Accumulated Benefit Obligation$423,305 $412,939 $28,714 $27,496 
Funded Status/Asset (Liability) on the Consolidated Balance Sheet
1. Projected Benefit Obligation$(423,713)$(413,350)$(28,714)$(27,496)
2. Plan Assets at Fair Value411,245 402,691 119,024 99,590 
3. Funded Status - Overfunded/AssetN/AN/A$90,310 $72,094 
4. Funded Status - Underfunded/Liability(12,468)(10,659)N/AN/A

Accumulated other comprehensive (income) loss
Table11.3
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/202012/31/2019
1. Net Actuarial (Gain)/Loss$98,899 $99,826 $(30,565)$(18,005)
2. Net Prior Service Cost/(Credit)(988)(1,237)2,673 2,724 
3. Net Transition Obligation/(Asset)0 0 0 0 
4. Total at Year End$97,911 $98,589 $(27,892)$(15,281)
 Table11.2        
Development of funded status  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
 (in thousands) 12/31/2017 12/31/2016 12/31/2017 12/31/2016
 Actuarial Value of Benefit Obligations        
 1. Measurement Date 12/31/2017
 12/31/2016
 12/31/2017
 12/31/2016
 2. Accumulated Benefit Obligation $411,996
 $360,423
 $24,716
 $17,378
          
 Funded Status/Asset (Liability) on the Consolidated Balance Sheet        
 1. Projected Benefit Obligation $(417,770) $(369,808) $(24,716) $(17,378)
 2. Plan Assets at Fair Value 401,142
 360,900
 85,303
 70,408
 3. Funded Status - Overfunded/Asset N/A
 N/A
 $60,587
 $53,030
 4. Funded Status - Underfunded/Liability (16,628) (8,908) N/A
 N/A

 Table11.3        
Accumulated other comprehensive income (loss)  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(in thousands) 12/31/2017 12/31/2016 12/31/2017 12/31/2016
1. Net Actuarial (Gain)/Loss $109,904
 $103,861
 $(10,234) $(6,088)
 2. Net Prior Service Cost/(Credit) (1,850) (2,286) (5,342) (11,991)
 3. Net Transition Obligation/(Asset) —
 —
 —
 —
 4. Total at Year End $108,054
 $101,575
 $(15,576) $(18,079)



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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)


The amortization of gains and losses resulting from actual experience different from assumed experience or changes in assumptions including discount rates is included as a component of Net Periodic Benefit Cost/(Income) for the year. The gain or loss in excess of a 10% corridor is amortized by the average remaining service period of participating employees expected to receive benefits under the plan.

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Notes to Consolidated Financial Statements
Table of Contents


Table 11.4 shows the changes in the projected benefit obligation for 20172020 and 2016.2019.
Change in projected benefit / accumulated benefit
Table11.4
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/202012/31/2019
1. Benefit Obligation at Beginning of Year$413,350 $376,153 $27,496 $28,085 
2. Company Service Cost7,342 8,345 1,263 1,345 
3. Interest Cost13,036 15,705 832 1,130 
4. Plan Participants' Contributions0 0 425 382 
5. Net Actuarial (Gain)/Loss36,196 47,113 660 (2,075)
6. Benefit Payments from Fund (1)
(40,260)(30,829)(1,975)(826)
7. Benefit Payments Directly by Company(5,953)(3,105)0 0 
8. Plan Amendments2 (5)0 0 
9. Other Adjustment0 0 13 (545)
10. Settlement (Gain)/Loss0 (27)0 0 
11. Benefit Obligation at End of Year$423,713 $413,350 $28,714 $27,496 
 Table11.4        
Change in projected benefit / accumulated benefit obligation  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(in thousands) 12/31/2017 12/31/2016 12/31/2017 12/31/2016
1. Benefit Obligation at Beginning of Year $369,808
 $349,483
 $17,378
 $16,423
 2. Company Service Cost 9,556
 9,130
 813
 751
 3. Interest Cost 15,475
 15,906
 706
 704
 4. Plan Participants' Contributions —
 —
 395
 408
 5. Net Actuarial (Gain)/Loss due to Assumption Changes 38,496
 14,450
 5,981
 497
 6. Net Actuarial (Gain)/Loss due to Plan Experience 2,338
 5,428
 924
 357
 
7. Benefit Payments from Fund (1)
 (17,578) (21,831) (1,404) (1,678)
 8. Benefit Payments Directly by Company (335) (2,669) —
 —
 9. Plan Amendments 10
 16
 —
 —
 10. Other Adjustment —
 (105) (77) (84)
 11. Benefit Obligation at End of Year $417,770
 $369,808
 $24,716
 $17,378
(1)
Includes lump sum payments of $6.3 million and $11.2 million in 2017 and 2016, respectively, from our pension plan to eligible participants, which were former employees with vested benefits.

(1)Includes lump sum payments of $27.5 million and $18.5 million in 2020 and 2019, respectively, from our pension plan to eligible participants, which were former employees with vested benefits.

The increase in our pension and supplemental executive retirement plans obligation in 20172020 compared to 20162019 was primarily due to a decrease in the discount rate used to calculate the obligation and a lower amount ofpartially offset by benefits paid from the fund. The increase in our other postretirement plan obligation was primarily due a decrease in the discount rate used to calculate the obligation. Table 11.811.7 below includes the actuarial assumptions used to calculate the benefit obligations of our plans for 20172020 and 2016.2019.


Tables 11.5 and 11.6 shows the changes in the fair value of the net assets available for plan benefits, and changes in other comprehensive income (loss) during 20172020 and 2016.2019.
Change in plan assets
Table11.5
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/202012/31/2019
1. Fair Value of Plan Assets at Beginning of Year$402,691 $359,719 $99,590 $77,762 
2. Company Contributions12,453 10,205 0 0 
3. Plan Participants' Contributions0 0 425 382 
4. Benefit Payments from Fund(40,260)(30,829)(1,975)(826)
5. Benefit Payments paid directly by Company(5,953)(3,105)0 0 
6. Actual Return on Assets42,314 70,262 21,409 22,654 
7. Other Adjustment0 (3,561)(425)(382)
8. Fair Value of Plan Assets at End of Year$411,245 $402,691 $119,024 $99,590 
Change in accumulated other comprehensive income (loss) ("AOCI")
Table11.6
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/201912/31/202012/31/2019
1. AOCI in Prior Year$98,589 $108,808 $(15,281)$3,629 
2. Increase/(Decrease) in AOCI    
a. Recognized during year - Prior Service (Cost)/Credit247 281 (51)34 
b. Recognized during year - Net Actuarial (Losses)/Gains(16,948)(8,412)782 0 
c. Occurring during year - Prior Service Cost2 (5)0 0 
d. Occurring during year - Net Actuarial Losses/(Gains)16,021 (150)(13,342)(18,944)
e. Occurring during year - Net Settlement Losses/(Gains)0 (1,933)0 0 
3. AOCI in Current Year$97,911 $98,589 $(27,892)$(15,281)


 Table11.5        
Change in plan assets  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
 (in thousands) 12/31/2017 12/31/2016 12/31/2017 12/31/2016
 1. Fair Value of Plan Assets at Beginning of Year $360,900
 $350,107
 $70,408
 $65,568
 2. Company Contributions 9,435
 11,369
 —
 —
 3. Plan Participants' Contributions —
 —
 395
 408
 4. Benefit Payments from Fund (17,578) (21,831) (1,404) (1,678)
 5. Benefit Payments paid directly by Company (335) (2,669) —
 —
 6. Actual Return on Assets 48,720
 23,924
 16,299
 6,518
 7. Other Adjustment —
 —
 (395) (408)
 8. Fair Value of Plan Assets at End of Year $401,142
 $360,900
 $85,303
 $70,408



MGIC Investment Corporation 20172020 Form 10-K | 136118
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Table of Contents

 Table11.6        
Change in accumulated other comprehensive income (loss) ("AOCI")  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(in thousands) 12/31/2017 12/31/2016 12/31/2017 12/31/2016
1. AOCI in Prior Year $101,575
 $92,647
 $(18,079) $(23,951)
2. Increase/(Decrease) in AOCI  
  
  
  
 a. Recognized during year - Prior Service (Cost)/Credit 426
 687
 6,649
 6,649
 b. Recognized during year - Net Actuarial (Losses)/Gains (6,169) (5,856) —
 —
 c. Occurring during year - Prior Service Cost 10
 16
 —
 —
 d. Occurring during year - Net Actuarial Losses/(Gains) 12,212
 15,358
 (4,146) (777)
 e.  Occurring during year - Net Settlement Losses/(Gains) —
 (1,277) —
 —
 f. Other adjustments —
 —
 —
 —
 3. AOCI in Current Year $108,054
 $101,575
 $(15,576) $(18,079)

Table 11.7 shows the amount of amortization on components of net periodic benefit costs expected to be recognized during the year ending December 31, 2018.
 Table11.7    
Amortization expected to be recognized during next fiscal year ending  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
(In thousands) 12/31/2018 12/31/2018
1. Amortization of Net Transition Obligation/(Asset) $—
 $—
 2. Amortization of Prior Service Cost/(Credit) (349) (4,104)
 3. Amortization of Net Losses/(Gains) 7,140
 (183)

The projected benefit obligations, net periodic benefit costs and accumulated postretirement benefit obligation for the plans were determined using the following weighted average assumptions.
Actuarial assumptions
Table11.7
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
 12/31/202012/31/201912/31/202012/31/2019
Weighted-Average Assumptions Used to Determine
Benefit Obligations at year end
1. Discount Rate2.75 %3.45 %2.35 %3.20 %
2. Rate of Compensation Increase3.00 %3.00 %N/AN/A
3. Cash balance interest crediting rate2.50 %3.20 %N/AN/A
Weighted-Average Assumptions Used to Determine    
Net Periodic Benefit Cost for Year    
1. Discount Rate3.30 %4.40 %3.20 %4.25 %
2. Expected Long-term Return on Plan Assets5.75 %5.75 %7.50 %7.50 %
3. Rate of Compensation Increase3.00 %3.00 %N/AN/A
Assumed Health Care Cost Trend Rates at year end    
1. Health Care Cost Trend Rate Assumed for Next YearN/AN/A6.00 %6.00 %
2. Rate to Which the Cost Trend Rate is Assumed to Decline (Ultimate Trend Rate)N/AN/A5.00 %5.00 %
3. Year That the Rate Reaches the Ultimate Trend RateN/AN/A20242024
 Table11.8        
Actuarial assumptions  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
   12/31/2017 12/31/2016 12/31/2017 12/31/2016
 Weighted-Average Assumptions Used to Determine        
 Benefit Obligations at year end        
 1. Discount Rate 3.75% 4.30% 3.55% 3.95%
 2. Rate of Compensation Increase 3.00% 3.00% N/A
 N/A
          
 Weighted-Average Assumptions Used to Determine  
  
  
  
 Net Periodic Benefit Cost for Year  
  
  
  
 1. Discount Rate 4.30% 4.65% 3.95% 4.30%
 2. Expected Long-term Return on Plan Assets 5.75% 5.75% 7.50% 7.50%
 3. Rate of Compensation Increase 3.00% 3.00% N/A
 N/A
          
 Assumed Health Care Cost Trend Rates at year end  
  
  
  
 1. Health Care Cost Trend Rate Assumed for Next Year N/A
 N/A
 6.50% 6.50%
 2. Rate to Which the Cost Trend Rate is Assumed to Decline (Ultimate Trend Rate) N/A
 N/A
 5.00% 5.00%
 3. Year That the Rate Reaches the Ultimate Trend Rate N/A
 N/A
 2024
 2020


In selecting a discount rate, we performed a hypothetical cash flow bond matching exercise, matching our expected pension plan and postretirement medical plan cash flows, respectively, against a selected portfolio of high quality corporate bonds. The modeling was performed using a bond portfolio of noncallable bonds with at least $50 million outstanding. The average yield of these hypothetical bond portfolios was used as the


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MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

benchmark for determining the discount rate. In selecting the expected long-term rate of return on assets, we considered the average rate of earnings expected on the classes of funds invested or to be invested to provide for the benefits of these plans. This included considering the trusts' targeted asset allocation for the year and the expected returns likely to be earned over the next 20 years.


The year-end asset allocations of the plans are shown in table 11.911.8 below.
Plan assets
Table11.8
  Pension PlanOther Postretirement Benefits
 12/31/202012/31/201912/31/202012/31/2019
1. Equity Securities21 %23 %100 %100 %
2. Debt Securities79 %77 %0 %0 %
3. Total100 %100 %100 %100 %
 Table11.9        
Plan assets   Pension Plan Other Postretirement Benefits
   12/31/2017 12/31/2016 12/31/2017 12/31/2016
 1. Equity Securities 21% 23% 100% 100%
 2. Debt Securities 79% 77% —% —%
 3. Total 100% 100% 100% 100%


In accordance with fair value guidance, we applied the following fair value hierarchy in order to measure fair value of our benefit plan assets:

èLevel 1Quoted prices for identical instruments in active markets that we can access. Financial assets using Level 1 inputs include equity securities, mutual funds, money market funds, certain U.S. Treasury securities and exchange traded funds ("ETFs").
èLevel 2Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets using Level 2 inputs include certain municipal, corporate and foreign bonds, obligations of U.S. government corporations and agencies, and pooled equity accounts.
Level 1 – Quoted prices for identical instruments in active markets that we can access.

MGIC Investment Corporation 2020 Form 10-K | 119
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial assets utilizing Level 1 inputs include equity securities, mutual funds, money market funds, certain U.S. Treasury securities and exchange traded funds ("ETFs").Statements

Table of Contents
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets utilizing Level 2 inputs include certain municipal, corporate and foreign bonds, obligations of U.S. government corporations and agencies, and pooled equity accounts.

To determine the fair value of securities in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized.used. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilizedused by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. In addition, on a quarterly basis, we perform quality controls over values received from the pricing source (the “Trustee”) which include comparing values to other independent pricing sources. In addition, we review annually the Trustee’s auditor’s report on internal controls in order to determine that their controls around valuing securities are operating effectively. We have not made any adjustments to the prices obtained from the independent sources.




MGIC Investment Corporation 2017 Form 10-K | 138
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Tables 11.10a11.9a and 11.10b11.9b set forth by level, within the fair value hierarchy, the pension plan assets and related accrued investment income at fair value as of December 31, 20172020 and 2016.2019. There were no securities that utilizedused Level 3 inputs.
Pension plan assets at fair value as of December 31, 2020
Table11.9a
(In thousands)Level 1Level 2Total
Domestic Mutual Funds$4,842 $0 $4,842 
Corporate Bonds0 231,190 231,190 
U.S. Government Securities26,407 0 26,407 
Municipal Bonds0 32,891 32,891 
Foreign Bonds0 33,368 33,368 
Pooled Equity Accounts0 82,547 82,547 
Total Assets at fair value$31,249 $379,996 $411,245 
 Table11.10a      
Pension plan - current yearAssets at fair value as of December 31, 2017
(in thousands) Level 1 Level 2 Total
 Domestic Mutual Funds $1,006
 $—
 $1,006
 Corporate Bonds —
 202,840
 202,840
 U.S. Government Securities 17,996
 1,400
 19,396
 Municipal Bonds —
 62,293
 62,293
 Foreign Bonds —
 32,949
 32,949
 ETFs 5,734
 —
 5,734
 Pooled Equity Accounts —
 76,924
 76,924
 Total Assets at fair value $24,736
 $376,406
 $401,142
Pension plan assets at fair value as of December 31, 2019
Table11.9b
(In thousands)Level 1Level 2Total
Domestic Mutual Funds$7,325 $0 $7,325 
Corporate Bonds0 203,684 203,684 
U.S. Government Securities32,166 2,511 34,677 
Municipal Bonds0 38,998 38,998 
Foreign Bonds0 34,024 34,024 
Pooled Equity Accounts0 83,983 83,983 
Total Assets at fair value$39,491 $363,200 $402,691 

 Table11.10b      
Pension plan - prior yearAssets at fair value as of December 31, 2016
(in thousands) Level 1 Level 2 Total
 Domestic Mutual Funds $11,805
 $—
 $11,805
 Corporate Bonds —
 178,412
 178,412
 U.S. Government Securities 6,761
 354
 7,115
 Municipal Bonds —
 63,492
 63,492
 Foreign Bonds —
 27,917
 27,917
 ETFs 5,694
 —
 5,694
 Pooled Equity Accounts —
 66,465
 66,465
 Total Assets at fair value $24,260
 $336,640
 $360,900


The pension plan has implemented a strategy to reduce risk through the use of a targeted funded ratio. The liability driven component is key to the asset allocation. The liability driven component seeks to align the duration of the fixed income asset allocation with the expected duration of the plan liabilities or benefit payments. Overall asset allocation is dynamic and specifies target allocation weights and ranges based on the funded status.


An improvement in funded status results in the de-risking of the portfolio, allocating more funds to fixed income and less to equity. A decline in funded status would result in a higher allocation to equity. The maximum equity allocation is 40%.

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Notes to Consolidated Financial Statements
Table of Contents

The equity investments utilizeuse combinations of mutual funds, ETFs, and pooled equity account structures focused on the following strategies:
StrategyObjectiveInvestment types
Return seeking growthFunded ratio improvement over the long term●Global quality growth
●Global low volatility
Return seeking bridgeDownside protection in the event of a declining equity market●Enduring asset
●Durable company


The fixed income objective is to preserve capital and to provide monthly cash flows for the payment of plan liabilities. Fixed income investments can include government, government agency, corporate, mortgage-backed, asset-backed, and municipal securities, and other classes of bonds. The duration of the fixed income portfolio has an objective of being within one year of the duration of the accumulated benefit obligation.  The fixed income investments have an objective of a weighted average credit of A3/A-/A- by Moody’s, S&P, and Fitch, respectively.



MGIC Investment Corporation 2017 Form 10-K | 139
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Tables 11.11a11.10a and 11.11b11.10b set forth the other postretirement benefits plan assets at fair value as of December 31, 20172020 and 2016.2019. All are Level 1 assets.
Other postretirement benefits plan assets at fair value as of December 31, 2020
Table11.10a
(In thousands)Level 1
Domestic Mutual Funds$91,454
International Mutual Funds27,570
Total Assets at fair value$119,024
 Table11.11a    
Other postretirement benefits plan - current yearAssets at fair value as of December 31, 2017
(in thousands) Level 1 Total
Domestic Mutual Funds $64,489
 $64,489
 International Mutual Funds 20,814
 20,814
 Total Assets at fair value $85,303
 $85,303
Other postretirement benefits plan assets at fair value as of December 31, 2019
Table11.10b
(In thousands)Level 1
Domestic Mutual Funds$77,640 
International Mutual Funds21,950 
Total Assets at fair value$99,590 

 Table11.11b    
Other postretirement benefits plan - prior yearAssets at fair value as of December 31, 2016
(in thousands) Level 1 Total
Domestic Mutual Funds $54,426
 $54,426
 International Mutual Funds 15,982
 15,982
 Total Assets at fair value $70,408
 $70,408


Our postretirement plan portfolio is designed to achieve the following objectives over each market cycle and for at least 5 years:
è Total return should exceed growth in the Consumer Price Index by 5.75% annually
èAchieve competitive investment results


The primary focus in developing asset allocation ranges for the portfolio is the assessment of the portfolio's investment objectives and the level of risk that is acceptable to obtain those objectives. To achieve these objectives the minimum and maximum allocation ranges for fixed income securities and equity securities are:
 MinimumMaximum
Equities (long only)70 %100 %
Real estate0 %15 %
Commodities0 %10 %
Fixed income/Cash0 %10 %
 Minimum Maximum
Equities (long only)70% 100%
Real estate0% 15%
Commodities0% 10%
Fixed income/Cash0% 10%
Given the long term nature of this portfolio and the lack of any immediate need for significant cash flow, it is anticipated that the equity investments will consist of growth stocks and will typically be at the higher end of the allocation ranges above.


Investment in international mutual funds is limited to a maximum of 30% of the equity range. The allocation as of December 31, 20172020 included 3% that was primarily invested in equity securities of emerging market countries and another 21%20% was invested in securities of companies primarily based in Europe and the Pacific Basin.


Tables 11.12 and 11.13 show the current and estimated future contributions and benefit payments.
Company contributions
Table11.12
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/2020
Company Contributions for the Year Ending:
1. Current$12,453 $0 
2. Current + 16,200 0 
 Table11.12    
Company contributions  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
 (in thousands) 12/31/2017 12/31/2017
 Company Contributions for the Year Ending:    
 1. Current $9,435
 $—
 2. Current + 1 10,950
 —
Benefits payments - total
Table11.13
 Pension and Supplemental Executive Retirement PlansOther Postretirement Benefits
(In thousands)12/31/202012/31/2020
Actual Benefit Payments for the Year Ending:
1. Current$46,213 $1,975 
Expected Benefit Payments for the Year Ending:  
2. Current + 130,082 1,765 
3. Current + 229,929 1,995 
4. Current + 330,076 2,157 
5. Current + 429,567 2,241 
6. Current + 528,852 2,357 
7. Current + 6 - 10135,830 10,916 




MGIC Investment Corporation 2017 Form 10-K | 140
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

 Table11.13    
Benefit payments - total  Pension and Supplemental Executive Retirement Plans Other Postretirement Benefits
 (in thousands) 12/31/2017 12/31/2017
 Actual Benefit Payments for the Year Ending:    
 1. Current $17,913
 $1,086
 Expected Benefit Payments for the Year Ending:  
  
 2. Current + 1 28,639
 1,174
 3. Current + 2 33,127
 1,368
 4. Current + 3 29,669
 1,689
 5. Current + 4 31,085
 1,944
 6. Current + 5 31,899
 2,044
 7. Current + 6 - 10 151,512
 11,914

Health care sensitivities
For measurement purposes for the other post retirement benefits plan, the increase in health care costs is estimated to be 6.5% for 2017 and 2018, decreasing to 5.0% by 2024 and remaining at this level beyond.

Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement benefits plan. A 1 percentage point change in the health care trend rate assumption would have the following effects on other postretirement benefits:
 Table11.14    
Health care trend rate assumption(in thousands) 
1-Percentage
Point Increase
 
1-Percentage
Point Decrease
 Effect on total service and interest cost components $252
 $(217)
 Effect on postretirement benefit obligation 3,093
 (2,748)

Profit sharing and 401(k)PROFIT SHARING AND 401(K)
We have a profit sharing and 401(k) savings plan for employees. At the discretion of the Board of Directors, we may make a contribution to the plan of up to 5% of each participant's eligible compensation. We provide a matching 401(k) savings contribution for employees on their before-tax contributions at a rate of 80% of the first $1,000 contributed and 40% of the next $2,000 contributed. For employees hired after January 1, 2014, the match is 100% up to the first 4% contributed. We recognized expenses related to these plans of $8.0 million, $7.4 million and $6.0 million $5.9 millionin 2020, 2019 and $5.1 million in 2017, 2016 and 2015,2018, respectively.





MGIC Investment Corporation 20172020 Form 10-K | 141121
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

Consolidated Financial Statements and NotesNOTE 12
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Income Taxes

Note 12. Income Taxes
Net deferred tax (liabilities) assets, and liabilities as ofincluded on the Consolidated Balance Sheet at December 31, 20172020 and 20162019 as a component of Other liabilities and Other assets, respectively, are as follows:

Table12.1    
Deferred tax assets and liabilities(in thousands) 2017 2016Deferred tax assets and liabilities
Total deferred tax assets $258,663
 $636,449
Total deferred tax liabilities (24,282) (28,794)
Net deferred tax asset $234,381
 $607,655
TableTable12.1
(In thousands)(In thousands)20202019
Total deferred tax assetsTotal deferred tax assets$38,443 $63,533 
Total deferred tax liabilitiesTotal deferred tax liabilities(98,485)(57,791)
Net deferred tax (liability) assetNet deferred tax (liability) asset$(60,042)$5,742 

Table 12.2 includes the components of the net deferred tax (liability) asset as of December 31, 20172020 and 2016.2019.
Deferred tax components
Table12.2
(In thousands)20202019
Unearned premium reserves$23,163 $30,487 
Benefit plans(13,977)(10,790)
Loss reserves3,542 2,175 
Unrealized appreciation in investments(72,341)(36,822)
Mortgage investments0 8,359 
Deferred compensation6,776 9,270 
AMT credit carryforward0 8,303 
Other, net(7,205)(5,240)
Net deferred tax (liability) asset$(60,042)$5,742 
 Table12.2    
Deferred tax components(in thousands) 2017 2016
Unearned premium reserves $29,196
 $40,153
 Benefit plans (7,162) (12,350)
 Federal net operating loss 155,839
 520,812
 Loss reserves 4,994
 10,883
 Unrealized (appreciation) depreciation in investments (7,782) 11,211
 Mortgage investments 8,963
 17,751
 Deferred compensation 7,265
 12,517
 AMT credit carryforward 37,017
 2,215
 Other, net 6,051
 4,463
 Net deferred tax asset $234,381
 $607,655


We reviewbelieve that all gross deferred tax assets at December 31, 2019 and 2020 are fully realizable and no valuation allowance has been established.

If the need to maintainfederal income tax rate increases, our net deferred tax liability or asset would increase. In addition, we would set up a deferred tax asset valuation allowance on a quarterly basis. We analyze several factors, among which are the severityliability related to tax and frequency of operating losses, our capacityloss bonds for the carryback or carryforward of any losses, the existence and current level of taxable operating income, operating results on a three year cumulative basis, the expected occurrence of future income or loss, the expiration dates of the carryforwards, the cyclical nature of our operating results, and available tax planning strategies. Based on our analysis, we reduced our benefit from income tax through the recognition of a valuation allowance from the first quarter of 2009 through the second quarter of 2015.

In the third quarter of 2015, we concluded that it was more likely than not that our deferred tax assets would be fully realizable and that the valuation allowance was no longer necessary and we reversed the valuation allowance. For the year ended December 31, 2015, we reversed $161.1 million of our valuation allowance based on income from 2015. The portion of the valuation allowance reversed related to deferred tax assets that are expected to be realized in future years, totaling $747.5 million, is treated as a discrete period item and is recognized as a component of the tax provision in continuing operationsdifference in the period of reversal. Furthermore, in determining the discrete period impact from the reversal, we removed the prior period disproportionate tax effects that had arisen in other comprehensive income because of the valuation allowance. This reduced the amount of tax benefit included in net income and resulted in an allocation of tax benefit of $60.8 million to components of other comprehensive income.



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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Table 12.3 provides a rollforward of our deferred tax asset valuation allowance for the year ended December 31, 2015.
 Table12.3  
Deferred tax valuation allowance rollforward(in millions) For the year ended December 31, 2015
Balance at December 31, 2014 $902.3
   
 Reduction in tax provision in current year (161.1)
 Amounts recorded in other comprehensive income in the current year 6.3
 Change in valuation allowance for deferred tax assets in the current year (154.8)
    
 Reduction in tax provision for amounts to be realized in future years (686.7)
 Amounts recorded in other comprehensive income to be realized in future years (60.8)
 Change in valuation allowance for deferred tax assets realizable in future years (747.5)
    
 Balance at December 31, 2015 $—

Table 12.4 shows the effect of the change in valuation allowance on the provision for (benefit from) income taxes for the year ended December 31, 2015.
 Table12.4  
Provision for (benefit from) income taxes(in thousands) 2015
Provision for income taxes before valuation allowance $163,497
Change in valuation allowance (161,158)
 Reversal of valuation allowance (686,652)
 Benefit from income taxes $(684,313)

The change in the valuation allowance that was included in other comprehensive income was a decrease $54.5 million for the year ended December 31, 2015.

Giving full effect to the carryback of net operating losses fornew federal income tax purposes, we have approximately $742 million of net operatingrate and the 21% federal income tax rate at which the tax and loss ("NOL") carryforwards on a regular tax basis as of December 31, 2017. Any unutilized carryforwards are scheduled to expire at the end of tax years 2032 and 2033.bonds were purchased.


Table 12.512.3 summarizes the components of the provision for (benefit from) income taxes:
Provision for (benefit from) income taxes
Table12.3
(In thousands)202020192018
Current Federal$85,574 $162,911 $(16,272)
Deferred Federal28,244 11,860 185,598 
Other(648)(557)4,727 
Provision for income taxes$113,170 $174,214 $174,053 
 Table12.5      
Provision for (benefit from) income taxes(in thousands) 2017 2016 2015
Current Federal $73,348
 $9,470
 $8,067
Deferred Federal 351,677
 160,657
 (686,652)
 Other 3,710
��2,070
 (5,728)
 Provision for (benefit from) income taxes $428,735
 $172,197
 $(684,313)


The CARES Act provides financial relief to individuals and businesses in the form of loans, grants, and tax changes, among other types of assistance. The tax changes in the CARES Act did not materially impact our financial results.
Our income tax expense for 2017 reflects the remeasurement of our net deferred tax assets to reflect the lower corporate tax rate of 21% under the Tax Act, effective January 1, 2018. As a result of the lower tax rate, we have recorded a decrease to our net deferred tax assets of $133 million with a corresponding increase to our deferred income tax expense for the year ended December 31, 2017.

We paid $22.0 million, $4.5 million, and $5.4 million inCurrent federal income tax payments were$79.6 million, $158.3 million, and $12.2 million in 2017, 20162020, 2019 and 2015,2018, respectively.



At December 31, 2020 we owned $271.0 million of tax and loss bonds.
MGIC Investment Corporation 2017 Form 10-K | 143

Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Table 12.612.4 reconciles the federal statutory income tax rate to our effective tax provision (benefit) rate.
Effective tax rate reconciliation
Table12.4
 202020192018
Federal statutory income tax rate21.0 %21.0 %21.0 %
Additional income tax benefit related to IRS litigation0 %0 %(0.3)%
Tax exempt municipal bond interest(0.9)%(0.6)%(0.7)%
Other, net0.1 %0.1 %0.6 %
Effective tax rate20.2 %20.5 %20.6 %
 Table12.6     
Effective tax rate reconciliation 2017 2016 2015
Federal statutory income tax rate35.0 % 35.0 % 35.0 %
 Additional income tax provision related to the rate decrease included in the Tax Act17.0 % — % — %
 Additional income tax provision related to IRS litigation3.7 % 0.1 % 0.1 %
 Valuation allowance— % — % (173.8)%
 Tax exempt municipal bond interest(1.4)% (1.9)% (0.8)%
 Other, net0.4 % 0.3 % (0.8)%
 Effective tax provision (benefit) rate54.7 % 33.5 % (140.3)%


As previously disclosed, theThe Internal Revenue Service ("IRS") completed examinations of our federal income tax returns for the years 2000 through 2007 and issued proposed assessments for taxes, interest and penalties related to our treatment of the flow-through income and loss from an investment in a portfolio of residual interests of Real Estate Mortgage Investment Conduits ("REMICs"). The IRS indicated that it did not believe that, for various reasons,

In 2018, we had established sufficient tax basis in the REMIC residual interests to deduct the losses from taxable income. We appealed these assessments within the IRS and in August 2010, we reached a tentative settlementfinalized an agreement with the IRS which was not finalized.

In 2014, we received Notices of Deficiency (commonly referred to as “90 day letters”) covering the 2000-2007 tax years. The Notices of Deficiency reflect taxes and penalties related to the REMIC matters of $197.5 million and at December 31, 2017, there would also be interest related to these matters of approximately $205.0 million. In 2007, we made a payment of $65.2 million to the United States Department of the Treasury which will reduce any amounts we would ultimately owe. The Notices of Deficiency also reflect additional amounts due of $261.4 million, which are primarily associated with the disallowance of the carryback of the 2009 net operating loss to the 2004-2007 tax years. We believe the IRS included the carryback adjustments as a precaution to keep open the statute of limitations on collection of the tax that was refunded when this loss was carried back, and not because the IRS actually intends to disallow the carryback permanently. Depending on the outcome of this matter, additional state income taxes and state interest may become due when a final resolution is reached. As of December 31, 2017, those state taxes and interest would approximate $85.8 million. In addition, there could also be state tax penalties. Our total amount of unrecognized tax benefits as of December 31, 2017 is $142.8 million, which represents the tax benefits generated by the REMIC portfolio included in our tax returns that we have not taken benefit for in our financial statements, including any related interest.

We filed a petition with the U.S. Tax Court contesting most of the IRS’ proposed adjustments reflected in the Notices of Deficiency and the IRS filed an answer to our petition which continued to assert their claim. The case has twice been scheduled for trial and in each instance, the parties jointly filed, and the U.S. Tax Court approved (most recently in February 2016), motions for continuance to postpone the trial date. Also in February 2016, the U.S. Tax Court approved a joint motion to consolidate for trial, briefing, and opinion, our case with similar cases of Radian Group, Inc., as successor to Enhance Financial Services Group, Inc., et al. The parties have reached agreement onsettle all issues in the caseexaminations and in the fourth quarterrelated U.S. Tax Court case. As a result of 2017, the IRS submitted documentation reflecting the termsour settlement, we made federal tax and interest payments of $14.8 million during 2018. We also made state tax and interest payments of $36.8 million during 2018. The impact of the agreement to the Joint Committee on Taxation ("JCT") for its review, which must be performed before aagreed upon settlement can be completed. There is no assurance that a settlement will be completed. Based on information that we currentlywas previously reflected in our consolidated statements of operations.

We have regarding the status of our ongoing dispute, wenot recorded a provision for additional taxesany uncertain tax positions during 2019 and interest of $29.0 million in 2017.

Should a settlement not be completed, ongoing litigation to resolve our dispute with the IRS could be lengthy2020 and costly in terms of legal fees and related expenses. We would need to make further adjustments, which could be material, to our tax provision and liabilities if our view of the probability of success in this matter changes, and the ultimate resolution of this matter could have a material negative impact on our effective tax rate, results of operations, cash flows, available assets and statutory capital. In this regard, see Note 14 - "Statutory Information."



MGIC Investment Corporation 2017 Form 10-K | 144
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

Under current guidance, when evaluating a tax position for recognition and measurement, an entity shall presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. The interpretation adopts a benefit recognition model with a two-step approach, a more-likely-than-not threshold for recognition and derecognition, and a measurement attribute that is the greatest amount of benefit that is cumulatively greater than 50% likely of being realized. A reconciliation of the beginning and ending amount of0 unrecognized tax benefits is shown in table 12.7.

 Table12.7      
Unrecognized tax benefits reconciliation(in thousands) 2017 2016 2015
Balance at beginning of year $108,245
 $107,120
 $106,230
Additions based on tax positions related to the current year —
 —
 —
 Additions for tax positions of prior years 35,003
 1,125
 890
 Reductions for tax positions of prior years (427) —
 —
 Settlements —
 —
 —
 Balance at end of year $142,821
 $108,245
 $107,120

The total amount of the unrecognized tax benefits related to our aforementioned REMIC issue, which would affect our effective tax rate, is $129.3 million.at December 31, 2019 and December 31, 2020. We recognize interest accrued and penalties related to unrecognized tax benefits in income taxes. During 2017, we recognized $23.1 million in interest. As of December 31, 2017 and 2016, we had $52.0 million and $28.9 million of accrued interest related to uncertain tax positions, respectively. The statute of limitations related to the consolidated federal income tax return is closed for all years prior to 2000.  It is reasonably possible that our 2000-2007 federal tax case will be resolved, other than through litigation. If it is resolved under the basis2016.


MGIC Investment Corporation 2020 Form 10-K | 122
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of settlement as disclosed above, our total unrecognized tax benefits would be reduced by $142.8 million during 2018. After taking into account prior payments and the effect of available net operating loss carrybacks, any net cash outflows would approximate $55 million.Contents



Note 13. Shareholders' Equity
Change in accounting principle
NOTE 13Shareholders' Equity
CHANGE IN ACCOUNTING PRINCIPLE
As of January 1, 2017, we adopted2018, the updated guidance of "Improvements to Employee Share-Based Compensation Accounting."Recognition and Measurement of Financial Assets and Financial Liabilities" became effective. The adoptionapplication of this guidance resulted in an immaterial cumulative effect adjustment to our 20172018 beginning retained earnings. For the year ending December 31, 2017, we adopted the updated guidance of "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."The adoption of this guidance resulted in a $10.4 million reclassification from accumulated other comprehensive loss to(loss) income and retained earnings duringto recognize unrealized gains on equity securities.

SHARE REPURCHASE PROGRAM
During the fourthfirst quarter of 2017. Each of these adoptions are more fully described in Note 3 - "Significant Accounting Policies."

2017 Capital transactions
2% Notes
As described in Note 7 - "Debt" in April 2017 holders of2020 we repurchased approximately $202.5 million of the outstanding principal amount of our 2% Notes exercised their rights to convert their notes into shares of our common stock resulting in the delivery of approximately 29.19.6 million shares of our common stock to the holders. The transactionsat a weighted average cost per share of $12.47, which included the delivery of approximately 18.7 million from our treasury stock andcommissions. We may repurchase up to an additional 10.4$291 million of newly issued shares. Shareholders' equity was increasedour common stock through the end of 2021 under a share repurchase program approved by the carrying valueour Board of the notes at the time of conversion.Directors in January 2020.


2016 Capital transactions
As described in Note 7 - "Debt," in 2016During 2019, we issuedrepurchased approximately 18.38.7 million shares of our common stock as consideration for the purchaseat a weighted average cost per share of certain of our 2% Notes.$13.13, which included commissions. As of December 31, 2016,2019, the authorized share repurchase program had approximately $111 million remaining.

During 2018, we repurchased approximately 16.0 million shares of our common stock at a weighted average cost per share of $10.95, which included commissions. As of December 31, 2018, the authorized share repurchase program had repurchased allapproximately $25 million remaining.

Repurchases may be made from time to time on the open market (including through 10b5-1 plans) or through privately negotiated transactions. The repurchase program may be suspended for periods or discontinued at any time, and in light of the shares issued as partial consideration for our 2% Notes repurchases. The weighted average priceuncertainty caused by the COVID-19 pandemic, we have temporarily suspended stock repurchases, but may resume them in the future.

Cash dividends
In 2020, we paid forquarterly cash dividends of $0.06 per share to shareholders which totaled $82.6 million. On January 26, 2021, the Board of Directors declared a quarterly cash dividend to holders of the company's common stock of $0.06 per share repurchases was $8.03, which included commissions, andpayable on March 3, 2021, to shareholders of record at the aggregate purchase amount was $147.1 million.close of business on February 17, 2021.




MGIC Investment Corporation 2017 Form 10-K | 145
Consolidated Financial Statements and NotesNOTE 14
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Statutory Information

As described in Note 7 - "Debt" the purchase of a portion of our 9% Debentures by MGIC, and corresponding elimination of the purchased 9% Debentures in consolidation, resulted in a reduction to our consolidated shareholders' equity of approximately $6.3 million as of December 31, 2016. This reduction represents the allocated portion of the consideration paid to reacquire the equity component of the 9% Debentures, net of tax. The reduction was recognized in paid-in capital and was less than the amount ascribed to paid-in capital at original issuance of the 9% Debentures.

Shareholders Rights Agreement
Our Amended and Restated Rights Agreement dated July 23, 2015 seeks to diminish the risk that our ability to use our NOLs to reduce potential future federal income tax obligations may become substantially limited and to deter certain abusive takeover practices. The benefit of the NOLs would be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, if we were to experience an “ownership change” as defined by Section 382 of the Internal Revenue Code.

Under the Agreement each outstanding share of our Common Stock is accompanied by one Right. The Distribution Date occurs on the earlier of ten days after a public announcement that a person has become an Acquiring Person, or ten business days after a person announces or begins a tender offer in which consummation of such offer would result in a person becoming an Acquiring Person. An Acquiring Person is any person that becomes, by itself or together with its affiliates and associates, a beneficial owner of 5% or more of the shares of our Common Stock then outstanding, but excludes, among others, certain exempt and grandfathered persons as defined in the Agreement. The Rights are not exercisable until the Distribution Date. Each Right will initially entitle shareholders to buy one-tenth of one share of our Common Stock at a Purchase Price of $45 per full share (equivalent to $4.50 for each one-tenth share), subject to adjustment. Each exercisable Right (subject to certain limitations) will entitle its holder to purchase, at the Rights’ then-current Purchase Price, a number of our shares of Common Stock (or if after the Shares Acquisition Date, we are acquired in a business combination, common shares of the acquiror) having a market value at the time equal to twice the Purchase Price. The Rights will expire on August 1, 2018, or earlier as described in the Agreement. The Rights are redeemable at a price of $0.001 per Right at any time prior to the time a person becomes an Acquiring Person. Other than certain amendments, the Board of Directors may amend the Rights in any respect without the consent of the holders of the Rights.

Note 14. Statutory Information
Statutory Accounting PrinciplesSTATUTORY ACCOUNTING PRINCIPLES
The statutory financial statements of our insurance companies are presented on the basis of accounting principles prescribed, or practices permitted, by the Office of the Commissioner of Insurance of the State of Wisconsin (the "OCI"), which has adopted the National Association of Insurance Commissioners ("NAIC") Statements of Statutory Accounting Principles ("SSAP") as the basis of its statutory accounting principles. In converting from statutory to GAAP, typical adjustments include deferral of policy acquisition costs, the inclusion of net unrealized holding gains or losses in shareholders' equity relating to fixed maturitiesincome securities, and the inclusion of statutory non-admitted assets.


In addition to the typical adjustments from statutory to GAAP, mortgage insurance companies are required to maintain contingency loss reserves equal to 50% of premiums earned under SSAP and principles prescribed by the OCI, and suchOCI. Such amounts cannot be withdrawn for a period of ten years except as permitted by insurance regulations. With regulatory approval, a mortgage guaranty insurance company may make early withdrawals from the contingency reserve when incurred losses exceed 35% of net premiums earned in a calendar year. For the year ended 2017,2020, MGIC's losses incurred were 5% of net premiums earned.withdrew $30.4 million from its contingency reserve. Changes in contingency loss reserves impact the statutory statement of operations. Contingency loss reserves are not reflected as liabilities under GAAP and changes in contingency loss reserves do not impact the GAAP statements of operations. A premium deficiency reserve that may

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Section 832(e) of the IRC for amounts required by state law or regulation to be recorded on a GAAP basis when the present value of expected future losses and expenses exceeds the present value of expected future premiums and already established loss reserves, may not be recorded on a statutory basis if the present value of expected future premiums and already established loss reserves andset aside in statutory contingency reserves, exceedsreserves. The deduction is allowed only to the present valueextent that we purchase tax and loss bonds (“T&L Bonds”) in an amount equal to the tax benefit derived from deducting any portion of expected future losses and expenses. Onour statutory contingency reserves. Under statutory accounting practices, purchases of T&L Bonds are accounted for as investments. Under GAAP, purchases of T&L Bonds are accounted for as a GAAP basis, when calculating a premium deficiencypayment of current taxes.



MGIC Investment Corporation 2017 Form 10-K | 146
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

reserve policies are grouped based on how they are acquired, serviced and measured. On a statutory basis, a premium deficiency reserve is calculated on all policies in force.

The statutory net income (loss),loss, policyholders' surplus and contingency reserve liability of the insurance subsidiaries of our holding company are showshown in table 14.1 below. The statutory net loss in 2015 was driven by the dissolution of an MGIC non-insurance subsidiary. The surplus amounts included in the following table are the combined policyholders' surplus of our insurance operations as utilized in our risk-to-capital calculations.

 Table14.1       
Statutory financial information of holding company insurance subsidiaries  As of and for the Years Ended December 31, 
(in thousands) 2017 2016 2015 
Statutory net income (loss) $310,776
 $106,326
 $(72,767)
(1) 
Statutory policyholders' surplus 1,622,115
 1,506,475
 1,608,214
(1) 
 Contingency reserve 1,896,701
 1,360,088
 826,706
 
(1)
The dissolution of an MGIC non-insurance subsidiary in 2015 had no impact on statutory surplus as the equity value of the investment was fully reflected in surplus as an unrealized loss prior to 2015.

Statutory financial information of insurance subsidiaries
Table14.1
As of and for the Years Ended December 31,
(In thousands)202020192018
Statutory net income$65,201 $305,857 $375,484 
Statutory policyholders' surplus1,339,509 1,619,069 1,683,058 
Contingency reserve3,585,864 3,021,055 2,442,996 
The

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Notes to Consolidated Financial Statements
Table of Contents

For the years ended December 31, 2020, 2019, and 2018 there were no surplus contributions made to MGIC dividends paid by MGIC, andor distributions from other insurance subsidiaries to us,us. Dividends paid by MGIC are shown in table 14.2 below.
Surplus contributions and dividends of insurance subsidiaries
Table14.2
Years Ended December 31,
(In thousands)202020192018
Dividends paid by MGIC to the parent company (1)
$390,000 280,000 220,000 
 Table14.2       
Surplus contributions and dividends of insurance subsidiaries  Years Ended December 31, 
(in thousands) 2017 2016 2015 
Additions to the surplus of MGIC from parent company funds $—
 36,025
 —
 
Dividends paid by MGIC to the parent company $140,000
 64,000
 —
 
 Distributions from other insurance subsidiaries to the parent company $—
 52,001
 38,500
 
(1) Dividends paid in cash and/or investment securities. Also in 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures held at an amortized cost of $139.5 million.


Statutory Capital RequirementsSTATUTORY CAPITAL REQUIREMENTS
The insurance laws of 16 jurisdictions, including Wisconsin, our domiciliary state, require a mortgage insurer to maintain a minimum amount of statutory capital relative to the RIF (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” and, together with the GSE Financial Requirements, the “Financial Requirements.” While they vary among jurisdictions, the most common State Capital Requirements allow for a maximum risk-to-capital ratio of 25 to 1.1. 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"). The “policyholder position” of a mortgage insurer is its net worth or surplus, contingency reserve, and a portion of the reserves for unearned premiums.


At December 31, 2017,2020, MGIC’s risk-to-capital ratio was 9.59.2 to 1, below the maximum allowed by the jurisdictions with State Capital Requirements and its policyholder position was $2.1$3.2 billion above the required MPP of $1.2$1.7 billion. In calculatingThe calculation of our risk-to-capital ratio and MPP we are allowed fullreflect credit for the risk ceded under our reinsurance transaction with a group of unaffiliated reinsurers.transactions. It is possible that under the revised State Capital Requirements discussed below, MGIC will not be allowed full credit for the risk ceded to the reinsurers. If MGIC is not allowed an agreed level of credit under either the State Capital Requirements or the financial requirements of the PMIERs, MGIC may terminate the reinsurance agreement,agreements, without penalty. At this time, we expect MGIC to continue to comply with the current State Capital Requirements; however, you should read the rest of these financial statement footnotes for information about matters that could negatively affect such compliance.


At December 31, 2017,2020, the risk-to-capital ratio of our combined insurance operations (which includes a reinsurance affiliate) was 10.59.1 to 1. Reinsurance transactions with our affiliate permit MGIC to write insurance with a higher coverage percentage than it could on its own under certain state-specific requirements. A higher


MGIC Investment Corporation 2017 Form 10-K | 147
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)

risk-to-capital ratio on a combined basis may indicate that, in order for MGIC to continue to utilize reinsurance arrangements with its reinsurance affiliate, additional capital contributions to the affiliate could be needed.
The NAIC has previously announced plans to revise the minimum capital and surplus requirements for mortgage insurersState Capital Requirements that are provided for in its Mortgage Guaranty Insurance Model Act. In May 2016,December 2019, a working group of state regulators released an exposure draft of a revised Mortgage Guaranty Insurance Model Act and a risk-based capital framework to establish capital requirements for mortgage insurers, although no date has been established by which the NAIC must propose revisions to the capital requirements and certain items have not yet been completely addressed by the
framework, including the treatment of ceded risk and minimum capital floors, and action level triggers.floors. Currently we believe that the PMIERs contain the more restrictive capital requirements than the draft Mortgage Guaranty Insurance Model Act in most circumstances.


While MGIC currently meets, and expects to continue to meet, 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 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 all jurisdictions, 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. 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. While we believe MGIC has sufficient claims paying resources to meet its claim obligations on its IIF on a timely basis, you should read the rest of these financial statement footnotes for information about matters that could negatively affect MGIC’s claims paying resources.resources, including the effects of the COVID-19 pandemic.


Dividend restrictionsDIVIDEND RESTRICTIONS
In 2017,During 2020, MGIC paid a total of $140$390 million in cash and/or investment security dividends to our holding company, and we expectcompany. In the third quarter of 2020, MGIC distributed to continue to pay quarterly dividends. During 2016, distributions of $52 million were paid to ourthe holding company, from other insurance subsidiaries. These distributions were completedas a dividend, its ownership in conjunction with the transfer9% Debentures held at an amortized cost of risk and the final dissolution of those insurance entities during 2016. Our holding company subsequently contributed the majority of the funds to MGIC in relation to the transfer of risk. During 2015, distributions of $38.5$139.5 million, were paid to our holding company from other insurance subsidiaries.which was non-admitted for statutory reporting.


MGIC is subject to statutory regulations as to payment of dividends. The maximum amount of dividends that MGIC may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory policyholders' surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years. Before making any dividend payments in 2021, we will notify the OCI to ensure it does not object.

Under the PMIERS guidance, any dividend paid by MGIC to our holding company, through June 30, 2021, requires GSE approval.

The OCI recognizes only statutory accounting principles prescribed, or practices permitted, by the State of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company. The OCI has adopted certain prescribed accounting practices that differ from those found in other states. Specifically, Wisconsin domiciled companies record changes in the contingency reserves through the income statement as a change in underwriting deduction. As a result, in periods in which MGIC is increasing contingency

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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

reserves, statutory net income is reduced. For the year ended December 31, 2017,2020, MGIC’s statutory net income was reduced by $473 million to account for the increase in contingency reserves.reserves was $559 million and statutory net loss was $643 million. As of December 31, 2020, MGIC's statutory policyholders' surplus was $1,336 million. MGIC's statutory net loss includes a realized loss of $692 million resulting from its merger with MGIC Reinsurance Corporation of Wisconsin. This is eliminated on the consolidated statement of operations.



Note 15.
NOTE 15Share-based Compensation Plans
We have certain share-based compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period which generally corresponds to the vesting period.  Awards under our plans generally vest over periods ranging from one to three years.



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Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)


We have an omnibus incentive plan that was adopted on April 23, 2015.2020. When the 2020 plan was adopted, no further awards could be made under our previous 2015 plan. The purpose of the 20152020 plan is to motivate and incentincentivize performance by, and to retain the services of, key employees and non-employee directors through receipt of equity-based and other incentive awards under the plan. The maximum number of shares of stock that can be awarded under the 20152020 plan is 10.011.0 million. Awards issued under the plan that are subsequently forfeited will not count against the limit on the maximum number of shares that may be issued under the plan. The 20152020 plan provides for the award of stock options, stock appreciation rights, restricted stock and restricted stock units, as well as cash incentive awards. No awards may be granted after April 23, 20252030 under the 20152020 plan. The vesting provisions of options, restricted stock and restricted stock units are determined at the time of grant. Shares issuedAwards forfeited under the 2015 plan after April 23, 2020 will increase the 2020 plan's limit of shares available for future grant. At December 31, 2020, 11.1 million shares were available for future grant under the 2020 plan. The excess of available shares for future grant above the maximum number of shares that may be newly issued shares.under the 2020 plan is the result of awards under the 2015 plan being forfeited subsequent to April 23, 2020.


The compensation cost that has been charged against income for share-based plans was $14.9$13.8 million, $11.4$18.9 million, and $11.9$20.9 million for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, respectively. The related income tax benefit recognized for share-based plans was $5.2$1.7 million, $4.0$2.7 million, and $4.2$3.0 million for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, respectively.


Table 15.1 summarizes restricted stock or restricted stock unit (collectively called “restricted stock”) activity during 2017.2020.
Restricted stock
Table15.1
 Weighted Average Grant Date Fair Market ValueShares
Restricted stock outstanding at December 31, 2019$12.81 4,150,394 
Granted13.62 1,672,060 
Vested11.67 (1,564,843)
Forfeited13.24 (118,368)
Restricted stock outstanding at December 31, 2020$13.57 4,139,243 
 Table15.1   
  Weighted Average Grant Date Fair Market Value Shares
 Restricted stock outstanding at December 31, 2016$7.44
 3,146,672
 Granted10.41
 1,631,744
 Vested7.71
 (1,409,347)
 Forfeited8.43
 (68,460)
 Restricted stock outstanding at December 31, 2017$8.78
 3,300,609


At December 31, 2017,2020, the 3.34.1 million shares of restricted stock outstanding consisted of 2.53.1 million shares that are subject to performance conditions (“performance shares”) and 0.81.0 million shares that are subject only to service conditions (“time vested shares”). The weighted-average grant date fair value of restricted stock granted during 20162019 and 20152018 was $5.66$11.92 and $9.03,$15.69, respectively. The fair value of restricted stock granted is the closing price of the common stock on the New York Stock Exchange on the date of grant or previous trading day if the Exchange is closed on the date of grant. The total fair value of restricted stock vested during 2017, 20162020, 2019 and 20152018 was $15.3$20.4 million, $12.2$13.7 million, and $17.2$19.1 million, respectively.


As of December 31, 2017,2020, there was $13.2$25.8 million of total unrecognized compensation cost related to non-vested share-based compensation agreements granted under the plans. Of this total, $9.9$19.8 million of unrecognized compensation costs relate to performance shares and $3.3$5.9 million relates to time vested shares. A portion of the unrecognized costs associated with the performance shares may or may not be recognized in future periods, depending upon whether or not the performance and service conditions are met. The cost associated with the time vested shares is expected to be recognized over a weighted-average period of 1.51.7 years.

At December 31, 2017, 6.7 million shares were available for future grant under the 2015 Omnibus Incentive Plan.



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MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents



Consolidated Financial Statements and NotesNOTE 16
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Leases


Note 16. Leases
We lease certain office space as well as data processing equipment and autos under operating leases that expire during the next fivefour years. Generally, rental payments are fixed.


Table 16.1 shows minimum the future operating lease payments as of December 31, 2017.2020.
Minimum future operating lease payments
Table16.1
(In thousands)Amount
2021$836 
2022687 
2023311 
202481 
2025 and thereafter0 
Total$1,915 
 Table16.1  
Minimum future operating lease payments(in thousands) Amount
2018 $808
2019 823
 2020 583
 2021 48
 2022 and thereafter —
 Total $2,262


Total rentallease expense under operating leases was $2.0$1.9 million in 2017,2020, $2.1 million in 2016,2019, and $2.2$1.9 million in 2015.2018.


Note 17.
NOTE 17Litigation and Contingencies
Before paying an insurance claim, generally we review the loan and servicing files to determine the appropriateness of the claim amount. When reviewing the files, we may determine that we have the right to rescind coverage or deny a claim on the loan. We referloan (both referred to insurance rescissions and denials of claims collectively as “rescissions” and variations of that term.). In addition, our insurance policies generally provide that we can reduce or deny a claim if the servicer did not comply with its obligations under our insurance policy. We call suchpolicy (such reduction of claims “curtailments.”referred to as a "curtailment"). In recent quarters, an immaterial percentage of claims received in a quarter have been resolved by rescissions. In 20162020 and 2017,2019 , curtailments reduced our average claim paid by approximately 5.5%3.6% and 5.6%5.0%, respectively.


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 wouldmay be determined by legal proceedings.
Under ASC 450-20, until a liabilityloss 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. WhereWhen we have determineddetermine that a loss is probable and can be reasonably estimated, we have recordedrecord our best estimate of our probable loss. IfIn those cases, until settlement negotiations or legal proceedings are concluded (including the receipt of any necessary GSE approvals), it is reasonably possible that we will record an additional loss. We are not able to implement settlements we consider probable, we intend to defend MGIC vigorously against any related legal proceedings.
In addition to matters for which we have recorded a probable loss, we arecurrently involved in other
discussions and/or proceedings with insureds with respect to our claims paying practices. Although it is reasonably possible that, when all of these matters are resolved, we will not prevail inon all cases,matters, we are unable to make a reasonable estimate or range of estimates of the potential liability. We estimate the maximum exposure associated with matters where a loss is reasonably possible to be approximately $285 million, although we believe (but can give no assurance that) we will ultimately resolve these matters for significantly less than this amount.$40 million. This estimate of our maximum exposure is based upon currently available information; is subject to significant judgment, numerous assumptions and known and unknown uncertainties; will include an amount for matters for which we have recorded a probable loss until such matters are concluded; will include different matters from time to time; and does not include interest or consequential or exemplary damages.



MGIC Investment Corporation 2017 Form 10-K | 150
Consolidated Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)


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 which is commonly known as RESPA,("RESPA") and the notice provisions of the Fair Credit Reporting Act which is commonly known as FCRA.

("FCRA"). While these proceedings in the aggregate havedid not resultedresult in material liability for MGIC, there can be no assurance that the outcome of future proceedings, if any, under these laws would not have a material adverse affecteffect on us. In addition, various regulators, includingTo the CFPB, state insurance commissioners and state attorneys general may bring other actions seeking various forms of reliefextent that we are construed to make independent credit decisions in connection with alleged violationsour contract underwriting activities, we also could be subject to increased regulatory requirements under the Equal Credit Opportunity Act (“EOCA”), FCRA, and other laws. Under ECOA, examination may also be made of RESPA. The insurance law provisionswhether a mortgage insurer’s underwriting decisions have a disparate impact on persons belonging to a protected class in violation 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.law.


Through a non-insurance subsidiary, we utilize our underwriting skills to provide an outsourced underwriting service to our customers known as contract underwriting. As part of the contract underwriting activities, that subsidiary is responsible for the quality of the underwriting decisions in accordance with the terms of the contract underwriting agreements with customers. That subsidiary may be required to provide certain remedies to its customers if certain standards relating to the quality of our underwriting work are not met, and we have an established reserve for such future obligations. Claims for remedies may be made a number of years after the underwriting work was performed. The related contract underwriting remedy expense for each of the years ended December 31, 2017, 2016,2020, 2019, and 2015, respectively,2018, was immaterial to our consolidated financial statements.


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 consolidated results of operations.


See Note 12 – “Income Taxes” for a description of federal income tax contingencies.





MGIC Investment Corporation 20172020 Form 10-K | 151126
MGIC Investment Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Table of Contents

ConsolidatedNOTE 18Unaudited Quarterly Financial Statements and Notes
MGIC Investment Corporation
2017 Form 10-K
Notes (continued)Data

Unaudited quarterly financial data - current year:
Table:18.1a
2020:QuarterFull
(In thousands, except per share data)FirstSecondThirdFourthYear
Net premiums earned$260,901 $243,562 $256,113 $261,367 $1,021,943 
Investment income, net of expenses41,347 39,679 37,252 36,118 154,396 
Realized gains (losses)1,891 6,701 2,259 2,901 13,752 
Other revenue2,754 4,026 380 1,895 9,055 
Loss incurred, net60,956 217,374 40,686 45,758 364,774 
Underwriting and other expenses, net57,698 60,111 64,253 66,311 248,373 
Loss on debt extinguishment0 0 26,736 0 26,736 
Provision for income tax38,434 2,436 33,518 38,782 113,170 
Net income149,805 14,047 130,811 151,430 446,093 
Income per share (a) (b):
     
Basic0.44 0.04 0.39 0.45 1.31 
Diluted0.42 0.04 0.38 0.44 1.29 
Unaudited quarterly financial statements - prior year:
Table:18.1b
2019:QuarterFull
(In thousands, except per share data)FirstSecondThirdFourthYear
Net premiums earned$249,762 $247,102 $267,857 $266,267 $1,030,988 
Investment income, net of expenses40,585 42,423 42,715 41,322 167,045 
Realized gains (losses)(526)307 4,205 1,320 5,306 
Other revenue1,830 2,485 3,606 2,717 10,638 
Loss incurred, net39,064 21,836 33,985 23,690 118,575 
Underwriting and other expenses, net61,650 59,270 61,278 65,227 247,425 
Provision for income tax38,996 43,433 46,186 45,599 174,214 
Net income151,941 167,778 176,934 177,110 673,763 
Income per share (a) (b):
     
Basic0.43 0.47 0.50 0.51 1.91 
Diluted0.42 0.46 0.49 0.49 1.85 
(a)Due to the use of weighted average shares outstanding when calculating earnings per share, the sum of the quarterly per share data may not equal the per share data for the year.
(b)In periods where convertible debt instruments are dilutive to earnings per share the “if-converted” method of computing diluted EPS requires an interest expense adjustment, net of tax, to net income available to shareholders. See Note 18. Unaudited Quarterly Financial Data4 – “Earnings Per Share” for further discussion on our calculation of diluted EPS.

 Table:18.1a          
Unaudited quarterly financial data - current year2017: Quarter Full
(in thousands, except per share data) First Second Third Fourth Year
Net premiums earned $229,103
 $231,136
 $237,083
 $237,425
 $934,747
 Investment income, net of expenses 29,477
 29,716
 30,402
 31,276
 120,871
 Realized (losses) gains (122) (42) (47) 460
 249
 Other revenue 2,422
 2,502
 2,922
 2,341
 10,187
 Loss incurred, net 27,619
 27,339
 29,747
 (30,996) 53,709
 Underwriting and other expenses, net 59,304
 55,292
 56,146
 57,042
 227,784
 Loss on debt extinguishment —
 65
 —
 —
 65
 Provision for income tax 84,159
 61,994
 64,440
 218,142
 428,735
 Net income 89,798
 118,622
 120,027
 27,314
 355,761
 
Income per share (a) (b):
  
  
  
  
  
 Basic 0.26
 0.32
 0.32
 0.07
 0.98
 Diluted 0.24
 0.31
 0.32
 0.07
 0.95

 Table:18.1b          
Unaudited quarterly financial data - prior year2016: Quarter Full
(in thousands, except per share data) First Second Third Fourth Year
Net premiums earned $221,341
 $231,456
 $237,376
 $235,053
 $925,226
 Investment income, net of expenses 27,809
 27,248
 27,515
 28,094
 110,666
 Realized gains (losses) 3,056
 836
 5,092
 (52) 8,932
 Other revenue 6,373
 3,994
 3,867
 3,425
 17,659
 Loss incurred, net 85,012
 46,590
 60,897
 47,658
 240,157
 Underwriting and other expenses, net 56,439
 49,837
 53,981
 56,824
 217,081
 Loss on debt extinguishment 13,440
 1,868
 75,223
 —
 90,531
 Provision for income tax 34,497
 56,018
 27,131
 54,551
 172,197
 Net income 69,191
 109,221
 56,618
 107,487
 342,517
 
Income per share (a) (b):
  
  
  
  
  
 Basic 0.20
 0.32
 0.16
 0.31
 1.00
 Diluted 0.17
 0.26
 0.14
 0.28
 0.86
(a)
Due to the use of weighted average shares outstanding when calculating earnings per share, the sum of the quarterly per share data may not equal the per share data for the year.
(b)
In periods where convertible debt instruments are dilutive to earnings per share the “if-converted” method of computing diluted EPS requires an interest expense adjustment, net of tax, to net income available to shareholders. See Note 4 – “Earnings Per Share” for further discussion on our calculation of diluted EPS.


MGIC Investment Corporation 20172020 Form 10-K | 152127
mtg-20201231_g3.jpg

Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of
MGIC Investment Corporation:Corporation


Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of MGIC Investment Corporation and its subsidiaries (the “Company”) as of December 31, 20172020 and 2016,2019, and the related consolidated statements of operations, of comprehensive income, shareholders’of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2017,2020, including the related notes and financial statement schedules listed in the index appearing under Item 15 (a)15(a)(2) (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016, 2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.


Basis for Opinions


The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report onOn Internal Control overOver Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.



Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.









Definition and Limitations of Internal Control over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.




Valuation of loss reserves

As described in Notes 3 and 8 to the consolidated financial statements, the Company establishes reserves to recognize the estimated liability for losses related to reported defaults on insured mortgage loans. As of December 31, 2020, the Company’s recorded loss reserves were $881 million. A significant portion of total loss reserves relate to primary case reserves established for the Company’s primary insurance business. Case reserves are established by estimating the number of loans in the inventory of delinquent loans that will result in a claim payment, which is referred to as the claim rate, and further estimating the amount of the claim payment, which is referred to as claim severity. The Company’s case reserve estimates are established based upon historical experience, including rescissions of policies, curtailments of claims, and loan modification activity. The conditions that affect the claim rate and claim severity include the current and future state of the domestic economy, including unemployment and the current and future strength of local housing markets; exposure on insured loans; the amount of time between default and claim filing; and curtailments and rescissions.

The principal considerations for our determination that performing procedures relating to the valuation of loss reserves is a critical audit matter are (i) the significant judgment by management when developing their estimate, which in turn led to a high degree of auditor judgment and subjectivity in performing procedures relating to loss reserves; (ii) there was significant auditor effort and judgment in evaluating the audit evidence relating to the significant assumptions, related to the claim rate and claim severity; and (iii) the audit effort included the involvement of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of loss reserves, including controls over the development of significant assumptions related to the claim rate and claim severity. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of loss reserves using historical experience and comparing this independent estimate to management’s recorded loss reserves to evaluate the reasonableness of the recorded loss reserves. Developing the independent estimate involved testing the completeness, accuracy, and relevance of data provided by management and independently developing assumptions related to the claim rate and claim severity.


/s/ PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
February 23, 20182021


We have served as the Company’s auditor since 1985.







MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure, Controls and Procedures, and Other Information
MGIC Investment Corporation
2017 Form 10-K
Table of Contents




Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Disclosure
None.


Item 9A.
Controls and Procedures.Procedures
Management’s Conclusion Regarding the Effectiveness of Disclosure ControlsMANAGEMENT'S CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this annual report. Based on such evaluation, our principal executive officer and principal financial officer concluded that such controls and procedures were effective as of the end of such period.


Management’s Report on Internal Control Over Financial ReportingMANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting using the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.2020.


PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the consolidated financial statements and effectiveness of internal control over financial reporting as of December 31, 2017,2020, as stated in their report which appears herein.


Changes in Internal Control during the Fourth QuarterCHANGES IN INTERNAL CONTROL DURING THE FOURTH QUARTER
There wasare no changechanges in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2017ended December 31, 2020 that have materially affected, or is are
reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.
Other Information.Information
None.





MGIC Investment Corporation 20172020 Form 10-K | 155130
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

PART III

Item 10. Directors, Executive Officers and Corporate Governance Executive Compensation, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Certain Relationships and Related Transactions, and Director Independence, Principal Accountant Fees and Services
MGIC Investment Corporation
2017 Form 10-K
Table of Contents


PART III

Item 10.
Directors, Executive Officers and Corporate Governance.
This information (other than on the executive officers) will be included in our Proxy Statement for the 20182021 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period. The information on the executive officers appears at the end of Part I of this Form 10-K.


Our Code of Business Conduct is available on our website (http://mtg.mgic.com) under the “Leadership & Governance; Documents” links. Written copies of our Code of Business Conduct are available to any shareholder who submits a written request to our Secretary, addressed to: MGIC Investment Corporation, Secretary, P.O. Box 488, Milwaukee, WI 53201. We intend to disclose on our website any waivers and amendments to our Code of Business Conduct that are required to be disclosed under Item 5.05 of Form 8-K.


Item 11.
Executive Compensation.Compensation
This information will be included in our Proxy Statement for the 20182021 Annual Meeting of Shareholders and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.


Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters
This information, other than information regarding equity compensation plans required by Item 201(d) of Regulation S-K of the Securities and Exchange Commission which appears below, will be included in our Proxy Statement for the 20182021 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.


The table below sets forth certain information, as of December 31, 2017,2020, about the number of securities remaining available for future issuance under our equity compensation plans. No options, warrants or rights were outstanding at that date under any compensation plan or individual compensation arrangement with us. We have no compensation plan under which our equity securities may be issued that has not been approved by shareholders. Share units or phantom shares, which have no voting power and can be settled only in cash, are not considered to be equity securities for this purpose.
 (a) (b) (c) 
Plan CategoryNumber of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) 
Equity compensation plans approved by security holders3,291,876
(1) 
$—
 6,728,908
(2) 
Equity compensation plans not approved by security holders—
  
—
 —
  
Total3,291,876
(1) 
$—
 6,728,908
(2) 


MGIC Investment Corporation 2017 Form 10-K | 156
Directors, Executive OfficersEquity compensation plans approved by security holders
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Corporate Governance, ExecutiveRights (1)
4,130,510 
(b)Weighted Average Exercise Price of Outstanding Options, Warrants and Rights— 
(c)
Number of Securities Remaining Available For Future Issuance Under Equity Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,Plans (Excluding Securities Reflected in Row (a)) (2)
11,066,541 

(1)Includes 4,087,141 restricted stock units (RSUs) granted under our 2015 Omnibus Incentive Plan (the “2015 Plan”) for which shares will be issued if certain criteria are met. Of the RSUs granted under the 2015 Plan, 3,168,256 are subject to performance conditions and the remaining RSUs are subject to service conditions. Also includes 25,869 vested RSUs granted under our 2002 Stock Incentive Plan for which shares will be issued in the future and 17,500 RSUs granted under our 2020 Omnibus Incentive Plan for which shares will be issued in the future, provided the service conditions are met.
(2)Reflects shares available for granting.  All of these shares are available under our 2020 Plan.


Item 13. Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services
MGIC Investment Corporation
2017 Form 10-K
Table of Contents



(1)
Includes 2,770,602 restricted stock units (RSUs) granted under our 2015 Omnibus Incentive Plan (the “2015 Plan”) for which shares will be issued if certain criteria are met. Of the RSUs granted under the 2015 Plan, 2,119,423 are subject to performance conditions and the remaining RSUs are subject to service conditions. Includes 495,405 RSUs granted under our 2011 Omnibus Incentive Plan (the “2011 Plan”) for which shares will be issued if certain criteria are met.  Of the RSUs granted under the 2011 Plan, 366,269 RSUs are subject to performance conditions and the remaining RSUs are subject to service conditions. Also includes 25,869 vested RSUs granted under our 2002 Stock Incentive Plan for which shares will be issued in the future.

(2)
Reflects shares available for granting.  All of these shares are available under our 2015 Plan.

Item 13.
Certain Relationships and Related Transactions, and Director Independence.
To the extent applicable, this information will be included in our Proxy Statement for the 20182021 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.


MGIC Investment Corporation 2020 Form 10-K | 131



Item 14.
Principal Accountant Fees and Services.Services
This information will be included in our Proxy Statement for the 20182021 Annual Meeting of Shareholders, and is hereby incorporated by reference, provided such Proxy Statement is filed within 120 days after December 31, 2017.2020. If not so filed, such information will be included in an amended Form 10-K filed within such 120 day period.



MGIC Investment Corporation 20172020 Form 10-K | 157132
MGIC Investment Corporation and Subsidiaries

Table of Contents | Glossary of terms and acronyms

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)
Exhibits and Financial Statements, Form 10-K Summary (optional)
MGIC Investment Corporation
2017 Form 10-K
1
Table of Contents



PART IV

Item 15.
Exhibits and Financial Statement Schedules.

(a)
1.Financial statements. The following financial statements are filed in Item 8 of this annual report:
Consolidated balance sheets at December 31, 20172020 and 20162019
Consolidated statements of operations for each of the three years in the period ended December 31, 20172020
Consolidated statements of comprehensive income for each of the three years in the period ended December 31, 20172020
Consolidated statements of shareholders’ equity for each of the three years in the period ended December 31, 20172020
Consolidated statements of cash flows for each of the three years in the period ended December 31, 20172020
Notes to consolidated financial statements
Report of independent registered public accounting firm


2.2Financial statement schedules. The following financial statement schedules are filed as part of this Form 10-K and appear immediately following the signature page:
Page
Page
Schedule I - Summary of investments, other than investments in related parties at December 31, 20172020
163138
Schedule II - Condensed financial information of Registrant
Condensed balance sheets at December 31, 20172020 and 20162019
164139
Condensed statements of operations for each of the three years in the period ended December 31, 20172020
165140
Condensed statements of cash flows for each of the three years in the period ended December 31, 20172020
166141
Supplementary notes to parent company financial statements
167142
Schedule IV – Reinsurance for each of the three years in the period ended December 31, 2020
168143
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
3.3Exhibits. The accompanying Index to Exhibits is incorporated by reference in answer to this portion of this Item and, except as otherwise indicated in the next sentence, the Exhibits listed in such Index are filed as part of this Form 10-K. Exhibit 32 is not filed as part of this Form 10-K but accompanies this Form 10-K.



MGIC Investment Corporation 20172020 Form 10-K | 158133

Exhibits and Financial Statements, Form 10-K Summary (optional)
MGIC Investment Corporation
2017 Form 10-K
Table of Contents



INDEX TO EXHIBITS


The agreements included as exhibits to this report are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or any of its subsidiaries or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:


•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements provide to be inaccurate;
•have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.


Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company and its subsidiaries may be found elsewhere in this report and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov or on the Company's website. See Item 1 “Business – Website Address.”
   Incorporated by Reference  Incorporated by Reference
Exhibit
Number
 Description of Exhibit 
 
Form
 
 
Exhibit(s)
 
 
Filing Date
Exhibit
Number
Description of Exhibit
 
Form
 
Exhibit(s)
 
Filing Date
3.1 
Articles of Incorporation, as amended.
 10-Q 3.1 August 8, 20133.1
Articles of Incorporation, as amended.
10-Q3.1August 8, 2013
3.2 
Amended and Restated Bylaws, as amended. 
 8-K 3.2 July 28, 20173.2
Amended and Restated Bylaws, as amended. 
8-K3.2May 19, 2020
4.1 
Articles of Incorporation (included within Exhibit 3.1).
 10-Q 3.1 August 8, 20134.1
Articles of Incorporation (included within Exhibit 3.1).
10-Q3.1August 8, 2013
4.2 
Amended and Restated Bylaws (included as Exhibit 3.2).
 8-K 3.2 July 28, 20174.2
Amended and Restated Bylaws (included as Exhibit 3.2).
8-K3.2May 19, 2020
4.3 
Amended and Restated Rights Agreement, dated as of July 23, 2015, between MGIC Investment Corporation and Wells Fargo Bank, National Association, which includes as Exhibit A thereto the Form of Right Certificate, as Exhibit B thereto the Summary of Rights to Purchase Common Shares, and as Exhibit C thereto the Form of Representation and Request Letter.
 8-A/A 4.1 July 24, 2015
Description of Registrant's Securities †
4.4 
Indenture, dated as of October 15, 2000, between the MGIC Investment Corporation and Bank One Trust Company, National Association, as Trustee. [File 001-10816]
 8-K 4.1 October 19, 20004.4
Indenture, dated as of October 15, 2000, between MGIC Investment Corporation and U.S. Bank National Association (as successor to Bank One Trust Company, National Association), as Trustee [File 001-10816]
8-K4.1October 19, 2000
4.6 
Indenture, dated as of March 28, 2008, between U.S. Bank National Association, as trustee, and MGIC Investment Corporation. [File 001‑10816]
 10-Q 4.6 May 12, 20084.6
Indenture, dated as of March 28, 2008, between U.S. Bank National Association, as trustee, and MGIC Investment Corporation. [File 001‑10816]
10-Q4.6May 12, 2008
4.8 
Third Supplemental Indenture, dated as of August 5, 2016, between MGIC Investment Corporation and U.S. Bank National Association (as successor to Bank One Trust Company, National Association), as Trustee, under the Indenture, dated as of October 15, 2000, between the Company and the Trustee.
 8-K 4.1 August 5, 20164.8
Third Supplemental Indenture, dated as of August 5, 2016, between MGIC Investment Corporation and U.S. Bank National Association, as Trustee, under the Indenture dated as of October 15, 2000, between the Company and the Trustee.
8-K4.1August 5, 2016
4.14.1
Fourth Supplemental Indenture, dated as of August 12, 2020, between MGIC Investment Corporation and U.S. Bank National Association, as Trustee, under the Indenture dated as of October 15, 2020, between the Company and the Trustee.
8-K4.10August 12, 2020
 [We are a party to various other agreements with respect to our long-term debt. These agreements are not being filed pursuant to Reg. S-K Item 601(b) (4) (iii) (A). We hereby agree to furnish a copy of such agreements to the Commission upon its request.]       [We are a party to various other agreements with respect to our long-term debt. These agreements are not being filed pursuant to Reg. S-K Item 601(b) (4) (iii) (A). We hereby agree to furnish a copy of such agreements to the Commission upon its request.]   
10.2.4 
Form of Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.2.4 March 16, 200510.2.4
Form of Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
10-K10.2.4March 16, 2005
Amendment to Restricted Stock Unit Agreements *†
10.2.5 
Form of Incorporated Terms to Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.2.5 March 16, 200510.2.5
Form of Incorporated Terms to Restricted Stock and Restricted Stock Unit Agreement (for Directors) under 2002 Stock Incentive Plan. [File 001‑10816] *
10-K10.2.5March 16, 2005
10.2.14 
Form of Restricted Stock Unit Agreement under 2011 Omnibus Incentive Plan (Adopted January 2015). *
 10-K 10.2.14  February 26, 2016
10.2.15 
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2011 Omnibus Incentive Plan (Adopted January 2015). *
 10-K 10.2.15 February 26, 2016
10.2.16 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2016). *
 10-K 10.2.16  February 21, 2017
10.2.2010.2.20
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2018).*
10-K10.2.20February 22, 2019
10.2.2110.2.21
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2018).*
10-K10.2.21February 22, 2019
10.2.2210.2.22
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2019).*
10-K10.2.22February 24, 2020
10.2.2310.2.23
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted July 2019).*
10-K10.2.23February 24, 2020
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2020) * †
10.310.3
MGIC Investment Corporation 1991 Stock Incentive Plan. [File 001‑10816] *
10-K10.7March 29, 2000
10.3.110.3.1
MGIC Investment Corporation 2002 Stock Incentive Plan, as amended. *
10-K10.3.1March 1, 2011


MGIC Investment Corporation 20172020 Form 10-K | 159134

  Incorporated by Reference
Exhibit
Number
Description of Exhibit
 
Form
 
Exhibit(s)
 
Filing Date
10.3.3
MGIC Investment Corporation 2015 Omnibus Incentive Plan *
DEF 14AApp. AMarch 24, 2015
10.3.4
MGIC Investment Corporation 2020 Omnibus Incentive Plan *
DEF 14AApp. CMarch 20, 2020
10.5
Two Forms of Restricted Stock Award Agreement under 1991 Stock Incentive Plan. [File 001‑10816] *
10-K10.1March 29, 2000
10.7
Supplemental Executive Retirement Plan. *
8-K10.7January 29, 2014
10.8
MGIC Investment Corporation Deferred Compensation Plan for Non-Employee Directors, as amended.*
10-K10.8February 27, 2015
10.9MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors. [File 001‑10816] *10-K10.24March 25, 1994
10.10Two Forms of Award Agreement under MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors.*10-Q10.27 and 10.28August 12, 1994
10.11.1
Form of Key Executive Employment and Severance Agreement. *
10-K10.11.1February 27, 2015
10.11.2
Form of Incorporated Terms to Key Executive Employment and Severance Agreement. *
10-K10.11.2February 27, 2015
10.11.3
Form of Key Executive Employment and Severance Agreement (Adopted July 2018) *
10-K10.11.3February 22, 2019
10.11.4
Form of Incorporated Terms to Key Executive Employment and Severance Agreement (Adopted July 2018). *
10-K10.11.4February 22, 2019
Form of Agreement Not to Compete. * †
Direct and Indirect Subsidiaries. †
   
Consent of Independent Registered Public Accounting Firm.  †
   
Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
   
Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
   
Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002 (as indicated in Item 15 of this Annual Report on Form 10-K, this Exhibit is not being “filed”).  ††
   
99.1
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy and Declaration Page, Restated to Include Selected Endorsements.
10-K99.1March 2, 2009
99.2
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority.
10-K99.2March 2, 2009
99.7
Specimen Gold Cert Endorsement
10-Q99.7May 10, 2012
99.19
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after October 1, 2014
10-Q99.19November 7, 2014
99.25
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority, for loans with a mortgage insurance application date on or after October 1, 2014
10-Q99.25May 7, 2015
99.26
Advances, Collateral Pledge, and Security Agreement dated as of July 21, 2015 between the Federal Home Loan Bank of Chicago and Mortgage Guaranty Insurance Corporation.
10-K10.2.15February 26, 2016
99.27
Credit Agreement dated as of March 21, 2017 among MGIC Investment Corporation, as Borrower; U.S. Bank National Association, as Administrative Agent; and the lenders party thereto
10-Q99.27May 5, 2017
99.28
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after March 1, 2020
10-Q99.28May 7, 2020
99.29
State Variations Endorsement (for other than Maine and Puerto Rico) to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after March 1, 2020
10-Q99.29May 7, 2020
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document

MGIC Investment Corporation 2020 Form 10-K | 135

Exhibits and Financial Statements, Form 10-K Summary (optional)Incorporated by Reference
MGIC Investment CorporationExhibit
2017 Form 10-KNumber
Description of Exhibit
Form
Exhibit(s)
Filing Date
Table of Contents



    Incorporated by Reference
Exhibit
Number
 Description of Exhibit 
 
Form
 
 
Exhibit(s)
 
 
Filing Date
10.2.17 
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2016). *
 10-K 10.2.17 February 21, 2017
10.2.18 
Form of Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2017).* †
      
10.2.19 
Form of Incorporated Terms to Restricted Stock Unit Agreement under 2015 Omnibus Incentive Plan (Adopted January 2017).* †
      
10.3 
MGIC Investment Corporation 1991 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.7 March 29, 2000
10.3.1 
MGIC Investment Corporation 2002 Stock Incentive Plan, as amended. *
 10-K 10/3/2001 March 1, 2011
10.3.2 
MGIC Investment Corporation 2011 Omnibus Incentive Plan. *
 DEF 14A App. B March 31, 2011
10.3.3 
MGIC Investment Corporation 2015 Omnibus Incentive Plan *
 DEF 14A App. A March 24, 2015
10.5 
Two Forms of Restricted Stock Award Agreement under 1991 Stock Incentive Plan. [File 001‑10816] *
 10-K 10.10 March 29, 2000
10.6 
Executive Bonus Plan. * †
      
10.7 
Supplemental Executive Retirement Plan. *
 8-K 10.7 January 29, 2014
10.8 
MGIC Investment Corporation Deferred Compensation Plan for Non-Employee Directors, as amended.*
 10-K 10.8 February 27, 2015
10.9 MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors. [File 001‑10816] * 10-K 10.24 March 25, 1994
10.10 Two Forms of Award Agreement under MGIC Investment Corporation 1993 Restricted Stock Plan for Non-Employee Directors.* 10-Q 10.27 and 10.28 August 12, 1994
10.11.1 
Form of Key Executive Employment and Severance Agreement. *
 10-K 10.11.1 February 27, 2015
10.11.2 
Form of Incorporated Terms to Key Executive Employment and Severance Agreement. *
 10-K 10.11.2 February 27, 2015
10.12 
Form of Agreement Not to Compete. *
 10-K 10.12 March 1, 2013
10.16 
Form of Amendment to Restricted Stock Unit Agreement under 2011 Omnibus Incentive Plan. *
 10-Q 10.2 May 6, 2016
12 
Ratio of Earnings to Fixed Charges. †
      
21 
Direct and Indirect Subsidiaries. †
      
23 
Consent of Independent Registered Public Accounting Firm.  †
      
31.1 
Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
      
31.2 
Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002.  †
      
32 
Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002 (as indicated in Item 15 of this Annual Report on Form 10-K, this Exhibit is not being “filed”).  ††
      
99.1 
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy and Declaration Page, Restated to Include Selected Endorsements.
 10-K 99.1 March 2, 2009
99.2 
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority.
 10-K 99.2 March 2, 2009
99.7 
Specimen Gold Cert Endorsement
 10-Q 99.7 May 10, 2012
99.19 
Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy for loans with a mortgage insurance application date on or after October 1, 2014
 10-Q 99.19 November 7, 2014
99.25 
Endorsement to Mortgage Guaranty Insurance Corporation’s “Flow” Master Insurance Policy Applicable to Lenders with Delegated Underwriting Authority, for loans with a mortgage insurance application date on or after October 1, 2014
 10-Q 99.3 May 7, 2015
99.26 
Advances, Collateral Pledge, and Security Agreement dated as of July 21, 2015 between the Federal Home Loan Bank of Chicago and Mortgage Guaranty Insurance Corporation.
 10-K 10.2.15 February 26, 2016
99.27 
Credit Agreement dated as of March 21, 2017 among MGIC Investment Corporation, as Borrower; U.S. Bank National Association, as Administrative Agent; and the lenders party thereto
 10-Q 99.27 May 5, 2017


MGIC Investment Corporation 2017 Form 10-K | 160
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
Exhibits104
Cover Page Interactive Data File (formatted as Inline XBRL and Financial Statements, Form 10-K Summary (optional)
MGIC Investment Corporationcontained in Exhibit 101)
2017 Form 10-K
Table of Contents



*Incorporated by Reference
Exhibit
Number
Description of Exhibit
Form
Exhibit(s)
Filing Date
101.INS
XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*Denotes a management contract or compensatory plan.
**Certain portions of this Exhibit are redacted and covered by a confidential treatment request that has been granted. Omitted portions have been filed separately with the Securities and Exchange Commission.
†Filed herewith.
††
††Furnished herewith.
 


Item 16.
Form 10-K Summary.Summary
Not applicable.





MGIC Investment Corporation 20172020 Form 10-K | 161136


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2018.2021.


MGIC INVESTMENT CORPORATION

/s/ Patrick SinksTimothy J. Mattke
Patrick SinksTimothy J. Mattke
President, Chief Executive Officer and Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of the date set forth above by the following persons on behalf of the registrant and in the capacities indicated.

/s/ Patrick SinksTimothy J. Mattke

/s/ Curt S. CulverJay C. Hartzell
Patrick SinksTimothy J. MattkeCurt S. Culver,Jay C. Hartzell, Director
President, Chief Executive Officer and Director
/s/ Timothy A. Holt
/s/ Timothy J. MattkeNathan H. ColsonTimothy A. Holt, Director
Timothy J. MattkeNathan H. Colson
Executive Vice President and
Chief Financial Officer/s/ Kenneth M. Jastrow, II
(Principal Financial Officer)Kenneth M. Jastrow, II, Director
/s/ Julie K. Sperber/s/ Jodeen A. Kozlak
Julie K. SperberJodeen A. Kozlak, Director
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)/s/ Michael E. Lehman
Julie K. SperberMichael E. Lehman, Director
Vice President, Controller and
Chief Accounting Officer/s/ Analisa M. Allen
(Principal Accounting Officer)Analisa M. Allen, Director/s/ Melissa B. Lora
Melissa B. Lora, Director
/s/ Daniel A. Arrigoni
Daniel A. Arrigoni, Director/s/ Gary A. Poliner
Gary A. Poliner, Director
/s/ Cassandra C. CarrEdward Chaplin
Cassandra C. Carr,Edward Chaplin, Director/s/ Sheryl L. Sculley
Sheryl L. Sculley, Director
/s/ Curt S. Culver
Curt S. Culver, Director/s/ Mark M. Zandi
Mark M. Zandi, Director
/s/ C. Edward Chaplin
C. Edward Chaplin, Director



MGIC Investment Corporation 20172020 Form 10-K | 162137


MGIC INVESTMENT CORPORATION
SCHEDULE I — SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
SCHEDULE I — Summary of investments - Other than investments in related parties - December 31, 2020

(In thousands)

Type of Investment
Amortized CostFair ValueAmount at which shown in the balance sheet
Fixed income:
Bonds:
United States Government and government agencies and authorities$264,531 $265,693 $265,693 
States, municipalities and political subdivisions2,083,568 2,249,869 2,249,869 
Foreign Governments4,485 4,709 4,709 
Public utilities303,285 303,011 303,011 
Asset-backed securities203,807 206,686 206,686 
Collateralized loan obligations310,616 310,490 310,490 
Mortgage-backed738,104 758,668 758,668 
All other corporate bonds2,387,575 2,541,277 2,541,277 
Other short-term investments21,193 21,193 21,193 
Total fixed income6,317,164 6,661,596 6,661,596 
Equity securities:   
Common stocks:   
Industrial, miscellaneous and all other17,522 18,215 18,215 
Total equity securities17,522 18,215 18,215 
Total investments$6,334,686 $6,679,811 $6,679,811 
December 31, 2017

        
 
(In thousands)

Type of Investment
 Amortized Cost Fair Value Amount at which shown in the balance sheet
 Fixed income:      
 Bonds:      
 United States Government and government agencies and authorities $179,850
 $178,846
 $178,846
 States, municipalities and political subdivisions 2,105,063
 2,152,524
 2,152,524
 Public utilities 222,619
 222,806
 222,806
 Asset-backed securities 4,925
 4,923
 4,923
 Collateralized loan obligations 100,798
 101,023
 101,023
 Mortgage-backed 490,167
 479,161
 479,161
 All other corporate bonds 1,842,856
 1,844,032
 1,844,032
 Total fixed income 4,946,278
 4,983,315
 4,983,315
        
 Equity securities:  
  
  
 Common stocks:  
  
  
 Industrial, miscellaneous and all other 7,223
 7,246
 7,246
 Total equity securities 7,223
 7,246
 7,246
        
 Total investments $4,953,501
 $4,990,561
 $4,990,561



MGIC Investment Corporation 20172020 Form 10-K | 163138


MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
PARENT COMPANY ONLY
      
   December 31,
 (In thousands) 2017 2016
 ASSETS    
 Fixed income (amortized cost, 2017 – $195,846; 2016 – $247,396) $194,061
 $245,435
 Cash and cash equivalents 22,247
 37,666
 Investment in subsidiaries, at equity in net assets 3,567,034
 3,150,671
 Accounts receivable - affiliates 1,414
 780
 Income taxes - current and deferred 192,570
 289,703
 Accrued investment income 1,941
 1,749
 Other assets 1,275
 80
 Total assets $3,980,542
 $3,726,084
      
 LIABILITIES AND SHAREHOLDERS' EQUITY  
  
 Liabilities:  
  
 Senior notes $418,560
 $417,406
 Convertible senior notes —
 349,461
 Convertible junior subordinated debentures 389,522
 389,522
 Accrued interest 17,934
 20,853
 Total liabilities 826,016
 1,177,242
      
 Shareholders’ equity:  
  
 Common stock, (one dollar par value, shares authorized 1,000,000; shares issued 2017 – 370,567; 2016 – 359,400; outstanding 2017 – 370,567; 2016 – 340,663) 370,567
 359,400
 Paid-in capital 1,850,582
 1,782,337
 Treasury stock (shares at cost 2016 – 18,737) —
 (150,359)
 Accumulated other comprehensive loss, net of tax (43,783) (75,100)
 Retained earnings 977,160
 632,564
 Total shareholders’ equity 3,154,526
 2,548,842
 Total liabilities and shareholders’ equity $3,980,542
 $3,726,084
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Balance Sheets
Parent Company Only
December 31,
(In thousands)20202019
ASSETS
Fixed income, available-for-sale, at fair value (amortized cost, 2020 – $773,881; 2019 – $287,489)$773,995 $288,362 
Cash and cash equivalents73,000 36,621 
Investment in subsidiaries, at equity in net assets4,740,074 4,611,356 
Accounts receivable - affiliates1,450 2,129 
Income taxes -current and deferred219,059 196,978 
Accrued investment income3,760 2,498 
Other assets0 81 
Total assets$5,811,338 $5,138,025 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Liabilities:  
Senior notes$879,379 $420,867 
Convertible junior subordinated debentures208,814 389,522 
Accrued interest23,004 17,928 
Other liabilities1,155 474 
Total liabilities1,112,352 828,791 
Shareholders’ equity:  
Common stock, (one dollar par value, shares authorized 1,000,000; shares issued 2020 – 371,353; 2019 – 371,353; outstanding 2020 – 338,573; 2019 – 347,308)371,353 371,353 
Paid-in capital1,862,042 1,869,719 
Treasury stock (shares at cost 2020 – 32,779; 2019 – 24,045)(393,326)(283,196)
Accumulated other comprehensive income, net of tax216,821 72,708 
Retained earnings2,642,096 2,278,650 
Total shareholders’ equity4,698,986 4,309,234 
Total liabilities and shareholders’ equity$5,811,338 $5,138,025 
See accompanying supplementary notes to Parent Company condensed financial statements.



MGIC Investment Corporation 20172020 Form 10-K | 164139


MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
PARENT COMPANY ONLY
        
   Years Ended December 31,
 (In thousands) 2017 2016 2015
 Revenues:      
 Investment income, net of expenses $3,177
 $3,807
 $7,586
 Net realized investment (losses) gains (13) 646
 357
 Total revenues 3,164
 4,453
 7,943
        
 Expenses:  
  
  
 Operating expenses 642
 1,409
 582
 Interest expense 65,972
 64,598
 68,932
 Loss on debt extinguishment 65
 82,234
 507
 Total expenses 66,679
 148,241
 70,021
 Loss before tax (63,515) (143,788) (62,078)
 Provision for (benefit from) income taxes 95,517
 (52,575) (125,487)
 Equity in net income of subsidiaries 514,793
 433,730
 1,108,591
 Net income 355,761
 342,517
 1,172,000
 Other comprehensive income (loss), net of tax 41,739
 (14,220) 20,461
 Comprehensive income $397,500
 $328,297
 $1,192,461
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Operations
Parent Company Only
Years Ended December 31,
(In thousands)202020192018
Revenues:
Investment income, net of expenses$7,090 $7,695 $4,685 
Net realized investment gains (losses)1,454 (311)(532)
Total revenues8,544 7,384 4,153 
Expenses:   
Operating expenses719 793 637 
Interest expense65,472 61,593 61,930 
Loss on debt extinguishment35,033 0 0 
Total expenses101,224 62,386 62,567 
Loss before tax(92,680)(55,002)(58,414)
(Benefit from) provision for income taxes(18,431)(12,263)(13,517)
Equity in net income of subsidiaries520,342 716,502 714,994 
Net income446,093 673,763 670,097 
Other comprehensive income (loss), net of tax144,113 196,922 (80,413)
Comprehensive income$590,206 $870,685 $589,684 
See accompanying supplementary notes to Parent Company condensed financial statements.





MGIC Investment Corporation 20172020 Form 10-K | 165140


MGIC INVESTMENT CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
PARENT COMPANY ONLY
        
   Years Ended December 31,
 (In thousands) 2017 2016 2015
 Cash flows from operating activities:      
 Net income $355,761
 $342,517
 $1,172,000
 Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
  
  
 Equity in net income of subsidiaries (514,793) (433,730) (1,108,591)
 Dividends received from subsidiaries 110,145
 64,000
 6,500
 Deferred tax benefit 96,741
 (55,988) (125,532)
 Loss on debt extinguishment 65
 82,234
 507
 Other 18,716
 16,722
 31,701
 Change in certain assets and liabilities:  
  
  
 Accounts receivable - affiliates (634) 158
 (626)
 Income taxes receivable 297
 3,602
 (8,308)
 Accrued investment income (192) 1,951
 (265)
 Accrued interest (2,819) 6,811
 (652)
 Net cash provided by (used in) operating activities 63,287
 28,277
 (33,266)
 Cash flows from investing activities:  
  
  
 Capital distributions from subsidiaries —
 51,987
 32,000
 Capital contributions to subsidiaries —
 (36,025) —
 Purchase of fixed income (97,091) (194,751) (295,010)
 Sale of fixed income 176,960
 330,142
 386,385
 Net cash provided by investing activities 79,869
 151,353
 123,375
 Cash flows from financing activities:  
  
  
 Proceeds from revolving credit facility 150,000
 —
 —
 Repayment of revolving credit facility (150,000) —
 —
 Net proceeds from issuance of long-term debt —
 418,094
 —
 Repayment of long-term debt —
 —
 (61,953)
 Repurchase of convertible senior notes (150,124) (426,191) (12,004)
 Repurchase of common stock —
 (147,127) —
 Payment of debt issuance costs (1,630) (1,127) —
 Payment of withholding taxes related to share-based compensation net share settlement (6,821) (5,030) (7,242)
 Net cash used in financing activities (158,575) (161,381) (81,199)
 Net (decrease) increase in cash and cash equivalents (15,419) 18,249
 8,910
 Cash and cash equivalents at beginning of year 37,666
 19,417
 10,507
 Cash and cash equivalents at end of year $22,247
 $37,666
 $19,417
SCHEDULE II - Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
Parent Company Only
Years Ended December 31,
(In thousands)202020192018
Cash flows from operating activities:
Net income446,093 $673,763 $670,097 
Adjustments to reconcile net income to net cash provided by operating activities:   
Equity in net income of subsidiaries(520,342)(716,502)(714,994)
Dividends received from subsidiaries221,024 154,413 199,692 
Deferred tax (benefit) expense(18,252)(10,416)(11,756)
Loss on debt extinguishment35,033 0 0 
Other19,088 21,104 24,303 
Change in certain assets and liabilities:   
Accounts receivable - affiliates972 (735)18 
Income taxes receivable0 1 17,859 
Accrued investment income(1,262)(478)112 
Accrued interest5,076 (2)(4)
Net cash provided by operating activities187,430 121,148 185,327 
Cash flows from investing activities:   
Purchases of investments(1,131,060)(117,663)(83,003)
Proceeds from sales of investments812,188 160,040 93,481 
Net cash provided by investing activities(318,872)42,377 10,478 
Cash flows from financing activities:   
Proceeds from issuance of senior notes640,250 0 0 
Purchase of senior notes(179,735)0 0 
Payment of original issue discount - senior notes(2,969)0 0 
Purchase of convertible junior subordinated debentures(36,392)0 0 
Payment of original issue discount - convertible junior subordinated debentures(15,049)0 0 
Cash portion of loss on debt extinguishment(25,266)0 0 
Repurchase of common stock(119,997)(125,766)(163,419)
Dividends paid(82,061)(41,914)0 
Payment of debt issuance costs(2,020)0 0 
Payment of withholding taxes related to share-based compensation net share settlement(8,940)(5,726)(8,131)
Net cash provided by (used in) financing activities167,821 (173,406)(171,550)
Net increase (decrease) in cash and cash equivalents36,379 (9,881)24,255 
Cash and cash equivalents at beginning of year36,621 46,502 22,247 
Cash and cash equivalents at end of year$73,000 $36,621 $46,502 
See accompanying supplementary notes to Parent Company condensed financial statements.





MGIC Investment Corporation 20172020 Form 10-K | 166141


SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY
SUPPLEMENTARY NOTES




Note A


The accompanying Parent Company financial statements should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements appearing this annual report.


Note B


Our insurance subsidiaries are subject to statutory regulations as to maintenance of policyholders’ surplus and payment of dividends. The maximum amount of dividends that the insurance subsidiaries may pay in any twelve-month period without regulatory approval by the OCI is the lesser of adjusted statutory net income or 10% of statutory policyholders’ surplus as of the preceding calendar year end. Adjusted statutory net income is defined for this purpose to be the greater of statutory net income, net of realized investment gains, for the calendar year preceding the date of the dividend or statutory net income, net of realized investment gains, for the three calendar years preceding the date of the dividend less dividends paid within the first two of the preceding three calendar years.


The payment of dividends from our insurance subsidiaries is the principal source of cash inflow for MGIC Investment Corporation, our holding company, other than investment income and raising capital in the public markets. The payment of dividends by our insurance subsidiaries is restricted by insurance regulation as discussed above. MGIC is the principal source of dividend-paying capacity and in 2017, it paid a total of $140$390 million, $280 million and $220 million in dividends in cash and fixed income securities to our holding company during 2020, 2019 and we expect MGIC to continue to pay quarterly dividends. During 2016, MGIC paid a total of $64 million in dividends to our holding company and distributions of $52 million were paid to our holding company from other insurance subsidiaries. These distributions were completed in conjunction with the transfer of risk and the final dissolution of those insurance entities during 2016. Our holding company subsequently contributed the majority of the funds, approximately $36 million, to MGIC in relation to the transfer of risk. During 2015, distributions of $38.5 million, which includes dividends of $6.5 million, were paid to the holding company from other insurance subsidiaries. No2018, respectively. NaN contributions were made to our insurance subsidiaries in 20172020, 2019 or 2015.2018.


Note C


The senior notes and convertible junior subordinated debentures ("9% Debentures"), discussed in Note 7 – “Debt” to our consolidated financial statements, are obligations of MGIC Investment Corporation, our holding company, and not of its subsidiaries. In February 2016, MGIC purchasedMGIC's ownership of our holding company's 9% Debentures of $132.7 million were previously eliminated in aggregate principal of the 9% Debentures. The details of this transaction are discussed in Note 7 – “Debt” to our consolidated financial statements. The 9% Debentures owned by MGIC remain obligationsconsolidation, but remained an obligation of our holding company. The carrying amount outstandingIn the third quarter of 2020, MGIC distributed to the holding company, as a dividend, its ownership in the 9% Debentures, of $389.5 million is reported on the Parent Company only condensed balance sheet. For GAAP accounting purposes, theretiring those 9% Debentures owned by MGIC are eliminated in our consolidated financial statements.Debentures.





MGIC Investment Corporation 20172020 Form 10-K | 167142


MGIC INVESTMENT CORPORATION
SCHEDULE IV — REINSURANCE
MORTGAGE INSURANCE PREMIUMS EARNED
SCHEDULE IV — Reinsurance
Mortgage Insurance Premiums Earned
Years Ended December 31, 2020, 2019 and 2018
(Dollars in thousands)Gross AmountCeded to Other CompaniesAssumed From Other CompaniesNet AmountPercentage of Amount Assumed to Net
Years ended December 31,
2020$1,199,824 $188,729 $10,848 $1,021,943 1.1 %
20191,155,240 129,337 5,085 1,030,988 0.5 %
20181,084,748 111,391 1,805 975,162 0.2 %
Years Ended December 31, 2017, 2016 and 2015

            
 (Dollars in thousands) Gross Amount Ceded to Other Companies Assumed From Other Companies Net Amount Percentage of Amount Assumed to Net
 Years ended December 31,          
 2017 $1,059,973
 $125,735
 $509
 $934,747
 0.1%
 2016 1,058,545
 133,981
 662
 925,226
 0.1%
 2015 997,892
 102,848
 1,178
 896,222
 0.1%



MGIC Investment Corporation 20172020 Form 10-K | 168143